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Petitioner: Federation of Pakistan, through D.G., National Training Bureau, Ministry of Education VS Respondent: M/s James Construction Company (Pvt.) Ltd.
Court Name: Islamabad High Court Judge(s): Miangul Hassan Aurangzeb Title:Federation of Pakistan, through D.G., National Training Bureau, Ministry of
Education vs M/s James Construction Company (Pvt.) Ltd. Case No.: C.R.No.88 of 2016 Date of Judgment:2017-05-29 Reported As: 2017 IHC 182 Result: Petition dismissed Judgment MIANGUL HASSAN AURANGZEB, J:- Through the instant civil revision petition , the petitioner (Federation of Pakistan, through the Director General, National Training Bureau, Ministry of Educ ation and Training), impugns the order dated 07.05.2015, passed by the Court of the learned Civil Judge, Islamabad. Vide the said order dated 07.05.2015, the learned Civil Court allowed the respondent' s application under Sections 11 and 12 of the Arbitration Act, 1940 ("the 1940 Act"), by removing the arbitral tribunal comprising the Hon'ble Mr. Justice (Retd.) Chaudhary Ijaz Ahmed and Brig. (Retd.) Khalid M. Amin, Ex-Director General, National Highway Board, and appointing the Hon'ble Mr . Justice (Retd.) Sardar Muhammad Aslam, as the sole arbitrator . 2. The facts essential for the disposal of this petition are that on 03.11.1991, the respondent (M/s James Construction Company (Pvt.) Ltd.) was awarded a contract by the National Training Board (which at that time was under the administrative control of the Ministry of Labour, Manpower and Overseas Pakistanis) for the construction, completion and maintenance of the Second Vocational Training Project at Khairpur, Sindh. As per the notice of award dated 03.11.1991, the total project cost was Rs.21,075,570/-. M/s Pakistan Environmental Planning and Architectural Consultants Limited ("M/s PEPAC") were appointed as consultants for the said project. On 12.04.1993, the Ministry of Labour, Manpower and Overseas Pakistanis, informed all concerned about the enactment of the West Pakistan Minimum Wages for Unskilled Workers (Amendment) Act, 1993, fixing Rs.1,500/- per month as the minimum wage for unskilled workers with effect from 01.07.1992. This increase in the minimum wage caused the respondent to claim an amount in addition to the contract price from the petitioner. In this regard, the respondent submitted its 30th and 31st running bills, both dated 08.09.2000 to cater for escalation in the cost of labour. These bills were submitted to M/s PEPAC. Vide letter dated 03.05.2002, M/s PEPAC forwarded the respondent's 31st running bill regarding escalation to the petitioner. M/s PEPAC was of the view that an amount of Rs.2,258,536/- was payable to the respondent, but before making any payment, an undertaking should be taken from the respondent to the effect that
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on receiving payment on account of escalation, it would immediately mobilise at the project site and would complete the punch list work. As payment against the said running bill was not made to the respondent, the respondent vide its letter dated 01.08.2003, submitted its 32nd running bill as well the final bill amounting to Rs.2,655,908/-, including escalation, to M/s PEPAC. 3. The respondent claims to have handed over the project to the petitioner on 10.11.1997. Vide notice dated 15.06.2006, the respondent called upon the petitioner to release a total amount of Rs.7,392,917/- to the respondent under various heads, including escalation, failing which the respondent would refer the matter to the civil Court for adjudication. Vide letter dated 31.08.2006, the petitioner refuted the respondent' s claim. The position taken by the petitioner was that the West Pakistan Minimum Wages for Unskilled Workers Ordinance, 1969, applied only to workers in industrial and commercial establishments; that neither the respondent nor M/s PEPAC gave any proof regarding the labour wages paid by the respondent; that the escalation committee constituted by the petitioner had decided in its meeting dated 10.04.1995 that the respondent would submit proof of actual wages paid in light of the increase in the minimum wages through the said enactment; that payment of escalation regarding labour wages would be allowed on the basis of actuals; and that the petitioner had obtained advice from the Ministry of Law according to which payment of escalation regarding labour charges were to be allowed from 01.07.1992 subject to proof of the actual payment made by the respondent. 