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Official Citation: 2024 CLD 1451
Court / Jurisdiction: Islamabad High Court
Year of Decision: 2024
Decision Date: 2024-04-25
Parties: Pak Gulf Construction (Private) Limited vs Godwin Austen Johnson
This judicial decision was delivered by the Islamabad High Court on 2024-04-25. The matter involves proceedings between Pak Gulf Construction (Private) Limited and Godwin Austen Johnson, officially reported as 2024 CLD 1451. The court reviewed applicable Pakistani statutes, procedural requirements, and governing case-law authorities. The full text below contains the complete facts, arguments, and legal reasoning rendered by the honorable bench.
Case cited as 2024 CLD 1451
Court Name: Islamabad High Court Judge(s): Mohsin Akhtar Kayani, Sardar Ejaz Ishaq Khan Title: Pak Gulf Construction (Private) Limited vs Godwin Austen Johnson Case No.: FAO no. 121/2021 Date of Judgment:2024-04-25 Reported As: 2024 IHC 200, 2024 CLD 1451 Result: Appeal Partly Allowed
JUDGMENT
JUDGMENT Sardar Ejaz Ishaq Khan, J: The appellant appeals from the impugned order dated 22.09.2021, whereby the learned civil Court dismissed the appellant's objections to the arbitration award dated 03.06.2020 and made the award the rule of Court. 1 The Dispute and the Award 1.1 The dispute between the parties concerned the payments for services under the Contract titled Design Consultancy Service-Architecture, Interior and Specialty Design for 5 Star Movenpick Hotel, Centaurus, Islamabad (the Contract). The appellant was named the 'Employer', and the respondent the 'Consultant' in the Contract, and for convenience, we will refer to the parties in this judgment with the same labels. The Consultant was to provide 'comprehensive design services for all elements of the project through all design phases of concept design, schematic design, detailed design, tender drawings and documentation...'[1]. 1.2 The Contract was priced at a lump sum of USD 1,930,000/-. Schedule 4 to the Contract listed 5 phases of design services for the purposes of invoicing and payments, and each phase had one or more specified milestones that, when reached, triggered the Consultant's right to invoice and to be paid. Schedule 4 also stipulated reimbursable expenses that were to be invoiced subject to the conditions specified therein, but the pricing table did not specify any pre-agreed sum under that head. 1.3 The appellant terminated the Contract on 15.06.2017. The Consultant did not dispute the termination but claimed the outstanding payment. The Consultant invoked the arbitration clause and filed an application under section 20 of the Arbitration Act, 1940, which was allowed. The Consultant then filed its statement of claim in the sum of USD 600,001/-, the breakdown of which per the statement of claim was as follows: a) RCD-Visas of Kevin, Peter, Leila and Manuel amounting to US$ 391.56 dated May 31, 2016. b) 50% Completion & Submission of Concept Design-Residential Apartments (Inv-7) amounting to US$ 45,332.40 dated 30th October 2016. c) 100% Schematic & Detailed Design-33.33% DD Completion & Submission by Consultant amounting to US$ 155,884.14 dated 3rd May 2017. d) Schematic Design-100% Residential Apartments (Inv-9) amounting to US$ 18,667.60 dated May 3, 2017. e) Residential Apartments-Detailed Design 100% and Detailed Design Approval (Inv-10) amounting to US$ 14,400.00 dated 22nd June 2017. f) Hotel- Detailed Design 100% and Detailed Design Approval (Inv 11) amounting to US$ 198,009.90 dated 22nd June 2017. g) Total amount excluding travelling costs and expenses = US$ 432,685.60 h) That moreover, the Claimant has also incurred legal expenses and would have to incur travel costs of witnesses who will give evidence during arbitration proceedings, totaling up to US$ 167,315.40 or its equivalent in Pakistani rupees. In light of all the relevant clauses of the Contract referred to above and the unpaid invoices, the total liability of the Respondent amounts to US$ 600,001. 1.4 The arbitration commenced. The parties led their evidence and each produced one witness along with the documentary evidence. The learned arbitrator framed 10 issues and rendered the award awarding US$ 358,815/- as Contract price outstanding plus PKR 3.5 million as reimbursable expenses in favour of the Consultant. 1.5 As the payment milestones in Schedule 4 to the Contract mentioned percentages only, and as the claim before the arbitrator and the award too mentioned the sums in Dollars, it became necessary for us to correlate the percentages with the Dollar sums. In order to comprehend the parties submissions in the context of the narrative in the award, and also for the reader to get a proper picture of the controversy before us, the following table was prepared, illustrating the percentage payments and the Dollar numbers thereagainst. Further, as the arbitrator awarded 80% of the phase 4 price (the implications of which we will discuss later), the table below also reflects, in additional columns, the numbers based on the award:
(a)
(b)
