Lawctopus Law School
Lawctopus Law School

New Technologies in Arbitration: Ensuring Independence and Impartiality

By Nihal Raj, pursuing Law from IFIM Law School Bangalore.

Introduction

Disputes and conflicts are intrinsic to the human construct, to settle such conflicts humans have often resorted to various dispute resolution mechanisms. Since ancient times, India has witnessed various dispute resolving bodies like the Kulas, Srenis, and Pugas that were considered the main means of dispute resolution. The dispute settling mechanisms that we know of today range from informal to formal and one such formal dispute resolution mechanism is arbitration.

Arbitration is an alternative dispute settling mechanism that is rooted in ancient legacy. It has evolved from the concept of Panchayats.[I] Since panchayat as a system of mediation and conciliation go way back, gradually,  its principles were adopted and branched out into different forms of dispute settlement mechanisms. 

In the year 1899, British India drafted the first-ever legislation for arbitration that is the Indian Arbitration Act 1899, later on, this Act was consolidated and amended as the Arbitration Act 1940. It was also largely based on the English Arbitration Act of 1934. This Act extended to the whole of India except the State of Jammu and Kashmir.

However, this Act suffered from several drawbacks that were well addressed in Guru Nanak foundation v. M/s Rattan Singh & Sons.[II]

In the said judgment, the Supreme Court observed,

the way in which the proceedings under the Act were conducted and without an exception challenged in Courts, has made lawyers laugh and legal philosophers weep.”

The apex court furthered that the proceedings under the Act had become ‘highly technical’, ‘providing a legal trap to the unwary’ [III] at every stage.

To solve these problems, the Government of India enacted the Arbitration and Conciliation Act in 1996, which consolidated 3 statutes- the Arbitration Act 1937, the Indian Arbitration Act 1940, and the Foreign Award 1961.

This Act covers arbitration in two parts- first, domestic, where the place of arbitration is India; and the second, international, which involves cross border conflicts.

Under the Arbitration and Conciliation Act, arbitration is defined as a procedure of dispute resolution in which a neutral third party called an arbitrator pronounces what is called an arbitral award based on the arguments and submissions made by both the parties. In this process of arbitration, the role of an arbitrator is of utmost importance as the result of arbitration completely depends upon the verdict of an arbitrator.

All About the Arbitrator

An Arbitrator acts as a third and a neutral party in the proceedings. The nature of the arbitrator influences his role and the rights and obligations of the parties in the proceedings. The status of the arbitrators is often seen in two ways, one arising out of judicial nature, thereby associating his role with a judge, and the other arising from a contractual relationship that exists between the parties.[IV]

The status of the arbitrator to a great degree influences his role and his conduct in the arbitral proceedings. Thus, the appointment of an arbitrator to preside over an arbitral proceeding is as important as the award pronounced by an arbitrator.

Appointment of Arbitrators:

Appointment of an Arbitrator[V] is easier said than done, as parties tend to invest a substantial amount of time and resources in selecting their arbitrators. The parties with their respective counsel research the arbitrator’s background, from arbitration experience to academic writings. There are generally three arbitrators, two arbitrators are appointed by each party and these two arbitrators collectively appoint a single arbitrator, thereby forming a tribunal of three arbitrators. The third arbitrator is considered as the President of the Tribunal.[VI]

Qualification:

An arbitrator appointed by the parties or the two arbitrators may be persons of high moral character and must have competence in the fields of law, commerce, or finance as it is considered as a requisite to deliver an independent judgement.[VII]

These prerequisites ensure that an arbitrator is proficient enough to deliver a judgement keeping with the parties’ conflict. Along with this criterion, the other two important traits that must be present in an arbitrator is the ability to be independent and impartial.

Section 12[VIII] of the Act states the ‘grounds for challenge’ that can be brought against the arbitrator based on his independence and impartiality. This challenge can be brought either at the beginning, during or at the end of an arbitral proceeding. Hence an arbitrator needs to possess an understanding of these two qualities. 

Notions of Independence and Impartiality:

Independence and impartiality are important attributes that must be possessed by an arbitrator. There is a conceptual dilemma with respect to these two terms. The two terms are deemed to be synonymous to each other.

Independence is usually associated with a certain institutional guarantee that allows adjudicators to free themselves from external pressures.[IX] Independence as a trait can be tested by ensuring that an arbitrator doesn’t have any conflict of interest. Independence is again of two kinds, personal and institutional. 

