Practical Law

Every now and then a case comes along which forces us to reassess and question the way we see things. The Court of Appeal’s decision in Nurdin Jivraj v Sadruddin Hashwani, about which Richard Power also wrote last week, is one of those cases.

In deciding arbitrators are “in employment” for the purposes of anti-discrimination laws, the Court of Appeal has created a world of uncertainty as to what (if any) restrictions parties may agree in their arbitration clauses on who may serve as arbitrator without rendering their agreement to arbitrate void.

Jivraj in context: construction and international arbitration

Jivraj featured some relatively unusual, perhaps extreme, facts. I do not often see clauses stipulating that an arbitrator must be from a particular religious background or system of beliefs. It is perhaps unfortunate that such an unusual case has raised the interplay between arbitration and employment laws.

However, looking beyond the facts in Jivraj, what of (for instance) clauses in construction contracts requiring arbitrators to be from a certain industry background and/or of a certain level of qualification? And if arbitrators are “in employment”, does the same not go for adjudicators, experts and perhaps mediators? If so, does Jivraj extend beyond arbitration to ADR as a whole?

And the million dollar question in arbitration circles is: what of the nationality restrictions in the leading institutional rules? Are we now in a situation where clauses providing for ICC or LCIA arbitration are void because the parties have discriminated on the grounds of nationality and race?

I believe that we should not jump the gun. The ICC and LCIA rules raise altogether different questions relating to neutrality and confidence in the arbitration process. Would the Court of Appeal have reached the same decision if faced with an innocuous-looking ICC or LCIA arbitration clause, so common (and so important) in international trade? Against the background of English case law’s long history of support for the arbitration process, I think that would have been surprising in the extreme. For the most part, the judgment sticks within the confines of the Jivraj case itself. It acknowledges that “our decision has a far wider significance than the present case” but (unfortunately) without any debate of the wider issues.

Judicial guidance on these points would now be most welcome. Our law will not be well-received on the international stage if it promotes “disputes about disputes”. The possibility, based on Jivraj, of recalcitrant parties to a dispute seeking to avoid the dispute resolution process, or disgruntled losing parties seeking to avoid enforcement of the arbitral decision, is an unwelcome one. Pandora’s box has been opened, and it needs to be closed again.

New discrimination legislation and subjective perceived bias

The Equality Act 2010 (EqA 2010) comes into force on 1 October 2010. Under the EqA 2010 (unlike its predecessor legislation), it is possible for discrimination on the grounds of nationality to fall under the defence of an “occupational requirement“. This exception is available where, having regard to the nature and context of the work, being of a particular nationality is an occupational requirement.

The nationality restrictions in the institutional arbitration rules are aimed at preserving the parties’ confidence in the arbitral process by promoting the neutrality of the tribunal. Of course, nobody can seriously suggest that arbitrators from the same country as one of the parties will necessarily be biased (either in terms of actual bias or perceived bias). However, that is to focus unduly on the legal definition of perceived bias, which is an objective definition based on whether a reasonable person would consider an arbitrator to be biased.

A third category of bias, “subjective perceived bias”, relates to a party’s own belief that a tribunal is or could be biased or could have preconceptions favourable to one party over the other. A party’s subjective perception is recognised in the composition of many tribunals and courts: employment tribunals consist of a lawyer, a representative from an employees’ group and a representative from an employers’ group. Three-person Youth Court panels must include at least one man and one woman. This is not to guard against actual or even perceived bias, but to ensure the parties’ confidence in the process and promote a balanced composition.

Is arbitration to be treated any differently? This post cannot explore in any detail these or the myriad other issues which relate to the wider context of Jivraj. I merely hope to illustrate that the debate is rather subtler than the Jivraj judgment suggests, once you consider the case in the round.

What might you do now?

Pending further judicial word on the subject, we are for now left in an uncertain world. Advisers need to advise their clients on the effect of Jivraj. Decisions need to be made about clause drafting and about the seat of arbitration.

Let us approach that question objectively, acknowledging the possible outcomes, but without being alarmist or closed-minded. Jivraj is currently the subject of an application for permission to appeal to the Supreme Court. Let us hope that permission is granted and that the Supreme Court hears the right arguments about the wider context in which the case sits. And let us hope that, whatever the Supreme Court makes of the parties’ stipulation in the clause that gave rise to the case, it gives us clear guidance in its judgment on the effect (if any) of Jivraj on institutional arbitration clauses and other commonplace scenarios beyond the facts of the case itself.

Even without such guidance, it is of course open to the parties drafting an arbitration clause to carve out the nationality provisions from the institutional rules. Despite the (perhaps inevitable) messages of doom and gloom, we are some considerable way away from sounding the death knell of English arbitration.