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Client Update: Arbitration, religion and discrimination

6 October 2011

In brief: Could an arbitration agreement stipulate the religion of an arbitrator without breaching anti-discrimination laws? Partner Stephen McComish , Lawyer Kristian Maley and Law Graduate Samantha Lord report on an important decision of the UK Supreme Court that could have ramifications for businesses within our region.

Background

In 1981, in the UK, Mr Hashwani and Mr Jivraj entered into a joint venture agreement that included an arbitration clause stipulating that each arbitrator must be a respected member of the Ismaili community. (The Ismaili are a community of Shia Imami Muslims, led by the Aga Khan.)

Their joint venture ended in 1988 and 10 years later, Mr Hashwani alleged that Mr Jivraj owed him US$4.4 million. Mr Hashwani gave notice that he intended to appoint Sir Anthony Colman, a retired Commercial Court judge, as an arbitrator. Mr Jivraj applied to the High Court of England and Wales for a declaration that the appointment was void because Sir Anthony was not a member of the Ismaili community. Mr Hashwani countered that the requirement breached the Employment Equality (Religion or Belief) Regulations 2003 (UK) (the Regulations) that prohibits discrimination on the basis of religious belief.

The High Court found that the arbitration agreement did not breach the Regulations.1 In 2009, Mr Hashwani appealed to the Court of Appeal, which found that the arbitration agreement did breach the Regulations with the effect that the arbitration agreement was void. Mr Jivraj then appealed the Court of Appeal's decision to the UK Supreme Court.2

The decision

The UK Supreme Court unanimously held that an arbitrator is not 'a person employed under a contract personally to do work' within the meaning of the Regulations, and therefore the Regulations did not apply. Consequently, the stipulation that the arbitrators must be members of the Ismaili community was valid.

In arriving at its decision, the court looked carefully at the relationship between an arbitrator and the parties to arbitration. The court considered decisions of the European Court of Justice and concluded that those decisions:

...draw a clear distinction 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.3

The majority went on to say:

The arbitrator is in critical respects independent of the parties. His functions and duties require him to rise above the partisan interests of the parties and do not act in, or so as to further, the particular interests of either party...he must determine how to resolve their competing interests. He is in no sense in a position of subordination to the parties.4

The court said that, even if the Regulations had applied, the religious requirement would have been valid as 'genuine occupational requirement' of the position of arbitrator under the parties' agreement.5 In reaching this conclusion, the court emphasised the strong traditions of dispute resolution within the Ismaili community. The court also referred with approval to the High Court's judgment, which stated that 'an enthusiasm for dispute resolution' was 'one of the more significant and characteristic spirits of the Ismaili sect'.6

As a result, the court found it unnecessary to decide whether a finding that the religious requirement was in breach of the Regulations would render the arbitration agreement as a whole void.7

The effect of the decision

  • The decision highlights that, before entering into an arbitration agreement and in the event of the parties wishing to specify any criteria of a personal nature that an arbitrator must satisfy in order to be appointed, parties should consider the effect of any anti-discrimination legislation which forms part of the law applicable to their arbitration agreement (and also the law of any place where enforcement of an award may be sought).
  • The concept that an arbitrator is not an employee of the parties still stands.
  • In the UK at least, parties are free to specify in their arbitration agreement the nationality and religious requirements a person must have in order to qualify for appointment as an arbitrator of a dispute under the agreement.
  • Where an arbitration agreement does contain a requirement that is in breach of national legislation, it is still uncertain whether the entire arbitration agreement would be void, or whether the specific requirement would be severed and the arbitration agreement would remain valid.
  • In Australia, this decision may be particularly relevant to the rapidly growing Islamic finance sector. If this decision is followed in Australia or other countries adopting the UNCITRAL Model Law on International Commercial Arbitration, the role of arbitration in Islamic finance transactions may be bolstered.
Footnotes
  1. see Jivraj v Haswani [2009] EWHC 1364 (Comm).
  2. see Jivraj v Hashwani [2010] EWCA Civ 712.
  3. [2011] UKSC 40, [27] quoting from Allonby v Accrington and Rossendale College (Case C-256/01) [2004] ICR 1328 at [68].
  4. [2011] UKSC 40, [41].
  5. [2011] UKSC 40, [71].
  6. [2011] UKSC 40, [62]-[70].
  7. [2011] UKSC 40, [72].

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