The Supreme Court has ruled that arbitrators are not employees for the purposes of employment equality legislation.

Handing down judgment in the case of Hashwani v Jivraj, the court reversed the Court of Appeal’s landmark decision, which held that an arbitration agreement that required all arbitrators to be members of a specific religious community was void because it breached EU anti-discrimination law.

In a unanimous judgment the Supreme Court said an arbitrator is not a person employed under a contract to do work within the meaning of the Employment Equality (Religion or Belief) Regulations 2003, that came into force on 2 December 2003.

Lord Clarke said an arbitrator fell outside the definition of a worker laid down by the case law of the European Court of Justice and was instead an ‘independent provider of services who was not in a relationship of subordination with the person who received the services’.

‘An arbitrator was a quasi-judicial adjudicator whose duty was not to act in the particular interests of either party,’ he said, and their dominant purpose was the impartial resolution of the dispute.

Clarke said: ‘Arbitration was more than the application of a given national law to a dispute and a stipulation that an arbitrator be of a particular religion or belief can be relevant to the manner in which disputes are resolved.’

This case concerned a dispute between two Pakistani businessmen who had included an arbitration clause in a joint venture agreement, which stipulated that a dispute should be resolved by the arbitrators, all of whom were required to be respected members of the Ismaili community.

A dispute arose after the termination of the joint venture. Mr Hashwani sort to appoint Sir Anthony Coleman, a retired commercial court judge, as an arbitrator.

Coleman was not a member of the Ismaili community, and Mr Jivraj objected to his appointment and commenced proceedings for a declaration that his appointment was void as it breached the requirements of the arbitration agreement.

The High Court held that the appointment of arbitrators fell outside the scope of the EU regulations as they were not ‘employed’.

However, the Court of Appeal reversed the decision, ruling that arbitrators were employed and that there had been unlawful religious discrimination.

The impact of the Court of Appeal’s judgment, which could have nullified many existing arbitration agreements that specified the nationality, religion, age, race or sex or arbitrators, caused alarm.

It prompted arbitration bodies, including the International Chamber of Commerce and the London Court of International Arbitration, to intervene in the appeal to the Supreme Court.

In this case, the Supreme Court found that the freedom of choice for parties to decide who should arbitrate their dispute is important for their confidence in the procedure.

It said the ‘breadth of discretion left to the parties’ sets arbitration aside from court proceedings.

Clarke said: ‘The Ismaili community had demonstrated an ethos, based on religion, for dispute resolution contained within that community.’

‘The parties could properly regard arbitration before three Ismailis as likely to involve a procedure in which parties could have confidence and as likely to lead to conclusions of fact in which they could have particular confidence,’ he said.

Lawyers have welcomed the judgment, saying it provides clarity and ensures London remains a leading centre for international arbitration.

International arbitration partner at City firm Mayer Brown Philippa Charles said: ‘London lost out on a number of arbitrations following the Court of Appeal’s decision in this case as a result of nervousness about the validity of a London arbitration incorporating restrictions on arbitrator nationality.’

She said that if the Court of Appeal’s decision had been upheld it would have had a ‘chilling effect’ on the world’s view of London as an arbitration centre.

‘The fact that the Supreme Court has found a way for equality legislation to co-exist with a common sense approach to commercial practice means that London remains on an equal footing with its global competitors such as Paris, New York, Geneva and Singapore as a leading centre for international arbitration,’ said Charles.

Greg Reid, a partner in Linklaters’ litigation and arbitration practice, said: ‘The decision is a positive recognition of the importance of party autonomy in international arbitration.

‘It removes any uncertainty which had been generated by the Court of Appeal's decision as to the validity of arbitration agreements incorporating institutional rules relating to the nationality of arbitrators, and confirms the pro-arbitration approach of the English courts to arbitration as a dispute resolution mechanism.'

Head of international arbitration and ADR at City firm Norton Rose, Joe Tirado said: ‘The English courts have lived up to their reputation for robustly supporting international arbitration.’

However, senior partner at London firm Zaiwalla & Co Sarosh Zaiwalla, who represented Hashwani, said: ‘It is disappointing that in today’s age the Supreme Court did not take a more enlightened approach to ensure that it would discourage any form of discrimination on grounds of race, religion or sex in the appointment of arbitrators.’