Arbitrators under Distress: The Fate of Unilateral Appointments
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Brief facts of the case.
In this instance, the petitioner and the respondent had engaged into a distribution agreement that stipulated that any disagreements would be resolved by arbitration. Certain disagreements emerged between the parties over the amount to be paid to the petitioner under the Agreement. The petitioner claimed that its efforts to resolve the disagreement peacefully had failed, and as a result, the petitioner triggered the Agreement's arbitration clause.
When the petitioner proposed an arbitrator, the respondent objected, citing the Agreement to claim its authority to pick an arbitrator unilaterally. As a result, an arbitrator for the respondent was selected, and the procedures began. During the proceedings, the Supreme Court issued a decision in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. on November 26, 2019, holding that the parties involved in the dispute, including the arbitrating parties, are unqualified to designate the arbitrator unilaterally.
The petitioner argued that the facts of the current case were completely covered by those of the Perkins case. As a result, the petitioner requested that the arbitrator not proceed with the arbitral proceedings because the arbiter's authority had expired de jure. In response to the petitioner's request, the arbitrator declared that she would continue the arbitral procedures unless a judicial order to end them was issued. As a result, the petitioner filed the current petition under Sections 14 and 15 of the Arbitration Act, requesting a ruling that the respondent's arbitrator's mandate is terminated and that a new arbitrator be appointed.
Issues
Is it possible for either party to appoint a sole arbitrator unilaterally?
Is the decision applicable to pending arbitrations?
Decision
The Hon'ble Supreme Court had stated in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. that there could be two types of cases: one where the managing director is appointed as an arbitrator and the other where the managing director unilaterally elects the arbitrator. As a result, the Supreme Court ruled that all parties who have a stake in the outcome of the case are disqualified to nominate the arbitrator unilaterally. On the basis of this principle, the Court concluded that the unilateral selection of an arbitrator by a party with a stake in the outcome of the judgement is illegal.
In this case, the Hon'ble High Court declared that the judgement in the Perkins case should be applied to all pending arbitrations. The arbitrator's mandate is ended de jure under S.14 of the Arbitration Act once the Supreme Court has put down the law under S.12(5) of the Arbitration Act. As a result, the Perkins ruling will apply to ongoing cases as well.