Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: KARACHI DOCK LABOUR BOARD VS Respondent: Messrs QUALITY BUILDERS LTD.
Court Name: Supreme Court of Pakistan Judge(s): Mian Saqib Nisar, Ijaz Ahmad Chaudhry, Qazi Faez Isa Title: KARACHI DOCK LABOUR BOARD vs Messrs QUALITY BUILDERS LTD. Case No.: Civil Appeal No.305 of 2008,C.A. No. 18 of 2005 Date of Judgment:2015-10-02 Reported As:NLR 2016 Civil 338, PLJ 2016 Sc 404, 2016 P.S.C. 657, 2015-SCP-121, PLD 2016
JUDGMENT
JUDGMENT MIAN SAQIB NISAR, J.---This 'appeal involves the key question, in that, whether the award made, announced and signed by the sole arbitrator appointed by the respondent was with jurisdiction or not and thus should not have been made rule of the Court. The ancilla ry questions to the above are, whether the appellant had waived etc. Its objection about the jurisdiction; whether lack of jurisdiction can be compromised; whether the court, considering the matter qua making the award rule of the Court, should itself consider the jurisdictional aspect and decline to make an award, made without jurisdiction, rule of the Court. In this context, leave was granted vide order dated 27.02.2008 reproduced below to consider certain points highlighted therein:- "After hearing learned counsel for the parties, leave to appeal is granted, inter alia, to consider:- (1) Whether in the instant case sections 8 and 9 of the Arbitration Act, 1940 would apply; and (2) Whether the award given by the Arbitrator was according to the terms of the agreements entered into by the parties. (2) Since a short point is involved, as such office is directed to fix the case during week of May 2008. Meanwhile interim order dated 06.2.2008 shall hold the field." 2. The relevant facts of the case are:- The appellant (employer) entered into a contract dated 08.10.1989 with the respondent (contractor) for the construction of a hospital at Kemari, Karachi. The contract contained an arbitration clause (clause 131). The parties subsequ ently entered into multiple supplementary agreements dated 17.06.1991, 12.11.1992, and 31.05.1993 which amended various clauses of the original contract including inter alia the time for completion of the contract. The fourth and final supplementary contract dated 01.03.1995 not only extended the time for completion of the contract but also, according to the appellant, settled finally certain claims of the respondent. Subsequently the respondent, claiming that certain dues/claims remained unpaid, invoked the
---
## Page 2
arbitration clause by referring to the consultants certain disputes vide letter dated 05.06.1996. Due to non- determination by the consultant of the disputes alleged by the respondent, the latter proceeded to approach the appellant vide letter dated 19.01.1997 for the appointment of arbitrator and also suggested some names therein. Since the appellant did not appoint an arbitrator in response thereof, the respondent vide letter dated 02.07.1997 informed the appellant that they had appointed one Mr. S. A. Nizami and requested them to appoint an arbitrator for resolution of their disputes, in the absence of which Mr. Nizami would become the sole arbitrator . In response the appellant stated in its letter dated 12.07.1997 that since the final supplementary agreement satisfied the respondent's claim fully therefore the arbitration clause cannot be invoked and that the arbitrator cannot be appointed in the terms as suggested by the respondent. The respondent then sent a letter dated 20.08.1997 to the arbitrator stating therein that since the appellant had failed to appoint an arbitrator , Mr. Nizami should act as a sole arbitrator in terms of Section 9 of the Arbitration Act, 1940 (Act), after which the arbitrator issued notices to the parties dated 22.08.1997 and entered upon the reference. However , the appe llant took the plea before the arbitrator which is envisaged by the letter dated 19.09.1997 to the effect that because the original contract was in effect superseded by the final supplemen tary agreement, therefore the arbitration cannot be invoked and, hence the arbitrator had no jurisdiction. Notw ithstanding this the arbitrator conducted ex-parte proceedings as the appellant refused to appear and rendered the award dated 20.12.1997 in favour of the respondent which was filed in court on 19.01.1998 for making it the rule of the Court. Notice of the same was sent to the appellant on 27.01.1998 pursuant to which they filed objections under the provisions of Section 30 of the Act on 24.02.1998 on various grounds including inter alia that the arbitrator had no jurisdiction in the matter and therefore the award was a nullity in the eyes of the law. However the learned Single Judge vide judgment and decree dated 24.11.2004 overruled the objections and made the award a rule of the court pursuant to Section 17 of the Act. The appellant filed an appeal against the said judgment which was dismissed vide impugned judgment dated 19.04.2006, against which they have filed the instant appeal before this Court. 