Introduction
The physical existence of a living
organism ends in death. Can the same logic bring the existence of an
arbitration clause to demise when the named arbitrator therein passes away? The
Supreme Court of India addressed this question in a recent judgment.[2]
Facts
The Petitioner and the
Respondent entered into an arbitration agreement which read as follows:
“If
any question or difference or dispute shall arise between the parties hereto or
their representatives at any time in relation to or with - respect to the
meaning or effect of these presents or with respect to the rights and
liabilities of the parties hereto then such question or dispute shall be
referred either to Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision in the
matter shall be final and binding on both the parties.”
The two named arbitrators died before
disputes arose and the arbitration clause was invoked. The Respondent thus
sought appointment of a substitute arbitrator by moving the High Court of
Bombay under S. 11 of the A&C Act, 1996.
The Petitioner contested the
Respondent’s application on the ground that owing to the demise of the named
arbitrators, the arbitration clause had come to an end. The Bombay High Court
held in favor of the Respondent by stating that in the absence of any
prohibition or debarment, there is no reason for the court to presume an intent
on the part of the parties to the effect that a vacancy that arises on account
of a failure or inability of a named arbitrator to act cannot be supplied by
the court under Section 11. The Bombay High Court appointed an arbitrator.
The Petitioner filed an appeal
before the Supreme Court of India by a Special Leave Petition.
Decision
The Supreme Court considered the matter and
dismissed the Special Leave Petition on the following grounds:
- That a substitute arbitrator can be appointed on the basis of S. 11 which permits a court to appoint an arbitrator, read with S. 14 which lays down the circumstances in which the mandate of an arbitrator terminates, read with S. 15 which permits a court to appoint a substitute arbitrator in such cases. The objective of these sections in the Court’s opinion is to facilitate arbitration and thus ought to be construed to promote efficacy.
- That the language of the arbitration clause permitted the arbitration clause to survive the death of the named arbitrators.
- There was no prohibition in appointing a substitute arbitrator as could be construed from the wordings of the agreement.
Analysis
The decision is not entirely new in terms of
the ratio. The position was the same under the old Act [3] as
outlined in the Supreme Court’s decision in Prabhat
Agencies v. U.O.I [4]
What is important is that the Court stressed
on the importance of the intentions of parties in determining whether the
arbitration clause survives the death of the named arbitrator.
The Petitioner had quite interestingly argued
that the rationale for naming the arbitrators was that the parties had reposed
faith and confidence in the said individuals. However in our opinion the mere
fact of naming an arbitrator in the arbitration clause is not reason enough to
establish the converse, i.e. the parties would not arbitrate before any other
individual.
This is because the intent to arbitrate is
separable from the intent to arbitrate before a particular arbitrator. Naming
an arbitrator in the clause can merely establish that parties had chosen an
independent and impartial person to preside over their disputes. Upon the
demise of such person, the Court can by the same reasoning appoint another
independent and impartial person. What must be established is that the named
arbitrator was the only person whom
the parties wished to preside over their disputes.[5]
The language of the arbitration clause thus
becomes important. If there is no discernible intent to prohibit arbitration in
the event of the death of the named arbitrator, the Court can appoint a
substitute arbitrator. In the present case the Court interpreted the words any time in the clause
If
any question or difference or dispute shall arise between the parties hereto or
their representatives at any time…
The Court held that the meaning of the words any time indicated that the life of the
arbitration clause had no nexus with the life of the named arbitrators, and
that the arbitration clause would continue to have a life so long as a question
or difference or dispute exists between the parties.
Thus the following adage would apply to
arbitration clauses which do not expressly/impliedly bar the arbitration upon
the death of the named arbitrator:
Le Roi est mort, vive le
Roi,
The King is dead.. Long
live the King
[1] Authored by Vikram S.
Nankani and Alok N. Jain. Copyright Economic Laws Practice.
[2] 2012 STPL (Web) 327 SC
[3] S. 8(1)(b) gave powers to the Courts to appoint an
arbitrator under S. 8(1)(b) if any appointed arbitrator or umpire neglects
or refuses to act, or is incapable of acting, or dies, and the arbitration
agreement does not show that it was intended that the vacancy should not be
supplied, and the parties or the arbitrators, as the case may be, do not supply
the vacancy.
[4] AIR 1971 SC 2298
[5] Rajinder Jain v. Rakesh Jain, 114 (2004) DLT 723 – here the
family disputes were to arbitrated upon by the mother and upon her death no
other individual could be appointed owing to the nature of trust and faith
reposed in her alone; Rakesh Khanna v. Vishwanath Khanna 62 (1996) DLT
131 – here the clause specifically provided that the parties only had faith and
trust in the named arbitrators. In view of this the Court held the vacancy
created by the refusal by the named arbitrators could not be supplied
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