The UK Supreme Court has today ruled that UK anti-discrimination laws do not apply to the appointment of arbitrators.
The ruling - which will be well-received by users of international arbitration - dispels concerns raised by a June 2010 judgment of the Court of Appeal as to the validity and enforceability in England and Wales of arbitration agreements (including those incorporating the rules of the LCIA and ICC) which impose restrictions as to the nationality of arbitrators.
There is a widespread and long-established consensus and practice in international arbitration that an individual who shares the nationality of any of the parties to the arbitral proceedings should not be eligible for appointment as the sole or presiding member of the arbitral tribunal. This practice is adopted in widely-used sets of arbitration rules, such as those of the LCIA and ICC.
The legality of this practice was fundamentally called into question by the Court of Appeal's judgment in Jivraj -v- Hashwani.
The (overturned) Court of Appeal decision
In Jivraj, the arbitration agreement provided for ad hoc arbitration in London by three arbitrators. The last sentence of the arbitration agreement provided that "All three arbitrators shall be respected members of the Ismaili community and holders of high office within the community".
It was argued that this requirement contravened the Employment Equality (Religion or Belief) Regulations 2003 (the "Regulations"). The Regulations (which were repealed on 1 October 2010 by the Equality Act 2010):
- made it unlawful for an "employer" to discriminate, on grounds of religion or belief, in the arrangements the employer makes for the purpose of determining to whom the employer should offer employment; or to refuse to, or deliberately not, offer employment on grounds of religion or belief; and
- provided that a term of a contract was void where it contravened the above prohibition.
The Court of Appeal held that:
- since an arbitrator contracts to do work personally, the provision of the arbitrator's services fell within the Regulations' definition of "employment";
- accordingly, the party appointing an arbitrator or otherwise contracting to obtain the services of an arbitrator was an "employer" within the meaning of the Regulations;
- the arbitration agreement required both parties to refuse, or deliberately omit, to offer employment as arbitrator to any person who was not a member of the Ismaili community;
- this requirement therefore contravened the Regulations;
- as this requirement was an integral part of the arbitration agreement, it could not be severed from the rest of the arbitration agreement;
- the entire arbitration agreement was therefore void.
The broader impact of the Court of Appeal decision
As the Court of Appeal expressly recognised, its decision that the relationship with an arbitrator was one of "employment" as defined in the (now-repealed) Regulations was potentially of wide significance. This is because substantially the same definition of "employment" is used in the Equality Act 2010, which prohibits discrimination on a variety of grounds - including nationality - and which provides that a term of a contract is unenforceable where it contravenes such prohibitions.
Following the Court of Appeal decision, there were real concerns as to whether an arbitration agreement containing (whether on the face of the arbitration agreement or through the incorporation of institutional rules such as those of the ICC and LCIA) an arbitrator nationality restriction would contravene the Equality Act 2010 – possibly leading to the entire arbitration agreement being struck down. Fearing such an outcome, many users of international arbitration amended their standard arbitration clauses to remove any arbitrator nationality restrictions.
The Supreme Court decision
Such was the importance of the appeal, the ICC and the LCIA intervened in order to explain the negative effects (including potentially for London as a seat of arbitration) that were likely to result in the event of the Court of Appeal's decision being upheld.
Overturning the decision of the Court of Appeal, the Supreme Court (Lords Phillips, Walker, Mance, Clarke and Dyson) held that the nature of the relationship between parties to arbitral proceedings and arbitrators is not one of employment, principally on the basis that:
"although [an arbitrator] renders personal services which he cannot delegate, he does not perform those services or earn his fees for and under the direction of the parties...He is rather in the category of an independent provider of services who is not in a relationship of subordination with the parties who receive his services."
The Supreme Court's decision means that parties to arbitration agreements incorporating arbitrator nationality restrictions can rest assured that such agreements will not fall foul of UK anti-discrimination legislation.