Appointing Arbitrators in Investment Arbitration


Author – Gururaj Bhat, Sri Prasunna College of Law

Shrasti Awasthi, University of Mumbai Law Academy

Editor – Mohit Meena, Gujarat National Law University

Introduction:-

Long before the popular phase “pale, male, and stale,” leading arbitrators were instead often referred to as a club a cartel, or even a monopoly. Those references were meant metaphorically, even good. The irony is that they turn out to hold important truths that promiscuously interlink with the pale-male-stale moniker. The market for international arbitrators is shaped by two defining features. The first is high barriers to entry. The second is profound information asymmetries. It is very difficult to become an international arbitrator. That process is most effectively-but not necessarily most efficiently-Conducted by big repeat players. Rapid growth in an industry usually triggers increased competition on various players who vie for a large scale of expanding in a market.


On the one hand, arbitrators usually face from new market entrants. It is difficult for new or more diverse arbitrators to get their first appointment. Thus, even high talented freshers may remain obscure to the larger market. Sometimes even Arbitrator finds it hard and gets confused. They can’t provide meaningful competition for established arbitrators. The market by arbitrators, particularly by identifying talented freshers, is particularly acute now as a wave of lower-and mid-value cases come out of the crisis. Leading arbitrators in having a good reputation are not necessarily incentivized to perform at their best. The first party to appoint an arbitrator also proposes a candle to serve president of the tribunal. The other party then appoints an arbitrator and either agrees to the appointment of the arbitrator proposed for president or proposes another candidate.

Arbitration:-

Arbitration, a form of alternative dispute resolution, is a way to resolve disputes outside the courts. The disputes will be decided by one or more persons, which renders the arbitration award. An arbitration award is legally binding on both sides and enforceable in the courts. Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. In certain countries such as the united states, arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts and may include a waiver of the right to bring a class action claim.

Investment Arbitration: -

Investment arbitration is a procedure to resolve disputes between foreign investors and host states. The possibility for a foreign investor to sue a host state is a guarantee for the foreign investor that, in a case of dispute, it will have access to independent and qualified arbitrators who will solve the dispute and render an enforceable award. This allows the foreign investors to bypass national jurisdiction that might be perceived to be biased or to lack of independence, and to resolve the dispute in accordance with different protection afforded under international treaties. For a foreign investor to be able to initiate an investment arbitration, a host state must have given consent to this. Consent to investment arbitrations most commonly given by host states in International Investment Agreements.


Substantive Protection for Foreign Investors: -

The substantive protections provided to foreign investors depend on the international investment agreement upon which their claims are brought. These are different from the protection afforded by the domestic law of the host state, and at times the protection they afford may be greater. The most common protections afforded by the domestic law of the host state are: -

· Protection from expropriation;

· Fair and equitable treatment;

· National treatment;

· Most-favored-nation treatment

· Freedom to transfer funds; and

· Full protection and security


Most investment arbitration agreements provide for a cooling-off period, frequently of six months, where investor and the host state are invited to engage in negotiations to find an amicable solution. The starting point of the cooling-off period is typically notice of intent to initiate an arbitration proceeding against the host state. In case of a failure to settle the dispute over the cooling-off period, as is common, the foreign investor must file a request for Arbitration following the applicable rules of arbitration. The vast majority of disputes do not settle at his stage.


On the contrary, other arbitration agreements force the investor to either chose to sue the state before domestic courts or before an international arbitral tribunal. Investors need to review the instrument containing the host state’s consent to arbitration in detail before initiating arbitration if courts of the host state are first approached to resolve the dispute.

Trade act: -

It is a cardinal principle of the act that parties are free to decide the number of arbitrators as well as the procedure for appointing them. However, if parties are not able to agree on the said procedure, or constitute the arbitral tribunal to their mutual satisfaction, either party has a remedy under section 11 of the act, which provides detailed machinery for an appointment of arbitration through judicial intervention. Thus, the act upholds and promotes party autonomy in the appointment of arbitrations, and failing any agreement between the parties, the act then provides for an appointment mechanism with the court. In the case of international commercial arbitration, a request will have to be filed by a party before the supreme court under section 11(9) of the act. Under section 12(1) of the act, an obligation has been cast upon the prospective arbitrator to make an express disclosure on

· Circumstances which are likely to give rise to justifiable doubts regarding his independence or impartially

· Grounds which may affect his ability to complete the arbitration within twelve months.