Phase Fee US $ Totals Per the Awa Lump Sum Project Fee 1,930,000 1,821,920 Preliminary Study (15% of Design Fee) On completion & submission of Preliminary Study by Consultant15% 289,500 100% 289,500 289,500 289,500 Concept Design Phase (30% of the Design Fee) i. On 50% Completion & Submission of Concept Design ii. On 100% Completion & Submission of Draft Documents for aproval 30% 33% 33% 34%579,000 191,070 191,070579,000 579,000
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(c)
(d)
(e) iii. On approval of documents by the employer 196,860 Schematic Design Phase (35% of the Design Fee) (i) On 50% Completion & Submission of Concept Design (ii) On 100% Completion & submission of Draft documents for approval (iii) On approval of documents by the employer.35% 33% 33% 34%675,500 222,915 222,915 229,670675,500 675,500 Detailed Design Phase (18% of the Design Fee) (i) On 60% DD completion and Submission by consultant (ii) On 100% draft DD completion & submission by consultant (iii) On approval of final DD by employer18% 33% 33% 34%347,400 114,642 114,642 118,116347,400 277,920 Tender, Contract and Construction Documentation Phase 02% 38,600 38,600 - (2% of the Design Fee)
1.6 It is an admitted position between the parties that phase 5 had not arrived by that time and, therefore, with the 2% Contract price excluded from the lump sum price, the Contract price stood reduced to $ 1,891,400/-. As the receipt by the Consultant of USD 1,463,105/- was admitted, the balance sum left was $ 428,295/-. Giving the reason that some further work was required of the Consultant by the Employer in respect of phase (d) services that was not satisfactorily completed due to the earlier termination of the Contract, the arbitrator then reduced the phase (d) price from the contractually stipulated sum of USD 347,400 by 80% and awarded USD 277,920/-. The resultant position can be summarised as follows:
Project Fee less 2% for Phase (e) which never arrived 1,891,400 Project Fee as above with 80% for Phase (d) awarded by arbitrator instead of 100%1,821,920 Payment Admitted by both parties 1,463,105 Balance Fee (less reimbursables) 358,815
1.7 We have reviewed the award with the assistance of the learned counsels along with the references to the relevant items of the record and find the award to be a well-reasoned one on all issues, except issues no. 5 and 6, which were whether the Consultant was entitled to get the remuneration accrued and the amount thereof. But before we turn to discuss the grounds of appeal before us, it becomes necessary for us to take a detour on the subject of the scope of the Court's review of the award, on which the jargon of "settled law" is an utter misnomer, and on which many hours of counsels' forceful submissions, over several hearings, with reference to scattered paragraphs from dozens of precedents were indeed a veritable pleasure for us to bear. 2 Scope of review of the award 2.1 As is the wont, the learned counsels both cited Gerry's International (Private) Limited vs Aeroflot Russian International Airlines[2], albeit, each cited different paragraphs. Other judgments cited by counsels are earlier or later iterations of the same principles, but, even if in a rather uneasy cohabited rendition, Gerry's appears to be the only judgment that has all the principles gathered in one place. 2.2 Gerry's is unfinished business. It is a judgment by a 3-member bench of the Supreme Court. The judgment set for itself at paragraph 4 an ambitious territory to cover on the law of arbitration. The expedition across the caselaw trail started from Hodgkinson v. Fernie[3] of 1857 and ended at Bhagawati Oxygen Ltd. v. Hindustan Copper Ltd[4] for foreign jurisdictions, and traversed Abdul Ghani and Inayat Karim[5] up to A. Qutubuddin Khan v. CHEC Mill Wala Dredging Co. Pvt. Ltd.[6] in our jurisdiction. Alas, the journey was truncated just when the destination was quite in sight, in that it stopped at mapping out the '30 principles'[7] listed at paragraph 8 of the judgment, but did not proceed further to an internally consistent synthesis of those principles to reach the summit that was meant to be the endpoint of the entire exercise. For quick reference, paragraph 8 of Gerry's listing the 30 principles is annexed to this judgment. 2.3 Gerry's has something for everyone. It is a rare judgment, in that, almost always to the vexation of the Court, both the opponent counsels invariably rely on it, albeit always on variegated subsets of the 30 principles chosen to fit their respective client's case. The claimant's counsel would rely on principles no. 1 and 2 to stop the Court[8] peering into the arbitrator's decision on the questions of fact and law, while his opponent would, with equal validity of binding precedent for being found in the same judgment, rely on principles no. 20, 22, and 24, to argue the exact opposite that it was the duty of the Court to see that an award wrong on a material point of law or fact did not get blessed by being made rule of Court. The conundrum is real. The civil Courts cannot be blamed entirely for throwing the towel in and listing the entire 30 principles in their judgments by way of 'applying the