The Court of Appeal has recently ruled that arbitrators are ‘employees’ for the purpose of a particular piece of legislation that prohibits discrimination on religious grounds - see Nurdin Jivraj v Sadruddin Hashwani [2010] EWCA Civ 712.

The arbitration clause that was before the Court of Appeal provided that:

All arbitrators shall be respected members of the Ismaili community and holders of high office within the community.”

The Court of Appeal concluded that arbitrators fell within the Employment Equality (Religion and Belief) Regulations 2003. These prohibit any discrimination on religious grounds when it comes to offering, or setting conditions for, employment. Regulation 2(3) defines "employment" as including employment under a contract of service or a contract personally to do any work. Regulation 7 allows an exception where a particular religion or belief is a ‘genuine occupational requirement’.

The Court of Appeal considered whether being Ismaili was a genuine occupational requirement for the arbitrators. It held that this was not the case - the arbitrators were asked to decide the dispute under English law. They did not need to be Ismaili to do that.

It was suggested1 (obiter) that, if the arbitration clause had asked the tribunal to act ex aequo et bono (decide based on principles of equity and good conscience), then perhaps only an Ismaili could have applied the moral principles and understanding of justice and fairness that are recognised within that particular community. Ismaili ethnicity might then have been a genuine occupational requirement.

The Court of Appeal also held that the arbitration clause could not saved by severing the offending parts, and so the dispute had to go to court.

Both parties have sought permission to appeal to the Supreme Court. Pending a decision by the Supreme Court, Jivraj has generated something of a furore in the arbitration community. It has been suggested that the Court of Appeal’s reasoning means that arbitration clauses, or even institutional rules, which provide for a sole arbitrator or the chairman to be of a nationality other than that of the parties might be struck down under English law.

This is because the Race Relations Act 1976 uses the same definition of ‘employment’ as the Regulations. It imposes equivalent restrictions on discrimination as to ‘race’, which is defined to include ‘nationality’. The Race Relations Act 1976 and the Employment Equality (Religion and Belief) Regulations are both due to be repealed from 1 October 2010 when the Equality Act 2010 comes into force. The 2010 Act consolidates UK discrimination legislation, and will continue to use the same definition of ‘employment’ as in the previous legislation. A restriction on the nationality of an arbitrator could, therefore, be a prohibited restriction, or discrimination in view of the very wide definition of ‘employment’ in the legislation.

However, restricting the nationality of arbitrators does not, it is suggested, have anything to do with discrimination of the kind the law should seek to eradicate. Rather, it reflects a concern by the parties to ensure that there cannot be the slightest chance of the appearance of bias. The identity of the arbitrator is of fundamental importance to the parties. The law allows them to require ‘qualifications’ of their chosen arbitrator (see for example Section 19 of the Arbitration Act 1996). This should extend to requiring a truly neutral third party, who could not possibly be seen to be affected by a national loyalty, preference or any other kind of bias.

The general consensus in international arbitrations is that a sole arbitrator or the chairman should not be of the same nationality as the parties (unless, of course, agreed otherwise between the parties). Both the ICC Rules (Art. 9.5) and the LCIA Rules (Art. 6.1) reflect this, and so does the ICSID Convention (ICSID Rules of Arbitration, Rule 1). This is consistent with the parties choosing international arbitration instead of having disputes decided by the national courts of the home state of one of the parties. The concern here is the lack of any appearance of bias (rather than actual bias), and (conversely) the appearance of complete neutrality and impartiality. Of course, to say that nationality always brings with it an ingrained desire to find for a compatriot would be a gross generalisation. Nonetheless, nationality restrictions in appointment rules have been part and parcel of international arbitrations for many years.

The question now is whether English law should go so far as to overturn accepted practice. It is hoped that it will not do so. The reason is this. Under both the Regulations and the new Equality Act 2010, imposing a restriction (such as, arguably, a nationality requirement for arbitrators) is permissible if it reflects a genuine occupational requirement. This is at the heart of the issue. Impartiality and fairness are undoubtedly a genuine occupational requirement for arbitrators, enshrined in Section 33 of the Arbitration Act 1996. The parties should be free to require their own standard of impartiality. Section 1 of the Arbitration Act 1996 states that the object of arbitration is:

“ … to secure the resolution of disputes by an impartial tribunal…”

and that:

“… the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest.”

In the context of international arbitration, much as in sports refereeing and in foreign relations between states, nationality is an accepted factor in choosing an impartial decision-maker. Although this may be a matter of perception over fact, in those specific areas, limitations as to the nationality of impartial referees, arbitrators or mediators do not carry with them any notions of being undesirable discrimination. To put it at its simplest, would we accept that the next World Cup game would be refereed by an experienced umpire with the nationality of one of the teams? Of course not. If the Supreme Court were to hold that nationality requirements for arbitrators are in breach of English law, then one would wish for Parliament to legislate for an exception.