An update on Nurdin Jivraj v Sadruddin Hashwani  EWCA Civ 712, in which the Court of Appeal considered whether the requirement in an arbitration clause for all the arbitrators to be members of the Ismaili community was void.
Note: The UK Supreme Court allowed an appeal against the Court of Appeal's decision on 27 July 2011, see Legal update, Jivraj v Hashwani: Supreme Court allows appeal.
In Nurdin Jivraj v Sadruddin Hashwani  EWCA Civ 712, the Court of Appeal held that arbitrators are employees for the purposes of the Employment Equality (Religion or Belief) Regulations 2003 (SI 2003/1660). It followed that the requirement in an arbitration clause for all the arbitrators to be members of the Ismaili community was unlawful in this case. Further, as the clause provided for the arbitrators to determine disputes in accordance with English law, it could not be said that being an Ismaili was a genuine occupational requirement. Therefore, the sentence containing the offending requirement was void.
The Court of Appeal also held that the sentence could not be severed to leave the rest of the arbitration clause intact. The parties' choice regarding the arbitrators' qualifications was an integral part of the arbitration agreement and could not be disregarded as being of no real significance. The arbitration clause stood or fell as a whole, and as the offending sentence was void, the remainder of the clause could not stand.
The decision is unlikely to be restricted to these regulations but will extend to all strands of discrimination law. This means that parties who wish to provide for arbitrators to be drawn from particular religious or ethnic backgrounds, or to restrict the choice of arbitrator by reference to (for instance) gender, sexual orientation or age, should be aware that their arbitration clauses risk being struck down, unless a specific exception under discrimination law applies.Close speedread
The Employment Equality (Religion or Belief) Regulations 2003 (SI 2003/1660) (the Regulations) 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)).
Regulation 2(3) defines "employment" as including employment under a contract of service or a contract personally to do any work.
Regulation 7 provides an exception where being of a particular religion or belief is a genuine occupational requirement, or 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.
Schedule 4 to the Regulations provides that a term of a contract is void where the contract is unlawful under the Regulations due to the inclusion of that term.
The Regulations were made to give effect to Council Directive 2000/78/EC (the Directive), the purpose of which is to prohibit discrimination in relation to employment and occupation.
The facts of this case are set out in detail in our update on the first instance decision (Legal update, Requirement for arbitrators to be members of the Ismaili community not unlawful (www.practicallaw.com/5-386-5469)). In brief, the appellant (H) and the respondent (J) were members of the Ismaili community who entered into a joint venture agreement (JVA).
Disputes arose and were referred to arbitration under article 8(1) of the JVA. The arbitration clause provided for disputes to be referred to three arbitrators, who each had to be respected members of the Ismaili community (the Ismaili requirement). H appointed Sir Anthony Colman as arbitrator and subsequently applied to the Commercial Court for an order that Sir Anthony Colman be appointed sole arbitrator under section 18(2) of the Arbitration Act 1996. The basis of the application was that, although lawful when the agreement was made, the Ismaili requirement had been rendered unlawful and was void as it breached the Regulations.
David Steel J held that the Regulations do not apply to arbitrators because they are not employees. He therefore declared that the appointment of Sir Anthony Colman was invalid and dismissed H's application. He expressed the view that, even if the Regulations did apply, the Ismaili requirement was a "genuine occupational requirement" within the exceptions contained in regulation 7. The judge also considered that the Ismaili requirement could not be severed from the rest of the clause and that, if it was void, the arbitration clause as a whole was void.
The issues on appeal were:
Whether the Ismaili requirement fell within regulation 6(1).
If so, whether it also fell within the exceptions in regulation 7.
If it did not fall within regulation 7, whether it could be severed from the rest of the arbitration clause.
The Court of Appeal held that the arbitration clause was void in its entirety and allowed the appeal to the extent of setting aside the judge's decision that the Regulations did not apply to arbitrators. However, it affirmed the declaration that the appointment of Sir Anthony Colman was invalid.
The Court of Appeal held that the Regulations do apply to arbitrators. It agreed with H's submission that the Regulations and the Directive are intended to apply to all forms of employment in the broadest sense, including the provision of services under any form of contract. A person who appoints another to act as an arbitrator employs that person to provide a service. "Employment" for these purposes is defined in the Regulations as including any contract personally to do any work, and "work" in this context was apt to cover the provision of services of any kind.