3. Learned counsel for the appellant, while relying upon Textile Machinery Corporation Ltd v. Nalinbhai B. Munshaw (AIR 1969 Calcutta 146), submits that in order to invoke the provisions of Section 9 of the Act as the respondent necessarily did, certain preconditions need to be met, in that, the agreement should provide a reference to two arbitrators, one to be appointed by each party . He then referred to the arbitration clause, i.e. Clause 131 of the contract and pointed out that since it did not specifically provide for two arbitrators, one to be appointed by each party , therefore the application of Section 9 was ousted. Reliance in this regard was placed on Port Qasim Authority , Karachi v. Messrs Nadeem Brothers and another (1982 CLC 1506 ). Instead, recourse should have been made to Section 8 read with Section 20 of the Act according to which the Court, and not the respondent, was empowered to appoint an arbitrator . He relied on Muhammad Azam Muhammad Fazil & Co., Karachi v. Messrs N. A. Industries, Karachi (PLD 1977 Karachi 21). He further submitted that where the number of arbitrators is not specified in the arbitration agreement, as was so in the instant case, recourse has to be made to Section 3 which when read with clause 1 of the First Schedule of the Act implies a condition that unless otherwise expressly provided, the reference shall be to a sole arbitrator . Reference was also made to the respondent's letter dated 02.07.1997 requesting the appellant to appoint their arbitrator , and the appellan t's response dated 12.07.1997 wherein it was specifically pointed out to the arbitrator that lacking jurisdiction, he should abstain from entering upon the reference and proceeding with the matter . He stated that whenever the appellant was sent a notice by the arbitrator , they raised an objection regarding the latter's jurisdiction. The propositions which have been framed by the learned counsel for the appellant's counsel is as follows:- (i) The arbitrator rendered the award having no jurisdiction as his appointment was not in terms of the arbitration agreement, therefore the award is a nullity; (ii) The pre-conditions of reference to the consultant to invoke the arbitration clause was not met as the respondent did not apply to the consultant before asking for the appointment of the arbitrator and making a reference thereto; 4. When confronted as to why the appella nt did not invoke the provisions of Secti on 5 of the Act, learned counsel for the appellant responded by stating that in order for the said section to be applicable there has to be a validly appointed arbitrator , which he contends was not in the present case. Further , that Section 5 assumes valid
---
## Page 3
conferment of authority , hence that said section is about revocation of authority and does not deal with challenge to jurisdiction of the arbitrator . While elaborating on his first proposition, in support of the contention that the Court as opposed to the arbitral tribunal will examine the power of the latter , learned counsel for the appellant relied upon Abdul Hamid v. H. M. Qureshi (PLD 1957 SC (Pak) 145). He also submitted that the Courts have the power under Section 17 to set aside the award on its own where the award is patently invalid and not enforceable under the law and in this regard placed reliance upon M/s Awan Industries Ltd. v. The Executive Engineer , Lined Channel Division and another (1992 SCMR 65) and A. Qutubuddin Khan v. Chec Millwa la Dredging Co. (Pvt.) Limited (2014 SCMR 1268 ). 5. Learned counsel for the respondent has controverted the arguments of the learned counsel for the appellant by stating that the appellant did not challenge the jurisdiction of the arbitrator on the basis of non-applicability of Section 9 before the arbitrator himself, thus such objection is deemed to have been waived and the same cannot be raised subsequently . Rather the appellant's objection was based on the fourth supplementary agreement rendering the arbitration agreement nonexistent allegedly being a full and final settlement of the respondent's claims. He also stated that despite repeated notices to the appellant, they stayed quiet. He built his defence on the premise of the arbitration principles prevalent today , which according to him are: (i) The role of the court is supportive; (ii) Doctrine of least intervention; (iii) Sections 8 and 9 are machinery provisions; (iv) The arbitration clause is to be interpreted in a workable manner - liberal construction; (v) Principle of Kompetenz-Kompetenz - arbitral tribunal shall determine its own jurisdiction; and (vi) If a particular objection, even if it pertains to the jurisdiction of the arbitrator , was not raised earlier it cannot be raised subsequently; if the particular ground was not taken earlier it will be deemed to have been waived of f. 6. The primary contention of the learned counsel for the respondent was that since the appellant did not raise their objection to jurisdiction specifically vis-a-vis Sections 8 and 9 before the arbitrator nor the learned Single Judge, hence they are estopped from doing so now. He also attempted to draw a parallel of arbitral tribunals with tax tribunals in that with respect to the latter , if a question of law is not raised before the tribunal it cannot be raised subsequently and this concept should apply to the former alike. Further while relying upon Federation of Pakistan, through Secretary , Ministry of Food, Islamabad and others v. Messrs Joint Venture Kocks K.G./Rist (PLD 2011 SC 506) he stated that objections must be taken with sufficient clarity , and that this was not the case with the appellant. He also placed reliance on Messrs Vaseem Construction Co. v. Province of Sindh through Secretary to Government of Sindh, Communication and Works Department, Karachi and 4 others (1991 CLC 1081 ) in furtherance of his argument that objections to an award cannot be subsequently raised. He also relied upon Muhammad Saghir Bhatti & Sons v. The Federation of Pakistan and another (PLD 1958 SC (Pak.) 221) that a subsequent challenge to appointment of arbitrator is not sustainable when it was not raised before. 7. According to learned counsel for the respondent the concept of inherent defect in jurisdiction applies differently in the world of arbitration, in that it would only arise if the arbitration agreement was in dispute which was not, it is argued, the case at hand, and while relying on several cases of foreign jurisdictions he further contended that there has been a development in arbitration, that even inherent defects are now to be raised before and decided by the arbitral tribunal itself. 8. When confronted as to why the respon dent did not file the arbitration agreement in court under the provisions of Section 20, learned counsel for the respondent stated that as per the scheme of the Act, the respondent had three options available to them under Chapter s 2, 3 and 4 and they chose Chapter 2, which they could not forgo for Chapter 4 without exhausting it in its entirety . Reliance in this regard was placed upon Messrs Commodities Trading International Corporation v . Trading Corporation of Pakistan Ltd and another ( 1987 CLC 2063 ). 9. Heard. The issues in this case mainly revolve around the construction of the arbitration clause and the scope, interpretation and application of the provisions of Sections 3, 5, 8, 9, 11 and 20 and Paragraph 1 of the First Schedule of the Act, hence we find it expedient to reproduce the same in the order so stated:, "131. SETTLEMENT OF DISPUTES/ARBITRA TION
---
## Page 4
' If any dispute or difference of any kind whatsoever shall arise between the Employer and the Contractor or the consultants and the Contractor in conne ction with, or arising out of the contract, or the execution of the works, whether during the progress of the works or after their completion and whether before or after the termination, abandonment, or breach of the contract, it shall in the first place, be referred to and settled by the Consultants who shall within a period of ninety (90) days after being requested by either party to do so give written notice of his decision to the employer and the Contractor . Such decision in respect of every matter so referred shall be binding upon the Employer and the Contractor who shall proceed with the execution of the works with all due diligence whether he or the Employer requires arbitration. If the Consultant has given written notice of his decision to the Employer and the Contractor and no claim to arbitration has been communicated to him by either the Employer or the Contractor within a period of thirty (30) days from receipt of such notice, the said decision shall remain final and binding upon the Employer and the Contractor . If the Consultant shall fail to give notice of his decision, as aforesaid, within a period of ninety (90) days after being requested as