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Petitioner: China Water and Electric Corporation (CWE) P.R. China VS Respondent: National JUDGMENT
Court Name: Islamabad High Court Judge(s): Miangul Hassan Aurangzeb Title:China Water and Electric Corporation (CWE) P.R. China vs National
JUDGMENT
Reported As: 2023 CLD 1365 Result: Application allowed Judgment JUDGMENT MIANGUL HASSAN AURANGZEB, J. Through the instant application under section 6(1) of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 ("the 2011 Act"), the applicant, China Water and Electric Corporation (CWE) P.R. China ("CWE") seeks the recognition and enforcement of interim award dated 06.07.2016 ("Interim Award") rendered by Mr. Peter H. J. Chapman ("the Arbitrator") and approved on 30.06.2016 by the International Court of Arbitration of the International Chamber of Commerce ("ICC"). For the purposes of clarity the prayer made in the said application is reproduced herein below:- "The Petitioner humbly prays the hon'ble Court to most graciously allow this petition and recognize and enforce the appended arbitral Award in the same manner as a judgment or order of a court in Pakistan. Any other relief deemed appropriate under the circumstances may also be granted." Factual background:- 2. The record shows that on 03.12.2009, CWE and National Highway Authority ("NHA") entered into a contract for the construction of Four Lane Faisalabad - Khanewal Project (M4), Package-1: Faisalabad - Gojra Section (58 KM) ("the Contract"). This was an Asian Development Bank funded project. The documents that constitute part of the Contract were listed in clause 2 thereof and included the General Conditions of Contract ("GCC") and Particular Conditions of Contract ("PCC"). 3. The Contract provided for a completion period of 36 months, followed by a defects liability period of one year. The commencement date of the Contract was agreed to be 25.02.2010. It is not disputed that the completion period had been extended. It is also not disputed that works under
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the Contract were completed on 29.01.2015 and that the defects liability period expired an 29.01.2016. 4. The parties had agreed to resolve their contractual disputes in accordance with the dispute resolution mechanism provided in the Contract. Any disputes which could not be amicably settled between the parties were required to be referred to the Dispute Board for a decision. A party aggrieved by the decision of the Dispute Boara could give notice of its dissatisfaction with such decision to the other party, and thereafter refer the matter to arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce ("the ICC Rules"). In this regard, Clause 20.6 of the PCC is reproduced herein below:- "All disputes arising in connection with the Contract shall be finally settled by arbitration. In case of foreign contractor, arbitration shall be carried out in accordance with the Rules of Arbitration of the International Chamber of Commerce, and in case of domestic contractor, arbitration shall be carried out in accordance with the rules and provision of Arbitration Act 1940 of Islamic Republic of Pakistan." 5. At this stage, it is necessary to give a brief recital of the disputes that developed between the parties during the course of the works. The Engineer had granted an extension of time ("EOT") to CWE, causing the time, for completion to be extended to 31.12.2013. CWE had also made a monetary claim against NHA regarding costs associated with the EOT. The Engineer, in his decision dated 25.05.2012, had allowed CWE's claim to the tune of Rs.744,068,695/-. NHA's refusal to pay the said amount to CWE caused the latter to refer the dispute to the Dispute Board. As per the Dispute Board's majority decision dated 19.05.2014, CWE was entitled to receive the amount which the Engineer had determined in CWE's favour. Furthermore, it was decided that CWE would be entitled to receive payment of simple interest at the rate of 6% per annum on the unpaid amount of this claim starting from 18.08.2012. The Dispute Board's said decision on CWE's claim shall hereinafter be referred to as "dispute No. 1." 6. The Dispute Board comprised three members. As mentioned above, the said decision dated 19.05.2014 was a majority decision. The third member of the Dispute Board gave a dissenting report in which he had opined that the sum to be awarded to CWE should be approximately 50% of the amount determined by the other two members to be payable to CWE. 7. Vide letter dated 12.06.2014, NHA expressed its dissatisfaction with the Dispute Board's decision dated 19.05.2014 on dispute No.1 and invited CWE for an amicable settlement. NHA also gave notice of its intention to commence arbitration. 8. On 16.06.2014, CWE advised NHA that under clause 20.4 of the GCC, the Dispute Board's decision was binding on both parties who were required to promptly give effect to it unless and until it was revised through an amicable settlement or by an arbitral award. CWE requested NHA to comply with its contractual obligations and to immediately pay the amounts in accordance with the said decision of the Dispute Board. 9. On 16.06.2014, CWE also submitted Interim Payment Certificate ("I.P.C.") No.24 which included the amount that the Dispute Board had held CWE to be entitled to. Vide letter dated 18.06.2014, the Engineer informed CWE that the amount claimed by CWE in I.P.C. No.24 had not been approved by NHA. Furthermore, CWE was informed that since NHA had not accepted the Dispute Board's decision regarding CWE's claim, and since NHA had invited CWE for an amicable settlement, CWE's request to certify I.P.C. No.24 could not be accepted. 10. Since NHA failed to make payment in accordance with the Dispute Board's decision on dispute No.1 CWE, on 01.11.2014, referred the matter regarding NHA's said' failure to the Dispute Board. CWE took the position that NHA was in breach of clause 20.4 of the GCC by not making prompt payment in accordance with the Dispute Board's decision on dispute No.1.
