England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		26/06/2009

Mr Justice David Steel :

1. The issue that arises in these applications is whether the requirement in an arbitration clause for all the arbitrators to be members of the Ismaili community is unlawful.
2. Mr Hashwani ("Mr H") contends that the requirement constitutes religious discrimination and this falls foul of:

i) the Employment Equality (Religion or Belief) Regulations;

ii) the Human Rights Act;

iii) Public policy.

3. The clause is contained in a Joint Venture Agreement dated 19 January 1981 between Mr H and Mr Jivraj ("Mr J"). It provides as follows:

"8. If any dispute difference or question shall at any time hereafter arise between the investors [Mr H and Mr J] with respect to the construction of this agreement or concerning anything herein contained or arising out of this agreement or as to the rights liabilities or duties of the investors or either of them or arising out of (without limitation) any of the businesses or activities of the joint venture herein agreed the same (subject to sub-clause 8(5) below) shall be referred to three arbitrators (acting by a majority) one to be appointed by each party and the third arbitrator to be the President of the H.H. Aga Khan National Council for the United Kingdom for the time being. All arbitrators shall be respected members of the Ismaili community and holders of high office within the community."

4. Mr H claims that he is at liberty to appoint an arbitrator who is not a member of the community. Mr J contends that the clause is valid and enforceable. Alternatively he contends that if the requirement as to the status of the arbitrators is illegal the whole clause is invalidated.

The background

5. Mr J and Mr H live in London. They are members of the Ismaili community which forms part of the Shia branch of Islam and is headed by the Aga Khan. In 1981 they established a joint venture to make investments in real estate, particularly in Canada, Pakistan, the United States and the United Kingdom.
6. In late 1988 Mr J and Mr H agreed to part company. Between them they selected three members of the Ismaili community to act as a conciliation panel for the purpose of the division of joint venture assets. Despite acting in this capacity through to February 1990, the panel was unable to resolve all the issues.
7. Mr J and Mr H then agreed to submit the remaining issues to arbitration or conciliation by a single member of the Ismaili community. The selected individual appointed Messrs Clifford Chance and Coopers & Lybrand Deloitte to assist him. He issued a 'determination' in December 1993 (although he continued to be concerned with further exchanges between the parties until 1995) and then declared himself as "defeated".
8. The principal matters which remained outstanding were on the one hand a claim by Mr H that there remained a balance due to him on the capital accounts and a claim on the other hand by Mr J that Mr H had failed to pay certain tax liabilities which exposed him (Mr J) to secondary liability.
9. Matters remained unresolved over the next 8 years. On 31 July 2008 solicitors for Mr H suddenly wrote to Mr J asserting a claim for £1,412,494 together with interest compounded quarterly from 31 May 1994, recording the appointment on behalf of Mr H of Sir Anthony Colman as an arbitrator under Art. 8 of the 1981 JVA and calling on Mr J to appoint an arbitrator within 7 days.
10. Not surprisingly it is Mr. J's case that the claim is clearly time barred. However, that is an issue for another day. For present purposes Mr H seeks an order for the appointment of Sir Anthony as sole arbitrator whilst Mr J seeks a declaration that the appointment of Sir Anthony was invalid (it being common ground that he is not a member of the Ismaili community).
11. The issues that arise can be summarised as follows:

i) Do the Employment Equality (Religion or Belief) Regulations 2003 apply to the arbitration agreement in Art. 8 of the JVA?

ii) If so, is Art. 8 discriminatory in the grounds of religion or belief?

iii) If so, is that discrimination justified?

iv) If the 2003 regulations do not apply, is Art. 8 invalid under the Human Rights Act 1998(or otherwise at common law as contrary to public policy)?

v) If Art. 8 is invalid, is the whole arbitration agreement invalid or does there remain an effective arbitration agreement?

Employment Regulations

12. The Employment Equality (Religion or Belief) Regulations 2003 are directed at discrimination in the field of employment. They were promulgated pursuant to the UK's obligations under Section 2 of the European Communities Act 1972 by reference to the EU Employment Directive 2000/78.
13. It is well established that the Regulations fall to be interpreted in accordance with European Law: Marleasing SA v La Comercial Internacional de Alimentacion SA (C-106/89) [1990] ECR I-4135, Perceval-Price v Dept. of Economic Development [2000] IRLR 380.
14. It was submitted on behalf of Mr H that the Directive was wide in scope and expressly encompassed all forms of contractual "employment" whether or not under a contract of service, an independent contractual engagement, self-employment or otherwise. In particular it was emphasised that the Recitals of the Directive referred to the need for protection against discrimination in the field of "employment and occupation".
15. The scope of the Directive is set out in Article 3:

"1. Within the limits of the areas of competence conferred on the Community, this Directive shall apply to all persons, as regards both the public and private sectors, including public bodies, in relation to:

(a) conditions for access to employment, to self-employment or to occupation, including selection criteria and recruitment conditions, whatever the branch of activity and at all levels of the professional hierarchy, including promotion;

(b) ….;

(c) employment and working conditions, including dismissals and pay;

(d)…. ."

