Legal Principle & Question Decided

Ruling Summary: This decision was rendered by the Lahore High Court on 2022-05-06, officially reported as 2025 CLD 474. In this matter between A.M. Construction Company (Private) Limited and Taisei Corporation, etc, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.

Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.

Full Judgment Text & Judicial Ruling

Court Name: Lahore High Court Judge(s): Asim Hafeez Title: A.M. Construction Company (Private) Limited vs Taisei Corporation, etc Case No.: Civil Revision No.23509/2020 Date of Judgment:2022-05-06 Reported As: 2022 LHC 3489, 2025 CLD 474 Result: Civil Revision Dismissed

JUDGMENT

JUDGMENT ASIM HAFEEZ, J. Instant Civil Revision is directed against order of 25.02.2020 ("impugned order") , whereby learned Civil Judge 1st Class Lahore ('Civil Court') stayed petitioner 's Civil suit, upon allowing application of the respondent No.1, filed under section 4 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 ("Act, 2011"), while giving effect to the arbitration agreement encapsulated in clause 19.1 of the Subcontract dated 19.05.2007 - (Arbitration clause). 2. This Court, through instant Civil Revision, is called upon to adjudicate upon and determine the legality of the impugned order in the context of the challenge thrown to the applicability of provisions of the Act, 2011 to the legal action initiated by the petitioner by way of a Civil suit, in juxtaposition to the provisions of the Arbitration Act, 1940 ("Act, 1940") . 3. Controversy raised needs to be contextualized in the context of the relevant facts, narrated hereunder . Subcontract dated 19.05.2007 was executed between the petitioner and respondent No.1 for the improvement of a specified part of Kararo-W adh Road , comprising of Subcontract Documents, as specified in Special Conditions of Subcontract ("Subcontract") . Subcontract, in fact and law, embodies, governs and regulates the contractual relationship between the petitioner and respondent No.1 - signatories of the Subcontract. Execution of the Subcontract, succeeded the execution of Main Contract dated 04.10.2006, signed between respondent No.1 and respondent No.3 - National Highway Authority (NHA) - for the improvement of Section National Highway N-25 from Kararo to Wadh Project , ('project'), composed of the Contract Documents, as specified in Special Conditions of Subcontract ("Main contract"). Project was funded through grant of Japanese Yen 4,052,000,000 by the Government of Japan to the Governmen t of Pakistan. In terms of the Subcontract, 'NHA ' was classified as the Employer; 'Taisei Corporation' as the Contractor and 'A.M Construction Company (Pvt) Ltd' as the Subcontractor . Conditions governing Subcontract were condensed in General and Special conditions of the Subcontract and

