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Official Citation: 2024 CLD 531
Court / Jurisdiction: Supreme Court of Pakistan
Year of Decision: 2023
Decision Date: 2023-12-31
Parties: Taisei Corporation Tokyo Japan thr. its Attorney vs A.M. Construction JUDGMENT
Ruling Summary: This decision was rendered by the Supreme Court of Pakistan on 2023-12-31, officially reported as 2024 CLD 531. In this matter between Taisei Corporation Tokyo Japan thr. its Attorney and A.M. Construction JUDGMENT, 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.
Case cited as 2024 CLD 531
Court Name: Supreme Court of Pakistan Judge(s): Syed Mansoor Ali Shah, Irfan Saadat Khan, Athar Minallah Title:Taisei Corporation Tokyo Japan thr. its Attorney vs A.M. Construction
JUDGMENT
Reported As: 2024 SCP 85, 2024 CLD 531, 2024 SCMR 640 Result: Appeal Dismissed Judgment JUDGMENT Syed Mansoor Ali Shah, J. Preface 'The idea of arbitration', writes Jan Paulsson[1], 'is that of binding resolution of disputes accepted with serenity by those who bear its consequences because of their special trust in chosen decision makers. It is difficult for courts to achieve this kind of acceptance; public justice tends to be distant and impersonal. Arbitration is a private initiative. The idea of Arbitration is freedom reconciled with law...[T]he philosophical premise is that people are free to arrange their private affairs as they see fit, provided that they do not offend public policy or mandatory law.' Arbitration thus embodies the principles of autonomy and voluntariness, respecting the parties' freedom to design a process that best suits their needs. It reflects a philosophical shift towards self-governance in dispute resolution, allowing parties to choose their arbitrators and the applicable law, thereby creating a more tailored and potentially equitable outcome. The role of courts in the context of arbitration has therefore evolved with a trend towards minimal interference. 2. More significant is the minimal interference in international commercial arbitration that stands as a cornerstone in the resolution of cross-border commercial disputes, offering a preferred alternative to litigation in national courts for businesses worldwide. One of the foundational aspects of international commercial arbitration is its emphasis on neutrality, expeditiousness, efficiency and the ability to provide solutions tailored to the needs of international business transactions. International commercial arbitration plays a crucial role in resolving disputes arising from cross-border trade and commerce, expeditiously and efficiently. The global view on
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international commercial arbitration is therefore overwhelmingly positive, with businesses and legal professionals alike recognizing its benefits over traditional litigation. 3. In this regard, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 plays a pivotal role, underpinning the global enforcement regime for foreign awards that has made arbitration a linchpin in international commerce. The Convention facilitates the recognition and enforcement of arbitration agreements and awards across its member States, significantly reducing the uncertainty and complexity associated with cross-border dispute resolution. The role of courts in the context of international commercial arbitration has thus evolved to support and complement the arbitration process. Courts are no longer seen as competitors to arbitration but as essential partners in ensuring the effectiveness and integrity of the process. Their duty is to support, not to supplant, the arbitral process. 4. This approach of minimal interference and support for the arbitral process is enshrined in the concept of "pro-enforcement bias", which refers to the inclination of legal frameworks, such as the New York Convention and national laws, to facilitate the enforcement of arbitral awards. This bias underscores the commitment to uphold the integrity of arbitration as a means of settling international disputes by limiting the grounds on which enforcement can be refused and placing the burden of proof on the party resisting enforcement. The courts' role is to interpret these provisions narrowly to promote certainty and predictability in international transactions. This bias is not about unjustly favoring one party over another but is aimed at promoting the effectiveness and efficiency of arbitration as a dispute resolution mechanism. The pro-enforcement bias underscores the commitment of the legal system, embodied in international conventions, like the New York Convention, to respect and uphold the parties' agreement to arbitrate and to ensure that the outcome of such arbitrations (the arbitral awards) are recognized and enforced with minimal interference. This bias is critical in providing parties with the confidence that their decisions to arbitrate disputes will be supported by courts around the world, thus enhancing the attractiveness of arbitration as a method of resolving international commercial disputes. This enforceability is crucial for the fluidity of international trade, providing businesses with the certainty and security needed to engage in cross-border transactions. 