Whether Unilateral Appointment of Sole Arbitrator is Invalid in All Cases? The Other Side of Perkins Eastman

Ayushi Dangre (Advocate, Bombay High Court) and Abhishek Tripathi (Advocate | GST IVY) 

The hallmark of arbitral proceedings lies in the independence, impartiality and neutrality of the arbitrator(s). The aspect of free and unbiased arbitral proceedings is fundamental to the principle of natural justice. Every good dispute resolution system has always given significant emphasis to independence, impartiality and neutrality, be it court litigation or arbitral proceeding.  

On the very foundation of independence, impartiality and neutrality, Hon’ble Supreme Court of India in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd., (2019) SCC Online SC 1517, invalidated the unilateral appointment of a sole arbitrator. Hon’ble Supreme Court of India rendered the judgment on the plinth of TRF Limited v. Energo Engineering Projects Limited, (2017) 8 SCC 377, while extending the scope of independence and impartiality and asserting that ‘possibility of bias’ is always present in such unilateral appointment. The relevant portion of paragraph 16 of the judgment is reproduced hereinbelow for ease of reference: 

  1. ………………….. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited.”  

Some questions are neither debated after Perkins Eastman (supra), nor find their place in the judgment. Such-as: Whether Perkins Eastman (supra) puts a blanket ban on the unilateral appointment of a sole arbitrator or there might be some exceptions to unilateral appointment of a sole arbitrator? Whether unilateral appointment hits ‘impartiality’ of sole arbitrator in all cases? The authors will travel the less debated path to unravel the exception (or difficulty) that may occur by such blanket ban (if any) of unilateral appointment of a sole arbitrator. Thus, this write-up draws the reader’s attention towards the exception that might need judicial consideration in the case of the above-stated blanket ban. 

The three most celebrated characteristics of arbitral proceedings are (i) Party Autonomy, (ii) Cost-Effectiveness and, (iii) Minimal Court Intervention. The Indian Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) or any other Arbitration statute has the very foundation of party autonomy. Sections 10 and 11 of the Arbitration Act confers party autonomy and absolute authority to the parties to determine the procedure for appointing the arbitrator(s). Secondly, cost-effective medium of resolving the dispute. Thirdly, minimal court intervention thereby saving parties’ time. Let’s understand the impact of Perkins Eastman (supra) for the exception on the most celebrated characteristics of an arbitral proceeding. 

Sections 10 and 11 of the Arbitration Act grants freedom to parties to appoint an arbitrator. Before knocking on the doors of the Court, the parties refer to the arbitration agreement or mutually decide the procedure for appointing the arbitrator(s). Even submitting dispute(s) in accordance with an arbitration agreement to an arbitral tribunal consisting of a sole arbitrator is not barred by the Arbitration Act. However, one-member arbitral tribunal has been restricted by Perkins Eastman (supra) to an extent of unilateral appointment and leaving the only option of mutual appointment of a sole arbitrator by both parties.  

A situation may arise, for instance, Party A and Party B have agreed that Party A will appoint a sole arbitrator from the X-panel of arbitrators. In such a situation, Party A is unilaterally appointing the sole arbitrator from the X-panel. Can we say that the unilateral appointment of the sole arbitrator is invalid? Adding further spice to the factual situation, Party A unilaterally appointed Ms. Y from the X-panel. There are no circumstances giving rise to justifiable doubts against Ms. Y as to her independence or impartiality. Still, such an appointment will be invalid? Or this might be the exception. Other instances also require judicial consideration, (i) Party serving the notice to arbitrate may appoint from the X-panel and, (ii) A party may shortlist arbitrators from the X-panel and the other party may appoint an arbitrator from the list of shortlisted arbitrators.      

Undoubtedly, independence and impartiality are sine qua non for arbitral tribunal but, that should not become the ground to disregard party autonomy completely. A sensible system cannot permit the appointment of an arbitrator who is not independent and impartial, even if the parties agreed to it. That’s why the Arbitration Act has checks and balances vide Section 12 of the Arbitration Act laying the ground to test the independence and impartiality of an arbitrator. Unilateral appointment of sole arbitrator finds no such place under Section 12 of the Arbitration Act. Do we need judicial interpretation, even when the statute doesn’t envisage barring unilateral appointment of a sole arbitrator? Perkins Eastman (supra) has answered in affirmative. But didn’t contemplate the situation (or exception) as mentioned in the above paragraph. 

If the parties won’t be able to appoint a sole arbitrator, unilaterally or otherwise. In such an event of default, ‘Hon’ble Supreme Court or, as the case may be, Hon’ble High Court or any person or institution designated by such Court will appoint the arbitrator. This impacts our second and third characteristics as discussed above, of an arbitral tribunal. Generally, having three or more arbitrators in a panel is much more expensive than one arbitrator. Most of the dispute resolution clause has an arbitral tribunal consisting of a sole arbitrator. If the arbitration clause is not tuned with Perkins Eastman (supra) then an arbitral tribunal composed of the sole arbitrator will get scrutinized on the grounds of ‘possibility of bias’ and will lead to an influx of litigation. And running to court for the appointment of an arbitrator is in no way ‘cost effective’ and ‘minimal court intervention’.   

Surely, Perkins Eastman (supra) will curb the abuse of bargaining power and dominant position of one party in an arbitration agreement who usurps the right to appoint a sole arbitrator, stranding the other party with no real and meaningful choice. But we need to realize that appointment of sole arbitrator is the most preferred choice by the parties. And the system should respect the choice of the parties and facilitate the appointment of the sole arbitrator, unilaterally or otherwise, while preserving the sanctity of law.  If the arbitrator passes the litmus test of independence and impartiality under Section 12 read with Fifth, Sixth and Seventh Schedule of the Arbitration Act, then such appointment may be considered to be valid.    

 For any clarifications, the authors may be reached at ayushi.dangre@yahoo.com / abhishek@gstivy.in  

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