settled law', as did the learned civil Court in this case. But Gerry's sanctions no warrant for abdication of the primary judicial duty of scrutinizing an award by hiding behind the 'arbitrator's supremacy' principle and making the award the rule of Court by an almost mechanical process. We say, with as much respect as we can muster, that post-Gerry's judgments of the Supreme Court have not quite carried us yet to the summit Gerry's aspired for, with those judgments either not citing Gerry's at all, or citing only such of the 30 principles that support the verdict in the particular appeal. This, we say again with the deepest respect, is far from satisfactory. A later judgment by an equinumerous bench of the Supreme Court, which does not cite the 3-member judgment in Gerry's[9], would encounter the obstacle of per incuriam as much as would a judgment by an equinumerous bench that cites only some of Gerry's principles[10]. It makes the legal staple of arbitration matters for the High Court and the Civil Courts rather unpalatable, for none of the post-Gerry's judgments can be said to have settled the law on the point of the scope of the scrutiny of the award and, we add without hesitation, that it would remain so as long as Gerry's remains in the field as it is. 2.4 The common reading of Gerry's 30 principles in a manner as if each principle operated independently is, with respect, the root cause of the 'Gerry's bewilderment' for all Courts bound under Article 189 of the Constitution to abide by a statement of the law laid down by the Supreme Court. How are they to reconcile, for instance, principles no. 1 and 2 that the arbitrator is the sole and final judge of all questions of law and fact and the quantity and quality of evidence, with principles no. 19 and 20, whereby the Court can set aside the award for a factual or legal error on the face of the award or where the arbitrator has not applied the law correctly? To what purpose would a Court aim its attention if, despite the existence of such error on the record, it must defer to the decision of the arbitrator for being the sole and final judge of all questions both of law and of fact under principle no. 1? We shall not tax the reader with further examples of inconsistency but trust that knowledgeable readers would not disagree on this score. Until the Supreme Court completes the next leg of the journey to a wholistic synthesis of Gerry's 30 principles, it falls upon the High Court to make an attempt at a synthesis of those principles for a signpost for the civil Courts under its supervision, and also for itself. 2.5 There is hope. After reading those principles several times over, one cannot resist the conclusion that the apparent contradictions arise primarily out of the choices of verbiage and the nuances of emphasis by the learned judges over a century and a half. The number of Gerry's principles has grown to 30 not because they are 30 distinct and self-contained principles, but because they are, in most part, restatements of much fewer core principles, restated over and over again with varying expositions. The differences are primarily dictional, but in essence express the same key underlying principles, which, despite the passage of 170 years, have not departed in any substantial sense from the statement of the principles for the scrutiny of an award laid down in Hodgkinson v. Fernie[11], which was reproduced at paragraph 6 of Gerry's judgment as follows:
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Where a cause, or matters in difference, are referred to an arbitrator, he is the sole and final Judge of all questions, both of law and of fact. However, the only exceptions to that rule are cases where the award is the result of corruption or fraud, and where the question of law necessarily arises on the face of the award or upon some paper accompanying and forming part of the award. 2.6 Gerry's has indeed served a useful purpose, in that it is the only judgment of the Supreme Court in our jurisdiction further afar from which in the past we need not venture. Insofar as the collated distillation of the principles governing the scrutiny of an award is concerned, Gerry's serves the purpose well. Each principle stated therein is backed by judicial precedent, foreign or local, and one need no longer venture further afar before Gerry's on the trail of case law that has already been trekked by Gerry's. Out of the several forks emerging on the road where Gerry's rested, and until the Supreme Court holds otherwise, if at all, we make an attempt at finding our destination from where the forks arise to see if all the pathways at those forks can possibly lead to the same destination. Choosing that destination to be Hodgkinson - for it has served the test of time for being cited in various common law jurisdictions to build the edifice of the principles thereon - we are inclined to say that Gerry's principles can be synthesized and allocated to the Hodgkinson formulation per the following table:
