The Court of Appeal held that the Regulations do apply to arbitrators. It agreed with H's submission that the Regulations and the Directive are intended to apply to all forms of employment in the broadest sense, including the provision of services under any form of contract. A person who appoints another to act as an arbitrator employs that person to provide a service. "Employment" for these purposes is defined in the Regulations as including any contract personally to do any work, and "work" in this context was apt to cover the provision of services of any kind.

The precise nature of the relationship between the arbitrator and the parties to the dispute is irrelevant for these purposes. In any event, that relationship must be supported by a contract of some kind. Although an arbitrator assumes a particular status which determines some aspects of his powers and duties, in most cases, that is only as a result of entering into a contract to do so. It was not necessary for present purposes to analyse when and how that contract comes into existence.

The recitals and the structure and language of Article 3(1) of the Directive indicated that it is concerned with discrimination affecting access to the means of economic activity through, among other things, employment, self-employment or some other basis of occupation. The appointment of an arbitrator involved obtaining the services of a particular person to determine a dispute. In that respect, it was no different from instructing a solicitor to deal with a piece of legal business or an accountant about a tax return. Since an arbitrator contracts to do work personally, the provision of his services falls within the definition of "employment". It follows that, for the purposes of the Regulations, the person appointing him must be an employer and the arbitrator providing the service must be an employee.

The Court of Appeal held that the Ismaili requirement in the arbitration clause contravened regulations 6(1)(a) and 6(1)(c). The appointment of a person to act as an arbitrator creates a contract between that person and both parties to the dispute. It followed that an arbitration agreement constitutes "arrangements" within the meaning of regulation 6(1)(a) for the appointment of arbitrators.

Article 8(1) of the JVA required both parties to refuse, or deliberately omit, to offer employment as arbitrator to any person who was not a member of the Ismaili community. The language of regulation 6(1)(c) was entirely apt to cover this situation.

As the Ismaili requirement offended both regulation 6(1)(a) and 6(1)(c), it was void unless it could be brought within regulation 7.

Although the judge's findings about the nature and ethos of the Ismaili community were not challenged, the Court of Appeal disagreed with his conclusion on this point. The question was whether being an Ismaili was a genuine occupational requirement for the proper discharge of the arbitrators' function. If the arbitration clause had empowered the tribunal to act ex aequo et bono (that is, to decide the case in accordance with general principles of equity and good conscience), it might have been possible to show that only an Ismaili could apply the moral principles and understand of justice and fairness that are generally recognised within that community as applicable between its members. However, the arbitrators' function under Article 8(1) was to determine the dispute between the parties in accordance with English law. That did not call for any particular ethos, and membership of the Ismaili community was clearly not necessary for the discharge of the arbitrators' functions.

The Court of Appeal agreed with the judge that the sentence in the arbitration clause containing the Ismaili requirement could not be severed. Although it was common ground that that sentence could be struck out without rendering the remainder unworkable, the question was whether what remained would be substantially different from that which the parties originally intended. If so, the clause must stand or fall as a whole.

Parties agreed to arbitration for many reasons and the ability to influence the composition of the tribunal is often viewed as of fundamental importance. Although, objectively, particular experience or qualifications may not be necessary for the fair and effective resolution of a dispute, the parties' own view was entitled to respect. No doubt the parties in this case considered that they had good reason for stipulating that the arbitrators should be drawn from the Ismaili community. That choice was an integral part of the arbitration agreement and could not be disregarded as being of no real significance. Therefore, if the sentence containing the Ismaili requirement was void, the remainder of the clause could not stand.