Introduction
With arbitration gaining more traction as a means of dispute resolution, the subject of challenging an arbitrator due to bias has seen several developments. In India, the discussion was primarily regarding the substantive test which must be applied to discerning whether there is bias. The settled choice for India then, came to be the reasonable apprehension of bias test, from the perspective of the party who is challenging the arbitral appointment. However, a secondary aspect, which has sparked discussions worldwide is: who must decide whether there is in fact, bias?
To raise a challenge against an arbitrator for bias, the challenging party must first approach the arbitral tribunal itself (as per section 13 (2) of the 1996 Act). The procedure laid down thus, makes the arbitrator the judge in its case, and appears to violate the natural justice principle of nemo judex in causa sua (no man shall be a judge in its case). Despite this inherent conflict, most common law jurisdictions continue to allow the initial challenge to an arbitrator to be made in front of the arbitral tribunal.
This article aims to study the rationale for allowing the arbitral tribunal to look into challenges. Further, it delves into the model law on international commercial arbitration and studies the origin of this provision, through a perusal of the 1985 UNCITRAL Report. Lastly, it narrows down possible solutions to the initial question of, who must decide whether there is bias, to eliminate the conflict between natural justice principles and the challenge procedure.
Decoding Section 13 of the 1996 Act
The fifth and seventh schedules of the 1996 Arbitration and Conciliation Act (hereinafter, 1996 Act) list down scenarios that may be used as grounds to challenge an arbitrator’s appointment. The position taken by courts is that the seventh schedule leads to automatic ineligibility whereas the scenarios listed in the fifth schedule only create a “justifiable doubt”.
Under the fifth schedule, the legislature has listed out scenarios (non-exhaustive), which if present, can lead to justifiable doubt regarding the lack of the arbitrator’s impartiality or independence, and thus, give rise to a challenge. This challenge must be raised or brought, according to the procedure laid down in Section 13 (2) of the 1996 Act.
The said provision, along with Section 13 (3) grants the power to the arbitrator itself, to decide as to whether there could be potential bias due to lack of impartiality or independence, according to the facts of the case. The same procedure (albeit borrowed from the UNCITRAL Model Law), severely violates natural justice principles as it allows the arbitrator to judge their potential bias. While credibility must be assumed for the arbitrator’s character, one cannot disregard the possibility that the arbitrator may be influenced to decide the case in their favour. Furthermore, while it is understandable that the arbitral tribunal must decide its fate and jurisdiction, flowing from the arbitral principle of kompetenz-kompetenz, the same cannot be used to excuse the fact that the arbitrator has a vested interest in the proceedings and must not be the only recourse or established authority in this matter.
A further reading of Section 13 raises this very issue. If Section 13 of the 1996 Act were to be para materia to Article 13 of the UNCITRAL Model Law, an additional recourse to approach courts or other authorities would be available. Essentially, if a challenge under Section 13 (2) fails before the arbitral tribunal, parties are left with no recourse till an award is passed by the tribunal. It is only after the award is passed, that the same can be challenged due to bias, under the limited grounds available under Section 34 of the 1996 Act.
While judicial non-interference is a key component of progressing arbitral jurisprudence, it might be more suitable if parties are allowed to approach other authorities in the first instance (where their challenge fails before the arbitral tribunal). The same would also work to save the time and expense which may be incurred to first, pass the arbitral award, and then second, to challenge it before another authority. Recourse to courts or other authorities can be sought if parties make an agreement that falls under the scope of Section 13 (1) and allows the challenge procedure to be carried out in a manner that parties prefer. Since there is growing awareness regarding the aforesaid troubles, parties must deliberate and incorporate an appropriate challenge procedure that combats this hindrance and allows for fair decision-making.
While some may suggest that making Section 13 para materia to the UNCITRAL Model Law, which would allow parties an instant additional recourse to courts, the ICC’s observations in the 1985 UNCITRAL Report against involving courts must be noted and will now be discussed.
A Way Forward: 1985 Report of the UNCITRAL
The 1985 Report of the UNCITRAL and the comments therein, highlight that the commission was cognizant of the shortfalls in the Model Law. The additional commentary on Article 13 expounds on how members of the commission recognized the clash between natural justice principles and the challenge procedure, which allows the arbitral tribunal to rule on their bias. The same can be noted through the observations made by Yugoslavia. It was concluded that expecting an arbitral tribunal to be objective is difficult especially when the arbitrator who is so challenged, participates in the decision-making process. It was further observed that the situation may be worsened in the case of a sole arbitrator (which is often the case in arbitrations), as the arbitrator would be the only judge.
The ICC’s observations were two-fold. Firstly, like Yugoslavia, it objected to Article 13 (2) of the Model Law, seeing its divergence from natural justice. Secondly, it made interesting observations regarding judicial interference in challenge procedures. Reliance was placed on the fact that allowing bias challenges to move to courts, severely hinders the confidentiality of arbitration, and simultaneously puts arbitrators in situations where their credibility is questioned. This, as observed, would only make arbitration less attractive for all parties involved. From the comments shared by the ICC, it may be concluded that the body recognized the need to treat each case according to its factual scenario, and only allow court interference in situations where there is ad hoc arbitration. However, court interference must not be resorted to in institutional arbitration.
The ICC’s observations on ad hoc arbitrations and judicial interference compliment the earlier suggestion made in this article , where reliance on Section 13 (1) was suggested, to allow parties to decide on a procedure for themselves, which is workable in ad hoc arbitration. However, seeing the limited applicability of this approach, as several arbitrations are institutional in nature, another recourse suggestion must be implemented to eliminate the divergence from natural justice.
It may be observed that the answer to the question of who the judge must be, has always ended with a debate between whether courts or the arbitral tribunal itself is a more suited body. Since both have their drawbacks, one must explore other plausible options. It may be fair to allow the arbitral tribunal to be the first judge, as per the default procedure laid down in several statutes. Nevertheless, the need for a secondary authority to approach cannot be disregarded. Now, whether the secondary authority must be courts or another institution per se, is up for debate.
The comments by Yugoslavia and the ICC make clear that we must look into the possibility of setting up a permanent arbitral institution, a governing body of sorts, which may make decisions in such matters. The institution may be guided and governed by principles, as set by UNCITRAL, and may even be required to keep challenge matters confidential, owing to the sensitivity of the matters and keeping ICCA’s concerns in mind. Alternatively, jurisdictions such as Germany looked into the possibility of removing the arbitrator so challenged, from the arbitral tribunal, only to the extent of deciding on the alleged bias. The same works well and follows the same logic as when judges recuse themselves from a certain bench. However, since several arbitrations tend to have a sole arbitrator, it would be impossible for an arbitrator to recuse themselves from the tribunal, and the solution would be the exception rather than the norm. Thus, the solution proposed in the 1985 commentary, of instituting a permanent body, must be given due weightage.
Conclusion
This paper has aimed to break down Section 13 of the 1996 Act and highlight its shortfalls. For the same, it attempted to highlight the importance of the natural justice principle, nemo judex in causa sua, and explore how the same could be negatively impacted by arbitration procedures. It delved into the history and origins of this provision, with a reading of the 1985 UNCITRAL report and Article 13 of the UNCITRAL Model Law. The report was further relied on to better understand some critiques on the challenge procedure and concerns that have been voiced by member states. The paper endeavored to pin down which body or authority would be most suited to judge a challenge based on arbitrator bias and concluded with solutions to allow judicial interference where parties have agreed on the same, as per statute, or set up a permanent arbitral institution which aims to resolve bias disputes, based on existing arbitral jurisprudence.
Author(s)
Isha Khurana
Student at JGLS, Sonipat