16. Notably this draws a distinction between conditions for access to employment, self-employment and occupation on the one hand and employment as such on the other. There is nothing in the Directive which prohibits discrimination (direct or indirect) in the engagement of personal services or work otherwise than as an employer.
17. The Regulations provide as follows:

"2. – (3) In these Regulations :

references to "employer", in their application to a person at any time seeking to employ another, include a person who has no employees at that time;

"employment" means employment under a contract of service or of apprenticeship or a contract personally to do any work, and related expressions shall be construed accordingly;"

"Discrimination on grounds of religion or belief

3.  - (1) For the purposes of these Regulations, a person ("A") discriminates against another person ("B") if -

(a) on grounds of religion or belief, A treats B less favourably than he treats or would treat other persons; or

(b) A applies to B a provision, criterion or practice which he applies or would apply equally to persons not of the same religion or belief as B, but -

(i) which puts or would put persons of the same religion or belief as B at a particular disadvantage when compared with other persons,

(ii) which puts B at that disadvantage, and

(iii) which A cannot show to be a proportionate means of achieving a legitimate aim

Applicants and employees

6. – (1) It is unlawful for an employer, in relation to employment by him at an establishment in Great Britain, to discriminate against a person –

(a) in the arrangements he makes for the purpose of determining to whom he should offer employment; or (b) in the terms on which he offers that person employment…"

18. Despite the submissions of Mr Nathan QC on behalf of Mr H, I do not detect any conflict between the scope of those provisions and the Directive.
19. The Regulations operate in this way. Paragraph 35 of the Regulations gives effect to Schedule 4 which provides that a term of contract is void where "the making of the contract is, by reason of the inclusion of the term, unlawful by virtue of these Regulations".^[1]
20. It is Mr H's case that the appointment of an arbitrator constitutes "employment under … a contract personally to do any work" and thus constitutes either an arrangement for the purpose of determining to whom the parties should offer employment (within 6(i)(a)) or an agreement not to offer employment to certain persons (within 6(i)(b)).
21. This leads immediately to the question whether the appointment of an arbitrator is susceptible to contractual analysis or simply reflects a matter of status. It is a topic considered in some detail in Commercial Arbitration: Mustill and Boyd: 2^nd Ed: p220 ff together with its companion volume at p60ff.
22. I do not propose to enter into the complexities of this issue which has been the subject of extensive academic debate. In K/s Norjarl A/s v Hyundai Heavy Industries Co Ltd [1991] 1 Lloyd's Law Rep. 524, in the context of dispute about the arbitrators' proposals for commitment fees, Leggatt LJ noted at p.531:

"I doubt whether analysis of an arbitrator's position in terms of contract will ordinarily yield a different result from analysis in terms of status. For present purposes the parties have elected to tread the contractual path; and that has the merit of being compatible with the arbitrator's right to fix his own fees, which is less easy to reconcile with a quasi-judicial status."

23. In the same context, Sir Nicholas Browne Wilkinson V-C said at p536:

"The arbitration agreement is a bilateral contract between the parties to the main contract. On appointment, the arbitrator becomes a third party to that arbitration agreement, which becomes a trilateral contract: see Cie Europeene de Cereales S.A. v. Tradax Export S.A., [1986] 2 Lloyd's Rep. 301. Under that trilateral contract, the arbitrator undertakes his quasi-judicial functions in consideration of the parties agreeing to pay him remuneration. By accepting appointment, the arbitrator assumes the status of a quasi-judicial adjudicator, together with all the duties and disabilities inherent in that status."

24. Thus I accept that appointment can usually, at least in part, flow from contractual considerations^[2]. But an important factor leading to this conclusion is the need to account for the basis of remuneration of the arbitrators. But, as I understand it, the tradition of dispute resolution within the Ismaili community is such that no remuneration is sought or accepted by the arbitrator^[3]. This gives added emphasis in the present case to the plea made in Mustill & Boyd:

"… the appointment of an arbitrator is not like appointing an accountant, architect or lawyer. Indeed it is not like anything else. We hope that the courts will recognise this, and will not try to force the relationship between the arbitrator and the parties into an uncongenial theoretical framework, but will proceed directly to a consideration of what rights and duties ought, in the public interest, to be regarded as attaching to the status of the arbitrator. "

25. Indeed as the editors point out it can be said with some force that, even if there is a contract between the arbitrator and the parties, it is a very strange one:

i) the arbitrator is immune from suit;

ii) he owes duties to act fairly and equally to all parties;

iii) neither party can remove him without order of the Court.

