On 22 June 2010, the English Court of Appeal held, in Jivraj v Hashwani1, that specifying religious criteria for the appointment of an arbitrator in an arbitration clause in a commercial contract rendered the clause void. The basis for the decision was that arbitrators were "employees" and should not be discriminated against on the grounds of religion under UK anti-discrimination legislation. Widespread discussion has arisen in relation to the decision's potential impact on the choice of England as a seat of arbitration.

The facts

The parties entered into a joint venture agreement for investment in real estate projects worldwide. The agreement contained an arbitration clause requiring that the arbitrators appointed by the parties be "respected members of the Ismaili community and holders of high office within the community".

When the parties terminated their joint venture and attempts to divide up the assets had failed, Mr Hashwani filed a request for arbitration and nominated Sir Anthony Colman as one of three arbitrators. Mr Jivraj applied to the Commercial Court for a declaration that the appointment was invalid because Sir Anthony was not a member of the Ismaili community. Subsequently, Mr Hashwani made an application to court to appoint Sir Anthony as a sole arbitrator, primarily on the basis that the religious criterion in the arbitration agreement was void under the UK Employment Equality (Religion and Belief) Regulations 2003 (the "2003 Regulations"), which prohibits an employer from discriminating when determining to whom he/she should offer employment or refuse to offer employment.  

First Instance Decision

The judge at first instance held that the arbitration clause was enforceable and so the appointment of Sir Anthony was invalid. Steel J took the traditional view that arbitrators did not have "a contract personally to execute any work" and were therefore not "employees" for the purpose of the 2003 Regulations. Steel J also expressed the view that, even if arbitrators were "employees" for these purposes, the arbitration clause would still be enforceable under the "genuine occupational requirement" exception in the 2003 Regulations. This is because the judge considered the religious criterion to be a "particular ethos or belief which was genuinely required for an occupation" and it was proportionate to apply that requirement in practice.

Court of Appeal Decision

The Court of Appeal overturned the first instance decision and held that arbitrators, whose general duty is to resolve a dispute between the parties by rendering an arbitral award in return for payment of fees, did fall within the concept of employment in the broadly drafted 2003 Regulations. In addition, the Court of Appeal held that being of a particular religion was not a genuine occupational requirement. Ultimately, for these reasons, the entire arbitration clause was declared void: the court held that the religion requirement could not be severed from the arbitration clause as it was considered fundamental to the arbitral process envisaged by the parties.

Impact of the decision

The Court of Appeal's decision has been widely criticized for disregarding the particular need of parties to ensure their arbitrators are independent and autonomous. Of particular importance to many is this decision's potential effect on parties' freedom to choose to have neutral nationality for the chairman or a sole arbitrator, a requirement which features in a number of institutional rules.

On the other hand, commentators have noted that the inclusion of a discriminatory provision will not necessarily mean the entire arbitration clause will be void. Although severance of the discriminatory criterion in the arbitration clause in the parties' contract was not considered possible in Jivraj, it may be possible to sever the discriminatory provision from institutional rules, incorporated by reference into the arbitration clause, and preserve the rest of the agreement to arbitrate.

Following the decision, the UK Equality Act 2010 (the "2010 Act") came into force on 1 October 2010, superseding the 2003 Regulations and all other discrimination laws. However, the 2010 Act defines "employee" in broadly the same way as the 2003 Regulations, and also contains an "occupational requirement" exception very similar to the exception under the 2003 Regulations. The Jivraj interpretation of these will, therefore, continue to be relevant and may render void any arbitration clauses which are either directly or indirectly discriminatory.

The way forward

Contracts already in force

Both Mr. Jivraj and Mr. Hashwani have applied for permission to appeal the Court of Appeal's decision to the Supreme Court and for the Supreme Court to make a reference to the European Court of Justice. Pending the outcome of any appeal, parties may wish to seek advice as to the wording of any arbitration clauses in existing agreements, particularly if they contain discriminatory elements that could fall foul of the 2010 Act. This is because the Jivraj decision will apply regardless of when the agreements were entered into.

Drafting new contracts

When negotiating arbitration agreements or clauses going forward, parties may wish to consider removing discriminatory provisions or carving out nationality provisions from institutional rules.

Pending the appeal, parties may also consider providing for a seat of arbitration outside England to avoid giving English courts jurisdiction over the arbitration process. The seat of the arbitration is an important factor considered by English courts when deciding whether there is a sufficient connection with England for the English courts to take jurisdiction over the dispute. On the other hand, the choice of a French arbitration seat, for example, will mean that the French courts are likely to have jurisdiction over such a dispute, so that the arbitration agreement will be considered in light of the French, rather than the English, anti-discrimination legislation.

Moving the arbitration seat outside England will be of particular significance for disputes over an arbitration agreement containing nationality criteria, as the courts of other jurisdictions, if seized of such a dispute, are unlikely to rule in the same way as the Court of Appeal did in Jivraj. Indeed, the 2010 Act is broader than EU Directives in relation to discrimination, as the 2010 Act prohibits discrimination on the grounds of nationality and colour. A French court is therefore unlikely to declare an arbitration agreement containing nationality criteria void, and may not recognise an English court ruling to the contrary.

However, simply moving the seat of arbitration outside England will not necessarily remove the arbitration agreement from the scope of the Jivraj decision: the parties may need to enforce the arbitral award in England. Thus parties will also need to balance the importance of having a tribunal with the desired characteristics against the likely enforceability of the arbitration agreement in the jurisdictions in which they would be seeking to enforce.

It is to be hoped that the Supreme Court (or ultimately the English legislators) will soon clarify the uncertainty surrounding the use of nationality criteria in arbitration clauses. In the meantime, however, the Jivraj decision is one more reason why commercial parties should seek specialist advice when drafting and negotiating the terms of the dispute resolution clauses in their contracts