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Official Citation: 2017 CLC 599
Court / Jurisdiction: Islamabad High Court
Year of Decision: 2016
Decision Date: 2016-09-15
Parties: PAK. U.K. ASSOCIATION (PVT.) LTD vs The HASHEMITE KINGDOM OF JORDAN
This judicial decision was delivered by the Islamabad High Court on 2016-09-15. The matter involves proceedings between PAK. U.K. ASSOCIATION (PVT.) LTD and The HASHEMITE KINGDOM OF JORDAN, officially reported as 2017 CLC 599. 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 2017 CLC 599
Court Name: Islamabad High Court Judge(s): Miangul Hassan Aurangzeb Title: PAK. U.K. ASSOCIATION (PVT.) LTD vs The HASHEMITE KINGDOM OF JORDAN Case No.: Arbitration Petition No,24 of 2016 Date of Judgment:2016-09-15 Reported As: 2017 CLC 599 Result: Order accordingly
JUDGMENT
JUDGMENT ' MIANGUL HASSAN AURANGZEB, J.--- On 16.03.2016, M/s. Pakistan U.K. Associate Private Limited ("applicant") filed an application under Section 20 of the Arbitration Act, 1940 ("the 1940 Act") praying for the arbitration agreement between the applicant and the Hashemite Kingdom of Jordan ("respondent"), to be filed in the court and the matters in dispute between the said parties referred to arbitration. 2.On 24.03.2016, this Court issued a notice in terms of Section 20(4) of the 1940 Act, to the respondent to show cause as to why the arbitration agreement between the said parties should not be filed in the court, and the dispute between the parties not referred to arbitration. The respondent, instead of filing a reply to the said notice, filed an application under Order VII, Rule 11 of the Code of Civil Procedure, 1908 ("C.P.C.") praying for the applicant's application under Section 20 of the Arbitration Act to be rejected on the ground that the applicant had not exhausted the precondition of referring the contractual disputes to the Engineer in terms of clause 67.1 of the contract between the parties, before filing the application under Section 20 of the 1940 Act. 3.Through this common judgment, I propose to dispose of the applicant's application under Section 20 of the 1940 Act, and the respondent's application under Order VII, Rule 11, C.P.C. 4.The record shows that on 16.06.2010, a contract was entered into between the applicant and the respondent for certain works to be executed by the applicant at Jordanian Embassy and the Jordanian Ambassador's residence in the Diplomatic Enclave, Islamabad. The applicant was awarded this contract as a consequence of a tender bidding process. 5.The respondent appointed M/s. Design Advisor as the "Engineer" for the project. Clause 2.6 of the Instruction to Tenderers and Conditions of Contract - Part-I (General Conditions) requires the
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Engineer to act impartially in the exercise of his discretion in giving his decisions, opinions or consents, or expressing his satisfaction or approval, or in determining value. On 24.06.2010, the Engineer issued a 'notice to commence' construction in accordance with the terms of the said contract. This notice inter alia provided for the works to be completed within 455 days/15 months; the date for commencement was to be reckoned with effect from 08.07.2010; the maintenance period was to be 365 days for civil works, and 730 days for electromechanical works from the date of the issuance of the final certificate for completion. 6. The disputes and differences between the applicant and the respondent in connection with, or arising out of the contract were to be resolved in accordance with clauses 67.1 to 67.4 of the contract, which is reproduced herein below:-- 67.1 "Engineer's Decision ' If a dispute of any kind whatsoever arises between the Employer and the Contractor in connection with, or arising out of, the Contract or the execution of the Works, whether during the execution of the Works or after their completion and whether before or after repudiation or other termination of the Contract, including any dispute as to any opinion, instruction, determination, certificate or valuation of the Engineer, the matter in dispute shall, in the first place, be referred in writing to the Engineer, with a copy to the other party. Such reference shall state that it is made pursuant to this Clause. No later than the eighty-fourth day after the day on which he received such reference the Engineer shall give notice of his decision to the Employer and the Contractor. Such decision shall state that it is made pursuance to this Clause. ' Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works with all due diligence and the Contractor and the Employer shall give effect forthwith to every such decision of the Engineer unless and until the same shall be revised, as hereinafter provided, in an amicable settlement or an arbitral award. ' If either the Employer or the Contractor be dissatisfied with any decision of the Engineer, or if the Engineer fails to give notice of his decision on or before the eighty-fourth day on which he received the reference, then either the Employer or the Contractor may, on