Addressing Asymmetry in Arbitrator Appointments: A Multi-Party Context

It is commonplace for private entities who contract with Indian public sector undertakings to find themselves in severely skewed arbitration agreements that give them limited power to appoint their nominee arbitrators. A Constitution Bench of the Supreme Court of India is poised to settle the law on the issue of imbalance between parties’ power in constituting the Arbitral Tribunal.¹ The decision is expected to have wide-ranging implications in India as it looks to reconcile discordant views taken earlier.² In light of this development, the authors explore the vitality of parties’ equality in constituting tribunals, particularly in the context of multi-party disputes.

Introduction

Ranking over most other advantages and allures, the ability to choose one’s adjudicator makes arbitration a preferred mode of dispute resolution. It is this foundational principle of party autonomy and consent that shapes much of the legal landscape that governs arbitration.

The laws of arbitration in most jurisdictions preserves parties’ autonomy in nominating an Arbitral Tribunal of their choice including through an arbitral institution of choice. These principles contemplate leaving court-driven appointments as the fallback of last resort.

The procedural law and rules allowing for party-driven appointments have however evolved from the relatively simple setting of a two-party dispute. A two-party arbitration evenly divides conflicting interests in the appointment of an arbitrator. Typically, each party nominates an arbitrator, giving them an equal say on the presiding member of the Tribunal, as well as the Tribunal as a whole. A sole arbitrator appointed by consent or by an arbitral institution, again, ensures the parties’ agency is evenly distributed in the appointment of the Tribunal.

This is however not the case when a dispute involves more than two parties, especially where a three-member tribunal is contemplated. Multi-party arbitrations distort the arithmetic symmetry in the appointment of the Tribunal. They also give rise to complications between parties on the same “side” of a dispute, who may not have aligned interests. This article explores whether multi-party arbitrations are inherently unsuited to achieve a balance of party autonomy in the appointment process, making court/institutional arbitrations the best means to achieve the constitution of the Tribunal, rather than being the fallback option.

The guiding light of Dutco

If participating in appointment of the Tribunal is so foundational to the sanctity of arbitrations, what happens in a multi-party context, where parties enjoy disproportionate rights in choosing their adjudicators? For instance, a dispute under a contract with three parties (say, one employer and two contractors) would result in a situation where the claimant employer appointing one nominee to the Tribunal would have a disproportionately higher right in the constitution of the Tribunal, as compared to the two respondents who would be compelled to jointly nominate one member. This is particularly relevant when there may be a dispute inter se the two respondents themselves.

The French courts’ approach in precisely navigating this disparity still holds the field. In Dutco³, the claimant initiated arbitration against two respondents and sought the appointment of a three member tribunal to adjudicate the dispute. Despite requesting that proceedings against each respondent be separated into distinct arbitrations, the respondents were forced to jointly nominate one arbitrator to the Tribunal.

Challenging the resulting award on this ground, the respondents argued that they each had a disproportionately lesser say in the constitution of the Tribunal, rendering the promise of equal treatment of parties broken. Enforcing such an award, in the respondents’ submission, contravened the French public policy principle of equality between parties in the Tribunal’s appointment. The Cour de Cassation agreed with the respondents and the award came to be set aside. The decision left the arbitration universe wondering how they can practically ensure relative equality of parties in a multi-party context. Courts have continued to stand by the Dutco position.

Interestingly, Indian courts, too, have arrived at the same principle of relative equality between parties in appointing the Tribunal, albeit from a different starting point. Indian arbitration jurisprudence is rich when it comes to the issue of unilateral appointment of the Tribunal. It is a fairly settled position that appointment procedures with deeply imbalanced rights between parties cannot be enforced. Accordingly, Indian courts have refused to enforce a procedure where one party is forced to choose its nominee from a narrowly curated panel put together by the counter-party.⁴ In such cases, jurisprudence from the Supreme Court requires courts to examine whether the interests of one party are sufficiently “counterbalanced” by the interests of the other.⁵ The application of this principle is precisely the issue that the Constitutional Bench of the Supreme Court is presently considering.

In a decision, it fell to the High Court of Delhi to determine whether a procedure that allowed a party to nominate 2 out of 3 arbitrators was enforceable.⁶ The High Court found the procedure at issue (which deprived one of the parties from directly appointing its nominee) insufficiently “counter-balanced”, and thus it failed the now established tests for fair arbitral appointments. Accordingly, the High Court ignored the contractual procedure and nominated arbitrators on behalf of the parties, leaving it to the nominees to appoint the president of the Tribunal.

