By: Renuka Nevgi & Atharva Khubalkar
The constitution of the arbitral tribunal in accordance with the agreement of parties is one of the most crucial stages in the arbitral process. The appointment of impartial and independent individuals as arbitrators in the private dispute resolution process ensures fair adjudication. When a party appoints a sole arbitrator or panel directly, it is generally presumed that parties have asymmetrical powers of appointment. However, there is an intelligible differentia between the unilateral appointment of a sole arbitrator and that of the presiding arbitrator. While the parties directly appoint the sole arbitrator, the role of parties becomes limited in the appointment of the presiding arbitrator. Customarily, the co-arbitrators appointed by the parties further appoint the presiding arbitrator. Legal jurisprudence has not developed adequately to govern this grey area. The principles that need to be weighed against each other are party autonomy and the right to equal treatment. This blog aims to juxtapose these two cardinal doctrines of international commercial arbitration while attempting to determine whether the unilateral appointment of a presiding arbitrator should be held as invalid in law.
PARTY AUTONOMY: THE OVERARCHING PRINCIPLE
Party autonomy or the doctrine of l’autonomie de la volonté is a quintessential element of any agreement to arbitrate. It is an internationally recognized principle that has been encapsulated in Art. II of the New York Convention (hereinafter ‘NYC’). It requires the contracting States to recognize the procedure agreed upon by the parties for the selection of the presiding arbitrator. When a unilateral appointment clause is nullified, the principle of equal treatment of parties is often relied upon to demonstrate their actual unequal standing within the arbitral process. However, it can be contended that this principle is not violated where the power to appoint the presiding arbitrator is vested with one of the party-appointed arbitrators. The fundamental reasoning being, the party appointing arbitrators as well as the presiding arbitrators are deemed to be impartial, independent and neutral. All institutional international rules forbid arbitrators from favouring the party that nominated them. Furthermore, English law forbids an arbitrator from considering that he or she is an advocate or agent for the appointing party, rather deeming such arbitrators to be corrupt if they do so.
The situation in the case of a multiparty arbitration panel is at odds with that of a sole arbitrator. In case of sole arbitrators, parties are required to directly appoint the arbitrator. In a multiparty panel, parties appoint co-arbitrators in accordance with potential differences arising out of different cultures, languages or legal practices without hampering their independence and impartiality. Ordinarily, parties do not have the right to veto the co-arbitrators’ agreement on the appointment of the presiding arbitrator. Since general international standards mandate co-arbitrators to be impartial, the neutrality of proceedings is not violated and the parties still have equal access to justice. Moreover, the parties are empowered to challenge the appointment if they have reasonable apprehensions about the impartiality or independence of any arbitrator on the panel. Hence, it may be inferred that the unilateral appointment of presiding arbitrators does not lead to inequality between the parties.
Absence of identical rights also does not stand as a valid ground for nullifying unilateral appointments. This appears to be the position after the English court, in the case of Pittalis v. Sherefettin, refused to recognise the absence of mutuality as a ground for invalidating the arbitration clause, emphasizing upon the free consent of parties involved in such unilateral arbitration clauses.
RIGHT TO EQUAL TREATMENT: A LIMITATION TO PARTY AUTONOMY
When a party-appointed arbitrator unilaterally appoints the presiding arbitrator, an unfair advantage of influencing such an appointment is accorded to one party. The very rationale behind the appointment of these co-arbitrators is to ensure that each party’s concerns are sufficiently and effectively clarified to the presiding arbitrator. The party appointed arbitrators act as “judicial appointees” of their respective appointing party in the panel. They also clarify the technical aspects and make sure that the arguments advanced by the appointing party are not overlooked by the panel. Although co-arbitrators are expected to be impartial and independent, it is customary to consult with the appointing party while nominating the presiding arbitrator. As aforementioned, it is unquestionable for all the arbitrators on the panel to be impartial, neutral and independent. However, the pragmatic working of an appointment process portrays the co-arbitrators to have a dialogue and seek advice from their appointing party before nomination. For example, party A deliberates with their co-arbitrator, who has the unilateral power to appoint the presiding arbitrator. However, party B is deprived of their right to be consulted since their co-arbitrator lacks the power to participate in the appointment process. This is standard practice that does not affect the neutrality of arbitrators during the arbitral proceedings and rendering of the award.
The principle of equal treatment stands as a limitation to party autonomy. Article 18 of the United Nations Commission on International Trade Law Model Law reads as “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.” The right to equal treatment and fair hearing are non-derogable rights under arbitration laws of many nations. The guarantees of equal treatment and fair trial also apply to the preliminary assessment of the arbitration agreement’s validity. If the appointment of arbitrator leads to inequality resulting into unfairness and prejudice to one party, then it becomes the duty of the tribunal to declare the arbitration agreement as null and void. It is a recognised principle that party autonomy is subject to the fundamental requirement of fairness and justice.
In cases of unilateral appointment of a sole arbitrator, Indian Courts have adopted a stringent approach invalidating such clauses irrespective of impartiality, disclosure or objectivity. This is because there still exists a possibility of the arbitrator getting prejudiced in cases where the unilateral power of appointment is conferred upon one party’s appointed arbitrator. The reasoning behind the appointment of presiding arbitrator is the same though the cited cases concern the appointment of sole arbitrators. This is because the unilateral appointment of a presiding arbitrator can also be rendered invalid for violation of the right to equal treatment of parties, especially because co-arbitrators generally consult with the appointing party before nominating the presiding arbitrator. Upon the violation of the right to equal treatment, the award will be annulled irrespective of the parties’ agreement. The neutrality of the proceedings should not be violated and the parties should be given a level playing field in the appointment process.
ANALYSIS AND CONCLUSION
Parties to arbitration are entitled to the inviolable legal right of equal treatment under the UNCITRAL Model law. For instance, on one hand, party A is conferred with the power to unilaterally influence the nomination of presiding arbitrator by consulting with their appointed co-arbitrator. Contrarily, the co-arbitrator appointed by party B has no authority to nominate, approve or oppose the appointment of the presiding arbitrator, thus bestowing an unfair advantage on party A. However, all institutional codes of ethics and countries’ statutory legislations mandate the appointment of impartial, independent and neutral arbitrators.
Therefore, it is noteworthy that the role of parties in the appointment process concludes after nominating their co-arbitrator on the panel. Subsequently, these impartial and independent co-arbitrators further appoint the presiding arbitrator and the parties cannot exercise any material control over the nomination made by their respective co-arbitrators. But, a contrary argument is that even if the appointment is made impartially, the right to equal treatment is being violated. This is a legal injury in itself irrespective of its subsequent actual effect on the neutrality of proceedings. In any case, the interpretation of equal treatment was given in the Mauritius Commercial Bank case wherein it was held to be synonymous with equal access to justice. Therefore, the authors’ concluding stance is that although there is no settled law on the unilateral appointment of presiding arbitrator, both the parties still have equal access to justice in the event of an impartial appointment and thus, they are being treated equally.
(Renuka and Atharva are law undergraduates at Maharashtra National Law University, Mumbai. The author(s) may be contacted via mail at email@example.com and/ or firstname.lastname@example.org )
Cite as: Renuka Nevgi and Atharva Khubalkar, ‘Presiding Arbitrator’s Appointment by a Co-Arbitrator: Analysis of Confutable Validity’ (The RMLNLU Law Review Blog, 29 September 2021) <https://rmlnlulawreview.com/2021/09/29/arbitrator-confutable-validity/> date of access