Personal independence refers to the duty of the adjudicator to make decisions free of influence or external interference. It is an entitlement as the State or any other person shall not interfere or influence the decision making of the adjudicator.[X]

In the circumstances where an arbitrator might have been the council of the client in the past,  it will be considered as a violation of personal independence. Such kind of dependent relationship has been elaborated in International Bar Association guidelines ( IBA).[XI]

Institutional independence refers to an institution remaining autonomous irrespective of its structure and policies and where an institution refrains from interfering in the functioning of arbitrators. Institutional independence is mainly observed in institutional arbitration.

An arbitrator appointed by an institution to preside over a dispute, where the seat of arbitration is presided by the same institution, or if, the arbitrator is acting as per the policies and rules framed by the institution is said to violate the duty of institutional independence. 

The second trait an arbitrator needs to imbibe is impartiality. Unlike independence, impartiality as a trait cannot be seen or tested definitively. Impartiality could be a result of one’s conscious or subconscious bias. An arbitrator’s conduct in an arbitral session to a great degree is dictated by his mind. Thus, it is hard to gauge such biases and bound them within the ambit of a few legislations. 

If there is an apparent gesturing that goes to show that there are biases and idolatry towards one party, the same can be challenged. However, there are certain scenarios where it has been observed that independence as a trait compliments impartiality.

In other words, independence is an important aspect to be considered while establishing impartiality, however not sufficient in itself to do so.[XII]

The Relation Between Independence and Impartiality:

Independence and impartiality are both entwined. While it is true that independence acts as a prerequisite for impartiality, but that’s not always the case, in certain scenarios where the role of an arbitrator becomes enigmatic, even though he/she has no relation with the parties, the arbitrator can persist with his inclination towards one party.

Independence and Impartiality while being complementary to one another, can distinctively meddle the fair execution of the proceedings.

To ensure that the convoluted relationship between these two traits does not hamper the fair execution of the proceedings, it was very important to bring amendments to the Arbitration and Conciliation Act.

Back then the act was not elaborate enough on the matter of challenging an arbitrator based on the attributes of independence and impartiality.  As a result of this imprecise detail, the courts had to take the initiative and appoint arbitrators. The court went by the agreement drafted by the parties and appointed an employee from one of the contracting parties to be the arbitrator.

However, this changed in Union of India v. Singh Builders Syndicate[XIII] where the court directed the government to phase out the arbitration clauses which require an employee of a party to be nominated as the arbitrator. 

This decision was crucial and triggered a change, as now, the parties that decided to settle the conflict through arbitration had to do so in the presence of a specified government official. However, there were scenarios where the single specified arbitrator appointed by the government was either associated with a party or in the past was the arbitrator for a dispute that involved a party to the arbitration.

In Shakti Bhog Foods Ltd. V. Kola Shipping Ltd.[XIV] it was pointed out by the court that the arbitrator concerned failed to disclose that he had served as an arbitrator concerning a dispute that involved the respondent in the past. 

Owing to several such discrepancies, Arbitration and Conciliation Amendment Bill 2015 was passed that required the arbitrators to disclose any circumstances likely to give rise to justifiable doubts as to their independence and impartiality. The information disclosed by the arbitrator could be useful in deducing their individual’s standing as an arbitrator. 

In order to help with this, the Fifth and Seventh Schedule of the 2015 Act postulates various criteria for determining the independence and impartiality of arbitrators.

Any circumstances which perfectly fits within the ambit of the Seventh Schedule immediately renders a person ineligible to act as an arbitrator. Further, if falling within the Fifth Schedule, an application can be filed to remove the arbitrator from presiding over the dispute. The Schedules have been inspired by the IBA guidelines[XV] which were formed for governing international commercial arbitration.

The Schedules[XVI] were designed to ensure that the independence and impartiality of arbitrators remain intact from the beginning to the end of an arbitration session. However, the provisions under these schedules are not exhaustive and they do not cover all sorts of relationships. Further, there could be various other issues brought on by the arbitrator’s conduct where the court cannot put any check. 

These conventional methods have existed for long and still suffer from the same drawback. It’s about time we take advantage of various technological advancements and develop strategies to solve such discrepancies in the mechanism. 

