In brief: Could an arbitration agreement
stipulate the religion of an arbitrator without breaching
anti-discrimination laws? Partner Stephen McComish (view CV),
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.
(full story and source)
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
- see Jivraj v Haswani [2009] EWHC 1364 (Comm).
- see Jivraj v Hashwani [2010] EWCA Civ 712.
- [2011] UKSC 40, [27] quoting from Allonby v Accrington and Rossendale College (Case C-256/01) [2004] ICR 1328 at [68].
- [2011] UKSC 40, [41].
- [2011] UKSC 40, [71].
- [2011] UKSC 40, [62]-[70].
- [2011] UKSC 40, [72].
Note from the webmaster : Requiring 'qualities' (arbitration expertise, neutrality, sector know how ...) for arbitrators is not that new and therefore the decision is not that 'groundbreaking'.
The confusion got started with theShamil Bank v. Beximco Pharmaceuticals case where - extremely surprising - the contracting parties opted to apply the Glorious al-Qur'an in a non-Shariah compliant environment. It would have been more or less the same as asking for application of the Common Law in a Civil Law environment. The judge would surely ask : 'the Common Law as applied in which jurisdiction' and failing sufficient answer just decline.
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