Alternative Dispute Resolution

Perkins Eastman Architects DPC v. HSCC (India) Ltd.

(2020) 20 SCC 760

Citation: (2020) 20 SCC 760
Court: Supreme Court of India
Date: 26 November 2019
Bench: U.U. Lalit and Indu Malhotra, JJ.

Facts

Perkins Eastman was engaged as a design consultant for a public healthcare project.
The consultancy agreement contained an arbitration clause.
The clause did not name the Chairman and Managing Director of HSCC as the arbitrator.
It gave that official exclusive power to appoint the sole arbitrator.
Disputes arose, and Perkins Eastman invoked arbitration.
HSCC’s Chairman and Managing Director appointed a person as sole arbitrator.
Perkins Eastman approached the Supreme Court.
It argued that:
HSCC’s management was interested in the outcome;
an interested party could not have exclusive control over the sole arbitrator’s identity;
the appointment violated the principle established in TRF; and
an independent arbitrator should be appointed.
HSCC attempted to distinguish TRF because its Chairman was not personally designated to act as arbitrator.

Issue

Whether an interested party may have exclusive authority to appoint a sole arbitrator.
Whether TRF applies where the appointing official is not personally named as arbitrator.
Whether the unilateral appointment was valid.

Rule

A person with an interest in the outcome cannot have exclusive power to appoint the sole arbitrator.
The concern is not confined to personal statutory ineligibility.
It extends to structural control over constitution of a one-member tribunal.
Where both parties appoint one arbitrator each in a three-member tribunal, the mutual structure may provide some balance, subject to current panel-equality principles.
Where one party alone selects the sole decision-maker, no counterbalancing participation exists.
TRF applies in principle even if the interested official was never meant to act personally.

Application

HSCC was one of the disputing parties.
Its Chairman and Managing Director represented its institutional interests.
He therefore possessed an obvious interest in:
the organisation’s financial exposure;
the contractual outcome; and
the defence of its decisions.
Giving him exclusive power to choose the sole arbitrator meant that one side alone determined the entire tribunal.
The Court held that this created an unacceptable appearance of control.
The question was not whether the appointed individual was personally biased.
The legitimacy of arbitration depends upon:
an independent tribunal;
equal treatment;
neutral constitution; and
confidence that neither party selected the adjudicator unilaterally.
HSCC argued that TRF applied only where the appointing official was first named as arbitrator and became ineligible.
The Court rejected that narrow reading.
The underlying reasoning of TRF was that an interested person should not control the selection of the sole arbitrator.
That reasoning applied even more directly where the official’s only function under the clause was unilateral appointment.
The contractual mechanism therefore could not be enforced.
The Supreme Court appointed an independent arbitrator.
The decision became the leading authority against unilateral sole-arbitrator appointment.
Later developments have strengthened it:
CORE applies equal treatment to the appointment stage and restricts curated panels and one-sided three-member structures;
Bhadra International holds that an invocation notice and silent participation do not waive the defect;
waiver requires an express post-dispute written agreement.
The principle applies to private and public entities alike.

Conclusion

The Supreme Court invalidated HSCC’s unilateral appointment.
It held that an interested party cannot possess exclusive power to appoint the sole arbitrator.
An independent arbitrator was appointed by the Court.
Use this case for: one contracting party cannot unilaterally choose the sole person who will adjudicate its dispute.