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11. On 30.12.2014, the Dispute Board decided that NHA's failure to implement the Dispute Board's decision on dispute No.1 did "not qualify to be treated as a fresh dispute under the Contract provisions" since NHA had expressed its dissatisfaction with the said decision and also its intention to commence arbitration. This caused CWE to issue a notice dated 05.01.2015 regarding its dissatisfaction with the Dispute Board's said decision dated 30.12.2014. The Dispute Board's decision dated 30.12.2014 shall hereinafter be referred to as "dispute No.2." 12. Now, vide letter dated 28.11.2014, NHA expressed its intention to partially implement the Dispute Board's decision on dispute No.1 and to pay CWE just below half the amount that the Dispute Board had held CWE entitled to. The amount proposed to be paid by NHA was the same as the one that the dissenting member of the Dispute Board had held CWE to be entitled to. Furthermore, NHA required CWE to provide an unconditional bank guarantee as security equal to the amount proposed to be paid. 13. It is an admitted position that on 31.12.2014, NHA paid an amount of Rs.338 million to CWE in partial implementation of the Dispute Board's decision on dispute No. 1. On 06.01.2015 CWE furnished bank guarantee No. IGT087400000315 issued by Habib Bank Limited for an amount of Rs.338 million in favour of NHA. 14. Since CWE had not been paid the amount in terms of the majority decision of the Dispute Board, and since the negotiations between the contesting parties aimed at an amicable settlement of their disputes did not bear any fruit, CWE submitted a request for arbitration on 13.04.2015 to the Secretariat of the I.C.C. Mr. Peter H. I. Chapman of Somersby House Chambers was appointed as the Arbitrator pursuant to Article 13(2) of the I.C.C. Rules. The contesting parties and the Arbitrator signed the terms of reference on 06.09.2015. 15. While the matter was pending before the Arbitrator, CWE made a request for a decision on the preliminary issue regarding the contractual status of the Dispute Board's decision on dispute No.1, and whether the said decision was to be implemented immediately as required by clause 20.4 of the GCC. The Arbitrator was asked to determine whether NHA was in breach of Contract for not showing prompt compliance with the Dispute Board's decision regarding dispute No. 1. The petitioner had sought an interim award to the effect that NHA was under an obligation to implement the Dispute Board's majority decision on dispute No.1 and pay CWE Rs.744,068,695/- in addition to interest. CWE also sought the bank guarantee furnished by it to be released, and the costs incurred in furnishing the bank guarantee to be reimbursed to it. 16. The Arbitrator agreed to determine the question regarding the implementation of the Dispute Board's decision on dispute No.1 as a preliminary issue before deciding the other substantive matters in the arbitration. Through the Interim Award, the Arbitrator decided the preliminary issue as to whether and to what extent a party is contractually bound to implement a decision of the Dispute Board and whether the Dispute Board's decision should be enforced by giving an award to that effect. The Arbitrator held that if a notice of dissatisfaction is served within a period of 28 days of the Dispute Board's decision, such a decision is not final but remains binding, and in accordance with clause 20.4 of the GCC, the parties are required to promptly give effect to it. Furthermore, it was held that a party dissatisfied with a Dispute Board's decision, having issued a notice of dissatisfaction, cannot simply ignore such a decision or not make payment in accordance with it. 17. The Interim Award only determines the question as to whether NHA was in breach of contract by not implementing the Dispute Board's decision on dispute No. 1. When the Interim Award was rendered, the merits of CWE's claim for costs associated with the EOT were yet to be determined by the Arbitrator. In the Interim Award, the Arbitrator has recorded that his observations on the preliminary issue will not influence his findings on the substantive matters that he was to decide at a future stage in the arbitration. Through the instant application, CWE is seeking the recognition