26. The question that arises is, assuming that the relations are contractual, what kind of contract is involved and, in particular, is it a contract of employment for the purposes of the Regulations? In my judgment it is not. Even if the role or status of an arbitrator can be classified as akin to that of an "independent" contractor, the 'employer' cannot give instructions as to how he is to work or what outcome he is to achieve. In short, the arbitrator is indeed entirely independent and has no client. Indeed it is only then that he can he act impartially.
27. The closest analogy to the role of an arbitrator is that of a judge. He is empowered to make decisions about the parties' rights and duties: he is required to act fairly and impartially between the parties: he is exposed to challenge against his decisions to the extent provided by statute: he is immune from personal liability for his mistakes.
28. In the general context of employment, it has been held that judges, magistrates and tribunal chairmen are not employed:

i) In Knight v A-G [1979] ICR 194 an aspiring magistrate made a complaint under the Sexual Discrimination Act 1976. The definition of the employment for the purposes of the Act was:

"…employment means employment under a contract of service or of apprenticeship or a contract personally to execute any work or labour and related expressions shall be construed accordingly."

The headnote accurately records the conclusion of Slynn J as regards the complaint:

"Held, dismissing the appeal, (1) that since a justice of the peace was not paid a salary and was not subject to direction as to the manner in which he fulfilled his obligations, he was not employed under a contract of service or apprenticeship; and that, since he did not make a contract with the Crown to execute personally any work or labour, but rather was appointed to hold office, there could be no breach of section 6 (1) (a) or (c) of the Sex Discrimination Act 1975 in relation to such an appointment."

ii) In Perceval Price v Dept. of Economic Development [2000] IRLR 380, the Court of Appeal in Northern Ireland held that tribunal chairmen could not, by reason of their office, bring claims under the Northern Ireland sexual discrimination and equal pay legislation (both of which employed the same definition) albeit they were "workers" for community law purposes.

In this context it is to be noted that the Court, in discussing the term "workers" referred to the criterion of an employment relationship as set out in Lawrie-Blum v Land Baden-Württemberg [1986] ECR 2121:

"[17] That concept must be defined in accordance with objective criteria which distinguish the employment relationship by reference to the rights and duties of the persons concerned. The essential feature of an employment relationship, however, is that for a certain period of time a person performs services for and under the direction of another person in return for which he receives remuneration."

The Court concluded that there was a sufficient degree of direction by reference to the organisation of sitting by the President of the Industrial Tribunal or the Court Service:

"They are all expected to work during defined times and periods whether they be rigidly laid down or managed by the judges themselves with a greater degree of flexibility. They are not free agents to work as and when they choose as are self employed persons."

This passage demonstrated that the role of an arbitrator is, if anything, even further divorced from the concept of employment thaN that of an office holder such as a judge.^[4]

iii) In Dept. for Constitutional Affairs v O'Brien [2008] EWCA Civ 1448, the Court of Appeal ruled that a recorder could not claim a pension as a part-time worker. The relevant definition was:

"An individual who has entered into or works under or (except where a provision of these Regulations otherwise requires) where the employment has ceased, worked under –

(a) a contract of employment; or

(b) any other contract, whether express or implied and (if it is expressed) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual."

As explained in the judgment of Kay L.J., part (b) of the provisions was intended to ensure that protection was not lost where the relationship is properly classified as one of employer/independent contractor.

"It does not describe the work of a judge who does not undertake to do or perform personally work or services "for another party to the contract". One asks rhetorically: Which other party? What contract?"

