To a huge collective sigh of relief amongst the arbitration community, the Supreme Court ruled this Summer that arbitrators are not employees for the purposes of discrimination legislation. In overturning last year’s controversial decision of the Court of Appeal, the Supreme Court has prevented a large number of institutional and ad hoc arbitration clauses from being vulnerable to challenge where they contain express or implicit restrictions on the eligibility of persons to be appointed as arbitrator.

Background to the case

Mr Jivraj and Mr Hashwani entered into a joint venture agreement (JVA) in January 1981. The JVA contained an arbitration clause which provided that any dispute should be resolved by arbitration before three arbitrators, all of whom were to be ‘respected members of the Ismaili community and holders of high office within the community’. The JVA came to an end in 1988 and various disputes arose as to the division of its assets. In July 2008 Mr Hashwani gave notice that he had appointed Sir Anthony Coleman under the arbitration clause. Although Sir Anthony is an eminent arbitrator, he is not a member of the Ismaili community. Mr Jivraj duly issued proceedings in the Commercial Court seeking a declaration that the appointment was invalid.

The Law

The Employment Equality (Religion or Belief) Regulations 2003 (now replaced by equivalent provisions in the Equality Act 2010) made it unlawful for anyone to discriminate on grounds of religion or belief when offering employment. Employment is defined as ‘employment under a contract of service or of apprenticeship or a contract personally to do any work.’ There is, however, an exception that allows employers to select someone on the basis of their beliefs where being of a particular religion or belief is a genuine and determining occupational requirement and it is proportionate to apply that requirement in a particular case.

The route to the Supreme Court

The original ruling by the Commercial Court was that arbitrators are not covered by discrimination law as they are not employees and, even if they were, the Ismaili community requirement fell within the occupational requirement exception outlined above. That decision was overturned by the Court of Appeal, which decided that the appointment of an arbitrator does amount to a ‘contract personally to do …work’, that the restriction of eligibility constituted unlawful discrimination on religious grounds and that the occupational requirement exception did not apply. The effect of this, according to the Court of Appeal, was that not only was the appointment unlawful, but the whole clause was void.

The Supreme Court

Overturning the Court of Appeal’s controversial decision, the Supreme Court concluded that a contract between the parties to an arbitration and the arbitrator is not a contract personally to do work. In particular the arbitrator does not perform services or earn his or her fees for and under the direction of the parties. He or she is not in a relationship of subordination with the parties but is independent from them and in effect a ‘quasijudicial adjudicator’. As a result, the view of the court was that discrimination legislation did not apply and the clause was valid.

Comment

Although the arbitration clause in this case was unusual, the ramifications of last year’s Court of Appeal decision were potentially extensive. The concern was that if an arbitrator was an employee for these purposes, any express or implicit restriction on eligibility on grounds of nationality or ethnicity would also be unlawful, potentially leaving arbitration clauses completely void and unenforceable. Many of the institutional rules eg LCIA, ICC contain a requirement that the chair of the arbitral tribunal should be of a different nationality to that of the parties and these provisions had to be omitted or qualified following the Court of Appeal ruling. They can now be reinstated.

Jivraj v Hashwani [2011] UKSC 40, 27 July 2011.