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and enforcement of the Interim Award which only deals with the said preliminary issue and not with the substantive matters that had been referred to arbitration. Contentions of the learned counsel for CWE:- 18. Learned counsel for CWE, after narrating the facts leading to the filing of this application, submitted that CWE had sought an arbitral award requiring that the full amount that the Dispute Board had held CWE entitled to under dispute No.1 (i.e. Rs.744,068,695/- plus interest) be immediately paid to CWE; that under clause 20.4 of the GCC, NHA was under an obligation to show prompt compliance with the Dispute Board's decision on dispute No.1 irrespective of NHA's dissatisfaction with the said decision; that merely because NHA had issued a notice of dissatisfaction with the Dispute Board's decision on dispute No.1 did not mean that the said decision ceased to be binding or that NHA was absolved from giving effect to the said decision; that the issuance of a notice of dissatisfaction regarding a decision of the Dispute Board was a condition precedent for the review of such a decision either through amicable settlement or arbitration; that NHA's failure to implement the Dispute Board's said decision was a breach of contract; that the laws of Pakistan do not in any manner prevent the grant of an interim measure of the nature sought by CWE; and that in essence, CWE was seeking the enforcement of NHA's contractual obligation to implement the Dispute Board's decision. Furthermore, it was submitted that NHA's letter dated 28.11.2014 was an admission that NHA was under the obligation to implement the Dispute Board's decision on dispute No.1 in full. Contentions of the learned counsel for NHA:- 19. On the other hand, learned counsel for NHA submitted that the Dispute Board's decision awarding the above-mentioned amount in CWE's favour was in excess of its jurisdiction and a consequence of failure to adjudicate upon the dispute judiciously; that NHA had served a notice of dissatisfaction with respect to the Dispute Board's decision on dispute No.1; that the Dispute Board's said decision had not become final and binding because NHA had issued a notice to CWE expressing its dissatisfaction with the Dispute Board's said decision and signifying its intention to commence arbitration on the subject matter of the underlying dispute between the parties; that since the dispute between CWE and NHA had already been referred to arbitration, CWE should have waited for the final outcome of the arbitration proceedings; and that the Arbitrator should not have decided the issue of payment in accordance with clause 20.4 of the GCC prematurely. 20. Furthermore, it was submitted that the Dispute Board's decision on dispute No.1 had been revised by a settlement reached between the parties as evidenced by NHA's letter dated 28.11.2014; that CWE had accepted NHA's proposal contained in its letter dated 28.11.2014; that the Dispute Board's decision on dispute No.1 was superseded by the amicable settlement between the parties under which CWE agreed to accept partial payment of Rs.338 million on furnishing a bank guarantee in the said amount; that the said decision had been made to enable CWE to complete the project; that the payment pursuant to the said decision was made subject to the final settlement of the disputes between the parties; that the furnishing of a bank guarantee by CWE in the amount equivalent to the amount paid by NHA implied that CWE had accepted this sum as well as the terms of the settlement reflected in the said letter dated 28.11.2014; that the said settlement had superseded the Dispute Board's decision on dispute No.1; that since NHA had paid an amount of Rs.338 Million, it was not in default of any of its obligations; and that since CWE accepted NHA's offer of a settlement contained in the latter's letter dated 28.11.2014, it is estopped from seeking the enforcement of the Dispute Board's decision on dispute No.1. 21. Learned counsel for NHA further submitted that NHA would be under an obligation to implement the Dispute Board's decision subject to law and only when such a decision became final and binding; that such a decision would become final and binding only when the learned Arbitrator finally decides the dispute between the contesting parties on merits, and an amount is definitively