4. On 07.09.2006, the respondent issued another notice to the petitioner seeking the release of the withheld payments on account of escalation in the cost of labour as well as payment of retention money etc. On 16.02.2008, the respondent issued a notice for a reference of the contractual disputes between the petitioner and the respondent to arbitration under the provisions of the 1940 Act. The respondent nominated Brig. (Retd.) Khalid M. Amin, Ex-Director General, National Highway Board as one of the two arbitrators. The petitioner did not object to Brig. (Retd.) Khalid M. Amin' s nomination . On 28.02.2008, the petitioner informed the respondent that the Hon'ble Chief Justice of Pakistan had appointed Mr. Justice (Retd.) Nazim Hussain Siddiqui, former Chief Justice of Pakistan as the second arbitrator . It appears that since the Hon'ble Mr. Justice (Retd.) Nazim Hussain Siddiqui did not enter upon reference, the petitioner , on 20.06.2008, nominated the Hon'ble Mr. Justice (Retd.) Muhammad Nawaz Abbasi as the second arbitrator . On 08.02.201 1, the petitioner nominated the Hon'ble Mr. Justice (Retd.) Chaudhary Ijaz Ahmed as the second arbitrator . The petitioner 's above mentioned letters dated 28.02.2008, 20.06.2008, and 08.02.201 1 nominating the second member of the arbitral tribunal were all copied to Brig. (Retd.) Khalid M. Amin, who was the respondent' s nominee on the arbitral tribunal. 5. Vide letter dated 25.04.2011, the Registrar of the Hon'ble Supreme Court forwarded a copy of letter dated 12.04.2011 containing the decision of the Hon'ble Mr. Justice (Retd.) Chaudhary Ijaz Ahmed. The decision contained in the letter dated 12.04.2011 is to the effect that the reference of the dispute to the arbitrators is premature and in violation of the procedure laid down in Article 18 of the contract. 6. It was in these circumstances that the respondent filed an application under Sections 11 and 12 of the 1940 Act before the learned Civil Court praying for the removal of the two member arbitral tribunal comprising of Brig. (Retd.) Khalid M. Amin, and the Hon'ble Mr. Justice (Retd.) Chaudhary Ijaz Ahmed, and for the appointment of the sole arbitrator in the matter. As mentioned above, vide order dated 07.05.2015, the learned Civil Court allowed the respondent's said application, and appointed the Hon'ble Mr. Justice (Retd.) Sardar Muhammad Aslam, as the sole arbitrator. The learned Civil Court also fixed Rs.1,000,000/- as the arbitrator's fee to be paid equally by the parties. The said order dated 07.05.2015 has been impugned by the petitioner in the instant civil revision petition. The memorandum of the civil revision petition does not set-out the grounds on which the impugned order dated 07.05.2015 is sought to be set-aside. 7. The learned Deputy Attorney-General submitted that on 03.11.1991, the contract for the construction of the Vocational Training Centre at Khairpur was awarded to the respondent; that the total contract price was 21.07 million; that the project was substantially completed on 31.07.1996; that the project was handed over to the Government of Sindh, partially on 12.11.1997, and finally on 30.01.2001; that the respondent raised a claim of Rs.7.329 million, primarily under the head of labour escalation; that an over payment had been made by the petitioner to the respondent; that the respondent was liable to repay the overpaid amount to the petitioner; that the respondent invoked the
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arbitration clause in the contract by appointing Brig. (Retd.) Khalid M. Amin as one of the arbitrators; that the Hon'ble Supreme Court at first appointed Mr. Justice (Retd.) Nazim Hussain Siddiqui (who declined to act as an arbitrator), and then Mr. Justice (Retd.) Muhammad Nawaz Abbasi (who neither initiated the proceedings nor gave any instructions), and finally Mr. Justice (Retd.) Chaudhary Ijaz Ahmed, who unilaterally/singly held that the arbitration was premature and against the procedure laid down in Article 18 of the Contract; that "findings" of Mr. Justice (Retd.) Chaudhary Ijaz Ahmed are "self speaking and relevant" ; and that invocation of the jurisdiction of the learned civil Court by the respondent by filing an application under Sections 1 1 and 12 of the 1940 Act, was misconceived. 8. Furthermore, it was submitted that under the terms of the President's Order No.1 of 2001, the Judges of the Hon'ble Supreme Court were given certain benefits and facilities in return whereof the Hon'ble Judges, after their retirement, were to sit as arbitrators free of charge in cases involving Government interests; that in view of the provisions of President's Order No.1 of 2001, the learned Civil Court could not require the petitioner to pay half of the arbitrator's fee. The learned Deputy Attorney-General prayed for the instant revision petition to be allowed, and for the impugned order dated 07.05.2015 to be set-aside. 