or before the seventieth day after the day on which he received notice of such decision or on or before the seventieth day after the day on which the said period of 84 days expired, as the case may be, give notice to the other party, with a copy for information to the Engineer, of his intention to commence arbitration, as hereinafter provided, as to the matter in dispute. Such notice shall establish the entitlement of the party giving the same to commence arbitration, as hereinafter provided, as to such dispute and, subject to Sub-Clause 67.4, no arbitration in respect thereof may be commenced unless such notice is given. ' If the Engineer has given notice of his decision as to a matter in dispute to the Employer and the Contractor and no notice of intention to commence arbitration as to such dispute has been given by either the Employer or the Contractor on or before the seventieth day after the day on which the parties received notice as to such decision from the Engineer, the said decision shall become final and binding upon the Employer and the Contractor. 67.2 Amicable Settlement ' Where notice of intention to commence arbitration as to dispute has been given in accordance with Sub-Clause 67.1, the parties shall attempt to settle such dispute amicably before the commencement of arbitration, Provided that, unless that parties otherwise agree, arbitration may be commenced on or after the fifty-sixth day after the day on which notice of intention to commence arbitration of such dispute was given, even if no attempt at amicable settlement thereof has been made. 67.3 Arbitration ' Any dispute in respect of which:--
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(a)' the decision, if any of the Engineer has not become final and binding pursuant to Sub-Clause 67.1, and (b)amicable settlement has not been reached within the period stated in Sub-Clause 67.2, Shall be finally settled, unless otherwise specified in the Contract under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed under such rules. The said arbitrator/s shall have full power to open up, review and revise any decision, opinion, instruction, determination, certificate or valuation of the Engineer related to the dispute. ' Neither parry shall be limited in the proceedings before such arbitrator/s to the evidence or arguments but before the Engineer for the purpose of obtaining his said decision pursuant to Sub- Clause 67.1. No such decision shall disqualify the Engineer from being called as to witness and giving evidence before the arbitrator/s on any matter whatsoever relevant to the dispute. ' Arbitration may be commenced prior to or after completion of the Works, provided that the obligations of the Employer, the Engineer and the Contractor shall not be altered by reason of the arbitration being conducted during the progress of the Works. '6. Failure to Comply with Engineer's Decision Where neither the Employer nor the Contractor has given notice of intention to commence arbitration of a dispute within the period stated in Sub- Clause 67.1 and the related decision has become final and binding either party may, if the other party fails to comply with such decision, and without prejudice to any other rights it may have, refer the failure to arbitration in accordance with Sub-Clause 67.3 the provisions of Sub-Clauses 67.1 and 67.2 shall not apply to any such reference." 7.Clause 67.3 of the Clause 2.6 of the Instruction to Tenderers and Conditions of Contract - Part-II (Particular Conditions of Contract) amends Clause 67.3 of the Instruction to Tenderers and Conditions of Contract - Part-I (General Conditions) only to the extent of requiring the disputes to be settled under the provisions of the 1940 Act instead of the Rules of Conciliation and Arbitration of the International Chamber of Commerce. 8.I do not feel the need to go to the details of the correspondence between the parties and the Engineer, but suffice it to say that disputes and differences developed between the parties in connection with or arising out of the contract. These disputes and differences developed primarily on account of the delay in the execution of the construction work. The applicant and the respondent made allegations and counter allegations against each other regarding the cause for the delay. The applicant had inter-alia alleged that the provision of the complete structural and construction designs were delayed by the Engineer, who had been appointed by the respondent; and that the drawings provided by the respondent did not match the actual position on the spot due to seepage of water. On the other hand, the respondent had taken the position that the applicant's excuses for not performing its contractual obligations were lame, and that after the execution of the Memorandum of Understanding dated 03.07.2013, there was no reason for any complaint by the applicant. 9.The applicant seems to have lost faith in the decisions made by the Engineer. The applicant, in its letter dated 19.08.2013, made reference to 23 letters addressed by the applicant, and complained that the Engineer was not performing its duties under the terms of the contract, and had unduly delayed the decisions which he was supposed to take regarding the provision of approved construction drawings, and the payment against Interim Payment Certificate ("IPC") No,12, dated 19.08.2013. It is pertinent to reproduce herein below the last three paragraphs of the said letter dated 19.08.2013:- "We would bring in your kind notice that <u>we are unable to fulfill the irrelevant demand of the Engineer as such he has been received han[d]som[e] amount illegally however; he is further. blackmailing us for the fulfillment of the either demands for which our pending payments are