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found to be due and payable by NHA to CWE; that the amount found payable by the Dispute Board under its decision on dispute No.1 cannot be implemented as an interim measure since monetary loss cannot be termed as irreparable; and that if the Dispute Board's decision on dispute No.1 is implemented and the amount of Rs.744,068,695/- is paid to CWE as an interim measure, it would be difficult to recover the said amount from CWE (which is an overseas contractor) in the event the learned Arbitrator finally decides the dispute in NHA's favour after appreciating all the evidence. Learned counsel for NHA prayed for the application to be dismissed. 22. I have heard the contentions of the learned counsel for the contesting parties and have perused the record with their able assistance. The facts leading to the filing of the instant application have been set out in sufficient detail in paragraphs 2 to 17 above, and need not be recapitulated. 23. Under Clause 20.4 of the GCC, either party to the Contract may refer a dispute arising from or in connection with the Contract to the Dispute Board. The said Clause also requires the Dispute Board to give its decision within 84 days of receiving the reference. More importantly, the said Clause makes the decision of the Dispute Board binding on the parties and obligates them to promptly give effect to it unless and until it is revised in an amicable settlement or an arbitral award. If either party disagrees with a decision of the Dispute Board, it must serve a notice of dissatisfaction within a period of 28 days to prevent such a decision from becoming final and to enable the parties to revise it through an amicable settlement or arbitration. Where a decision of the Dispute Board is superseded by an arbitral award or by amicable settlement, such a decision loses its finality and binding nature. For the purposes of clarity, Clause 20.4 of the GCC is reproduced herein below:- "20.4 Obtaining Dispute Board's Decision If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Engineer, either Party may refer the dispute in writing to the DB for its decision, with copies to the other Party and the Engineer. Such reference shall state that it is given under this Sub-Clause. For a DB of three persons, the DB shall be deemed to have received such reference on the date when it is received by the chairman of the DB. Both Parties shall promptly make available to the DB all such additional information, further access to the Site, and appropriate facilities, as the DB may require for the purposes of making a decision on such dispute. The DB shall be deemed to be not acting as arbitrator(s). Within 84 days after receiving such reference, or within such other period as may be proposed by the DB and approved by both Parties, the DB shall give its decision, which shall be reasoned and shall state that it is given under this Sub-Clause. The decision shall be binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award, as described below. Unless the Contract has already been abandoned, repudiated or terminated, the Contractor shall continue to proceed with the Works in accordance with the Contract. If either Party is dissatisfied with the DB's decision, then either Party may, within 28 days after receiving the decision, give a notice of its dissatisfaction to the other Party indicating its dissatisfaction and intention to commence arbitration. If the DB fails to give its decision within the period of 84 days (or as otherwise approved) after receiving such reference, then either Party may, within 28 days after this period has expired, give notice to the other Party of its dissatisfaction and intention to commence arbitration. In either event, this notice of dissatisfaction shall state that it is given under this Sub-Clause, and shall set out the matter in dispute, and the reason(s) for dissatisfaction. Except as stated in Sub- Clause 20.7 [Failure to Comply with Dispute Board's Decision] and Sub-Clause 20.8 [Expiry of
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Dispute Board's Appointment"], neither Party shall be entitled to commence arbitration of a dispute unless a notice of dissatisfaction has been given in accordance with this Sub-Clause. If the DB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DB's decision, then the decision shall become final and binding upon both Parties." (Emphasis added) 24. Against CWE's claim for costs associated with the EOT, the Dispute Board on 19.05,2014 awarded Rs.744,068,695/- in its favour. This decision is being referred to in this judgment as the Dispute Board's decision on dispute No.1. The Dispute Board's decision on dispute No.1 was a majority decision of two to one. 25. Two out of three members of the Dispute Board held that CWE was entitled to the payment of Rs.744,068,695/- along with interest as costs associated with the EOT. Clause 9(b) of the General Conditions of Dispute Board Agreement, which is an integral part of the GCC, provides that the Dispute Board shall endeavour to reach a unanimous decision and that if it proves Impossible, the applicable decision shall be made by a majority of the members who may require the minority member to prepare a written report for submission to the employer and the contractor. In terms of clause 9(b) ibid, the decision by two members of the Dispute Board is to be treated for all intents and purposes as the decision of the Dispute Board unless and until it is superseded by an amicable settlement or an arbitral award. The minority member of the Dispute Board is required to prepare a written report but such report does not form part of the decision of the Dispute Board, and is therefore not binding on the parties. 