5. With this understanding of arbitration, particularly international arbitration in commercial disputes, and pro-enforcement bias in enforcing foreign awards, we approach the instant case which addresses the questions: (i) whether an award made in a Contracting State, in pursuance to an arbitration agreement governed by the law of Pakistan, is a foreign arbitral award for applicability of the Recognition and Enforcement of Arbitration Agreement and Foreign Award Act 2011; and (ii) whether the retrospective application of this Act extends to an award made in arbitral proceedings commenced before its enactment. Facts 6. The facts of the case that have given rise to these questions are quite straightforward. The appellant ("Taisei"), a Japanese company, was awarded a contract by the National Highway Authority of Pakistan, on 4 October 2006, for carrying out certain works on the Karar-Wadh Section of the Highway (N-25) in the Province of Baluchistan, Pakistan ("Project"). On 19 May 2007, Taisei entered into a subcontract with the respondent ("AMC"), a Pakistani company, for doing some part of the Project. It was agreed in the subcontract that the governing law of the subcontract shall be the law in force at the time in Pakistan, and that any dispute arising between the parties would be settled through arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce ("ICC"), to be held at Singapore. In the course of performing their respective obligations under the subcontract, some disputes arose between the parties. On 17 December 2008, AMC referred the matter to ICC for arbitration as per the arbitration agreement
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incorporated in the subcontract, and after holding the arbitration proceedings in Singapore, the arbitrator delivered the award on 9 September 2011 ("Award"). Proceedings of the courts below in Civil Appeal No. 722 of 2012 7. In order to challenge the Award, AMC filed an application under Section 14 of the Arbitration Act 1940 ("1940 Act") in the Civil Court, Lahore, on 21 September 2011, praying for a direction to the arbitrator to file the Award and the record of the arbitration proceedings. Taisei appeared before the Civil Court, Lahore, and filed an application under Order VII, Rule 10 of the Code of Civil Procedure 1908 ("CPC"), to return the application of AMC made under the 1940 Act. In its application, Taisei pleaded that the Civil Court, Lahore lacked territorial as well as subject matter jurisdiction. Taisei's plea of lack of territorial jurisdiction was based on the assertion that neither it resided or carried on business in Lahore nor the cause of action had arisen at Lahore; whereas on the plea of lack of subject matter jurisdiction, Taisei maintained that the Award was a 'foreign award' regarding which the jurisdiction exclusively vested in the High Courts under the Recognition and Enforcement of Arbitration Agreement and Foreign Award Act 2011 ("2011 Act"). The Civil Court dismissed the application of Taisei by its order dated 28 January 2012, holding that the cause of action partly arose at Lahore and that the Award was not a foreign award. Taisei preferred a revision petition in the Lahore High Court, against the order of the Civil Court. The Lahore High Court upheld the order of the Civil Court and dismissed the revision petition of Taisei by its judgment dated 14 May 2012. Taisie then sought leave from this Court to appeal the judgment of the Lahore High Court, which was granted on 8 August 2012 to examine, inter alia, the question of whether the Award was a foreign award or a domestic award. This appeal, by leave of the Court, is Civil Appeal No. 722 of 2012. Proceedings of the courts below in Civil Appeal No. 2649 of 2016 8. In addition to the filing of the application under Order VII, Rule 10, CPC, in the Civil Court, Lahore, Taisei filed a petition under Section 6 of the 2011 Act in the High Court of Sindh at Karachi, on 1 November 2011, for recognition and enforcement of the Award. For the rejection of this petition of Taisei, AMC filed an application under Section 11 and Order VII, Rule 11, CPC. The ground pleaded by AMC for rejection of Taisei's petition was that the issues of jurisdiction and non-applicability of the 2011 Act had become res judicata by virtue of the order dated 28 January 2012 passed by the Civil Court, Lahore. A Single Bench of the Sindh High Court allowed AMC's application and dismissed Taisei's petition, by its order dated 13 February 2015. It held that not the Lahore Civil Court's order but the Lahore High Court's judgment passed in revision, whether right or wrong, operated inter partes as res judicata on the issue of the nature of the Award. Taisei preferred an intra-court appeal, which was allowed by a Division Bench of the Sindh High Court by its judgment dated 7 October 2016. The Division Bench remanded the matter to the Single Bench to proceed with Taisei's petition in accordance with the 2011 Act, by holding that since an appeal against the Lahore High Court's judgment was pending before the Supreme Court, that judgment did not operate as res judicata. This decision of the Division Bench has been challenged by AMC in Civil Appeal No. 2649 of 2016. Competing contentions of the parties 9. Before us, Taisei contends that the Award is a foreign arbitral award and is therefore to be dealt with under the 2011 Act, not under the 1940 Act. AMC controverts this contention and maintains that the Award is not a foreign arbitral award as defined in the 2011 Act and that even if it falls within that definition, the 2011 Act does not apply retrospectively to the Award made under the arbitration agreement of May 2007 and in the arbitration proceedings commenced in December 2008. Alternatively, AMC submits that if the Award is held to be a foreign arbitral award and the 2011 Act applicable to it, such construction of the 2011 Act may be declared to operate prospectively, not applicable to the present case. The learned counsel for the parties, especially the learned counsel
