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Sanctity of contract and procedural fairness in arbitration

Arbitration is a means of resolving disputes which involves the appointment of a third party to adjudicate on a dispute between the concerned parties. An arbitration agreement places the dispute beyond the jurisdiction of the courts and is jealously guarded by the doctrine of sanctity of contracts. In the case of Book v Davidson 1988 (1) ZLR 365 (S), the Supreme Court of Zimbabwe discussed sanctity of contracts in the following lofty terms:

ARBITRATION INSIGHTS: WITH JACOB MUTEVEDZI

“…If there is one thing which more than another public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by courts of justice. Therefore you have this paramount public policy to consider — that you are not lightly to interfere with this freedom of contract.”

Once parties conclude an arbitration agreement, preserving the sanctity of their contract becomes imperative. The sentiments expressed in Book v Davidson show that the principle of sanctity of contracts enjoins the courts only to interpreting a contract and not creating a new contract for the parties. It entails that the court should respect the contract made by the parties and give effect to it.

However, since arbitration requires adjudication on rights of the parties involved, principles of natural justice also play a critical role in avoiding any potential risk of injustice. The first principle of natural justice is ‘nemo judex in causa sua’, which means ‘no man can be a judge in his own cause’. This principle seeks to avoid any ‘reasonable apprehension of bias’ that may arise during any judicial process.

Frequently, situations arise which put the courts in the invidious position of deciding between upholding sanctity of contracts and enforcing rules of natural justice. For example, in a recent real estate dispute that I was involved in, the arbitration agreement conferred on the landlord the power to unilaterally appoint an arbitrator. Despite having freely concluded such a lopsided agreement my client insisted on challenging the unilateral appointment of the arbitrator by the landlord. Clearly, the unilateral appointment of an arbitrator is controversial since it flies in the face of the principle that no man shall be judge in his own cause. Yet the doctrines of sanctity of contracts and party autonomy forbid any interference in such a scenario.

The Indian Supreme Court had recent occasion to deal with a similar dilemma in the case of Perkins Eastman Architects DPC & Another v HSCC (India) Ltd 2019 SCC Online SC 1517 (“Perkins”). In the case of Perkins, the Indian Supreme Court, while interpreting the provisions of the Indian Arbitration and Conciliation Act, 1996, and striving to strike a balance between party autonomy and the principles of natural justice, decided that a person who has an interest in the award passed by the arbitrator during arbitration, cannot be entitled to appoint the sole arbitrator, notwithstanding the fact that the parties agreed to such unilateral appointment at the time of entering into the contract. In India, therefore, according to the Supreme Court, no party to a dispute shall be allowed to unilaterally appoint an arbitrator, even though the terms of the contract may entitle them to do so.

It is doubtful that a unilaterally appointed arbitrator will dispense justice. As the old adage goes, justice must not only be done but it must be seen to be done. The evolution of commercial arbitration depends to a large extent on the type of fairness parties expect in dispute resolution. Arbitration is neither trial by combat nor a random process such as consulting the entrails of a chicken. Rather, arbitration implies respect for a bundle of rights often called “due process”, which in other quarters is labelled as “natural justice”. Due process lies at the core of what disputants seek in both arbitration and litigation.

According to a recent study by the Global Centre for Dispute Resolution in Naimark and Keer’s “International Private Commercial Arbitration: Expectations and Perceptions of Attorneys and Business People”, International Business Lawyer 203 (May 2002), lawyers and parties to arbitration rated a “fair and just outcome” as the most important element in arbitration, above all other considerations. It is, therefore, fundamental to due process and confidence in international commercial arbitration that the arbitrators are independent and impartial. In both litigation and arbitration, due process is normally said to include the right to be heard by an unbiased tribunal.

Regardless of the parties’ agreement, there are certain minimum levels of independence and impartiality that should be required of the arbitral tribunal. A sensible law cannot, by way of example, permit the appointment of an arbitrator who is also a party to the dispute at hand, or who is an employee or functionary of one party, even if this is what the parties concluded in their arbitral agreement.

A unilateral appointment of an arbitrator by a party which is interested in the outcome or decision of the dispute is not permissible in law. While party autonomy and sanctity of contract are, no doubt, the underlying principles in arbitration, fairness, transparency and impartiality are virtues, which are equally important. An arbitration clause cannot override the guiding principles of impartiality and fairness.

In most jurisdictions, arbitration rules and national laws, while differing in formulation expressly require that arbitrators be independent and impartial. Article 7 of the International Chamber of Commerce (ICC) Rules states that: “every arbitrator must be and remain independent of the parties involved in the arbitration”. Further, Article 15(2) of the ICC Rules obliges the arbitral tribunal to “act fairly and impartially”. Article 9 of the UNCITRAL Rules requires a prospective arbitrator to disclose “any circumstances likely to give rise to justifiable doubts as to his impartiality and independence”. Article 14 of the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (the SCC Rules) states that “every arbitrator must be impartial and independent”.

l Jacob Mutevedzi is a commercial lawyer and partner at Clairwood Chambers Attorneys and writes in his personal capacity. He can be contacted @ jmutevedzi@gmail.com

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