Arbitrator Intelligence

The success or failure of arbitration to a great degree depends upon the appointment of arbitrators. The obligation of an arbitrator to disclose his reputation dictates his appointment or relinquishment of his post as an arbitrator.

The neutrality and confidentiality by which arbitrators have conducted the proceedings will build up his reputation. Reputation also implies the history of service as an arbitrator. If an arbitrator had a very poor history in the past, involving either party, the arbitrator is unlikely to be appointed for a future dispute. To avoid this reputation or bias dispute, several institutions have developed methods to recommend arbitrators. 

The American Arbitration Association has developed a list and appointment method to appoint arbitrators. According to the rules mentioned under the list and appointment method, each party ranks the arbitrators in that institution in order of preference. The highest-ranked candidate is selected and he goes through a conflict check by the institution.[XVII] 

For it to be executed effectively the parties need to have all the information about the arbitrators in the list. However, that is not the case as the parties simply lack information to filter out a suitable arbitrator for the dispute.

Now that technology has developed to an extent that it is ruling various professional fields. There are some good examples to show that it has ventured into the legal space as well. 

A company that goes by the name DoNotPay.com[XVIII] is the world’s first robot lawyer that provides legal services in a chatbox. Since its inception, it has been updated to an extent that the program can perform and offer various legal services.

The company uses Artificial Intelligence (AI) to run the Lawyer Bot. AI augments human intelligence or to an extent mimics human intelligence. AI is also defined as a complex series of layers of algorithms that do something with the information that’s coming into it. 

Kleros is another organisation that specialises in online dispute resolution protocol which uses blockchain and crowdsourcing to fairly adjudicate disputes. On Kleros, adjudication is essentially a task of information discovery and analysis. Kleros, by using the features of blockchain can guarantee that all the processes are fully automated incorruptible.[XIX] Thus, ensuring transparency.

With technology playing a pivotal role in the legal field new innovative measures can also be used in the process of appointing an arbitrator. To select arbitrators, it is important that all their information is readily available and efficiently stored, to meet this requirement cloud technology can be of good use.

Cloud technology is used especially for large data storage (cloud storage) and computing power, without direct active management by the user. Cloud can help us to increase productivity by allowing multiple users to work on the same data simultaneously. Cloud computing eliminates the capital expense of buying hardware and software and it ensures that computing resources can be provisioned within minutes, taking the pressure off capacity planning. Some commonly used Cloud storage platforms are Google Cloud Platform, Amazon Web services, and Microsoft Azure.

The combination of AI and Cloud platforms can be used in the field of arbitration to keep track of the history and experience of an arbitrator. In a country like India, this technology can solve the problem of appointing a credible arbitrator. To ensure that the system works effectively in India, the Indian Council of Arbitration (ICA), a body that was established in 1965 as a specialised arbitral body must make use of the technological domain and oversee matters in different states. By incorporating a technological interface for arbitration, ICA could maintain a database of all the individuals registered as arbitrators which will also include institutional arbitrators on the cloud platform.

Any arbitrator acting in an individual capacity will also be able to register themselves with the ICA. This will ensure that either party to the arbitration is not treated unfairly by the arbitrator. Further, ICA can allot them a unique identification number which could be used to view their track record as an arbitrator on the system. 

Along with the identification numbers of the arbitrators, the database maintained by the governing body shall comprise the arbitrator’s details, history, and reputation as an arbitrator along with their expertise in law. The AI system based on the subject matter of the dispute can access the cloud and provides a digital list of arbitrators along with their reputation as arbitrators to the parties. Both the parties can rank the arbitrators and based on the rankings a potential candidate can be selected by the interface. 

The selected candidate can undergo screening through the ICA, where the candidate in an e-form must disclose any circumstances that might raise justifiable doubts concerning his appointment before the governing body. After the screening, if the members of the governing body are not convinced, the AI can also provide them with an alternative.   

This AI system can allow the parties to give a review on the competence of the arbitrators after the session. It has been observed that the losing party tends to give negative feedback for the award delivered by the arbitrator. To overcome this drawback, parties can discuss among themselves before the session about the feedback they wish to give at the end of the session. If parties agree to give feedback and the same is negative, they must be mandated to justify the same with a valid reason supported by evidence. However, if the parties do not wish to give any review, they should be able to leave a comment about the entire proceeding.[XX] The feedback once updated into the database, will thereby make it more convenient for the parties in the future.

