Arbitral Immunity: India and Abroad

By Debkanya Naskar, NUJS

INTRODUCTION

Arbitral immunity is a protection mechanism guaranteed to the arbitrators against any civil liability arising from their adjudicatory function.[i] This protection enables them to act impartially and without the fear of adverse litigations from the losing side.[ii] But given that arbitration is an alternate mechanism without the inherent legitimacy of a judge, accountability becomes essential to ensure lack of arbitrariness.[iii] Therefore balancing accountability on one side and protection on the other becomes crucial. The Model Laws[iv] are silent on this aspect and there is a lack of global uniformity.

This project aims to discuss how arbitral immunity should be granted in India. It will not address the debate regarding the usefulness of arbitral immunity. Part I will provide a comparative analysis of how this concept is incorporated worldwide. Part II will be India-centric. Using the analysis from Part I, the project will conclude with a suitable model for incorporation of the concept in India.

PART I

This part attempts to answer two questions. Firstly, how is the mechanism of arbitral immunity integrated in the legal-systems worldwide and secondly, what is extent of the immunity that is granted?

Describing various mechanisms of introducing arbitral immunity

There is a lack of harmonization world-wide as to how the immunity should be granted. Introduction of arbitral immunity in cases of domestic arbitration has been mostly through statutes, contracts or through judicial exercise.

  1. Legislative or Executive action.

Under this model, the immunity against civil liabilities is incorporated in the statutes itself. There is generally no separate statute; rather they are a part of the civil code or arbitration laws. Ordinarily, this model is practiced in common law jurisdictions, for example, countries like England[v], USA[vi] etc. Few civil law countries like Brazil[vii] have similar provisions. Arbitration Institutions include this concept through their rules.[viii]

  1. Contractual Incorporation

Arbitral immunity is contractually included either in the arbitration agreement or in the arbitrator’s contract (receptum arbitri). The extension of the arbitration agreement to bind the arbitrator is justified with theories like the agency theory[ix] (the arbitrator is an agent of the parties, hence the agreement binds the arbitrator) or the equal party theory[x] (the arbitrator having brought upon the obligation to arbitrate, has become an equal-party to the arbitration agreement). Having a receptum arbitri is commonly practised in civil law jurisdiction like Netherlands etc.[xi]

The method of contractual incorporation is supported by advocates of the ‘market-based model to dispute resolution’[xii] for its cost-effectiveness. According to the supporters, the other approaches increase the cost of arbitration by firstly permitting the arbitrators to enjoy immunity without having to give up anything in exchange for the parties foregoing their right to sue and secondly reducing competition among the arbitrators.[xiii]

  1. Judicial Interpretation.

In many countries, the judges have introduced the concept of immunity. It has been carried out in primarily two ways. Judges have either expanded the concept of judicial immunity to include arbitrators or they have read the concept as a part of the public policy.

  • Judicial immunity: In countries like Canada[xiv], South Africa[xv] etc. the similarity of arbitration to the judicial process has been used as a justification for extending judicial immunity to arbitrators.
  • Public policy: The second approach is prevalent mostly in common law countries. The logic behind this approach is that given the nature of work; granting immunity will ensure efficient arbitration and effective arbitration.[xvi] One of the primary theories proposed by jurists to justify reading arbitrator’s immunity into the doctrine of public policy is ‘delegation theory’. According to this theory, to promote private settlement, arbitrators have been delegated the function which primarily belongs to the state.[xvii] Therefore their power and legitimacy is drawn from local laws. [xviii] This special status justifies the extension of the doctrine of public policy to immunise arbitrators.

Having discussed the various models of incorporation, the project will proceed to elaborate on the extent of immunity granted in different countries.

  • Extent of immunity

The extent of immunity for civil liabilities varies from absolute immunity to absolute liability. Absolute immunity is practised in U.S.A. where the arbitrator is immune from all civil liabilities arising for all acts arising from his decision-making function.[xix] At most, his fees are not paid.[xx] On the other hand, countries like Arab, Tunisia, Libya etc. expressly deny immunity.[xxi] The middle approach of qualifying immunity on various grounds like fraud[xxii], or unreasonable withdrawal is the most common approach.

PART II

Having discussed the extent and mechanism of granting arbitral immunity world-wide, this part will focus solely on the Indian scenario. It will provide an overview as to the existing position and then proceed to propose a suitable model for incorporating arbitral immunity in India.

