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Posts Tagged ‘Ismaili community’

In this post, we will first deal briefly with the facts in the case of Jivraj v Hashwani and the findings of the first instance judge and the Court of Appeal, which by now would be very familiar to anyone reading this blog. We will then look at the Supreme Court’s judgment ([2011] UKSC 40), in particular its observations on the “genuine occupational requirement” (GOR) issue (discussed below) which robustly support the broad autonomy of the parties inherent in consensual arbitration to appoint decision makers with an understanding of their legal systems, social traditions and commercial background.

The dispute arose out of an arbitration clause in a joint venture agreement which provided for disputes to be resolved by three arbitrators who “shall be respected members of the Ismaili community and holders of high office within the community”. Mr Hashwani challenged the validity of this requirement on the basis that it was caught by the anti-discrimination provisions contained in the Employment Equality (Religion and Belief) Regulations 2003 (the Regulations).

At first instance, David Steel J rejected this challenge on the ground that arbitrators were not “employees” within the scope of the Regulations (which defined “employment” as “employment under…a contract personally to do any work”). He held that even if the Regulations did apply, the case fell within the GOR exception in the Regulations which applies in cases where an employer has an ethos based on religion or belief and being of a particular religion is a GOR for the position in question.

The Court of Appeal overturned this decision on the basis that an arbitrator was an employee of the appointing parties, providing services under a “contract personally to do any work”. The Court of Appeal also held that the GOR exception could not save the arbitration clause because no particular religious requirements were necessary for the discharge of the function of an English seated tribunal determining the dispute in accordance with English law.

The Supreme Court unanimously overruled the Court of Appeal decision, holding that an arbitrator’s role is not “naturally described as one of employment at all” and he is in effect a “quasi-judicial adjudicator”. The Court explained that although an arbitrator may provide services on a personal basis he “does not perform those services or earn his fees for and under the direction of the parties”; rather an arbitrator is an “independent provider of services who is not in a relationship of subordination with the parties who receives his services”.

Although the Court’s conclusion on the first issue that arbitrators are not employees was dispositive of the matter, the majority considered the GOR issue as it had been fully argued (Lord Mance, who delivered a separate judgment concurring with the majority on the employment issue, preferred not to deal with it).

The issue before the Supreme Court was whether the requirement that arbitrators be of a particular religion or belief (and by extension, other cultural or personal characteristics) can constitute a genuine, legitimate and justified requirement. Observing that this was on objective question for the Court, the majority rejected the reasoning of the Court of Appeal that an English law dispute in London under English curial law does not require an Ismaili arbitrator, as “too legalistic and technical”. The majority quoted with approval the observations of the first instance judge citing ethos of Ismaili community for dispute resolution contained within the Ismaili community, and observed that an arbitrator of the Ismaili community would bring with him or her an understanding of the parties’ conduct and moral and ethical codes which would assure the parties of an acceptable arbitration procedure in which they could have particular confidence.

The Court’s decision demonstrates an understanding that, besides the functional component in terms of application of a given national law to the dispute, arbitration has a very significant process-based dimension which is largely left to the discretion of the arbitrators by most national arbitration legislations, major institutional rules and other international codes (such as the UNCITRAL Model Law), subject only to certain safeguards necessary in the public interest. The exercise of this discretion and an arbitrator’s approach to the resolution of the dispute are bound to be influenced by a number of characteristics linked to his/her nationality, cultural background, ethos, legal training and experience. Indeed, even if, in fact, an arbitrator is not so influenced, the objective perception of the parties would always be otherwise. This point is well illustrated by the different attitudes and practices of arbitrators from diverse legal, cultural and regional backgrounds, which might manifest themselves in a predisposition towards adversarial or inquisitorial or conciliatory approach, or attitude towards confidentiality, written or oral procedures, disclosure, interpretation of contracts, treatment of witnesses and promotion of settlement etc. For instance, it has been observed that in East Asia and Middle East, social norms and values may have a greater role in shaping resolution of disputes and tendency may be to structure arbitration in a conciliatory fashion, in contrast with the Western approach which generally gives primacy to legal formality, set procedures and written agreements.

In practice, and in light of these considerations, it is a common trend for parties to incorporate requirements in their arbitration agreements which decisively influence the choice of a prospective arbitrator, ranging from nationality and language to expert knowledge or training in a specific industry, legal discipline or applicable law. By upholding the arbitration clause in Jivraj, the Supreme Court has acknowledged this practice and thereby strongly endorsed the ethos of consent and choice on which dispute settlement through arbitration is premised.