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not being processed. After going through the above your good self would realize that in the prevailing situation, when work completion target has been fixed and work activities are in progress in full swing, we are unable to account for the Engineer irrelevant demand and it seems the Engineer has been controversial </u> and in their presence work would not be completed in given time frame. ' You are therefore requested to please intervene and an emergency meeting may be called so that we may be able to prove our stance and an appropriate action towards the Engineer may be initiated under the provision of COG so that we may get out our self in the unpleasant situation and project may be completed as soon as possible." (Emphasis added) 10.Earlier, vide letter dated 06.08.2013, the applicant had complained against the "negative attitude" of the Engineer towards the timely completion of the Works. The applicant was of the view that the Engineer had delayed payment against IPC No,12 for more than 45 days. Furthermore, in the said letter, the applicant took the following position:- "Please note that we are unable to fulfill your unfair demands for which you have been delayed our IPC-12 for more than 45 days and subsequently, bill was returned due to non-compliance of your unfair demands." (Emphasis added) 11.On 20.09.2013, the applicant instituted a Civil Suit. (C.S. No,67/2013) before this Court seeking the specific performance of the contract dated 16.06.2010; cancellation of the Memorandum of Understanding dated 03.07.2013; declaration and mandatory injunction, against the respondent. On 09.10.2013, this Court on the applicant's application directed status quo to be maintained. On 09.10.2013, the respondent filed an application under Section 34 of the 1940 Act praying for the proceedings in the civil suit to be stayed and the matters in dispute to be decided in accordance with the arbitration clause contained in clause 67 of the contract. This application was contested by the applicant, who took the position that the respondent had not show in his willingness and readiness to settle the contractual disputes through arbitration. Vide order dated 13.11.2013, the learned Single Judge-in-Chambers allowed the respondent's application under Section 34 9f the 1940 Act, and dismissed the suit. Thereafter, the applicant, on 8.11.2013, issued a notice to commence arbitration to the respondent. The applicant did not, however, refer the contractual disputes of the decision of the Engineer under clause 67.1 of the contract. The applicant, in the said notice dated 28.11.2013, stated that <i>"the engineer has proved himself as bias and controversial". </i> The applicant requested the respondent for an amicable settlement of the contractual disputes in terms of clause 67.2 of the contract, before the said disputes could be referred to arbitration. 12.In addition to issuing a notice to commence arbitration, the applicant impugned the said order dated 13.11.2013, passed by the learned Single Bench in Regular First Appeal No,164/2013, which was allowed, vide order dated 02.02.2016, passed by the learned Division Bench of this Court. The said order dated 13.11.2013, was set aside and the matter was remanded to the learned Single Bench of this Court. The said appellate order dated 02.02.2016, is reproduced herein below:- "After hearing the learned counsel for the parties, this proposition of law urged through consensus that suit of the appellant could not have been dismissed rather proceedings in the suit are required to be stayed. 2. In this view of the matter we accept the instant appeal, set aside the impugned order dated 13.11.2013 passed by learned Single Judge, and remand the case back to learned Single Judge for decision with regard to appointment of Arbitrator or sending the matter to the Arbitrator as per agreement. The parties are directed to put appearance before learned Single Judge on 25.02.2016." 13.After the remand of the case, this Court vide order dated 04.05.2016, stayed the proceedings in the suit under Section 34 of the 1940 Act. This order was passed with the consent of the learned
