In a recent controversial judgment, Jivraj v Hashwani  EWCA Civ 712, the English Court of Appeal ruled that an agreement to arbitrate was void ab initio because it required the appointment of an arbitrator of a certain religion, and thus violated British, and possibly also European Union, anti-discrimination law. The clause – which specified that the arbitrators should be Ismaili – is admittedly rare, but the case has led to much discussion because it may mean that arbitration clauses incorporating rules mandating the appointment of a sole arbitrator or chairman from a neutral country (for example, the ICC and LCIA rules), would be void because they discriminate on the ground of race. The parties arguably would then have to agree on a replacement appointment procedure clause or resort to judicial resolution. While it seems unlikely that the English courts will void arbitrator appointment clauses providing for the neutral nationality of international arbitrators, much uncertainty and concern arises concerning the impact of this decision, which potentially could affect all arbitrations in London, one of the world’s leading arbitration centres.
In this article, we explore the reasoning of the Court of Appeal in Jivraj and apply it to arbitration institutional rules providing that the sole arbitrator or chair must be of a different nationality than the parties. Parties to international arbitration often desire that the sole arbitrator or chairman be a national from a neutral country for the same reason that in international sports matches the referee generally is a national of a neutral country - to reassure the participants of the referee’s or arbitrator’s neutrality. We explain why we believe that anti-discrimination law should not affect these appointment clauses. We also consider whether Jivraj v Hashwani may be extended to other arbitrator-selection clauses, such as clauses that require a male arbitrator (possibly gender discrimination) or which require that an arbitrator have a certain number of years of experience (which could constitute age discrimination).
By Joe Tirado and James Thomas1
- Joe Tirado is a partner and head of international arbitration and ADR, Norton Rose LLP based in London. James Thomas is senior associate in the dispute resolution team also based in London.
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The Jivraj case: the English Court of Appeal rules that an agreement to arbitrate is void in its entirety because it specified that arbitrators should be Ismaili
In 1981, Mr Jivraj and Mr Hashwani entered into a joint venture contract which specified that any dispute between them must be decided by a panel consisting of “respected members of the Ismaili community” (referring to a branch of Islam). When Mr Hashwani attempted to appoint Sir Anthony Colman, a non-Ismaili, as his arbitrator, Mr Jivraj challenged the appointment because it breached the arbitration clause.
The Court of Appeal reversed an earlier High Court decision,2 and decided that an arbitrator is “in employment” under the Employment Equality (Religion and Belief) Regulations 2003 (the Regulations)3. The definition of employment in the Regulations includes a “contract personally to do any work”. Relying on the European Union Directive to which the Regulations give effect (the “Directive”)4, the Court interpreted this clause broadly. Under the Court’s reasoning, the Directive was intended to prevent discrimination from affecting access to the means of economic activity. According to Court of Appeal, an arbitrator’s “contract personally to work,” i.e. to be an arbitrator, affords that arbitrator access to economic activity. Even though an arbitrator has a role similar to a judge, the court said, for the purposes of discrimination law, an arbitrator was no different to a solicitor or a plumber, and the parties should comply with discrimination laws when appointing the arbitrator.
The Court of Appeal further decided that the clause did not fall within the exception in the Regulations for a “genuine occupational requirement”. The exception applies where an employer has an ethos based on religion or belief and, having regard to that ethos and to the nature of the employment, being of a particular religion or belief is a genuine occupational requirement for the job, and it is proportionate to apply that requirement in the particular case. It was argued that this particular appointment provision’s religious specification was actually an occupational requirement, because Ismailis commonly decide disputes within their own community. The Court rejected this argument. The Court’s reasoning on this is crucial to understanding the problem which is posed for ICC, LCIA and other clauses. The Court said that:
“if the arbitration clause had empowered the tribunal to act ex aequo et bono it might have been possible to show that only an Ismaili could be expected to apply the moral principles and understanding of justice and fairness that are generally recognised within that community …, but the arbitrators’ function … is to determine the dispute between the parties in accordance with the principles of English law. That requires some knowledge of the law itself, including the provisions of the Arbitration Act 1996, and an ability to conduct the proceedings fairly in accordance with the rules of natural justice, but it does not call for any particular ethos.”
Similarly, it could be argued that because an individual of any nationality can neutrally apply the law, there is no justification for an arbitration clause or rule which insists that an arbitrator come from a neutral nation.
Finally, and very importantly, the Court ruled the appointment provisions of an arbitration clause are not separable from the arbitration agreement as a whole, and, thus, because they are essential elements of the arbitration bargain, void ab initio appointment provisions will void the entire agreement to arbitrate. As a result, the parties would have to litigate if they could not agree on a arbitration clause.
The Supreme Court will hear an appeal by both parties in 2011.
-  EWHC 1364 (Comm)
- 2003 No. 1660
- Council Directive 2000/78/EC
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Nationality and neutrality: There Is a risk that arbitration clauses or rules with neutral national provisions could be declared unlawful
Jivraj was decided under the Regulations. On 1 October 2010, the Equality Act 2010 (the Act) came into force. The Act consolidated all employment discrimination Acts and Regulations, including the Regulations under which Jivraj was decided. However, because the terms of the Act are essentially identical to those of the Regulations used in Jivraj, Jivraj’s reasoning should still hold. For example, the definitions for “in employment” and the “occupational requirement” are essentially identical to the Regulations under which Jivraj was decided. So, an arbitrator would also be “in employment” under the Act, just as Jivraj said an arbitrator was “in employment” under the Regulations – assuming, of course, that Jivraj is not overturned on appeal.