The fifth schedule to the Act contains a list of grounds giving rise to justifiable doubts as to the independence or impartiality of an arbitrator. Expeditious disposal of application for appointment of an arbitrator(s) is emphasized by the act and an endeavor shall be made to dispose of the matter within A period of sixty days from the date.

Method of the constitution of a tribunal: -

As a first step in the appointment process, the parties should refer to the contract, treaty, or law containing the consent to International Centre for Settlement of Investment Disputes (ICSID) arbitration. The instrument may set forth a prior agreement between the parties on the number of arbitrators and/or the method of their appointment. Absent a prior agreement, ICSID invites the party to the agreement on their number of arbitrators and the method of their appointment when ICSID registers the request for arbitration. Arbitration rule 2 provides a procedure and timeline to assist the parties in reaching an agreement. A tribunal must always consist of a sole arbitrator or any uneven number of arbitrators. The parties are otherwise free to adopt any workable methods of appointment that suits their needs, including provisions on time limits and special procedures. The parties do not need to appoint arbitrators from the ICSID panel of arbitrators. The most common agreement for three-member Tribunals are: -

· Each party appoints one co-arbitrator, and the parties attempt to agree on the third arbitrator, the president of the tribunal. If the parties fail to agree, the secretary-general of ICSID appoints the president.

· Each party appoints one co-arbitrator, and the co-arbitrators attempt to agree on the third arbitrator, the president of agree, the secretary-general of ICSID appoints the president.

As part of their agreement on the method for constituting the tribunal, the parties may agree to adopt a list of procedures concerning proposed candidates.

· The parties exchange a list of candidates; each party informs the other party of the candidate whom it accepts or rejects.

· The parties request that ICSID provide them what a list of candidates. Each party can strike a certain number of candidates rank the remaining candidates. The candidate with the best ranking is appointed or, if two or more candidates have the same ranking, ICSID selects one of them.

If the parties are unable to appoint all members of the tribunal under the established method, either party may invoke the ICSID default mechanism for appointing the missing arbitrator(s).

Conclusion: -

To summarise the legal reform, the first step is parties should agree on the number of arbitrators on a tribunal and the method of their appointment. If they cannot agree ICSID’S default mechanism will apply (Article 37 of the ICSID Convention and Arbitration Rule 2 and 3). Host state should focus more on making the arbitration easier and less time consuming for the foreign investors so that investors stay interested in the particular country. As investors are one of the important factors in the development of the nation.


Reference: -

1. https://www.jdsupra.com/legalnews/new-data-shows-international-14240/

2. https://www.dentons.com/en/insights/articles/2017/october/26/is-it-wrong-to-confuse-an-arbitrator-s-failure-to-give-reasons-with-the-conduct-of-proceedings

3. Investment Arbitration:- https://corporate.cyrilamarchandblogs.com/2019/05/international-investment-arbitrations-international-commercial-arbitrations-guide-differences/

4. Protection provided to foreign investors:- https://www.researchgate.net/publication/292913639_Substantive_protection_under_investment_treaties_A_legal_and_economic_analysis

5. Trade Act: - sec 10], [Arbitration and conciliation act], [1996]

6. Remedy Available:- https://indiankanoon.org/doc/1151350/#:~:text=Section%2010%20in%20THE%20ARBITRATION%20AND%20CONCILIATION%20ACT%2C%201996&text=(1)%20The%20parties%20are%20free,consist%20of%20a%20sole%20arbitrator.

7. ICSID of Convention and Arbitration: - [Art 37], [ICSID], [Convention and arbitration], [Rule 2 and 3]

8. Appointment of arbitrators:- https://icsid.worldbank.org/services/arbitration/convention/process/appointment#:~:text=The%20first%20party%20to%20appoint,President%20or%20proposes%20another%20candidate.

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