29. In suggested contrast, Mr. H placed heavy emphasis on Kelly v Northern Ireland Housing Executive [1999] 1 AC 428. The House of Lords held that a solicitor appointed to a panel which defended public liability claims would be employed under a contract to execute work or labour within the Fair Employment (N.I.) Act 1976.
30. Having described the prolonged statutory archaeology of the phrase "a contract personally to execute any work or labour" Lord Slynn (with whom Lord Griffiths and Lord Steyn agreed) held that the definition was wide enough to cover the services of a professional man. But I derive no direct assistance from this decision. As observed in Mustill & Boyd the appointment of an arbitrator is quite different from appointing a lawyer. The arbitrator has no client, and is not required to act in accord with his appointer's instructions. To the contrary his independence is paramount.
31. Against that background, I accept Mr. J's submission that there is nothing in the legislative history, the analysis of an arbitrator's status or the case law to support the proposition that arbitrators are "employed" within the meaning of the Regulations.
32. Further there are additional provisions in the Regulations which are wholly inconsistent with their application to arbitrators. By virtue of Regulation 6(1), the relevant employment is confined to employment by an employer at an establishment in Great Britain. Regulation 9 further provides as follows:

" 9.  - (1) For the purposes of this Part ("the relevant purposes"), employment is to be regarded as being at an establishment in Great Britain if the employee -

(a) does his work wholly or partly in Great Britain; or

(b) does his work wholly outside Great Britain and paragraph (2) applies.

    (2) This paragraph applies if -

(a) the employer has a place of business at an establishment in Great Britain;

(b) the work is for the purposes of the business carried on at that establishment; and

(c) the employee is ordinarily resident in Great Britain -

(i) at the time when he applies for or is offered the employment, or

(ii) at any time during the course of the employment."

33. It will usually be impractical to apply these provisions to the engagement of an arbitrator. For instance: Who is the employer? Does the employer have a place of business at an establishment in Great Britain? Where does the arbitrator work? Is the work for the purpose of the business carried out at the employer's establishment?
34. Again, Regulation 22 provides:

"Liability of employers and principals

22.  - (1) Anything done by a person in the course of his employment shall be treated for the purposes of these Regulations as done by his employer as well as by him, whether or not it was done with the employer's knowledge or approval.

(3) In proceedings brought under these Regulations against any person in respect of an act alleged to have been done by an employee of his it shall be a defence for that person to prove that he took such steps as were reasonably practicable to prevent the employee from doing that act, or from doing in the course of his employment acts of that description."

35. This would purport to impose vicarious liability on the parties (or maybe one of them) for discriminatory acts by the arbitrators in the course of the reference. This can only be based on an assumed degree of control over the arbitrators which would be incompatible with the nature and terms of their appointment.
36. Finally, Regulations 27 and 28 provide:

"Restriction of proceedings for breach of Regulations

27.  - (1) Except as provided by these Regulations no proceedings, whether civil or criminal, shall lie against any person in respect of an act by reason that the act is unlawful by virtue of a provision of these Regulations.

(2) Paragraph (1) does not prevent the making of an application for judicial review.

Jurisdiction of employment tribunals

28.  - (1) A complaint by any person ("the complainant") that another person ("the respondent") -

(a) has committed against the complainant an act to which this regulation applies; or

(b) is by virtue of regulation 22 (liability of employers and principals) or 23 (aiding unlawful acts) to be treated as having committed against the complainant such an act,

may be presented to an employment tribunal."

37. The restriction of such proceedings to employment tribunals in the context of arbitrators would undoubtedly be bizarre, the more so having regard to provisions of the Arbitration Act 1996 such as Section 24 (power to remove an arbitrator) and Section 68 (challenging an award for serious irregularity). Indeed, under CPR, jurisdiction over arbitration claims is allocated to the appropriate lists in the High Court, which is a further strong pointer to the non-applicability of the Regulations.
38. For all these reasons I conclude that the Regulations are not applicable to the selection, engagement or appointment of arbitrators.

Exception

39. In case I am wrong, I must turn to Mr. J's alternative submission that the appointment under Art. 8 of the JVA fell within the exceptions provided for in Regulation 7:

"Exception for genuine occupational requirement

     7.  - (1) In relation to discrimination falling within regulation 3 (discrimination on grounds of religion or belief) -

(a) regulation 6(1)(a) or (c) does not apply to any employment;

(b) regulation 6(2)(b) or (c) does not apply to promotion or transfer to, or training for, any employment; and

(c) regulation 6(2)(d) does not apply to dismissal from any employment,

where paragraph (2) or (3) applies.

    (2) This paragraph applies where, having regard to the nature of the employment or the context in which it is carried out -

(a) being of a particular religion or belief is a genuine and determining occupational requirement;

(b) it is proportionate to apply that requirement in the particular case; and

(c) either -

(i) the person to whom that requirement is applied does not meet it, or

(ii) the employer is not satisfied, and in all the circumstances it is reasonable for him not to be satisfied, that that person meets it,

and this paragraph applies whether or not the employer has an ethos based on religion or belief.

    (3) This paragraph applies 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 in which it is carried out -

(a) being of a particular religion or belief is a genuine occupational requirement for the job;

(b) it is proportionate to apply that requirement in the particular case; and

(c) either -

(i) the person to whom that requirement is applied does not meet it, or

(ii) the employer is not satisfied, and in all the circumstances it is reasonable for him not to be satisfied, that that person meets it."