9. On the other hand, learned counsel for the respondent submitted that the respondent had completely performed its obligations under the contract, but the petitioner had withheld amounts due and payable to the respondent as retention money and escalation due to an increase in the minimum wage of labour employed by the respondent for the execution of the project works; that after the minimum wage for unskilled workers was enhanced by the Federal Government with effect from 01.07.1992, the respondent was entitled to be paid escalation in the cost of labour; that the respondent had raised 30th and 31st running bills, which included the cost of escalation in the labour cost, but the petitioner did not pay the amounts approved and endorsed by M/s PEPAC/consultant for payment to the respondent; that perusal of the letter dated 31.08.2006 from the petitioner shows that the respondent's assertions had been denied by the petitioner, and therefore, a dispute arising from the terms of the contract existed between the parties; that the said contractual disputes were to be resolved in accordance with the dispute resolution mechanism enshrined in Article 18 of the contract; that after the petitioner nominated an arbitrator, it could not assert that the prerequisites for nominating an arbitrator had not been satisfied; that since the dispute between the petitioner and the respondent arises from the terms of the contract, it needs to be resolved in accordance with the arbitration clause contained in the contract; that the petitioner by nominating the second arbitrator through letters mentioned herein above had waived its right to assert that the dispute had to be referred, in the first instance, to M/s PEPAC/consultant. Learned counsel prayed for the revision petition to be dismissed. 10. I have heard the contentions of the learned Deputy Attorney-General as well as learned counsel for the respondent, and have perused the record with their able assistance. The facts leading to the filing of the instant petition have been set out in suf ficient detail in paragraphs 2 to 6 above, and need not be recapitulated. 11. For deciding this petition, it is not necessary to delve into the merits of the contractual disputes between the petitioner and the respondent, as that would be tantamount to usurping the jurisdiction of a domestic tribunal. In the case at hand, the parties resorted to arbitration without the intervention of a Court by constituting a two-member arbitral tribunal. Chapter-II of the 1940 Act deals with the arbitration without intervention of a Court (Sections 3 to 19). The question that needs to be deter mined is whether the order of the learne d civil Court removing the two- member arbitral tribunal, and nominating a sole arbitrator , suffers from any jurisdictional irregularity or material illegality so as to warrant interference in the revisional jurisdiction of this Court. 12. The record shows that on 16.02.2008, the respondent issued a notice for a reference of the contractual disputes between the petitioner and the respondent to arbitration under the provisions of the 1940 Act. The respondent nominated Brig. (Retd.) Khalid M. Amin, as an arbitrator . The petitione r did not object to Brig. (Retd.) Khalid M. Amin' s nomination. On 08.02.2 011, the petitioner nominated the Hon'ble Mr. Justice (Retd.) Chaudhary Ijaz Ahmed as the co-arbitrator . In this way , a two-member arbitral tribunal was constituted. 13. At page-13 of this petition is letter dated 12.04.2011 from the Hon'ble Mr. Justice (Retd.) Chaudhary Ijaz Ahmed's Secretary conveying to the Director of the National Training Bureau (Ministry of Labour and Manpower) the learned arbitrator's decision not to assume jurisdiction for the settlement of the claim filed by the respondent. This letter shows that the co-arbitrator (Brig. (Retd.) Khalid M. Amin) had, vide letter dated 14.02.2011, requested the Hon'ble Mr. Justice
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(Retd.) Chaudhary Ijaz Ahmed for a meeting for making a schedule for the arbitration proceedings. It is not disputed that a meeting between the arbitrators did not take place. The respondent had, on 18.02.2011, submitted its claim separately to the arbitrators. The said letter dated 12.04.2011 also shows that on the Hon'ble Mr. Justice (Retd.) Chaudhary Ijaz Ahmed's invitation, the Director, National Training Bureau, had delivered the record of the case and appraised him of the issues in the case. This happened in the absence of the respondent. The primary reason for the learned arbitrator to decline assumption of jurisdiction in the matter was that the pre-condition in the arbitration clause of a reference of the disputes to the consultant had not been satisfied. The learned arbitrator decided that the reference was premature and violative of the procedure laid down in Article 18 of the contract. For ease of reference, Article 18 of the contract is set out in "Schedule-A" to this judgment. 14. In December, 2012, the respondent filed an application under Sections 11 and 12 of the 1940 Act praying for the removal of the two-member arbitral tribunal, and for the appointment of a sole arbitrator. The portions of Sections 11 and 12 of the 1940 Act, which are relevant for this case, are reproduced herein below:- "11. Power of Court to remove arbitrators or umpire in certain circumstances.