Institutional Innovations – a threat to the Lex Arbitri?

Updated: Aug 13

Umang Bhat Nair[1]

Arbitration today, as a means of consensual dispute resolution, can be likened to a game of football where the arbitration between the parties is the ball. The parties together form one team, both agreeing to ‘score a goal’ by solving their differences. The dispute between the parties is the other team, that tries its best to prevent the parties from reaching their goal. The arbitral tribunal is the unbiased referee that conducts the game, ensuring that there are no fouls or illegalities and gives a final decision on matters in dispute. The lex arbitri, or the law of the arbitration, forms the boundary line of the field that demarcates the playing area. Parties may agree to arbitrate their disputes in any manner as long as they remain within the confines of the Arbitration & Conciliation Act, 1996 (“the Act”) (assuming the arbitration is India-seated). Finally, the arbitral institution chosen by the parties plays the role of coach or manager of the team. It helps parties resolve their differences efficiently, much like a coach would advise teams on efficient ways of scoring a goal. While a coach may heavily influence the strategy of a football team, at the end of the day, he merely plays an advisory role and the actual strategy implemented is left to the players in the field. Similarly, an arbitral institution plays a facilitative role, allowing parties to choose innovative methods to help have speedier dispute resolution, but, at the end of the day, playing only an advisory role.


Ideally, an arbitration runs smoothly with each participant mentioned playing its intended role. However, issues arise when one participant strays from the assigned role. For example, if a referee were to start taking biased calls contrary to his assigned role, he would be challenged, and the game would not proceed. Similarly, an arbitration would not proceed if an arbitrator uncharacteristically became biased towards one party. In the same vein, arbitral institutions are also meant to be mere facilitators of an efficient dispute resolution. Today, we see frequent innovative additions to Rules by institutions wishing to set themselves apart from others in a bid to attract more customers. While such innovations are welcome, problems arise when institutional innovations overreach themselves by going against the mandatory provisions of the lex arbitri. For example, the Indian arbitration community waits with bated breath for the Supreme Court’s decision on whether orders passed by an emergency arbitrator are enforceable under the Indian Arbitration Act.[2] As will be elaborated on later in this article, the primary reason for multiple rounds of litigation on this issue is a conflict between an offering of an arbitral institution and the provisions of the lex arbitri.


When it comes to the lex arbitri, it must be kept in mind that it is much more than mere procedures written down that may be opted out of by party agreement. The lex arbitri answers more substantive questions as well – arbitrability of a dispute, denial of enforcement due to public policy of the enforcing country etc… When parties submit to arbitration seated in a particular country and agree to the application of said country’s arbitration law, they must abide by the law’s mandatory provisions.


In this article, the author shall highlight how we are seeing a change in the role of arbitral institutions today that is overshadowing the provisions of the lex arbitri in the name of party autonomy. The author shall substantiate this argument by analysing two institutionally unique offerings: (1) Joinder procedures and (2) emergency arbitration. The focus of this article shall be on arbitrations seated in India with Part I of the Act applicable.


Laying the Theoretical Groundwork


Before analysing the tussle between institutional rules and the lex arbitri, the author shall lay the groundwork for the same. In Bhayana Builders Pvt. Ltd. v. Oriental Structural Engineers,[3] the Delhi HC has comprehensively highlighted the principle of party autonomy embodied in various provisions of the Act including Sections 11(2), 13(1), 19(2), 20(1) and 22(1). The Act has a two-tiered approach to determining procedure. The first tier consists of party agreement. In the absence of party agreement, recourse is taken to the second tier, and the tribunal/ court is empowered to step in and determine procedure. For example, if parties do not agree under Section 19(2) on the procedure to be followed by the tribunal, Section 19(3) then empowers the tribunal to conduct the proceedings as it deems appropriate.


Party agreement to adopt institutional arbitration and consequently, institutional rules is a first-tier approach. This is by virtue of Section 2(8) of the Act. Section 2(8) reads,


Where this Part –

a) Refers to the fact that the parties have agreed or that they may agree, or

b) In any other way refers to an agreement of the parties,

That agreement shall include any arbitration rules referred to in that agreement.”


It must be noted that the provision specifically allows for institutional rules to be read in only where Part I of the Act refers to party agreement. With this theoretical grounding, the article shall now discuss how certain institutional innovations overreach and overshadow provisions of the lex arbitri that weren’t meant to be interfered with by party agreement.