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scope of subcontracted works was specified in the Special Conditions of the Subcontract. Letter of Acceptance was issued, whereafter petitioner mobilized resources at the site and commenced subcontracted works. Even-keeled relations quickly gave way to overt differences, maturing into disputes of the scale that the petitioner was constrained to invoke clause 19.1 of the Subcontract, and referred alleged disputes for adjudication to the agreed foreign arbitral forum - petitioner claimed that disputes, subject matter of the arbitration reference, were confined to the issue of Interim Payment Certificates IPC's No. 1 to 16. Clause 19.1 of the Subcontract ('clause 19.1') is the epicenter of controversy , hence, it is expedient to reproduce it hereunder , "19.1 Amicable Settlement and Arbitration. If a dispute of any kind whatsoever arises between the Contractor and the Subcontractor in connection with or arising out of the Subcontract or the execution of the Subcontract works whether during the execution of the Subcontract works or after their completion and whether before or after repudiation or other termination of the Subcontract then the Contractor or the Subcontractor may give a notice of such dispute to the other party , in which case the parties shall attempt for the next fifty-six days to settle such dispute amicably before the commencement of arbitration. Such notice shall state that it is made pursuant to this Clause. Any dispute which has not been amicably settled within fifty-six days after the day on which such notice is given shall be finally settled under the Rules of Conciliation and Arbitration of the International Chambers of Commerce by one or more arbitrators under such Rules. The place in which any such Arbitration is held shall be Singapore. Arbitration may be commenced prior to or after completion of the Subcontract Works, provided that the obligations of the Contractor and the Subcontractor shall not be altered by reason of the arbitration being conducted during the progress of the Subcontract W orks". 19.2...... 4. Facts, for better understanding, need to be segregated in two phases. First phase related to the arbitration proceedings and consequent litigation, having proximity to the Arbitration award dated 09.11.201 1, and second phase relates to the disputes, arisen as consequence of final invoice raised by the petitioner . Present litigation pertains to second phase. Nonetheless, some facts of the first phase are significant to understand the context of the lis at hand, and same are highlighted hereunder . 4(a). Facts: pre-arbitration award . Petitioner issued letters dated 23.05.2008 and 13.08.2008 for seeking resolution of disputes in terms of clause 19.1. Reference of disputes resulted in commencement of arbitral proceedings, held under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, conducted in Singapore. Respondent No.1 raised counterclaim against the petitioner , part of the arbitration proceedings. Arbitration award was issued on 09.11.201 1 (Foreign Arbitral Award) . Petitioner , after the Arbitration award, initiated proceedings under section 14 of the Act, 1940 before the Civil Court at Lahore, seeking placement of the award. Respondent No.1 filed application under Order VII Rule 10 of the Code of Civil Procedure, 1908 ("CPC"), seeking return of the application , objecting to the application on the issues of territorial and subject matter jurisdiction, alleging that Sindh High Court at Karachi had the jurisdiction to deal with the questions relating to the enforcement of Foreign Arbitral Award. Application of the respondent No.1 was dismissed, upon treating award as domestic award, on the premise that law of Pakistan was the governing law of the contract and provisions of the Act, 1940 were applicable. Order was upheld by this Court while dismissing Civil Revision, filed by the respondent No.1, bearing C.R. No.691/2012 - which decision was reported as Taisei Corporation V. A.M. construction Company (Pvt.) Ltd. (PLD 2012 Laho re 455). The decision was assailed before Hon'ble Supreme Court of Pakistan through Civil Appeal No.12886 of 2012, wherein leave to appeal was granted on 08.08.2012. Matter is sub-judice. In the meanwhile, respondent No.1 invoked the jurisdiction of Sindh High Court at Karachi under Section 6 of the Act, 2011, for seeking enforcement of Foreign Arbitral Award. Application for enforcement was dismissed by learned Single Judge of the Court, while invoking principle of res-judicata - based on the decision of Lahore High Court in C.R.No.691/2012. Order of learned Single Judge was reversed by learned Division Bench of Hon'ble Sindh High Court at Karachi, while allowing High Court Appeal - HCA No.99 of 2015. Decision was reported as Taisei Corporation V. A.M. construction Company (Pvt.) Ltd. (2018 MLD 2058 ). Order passed in HCA No.99 of 2015 was also assailed before Hon'ble Supreme Court of Pakistan through Civil Appeal No.2649 of