aforesaid or if either the Employer or the Contractor be dissatisfied with any such decision, then in any such case either the Employer or the Contractor within ninety (90) days after receiving notice of such decision, or within ninety (90) days after the expir ation of the first named period of thirty (30) days, as the case may be, require that the matter or matters in dispu te be referred for pre-consideration then only in that case the matter shall be referred to the Arbitrator (s) and/or Umpire as the case may be within the meaning of Arbitration Act, 1940, whose decision shall be final and binding upon the parties. [Emphasis added] Arbitration Act, 1940 3. Provisions implied in arbitration agreement.- An arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule in so far as they are applicable to the reference. 5. Authority of appointed arbitrator or umpire irrevocable except by leave of Court.- The authority of an appointed arbitrator or umpire shall not a revocable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement. 8. Power of Court to appoint arbitrator or umpire.- (1) In any of the following cases:- (a) Where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after difference have arisen , concur , in the appointment or appointments; or (b) If any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied; and the parties or the arbitrators, as the case may be, do not supply the vacancy; (c) Where the parties or the arbitrators are required to appoint an umpire and do not appoint him, any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy . (2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave notice and after giving the other parties an oppor tunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like powe r to act in the reference and to made an award as if he or they had been appointed by consent of all parties. 9. Power to party to appoint new arbitrato r or, in certain cases, a sole arbitrator .- Where an arbitration agreement provides that a reference shall be to two arbitrators, one to be appointed each party , then, unless a different intention is expressed in the agreement. (a) If either of the appointed arbitrator , neglects or refuses to act, or is incapable of acting or dies, the party who appointed him may appoint a new arbitrator in his place. (b) If one party fails to appoint an arbitrator , either originally or by way of substituti on as aforesaid, for fifteen clear days, after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that
---
## Page 5
arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent. ' Provided that the Court may set aside any appointment as sole arbitrators made under clause (b) and either , on sufficient cause being shown, allow furthe r time to the defaulting party to appoint an arbitrator or pass such other order as it thinks fit. ' Explanation. The fact that an arbarator or umpire, after request by either parry to enter on and proceed with the reference, does not within one month comply with the request may constitute a neglect or refusal to act within the meaning of Section 8 and this section. 11. Power of Court to remove arbitrators or umpire in certain circumstances.- (I) The Court may, on the application of any party to reference, remove an arbitrator or umpire who fails to use all reasonable dispatch in entering on and proceeding with the reference and making an award. (2) The Court may remove an arbitrator or umpire who has misconducted himself or the proceedings. (3) Where an arbitrator or umpire is remov ed under the section, he shall not be entitled to receive any remuneration in respect of his services. (4) For the purposes of this section the expression "proceeding with the reference" includes, in a case where reference to the umpire become necessary , giving notice of that fact to the parties and to the umpire. 20. Application to file in Court arbitration agreement.- (1) Where any person have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in the Court. (2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintif f or plaintif fs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant as plaintif f and the other parties as defendants. ' On such application being made the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed. (3) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator , to an arbitrator appointed by the Court. (4) Thereafter the arbitration shall proceed in accordance with and shall be governed by, the other provisions of this Act so far as they can be made applicable. First Schedule Implied Conditions of Arbitration Agreement I. Unless otherwise expressly provided, the reference shall be to a sole arbitrator ." 