40. It was submitted that the requirement of membership of the Ismaili sect for any arbitrator under Art. 8 fell within sub-regulation (3). In short, it is contended by Mr J that the "employing" parties share an ethos based on religion and belief and, having regard to that ethos and to the function of an arbitrator under the JVA, the appointment of an arbitrator being of the same religion and belief is a genuine occupational requirement which it is proportionate to apply.
41. I accept that a rigorous and strict approach must be adopted to the issue of whether such an exception applies.^[5] In considering the issue I have had regard to various parts of the literature included in the documents before the court. The website of the Aga Khan Development Network contains a brief summary of the history and development of the Ismaili community. During the early part of the twentieth century it was dominated by Sir Sultan Mahomed Shah (Aga Khan III) who introduced a range of "organisational forms that gave Ismaili communities the means to structure and regulate their own affairs". These were established against the background of "the Muslim tradition of a communitarian ethic on the one hand and responsible individual conscience with freedom to negotiate one's own moral commitment and destiny on the other".
42. The summary goes on as follows:

"Spiritual allegiance to the Imam and adherence to the Shia Imami Ismaili tariqah (persuasion) of Islam according to the guidance of the Imam of the time, have engendered in the Ismaili community an ethos of self-reliance, unity, and a common identity. The present Aga Khan continued the practice of his predecessor and extended constitutions to Ismaili communities in the US, Canada, several European countries, the Gulf, Syria and Iran following a process of consultation within each constituency. In 1986, he promulgated a Constitution that, for the first time, brought the social governance of the world-wide Ismaili community into a single structure with built-in flexibility to account for diverse circumstances of different regions. Served by volunteers appointed by and accountable to the Imam, the Constitution functions as an enabler to harness the best in individual creativity in an ethos of group responsibility to promote the common well-being.

Like its predecessors, the present constitution is founded on each Ismaili's spiritual allegiance to the Imam of the time, which is separate from the secular allegiance that all Ismailis owe as citizens to their national entities. The guidance of the present Imam and his predecessor emphasised the Ismaili's allegiance to his or her country as a fundamental obligation. These obligations discharged not by passive affirmation but through responsible engagement and active commitment to uphold national integrity and contribute to peaceful development. "

43. In a paper presented to the Council of Europe in March 2009, the Director of International Trading with the secretariat of the Aga Khan made the following observations:

"Under the Constitution, the Imam has also established Grants and Review Boards to ensure financial discipline, probity and accountability in the use of resources; as well as National and International Conciliation and Arbitration Boards to encourage amicable resolution of conflicts through impartial conciliation, mediation and arbitration, a service which is being increasingly used, in some countries, even by non-Ismailis. In fulfilling the mandate to sustain social, economic, cultural and civil society development, the Imamat collaborates with national governments, regional and international institutions as well as civil society organisations. This paper highlights the work of the Conciliation and Arbitration Boards established under the Ismaili Constitution and more particularly the training programmes that have been conducted for them over the last decade, indicating some of the best practices.

Over the centuries, Ismaili communities in various parts of the world, have been conducting their own ADR processes based on the ethics of the faith as guided by the Imams of the Time. In the early 1980s, the Aga Khan appointed a team of community leaders to study the needs of the community globally and to reflect on the type of issues they would be facing in the years to come, given the changing global situation. He was concerned about the massive costs of litigation faced by members of the Ismaili community in various parts of the world. Not only were the legal costs very high, but the legal procedures, in many countries, were particularly lengthy and did not always result in outcomes that conformed with the principles of natural justice. The Aga Khan was concerned about compliance with the ethics of the faith which promote a non-adversarial approach to dispute resolution in keeping with the principles of negotiated settlement (sulh) enshrined in the Holy Qur'an.

The study indicated that a majority of the cases were in the field of family disputes and that the national courts in the countries, where the disputants were settled, were not always able to comprehend the inter-generational attitudinal issues involved, let alone being able to resolve them. This syndrome is very much in keeping with the notion of the "limited remedial imagination" that Menkel-Meadow attributes to the adversarial system which focuses on a zero-sum numbers game where the "winner takes all". It was therefore decided by the Imam, in consultation with the leaders of the various Ismaili communities worldwide, to build on the community's existing tradition of settling disputes amicably within the ethics of Islam and to establish Conciliation and Arbitration Boards at various levels of social governance in the Ismaili communities throughout the world. It was also felt that the system should be such that the first submission of an issue to an arbitrational or mediational body should ensure the highest degree of proficiency, probity and fairness so that the number of cases which go for appeal would be minimal and that the process would be seen as being equitable, fair and cost effective. The Aga Khan's advice was that such a system should endeavour to resolve disputes within the community without the disputants having to resort to unnecessary litigation which is time consuming, expensive and destructive. The Aga Khan saw the amicable resolution of disputes, without resorting to a court of law and within the ethics of the faith, as an important aspect of the improvement of the quality of life of the Ismailis globally. Consequently, the Ismaili Constitution of 1986 made provision for the establishment of the Conciliation and Arbitration Boards."

