Richard Power, partner, Berwin Leighton Paisner LLP:
The Court of Appeal’s decision in Nurdin Jivraj v Sadruddin Hashwani, could have the unexpected consequence of rendering a vast number of arbitration clauses void, thereby undermining London as an international arbitration centre.
This sounds extreme, but is it?
Jivraj v Hashwani
In Jivraj, the Court of Appeal held that when applying the Employment Equality (Religion and Belief) Regulations 2003 (SI 2003/1660) (which put into effect an EU Directive prohibiting a refusal to employ an individual on the grounds of religion or belief), employment had to be given a wide meaning. Specifically, it held that the Regulations applied to the appointment of an arbitrator.
The arbitration agreement provided that:
“[a]ll arbitrators shall be respected members of the Ismaili community and holders of high office within the community.”
The Court of Appeal held that:
- The arbitration agreement was void because, contrary to the Regulations, it discriminated on the grounds of religious belief, where such belief was not “a genuine and determining occupational requirement”.
- The offending words could not be severed without fundamentally changing the nature of the parties’ agreement, and so the whole arbitration clause was void.
The Court of Appeal also stated that the Regulations were intended to compliment other UK anti-discrimination legislation which, in turn, was (in part) enacted to give effect to EU Directives intended to outlaw discrimination in employment situations on a wide range of grounds.
Impact of the Jivraj decision
Logically, it follows from the Jivraj decision that provisions prohibiting the appointment of an arbitrator on the grounds of nationality could also be void.
This is a problem because the arbitral rules of most of the major arbitration institutions, including the ICC and the LCIA, provide that where the parties to an arbitration are of different nationalities and a sole arbitrator or a chairman of a three-person tribunal is to be appointed, that person will not be of the same nationality as either of the parties.
Arguments that these rules are justified in international arbitration so parties have confidence in the tribunal, and to avoid allegations of apparent bias, might not assist a party. If a foreign litigant applied to dismiss an English commercial court judge on the grounds of apparent bias merely because the other party to the litigation was also English, that application would almost certainly be dismissed. Similarly, it has long been accepted that a judge or arbitrator can fairly and effectively determine a dispute governed by a legal system other than the one in which he is qualified (whether foreign law, or religious law such as Sharia law) with the assistance of expert evidence, so arguments that suggest otherwise would also seem likely to fail.
As a consequence of Jivraj, every arbitration agreement between parties of different nationalities that incorporates the ICC or LCIA rules and designates an English seat is potentially void for illegality. Moreover, although the Regulations give effect to an EU Directive, it is not believed that any other EU state has applied anti-discrimination employment laws in the sphere of arbitration in the manner adopted by the English courts. London is therefore at a competitive disadvantage when compared to other potential seats such as Paris, Stockholm or Geneva.
It is to be hoped that the Jivraj decision is appealed to and overturned by the Supreme Court. Failing that, the next best scenario would be for the matter to be referred to the European Court of Justice so that if it is upheld, it will affect all EU states equally. Otherwise London’s position as a leading seat for arbitration may be damaged forever.