Discrimination and arbitration: where EU law clashes with the freedom of the arbitral process

On 22 June 2010, the English Court of Appeal made a ruling with potentially wide-ranging repercussions in the context of parties' freedom to choose their arbitral tribunal.

In Jivraj and Hashwani, it was held that the Equality (Religion and Belief) Regulations 2003 rendered an arbitration agreement in a commercial contract void. This was the first time that these Regulations (which give effect to EU law: Council Directive 2000/78 EC) have been considered in the context of arbitration.

The decision clearly warns against stipulating certain characteristics for arbitrators in an arbitration agreement governed by English law. In this case the context was discrimination on the basis of religion and belief as the clause stipulated that arbitrators were to be "respected members of the Ismaili community and holders of high office within the community". The case was decided following an application to court by Mr Hashwani to appoint Sir Anthony Coleman as a sole arbitrator on the basis that the arbitration agreement was void under the Regulations. Ultimately, Sir Anthony was not appointed as the entire agreement to arbitrate was declared void:- it could not be severed from the agreement as the religion requirement was considered fundamental to the arbitral process envisaged by the parties.

Importantly, the Court held that arbitrators fall within the wide definition of employees for the purpose of the legislation. Unusually for employment legislation, this now captures individuals with a contract to provide professional services and to do work personally, the idea being that the aim of a socially inclusive labour market should be paramount.

Extension to discrimination on grounds of nationality - impact on arbitration under institutional rule

The EU Directive implemented by this Regulation also extends to gender, sexuality, disability and age. Moreover, other UK legislation, namely the Race Relations Act 1976, also prohibits discrimination on the grounds of nationality. This gives rise to a real concern that the principles expressed in Jivraj could, in future decisions, be extended to prevent any decisions to employ or not to employ an arbitrator on the basis of nationality. This is of particular concern as most institutional rules provide that a sole arbitrator or chair of a tribunal may not be of the same nationality as any party to the arbitration. The concern extends across Europe where the same original European legislation has been implemented, albeit with possible differences in that implementation and its interpretation by the local courts.

Exception for genuine occupational requirement

The Regulations discussed in Jivraj contain a limited exception. Where a case genuinely requires a particular ethos or belief (and it is proportionate to apply that requirement in practice), a religious requirement may be justified. An equivalent exception applies to nationality. Conceivably, therefore, it could be argued that a neutral chair is crucial to the arbitral process in establishing the parties' trust that no bias will taint the award. Since the exception tends to be applied extremely narrowly, however, the exception may not save an arbitration agreement from challenge, particularly as impartiality is a requirement under the English Arbitration Act anyway.

The way forward

This area of employment law is currently being consolidated. From 1 October 2010, the Equality Act will be fully in force, bringing together all areas of discrimination legislation in this jurisdiction under one umbrella. Since the wording of that Act is broadly the same as that of the existing legislation, it is thought that this issue and the difficulties that have arisen under it for arbitration will remain.

An application has been lodged with the Court of Appeal for permission to appeal the Jivraj decision to the Supreme Court and for the Supreme Court to make a reference to the ECJ. If permission is refused, an application could be made directly to the Supreme Court in this regard. In the meantime, parties should seek advice as to the wording of their past and future arbitration agreements. The safest route may, for the time being, be to exclude the relevant institutional rule or, for ad hoc agreements, to ensure no nationality requirements are incorporated. This is obviously a drastic step but the point is likely to be taken soon as it is an arguable point that could be taken in order to challenge an agreement to arbitrate. One hopes that the courts will find a solution but that is not something we can predict with certainty.

Nurdin Jivraj v Sadruddin Hashwani, [2010] EWCA Civ 712