Jivraj v Hashwani: Supreme Court allows appeal
The Supreme Court has unanimously allowed the appeal in Jivraj v Hashwani  UKSC 40, finding that arbitrators are not employees within the ambit of the Employment Equality (Religion or Belief) Regulations 2003 (SI 2003/1660).
The Supreme Court has unanimously overturned a decision of the Court of Appeal, which had held that arbitrators were employees and, therefore, subject to anti-discrimination legislation. As a result of the Court of Appeal's decision, it was prohibited to appoint or refuse to appoint an arbitrator on specific religious grounds.
The Supreme Court has now clarified that arbitrators are not employees within the meaning of anti-discrimination legislation and the majority went on to state, obiter, that even if arbitrators were employees, the requirement that an arbitrator be of a particular religion can be regarded as a genuine occupational requirement within the meaning of employment equality law. (Jivraj v Hashwani  UKSC 40.)Close speedread
The Employment Equality (Religion or Belief) Regulations 2003 (SI 2003/1660) (EERBR 2003) make it unlawful for an employer to discriminate against a person on grounds of religion or belief:
In the arrangements he makes for the purposes of determining to whom he should offer employment (regulation 6(1)(a)).
By refusing to offer or deliberately not offering him employment (regulation 6(1)(c)).
"Employment" is defined to include employment under a contract of service or a contract personally to do any work (regulation 2(3)).
Regulation 7 provides an exception where either:
Being of a particular religion or belief is a genuine occupational requirement.
An employer has an ethos based on religion and being of a particular religion or belief is a genuine occupational requirement having regard to that ethos.
A term of a contract is void where the contract is unlawful under the EERBR 2003 due to the inclusion of that term (Schedule 4).
The EERBR 2003 were made to give effect to Council Directive 2000/78/EC establishing a general framework for treatment in employment and occupation, the purpose of which is to prohibit discrimination in employment and occupation.
The facts of this case have been widely discussed and so will be set out briefly. Mr Jivraj and Mr Hashwani included an arbitration agreement in a joint venture contract into which they entered in 1981. The arbitration agreement provided that, in the event of any dispute between them, the dispute should be determined by three arbitrators, all of whom "shall be respected members of the Ismaili community and holders of high office within the community". The Ismaili community, of which both Mr Jivraj and Mr Hashwani are members, comprises Shia Imami Ismaili Muslims and is led by the Aga Khan.
The arbitration agreement came into dispute in 2008 when Mr Hashwani appointed Sir Anthony Colman as arbitrator. Mr Jivraj sought a declaration from the English High Court that the appointment of Sir Anthony was invalid, as he was not a member of the Ismaili community as required by the arbitration agreement. Mr Hashwani responded by filing his own application seeking to confirm Sir Anthony as sole arbitrator because the arbitration clause, although lawful when agreed, had been rendered unlawful and void under the provisions of the EERBR 2003.
First instance decision
At first instance, Steel J held that arbitrators were not "employed" within the meaning of the EERBR 2003 and that, even if appointment of arbitrators did fall within the scope of the EERBR 2003, the requirement that the arbitrators be members of the Ismaili community was a genuine occupational requirement, which it was proportionate to apply (see Legal update, Requirement for arbitrators to be members of Ismaili community not unlawful (www.practicallaw.com/5-386-5469)).
Court of Appeal decision
The Court of Appeal overturned the judgment of Steel J, finding that the appointment of an arbitrator involved a contract for the provision of services, which constituted "a contract personally to do any work", thereby falling within the definition of employment. Therefore, the arbitration agreement was discriminatory and void, unless the requirement was a "genuine occupational requirement for the job". On this question, the Court of Appeal held that being a member of the Ismaili community was not a genuine occupational requirement for the job, because the arbitrators would determine the dispute in accordance with English law. If the clause had required the arbitrators to make their decision with regard to matters of justice and fairness ex aequo et bono, the clause may have benefited from the exception. Further, the Court of Appeal concluded that the offending term could not be severed from the rest of the arbitration clause and so the whole arbitration agreement was struck down as void (see Legal update, Arbitrators are employees for the purposes of religion and belief discrimination (www.practicallaw.com/9-502-5897)).
The decision of the Court of Appeal caused a considerable stir within the arbitration community, as its potential ramifications extended beyond arbitration agreements which sought to nominate arbitrators on the basis of their religion or belief. There was concern that arbitration agreements which required that arbitrators be or not be of a particular nationality would also be susceptible to challenge, as nationality is a "protected characteristic" for the purposes of domestic anti-discrimination legislation, in the same way as religion or belief. This is of increased relevance given the entry into force of the Equality Act 2010, which creates a single framework of employment equality legislation.
The rules of most arbitration institutions, including those of the London Court of International Arbitration (LCIA) and International Chamber of Commerce (who appeared as interveners before the Supreme Court) include provisions relating to the nationality of sole or presiding arbitrators. In the period between the decisions of the Court of Appeal and the Supreme Court, it, therefore, became common practice for parties entering into arbitration agreements which incorporate institutional rules, to disapply the rules relating to nationality of the arbitrators.
In a unanimous judgment delivered by Lord Clarke, the Supreme Court overturned the decision of the Court of Appeal. Having considered European and English case law at length, the Supreme Court held that arbitrators are not employed within the meaning of anti-discrimination legislation. This conclusion made it unnecessary to consider the question of genuine occupational requirement, but as the point had been argued fully before the Supreme Court, Lord Clarke did consider it briefly. He found that Steel J was justified in concluding that the requirement of an Ismaili arbitrator could be regarded as a genuine occupational requirement on the basis that it was not only genuine, but both legitimate and justified.
