For arbitration clauses allowing only one party to appoint the sole arbitrator, the Supreme Court observed in Perkins Eastman Architects DPC & Anr. v HSCC (India) Limited1 (Perkins) that the appointing party’s choice will always have an element of exclusivity in determining or charting the course of dispute resolution. Such unilateral appointments were held to be invalid since the appointing party would certainly be interested in the outcome of the dispute.
Perkins will have a serious impact on several ongoing arbitrations and potential disputes arising out of contracts providing for a party with the unilateral right to appoint an arbitrator.
In this two-part post, I have argue that the Arbitration and Conciliation Act 1996 (Arbitration Act/the Act) does not curtail parties’ right to choose a process for appointing an arbitrator. It allows the appointment of any person who meets the eligibility and disclosure requirements under Section 12.
In 2016, HSCC Limited (HSCC) had invited bids for a design and architectural planning project. A consortium comprising Perkins Eastman Architects DPC and Edifice Consultants Private Limited [the Consortium] made the success bid in 2017 and entered into a formal contract(the Contract).
Clause 24 of the Contract provided an escalation mechanism for dispute resolution. If the Consortium had a grievance with HSCC’s decision, it was required to approach HSCC’s Chief General Manager (CGM) to determine the issue. The CGM’s decision could be appealed to the Director, Engineering. If the Consortium remained dissatisfied, it was required request the Chief Managing Director (CMD) to appoint a sole arbitrator.
Disputes ensued between the parties in about six days of signing the Contract. Following a termination notice from HSCC, the Consortium invoked the dispute resolution mechanism in Clause 24. While the Consortium pursued the contractual process, the CGM and Director (Engg) failed to discharge their obligations. The Consortium also called upon the CMD to appoint a sole arbitrator. While no appointment was made in the 30-day period, the Consortium was informed on the 31st day that a sole arbitrator had been appointed.
The Consortium refused to accept his appointment; and approached the Supreme Court with an application under Section 11(6) of the Arbitration Act (Appointment Application).
Supreme Court’s decision
The Consortium argued that Clause 24 gave complete discretion to the CMD to make an appointment of his choice. Since the CMD will be interested in the outcome of the decision, the CMD’s appointee was bound to lack impartiality.
HSCC defended the appointment on grounds that all contractual requirements had been followed. It was also argued that Perkins could not have approached the Supreme Court under Section 11(6) since the underlying dispute would not be an international commercial arbitration (ICA).
The Court was required to decide two main issues. First, whether the dispute was an ICA. If not, it would have to be heard by the High Court having jurisdiction. Second, whether the Court should override the parties’ contract and appoint the sole arbitrator.