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for AMC, have advanced extensive arguments and cited several cases to support these contentions, which we shall deal with in the course of our discussion on the questions formulated on the basis of these contentions and stated at the outset of this judgment. (i) Whether the Award is a foreign arbitral award. 10. This is the primary question involved in the case. The Lahore High Court has answered it in the negative in the impugned judgment, mainly relying upon the judgment of this Court delivered in Hitachi[2]. The learned counsel for AMC has also relied, before us, upon this case. Therefore, before we go on to the relevant provisions of the 2011 Act, on the basis of which this question is to be answered, we find it appropriate to first discuss the relevancy of Hitachi to this question. Relevancy of Hitachi 11. In Hitachi, this Court considered the question of the nationality of two awards with reference to the relevant provisions of the law that was then in force in Pakistan on the subject of enforcement of foreign awards, i.e., the Arbitration (Protocol and Convention) Act 1937 ("1937 Act"). Those provisions are cited here for ease of reference: 9. Saving. -Nothing in this Act shall-- (a)....................................................................... b) apply to any award made on an arbitration agreement governed by the law of Pakistan. Section 9(b) of the 1937 Act, since repealed, had clearly stated that nothing in the said Act was to apply to any award made on an arbitration agreement governed by the law of Pakistan. In view of these provisions of Section 9(b) of the 1937 Act, this Court decided in Hitachi that "the two awards in question cannot be treated as foreign awards as the same are made on an arbitration agreement governed by the laws of Pakistan". That decision was thus not based on some principle of general application, enunciated by the Court in the exercise of its judicial power, but on the specific provision of a statutory law then in force in Pakistan. The 1937 Act has been repealed and replaced by the 2011 Act. There is no provision in the 2011 Act similar to the provisions of Section 9(b) of the 1937 Act. With the change of law, the statement made by this Court in Hitachi, that an award made on an arbitration agreement governed by the law of Pakistan is not a foreign award, has lost its efficacy. The Lahore High Court has failed to appreciate this point and wrongly relied upon Hitachi in the impugned judgment. For the same reason, the reliance of the learned counsel for AMC upon this case is also misplaced. Definition of "foreign arbitral award" in the 2011 Act 12. For the purpose of determining its applicability to an award, Section 2(e) of the 2011 Act has defined the term "foreign arbitral award" and has not left the definition thereof to judicial articulation. Section 2(e) of the 2011 Act provides: "foreign arbitral award" means a foreign arbitral award made in a Contracting State and such other State as may be notified by the Federal Government, in the official Gazette. Section 2(b) of the 2011 Act defines a "Contracting State" thus: "Contracting State" means a State which is a Party to the Convention; The term "Convention" is defined in Section 2(c) of the 2011 Act: "Convention" means the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10th June, 1958, set forth in the Schedule to this Act; A combined reading of the above three definitions leaves little room to speculate or argue as to what the term "foreign arbitral award" means for determining the applicability of the 2011 Act to an award. As per these definitions, an arbitral award made in a State which is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 or in such other State as may be notified by the Federal Government in the official Gazette, is a "foreign arbitral award" for applicability of the 2011 Act. Nothing more is required to make an award the "foreign arbitral award" for applicability of the provisions of the 2011 Act. The law governing the