10. Before proceeding further we find it expedient to mention what is arbitration and also about the empowerment of the arbitrator . In this context it is stated that arbitration is a drum which under the law can be chosen by the parties for the resolution of their present or future disputes. The condition for a valid arbitration agreement is that it should be in writing (see Section 2(a) of the Act) and as it is a contract between the parties it is essential that it must qualify the test of a valid contract in terms of the law of contract. It may also be stated that there are three modes and approaches to arbitration: (i) without the intervention of the court; (ii) with the intervention of the court (see Section 20 of the Act); and (iii) again with the intervention of the court but where a suit/ lis pending between the parties and they agree for the resolution of their disputes through the mechanism of arbitration, keeping the suit pending and that the fate thereof (suit) be decided on the basis of the decision rendered by the arbitrator . It may be relevant to state that subject to the terms of reference an arbitrator(s) is the judge on both the points of fact and law; and this shall also include the question to determine his own jurisdiction. However where the arbitrator goes patently and blatantly wrong on facts, which wrong is inconceivable and incomprehensible in relation to the determination of rights of parties in dispute, such as B assumption of non-existing facts or ignoring the facts duly
---
## Page 6
established on the record, which in legal parlance is also called the misreading and non-reading; and especially going wrong on the points of law, the court obviously has the power in its appropriate jurisdiction to correct such a wrong; as under Article 4 of the Constituti on of the Islamic Republic of Pakistan, 1973 it is inalienable right of every person to be treated and dealt with in accordance with law [See cases reported as Utility Stores Corporation of Pakistan Limited v. Punjab Labour Appe llate Tribunal and others (PLD 1987 SC 447); Muhammad Anwar and others v. Mst. Ilyas Begum and others (PLD 2013 SC 255) and Muhammad Ashra f Butt and others v. Muhammad Asif Bhatti and others ( PLD 201 1 SC 905 )]. 11. Coming to the present case, having regard to the fact that the agreement in which the arbitration clause is contained is not denied, it is not disputed that there was a valid arbitration agreement between the parties. The first issue is which out of the two Sections 8 or 9 of the Act is attracted to the arbitratio n clause (reproduced above). In order to. Resolve this, an exercise of interpretation of the arbitration clause needs to be undertaken. Ordinarily , parties have a right to agree upon the number of arbitrators and the manner in which the arbitrators will be appointed. However , a perus: of tne arbitration clause shows that it is silent on both these aspects. The arbitration clause talks of referral of disputes to "arbitrator(s)". Had the arbitration clause spoken of the appointment of an "arbitrator", there will be no scope for the application of Para 1 of the First Schedule, because a single arbitrator would be indicated by the agreement itself. Also, had the arbitration clause provided for the appointment of "arbitrators", then the application of Para 1 of the First Schedule would have been excluded because the word "arbitrators" certainly refers to more than one arbitrator . Thus we find much force in the contentions of the learned counsel for the appellant that the instant case will be governed by Section 3 and the reference shall be presumed to have been intended to be made to a single arbitrator by virtue of Para 1 of the First Schedule, necessarily to be appointed by the consent of both parties. [See .Cases reported as Mujtaba Hussain Siddiqui v. Sultan Ahmed (2005 YLR 2709 ), In the matter of Arbitration between Ghufran Ahmed and others (PLD 1959 (W.P.) Karachi 43), Muhammad Jamil v. Iqbal Ahmed (PLD 1977 Karachi 886), Government of Sindh and others v. Tausif AU Khan (2003 CLC 180), M/s National Small Industries Corpn Ltd. v. M/s National Metal Craft, Delhi and others (AIR 1981 Delhi 189), India Hosiery W orks v . Bharat W oollen Mills Ltd. (AIR 1953 Cal. 488)]. 12. The second aspect of this issue is whether in the facts and circumstances it was in the power of the respondent to appoint the arbitrator in terms of Section 9 or whether an application should have been made to the Court under Section 8 for appointment of the arbitrator . This would depend on the construction of…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.