Unilateral Appointment of Arbitrators: Unfair to the Parties?

Introduction

Standing on the fundamental pillars of independence and impartiality, Arbitration as an overall mechanism to ensure a more flexible and less time-consuming approach to justice is growing steadily since its inception. With the passage of time, the fallacies in the system are being recognized and necessary amendments are being brought in to remove the impediments present in this field of law. In this ongoing scrutiny, one of the contemporary issues that are being discussed widely is the perplexity regarding the unilateral appointment process of arbitrators. In disputes where the written authority to appoint arbitrators is given to only one party involved in the arbitration, there is an apparent disadvantage to the other party as the skepticism hinting toward a travesty of justice is present.

The genesis of Arbitration in the Indian law environment can be primarily attributed to the Arbitration and Conciliation Act, 1996. Though regular amendments have taken place to identify and fill the legal cavities present in the Act, there is pendency with regards to a parliamentary deliberation on the unfair advantage that one party enjoys in the case of unilateral appointment of Arbitrator(s).

Unilateral Appointment: The Bone of Contention

The foundation of the said act rests on the universal principle of natural justice. In the context of maxims, nemo judex in causa sua (no one can be a judge in their own case)being one of the essential tenets required in any mechanism that works around dispute resolution, is embodied here too. Therefore, this issue becomes a matter of even more concern when it sets its eyes straight toward violating the basic principle and maxim of the practice.

Simply put, impartiality serves as a feature of extreme significance in this context. When a party or side has an interest in the final award or decision of the case, it should not possess the power to solely appoint an arbitrator. On an obvious note, it augments the apprehension of the proceedings being in the favour of who has chosen the arbitrator and may result in a biased decision, establishing the termites of injustice in this system that have the potential to make it hollow and inefficient in the long run. The Act provides grounds by virtue of Section 12 (3)(a) to bring it to the notice of the court if justifiable doubts and circumstances exist in relation to the independence and impartiality of the arbitration tribunal. There is also the presence of a plethora of grounds under section 12 that may help in challenging the arbitral tribunal’s conduct in line with quality of fairness and neutral behavior. However, the arena to rectify the unilateral appointment issue still needs to widen.

Focusing on the neutrality of arbitrators while hearing and deciding the cases, recommendations were submitted via the 246th Law Commission Report and most of them were incorporated through legislative changes made in the main Act in 2015. Surprisingly, even after such active efforts to make this dispute resolution a pure mechanism, the compliance of the system with a partial clause like the unilateral appointment poses a big question mark on the Arbitration laws in India and makes the current approach incomprehensible for many.

Case Analysis from International Perspective

The cases in Arbitration Law challenging its partiality aspect have been quite regular. For starters, in the case of Jivraj v. Hashwani, the prescription of the arbitrator on its ability as a community man was the bone of contention. In this case, the criteria for being an arbitrator were based on being a member and holding a high office within the Islamic community that the Supreme Court found ultra vires to English Law.

It has also been observed that the nations that follow civil law vehemently pose a dissenting stance against the unilateral arbitration rules. The French Court of Cassation, famously known as the French Cour de Cassation, stated in the case of X vs. Banque P.  Edmond de Rothschild Europe that “a unilateral option clause is void for creating a potestative condition contrary to the French Law.” Similarly, in most of the cases that were decided on this core question, the action of one party approaching the case and initiating the process of arbitration with the arbitrator of their sole choice was considered void. It was seen as a similar practice to bringing or being a judge of one’s own case and inclining towards favoring interests no matter how wrong it might be, that the legal maxim of nemo judex also talks about.

Even as per Russian law, the Supreme Commercial Court in Russian Telephone Company (RTC) v. Sony Ericsson Communication Rus also stated that a clause giving additional options and power to one of the parties is invalid and arbitrary.

Unilateral Appointment from a National Lens

As Indian law is amalgamated from the overlapping fragments of civil and common law, it has acquired its jurisprudence from both schools of thought regarding impartiality and fairness rationale on the unilateral appointment in arbitral tribunals. In the landmark case of Perkins Eastman v. HSCC, the case revolved around the question of the validity of the sole appointment of arbitrator clause exercised by the Managing Director of the company. The Supreme Court held that the practice of such an appointment is mala fide in law and the arbitrator cannot serve the interests of only the party that has appointed them.

In another case titled Voestalpine Schienen v. Delhi Metro Rail Corporation Ltd., the court struck down the procedure of the appointment of arbitrators that was given as the attached agreement’s clause. Calling independence and an unbiased atmosphere the hallmarks of any arbitration proceedings, the Supreme Court upheld the rule against bias as the core principle in this scenario.

The 2015 amendment also subsumed and adopted the IBA guidelines which help maintain uniformity with international standards of Arbitration. This ardent effort helped in deriving a system of checks and balances that was made possible with the inclusion of three schedules for smooth regulation.

Recommendations and the Way Forward

The intention of the steps and initiatives is to bring about a sea change in how this entire arena of law is perceived in India. The current perception of biasness, delays and sluggish bureaucracy is something that needs to be immediately broken with reinforcement of necessary measures. Creating a “faceless” tribunal having people of specialized interests who are randomly chosen to serve as an arbitrator in a case can remove the veil of unilateral appointment. Additionally, Artificial Intelligence can also be used as a tool in facilitating this process, ensuring no human interference whatsoever in appointing arbitrators. There is also scope for extension of laws in the commanding Act to make its structure in consonance with the guidelines of UNCITRAL (United Nations Commission on International Trade Law) and IBA (International Bar Association).

Conclusion

The heart of Arbitration beats with its parties’ equal autonomy throughout the process, speedy recovery and constant presence of neutrality. Due to the lack of some crucial legislative provisions, eyebrows get raised in doubt regarding the credibility of this relatively new process of dispute resolution. However, if there is an adequate observation of activities from the side of concerned authorities, a progressive parliamentary mindset in turning Arbitration into a legal revolution, and an assurance that the sphere will be devoid of bias, there is nothing that can stop people from trusting the process and walking on this path of dispute settlement.

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