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counsel for the contesting parties. The applicant had agreed to the proceedings in the suit to be stayed because it had, on 17.03.2016, already filed an application under Section 20 of the 1940 Act, before this Court. 14.On 16.05.2016, the respondent filed an a application under Order VII, Rule 11, C.P.C., for the dismissal of the applicant's application under Section 20 of the 1940 Act, inter alia on the ground that the applicant had not, prior to filing the application under Section 20 of the 1940 Act, referred the matters in dispute between the parties to the Engineer in accordance with clause 67.1 of the contract. This application was contested by the applicant by filing a written reply. In Paragraph 4 of the applicant's reply to the respondent's application under Order VII, Rule 11, C.P.C., it has been inter alia pleaded as follows:-- "4. ... That dispute cannot be resolved through clauses 67-1, and 67-2 of the agreement because the so-called engineer proved himself as bias and controversial because he claimed a heavy amount from the plaintiff's company as Bribe for the clearance of the outstanding bills, therefore the plaintiff's company not satisfy with the determination, evaluation and decision of the engineer therefore both the clauses cannot be invoked. Letter dated 18.11.2013 is attached at page No,112 with the main suit." 15.As mentioned above, through the instant judgment, I propose to dispose of the applicant's application under Section 20 of the 1940 Act, as well as the respondent's application under Order VII, Rule 11, C.P.C. 16.Learned counsel for the applicant submitted that the contract dated 16.06.2010 between the applicant and the respondent contains an arbitration clause providing for the settlement of the contractual disputes between the said parties to be resolved through arbitration under the provisions of the 1940 Act; that the documents on the record show that there are several dispute and differences between the parties arising out and in connection with the terms of the said contract; that this Court has the jurisdiction to refer the contractual disputes between the parties to arbitration and appoint an arbitrator; that the arbitration agreement between the parties was executed prior to the filing of the application under Section 20 the 1940 Act; that the applicant had been languishing in the courts since the past three years seeking an adjudication of its disputes with the respondent; that the disputes between the parties could not be referred to the Engineer, because the applicant had no faith in his wisdom and had raised allegations of bias against the Engineer in letters, which were a part of the record; that if the claims raised by the applicant were not valid, they could be spurned by the arbitrator; that the applicant had already made an effort for the amicable settlement of disputes with the respondent through its letter dated 28.11.2013. In conclusion, the learned counsel for the applicant prayed for the respondent's application under Order VII, Rule 11, C.P.C. to be dismissed, and the applicant's application under Section 20 of the 1940 Act to be allowed. In making his submission, the learned counsel for the applicant placed reliance on the case of Pakistan Development Corporation (Pvt.) Ltd. v. Ministry of Defence, Government of Pakistan (PLD 1995 Karachi 286). 17 On the other hand, learned counsel for the respondent submitted that clause 67 of the contract required the parties to refer disputes, in the first instance, to the Engineer, and only after the Engineer gives his decision, or does not give his decision within eighty-four days; that the disputes can be referred to arbitration under the provisions of the 1940 Act; that without satisfying the essential precondition of a reference to the Engineer contemplated by clause 67.1 of the contract, the applicant could not jump-the-gun and directly file an application under Section 20 of the 1940 Act; that the Engineer had not been disassociated from the project, and could adjudicate upon the disputes referred to him by either party; and that the allegations of bias hurled by the applicant against the Engineer are baseless and frivolous. In making his submissions, the learned counsel for the respondent placed reliance on the law laid down in the cases of Board of Intermediate and
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Secondary Education v. Fine Star and Company(1993 SCMR 530), Karachi Dock Labour Board v. Quality Builders Ltd. (PLD 2016 SC 121), Hanover Contractors v. Pakistan Defence Officers Housing Society (2002 CLC 1880), Sanad Associates v. General Manager Telephone and Telegraph (1989 CLC 386), Ayaz Builders v. Board of Trustees of the Karachi Port Trust and another (2008 CLC 726), and WAPDA v. S.H. Haq Noor & Co. (2008 MLD 1606). 18.I have heard the arguments 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 application under Section 20 of the 1940 Act, and the application under Order VII, Rule 11, C.P.C, have been set out in sufficient detail in paragraphs 4 to 14 above, and need not be recapitulated. 