Further Indian jurisprudence on appointments of former employees as arbitrators

Since our previous report on the Delhi High Court refusing to uphold an arbitration clause that provided for the tribunal to be comprised of one party’s employees or retired employees, there have been several cases which have provided useful guidance in relation to the appointment of arbitrators under the new provisions in the Arbitration and Conciliation (Amendment) Act 2015, which came into force on 23 October 2015 and amended the Arbitration and Conciliation Act 1996 (“Amended Act“).  The Amended Act applies to arbitration agreements which pre-date the amendments.[1]

The recent jurisprudence on appointing former employees as arbitrators has dealt with a number of issues, but four key principles emerge:

  1. The provisions of the Amended Act dealing with independence of arbitrators do not prohibit the appointment of former employees.
  2. Nonetheless, it is still important for there to be no doubts in relation to the neutrality, impartiality and independence of the arbitral tribunal. Therefore, where a party has a contractual right to compose a list or panel from which the other parties are to select an arbitrator, a ‘broad based’ approach must be adopted.
  3. The Courts have adopted a narrow definition of what constitutes an employee, and therefore all government employees are not automatically ineligible to be appointed as an arbitrator where one of the parties is a government body.
  4. If an ineligible person (e.g. an employee) was nominated as an arbitrator in the arbitration agreement but is now ineligible as a consequence of the Act, that person cannot nominate another independent arbitrator, notwithstanding what the agreement might provide.

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Madrid court sets aside awards on grounds of public order after reviewing merits

Under the Spanish Arbitration Law,[1] an arbitral award is final and binding and can only be challenged on six specific grounds, including that the award is contrary to public order.[2] Up until now, when considering challenges to arbitral awards, Spanish courts have held that an award cannot be appealed or reviewed on its merits[3] and that it is not the role of the Spanish courts to correct hypothetical deficiencies in the merits (fact and law) of the award. The concept of “public order” has also been very narrowly interpreted, requiring a violation of a fundamental constitutional right or, more recently, a breach of competition and antitrust principles as required under European Union law.[4]

Three recent decisions of the Tribunal Superior de la Justicia, Madrid (the “Court“)[5][6] have apparently changed, or at least cast doubt, on this past approach. In all three cases, the Court has set aside arbitral awards after reviewing the merits of the decision taken by the relevant arbitral tribunals and finding the incorrect application of the law to be contrary to Spanish public order[7]. In so doing, the Court has arguably exceeded the scope of its formal functions of the judicial supervision of arbitration, adopting a new and extended definition of public order as a basis for setting aside the award.

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