__ (1) 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 removed under this 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 becomes necessary, giving notice of that fact to the parties and to the umpire." "12. Power of Court where arbitrator is removed or his authority revoked.__ (1) Where the Court removes an umpire who has not entered on the reference or one or more arbitrators (not being all the arbitrators), the Court may, on the application of any party to the arbitration agreement, appoint persons to fill the vacancies. (2) Where the authority of an arbitrator or arbitrators or an umpire is revoked by leave of the Court, or where the Court removes an umpire who has entered on the reference or a sole arbitrator or all the arbitrators, the Court may, on the application of any party to the arbitration agreement, either__ (a) appoint a person to act as sole arbitrator in the place of the person or persons displaced, or (b) order that the arbitration agreement shall cease to have effect with respect to the difference referred. (3) A person appointed under this section as an arbitrator or umpire shall have the like power to act in the reference and to make an award as if he had been appointed in accordance with the arbitration agreement." 15. On a conjoint reading of the aforesaid Sections, the Court is empowered to remove arbitrators on an application of either party to a reference. Under Section 11 of the 1940 Act, the power of the Court for removing an arbitrator is limited to the grounds of his failure to use all reasonable dispatch in entering upon and proceeding with the reference or his misconduct. Where the Court removes arbitrators and/or the authority of arbitrators is revoked, the Court can, as has been done in this case, appoint a person to act as a sole arbitrator in place of the persons displaced. Section 12(2) inter-alia provides that where the Court removes a sole arbitrator or all the arbitrators, the Court may on the application of any party to the arbitration agreement, appoint a person to act as a sole arbitrator in place of the person or persons displaced. If an arbitral tribunal comprising more than one arbitrator is removed by the Court pursuant to Section 11 of the 1940 Act, the Court is empowered under Section 12(2)(a) of the 1940 Act to appoint a sole arbitrator in replacement of the displaced arbitral tribunal. This is so even if the arbitration agreement between the parties provides for disputes to be referred to an arbitral tribunal comprising more than one arbitrator . The agreement between the parties cannot override the express provisions of statute which empowers the Court to appoint a person to act as sole arbitrator in place of the person or persons replaced. 16. An arbitrator enters upon reference when he applies his mind and does something for the furtherance and execution of the arbitration proceedings. In the case at hand, after the two-member arbitral tribunal was constituted, they did not convene at any material stage; did not issue notices to the parties; and did not set a schedule for the arbitration proceedings. Even though one of the arbitrators requested the other one for a meeting so as to make a schedule for the arbitration proceedings, but a meeting between the arbitrators did not take place. One of the
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arbitrators after meeting a representative of one of the parties to the dispute decided that the reference was premature and, therefore, declined to assume jurisdiction. In these circumstances, it can safely be concluded that the arbitrators did not enter upon or proceed with the reference. 17. The decision of one of the learned arbitrators not to assume jurisdiction over the matter cannot, by any stretch of imagination, be termed as an "award". Perusal of the said letter dated 12.04.201 1 shows that the decision contained therein is not the decision of the two-member arbitral tribunal. The contesting parties are in unison on their submission that at no material stage, did any proceedings take place before the said two member arbitral tribunal. In fact the said arbitral tribunal never convened, and never issued notices to the parties. The decision of one of the learned arbitrators (acting solely) contained in the said letter dated 12.04.2011 could certainly not be termed as an award of an arbitral tribunal. It is an admitted position that the two-member arbitral tribunal did not appoint an umpire as required by Article 18.4 of the contract and paragraph 2 of the First Schedule to the 1940 Act. Hence, the said decision dated 12.04.2011 cannot even be termed as a majority award. In the case of A.M. Associates Vs. Government of Khyber Pakhtunkhwa (PLD 2015 SC 21), the terms of the contract provided that the disputes between the parties were to be resolved by three arbitrators, one of whom was to be Chairman of the Arbitration Council. The two members and the Chairman of the Dispute Adjudication Board were to act as arbitrators. Since the Chairman of the Arbitration Council was not included in the arbitration proceedings, and did not take part in the making of the award, the proceedings were held to be without jurisdiction and the arbitrators were held to be guilty of misconduct. Paragraph 13 of the said report is reproduced herein below:- "13. We are also of the view that since the Arbitration proceedings were conducted by only two Arbitrators and not the entire arbitration council despite the fact that the third member/chairman had not recused himself from serving as an arbitrator , therefore, the arbitration council had become coram non judice for passing the award which therefore could not be made the rule of the Court." 