It therefore becomes imperative that as arbitrations grow into a multi-party context, the uniformity in participating interest at the appointment stage be protected, at least to prevent awards having to brace public policy challenges.

Institutional response: A futile experiment of grouping parties

In response to the obvious issues that multi-party arbitrations bring to light, arbitral institutions have attempted to adapt their rules to fit a multi-party context.

The London Court of International Arbitration (LCIA)⁷, and in a less explicit manner, the United Nations Commission on International Trade Law (UNCITRAL)⁸, International Chamber of Commerce (ICC)⁹, Singapore International Arbitration Centre (SIAC)¹⁰, Hong Kong International Arbitration Centre (HKIAC)¹¹, Mumbai Centre for International Arbitration (MCIA)¹², and Delhi International Arbitration Centre (DIAC)¹³, all attempt to achieve parity between competing interests, rather than individual parties, by grouping aligned parties into two “camps”. The similarly grouped parties in a single “camp” can then operate as if they are one super-claimant and one super-respondent and nominate their respective arbitrators.

Notably, the American Arbitration Association¹⁴ stands as the exception that requires the institution to appoint all members of the Tribunal, if there are more than two parties to the prospective arbitration, without first attempting to divide the parties into groups or camps.

The problem in treating different parties as one is easily evident. Similarly positioned parties in an arbitration do not always share congruity in their views on a dispute. Dividing the parties into “camps” on a rudimentary distinction between “claimants” and “respondents” bears the risk of ignoring divergences between the parties grouped on the same “side”. These divergences could always be of importance to the parties. In that case, parties have good reason to be dissatisfied at the prospect of aligning with a counter-party to a dispute, whom they may well have claims against or against whom they may take conflicting defences.

While it could be argued that choice of arbitrators is hardly impacted by such nuances, this grouping approach stops short of being the perfect solution. In fact, it leads to even more issues which need to be addressed. For instance, how close must interests of camped parties be aligned to regard them as similar, or what happens when a party’s interests are aligned to different opposing parties on different issues. More practically, what happens when parties fall neatly into three distinct camps? It does not take long to see that grouping parties into camps is not a solution that can be adapted into a general rule or practice.

Court or institutional appointments: The elegant solution

Equality can be achieved in two ways: either everyone has the same thing, or nobody has anything. If all parties cannot have the same say in choosing their arbitrators, then the arbitrators can be chosen for the parties. Relying on courts or institutions to nominate arbitrators presents an elegant solution to the problem.

The obvious drawback then is of course that it strips parties of the ability to choose the “Judge” that will decide their dispute. In a situation where parties have not agreed on a procedure to appoint a tribunal, having an impartial third party choose the Tribunal provides a sound solution, rather than the calisthenics involved in ensuring that each party in every case has the same level of positive agency in constituting the Tribunal.

Arguably, undertaking an exercise where all parties’ interests are catered to, can be inefficient, given the amount of time and money parties will have to shell out even before the Tribunal is ultimately constituted. On the other hand, courts or reputed arbitral institutions enjoy the confidence of litigants and are widely accepted to be credible and impartial. They are thus well placed to make such appointments.

The Arbitration and Conciliation Act, 1996 (following the UNCITRAL Model Law¹⁵) provides for courts as the fallback appointing authority, where parties fail to agree on an arbitrator, or a process to appoint one. The appointing authority under Section 11 of the Arbitration and Conciliation Act, 1996 is well placed to resolve the multi-party appointment conundrum, especially since Section 11 is routinely used to constitute tribunals extra-contractually when the procedure under the arbitration agreement is one-sided or unworkable. The UK Arbitration Act, 1996, by comparison, goes a step further to expressly address this issue, with Sections 16(7) and 18 providing for court-driven tribunal appointments in case there are more than two parties in the proposed arbitration, and there is no consensus as to the procedure for the appointment of the Tribunal.

Conclusion

India has recently set the ball rolling on a review exercise of the Arbitration and Conciliation Act, 1996, which the Government of India has indicated may include a relook at the process of arbitral appointments.¹⁶ Legislatively clarifying the principle of relative quality, or multi-party appointments, could help further smoothen the conduct of multi-party arbitration.

Arbitration agreements set in a multi-party context would serve well to avoid attempting the (im)balancing act of parties’ interests, and instead prescribe seeking court/institutional appointments failing mutual consent. For instance, providing for the Tribunal to consist of a sole arbitrator or for appointment in the first instance itself by a court/institution, would ensure that the appointments are least vulnerable to tricky issues. Sacrificing party agency in this manner could redeem itself in securing a smoother constitution process and even a fatal challenge to a possible award.