Jivraj -v- Hashwani: Supreme Court reverses controversial Court of Appeal ruling on arbitration clauses

On Wednesday 27 July 2011, in a unanimous decision, the Supreme Court overturned the judgment of the Court of Appeal in the case of Jivraj –v- Hashwani.

The Supreme Court’s judgment had been eagerly awaited. In this case, the Court of Appeal had held that GB anti-discrimination legislation rendered void an arbitration agreement which required that all arbitrators be members of a specific religious community. This has given rise to much discussion regarding its potential implications for international arbitration, as well as to suggested amendments to arbitration clauses where the impact of the case might have been felt.

Christopher Style QC of Linklaters, together with Laurence Rabinowitz QC and Professor Christopher McCrudden, appeared before the Supreme Court on behalf of the London Court of International Arbitration as intervener in the case, arguing for the Court of Appeal’s ruling to be overturned.

The decision of the Court of Appeal

The Court of Appeal held that arbitrators are employees for the purposes of GB anti-discrimination legislation and, as such, it was prohibited to appoint or refuse to appoint a person as an arbitrator on specific religious grounds.

This gave rise to concerns that any agreement making reference to the appointment of an arbitrator by reference to nationality would also be prohibited. The majority of international institutional arbitration rules which are regularly incorporated into arbitration agreements (including the LCIA, ICC and UNCITRAL Rules) contain provisions that restrict the appointment of arbitrators on the basis of nationality.

As a result of this concern it has become commonplace, where an arbitral tribunal’s work would have any factual connection with GB, to include in new arbitration clauses a provision to disapply any such restrictions in the chosen institutional rules.

The ruling of the Supreme Court

The Supreme Court’s judgment considered two issues.

The threshold issue addressed by the Supreme Court is whether arbitrators are employees, and therefore within the scope of GB anti-discrimination legislation. This question was answered in the negative: arbitrators are service providers who are “independent of, and in no way subordinate to” the parties. This analysis is to be welcomed as being consistent with the general view taken of the role of arbitrators amongst the international arbitration community.

The Supreme Court’s conclusion on the first issue rendered its conclusions on the second issue obiter. The second issue was whether, even if arbitrators were caught by the scope of the legislation, the exception that the specified qualification was a “genuine occupational requirement” applied. In this regard the Court held that it did, in particular because the discretion of the parties to structure a process suitable for them and in which they would have confidence was a distinguishing feature of arbitration.

Comment and Analysis

The Supreme Court’s decision is to be welcomed for a number of reasons. During the course of the hearing, the LCIA emphasised the importance of party autonomy at the heart of the arbitral process, particularly in the selection of the tribunal. The ability of the parties to influence the composition of their tribunal to ensure that it is one in which they have confidence is an entirely legitimate feature of arbitration. The Supreme Court’s decision is consistent with this and preserves parties’ ability to do so.

An argument put forward by the LCIA, with which the Supreme Court agreed, was that the correct test for distinguishing the role of an arbitrator is that it does not provide for "employment under … a contract personally to do any work”. Lord Clarke, who added the emphasis to “employment under”, found that the role of an arbitrator is not naturally described as employment under a contract personally to do work, because his role is not naturally described as one of employment at all. There are indeed many features of an arbitrator’s role which are inconsistent with the essentially subordinate nature of such a relationship.

With regard to institutional rules, the effect of the ruling is that the potential problems caused by the Court of Appeal’s judgment have evaporated. Therefore it is no longer necessary, where the tribunal’s work would have any factual connection with GB, to include in an arbitration clause a provision to disapply any restrictions on the nationality of arbitrators contained in any chosen institutional rules.

Further Information

For a copy of the Supreme Court’s ruling click here. For further information please contact your usual Linklaters' contact, Christopher Style QC or Greg Reid.