One more Dodged Bullet – Arbitrators are not Employees

The UK Supreme Court has recently rendered its much anticipated judgment in the case of Jivraj v Hashwani [2011] UKSC 40. The dispute had led to concerns in the UK arbitration community and further afield for the restrictions it may have caused parties to adhere to under English law when choosing arbitrators to regulate their disputes.

The facts of the case were as follows: two businessmen, Mr. Jivraj and Mr. Haswani, had signed a joint venture agreement on 29 January 1981 in order to make investments in real estate. This joint venture agreement contained an arbitration clause which stated that if a dispute arose between them it should be arbitrated by members of the Ismaili community. By 1988, Mr. Jivraj and Mr. Haswani had decided to cease joint business activities. Most of the disputes arising out of this cessation were settled in arbitration. However, each party had one claim left against the other party which related to tax liabilities and secondary liability. Hence, the dispute continued until 2008, when Mr. Hashwani appointed a non Ismaili arbitrator. Mr. Hashwani argued that, despite the special requirement set forth in the arbitration clause, this appointment was valid as the special requirement was inapplicable on the grounds of religious discrimination under the Human Rights Act and under regulations which had become part of the Equality Act. Mr. Jivraj disputed this and thus the parties went to the English High Court to contest the issue of whether the appointment of the non Ismaili arbitrator could be construed as valid.

On the matter, the court ruled that: (i) an arbitrator is not an employee under the rules of the Equality Act and thus cannot be discriminated against on the grounds of religion; (ii) even if he was an employee, the provisions on religious discrimination do not apply to him for the reason that an arbitrator is included within the “genuine occupation requirement” meaning that religious discrimination can be acceptable when an arbitrator is appointed; (iii) if the requirement in the arbitration clause were void then this would make the whole arbitration clause void.

Following the first instance ruling, Mr. Hashwani appealed to the English Court of Appeal. In a much disputed judgment, the court granted the appeal and ruled that an arbitrator was considered as an employee and could not be made subject to the genuine occupation requirement. Furthermore, the court ruled that the arbitration clause was invalid.

Therefore, Mr. Jivraj appealed to the UK Supreme Court on the same three issues. The central matter of importance was whether an arbitrator is considered under the Equality Act to be an employee. In determining this key issue, the court took into account a range of factors. The first key point was the question of economic activity, as the purpose of anti discrimination measures is to protect groups who might be hindered from accessing economic activities. Arbitrating falls into the realm of an economic activity as arbitrators usually receive fees. Therefore, according to the UK Supreme Court, this standard was met.

However, there were three other key points that the court highlighted in order to illustrate that an arbitrator was not an employee.

Firstly, the court examined whether arbitration can be described as “employment under a contract” which is the phrase used in the Equality Act. On this issue, the court simply stated that the appointment of an arbitrator “naturally” did not fit into this definition. There is a degree of subordination involved in an employer/employee relationship which is not the case between the arbitrators and the parties that appoint them. Furthermore, employees have their role defined by their employer whilst arbitrators have their role outlined by the parties but then make numerous independent decisions, most importantly, the issuing of the final award.

As a result, the UK Supreme Court overturned the Court of Appeals decision and ruled that the arbitrator appointed by Mr. Hashwani was a service provider, rather than an employee, and was thus outside the scope of the Equality Act in this regard.

Overall, the court’s decision has been warmly welcomed by the international arbitration community, which – for the most part – had dreaded the implications of an arbitrator being qualified as an employee. If this concept had been taken one step further, the potential ramifications could have been severe. After all, the Equality Act does not only relate to religious discrimination, but to other forms of discrimination as well. Most importantly, discrimination based on nationality might fall within the remit of racial discrimination. Considering that an arbitrator’s nationality in practice does serve as a selection criterion – at least for reasons of neutrality – this might have negatively impacted on the functioning of the arbitral process – thankfully, this remains purely hypothetical.