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2016, which appeal is also pending adjudication. It is pertinent to mention that proceedings for the enforcement of award, before Hon'ble Sindh High Court, were conducted pursuant to the order of the Hon'ble Supreme Court of Pakistan, dated 18.03.2014, which is reproduced hereunder for convenience, "On 08.08.2012, the Apex Court after hearing the learned counsel for the respective parties granted Leave to Appeal in order to examine whether the award in question is a foreign or a domestic award. The record further reflects that after the grant of Leave the Apex Court vide its Order dated 18.03.2014 while keeping the appeal pending (before the Supreme Court) desired that the application pending before this Court be decided. The order of the Apex Court, in the interest of comprehensiveness is reproduced herein below:-- The Appellant has impugned the judgment of the Lahore High Court, Lahore, regarding the Arbitration Award made by the International Chambers of Commerce at Singapore. By the said impugned judgment, on the application of respondent, the High Court had maintained the order of the Civil Judge, Lahore, declaring that the award was to be implemented in accordance with the provisions of the Arbitration Act, 1940 and further that the Civil Judge had territorial jurisdiction to entertain the application. The appellant has simultaneously moved an application before the High Court of Sindh under Section 6 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011, regarding the same award, stating that it may be implemented under the said Act and further that since the contract/agreement was signed between the parties at Karachi where the appellant has its registered of fice, the High Court of Sindh has territorial jurisdiction to entertain and decide the application. 2. We are informed that the said applic ation before the High Court of Sindh is still pending disposal and an application has been moved by the respondent under Section 10, C.P.C. praying far stay of the proceedings pending decision by the Lahore High Court. However , meanwhile, the Lahore High Court has delivered the impugned judgment. Thus it would be appropriate that let the application of the Appellant pending before the High Court of Sindh be disposed of and thereafter the present appeal be fixed for hearing along with petition, if any, filed by either of the parties, against the judgment of the High Court of Sindh. 3. Since the appellant's application under Section 6 of the said Act was filed way back on 1st November 2011 and this matter is to be kept pending on account of pendency of the application before the High Court of Sindh, the same shall be disposed of within a period of three months. The Application be fixed for hearing on any day of the week other than Monday". 4(b). Facts: After issuance of final invoice for payment. It is alleged that the petitioner , despite referring the matter for arbitration, continued its work under the Subcontract. Disputes regarding some core issues continued to plague the working relation, which lately intensified. Petitioner submitted final invoice for payment on 15.11.201 1, through letters bearing reference No AMCC/WKRP/SP/12 and AMCC/WKRP/SP/ 13, revised through letter dated 16.11.201 1, having reference No AMCC/WKRP/SP/14. Refusal to make payment, as claimed, led to the filing of suit by the petitioner before the Civil Court at Lahore on 11.12.2015, seeking declaration, permanent and mandatory injunction and recovery of Rs.2,741,783,313/- along with interest. Suit was filed not only against the respondent No.1 - sole signatory of the Subcontract - but five others, including the Consultant, Employer - NHA -, Adamjee Insurance Company and Federation of Pakistan. Respondent No.1 filed application, on 13.02.2016, under section 4 of the Act, 2011, seeking stay of suit. Respondent No.3 also filed applica tion under Order VII Rule 11 of CPC for rejection of plaint, on the ground of lack of territorial jurisdiction, which application was dismissed on 04.02.2019. Respondent No.4 filed application, under Order I Rule 10 of CPC for deletion of its name, which was dismissed on 04.02.2019 and said order was maintained by this Court while dismissing Civil Revision, C.R No.14128 of 2019, vide order of 29.10.2020. Arguments were addressed on various dates, in the backdrop of narrated facts. 5. Objection against the maintainability of instant Civil Revision. Learned counsel for the petitioner , while responding to the office objection regarding non-maintainability of instant Civil Revision, - ordered to be considered on judicial side - submits that Civil suit was stayed in exercise of powers under section 4 of the Act, 2011, which special law does not provide the remedy of appeal, therefore revisional jurisdiction of this Court was invoked, in the context of pecuniary valuation of the suit. Adds that order to stay legal proceedings is an appealable order under section 39 of Act, 1940 but since jurisdiction was not exercised

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thereunder , hence, remedy of appeal is not available. Lastly submits that no remedy of appeal against order to stay legal proceedings was available under the provisions of CPC, therefore, revisional jurisdiction is invoked to question irregular exercise of jurisdiction. Adds that matters raised through Civil suit are otherwise not covered by clause 19.1, which constitute material irregularity , while exercising jurisdiction, hence, order is subject to adjudication under revisional jurisdiction. Reference is made to the cases of Muhammad Aslam and another V. Munshi Muhammad Behram and another (1991 SCMR 1971) and Mubarik Cotton Factory V. Messrs General Agencies, Multan (PLD 1980 Baghdadul Jadid 1). Submissions to the extent that no remedy of appeal is provided against order to stay legal proceedings in exercise of powers under section 4 of the Act, 2011 are plausible, when order is passed by the Civil Court - remedy of appeal against the order of learned Single judge of the Lahore High Court, passed in exercise of original civil jurisdiction, is otherwise available under section 3 of the Law Reforms Ordinance 1972, and Division Bench of this Court entertained appeal against the order of learned Single Judge in the case of Orient Power Company (Pvt.) Limited V. Sui Northern Gas Pipelines Limited (PLD 2019 Lahore 607). The issues of exclusivity of the jurisdiction conferred upon the High Court(s) in terms of section 3 of the Act, 2011 and the question that whether Civil Court, in the instant case was competent to exercise jurisdiction under section 4 of Act, 2011, are discussed in due course. Objection against maintainability of instant Civil Revision is rejec ted and Civil Revision is held maintainable. Submission on Merits. 6. Submissions on behalf of the Petitioner ; Leaned counsels for the petitioner raised two overarching questions, albeit each question raises multiple subsidiary questions, which are considered while rendering instant decision. Firstly , what was actual understanding reached between the parties regarding applicable law of the arbitration - was it the Act, 2011 or the Act, 1940 -, and secondly whether legal proceedings could be stayed by the Civil Court, based on the arbitration agreement, in purported exercise of jurisdiction under section 4 of Act, 2011, when independent causes of action were pleaded against non-parties to the arbitration agreement - the consultant(s) and the Employer [NHA], not the signatories to the Subcontract. 7. Learned counsels submits that provi sions of the Act, 2011 are not attracted when parties agreed to the applicability of the Act, 1940, the law applicable at the time of the Subcontract. Adds that question of stay of legal proceedings, if to be considered and granted, have had to be examined and adjudged under section 34 of Act, 1940, and not section 4 of the Act, 2011. Elaborated, that Subcontract was executed on 19.05.2007 and in terms of clause 3.2 of Special Conditions of the Subcontract it was agreed that 'The Governing law shall be the law in force at the time in Pakistan' , implying that law applicable for the time being in force , would govern the contract as well as clause 19.1. Learned Counsel referred to the correspondence dated 19.04.2007, claiming it to be the part of Subcontract documents, to emphasize that Governing law is prevailing in Pakistan (confirmed in SC 3.2) - (Point (10) of the letter). Emphasized that law governing the arbitration agreement, part of the Subcontract, was the Municipal law of Pakistan, hence, the applicable law, at that point in time, was the Act, 1940. Explained that on 19.05.2007 only two statutes, dealing with the arbitration matters, were in force in Pakistan, i.e., the Act, 1940 and the Arbitration (Protocol and Convention) Act 1937 (Act, 1937), and latter not being applicable, by virtue of sub-section (2) of section 9 thereof, as the law governing arbitration was the law of Pakistan. Referred to the cases reported as "Hitachi Limited and another V. Rupal i Polyester and others (1998 SCMR 1618), Rao Shiv Bahadur Singh and others V. The State of Vindhya Pradesh" (AIR 1953 SC 394), Muhammad Ghafoor and another V. The State (1998 PCr.LJ 1876) and Maj. Mehtab Khan V. The Rehabilitation Authority and another (PLD 1973 Supreme Court 451). Further submits that in terms of settled principles of interpretation of documents/ contracts, the intentions of the parties have had to be gathered from the text of the contract, which determination is a question of law and not of fact. Adds that arbitration clause must be interpreted in accordance with the law, in force at that time, and not in terms of any subsequent law, otherwise prejudicial to the rights claimed and available under the law in force at the time of execution of the Subcontract. Referred to the cases of "House Building Finance Corporation V. Shahinshah Humayun Cooperative House Building Society and others" (1992 SCMR 19),