Hodgkinson Principle for the scrutiny of an award Gerry's principles Where a cause or matters in difference are referred to an arbitrator, he is the sole and final judge of all questions, both of law and fact1, 2, 10, 11, 12, 13, 14, 16, 17, 18, 21, 26 However, the only exceptions to that rule are cases where: 1) the award is the result of corruption or fraud, 15, 24, 25, 27, 29,30 2) where the question of law necessarily arises on the face of the award4, 5, 6, 7, 8, 9, 15, 8, 20,21, 22, 24, 25, 27, 28, 29 3) or upon some paper accompanying and forming part of the award.18, 19, 25, 27, 28, 29, 30
The familiar term 'record' is the convenient shorthand for the phrase 'some paper accompanying and forming part of the award' in the above formulation, and we will use that term instead. Quite aptly therefore, Gerry's principle no. 19 refers to 'record' alongside the 'award'. We have no qualms in accepting that the allocation of the 30 principles in the respective rows in the table above may reasonably be differed with. It needs to be remembered that the exercise is driven by a practical objective of the need for synthesis of Gerry's principles, and not to satisfy academic curiosity at some hypothesized serendipity of Hodgkinson formulation encapsulating Gerry's principles. 2.7 Gerry's principle no. 3 - that is not listed in the table above - is none but the statutory imperative for the arbitrator to give 'sufficient reasons' per section 26-A of the Arbitration Act, and is a development much after Hodgkinson. It therefore necessitates a further exception in the Hodgkinson principle in the Pakistani context, enabling a Court to examine the sufficiency of reasons in the award. The following exception may thus be added: Gerry's principle or where the award does not state the reasons in sufficient detail to enable the Court to answer a question of law arising out of the award3
2.8 Much good ground has been lost by relegating one key principle, which should, in our humble opinion, have been placed always in the foreground, namely, where two opinions on a question of law were equally plausible, then the Court is not entitled to substitute its preferred view for that of the arbitrator[12]. But where two views were not possible, and the arbitrator's conclusion was not valid in law, the Court would be failing in its duty to set the wrong right, thwarted by the fallacy of the impenetrability of the award by the judiciary. After all, why have the civil Court review the award, or why have the appellate Court sit in appeal, if the arbitrator's decision on facts and law were the last port of call in the dispute resolution process? Why bother with the pretence of scrutiny of award at all, and why bother with appellate remedies, if the Court is meant to leave the matters at the helm of the arbitrator's door exclusively? So we incorporate this principle also in our improvisation of the Hodginkson principle and, adding two provisos for clarity and some edits for neatness, complete it as follows: Where a dispute[13] is referred to an arbitrator, he is the sole and final judge of all questions, both of law and fact. However, the only exceptions to that rule are cases where: (a) the award is the result of corruption or fraud; (b) the question of law necessarily arises on the face of the award; or (c) the award does not state the reasons in sufficient detail to enable the Court to answer a question of law arising out of the award. Provided that, where two opinions on the question of law are equally plausible, then the Court shall not substitute its preferred view for that of the arbitrator expressed in the award; and Provided further that, in relation to both clauses (b) and (c), reference to the expression 'award' includes the 'record' on which the award is based, if the answer to the question of law necessitates a reference to the record[14]. Explanation. The expression 'question of law' includes conclusions drawn from proven facts. The above formulation reads like a statutory provision only to borrow the precision that can be crafted in a statutory provision but can be lost in a flowing narrative of the same principles. 2.9 It also remains to be clarified that the expression question of law' includes conclusion of fact drawn from the facts proven in arbitration. The legal effect of a conclusion of fact is a question of law. The Explanation in the above formulation conforms to Gerry's principle no. 18, whereby the Court's scrutiny of an award would extend to a conclusion of fact if it is not based on any evidence or the evidence does not support that conclusion rationally. Stated another way, whether there has been a failure to consider material evidence, or whether an unwarranted conclusion of fact was drawn in the award that no reasonable adjudicator would arrive at, are questions of law[15], in that a neutral adjudicator is not entitled to ignore a material item of evidence nor to draw a perverse conclusion from the evidence, because, when the parties appoint an arbitrator to be their neutral adjudicator, they cannot be attributed the absurd intention that they also agreed that the arbitrator could ignore a material item of evidence or draw a perverse conclusion from the evidence.
