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27 July 2011
Is an arbitrator an employee, as the CoA would have it, or will the Supreme Court deem otherwise? Philip Clifford and Hussein Haeri examine an upcoming decision that could have huge implications for the profession
Few issues have precipitated more concern and commentary in the international arbitration community in England in recent years than the 2010 Court of Appeal (CoA) decision in Jivraj v Hashwani.
In its judgment the CoA held that arbitrators are employees for the purposes of the Employment Equality (Religion or Belief) Regulations 2003 because they act under “a contract personally to do any work”. Since arbitrators are ’employees’ for the purposes of the regulations, their employment was held to be subject to the anti-discrimination provisions in that legislation.
As the arbitration clause in the joint venture agreement between Nurdin Jivraj and Sadruddin Hashwani provided that arbitrators would be members of the Ismaili community, this was held to be discriminatory in contravention of the regulations. Accordingly, the arbitration agreement between Jivraj and Hashwani was deemed void by the CoA.
While for many this might appear to be a fairly unusual case, divorced from the mainstream world of commerce, the logic and language of the CoA decision have broad implications for arbitration agreements, well beyond attempted restrictions on the religion of arbitrators. The reasoning of the CoA in this case could be used to catch the innumerable arbitration agreements with provisions - or incorporating arbitration rules with provisions - touching on the nationality of arbitrators.
For example, the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) Arbitration Rules preclude a sole arbitrator or the chairman of an arbitral tribunal from having the same nationality as one of the parties to the dispute. The purpose behind such provisions is to foster the constitution of tribunals that are independent and impartial.
However, such provisions, and indeed the arbitration agreements of which they form a part, could now be deemed void on the basis that they fall foul of anti-discrimination legislation, namely the Equality Act 2010. The act is broader than the regulations and covers, inter alia, discrimination on the grounds of nationality.
The act also has important similarities with the regulations, including its application to a person has a contract personally to do work. Since the CoA held that arbitrators fall within a similar definition for the purposes of the regulations, there is a risk that they could be deemed to fall within the definition as it appears in the Equality Act.
If so, arbitration agreements containing or importing rules on the nationality of arbitrators may be rendered void, with parties having to resort to court proceedings to resolve disputes they had agreed to arbitrate. Thus, the potential implications of the CoA decision in Jivraj v Hashwani for arbitration agreements are considerable.
On April 6 and 7 the Supreme Court considered this case, with the verdict pending. If the Supreme Court upholds the CoA finding that arbitrators are employees for the purposes of the regulations, it could nevertheless find they fall within an exception to discrimination provisions because of a genuine occupational requirement.
If arbitrators are not employees their appointment is not subject to the regulations or the Equality Act. That would reassure users and practitioners of arbitration about the viability of the prevailing practice of providing for sole arbitrators and chairs of arbitral tribunals to be persons not sharing the nationality of either party.
In the first-instance judgment in the Commercial Court, Mr Justice David Steel examined the question of whether arbitrators were employees and answered in the negative. Steel J focused on the nature of arbitral appointments, the role of an arbitrator and the degree (or rather lack thereof) of control that parties have over their arbitrators.
He held that an appointment of an arbitrator “can usually, at least in part, flow from contractual considerations”. However, he went on to highlight unusual features of the contract - if that is what it is - such as the immunity of arbitrators from suit, the duty of arbitrators to act fairly and equally as between the parties and the fact that neither party can remove an arbitrator alone.
Steel J then went on to find that arbitrators are more like independent contractors and that they have no client. Indeed, it is only then that they can act impartially. He also relied on jurisprudence, finding that judges and magistrates are not ’employed’ because they are insufficiently directed, and drew an analogy with arbitrators.
However, the CoA disagreed, finding that arbitrators are employees for the purposes of the regulations because they act under a contract personally to do any work. Given that the regulations sought to promote equality and eliminate unjustified discrimination, the CoA saw no good reason to adopt a more restricted interpretation of that phrase so as to exclude arbitrators.
The CoA held that arbitration was, in some respects, “no different from instructing a solicitor to deal with a particular piece of legal business, such as drafting a will”. This analogy is fairly weak. A solicitor drafting a will is required to follow the instructions of the client to a far greater degree than an arbitrator is to follow the instructions of the parties when conducting an arbitration or drafting an award.
It is possible that the Supreme Court will overturn the CoA decision that arbitrators are employees based on reasoning similar to that used by Steel J. This could entail recognition of the unique nature of the relationship between arbitrators and parties to an arbitration, which should not be shoehorned into the paradigm of a solicitor-client relationship.
However, this is by no means assured given the broad definition of ’employee’ in the regulations to include someone acting under a contract to do any work.
Philip Clifford is a partner and Hussein Haeri is an associate at Latham & Watkins