Joinder Provisions


The 2016 SIAC Rules[4] stand out when in many aspects in terms of offering unique procedural mechanisms for parties wishing to arbitrate. One such example is SIAC’s comprehensive joinder provisions found in Rule 7 of the SIAC Rules. Rule 7 lays down the procedure for joining additional parties to the proceedings. This procedure is attractive for those cases in which the parties to the dispute wish to join another party to the ongoing arbitration instead of filing for a fresh arbitration. If such a request for joinder is accepted, the arbitration becomes a multi-party arbitration which then raises a whole set of additional concerns. For example, multi-party arbitrations lead to complexities in the formation of the arbitral tribunal.[5]


In the context of the SIAC Rules, it is a concern as to how tribunal constitution would take place in situations envisaged under Rule 7.10 read with Rule 7.12. Rule 7.10 deals with joinder of a party post Tribunal formation. If the joinder is granted, Rule 7.12 states that, “any party who has not nominated an arbitrator or otherwise participated in the constitution of the Tribunal shall be deemed to have waived its right to nominate an arbitrator or otherwise participate in the Tribunal’s constitution…”


This results in a situation wherein the newly joined party is automatically deemed to have waived its right to partake in the constitution of the tribunal since its co-claimant/ respondent has already done so. This is troublesome, especially for India-seated arbitrations. Indian Courts have held that principles of fairness and equality of parties’ trumps party autonomy when it comes to the constitution of the arbitral tribunal.[6] For example, the Apex Court in its watershed judgement in Perkins Eastman Architects DPC v. HSCC (India) Ltd.,[7] found that appointment by one party of a sole arbitrator violates equality and such a clause shall be invalidated regardless of party agreement. The Court further distinguished cases involving a three-member tribunal since any right of one party to appoint was counterbalanced by the right of the other to appoint its own arbitrator. However, it is the author’s submission that in cases such as those discussed above in the context of SIAC joinders – the principle of equality between parties would stand violated. It is not necessary that co-claimants or co-respondents shall have similar interests in the arbitration and clubbing them together for the purposes of a single appointment would violate party equality.[8] Prof. Martin Hunter, a prominent international arbitration practitioner, states, “when I am representing a client in an arbitration, what I am really looking for in a party-nominated arbitrator is someone with maximum predisposition towards my client, but with the minimum appearance of bias.”[9] When keeping this in mind along with the fact that all parties may not have similar interests in the arbitration – it is necessary to allow each party an equal influence in the composition of the tribunal to maintain equilibrium between all parties. By waiving one party’s right to participate in the constitution of the arbitral tribunal, that party shall have no avenue to have a say in the composition of the decision-making body of the arbitration.


The principle of party equality is also reflected explicitly in Section 18 of the Act which mandates that the parties shall be treated equally in the arbitral proceedings. As Section 21 of the Act read with Rule 3.3 of the SIAC Rules makes clear, the proceedings begin as soon as the Notice of Arbitration is received by SIAC and therefore Section 18’s mandate would include the Tribunal formation stage. Therefore, it is seen that the institutional joinder provisions directly conflict with established principles of the Act by automatically waiving the right of one party from having any say in tribunal formation.


Emergency Arbitration


Emergency Arbitration is offered by numerous institutions, the HKIAC and SIAC being two notable examples. An in-depth analysis on the history and jurisprudence of Emergency Arbitration in India has been covered on this platform earlier.[10] The present article argues that, irrespective of how the Amazon-Future dispute is settled by the Supreme Court,[11], while orders by an Emergency Arbitrator is attractive as a concept, it goes against the spirit of the Act.


The author supports this argument by putting forth two important considerations:


First, In M/s Deep industries Limited v. Oil and Natural Gas Corporation Limited and Anr.,[12] the Supreme Court has held that the Act is a “self-contained” and “exhaustive” code dealing with arbitration. It carries with it a negative import that it is necessary for an act to be mentioned in the Act for it to be permissible by law.[13] Section 2(1)(d) of the Act, which defines an arbitral tribunal, does not expressly include an emergency arbitrator. Even after the 246th Law Commission Report specifically called for an amendment to include ‘emergency arbitrators’ in Section 2(1)(d), the Government of India did not do so in its multiple amendments 2015 onwards. Moreover, attempting to equate an emergency arbitrator to that of a tribunal would be inappropriate given that his role is transient with his authority ceasing to exist upon constitution of the tribunal. If an emergency arbitrator is indeed equated to an arbitral tribunal, what is happening is different arbitrators are taking the reins of the proceedings at different points in time. Given that the Act does not in any way permit the appointment of temporary arbitrators, emergency arbitrators cannot find a place within its provisions today.


Second, Under Section 5, the Act allows for intervention by an authority other than an arbitral tribunal only as permitted – Reference to arbitration (Section 8), interim measures (Section. 9), tribunal appointment (Section 11), Court-assistance for evidence (Section 27) and Setting Aside/ enforcement of Award (Sections 34 and 36).