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"Investors Compensation Scheme Limited V. West Bromwich Building Society and others" ([1998] 1 All ER 98), "Spencer V. Secretary of State" [2012] 2 All ER (Comm) 480], "Wood (Respondent) V. Capita Insurance Services Limited (Appellant)" [(2017) 4 All ER 615], "Muhammad Shahnawaz and 44 others V. Karachi Electric Supply Company through Company Secretary and 2 others" [2011 PLC (C.S.) 1579], "Burma Oil Mills Limited V. Trustees of the Port of Karachi through Chairman" (2011 CLC 1538 ), "Mst. Baswar Sultan V. Mst. Adeeba Alvi" (2002 SCMR 326), "Bolan Beverages (Pvt.) Limited V. PEPSI Co. Inc. and 4 others" (PLD 2004 Supreme Court 860), and "Uzin Export Import Foreign Trade Co. v. MACDONALD LAYTON & CO. LTD. KARACHI and another" (1996 SCMR 690), Home Building & Loan Association v. Blaisedell, 290 U.S. 398, 78 L Ed 413, James Miller and Partners Ltd v. Whitworth Street Estates (Manchester) Ltd, [1970] 1 ALL ER 796, and Armar Shipping Co. Ltd. v. Caisse Algerienne D' Assurance et de Reassurance [1981] 1 ALL ER 498. Learned counsel submits that Act, 2011 was promulgated on 19.07.201 1, after the execution of the Subcontract, which cannot be enforced with retrospective effect, in the wake of the written understanding reached between the parties qua the governing law in force at the time of execution of subcontract, on 19.05.2007. Adds that retroactive application of the Act, 2011 is contrary to the contractual terms agreed. Learned counsel contends that on the date of execution of Subcontract on 19.05.20 07, none of the often-introduced Ordinan ces, regarding the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards), were in field, which situation necessitates the application of the governing law of arbitration, applicable at that time, which was the Act, 1940. Learned counsel laid much emphasis on the decision in the case of Taisei Corporation Vs. A.M. Construction Company (Pvt) Ltd, (supra). Learned counsel, while impug ning the incidence of retrospective effect of the Act, 2011, elaborated that no such effect could be extended to the Act, 2011, in terms of sub-section (3) of Section 1 of the Act, 2011, simplicitor by interpreting the expression, 'before' employed therein, which, essentially , cannot be construed an explicit or implicit legislative intent, giving retrospective effect to the enactment, to the prejudice of the petitioner . Learned counsel has referred the cases of "Sh. Muhammad Sadiq v. Lala Krishan Lal Malhotra and Others" (PLD 1966 SC 439), Zila Council Jehlum through District Coordination Officer V. Messrs Pakistan Tobacco Company Ltd. and others (PLD 2016 Supreme Court 398), "Adnan Afzal v. Capt. Sher Afzal" (PLD 1969 SC 187), "Nabi Ahmed and another v. Home Secretary , Government of West Pakistan, Lahore and 4 Others" (PLD 1969 SC 599), "Shahida Bibi and others v. Habib Bank Limited and others" (PLD 2016 SC 995) to support submissions. Learned counsel also submits that Civil Court failed to appreciate material issue that provisions of the Act, 2011 could not be applied retrospectively to defeat the intentions of the parties, agreed in writing, and arbitrary imposition of alien terms tantamount to coerce the parties to agree, honour and abide by fresh terms, which situation per se attracts principle of 'Frustration of Contract'. Referred the case reported as Messrs Eckhardt & Co, marine GmbH V. Muhammad Hanif (PLD 1993 Supreme Court 42). Reference is made to section 56 of the Contract Act 1872. Learned counsel has referred to various case-laws from foreign jurisdiction(s) to elaborate concept of frustration of contracts, which need not to be mentioned as each of the cases have relevance in the context of the facts involved. On the point of maintainability of the suit, learned counsel submits that except respondent No.1, none of the other respondents were parties to the Subcontract, but their conduct and actions per se prejudiced the petitioner , hence suit, on its own, is proceedable against other respondents, without the necessity to stay legal proceedings. Adds that causes of action raised against non-parties to the arbitration agreement cannot otherwise be agitated before the Arbitrator , and in support thereof few paragraphs of foreign arbitral award are read, to show that certain objections against the conduct of the Employer were raised by the petitioner during arbitral hearings but brushed aside on the plea that the Employer was not party to the Subcontract. Learned counsel elaborated the contentious issues relating to the design change, disputes regarding rock classification, and wrongful extension of the performance guarantee by Adam jee Insurance, to emphasis plea of independent causes of action against the respondents, not parties to the Subcontract. Adds that petitioner , independent of the Subcontract, could still maintain claim of tortious liability , against the respondent No.3 - NHA -, which Authority otherwise controls and regulates networks of Highways in Pakistan. Submits that right of the petitioner to sue the respondent No.3 and other respondents - not party to the Subcontract - cannot be restricted or denied, and petitioner can invoke the jurisdiction of the ordinary courts, exercising general jurisdiction. Learned

