In a much anticipated ruling, the UK Supreme Court has clarified the status of arbitrators and confirmed that they are not employees, but "independent providers of services who are not in a relationship of subordination with the person who receives the services", and do not therefore fall within the scope of the UK anti-discrimination legislation, including the UK Equality Act 2010.

This ruling provides welcome relief to the uncertainty created by the Court of Appeal's previous findings that the Employment Equality (Religion and Belief) Regulations 2003 rendered void an arbitration agreement providing for the appointment of arbitrators from a particular religious community. More generally, it removes the question mark over the legality of provisions contained in certain institutional rules which restrict the nationality of arbitrators. As far as the recent uncertainty over nationality criteria are concerned, it marks a return to 'business as usual' for those involved in arbitration in the UK.

Facts

The parties entered into a joint venture agreement for investment in real estate projects worldwide. The arbitration agreement in this case stipulated that arbitrators were to be "respected members of the Ismaili community and holders of high office within the community". The Ismaili community was considered to be a religious group under the meaning of the Regulations. Further the chair of the tribunal was to be "the President of the HH Aga Khan National Council for the United Kingdom for the time being".

When the parties terminated their venture and attempts to divide up the assets had failed, Mr Hashwani formally notified Mr Jivraj of a £1.5 million claim and the appointment of Sir Anthony Colman as one of three arbitrators. Mr Jivraj applied to the Commercial Court for a declaration that the appointment was invalid as Sir Anthony was not a member of the Ismaili community. Subsequently Mr Hashwani made an application to court (under section 18 of the English Arbitration Act) to appoint Sir Anthony as a sole arbitrator. He did so primarily on the basis that the arbitration agreement was void under the Regulations, which prohibited discrimination on the grounds of religion.

Contradictory findings in the Commercial Court and in the Court of Appeal

At first instance, Steel J upheld the validity of the arbitration agreement and declared Sir Anthony's appointment invalid as it did not meet the stipulated religious criterion in the arbitration clause. He held that arbitrators were not "employees" for the purposes of the Regulations and therefore that the UK anti-discrimination legislation did not apply.

In a widely criticised decision, the Court of Appeal overturned the first instance ruling in June 2010. It found that the arbitration agreement was discriminatory, and that it was wrong for the arbitration agreement to stipulate that the arbitrator must be of a particular religious belief. Moreover, it held that the discriminatory requirement could not be severed from the rest of the clause, and held that the entire arbitration agreement was void.

The Court of Appeal decision rested its finding on the basis that an arbitrator was an employee for the purposes of the UK anti-discrimination legislation, employed by the parties under "a contract personally to do any work". (Further detail of the Court of Appeal's ruling and the broader implications is included in our previous bulletins of 23 June 2010 and 29 July 2010).

What did the Supreme Court decide?

Arbitrators are not employees

The Supreme Court overturned the Court of Appeal's ruling and agreed with the judge at first instance that an arbitrator was not employed within the scope of the Regulations. After detailed consideration of the Regulations and the underlying European Directive 2000/78/EC which they implement, the unanimous finding of the Supreme Court was that an arbitrator fell outside the definition of a worker laid down by the case law of the European Court of Justice and was instead an independent provider of services who was not in a relationship of subordination with the person who received the services.

The Court found that in light of the European cases, the dominant purpose of the contract was not the sole test for determining employment (as suggested in a number of English cases), although it accepted that this might be relevant in arriving at the correct conclusion on the facts of a particular case. Insofar as it was relevant, the Court held that the dominant purpose of the appointment of an arbitrator was the impartial resolution of the dispute between the parties.

Therefore, although the contract between the parties and the arbitrator would be a contract for the provision of personal services, they were not personal services under the direction of the parties. Rather, an arbitrator was a quasi-judicial adjudicator whose duty was not to act in the particular interests of either party. Importantly, an arbitrator is in no sense in a position of subordination to the parties, and the Court highlighted the particular features of the arbitrator's role as set out in the Arbitration Act 1996. For example, unless the parties agree, an arbitrator may only be removed in exceptional circumstances (see sections 23 and 24).

"Genuine occupational requirement" exception to the Regulations

Given the Supreme Court's finding that an arbitrator is not an employee within the scope of the UK anti-discrimination legislation, the question of whether the religious requirement was a "genuine occupational requirement for the job" for the purposes of the exception in regulation 7(3) of the Regulations did not arise.

However, as the issue had been fully argued in front of the Court, the majority went on to consider briefly whether the exception would apply in such circumstances. While not strictly binding authority, these comments provide further comfort to parties, arbitrators and practitioners involved in international arbitration in the UK.

The majority held that the relevant question was whether a particular religion or belief was a legitimate and justified requirement of an occupation, and that this was an objective question for the court. The Supreme Court was of the view that the first instance judge had correctly found that the Ismaili community had demonstrated an ethos, based on religion, for dispute resolution contained within that community. The parties could properly regard arbitration before three Ismailis as likely to involve a procedure in which parties could have confidence and as likely to lead to conclusions of fact in which they could have particular confidence.

In this regard, they also noted that arbitration was more than the application of a given national law to a dispute and a stipulation that an arbitrator be of a particular religion or belief can be relevant to the manner in which disputes are resolved. This demonstrates an understanding of the party-led, consensual nature of arbitration which allows parties to have their disputes resolved in a way which takes into account specific ethical or cultural nuances which it may not be possible to accommodate in national court litigation and which gives parties confidence in the Tribunal hearing their dispute.

The way forward – back to 'business as normal'?

Certainly there will be a wide-spread sigh of relief at the Supreme Court's ruling from all those involved in arbitration having a connection to the UK. The intervention of major arbitral institutions (the ICC and the LCIA) in the appeal reflects the level of concern felt by the international arbitration community at the potential negative impact of the Court of Appeal's ruling.

Many law firms had advised clients to act with caution following the Court of Appeal's ruling and to exclude, for example, any institutional rule or requirement regarding nationality (such as article 6 of the LCIA Rules, or article 9(5) of the ICC Rules) from existing and future arbitration agreements, for fear that this could also be found to infringe UK anti-discrimination legislation. Happily, there is no longer a doubt as to whether such nationality requirements could render entire arbitration agreements void and no need to carve out such nationality provisions.

It is hoped that this ruling represents the final word on the matter. As the Regulations in issue in this case are based on a European Directive, there is at least a possibility that similar issues could be raised in other European jurisdictions. However, given that the Supreme Court based their analysis heavily on the wording of the Directive (not just the UK implementing Regulations) and European case law, it is hoped that any other European domestic court bound by the European authorities would reach the same conclusion, and this issue has been finally put to rest.

Jivraj v Hashwani [2011] UKSC 40