44. As regards the constitution itself, it is only necessary to refer to Art XIII:

"13.1 There shall be a National Conciliation and Arbitration Board for each of the territories specified in the Seventh Schedule to be known as "His Highness Prince Aga Khan Shia Imami Ismaili National Conciliation and Arbitration Board" for the territory for which it is formed:

(a) to assist in the conciliation process between parties in differences or disputes arising from commercial, business and other civil liability matters, domestic and family matters, including those relating to matrimony, children of a marriage, matrimonial property, and testate and intestate succession;

(b) to act as an arbitration and judicial body and accordingly to hear and adjudicate upon:

(i) commercial, business and other civil liability matters;

(ii) domestic and family matters including those relating to matrimony, children of a marriage, matrimonial property, and testate and intestate succession; and

(iii) disciplinary action to be taken under this Constitution and any Rules and Regulations…..

13.5 Each National Conciliation and Arbitration Board shall upon the application of any Ismaili assist him to settle any differences or disputes with another party residing in the area of jurisdiction of the National Conciliation and Arbitration Board in relation to any of the matters mentioned in Article 13.1 (a);"

45. In my judgment this material demonstrates that one of the more significant and characteristic spirits of the Ismaili sect is an enthusiasm for dispute resolution contained within the Ismaili community. I have no difficulty in determining this spirit to be an "ethos based on religion". I am further justified in that conclusion by the very terms of the arbitration clause itself and by the engagement by both sides of members of the Ismaili community to perform mediation and conciliation services from 1988 until 1994.
46. I am not sure that it was suggested by Mr H that even if membership of the Ismaili community could be regarded as a genuine occupational requirement nonetheless it was not proportionate to apply it. In any event, given the principles expressed in Section 1 of the Arbitration Act that "the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest" I would have rejected any such suggestion.

Human Rights Act

47. It is not easy to summarise the submissions made on behalf of Mr H as they were somewhat discursive. Nonetheless I deduce that the contentions made under the Human Rights Act fall under two main headings.
48. First it is contended that by pursuing his claim in an arbitral reference then Mr H's rights under Article 6 (fair trial) and Article 1 of the First Protocol (enjoyment of property) are engaged. Thus, so the argument runs, being within the "ambit" of those rights he can rely upon Article 14 given the discrimination in the selection of an arbitrator on religious grounds.
49. In the alternative, Mr H submits that the convention rights of potential non-Ismaili arbitrators under Article 9 (freedom of thought, conscience and religion) have been breached hereby again entitling Mr H to rely on Article 14.
50. It is of course common ground that neither of the parties is a public authority. Accordingly the Human Rights Act does not give direct rights against the parties:

"Public authorities

6 Acts of public authorities

(1) It is unlawful for a public authority to act in a way which is incompatible with a Convention right….

(3) In this section "public authority" includes—

(a) a court or tribunal, and

(b) any person certain of whose functions are functions of a public nature, …

7 Proceedings

(1) A person who claims that a public authority has acted (or proposes to act) in a way which is made unlawful by section 6(1) may—

(a) bring proceedings against the authority under this Act in the appropriate court or tribunal, or

(b) rely on the Convention right or rights concerned in any legal proceedings,

but only if he is (or would be) a victim of the unlawful act."

51. However for the moment it is helpful to consider whether the matter complained of would be a direct breach of a convention right if committed by a public authority (including any question of justification and waiver) before considering any entitlement to pursue the complaint indirectly.
52. Is discrimination in the choice of the arbitrator on religious grounds within the ambit of Article 6? This is a question of substance and degree. In this regard it is of some note that an arbitration clause of a remarkably similar character was before the Court of Appeal in Virdee v. Virdi [2003] EWCA Civ 41 without attracting any adverse comment.
53. In M v Secretary of State of Work and Pensions [2006] 2 AC 91, Lord Nicholls explained the issue as follows:

"13 The extended boundary identified in the Strasbourg jurisprudence is that, for article 14 to be engaged, the impugned conduct must be within the "ambit" of a substantive Convention right. This term does not greatly assist. In this context "ambit" is a loose expression, which can itself be interpreted widely or narrowly. It is not a self-defining expression; it is not a legal term of art. Of itself it gives no guidance on how the "ambit" of a Convention article is to be identified. The same is true of comparable expressions such as "scope" and the need for the impugned measure to be "linked" to the exercise of a guaranteed right.