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counsel referred to various paragraphs of the plaint to reinforce submissions and highlight collusive acts and omissions of the respondent No.3, for the purposes of necessity of conduct of trial. Learned counsel also read reliefs sought, to emphasis that claims raised against the respondents, established their obligation / liability , jointly and severally . Learned counsel, without prejudice to aforesaid submissions, contends that even the requirements / conditions prescribed in section 4 of the Act, 2011 were not fulfilled and Civil Court proceeded to stay legal proceedings in clear violation of the mandate of section 4 of the Act, 2011 and Article II of the NY Convention. Submits that arbitration agreement was inoperative and incapable of being performed, in wake of the violations by the consultant(s) and the Employer - NHA. 8. Submissions for the Respondent No.1; Learned counsel submits that dispute of any kind, whatsoever arising between the contractor and the subcontractor - petitioner and respondent No.1 - in connection with or arising out of the Subcontract, pertaining to its execution, during the continuity and completion of the subcontracted works, etc., is solely referable to agreed arbitral forum in terms of clause 19.1, which envisages arbitration proceedings under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, to be conducted in Singapore - a Contracting State in terms of the Act, 2011. Adds that the Act, 2011 and not the Act, 1940 would apply , latter being only applicable to arbitration(s) in Pakistan. Learned counsel referred to ratio laid in the case of Orient Power Company (Pvt.) Limited V. Sui Northern Gas Pipelines Limited (PLD 2019 Lahore 607) and apprised that said decision was affirmed by Hon'ble Supreme Court of Pakistan in case reported as Orient Power Company (Private) Limited through Authorized Officer V. Sui Northern Gas Pipelines Limited through Managing Director (2021 CLD 1069), wherein question of jurisdiction was conclusively settled. Learned counsel explained that with the advent of the Act, 2011 legal position had…

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