Section 17(2) of the Act states that orders passed by the tribunal granting interim relief is to be deemed a Court order for all purposes. While it is true that a single judge bench of the Delhi HC has enforced an emergency arbitrator’s order under Section 17(2),[14] the author argues that this was incorrectly done. Relief by an Emergency Arbitrator cannot be enforced as akin to that of interim relief under Section 17 of the Act as this would be extending the scope of the provision which is against the ‘exhaustive’ nature of the Act. Section 17 is not one of the provisions attracted under Section 2(8) where parties may agree to incorporate institutional rules and amend its working. By introducing the concept of an Emergency Arbitrator into Section 17 by mere agreement to certain institutional rules – what is happening is that a pure creature of contract (the Emergency Arbitrator) is being vested with powers equal to that of a Court when it comes to passing enforceable orders. Unlike an arbitral tribunal that finds regulation in the Act (for e.g., in Section 12), the Emergency Arbitrator is left completely unregulated under the Act. Importantly, there is no indication in the Act itself that the term “arbitral tribunal” as used in provisions such as Section 16 and 17 intended to include Emergency Arbitrators. Given the self-contained exhaustive nature of the code coupled with the exclusion of sections 16 and 17 from the scope of Section 2(8) of the Act, it would be directly against the Act’s framework to allow Emergency Arbitrator’s orders to be enforced via section 17. Therefore, we see another example of how the parties’ choice of institutional rules leads to conflicts with the lex arbitri.


The author must clarify that while Emergency Arbitration is a welcome step in dispute resolution, the Act needs to be amended before an order passed by an Emergency Arbitrator can be validly enforced. Enforcing the order under Section 17 of the Act as it reads today would be an interpretational overreach against the framework of the Act.


Conclusion


In this article, the author has demonstrated how the lex arbitri, specifically the Indian Arbitration Act is being hammered, with the nail being institutions and their inventions, and the hammer being party autonomy. As explained in the section discussing the Supreme Court’s decision in Perkins Eastman, the Supreme Court has clearly shown a primacy accorded to equality between parties. Even in the face of party agreement saying otherwise, the top court struck it down in favour of party equality. Hence, while institutional innovations are welcome, parties need to keep in mind that party autonomy itself is granted to parties under the Act and much like how a football is not permitted to leave the field’s boundary, parties cannot exercise party autonomy to step outside the mandatory provisions of the Act While suggesting an institution for arbitration, clients may be advised to opt out of institutional offerings that are likely to lead to longer bouts of litigation when any order or award comes for enforcement to India. This would allow parties to opt for the best institutions to handle their arbitration while at the same time precluding additional challenges by recalcitrant counterparties. In addition, courts must be careful to not stretch the text of the Act’s provisions during interpretation to the extent that the very spirit of the Act is defeated. Finally, institutions must ensure that any developments in their offerings are not used by parties to undermine the provisions and spirit of the lex arbitri.


[1]Umang Bhat Nair, fourth year student of NALSAR University of Law, Hyderabad, umangbn.ubn@gmail.com. [2] ‘Supreme Court reserves verdict on Amazon’s plea against Future-Reliance deal,’ The Hindu <https://www.thehindu.com/news/national/supreme-court-reserves-verdict-on-amazons-plea-against-future-reliance-deal/article35601705.ece> accessed 2 August 2021. [3]2018 SCC OnLine Del 7634. [4]‘Singapore international Arbitration Centre Rules 2016’ <https://www.siac.org.sg/our-rules/rules/siac-rules-2016#siac_rule3> accessed 2 August 2021. [5]Umang Bhat Nair, Appointment of arbitrators in multi-party arbitration – when will post-Dutco reforms come to India?, National Forum for Research in Arbitration Law <https://www.nfral.in/blog/appointment-of-arbitrators-in-multi-party-arbitrationwhen-will-post-dutco-reforms-come-to-india#> accessed 2 August 2021. [6]Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2019) SCC OnLine 1517; Proddatur Cable TV Digi services v. Siti Cable Network Limited, (2020) SCC OnLine Del 350. [7] Id. [8] BKMI Industrienlagen GmbH & Siemens Dutco Construction, Yearbook Commercial Arbitration, Vol. XVIII, 140 (Kluwer Law International, 2016). [9] Martin Hunter, Ethics of the International Arbitrator, 53 Arbitration 219, pp.222-223 (1987). [10]Gaurav Rai & Suraj Raj Kesherwani, Arbitrating Shareholder Disputes: A Case for Emergency Arbitration in India, The Arbitration Workshop <https://www.thearbitrationworkshop.com/post/shareholder-disputes-emergency-arbitration> accessed 2 August 2021. [11] Supra, at n. 2. [12](2020) 15 SCC 706. [13]Id. [14] AmazonCom NV Investment Holdings LLC v. Future Coupons Private Limited & Ors., (2021) Delhi High Court O.M.P. (ENF) (COMM.) 17/2021, Order dated 18 March 2021.

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