1. Existing position.

It was assumed by courts in India, even before the Arbitration Act, 1940[xxiii] that an arbitrator is immune from civil liabilities. [xxiv] However it was also clear that arbitrators did not enjoy impregnable statutory immunity like a judge either.[xxv] Under the 1940 Act even an award vitiated by error in law apparent on its face or misconduct on the part of the arbitrator, did not impose any liability.[xxvi] Under the current statutory regime, there is a lack of guidelines on this aspect. The Arbitration and Conciliation Act, 1996[xxvii] is silent when it comes to the issue of immunity or civil liability for arbitrator’s action. This results in impliedly vesting unchallenged power on the arbitrator.[xxviii]

As a consequence of the silence, it can also be argued that the classical common law position still holds in India.[xxix] Under the classical position, there exists immunity for the arbitrators. This doctrine of immunity can be traced back to Floyd & Barker which held that judges of England’s principle common law court were immune from being sued for their actions performed in their judicial capacity in competing courts.[xxx]  The minor caveat to this immunity is that it is subject to the arbitrators’ acting within his judicial capacity.[xxxi]

Apart from the hypothetical common law argument, given the void under the 1996 Act, the judiciary has primarily left the issue of arbitral immunity unaddressed.  It can be argued that discussing immunity was deemed unnecessary because there is no civil liability imposed in the first place. This argument is based on an assumption that the courts cannot suo moto impose any cost on the arbitrator.

But this assumption was questioned by the decision in Rajesh Batra v. Ranbir Singh Ahlawat[xxxii]. In this case, Hon’ble Justice Vipin Sanghi suo moto imposed a penalty on the arbitrator for acting beyond his jurisdiction.[xxxiii] Therefore we cannot assume the lack of express liability automatically to be immunity in all cases. This case also highlights the consequence of not having any clear guideline on the issue of liability or immunity. Here the grounds as well as the amount the arbitrator is liable to pay depended on the unguided discretion of the judge.

Therefore there is an immediate need to modify the situation, especially because arbitration as a dispute resolution mechanism is being commonly opted for.

2. Proposed Model.

Having discussed the dearth of clear guidelines in India, it can be safely concluded that some active steps needs to be taken to bring clarity.

 According to me, qualified immunity should be granted in India. It will provide a balance between ensuring arbitral freedom and accountability.  The recognized immunity will ensure uncompromised decision-making and the qualifications (exceptions) will make them accountable in cases where they fall below the standard. The legislature or the judiciary should clarify on the extent of immunity.[xxxiv] But there should be scope for contractual negotiation on the standard to cater to specific facts and party autonomy.

If the immunity being adopted is recognized through legislation, rules would be drafted to substantiate the extent of immunity. The main provision will recognize the immunity, and clarify on the consequences is the standards are not met.  It can be supplemented with rules[xxxv] under the Act which will discuss the professional standards in details.

If the judiciary is reading qualified immunity into Indian law[xxxvi], they can do so by reading the qualifications to the granted immunity as contrary to public policy.[xxxvii] Therefore the award can be struck down if the arbitrator has gone beyond the recognized immunity.[xxxviii]  The model of extending judicial immunity to arbitrators (if possible) will not be feasible in India. This is because given the nature of rampant corruption in arbitration[xxxix] extending absolute and Constitutional judicial immunity would be disastrous.

CONCLUSION

To conclude, this project has discussed how arbitral immunity has been introduced in various municipal legal systems along with the position of India on this concept. Through this analysis, it has tried to establish the dearth of clarity when it comes to Indian laws. Relying on the global examples, it has proposed two alternate models of how the legislature or the judiciary can imbibe the same. It has argued for a qualified immunity in order to balance procedural safeguards with arbitral freedom.

Edited by Saksham Dwivedi

Formatted on 26th February 2019.

Footnotes

[i] Russell on arbitration 172-173 (1997) as cited in P. C. Markande, Law relating to Arbitration and Conciliation, 805,806 (2009).

[ii] Id. 805-806.

[iii] Id. 805-806.

[iv] UNCITRAL Model Laws on International Commercial Arbitration, 1985 available at http://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/06-54671_Ebook.pdf (Last visited on February 26, 2013) (Most countries have adopted it as their domestic law).

[v] English Arbitration Act of 1996, § 29.

[vi]  See example, California: CAL. CIV. CODE, § 1297.119 (1994); Florida: FLA. STAT. § 684.35 (1998) provides immunity for arbitrators against actions arising from their performance of the arbitrators’ duties.

[vii] Brazil: LAW N0 9.307 of 23 September 1996, Art. 17, (makes the arbitrators criminal liability similar to that of civil servants and the law governing civil liability for arbitrators is repealed. Therefore in effect the arbitrators are immune from civil liability). See Carlos Nehring Netto, National Report for Brazil (2011) as cited in International Handbook on Commercial Arbitration, 17 (Jan Paulsson ed., 1984, updated: November 2005) available at http://www.kluwerarbitration.com/book-toc.aspx?book=TOC_ICCAHB_V08, (Last visited on Feb 22, 2013).

[viii] See example, American Arbitration Association, International Arbitration Rules, Art. 35; The New London Court of International Arbitration Rules, Art. 31.1 (effective Jan.1, 1998).