The Cloud system, maintaining a record of all the input shared by the parties on the competence of the arbitrators, can later be accessed by the governing body. This will help the ICA to review the performance of an arbitrator based on the feedback given by the parties. Therefore, with this structure in place, it can ensure that the independence and impartiality of arbitrators appointed are maintained during the proceedings.

Conclusion

Arbitration has slowly established a promising mechanism for dispute resolution. Arbitration is flourishing not only domestically but at the international level as well. The International Community has found arbitration to be a suitable mechanism for resolving disputes at a much faster pace. However, in a developing country like India that has witnessed growth in the commercial and corporate sectors in the last couple of years, it is yet to develop and adapt with these sectors to emerge as a favourable option for dispute resolution in India. 

For arbitration to function effectively, it is very important to ensure that the foundations of arbitration are strong and free from any discrepancies. It’s imperative to learn the importance of independence and impartiality for an arbitrator which dictates the success of arbitration. It’s time we also recognise and use technology as it can ameliorate arbitration as a practice from its current state in India. 

We must find a way to combine the new innovative approach to the traditional and conventional methods, and by doing so we can ensure that arbitration continues to impact and make a difference in the legal field.

 

Endnotes

[I] Shah, N., & Gandhi, N., ‘Arbitration: One size does not fit all: Necessity of developing institutional arbitration in developing countries.’ (2011) J. Int’l Com. L. & Tech., 6, 232.

[II] AIR 1981 SC 2075.

[III]Law of Arbitration: Genesis and Development’, https://shodhganga.inflibnet.ac.in/bitstream/10603/40545/12/18_chapter9.pdf accessed on 25th August 2020.

[IV] Mullerat, R., & Blanch, J, ‘The liability of arbitrators: a survey of current practice.’ (2007) Disp. Resol. Int’l, 1, 99.

[V] Section 11(2)  of Arbitration and Conciliation Act 1996: The parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

[VI] Section 11(3) of Arbitration and Conciliation Act 1996: Appointment of the third Arbitrator by two Arbitrators.

[VII] Schacherer, S., ‘Independence and Impartiality of Arbitrators-A Rule of Law Analysis.’ (2018).

[VIII] Section 12(a) of Arbitration and Conciliation Act 1996: Existence of any direct or indirect, past or present relationship with interest of any parties which is likely to give rise to justifiable doubts as to his independence and impartiality.

[IX] Papayannis, D. M., ‘Independence, impartiality and neutrality in legal adjudication.’ (2016)  Revus. Journal for Constitutional Theory and Philosophy of Law / (28), 33-52.

[X] Schacherer, S., ‘Independence and Impartiality of Arbitrators-A Rule of Law Analysis.’ (2018).

[XI] IBA Rules on Conflicts of Interest in International Arbitration (‘IBA Rules’) (23rd October 2014) art 2.

[XII] Papayannis, D. M., ‘Independence, impartiality and neutrality in legal adjudication.’ (2016) Revus. Journal for Constitutional Theory and Philosophy of Law /Revija za ustavno teorijo in filozofijo prava, (28), 33-52.

[XIII] (2009) 4 SCC 523.

[XIV] (2012) 193 DLT 421.

[XV] IBA Rules on Conflicts of Interest in International Arbitration (‘IBA Rules’) (23rd October 2014).

[XVI] 5th & 7th Schedule Arbitrator’s relationship with the parties or counsel.

[XVII] American Arbitration Association, ‘AAA Arbitrator Select’ https://www.adr.org/sites/default/files/document_repository/AAA_Arbitrator_Select_2pg.pdf accessed on 4th September 2020.

[XVIII] DoNotPay ‘The World’s First Robot Lawyer’ https://donotpay.com accessed on 15th September 2020.

[XIX] Kleros ‘An open online dispute resolution platform bringing justice for all’ https://kleros.io accessed on 15th September 2020.

[XX] Kluwer Arbitration Blog, ‘Reputation Arbitration: Building a Decentralised Reputation system for Arbitrators?’  http://arbitrationblog.kluwerarbitration.com/2018/07/26/reputation-arbitration-building-decentralized-reputation-system-arbitrators/?doing_wp_cron=1597237248.3705399036407470703125 accessed on 14th September 2020.

 

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