The Perkins Eastman Judgment, Paving the Way for Institutional Arbitration In India
The 2019 judgment by the Hon’ble Supreme Court of India in Perkins Eastman (link here) is considered to be the authoritative verdict on impartiality of arbitrators and unilateral appointment of arbitrators. The decision is often cited as the basis for setting aside of arbitral proceedings where a single party has the power to appoint an arbitrator.
This article explores the Perkins Eastman judgment and how it supports Institutional Arbitration, especially new age Online Dispute Resolution (ODR) Institutions, who deploy a number of processes and methods which are in line with the law laid down in the judgement.
Understanding the Perkins Eastman Judgment
The case involved a dispute between Perkins Eastman Architects and the Hospital Services Consultancy Corporation (HSCC). The key issue was the unilateral appointment of an arbitrator by HSCC, which was challenged by Perkins Eastman Architects.
The Supreme Court’s decision in the Perkins Eastman case brought clarity to the issue of unilateral appointment of arbitrators. Unilateral appointment undermines the independence and impartiality of the arbitration process and goes against the fundamental principles of fairness and natural justice.
Important Extracts from the Judgment
Extracted and highlighted below are observations from the decision which relate to arbitrator impartiality.
15…….If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases. We are conscious that if such deduction is drawn from the decision of this Court in TRF Limited, all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator.
16. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 50 of the decision shows that this Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator” The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. 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 amendment 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.
19. In Voestalpine, this Court dealt with independence and impartiality of the arbitrator as under: “20. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator’s appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and non impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial.”
In summary,
- Neither the arbitrator nor the appointing authority should have an interest in the outcome of the dispute
- The appointing authority should not have a role in charting the course of the dispute by having the power to appoint an arbitrator.
- The arbitrator must be independent of parties as well as impartial.
Institutional Arbitration & Perkins judgment
A typical arbitral institution (including new age ODR institution) mostly implements the following processes:
- Processes to identify, train and qualify arbitrators for empanelment. Arbitrators must pass a minimum threshold of qualifications and/or clear an exam to be listed on a panel. Some institutions even charge their arbitrators a fee to be included on their panels.
- Processes to ensure that an arbitrator is shielded from direct or indirect pressure from a single party. This is practised in several forms eg. having a registrar and/or case officer to be the interface between parties; fee guarantee provided by the institution and not the disputing parties; timely payments; availability of work from a wide variety of disputes/parties and not just one party; freedom to refuse to handle certain types of disputes; ability to negotiate fees; ability to negotiate time etc.
- Administrative and tech enabled help in research, drafting, reviewing, and scheduling thereby empowering an arbitrator to master their time and workload.
- Manual or algorithmic dashboards which track arbitrator work load, productivity, case distribution, timeliness, error rates and the like. This ensures that an arbitrator is not working on cases only for one party, gets an even distribution of work, is not influenced by any one party while also laying the framework for impartial assessment of skills.
The above and many other small intervention by arbitration institutions (especially new age ODR institutions) ensures that the essence of the Perkins judgment, viz. removing the overwhelming influence of a single party over a dispute, is satisfied in more ways than one.
It is important to note that the key performance index of an institutions is the volume of work that they do from a large number of parties to generate revenues. This necessarily means that no one person or party can dictate the functioning of the institution thus ensuring a virtuous cycle of impartiality and process driven approach. By being an impartial intermediary in matching arbitrators with disputes (and not to the parties) institutions help ensure that all parties in the arbitration process receive fair treatment and that the arbitration process is conducted without any undue influence or favoritism. The absence of a vested interest in the outcome of the dispute allows arbitration institutions to uphold ethical standards and promote confidence in the arbitration process, thereby contributing to the credibility and enforceability of arbitration awards.
Conclusion
Institutional arbitration is one of most powerful ways of ensuring impartiality and transparency in arbitral processes. Arbitral institutions, including new age ODR institutions, implement several processes to ensure impartial and efficient arbitration in line with the requirements of the Perkins judgment.
The very structure, method and manner of functioning of arbitration institutions promotes a high level of impartiality and fairness. ODR institutions in particular are expanding the use of technology in processes, which increases fairness in these processes. These mechanisms align with the principles outlined in the Perkins Eastman judgment by fostering an environment that shields the arbitration process from any undue influence by bringing methods and process related rules. Arbitral institutions therefore play a vital role in ensuring that arbitrations are conducted fairly and impartially, which aligns with the principles enunciated in the Perkins Eastman judgement.
