Should Parties Be Allowed to Choose the Faith of their Arbitrators?

 

When the parties in Jivraj v Hashwani [2010] EWCA Civ 712 included an arbitration clause in their joint venture agreement, it’s safe to say that neither were contemplating the employment status of the arbitrator. The dissolution of their business agreement, however, led to just such a discussion as the Commercial Court, Court of Appeal and finally the Supreme Court considered the thorny issue of whether arbitrators were caught under the provisions of the Employment Equality (Religion or Belief) Regulations 2003 and the Equality Act 2010.

 

The story begins in 1981 with the clause at the centre of the controversy. The parties, members of the Shia Ismaili Muslim faith, had agreed that any disputes arising from their joint venture agreement should be subject to arbitration, and that the arbitrators should be ‘respected members of the Ismaili community and holders of high office within the community’. By 1988 the JVA had come undone, and between then and 1990 most of the assets were divided between the parties. There remained some unresolved issues which, despite additional attempts, were still outstanding as of 1995. These issues revolved around a claim by Mr Hashwani that there was a balance due to him, and by Mr Jivraj that Mr Hashwani’s failure to declare certain tax liabilities had left Mr Jivraj vulnerable to secondary liability. 

 

Over a decade later Mr Hashwani revisited the outstanding matters, asserting a claim for over USD$4 million. In the same letter Mr Hashwani stated that he had appointed Sir Anthony Colman as an arbitrator and that if Mr Jivraj failed to appoint an arbitrator within seven days, Sir Anthony would serve as the sole arbitrator. To address the requirement that the arbitrators be Ismaili, Mr Hashwani indicated that he was not bound by such a clause as it ‘would now amount to religious discrimination which would violate the Human Rights Act 1998 and therefore must be regarded as void’.

 

Mr Jivraj took the matter to the Commercial Court, asking for a declaration that such an appointment was invalid and that any arbitrator would have to be an Ismaili. Mr Hashwani opposed the application on the basis that the clause was void as it contravened the Employment Equality (Religion or Belief) Regulations and issued an arbitration claim form. The Commercial Court therefore had to consider whether, for the purposes of the Regulations, an arbitrator was in ‘employment’. S2 of the Regulations provides that:

 

 

David Steel LJ concluded that arbitrators were performing a quasi judicial function and, akin to magistrates (Knight v Attorney General), employment tribunal chairmen (Perceval-Price v Department of Economic Development [2000] IRLR 380) and recorders (O’Brien v Ministry of Justice (Note) [2010] 4 All ER 62) were not employees or in employment. He went on to consider whether, if arbitrators were employees, whether the provision could be justified by constituting a genuine occupational requirement. The relevant provision of the Regulations is:

 

7.    Exception for genuine occupational requirement

 

The Commercial Court found that the genuine occupational requirement exception did apply as one of the more significant characteristics of Ismailis was an enthusiasm for dispute resolution within the Ismaili community. Mr Jivraj was therefore correct, and the parties had to appoint an Ismaili arbitrator. 

 

A three member panel of the Court of Appeal, however, disagreed. When looking at the function of an arbitrator, appointed by the parties to resolve a dispute, this amounted to ‘a contract personally to do any work’ and therefore whether or not the parties had contemplated it previously, Sir Anthony was indeed employed by them, and the Regulations were applicable. It followed that a refusal to appoint Sir Anthony on the basis of his religion would amount to discrimination. Lord Justice Moore-Bick, Lord Justice Aikens and Sir Richard Buxton went on to consider the genuine occupational requirement exception and concluded that membership of the Ismaili community was not necessary for the performance of the role of arbitrator. The CoA also agreed with the Commercial Court that the offending clause was an integral part of the agreement between the parties and therefore could not be severed: to remove it would leave the parties with a substantially different agreement to that which they had originally intended to make. 

 

The story doesn’t end there: the highest court in the land overturned the Court of Appeal’s decision, and restored the Commercial Court’s ruling, noting that the Regulations were not applicable to the selection, engagement or appointment of arbitrators. This sits comfortably with the notion that arbitrators are independent of the parties over whom they adjudicate and do not perform any of the typical employee functions; but it does leave an uncomfortable proposition open: if it is not unlawful to select the faith of your arbitrator, should you then be allowed to choose the faith of your employees?

 

Part of the answer to the question lies in the Supreme Court’s analysis of the genuine occupational requirement exception; although the question was no longer relevant as the arbitrator was not caught by the Equality Act or the Regulations, it was nonetheless considered. The Supreme Court held that ‘the stipulation that an arbitrator be of a particular religion or belief can be relevant to … arbitration. As the ICC puts in its written argument: “The raison d’etre of arbitration is that it provides for final and binding dispute resolution by a tribunal with a procedure that is acceptable to all parties, in circumstances where other for a (in particular national courts) are deemed inappropriate (eg because neither party will submit to the courts or their counterpart; or because the available courts are considered insufficiently expert for the particular dispute, or insufficiently sensitive to the parties’ positions, culture or perspectives”’

 

However this should not read as carte blanche for stipulating religious requirements for those that are caught by the Equality Act: the parties will still have to justify the selection criteria. As Lord Mance noted in his judgment (obiter): ‘A religious or faith-based community’s or organisation’s power first to select and then to direct its own employed lawyers would be a secure means of ensuring that its employed lawyers valued, understood and prioritized the handling of English law work so far as possible on a non-confrontational basis, using alternative dispute resolution procedures wherever possible. A refusal to employ anyone other than a member of a particular religion or faith would in that context seem unlikely to be justified or proportionate’.

 

For parties using such faith based criteria clauses not only should they address their minds to satisfying the genuine occupational requirement threshold, but they should also look to ensuring that any such clause can be cleanly severed from the agreement in the event that it is found to contravene equality legislation.