14 The approach of the ECHR is to apply these expressions flexibly. Although each of them is capable of extremely wide application, the Strasbourg jurisprudence lends no support to the suggestion that any link, however tenuous, will suffice. Rather, the approach to be distilled from the Strasbourg jurisprudence is that the more seriously and directly the discriminatory provision or conduct impinges upon the values underlying the particular substantive article, the more readily will it be regarded as within the ambit of that article; and vice versa. In other words, the ECHR makes in each case what in English law is often called a "value judgment"."

54. The relevant values underlying Article 6 are a fair and prompt hearing by an impartial individual. No specific value is accorded to non-discriminatory selection and I am not persuaded that the discrimination vis-à-vis the selection of arbitrator is within the ambit of Article 6.^[6] Indeed it was accepted by Mr H that it was open to the parties to nominate specific arbitrators (such as the third arbitrator in the present case). But such a concession is irreconcilable with the underlying argument. In my judgment, it cannot be legitimate to appoint A for religious reasons but illegitimate to stipulate that A should be drawn from a religious class.
55. Moreover it has to borne in mind that Mr H accepts that there is no direct discrimination against him. He himself is not a victim nor has he sustained any detriment. In this regard he relies on authorities in a very different context: Showboat Entertainment Centre v Owens [1984] 1 WLR 384, Race Relations Board v Applin [1973] 1 QB 815. In my judgment the analogy is weak and does not provide any sound basis for treating Mr H as a person against whom there has been unlawful discrimination.
56. In any event, in my judgment, any putative breach is justified for similar reasons to those set out under Regulation 7 above. The distinctive treatment has to be in pursuit of a legitimate aim and be established in a proportional manner. As regards the aim, dispute resolution under the auspices of religious groupings such as the Beth Din is to be encouraged. As regards proportionality, for my part I can well understand the sense of trust and understanding that can be established by arranging for arbitration within the "community" (all the more so if the service is free).
57. Indeed even Mr H accepts that discrimination in the form prescribed by the arbitration clause would be justified if the dispute between the parties was to be determined by religious law or was of a "religious nature". But limited that way such would give rise to a most uncertain and unworkable demarcation. Given the wide scope of both Article 9 and the express liberty of choice under Section 1 of the Arbitration Act, I conclude that the restriction to members of the Ismaili sect is justified.
58. Furthermore, assuming that Mr H's Article 14 rights were engaged, he has on the face of it waived them by agreeing to the arbitration clause (leaving aside the fact that the clause was agreed many years earlier). By definition the "values" of a public hearing and a tribunal established by law are waived by almost any arbitration agreement. It is not suggested that a panel established under Art.8 would not be impartial or furnish a fair hearing.
59. Even assuming that there is some implicit or second order right not to have a tribunal selected from a limited pool such in my judgment could be and has been waived. Indeed subject throughout to the requirement that any waiver has to be informed and voluntary, even the rights to a fair trial and an impartial tribunal could be waived (although the situation might no doubt be very rare).
60. The alternative formulation of a breach of convention rights relates to the exclusion of potential non-Ismaili arbitrators (such as Sir Anthony Colman). This depends on the proposition that the deprivation of an opportunity to be appointed as an arbitrator between private parties on grounds within Article 14 is a breach of all such excluded persons Article 9 rights.
61. In my judgment this proposition is unarguable. Article 9 is concerned with freedom to practice and exhibit one's religion (and other) beliefs. It does not accord a right to work for private parties let alone a right for the entire population to be considered as a suitable arbitrator: cf. Thilimmenos v Greece (2001) 31 EHRR 15.
62. Furthermore, Mr H is by definition not the direct victim of any such discrimination. There may be circumstances where an indirect victim can complain but only where there is a close relationship with the victim: see generally The Law of Human Rights Clayton and Tomlinson 2^nd Ed. para. 22.46ff.
63. Equally any breach was justified and/or Mr H has waived his right to complain of it.
64. This is not the end of the obstacles facing Mr H. He still needs to establish that he can rely on the asserted discrimination under either Section 3 or Section 6 of the Human Rights Act.
65. Sect. 3 provides as follows:

"3.— Interpretation of legislation.

(1) So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way which is compatible with the Convention rights."