19.I do not intend to go into the merits of the contractual disputes between the parties. At this stage all that this Court has to determine is whether the applicant could have filed an application under Section 20 of the 1940 Act, without exhausting the pre-condition of referring the contractual disputes to the Engineer for his decision under clause 67.1 of the contract; and if the answer to the said question is that the applicant could have filed such an application, whether the matters in dispute between the applicant and the respondent could be referred to arbitration. 20.There is no denying the fact that clause 67.1 of the contract requires disputes of any kind whatsoever arising between the Employer (respondent) and the Contractor (applicant) in connection with or arising out of the contract to be referred, in the first place, to the Engineer for his decision. If the Engineer does not give his decision within eighty-four days, the matters in dispute between the parties can be referred to arbitration under cause 67.3 of the contract, after an attempt to resolve the disputes amicably in terms of clause 67.2 of the contract. If the Engineer does give his decision within eighty-four days, the aggrieved party can assail the same in arbitration proceedings, after trying to resolve the matters amicably. 21. It appears that the applicant was aware of the requirement to refer contractual disputes, in the first instance, to the Engineer in terms of clause 67.1 of the contract. The applicant did not refer the contractual disputes for the decision of the Engineer under clause 67.1 of the contract, because as mentioned in the notice dated 28.11.2013, the applicant took the position that "the engineer has proved himself as bias and controversial". It was also complained that the Engineer had failed to fulfill his contractual obligations, and that the applicant was not satisfied with the determinations, evaluations and decisions of the Engineer. The applicant put the cart before the horse by requesting the respondent for an amicable settlement of the contractual disputes in terms of clause 67.2 of the contract, before the said disputes could be referred to arbitration. 22.Now the vital question that needs to be answered is whether the applicant could be relieved from his obligation of referring disputes to the Engineer in terms of clause 67.1 of the contract before the filing of an application under Section 20 of the 1940 Act. At this stage, a reference to the following case law on the subject would be apposite:-- (i) In the case of Board of Intermediate and Secondary Education v. Fine Star & Company (1993 SCMR 530), an application under Section 20 the 1940 Act before the trial court seeking a direction for the filing of the arbitration agreement in the court and for the appointment of a sole arbitrator was dismissed on the ground that before moving the said application, the applicant had not approached the Chairman of the Board of Intermediate and Secondary Education for his decision in accordance with the arbitration clause in the agreement. The arbitration clause in the agreement provided that in the event of any disagreement arising out of the contract, it was to be referred in the first instance to the Chairman of the Board who was ,required to give his decision within three months or within such period as might be allowed by the court. Furthermore, it was provided that in case the Chairman failed to give his decision within the said period or the extended period or if a party was not satisfied with his decision, the dispute was to be referred to a sole arbitrator to be appointed by the Board. It was held that since the applicant had not fulfilled
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the requirement of the arbitration clause by not approaching the. Chairman of the Board before filing the application under Section 20 of the 1940 Act, the said application as correctly dismissed. (ii)In the case of Karachi Dock Labour Board v. Quality Builders Ltd. (PLD 2016 SC 121), it has inter alia been held as follows : - "It is a settled principle that where the law requires an act to be done in a particular manner it has to be done in that manner and not otherwise and this rule shall be stringently applicable when it comes to the question of appointment of arbitrators; as the <u> conferment of jurisdiction upon the arbitrator should be strictly in line with the letter and spirit of the agreement between the parties </u>and the express provisions of law. Obviously, any award passed by such an arbitrator who is not appointed in the above manner shall also be invalid, having been passed by an arbitrator without jurisdiction. " (Emphasis added) (iii)In the case of Hanover Contractors v. Pakistan Defence Officers Housing Society (2002 CLC 1880), it was inter alia held by the. Hon'ble High Court of Sindh as follows:-- "It has already been settled that precondition contained in the arbitration clause are binding upon the parties. The documents were prepared by the defendants and they themselves incorporated that condition of prior, reference of the claim to the consultant and attached the element of finality to the decision in case it was not challenged…
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