18. Additionally , in the case of Muhammad Sharif Vs. Rose Deen (2015 MLD 1804 ), the arbitral tribunal comprised of five arbitrators, two to be appointed by each party to the dispute, and the fifth one by both the parties. Since the two arbitrators appointed by one party were not made part of the arbitration proceedings, and they had also not signed the arbitration award, the Hon'ble Lahore High Court upheld the orders passed by the learned Courts below setting aside the arbitration award. 19. In the case of Sheodutt Vs. Pandit Vishnudutta (AIR 1955 Nagpur 116), it has been held inter-alia that where all the arbitrators do not jointly deliberate in the proceedings or in the making of the award, the whole award becomes vitiated. In the case of Chhaganlal Asaram Vs. Jeevanlal Gangabisan (AIR 1954 Nagpur 263), it was held that it is a fundamental principle of natural justice that arbitrators who are enjoined to act jointly must act together . Furthermore, it was held that where the application for reference and the order for reference passed by the Court clearly enjoin this duty on the arbitrators, but one or the other of the arbitrators remains absent on material dates of hearing, the arbitrators misconduct the proceedings and the award is liable to be set aside. In the case of Dhooli Atchayya Vs. Dhoodi Peddenti (AIR 1928 Madras 983), the parties referred the disputes to five arbitrators. The parties had agreed that the opinion of the majority should prevail. Two of the arbitra tors did not act. It was held that if some of the arbitrators did not act, the award was null and void. Additionally , in the case of Fazalally Jivaji Raja Vs. Khimji Poonji & Co. (AIR 1934 Bombay 473), it has been held as follows:- If there is one proposition which is firmly established by authorities more than any other in regard to arbitration, it is this that where there are several arbitrators, all must act together and each must act in the making of the award; and this is not denied. Indeed Mr. Setalvad concedes it. Every stage of the proceedings must be in the presence of all, and every judicial act to be done by two or more must be completed in the presence of all who do it. In 11 W R (Eng) 265 (14) the facts were that the umpire and one of the arbitrators in the absence of the other arrived at a decision, though they informed him of it and afforded him an opportunity of objecting thereto before finally and formally making their award. The Court consisting of Cockburn, C. J., Crompton and Blackburn, JJ., observed as follows:- ".... it would be dangerous to allow an award to stand under such circumstances. It was not a mere communication of the decision, which was sufficient, for it was not easy to eradicate an impression once produced and allowed to
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sink in the mind. There ought to have been a meeting of all three, for the purpose of mutual discussion of the matter, before arriving at any decision. It was essential to the right exercise of the judicial function by several persons, that there should be this joint consideration and discussion of the matter, before any of them arrived at a decision upon it. In this case the arbitrator of the appellant ought to have been allowed an opportunity of hearing what was urged by the other, and of making any answer to it, and urging any arguments in support of the opposite view before the umpire had formed an opinion upon the question. It would be a most dangerous precedent to allow an award to stand which had virtually been arrived at and resolved on by the umpire on the ex parte statements of one of the arbitrators, in the absence of the other . On that ground therefore the award must be s et aside...." 20. Since I have already held that the decision of one of the arbitrators contained in the letter dated 12.04.201 1 is not an arbitration award of the two-member arbitral tribunal, the said arbitral tribunal had not become functus officio . Section 14 of the 1940 Act obligates the arbitrator(s) and the umpire to sign the award after making it. The arbitrator nominated by the respondent never participated in any proceedings and did not sign the decision given by the arbitrator nominated by the…
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