The precise nature of the relationship between the arbitrator and the parties to the dispute is irrelevant for these purposes. In any event, that relationship must be supported by a contract of some kind. Although an arbitrator assumes a particular status which determines some aspects of his powers and duties, in most cases, that is only as a result of entering into a contract to do so. It was not necessary for present purposes to analyse when and how that contract comes into existence.
The recitals and the structure and language of Article 3(1) of the Directive indicated that it is concerned with discrimination affecting access to the means of economic activity through, among other things, employment, self-employment or some other basis of occupation. The appointment of an arbitrator involved obtaining the services of a particular person to determine a dispute. In that respect, it was no different from instructing a solicitor to deal with a piece of legal business or an accountant about a tax return. Since an arbitrator contracts to do work personally, the provision of his services falls within the definition of "employment". It follows that, for the purposes of the Regulations, the person appointing him must be an employer and the arbitrator providing the service must be an employee.
The Court of Appeal held that the Ismaili requirement in the arbitration clause contravened regulations 6(1)(a) and 6(1)(c). The appointment of a person to act as an arbitrator creates a contract between that person and both parties to the dispute. It followed that an arbitration agreement constitutes "arrangements" within the meaning of regulation 6(1)(a) for the appointment of arbitrators.
Article 8(1) of the JVA 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. The language of regulation 6(1)(c) was entirely apt to cover this situation.
As the Ismaili requirement offended both regulation 6(1)(a) and 6(1)(c), it was void unless it could be brought within regulation 7.
Although the judge's findings about the nature and ethos of the Ismaili community were not challenged, the Court of Appeal disagreed with his conclusion on this point. The question was whether being an Ismaili was a genuine occupational requirement for the proper discharge of the arbitrators' function. If the arbitration clause had empowered the tribunal to act ex aequo et bono (that is, to decide the case in accordance with general principles of equity and good conscience), it might have been possible to show that only an Ismaili could apply the moral principles and understand of justice and fairness that are generally recognised within that community as applicable between its members. However, the arbitrators' function under Article 8(1) was to determine the dispute between the parties in accordance with English law. That did not call for any particular ethos, and membership of the Ismaili community was clearly not necessary for the discharge of the arbitrators' functions.
The Court of Appeal agreed with the judge that the sentence in the arbitration clause containing the Ismaili requirement could not be severed. Although it was common ground that that sentence could be struck out without rendering the remainder unworkable, the question was whether what remained would be substantially different from that which the parties originally intended. If so, the clause must stand or fall as a whole.
Parties agreed to arbitration for many reasons and the ability to influence the composition of the tribunal is often viewed as of fundamental importance. Although, objectively, particular experience or qualifications may not be necessary for the fair and effective resolution of a dispute, the parties' own view was entitled to respect. No doubt the parties in this case considered that they had good reason for stipulating that the arbitrators should be drawn from the Ismaili community. That choice was an integral part of the arbitration agreement and could not be disregarded as being of no real significance. Therefore, if the sentence containing the Ismaili requirement was void, the remainder of the clause could not stand.
The Court of Appeal's decision that arbitrators are employees for the purposes of the Regulations clearly has implications for the drafting of arbitration clauses. The decision is unlikely to be restricted to the Regulations, but will extend to all strands of discrimination law, where the same concept of "employee" is used. This means that parties who wish to provide for arbitrators to be drawn from particular religious or ethnic backgrounds, or to restrict the choice of arbitrator by reference to (for instance) gender, sexual orientation or age, should be aware that their arbitration clauses risk being struck down, unless a specific exception under discrimination law applies.
However, the decision does suggest that such requirements might avoid falling foul of the Regulations if the nature of the arbitrator's function is such as to give rise to a specific exception under discrimination law, in particular the "genuine occupational requirement" defence, so that only a person from the specified group could be expected to perform that function. This is unlikely to be the case if the arbitrator's sole function is to apply the law to the facts. However, it might be the case if the arbitrator will be expected to make value judgments based on particular religious or cultural mores.
For more information on the definition of "employee" under discrimination law, and the scope of permitted exceptions to the prohibition on discrimination, see PLC Employment, Practice note, Discrimination in employment: overview (www.practicallaw.com/3-383-1395).