66. It was the submission of Mr H that the effect of this provision was that Sect. 1 of the Arbitration Act should be read as subject to the proviso that the relevant agreement does not unjustifiably violate the parties' convention rights. This is not a process of interpretation but a proposal to give direct effect to the rights under the Human Rights Act as between private parties. It is no more legitimate than incorporation of such a proviso in all statutes or statutory instruments. Mr J is relying on his contractual right to enforce the arbitration agreement. Convention rights cannot be applied: YL v Birmingham City Council [2007] UKHL 27.
67. Sect. 6 is equally barren ground for Mr H. The argument here appears to be that, even if the parties can submit their disputes to whomsoever they choose, the court (as a public authority) should not restrain the appointment of an arbitrator on the grounds of a lack of a religious qualification. By any standards this would be a bizarre outcome. So long as the parties agree all is well: but when they disagree the court cannot enforce their agreement.
68. In any event, as already noted, Mr H is not the victim of any act contemplated by a public authority.
69. There is a further difficulty that Mr H's cause of action accrued in 1994. This was before the Human Rights Act. Any appointment prior to November 1998 could not have been challenged. Mr H's submissions involve the retrospective application of the Act. In the circumstances the concerns of the House of Lords in Wilson v First County Trust (No 2) [2004] 1 AC 816 are of equal force.

Public Policy

70. A further argument was advanced by Mr H to the effect that even if Art. 8 was not invalidated by the 2003 regulations and/or the Human Rights Act, it was nonetheless void at common law as a matter of public policy.
71. There is a plethora of statutory provisions in regard to discrimination both in the criminal and the civil field. All this where there are, as Mr J submits, "competing freedoms and economic, moral, philosophical, religious and political issues". Even allowing for the need to move with the times, it is inappropriate for the courts to trespass further than parliamentary intention by way of filling what is suggested as a "lacuna" under the guise of public policy.

Severance

72. It follows that for all these reasons I reject Mr H's claim that he is at liberty to appoint an arbitrator who is not a member of the Ismaili community. Art. 8 of the JVA is valid and enforceable. For the sake of completeness I go on to deal with Mr H's submission that the effect of any invalidity of the requirement for arbitration within the Ismaili community is to delete the last sentence of Art. 8 but otherwise leave the article intact (including somewhat ironically the nomination of the third arbitrator as the "President of the H.H. Aga Khan Council").
73. It is Mr. J's submission that the entire arbitration clause would in those circumstances fall away leaving the parties to invoke the jurisdiction of the English court (or any other appropriate court). I agree.
74. The general principle is well established. The courts will sever part of a contract if (a) it can be "blue pencilled" and (b) the strike out does not substantially alter the scope of the agreement.
75. The arbitration clause can be treated as a separate contract. But in my judgment, the clause cannot survive in the proposed amended form:

i) It was a carefully structured dispute resolution clause which was not invalid when made in 1981.

ii) As such, it constituted an unequivocal waiver of the rights of both parties to a public hearing before a tribunal established by law.

iii) The waiver was informed and voluntary in the sense that it involved making a reference to three members of the Ismaili sect;

iv) To strip out the last sentence would be to rewrite the clause.

76. This conclusion is consistent with the realities of the situation. The selection of arbitration (and of arbitrators) involves a range of considerations including privacy, rights of appeal, cost, the size of the tribunal, the ability or otherwise to nominate all or part of the tribunal and so on.
77. The parties perfectly properly chose to submit their disputes to a group of three members of the Ismaili sect at modest cost. Once nominations to the tribunal become open ended, then the whole structure (and cost) of the exercise undergoes a sea change. In the circumstances there is only one agreement namely the arbitration clause as drafted. It is not open to amendment by the court.

Note 1   This has retroactive effect in the sense that, if in conflict with the Regulations, it is to be regarded as void with effect from the commencement date of 2 December 2003.    [Back]

Note 2   See also Comp. Europeene de Cereals SA v. Tradax Export SA [1986] 2 Lloyd’s Rep 301.    [Back]

Note 3   I assume for present purposes that Sir Anthony is not offering his services on such a generous basis.    [Back]

Note 4   cf. Christie v Dept. for Constitutional Affairs [2007] ICR 1553    [Back]

Note 5   Stadt Halle v. Arbeitgemeinschaft Thermische Restabfall [2006] 1 CMLR 39, also Marleasing, supra.    [Back]

Note 6   Art 1 of the First Protocol adds little. No-one is suggesting that the claim cannot be pursued. In any event there must be very limited property rights in a cause of action which is in any view prima facie time barred.    [Back]