2.10 The improvised Hodgkinson principle identifies the 'triggers' for, and then the 'scope' of, the scrutiny of the award by the Court. The starting point is the presumption of correctness of the award. It falls on the counsel to identify any of the exceptions in the improvised Hodgkinson principle and to satisfy the Court - as a threshold question - that the trigger really exists. Only then the Court will cast a deeper look at the award (and to the extent
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necessary, the record) to see if the presumption of correctness of the award is possibly a rebuttable one in the case before it. If the counsel is able to cross that threshold, only then the Court will embark on a further examination of the award and, to the extent necessitated in that quest, the rest of the record, with the assistance of the counsels. The Court 'should not try to fish or dig out the latent errors in the proceedings or the award[16], but ought ordinarily to limit itself to the triggers identified by counsel at the bar with reference to the memos of applications or appeal and the replies. We should like to think that this progression of the Court's function would strike a balance between the two extremes of a completely hands-off approach and a deeply interventionist approach concerning the triggers for and scope of scrutiny of the award by a Court. 2.11 It needs to be highlighted that the remedies - setting aside, modifying, or remitting an award - is not the subject of the Hodgkinson principle as improvised in this judgment; that would follow depending on the error identified. For instance, if the Court agrees that reasons for the award were insufficient, it will remit the award under section 26-A and not set it aside. This clarification is important, because the entire exercise undertaken in this section of the judgment is an attempt to elucidate and circumscribe the triggers for and the scope of scrutiny of an award and not as to what consequences are to follow therefrom, which are already prescribed in the Arbitration Act. 3 Objections to the Award, and the rule of Court order 3.1 With Gerry's synthesised and overcome, we are now poised to review the award in the appeal before us by applying the improvised Hodgkinson principle, or, we might say, the Gerry's synthesised restatement. 3.2 The objections to the award and the impugned order of the civil Court making the award the rule of Court furnished the grounds of appeal by the Employer before us. The ground of appeal claiming insufficiency of reasons for awarding the phase (d)(iii) Contract price requires a separate section because we agree therewith. But before we do so, we need to address briefly the other grounds of appeal which do not meet the thresholds of the Gerry's-Hodgkinson synthesis. A) The termination for default versus termination for convenience Mr. Talha Sheikh for the Employer took the position that the Consultant was at default under the Contract, in that the design deliverables were defective, and relied on the correspondence whereby deficiencies in the design deliverables were pointed out by the Employer from time to time. Under clause 10 of the Contract, the Employer could terminate the Contract either for convenience or for the Consultant's default. The termination notice, however, did not mention that the Contract was being terminated for default; rather, the termination notice specifically referred to clause 10.3 stipulating termination for convenience and not to clause 10.2 that stipulated termination for default. Accordingly, the learned arbitrator correctly answered the question of law as a conclusion from the proven facts that it did not lie with the Employer to claim later that the Contract was terminated due to default in the services by the Consultant. B) The non-compliance with the Company Law The objection taken before the learned trial Court in this behalf was that under Parts XIV and XII of the Companies Ordinance 1984 and Companies Act 2017, respectively, titled "Provisions as to Establishment of Places of Business in Pakistan", the Consultant, a foreign concern, was disabled from bringing any legal proceedings in Pakistan, for it had not filed the prescribed corporate documents with the Registrar of companies. This objection was turned down by the learned civil Court in para 10 of the impugned order for the reason that the Consultant had not established any office in Pakistan and therefore the referred provisions of the Company Laws did not apply. This was a correct finding in law. C) Counterclaim The Employer also filed a counterclaim that was rejected by the learned arbitrator while rendering his findings under issue no.7, the reasoning whereof is unexceptional. Terminating the Contract for convenience, and then claiming compensation for the fee paid to another consultant engaged to rectify the allegedly defective design delivered by the Consultant, are two rationally, legally, and logically, contradictory positions, and cannot be countenanced in a case of termination for convenience by the Employer. D) Reimbursable expenses
The other objection to the award was that, despite the…
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