[ix] See A.  Samuel, Jurisdictional  Problems in  International  Commercial  Arbitration:  A Study  of Belgian,  Dutch, English,  French,  Swedish, Swiss,  US  and  West German Law   34 (1989), as cited in Hong-Lin Yu and Laurence Shore, Independence, Impartiality, and Immunity of Arbitrators: US and English Perspectives, The International and Comparative Law Quarterly, Vol. 52, No. 4 (Oct., 2003), p. 962.

But see, this theory is arguably not justified. This is because an agent has to act in the best interest of the principal (here the party appointing him). But on the other hand, an arbitrator is supposed to be impartial to both the parties. Therefore an arbitrator cannot be considered to be an agent.

[x] Compagnie Europeenne De Cereales S.A. v. Tradax Export S.A., 1986 Volume-II Lloyd’s Law Rep. 301, as cited in Hong-Lin Yu Supra note 9, 962.

[xi] Susan D. Franck, The liability of international arbitrators: A comparative analysis and proposal for qualified immunity, 20 N.Y.L. Sch. J. Int’l & Comp. L. 1 2000, pp. 37-38.

[xii] Market based model of dispute resolution proposes that arbitration is one of the products in the dispute resolution market, applying the market economics; the players should have the freedom to tinker their inter-relationship. This will result in the best and cheapest product

See Peter B. Rutledge, Toward a contractual approach for arbitral immunity, 39 Ga. L. Rev. 151 2004-2005, p. 156.

[xiii] See Peter Supra note 12, 157.

[xiv] See Sport Maska Inc. v. Jack Ritter and others, 1988 CanLII 68 (SCC).

[xv] See Telematrix (Pty) Ltd v Advertising Standards Authority SA, [2006] 1 All SA 6 (SCA) (9 September 2005); Matthews v. Young, 1922 A.D. 492, 508-9 (discussed in Telematrix).

[xvi] Lord Salmon (obiter), Sutcliffe v Thackrah, [1974] AC 727, pp. 757-758. Also see Hong-Lin Yu Supra note 9, 964.

[xvii] Moutulsky, Ecrits, Dalloz, Paris (1974) at 14, as cited in Hong-Lin Yu Id. 965.

[xviii] Hong-Lin Yu Id., 963-64.

[xix] Howard M. Holtzmann and Donald Francis Donovan, National Report for the United States of America (2005) as cited in International Handbook Supra note 7, 36.

[xx]  Susan, Supra note 11.

[xxi] Id.

[xxii] See example in Australia, The Australia International Arbitration Act of 1984, § 28. Also See Michael Pryles, National Report for Australia (2012), as cited in International Handbook Supra note 7, 17-18.

[xxiii] The Arbitration Act, 1940 available at http://www.indiankanoon.org/doc/1052228/ (Last visited on Feb 20, 2013).

[xxiv] Fali S. Nariman, National Report for India (2011), pp. 27-28 as cited in International Handbook Supra note 7, 17-18.

[xxv] Id.

[xxvi] Id.

[xxvii] The Arbitration and Conciliation Act, 1996 (herein after referred to as ‘the 1996 Act’).

[xxviii] J.C. Seth, Corruption and miscarriage of justice in arbitration, Indian council of Arbitration, Vol. XLIX / January – March 2011, p. 17.

[xxix] Justice R. S. Bachawat, Law of Arbitration and Conciliation Volume-I, 1517 (2010).

[xxx] Floyd & Barker, 12 Co. Rep. 23, 77. Eng. Rep. 1305 (1607) as cited in Michael D. Moberly, Immunizing Arbitrators from Claims for Equitable Relief, 5 PEPP. DISP. RESOL. L. J. 325, 328 (2005).

[xxxi] The Marshalsea Case, 10 Coke’s Kings Bench Rep. 68, 77 Eng. Rep. 1027 (K.B.) ac cited in Susan Supra note 11, 16.

[xxxii] Rajesh Batra v. Ranbir Singh Ahlawat, 2011 (4) Arb. LR. 371(Delhi).

[xxxiii] Practical Academic, Delhi High Court imposes fine on overenthusiastic arbitrator, March 5, 2012, available at http://practicalacademic.blogspot.in/2012/03/delhi-high-court-imposes-costs-on.html (Last visited on Feb 27, 2013).

[xxxiv] The grounds could include: fraud, conflict of interest, disclosure etc.

[xxxv]  The Act, Supra note 27, § 84. (It gives the power to the Central Government to lay down rules).

[xxxvi] It being a question of policy should primarily lie in the domain of the legislature.

[xxxvii] See generally  ONGC v Saw Pipes Ltd, AIR 2003 SC 2629 (expanded public policy meaning and held that a award which is patently illegal can be struck down under Section 34 of the 1996 Act on the grounds of it being against the public policy).

[xxxviii] The Act, Supra note 27, § 34 (2) (v) (b) (ii) (holds awards contrary public policy is liable to be struck down).

[xxxix] Supra note 28, 18.

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