Party autonomy in arbitration not absolute: Supreme Court Justice JK Maheshwari

Party autonomy in arbitration is not absolute and must operate within legal and ethical constraints that protect the integrity of the arbitral process, Supreme Court Justice JK Maheshwari said on Saturday.

The judge was speaking at panel discussion on the theme "Appointment of Independent Arbitrators: Party Autonomy Conundrum" as part of the Delhi Arbitration Weekend (DAW).

“While party autonomy allows disputing parties to select their arbitrators, ensuring efficiency and trust in the process, this freedom must be balanced against safeguards that prevent conflicts of interest and protect the integrity of arbitration ... it is not wrong to say that party autonomy is not absolute and it must necessarily operate within the framework of legal and ethical constraints, that preserves the integrity and legitimacy of the arbitral process. Fundamental principles of law, such as due process, right to be heard, and equal treatment of parties along with public policy considerations, act as balancing force which tempers party autonomy," he said.

Justice Maheshwari also noted that party autonomy is often compromised because of power imbalances between opposing parties to an arbitration and this leads to the appointment of an arbitrator who is likely to be biased.

"In practice, both in India and globally, contracts are often drafted by the party with greater financial strength and bargain leverage. This imbalance frequently manifests in the process that grants one party exclusive control over the appointment of the party. Such arrangements raise legitimate concern, particularly when the appointed arbitrator is an employee of or otherwise affiliated with the appointing party," he said.

He added that a delicate balance is needed between the freedom of parties to choose their arbitrators and the need to ensure that the arbitrator so appointed is truly impartial.

"The challenge lies in striking a delicate balance between the freedom of parties to appoint and the imperative of independence and impartiality. Achieving this balance requires a collaborative effort throughout, thoughtful legislative reforms, newest judicial interpretation and the active engagement of arbitration fraternity," he observed.

Madhya Pradesh High Court judge, Justice Anand Pathak too agreed that imbalanced bargaining powers between parties in the framing of arbitration agreements may lead to one-sided arbitration agreements that compromise party autonomy from inception.

He went on to note that party autonomy in arbitration is linked to the impartiality of arbitrators and arbitrators may be susceptible to a number of biases, including confirmation bias, conformity and bandwagon bias, authority bias, anchoring bias, framing bias, loss aversion and a status quo bias and self-serving bias.

He suggested that some form of psychological integrity assessment could be carried out to address such biases.

"Arbitrators may be excellent, but they may not be knowing their own biases. Therefore, psychological training sessions or value addition workshops can also be designed for arbitrators and can also be thought of," he said.

He added that arbitrators who are given training, allowing them to sharpen their skills regularly, are more likely to have their independence and objectivity reflected in arbitral awards.

He recounted a case where the Supreme Court set aside an arbitral award because it was found to be unintelligible and bereft of adequate reasons.

“Training (of arbitrators) is necessary to avoid a kitchen sink approach (the approach of giving overbroad solutions or including even unnecessary elements to solve a problem)," he said.

Senior Advocate Dama Seshadri Naidu underscored that impartiality is the bedrock of adjudication, whatever be its nature. In his remarks, he also observed that judicial positions on laws, including on arbitration law, are bound to evolve over time.

 “Precedents are bound to change, because law is evolving… I used to tell young lawyers, don’t heavily rely on the judgments. You know what the difference is between style and fashion. Fashion is ephemeral or quite changing. Style is eternal. Statute is style. Judgments are fashion. They are bound to change ... The Constitution is decidedly vague, so we can cater to changing needs," he said.

The other speakers at the session included the Prof Maria Chiara Malaguti (President, UNIDROIT), who spoke in detail about the origins of arbitration.

“The title of this panel is one of the most relevant issues that we need to discuss in arbitration. Why? Because arbitration at the origin was indeed 100 per cent based on party’s autonomy and the origin of arbitration was a private way to solve issues," she noted.

The final speaker for the session, Sapna Jhangiani (King's Counsel and Barrister at Blackstone Chambers), observed that even when parties consent to an arbitration agreement, it may not always translate into proper party autonomy.

Consent can be vitiated by a number of factors including duress and incapacity, she pointed out.

She recounted a case where a Canadian Court ruled that it was unconscionable to force an Uber driver to make a deposit of $14,500 before he was even allowed to invoke an arbitration clause that was part of his contract with Uber.

"We keep talking about the freedom of parties to choose how they want their arbitrators appointed. Let's just please ask ourselves on every occasion, how free are they really?” she said.

In the question and answer session, former Supreme Court Justice AK Sikri questioned whether courts should prioritise using contractual principles to resolve arbitral disputes instead of citing Constitutional principles.

Senior Advocate Naidu noted that judges often have to think about the future impact of their rulings.

"Judges feel, if I give this decision, it may be equitable, it may be advantageous for you (a litigant). What's its impact on the future?" he explained.

He went on to observe that in such cases, to avoid upsetting contracts that are outside the scope of the case before a court, the constitutional doctrine of avoidance may be invoked.

"If a decision can be rendered based on a statute, reference to the Constitution needs to be avoided," Naidu added.

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