Discrimination on the grounds of religion or belief, disability, age or sexual orientation when appointing arbitrators
CIArb News / 28 July 2010
CIArb's Practice and Standards Committee gives a commentary on the case of Jivraj v Hashwani.
Introduction
The recent English Court of Appeal decision in Jivraj v. Hashwani [2010] EWCA Civ 712 raises issues about the drafting of arbitration agreements.
Essentially, it decides that an arbitration clause which requires the parties in appointing their arbitrator to discriminate on the grounds of race or religion is illegal and unenforceable. The logic of the Court's decision is that this would apply equally to agreements to discriminate on the basis of religion, belief, disability, age or sexual orientation.
The decision also logically applied to other countries of the European Union and to dispute resolution professionals, such as mediators. There is, though, an exception in the directive which would continue to make references to religious bodies acceptable if the parties agree to apply that religion's rules or possibly a non-legal standard. Finally, an arbitration clause which was entered into before the relevant European Directive is still affected by these standards.
The facts
In 1981, the parties entered into a joint venture. They agreed on an arbitration clause referring any disputes arising out of or relating to the agreement to three arbitrators, the first two being appointed by the parties and the third to be the president of the Aga Khan National Council for the UK for the time being. It said:
"All arbitrators shall be respected members of the Ismaili community and holders of high office within the community."
The arbitration clause provided for the arbitrators to apply English law to the substance of the dispute.
The discrimination issue
The issue arose as to whether the appointment of a non Ismaili arbitrator was valid under the UK Employment Equality (Religion and Belief) Regulations 2003. This in turn had been introduced to implement the European Council Directive 2000/78/EC at least as regards discrimination on grounds of religion or belief.
UK Regulation 7(3) creates an exclusion where "an employer has an ethos based on religion or belief and, having regard to that ethos and the nature of the employment or the context in which it is carried out, being of a particular religion or belief in a genuine occupational requirement for the job."
Is the arbitrator "employed" for the purposes of the Regulations and Directive?
The first issue was whether the relationship between appointor and appointee is one of "employment" for the purposes of the Regulations. The UK Regulations and underlying European Directive define "employment" as employment under a contract of service or one personally to do any work. The underlying European Directive is described in Article 1 as having as its purpose "combating discrimination on the grounds of religion or belief, disability, age or sexual orientation as regards employment and occupation".
"Travail" is the term used in the French version. It means simply "work". The last three words make it clear that the contractual relationship covered extend beyond employment in the traditional sense of the word. This is reinforced by the statement in Article 3 of the directive that it applies to all persons
"in relation to .... conditions for access .... to self-employment or to occupation."
In line with the Directive, paragraph 1(1) of Schedule 4 to the regulations renders a term of a contract void where the making of the contract or where the contract provides for the doing of an act which is unlawful by virtue of the Regulations.
The Court concluded that the appointment of an arbitrator was "employment" within the wider definition of that term included in the Regulations and the Directive.
Regulation 3 defines discrimination on the grounds of religion or belief as being where on such grounds, a person treats another less favourably than he treats or would treat other persons. This arbitration clause failed that test.
If the arbitrator was employed, was the employment exempt under Regulation 7(3) and Article 4 of the Directive?
The final issue was whether the case fell within the exception contained in Regulation 7(3)
"where an employer has an ethos based on religion or belief and, having regard to that ethos and to the nature of the employment or the context which it is carried out -
...being of a particular religion or belief is a genuine occupational requirement for the job, it is proportionate to apply that requirement in the particular case and either the person to whom that requirement is applied does not meet it or the employer is not satisfied an it is reasonable for him to be satisfied that that person meets it."
This, taken from Article 4, of the Directive which provides:
"....Member States may provide that a difference of treatment which is based on a characteristic related to any of the grounds referred to in Article 1 shall not constitute discrimination where, by reason of the nature of the particular occupational activities concerned or of the context in which they are carried out, such a characteristic constitutes a genuine and determining occupational requirement, provided that the objective is legitimate and the requirement is proportionate.
The court considered that this required an assessment of whether having regard to the ethos of the community concerned and the nature of the arbitrator's function being Ismaili was "a genuine occupational requirement for its proper discharge" It felt that the choice of English law to govern the substance meant that being Ismaili could not be a genuine occupational requirement.
The Court expressed the view that if the arbitration clause had provided for a decision ex aequo et bono one could interpret that as requiring a particular religious frame of reference shared by members of the particular community from which both parties originated. This could bring in the Regulation 7(3) exclusion. One may doubt that. However, where parties have agreed to a religious body or people of a particular religion, deciding their case in accordance with the principles of their religion, such as a Bet Din applying Jewish Law or the equivalent for the Moslem community, the Regulation 7(3) exemption would seem to apply.
Parties agreeing to arbitrate with the arbitrator requested to apply English law must not stipulate that the arbitrators be or not be of any religion or belief. They can, though, agree to select arbitrators from an ethnic group if they wish to have an arbitration applying the principles of their religion.
Can the offending part of the clause be excised?
Finally, the Court declined to enforce the clause with the reference to the requirement of being a member of the Ismaili community excised. It concluded that the relevant deletion would "render the agreement substantially different from that which had originally been intended."
This does run against the international trend when faced with arbitration clauses that cannot be enforced for practical reasons, notably Bauhinia Corporation v. China National Machinery & Equipment Import & Export Corp., 819 F.2d 247 (9th Cir. 1987). The English Court bucked the usual trend of finding an agreement to arbitrate as the predominant sentiment. In doing so, it produced the strange result that the parties are forced to litigate in the national courts which must be further away from their true intentions than an arbitration with arbitrators selected potentially from outside the Ismaili community.
What this case does and does not decide
It may be important to note what this case and the underlying Directive and Regulations do not prohibit.
As regards age discrimination, there is nothing to stop a party from insisting on experience or years of practice reflecting that type of need. It is also "a genuine and determining occupational requirement" which is permitted by the directive. Article 4 says:
"Member States may provide that a difference of treatment which is based on a characteristic related to any of the grounds referred to in Article 1 shall not constitute discrimination where, by reason of the nature of the particular occupational activities concerned or of the context in which they are carried out, such a characteristic constitutes a genuine and determining occupational requirement, provided that the objective is legitimate and the requirement is proportionate."
Equally, knowledge of a particular country's or religious group's rules would not be a disqualifier for the same reason if the arbitration clause requires the application of that country or group's law or rules to the case.
Choice of an arbitrator on the basis of nationality (in force in Italy before its 1983 arbitration reforms) or country of residence is not prohibited since it does not relate to race or religion.
There is always the possibility that an arbitration clause providing too much detail about the arbitrators' qualifications would be regarded as indirect discrimination on the basis of religion, belief, sexual orientation or disability. This is particularly so if there is no obvious linkage between the characteristics required of the arbitrator and the contract or the type of dispute that could arise under it.
As indicated above, "a genuine and determining occupational requirement" such as relevant experience in the field concerned is exempt from the directive in Article 4. However, a requirement to speak a language which is not that of the arbitration, the parties or the likely evidence but which could be construed as limiting the pool of arbitrators indirectly by reference to religion could be prohibited. Qualifications or required characteristics that make sense except by reference to discrimination on the basis of belief, religion, age, disability and sexual orientation would appear to be unaffected.
A requirement of an arbitrator to be legally married, speak Arabic or Hebrew fluently or conduct the case at the top of the Monument in London (where there is no lift) if that is completely irrelevant to any likely dispute that could arise under the contract or be covered by an agreement to arbitrate may all be examples of indirect discrimination that could be caught by the Directive.