Matthew Gearing
Partner, Allen & Overy LLP

Manish Aggarwal
Associate, Allen & Overy LLP

(Allen & Overy LLP acted for the International Chamber of Commerce (the ICC) as intervener in the appeal, arguing for the Court of Appeal’s ruling to be overturned)

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The Supreme Court has arrived at what almost all arbitration practitioners and clients will view as the right result in the strange episode of Jivraj v Hashwani. The Supreme Court has unanimously allowed the appeal on the basis that an arbitrator is not an employee of the parties for the purposes of the Employment Equality (Religion or Belief) Regulations 2003 – a conclusion which, on its face, seems so unremarkable as to almost invite the question of what all the fuss is about.

Given that the Court of Appeal had reached the opposite view, however, this was no foregone conclusion. The practical significance of this development should not be underestimated. The Supreme Court has delivered an important and very welcome outcome.

The facts do not need to be repeated at length, not least because by now they may be very familiar to anyone reading this blog. The parties had entered into a joint venture agreement which contained an arbitration clause. The arbitration clause provided for specific and unusual appointment criteria: “All arbitrators shall be respected members of the Ismaili community and holders of high office within the community.”

Was this a valid arbitration agreement? Mr Hashwani said not, arguing that it was void because it purported to discriminate on the grounds of religious belief. He said that the clause could not stand because the UK Equality (Religion and Belief) Regulations 2003 (giving effect to Council Directive 2007/78 EC) (the “Regulations”) prohibited employment discrimination on this basis.

At first instance, David Steel J rejected that case, essentially on the grounds that arbitrators could not properly be construed as being employees of the parties appearing before them. It is not easy to argue with that. However, the Court of Appeal then caused considerable dismay by holding that the arbitration agreement was discriminatory under the Regulations. It got worse: the Court of Appeal found itself unable to sever the discriminatory criterion from the rest of the clause, with the outcome that the arbitration agreement was void.

In order to reach that decision, the Court of Appeal of course had to find that an arbitrator is an employee for the purposes of the Equality Regulations – on its face, a surprising conclusion, and one based upon the premise that an arbitrator is somehow directly employed by the parties under “a contract personally to do any work.”

By upholding Mr Jivraj’s appeal, the Supreme Court favoured the approach of the first instance judge, David Steel J, over the line taken by the Court of Appeal. The Regulations did not apply, because in English law an arbitrator is not an employed person under “a contract personally to do any work.”

An arbitrator is, instead, an “independent provider of services”, a “quasi-judicial adjudicator” [whose] “functions and duties require him to rise above the partisan interests of the parties and not to 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; rather the contrary.” No-one who has served as an arbitrator, appeared before one or submitted a dispute to arbitration could argue credibly with any of this. Lord Clarke’s summation indicates, in diplomatic and veiled terms, just how badly the Court of Appeal missed the mark: “it is in my opinion plain that the arbitrators’ role is not one of employment under a contract personally to do work.”

There was a second issue, which was, if the Regulations did indeed apply, whether or not an arbitrator ‘employee’ could be employed by reference to discriminatory religious criteria because belonging to that faith was a “genuine occupational requirement for the job”. Unsurprisingly given the anti-discriminatory purpose of the Regulations, it is not easy to satisfy this test. It is strictly applied. On these facts, however, the majority of the Supreme Court found that the test would have been satisfied – so that even if the Regulations applied, and an arbitrator was an employee, then the arbitration clause would have been upheld in any event because it would have been a “genuine occupational requirement” that the arbitrator be a respected member of the Ismaili community. Lord Mance did not express a final view on this point.

The consequences of the appeal being upheld are much less draconian than those that would have followed had it been dismissed. They can probably be shortly stated: there will be less scope to query London as a good choice as an arbitral seat; London law firm model forms will change back to their pre-Jivraj incarnation; and, if they wish to resolve their dispute through arbitration, Messrs Jivraj and Hashwani will have to identify arbitrator nominees from the Ismaili community (which, given that the case has been described by counsel for Hashwani as a ‘hot potato’ within that community, may be no easy task).

This first point raises a question of anecdotal evidence. Throughout the life of the Jivraj saga, colleagues advocating the merits of arbitral seats competing with London for business have often pointed to the Jivraj factor as a reason not to touch London with the proverbial barge pole. But was the significance of the factor always overstated? How often, in reality, was the Jivraj factor determinative in causing parties to avoid London as an arbitral seat?

As for the judgment itself, it will not be easy to find an arbitration practitioner or client who believes that the Supreme Court got it wrong on either point, but any contrary views would be very welcome.

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