Just as with the Regulations, assuming that Jivraj is correctly decided, under the Equality Act 2010, arbitral institutional rules with neutral nationality provisions appear to constitute direct race discrimination (the definition of race under the Act includes nationality).
Furthermore, neutral nationality rules, like the Ismaili-specific provision in Jivraj, may not be entitled to an exception under the discrimination law as an “occupational requirement”. The reason for the appointment provisions in arbitral institutional rules such as the ICC and LCIA is that the parties believe that the provisions are necessary to prevent bias. Of course, there are already provisions in the Arbitration Act 1996 to prevent actual and perceived bias.5 But these laws do not prevent an arbitrator from hearing a case simply because he has the same nationality as one of the parties. Under the English law of bias an arbitrator sharing the nationality of one party could not be challenged even on grounds of perceived bias because a reasonable person would not think that national affiliation alone – without more – would provide an objective, reasonable basis to believe that an arbitrator is biased and unable to interpret the law neutrally.
The prospect of arbitration clauses being declared void has led some commentators to recommend that when parties are negotiating, for example, an ICC or LCIA arbitration clause they should consider excluding this aspect of the appointment provisions.
The English courts historically support international arbitration. There is every reason, therefore, to believe that the decision in Jivraj will not be extended to the ICC and LCIA type clauses. It is important to remember that Jivraj did not consider such clauses. However, in the view of the author, retaining the confidence of international parties by allowing them to choose, if they wish, a sole arbitrator or chairman of a neutral nationality is arguably permitted under the Act as an occupational requirement. The Act states at Schedule 9 that there is an exception for occupational requirements if “the application of the requirement is a proportionate means of achieving a legitimate aim.” Retaining the parties’ confidence in the neutrality of the arbitration is a legitimate aim. If the parties decide that they will have confidence in the neutrality of arbitration only if the sole arbitrator or chair has a neutral nationality, then the appointment provisions are the only way of achieving it.
There are numerous examples of the appointment of judges for reasons of nationality. For instance, the European Court of Justice (ECJ) comprises one judge from each of the member states. The reason is partly that the Court appears neutral and balanced in order to retain the confidence of each member state, although there are other reasons such as the Court should have expertise of the legal systems of all the member states.
Even if arbitral institutional rules such as the ICC and LCIA appointment provisions are unlawful, then unlike in Jivraj they might be severed from the rest of the institutional rules. Parties choose an international arbitral institution for its expertise and neutrality, not primarily because of the appointment provisions regarding nationality. The arbitration clause would not be fundamentally altered by the removal of the nationality provisions in the Rules.
Finally it is also arguable that arbitrators are not “in employment” because the parties do not exercise control over them. In the High Court, whose decision was reversed, it was decided that arbitrators are like magistrates and tribunal chairmen, who are not “employees” for the purposes of discrimination law.
- Arbitration Act 1996 s33(1)(a)
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Jurisdiction: the issue posed by Jivraj is not confined to England
The issue posed by Jivraj has a European and worldwide scope and is not confined to England. For example, EU law may prevent discrimination against arbitrators, because EU treaties contain the principle of equal treatment on grounds of nationality (for instance, article 18 of the Treaty on the Functioning of the European Union). In addition, the Act is silent about its territorial jurisdiction and therefore any arbitration agreement governed by English law, regardless of the place of performance, seems to fall within the Act. Any arbitration agreement to be performed in England as a seat or merely as a venue irrespective of the applicable law is thus likely to fall within the Act.
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Jivraj could also affect arbitrator appointment provisions which contain requirements related to the gender or experience of an arbitrator
A further question arising out of Jivraj is whether the decision affects arbitration clauses that stipulate that the arbitrator must be male. Some Sharia contracts contain this specification. For example, under the law of the Kingdom of Saudi Arabia, all arbitrators must be male. This appears to constitute gender discrimination and the English courts may not decide that it is an occupational requirement to be male. This may be an issue for such arbitrations held under English arbitration law or merely take place in England.
It is also common for arbitration clauses in some industries such as construction or insurance to specify that the arbitrator shall be someone with not less than 10 years experience of the industry. This may constitute age discrimination against the young. Clauses which specify that an arbitrator must have a certain number of years experience may not satisfy the “occupational requirement” exception to discrimination. Their purpose is to ensure the arbitrator has knowledge of the industry. But it is difficult to justify why a person with nine years experience in an industry and who has the skills and knowledge to be an arbitrator in a case, may not be an arbitrator when someone with 10 years experience may be an arbitrator. It may be safer, therefore, to specify that the arbitrator should have “experience” or “substantial experience” of an industry.
The UK Supreme Court will hear the appeal in this case on 6 and 7 April 2011. This article originally appeared in the IBA Arbitration Committee newsletter.
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