26. With respect to the said decision NHA, on 12.06.2014, issued a notice of dissatisfaction and intention to commence arbitration. A notice of dissatisfaction simply leaves the door open for an amicable settlement or arbitration. 27. Subsequently, on 31.12.2014, NHA paid Rs.338 million to CWE in partial implementation of the Dispute Board's said decision. NHA, through its letter dated 28.11.2014, had required CWE to furnish a bank guarantee to secure repayment of the said amount. On 06.01.2015, CWE had furnished a bank guarantee in NHA's favour for the said amount. 28. CWE had applied to the Arbitrator to direct NHA to give prompt effect to the Dispute Board's decision on dispute No. 1. CWE had requested the Arbitrator to determine this as a preliminary issue. The Arbitrator agreed to do so and in the Interim Award held that NHA was in breach of contract by not giving prompt effect to the Dispute Board's decision on dispute No. 1, and that the said decision ought to be enforced as an Interim Award. Therefore, through the Interim Award, the Arbitrator obligated NHA to pay CWE Rs.406,068,695/- i.e. the difference between Rs.338 million paid by NHA on 31.12.2014 in partial compliance with the Dispute Board's majority decision on dispute No.1 and Rs.744,068,695/- being the amount awarded by the Dispute Board in CWE's favour under that decision. Furthermore, NHA was also held liable to pay simple interest at the rate of 6% per annum for the period commencing from 18.08.2012 on any unpaid amounts of the delay costs claim as decided by the Dispute Board in its decision on dispute No. 1. 29. CWE is seeking the recognition and enforcement of the Interim Award under section 6(1) of the 2011 Act. Whether the issuance of a notice of dissatisfaction with respect to the Dispute Board's decision on dispute No.1 absolved NHA from showing prompt compliance with the said decision:- 30. Where a notice of dissatisfaction has been given by a party dissatisfied with the Dispute Board's decision, clause 20.5 of the GCC requires the parties to attempt to settle the dispute amicably before the commencement of arbitration. Even if no attempt for an amicable settlement has been made, arbitration may be commenced on or after the 56th day after the date on which a notice of dissatisfaction and intention to commence arbitration was given. Where no notice of
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dissatisfaction is issued by any party with respect to a Dispute Board's decision, such decision becomes final. 31. NHA had given a notice of dissatisfaction on 12.06.2014 with respect to the Dispute Board's decision on dispute No.1, whereas CWE had given a notice of dissatisfaction on 05.01.2015 with respect to the Dispute Board's decision on dispute No.2. Since these notices were given within the 28-day period stipulated in clause 20.5 of the GCC, arbitration could be commenced on or after the 56th day after the date on which the notices of dissatisfaction were given. The parties do not allege any flaw in the commencement of the arbitration proceedings. 32. NHA is resisting the recognition and enforcement of the Interim Award by taking the plea that since NHA had issued a notice of dissatisfaction with respect to the Dispute Board's decision on dispute No.1, the said decision could not be termed as binding and therefore the Arbitrator could not have ordered NHA to make payment to CWE in accordance with the said decision. NHA asserts that this Court ought not to recognize and enforce the Interim Award as it had not become binding on the parties in terms of Article V(1)(e) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 ("the NY Convention"), which provides inter alia that recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that "the award has not yet become binding on the parties ..." 33. Clause 20.4 of the GCC makes it clear that the parties shall promptly give effect to the Dispute Board's decision "unless" and "until" it is revised in an amicable settlement or an arbitral award.…
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