News and developments
TO ‘PERKINS’ OR NOT TO ‘PERKINS’
In this matter, a challenge to the appointment of a Sole Arbitrator was made on the ground that such Arbitrator was appointed unilaterally by the ‘Investor’, as provided in the arbitration agreement between the parties, thus falling foul of the decision of the Supreme Court of India in Perkins Eastman Architects DPC. v. HSCC (India) Limited (“Perkins”)[3]. The Court rejected the challenge on the ground of existence of an “express agreement in writing,” as inferred from the facts and circumstances of the case.
In the backdrop of the aforesaid decision, it may be useful to take another look at Perkins and analyse whether McLeod Russel indeed defeats the spirit of the Supreme Court decision, or steers clear of the boundaries set by it.
Bias and its treatment:
Before delving into Perkins and all it brought, it may be useful to glance at the provisions relating to bias in arbitrators in the Act. The amendments made to the Act vide the Arbitration and Conciliation (Amendment) Act, 2015 (“the Amendment Act”), inter-alia, attempted to introduce safeguards which warrant fairness in the conduct of arbitration proceedings and minimise bias.
Section 12(1) of the Act mandates an arbitrator to disclose in writing existence of any direct/ indirect past or present relationship with any of the parties to such dispute, which may raise justifiable doubts as to his impartiality. Schedule V to the Act provides guidance on what constitutes such “justifiable doubts”. Section 12(5) to the Act, read with Schedule VII, specifies certain categories that render an arbitrator ineligible to act. Only an ‘express agreement in writing’ between the parties to the arbitration waiving such disqualification, after the disputes have arisen, would entitle the ‘ineligible’ arbitrator to act.
The Supreme Court of India has carved out a difference between independence and impartiality of an arbitrator. An arbitrator may be independent and yet, lack impartiality, or vice versa. Independence, which is a more objective concept, may be more straight forwardly ascertained by the parties at the outset of the arbitration proceedings in light of the disclosures made by the arbitrator, while partiality will more likely surface during the arbitration proceedings[4].
It is interesting to note that while considering the question of bias and whether an arbitrator will be ineligible to act, the Courts have not always restricted themselves to the four corners of the statute, and a gradual movement is perceived from ascertaining the existence of ‘actual bias’ in an arbitrator to the existence of an ‘apparent bias’.
In the Supreme Court’s decision in TRF Limited v. Energo Engineering Projects Limited (“TRF Limited”)[5], the Court held that where an agreement provides that the managing director of a company will be appointed as a sole arbitrator and such power is lost as the proposed arbitrator should not be an employee of one of the parties to the arbitration (as provided in Schedule VII), his/ her power to nominate someone else as an arbitrator is also obliterated. This does not appear in the statute.
In Perkins, taking the TRF Limited legacy a step further, the Court eloquently held that based on the same reasoning, an arbitration clause which provides exclusive power to one party to appoint a sole arbitrator cannot be valid.
The aforesaid principle established by Perkins also resonates in judgment delivered by the Delhi High Court in the case of Proddatur Cable TV Digi Services v. SITI Cable Network Limited[6] where the court held that even a ‘company’ acting through its Board of Directors will have an interest in the outcome of the dispute and thus, the arbitration clause which envisaged the appointment of a sole arbitrator by the ‘company’, would be rendered unworkable. The decision was also followed in numerous other occasions.[7]
In light of the jurisprudential development, it may be safely assumed that the Courts have gradually accepted that the test now is not whether there is ‘actual bias’ in an arbitrator in a given circumstance, for that would entail an onerous standard of proof, but whether the circumstances create room for justifiable apprehensions of bias[8]. This indeed bodes well, since nations across the globe, especially countries where international commercial arbitration thrives, independence of arbitrators is an important building block of party autonomy. Bias in arbitrators is a nagging issue and complete independence of arbitrators would mean ruling out bias that may not necessarily be attributable to the identity of the person appointed alone, but also to the process of appointment.
The decision:
In light of the aforesaid discussion, it may now be fruitful to look into the reasoning of the Court in McLeod Russel. Here, the arbitration agreement provided for appointment of a Sole Arbitrator unilaterally by the ‘Investor’, being one of the parties to the agreement. Following appointment of the Sole Arbitrator, the petitioners, (being the party without any say in the appointment of the Sole Arbitrator), had participated in the proceedings and even agreed to passing a consent order by the Sole Arbitrator.
Subsequently, the petitioners applied to the High Court at Calcutta seeking termination of the Sole Arbitrator’s mandate. Such challenge was rejected by the Court, on the ground that the petitioners had actively participated in the proceedings, and the pleadings filed by the petitioners at various stages in the arbitration proceeding amounted to an “express agreement in writing” as contemplated in the proviso to section 12(5) of the Act, thereby waiving the objection in respect of the purported disqualification of the Arbitrator.
The Court also noted that unlike the present matter, there was no such unequivocal acceptance of the arbitration by conduct or otherwise in Perkins. Thus, the Court distinguished the instant case on this ground and refused to terminate the mandate of the Sole Arbitrator, even when the appointment was unilateral.
Critical analysis of the decision:
Three aspects of the decision may be particularly interesting to consider are as follows:
- To participate or not to participate:
- An ’express’ agreement:
- To Perkins or not to Perkins: