Arbitration

Appointment - Arbitrators required by arbitration clause in agreement between parties to be members of Ismaili community

Jivraj v Hashwani: Supreme Court (Lords Phillips P, Walker, Mance, Clarke, Dyson): 27 July 2011

The parties (J and H) entered into a joint venture agreement (the JVA), containing an arbitration clause which provided that, in the event of a dispute between them which they were unable to resolve, that dispute should be resolved by arbitration before three arbitrators, each of whom should be a respected member of the Ismaili community, of which both parties were members.

The parties decided to terminate their venture. They selected three members of the Ismaili community to act as a conciliation panel for the purpose of the division of the joint venture assets. The panel was unable to resolve all the issues. The matter fell into abeyance for a number of years until solicitors acting for H wrote to J putting forward a claim for, inter alia, £1,412,494 and notified him of the appointment of C as arbitrator under art 8 of the JVA.

They called on J to appoint an arbitrator within seven days. J started proceedings seeking a declaration that the appointment of C was invalid because he was not a member of the Ismaili community. Shortly thereafter, H issued an arbitration claim form seeking an order that C be appointed sole arbitrator pursuant to s 18(2) of the Arbitration Act 1996 (the 1996 Act). The application was made on the basis that the requirement that the arbitrators be members of the Ismaili community, although lawful when the agreement was made, had been rendered unlawful and was void because it contravened the Employment Equality (Religion or Belief) Regulations 2003, SI 2003/1660 (the Regulations).

The Regulations had been made to give effect to Council Directive (EC) 2000/78, which established a general framework for equal treatment in employment and occupation. At first instance, the judge held, inter alia, (see [2010] 1 All ER 302) that the Regulations did not apply to arbitrators because, inter alia, they were not employees and there was nothing in the Human Rights Act 1998 or public policy that rendered the requirement that the arbitrators should be members of the Ismaili community void or unenforceable.

H's appeal was allowed, with the Court of Appeal finding that the appointment of an arbitrator involved a contract for the provision of services which constituted 'a contract personally to do any work', and therefore satisfied the definition of 'employment' in reg 2(3) of the Regulations (see [2010] All ER (D) 202 (Jun)). It followed that the appointor was an 'employer' within the meaning of reg 6(1) of the Regulations and that the restriction of eligibility for appointment as an arbitrator to members of the Ismaili community constituted unlawful discrimination on religious grounds. J appealed.

The principal question in the appeal was whether the arbitration agreement between the parties became void with effect from 2 December 2003 under the Regulations on the ground that it constituted an unlawful arrangement to discriminate on the grounds of religion when choosing between persons offering personal service.

It was common ground that as between parties and arbitrator there was a contract between them and that an arbitrators and services were rendered pursuant to that contract. Given the provenance of the Regulations, consideration was given to the definition of 'worker' as defined by cases of the European Court of Justice, especially the case of Allonby v Accrington and Rossendale College [2005] All ER (EC) 289 (Allonby). Consideration was also given to: (i) the Equal Pay Act 1970 and the definition of 'employment' in s 83(2) of the Equality Act 2010 (the 2010 Act) (an act intended to reform and harmonise equality law) which provided, so far as relevant that 'employment’ meant employment under a contract of employment, a contract of apprenticeship or a contract personally to do work and; (ii) domestic authorites which said that the question of whether an individual was an employee was whether the' dominant purpose' of the contract was the execution of personal work.

The appeal would be allowed.

The essential questions in relation to the Regulation were whether, on the one hand, the person concerned performed services for and under the direction of another person in return for which he or she received remuneration or, on the other hand, he or she was an independent provider of services who was not in a relationship of subordination with the person who received the services.

Those were broad questions which depended upon the circumstances of the particular case and upon a detailed consideration of the relationship between the parties. The Regulations were not applicable to the selection, engagement or appointment of arbitrators (see [34], [50] of the judgment).

In considering the definition of 'worker', the case of Allonby drew a clear distinction between those who were, in substance, employed and those who were 'independent providers of services who were not in a relationship of subordination with the person who received the services'.

In the light of Allonby, there could be no doubt that that would be the correct approach to the near identical definition in s 1(6) of the Equal Pay Act 1970 and had to remain the correct approach to the definition of employment in s 83(2) of the 2010 Act. That definition was almost identical to the definition in reg 2(3) of the Regulations and, since it applied to equal pay issues by virtue of s 83(4), 80(2) and 64 of 2010 Act, it had to equally apply to the Regulations.

So far as the dominant purpose was concerned, in the light of Allonby, that was not the sole test. That was not to say that the question of purpose was irrelevant, but the focus was on the contract and relationship between the parties rather than exclusively on purpose (see [27], [36], [37] of the judgment).

Applying established principles, it was plain that the arbitrators’ role was not one of employment under a contract personally to do work; the role of an arbitrator was not naturally described as employment under a contract personally to do work as an arbitrators role was not naturally described as one of employment at all.

The arbitrator was in critical respects independent of the parties. Although an arbitrator might be providing services for the purposes of, for example, Value Added Tax, he did not perform those services or earn his fees for and under the direction of the parties. He was rather in the category of an independent provider of services who was not in a relationship of subordination with the parties who received his services.

There was no basis upon which it could properly be held that the arbitrators agreed to work under the direction of the parties. Further, in so far as dominant purpose was relevant, the dominant purpose of appointing an arbitrator or arbitrators was the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties (see [23], [40]-[44] of the judgment).

The Regulations were not applicable to the selection, engagement or appointment of arbitrators. It followed that no part the JVA was invalid by reason of the Regulations (see [50] of the judgment).

Lawrie-Blum v Land Baden-Württemberg: 66/85 [1987] ICR 483 applied; Kurz v Land Baden-Württemberg: C-188/00 [2002] All ER (D) 268 (Nov) applied; Allonby v Accrington and Rossendale College: C-256/01 [2004] All ER (D) 47 (Jan) applied. Decision of Court of Appeal [2010] All ER (D) 202 (Jun) Reversed.

Michael Brinde QC and Brian Dye (instructed by Zaiwala) for H Rhodri Davies QC and Schona Jolly (instructed by Hill Dickinson LLP) for J. Laurence Rabinowitz QC, Christopher Style Q and Christopher McCrudden (instructed by Linklaters LLP) for the London Court of International Arbitration as intervener. Thomas Linden QC, Toby Landau QC, Paul Key and David Craig (instructed by Allen & Overy LLP) for the International Chamber of Commerce as intervener.