Arbitrators are not employees
Lord Clarke held that the Court of Appeal was wrong to depart from Steel J's finding that arbitrators are not employees. He focused on the question whether the contract under which arbitrators are appointed provides for "employment under … a contract personally to do any work" (the relevant extract from section 83 of the Equality Act 2010). Lord Clarke noted the significance of the definition in referring, not simply to a contract to do work, but to "employment under" such a contract. He went on to hold 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. Although there is some circularity in the definition of employment in the legislation, the words "employment under" remain of considerable significance.
The judgment identified a clear distinction in the case law of the European Court of Justice (ECJ) between those who are in substance employed and those who are "independent providers of services who are not in a relationship of subordination with the person who receives the services".
Having examined the relevant case law, Lord Clarke considered that the same distinction should be drawn for the purposes of the EERBR 2003 between those who are employed and those who are not notionally, but genuinely self-employed.
The Supreme Court rejected the Court of Appeal's analysis of Baroness Hale's speech in Percy v Board of National Mission of the Church of Scotland  UKHL 73, finding that the essential questions are whether:
A person provides services for and under the direction of another person in return for which he or she receives remuneration.
He is an independent provider of services who is not in a relationship of subordination with the person who receives the services.
This, it was held, is what Baroness Hale meant when she referred to the essential difference between the employed and self-employed.
Lord Clarke also considered the line of domestic case law which says that the question is whether the dominant purpose of the contract is the execution of personal work or labour. He found that this line of cases did not focus on the fact that the employment must be employment under a contract of employment, a contract of apprenticeship or a contract personally to do work. The ECJ case law demonstrates that dominant purpose is not the test or, at any rate, not the sole test.
With regard to arbitrators, Lord Clarke found no basis on which the arbitrators could be found to have agreed to work under the direction of the parties. An arbitrator 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 dominant purpose of appointing an arbitrator is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and that, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they are not personal services under the direction of the parties. Moreover, Lord Clarke noted the various sections of the Arbitration Act 1996 (AA 1996) and the provisions of the EERBR 2003 which would be inconsistent with an employment relationship.
Genuine occupational requirement
Having concluded that arbitrators are not employees, it was not necessary to consider the "genuine occupational requirement" issue, but the majority did consider it, obiter. Lord Mance preferred not to deal with the question, as it did not arise following the conclusion on the first issue.
The question was framed as whether, in the circumstances of the case, the requirement that the arbitrators should be respected members of the Ismaili community was not only genuine, but legitimate and justified. The majority rejected the argument that an English law dispute in London under English curial law does not require an Ismaili arbitrator, finding that this approach would reduce arbitration to no more than the application of a given national law to a dispute.
Referring to section 1 of the AA 1996, Lord Clarke emphasised, as one of the distinguishing features of arbitration, the breadth of discretion left to the parties and the arbitrator to structure the dispute resolution process, in particular, noting the arbitrators' role in:
Judging the evidence.
Resolving issues of credibility.
It was held that the requirement of an Ismaili arbitrator could be regarded as a "genuine occupational requirement" on the basis that it was not only genuine, but both legitimate and justified.
The Supreme Court's judgment is a welcome clarification of the application of anti-discrimination law and the nature of the arbitrator's role. It will remove the "chilling effect" described by Laurence Rabinowitz QC on behalf of the LCIA of the Court of Appeal's decision on London as a seat of international arbitration.
In making its principal finding that arbitrators are not employees, the Supreme Court provided an important clarification of the personal scope of UK employment equality law. It was submitted that the legislation was enacted to protect a category of semi-dependent workers who are in need of protection and that this does not apply to arbitrators. Arbitrators are neither economically dependent on those appointing them, nor subordinate to those appointing them. Moreover, there are a number of powers and duties of arbitrators set out in the AA 1996 which are inconsistent with an analysis of their status as employee (for example, section 24, which provides that an arbitrator can be removed from his or her position only in limited circumstances and section 40, which provides that the parties must comply with the directions of the arbitrator).
The Supreme Court considered the role of an arbitrator to be a "quasi-judicial adjudicator" and referred specifically to sections 24 and 40 of the AA 1996 (among others) in considering the arbitrator's role.
The majority's comments on the genuine occupational requirement issue also draw on the pro-arbitration legislative framework of the AA 1996. The express recognition that "one of the distinguishing features of arbitration that sets it apart from proceedings in national courts is the breadth of discretion left to the parties and the arbitrator to structure the process for resolution of the dispute" should provide parties with confidence that, should they choose to include an arbitration agreement seated in London, the English court will uphold their chosen method of dispute resolution.
The Supreme Court expressly referred to section 1 of the AA 1996, which gives parties the freedom to agree on how their disputes should be resolved, subject only to safeguards which are necessary in the public interest. The acknowledgement that the role of an arbitrator goes beyond simply applying the governing law to the facts of the case, but rather includes assessing credibility, judging evidence and, at times, making their own inquiries, is related to the importance which parties attach to ensuring that their tribunal is one in which they have confidence.
Lengthy consideration was given to the importance within the Ismaili community of dispute resolution in accordance with the Ismaili Constitution. It was recognised by the Court of Appeal that parties to international arbitration often view the ability to influence the composition of the tribunal as a matter of fundamental importance. The nationality provisions present in numerous rules of arbitration institutions fulfil the important function of enabling a party both to ensure that, in a three-person tribunal, at least one member of the tribunal shares a similar cultural and legal background, while at the same time ensuring that a sole or presiding arbitrator will be of a neutral nationality.
It is now, therefore, no longer necessary for parties to include in arbitration agreements wording which disapplies the nationality restrictions in institutional rules. The Supreme Court's decision also removes any uncertainty which had been caused by the Court of Appeal's judgment on the validity of arbitration agreements which incorporated these rules without disapplication of the restrictions. This is a most welcome decision for London as a seat of arbitration.