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main contract between the parties, the law governing the arbitration agreement, and the law governing the arbitration proceedings are all irrelevant and extraneous in determining the status of an arbitral award under the 2011 Act. In defining a "foreign arbitral award" for applicability of the 2011 Act, the legislature has adopted a pure "territorial approach" and has made in this regard the "seat of arbitration" the sole criterion. Not only the governing laws but also the nationality of the parties to the award are irrelevant in determining the status of an arbitral award under the 2011 Act. Effect of word "foreign" in definition clause and option of reciprocity in the Convention 13. The learned counsel for AMC stressed much on the word "foreign" used with the words "arbitral award" in the definition of the term "foreign arbitral award" as provided in Section 2(e) of the 2011 Act and some of the Ordinances that preceded it as well as on the absence of this word in some of those Ordinances, to argue that its addition or omission makes a significant impact on the scope of the definition. Elaborating his argument, he submitted that where the word "foreign" is used as it has been in the 2011 Act, it means that the status of the award is to be first determined as being a foreign award under the 1937 Act; if the award is a foreign award within the scope of the 1937 Act and is also made in a Contracting State, only then does it fall within the definition of a "foreign arbitral award" provided in Section 2(e) of the 2011 Act. 14. With respect, we find no logic in the argument of the learned counsel for AMC. He, in fact, wants us to determine the status of an arbitral award simultaneously both under the 1937 Act and the 2011 Act. If an arbitral award passes the test of being a foreign arbitral award under both these Acts, only then as per his argument it can be treated as a foreign arbitral award for applicability of the 2011 Act. In making this argument, the learned counsel failed to note that the 1937 Act has been repealed by the 2011 Act; it is no longer the law of the land.[3] A court cannot administer a repealed law, except to the extent specified by the legislature itself in the repealing law or some other general law providing the effect of the repeal of laws. 15. The addition or omission of the word "foreign" with "arbitral award" in the definition of the term "foreign arbitral award" given in Section 2(e) of the 2011 Act does not make any difference in the scope of the definition. As an award made in a foreign country is generally called a foreign award, this word has been used only for emphasis and clarity that not all foreign awards but only those foreign awards that are made in a Contracting State or such other State as may be notified by the Federal Government in the official Gazette, shall be dealt with as "foreign arbitral awards" under the 2011 Act. In this regard, it may be underlined that the definition of the "foreign arbitral award" given in the 2011 Act is actually the manifestation of the adoption of the option of the reciprocity- principle provided for in clause 3 of Article I of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 ("Convention" and "New York Convention").[4] Though clause 1 of Article I of the Convention generally makes the Convention applicable to arbitral awards made in the territory or a State other than the State where the recognition and enforcement of such awards are sought, clause 3 of the same Article gives an option of adopting the reciprocity-principle by providing that when signing, ratifying or acceding to the Convention, any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State. The definition in Section 2(e) of the 2011 Act is restrictive and exhaustive 16. We all know that when the legislature employs the verb "means" in defining any word, term or expression, the definition provided is restrictive and exhaustive, and nothing else can be added to the same. Such definition being itself the most authentic expression of the legislature's intent as to the meaning of a particular word used in the law enacted by the legislature is binding on the courts and leaves no room for them to discover by way of interpretation some other intent of the legislature.[5] We cannot, therefore, read anything further into the definition of "foreign arbitral award" given by the legislature in Section 2(e) of the 2011 Act.
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The Award is a foreign arbitral award 17. Thus, when we apply the definition of a "foreign arbitral award" as it is in Section 2(e) of the 2011 Act, without reading anything else into it, we find the Award to be a foreign arbitral award for the applicability of the 2011 Act. It has been made in a Constricting State, i.e., Singapore. Nothing more is required to make it a foreign arbitral award, for applicability of the 2011 Act. In this regard, the facts that the main contract between the parties and the arbitration agreement were governed by the law of Pakistan, do not have any effect. 18. The matter, however, does not end with this answer to question (i). The learned counsel for AMC made extensive arguments to establish that the 2011 Act does not apply retrospectively to the Award, which need to be addressed also. (ii) Whether the 2011 Act applies retrospectively to the Award made in arbitration proceedings commenced before its enforcement. 19. Regarding the retrospective applicability of the 2011 Act, subsections (3) and (4) of Section 1 thereof contain the following provisions: (3) It shall apply to arbitration agreements made before, on or after the date of commencement of this Act. (4) It shall not apply to foreign arbitral awards made before the 14th day of July, 2005. A bare reading of these provisions shows that the 2011 Act has prescribed no cut-off date for its retrospective applicability to arbitration agreements and has brought into the scope of its applicability all arbitration agreements made at any time before the date of its commencement. However, it has restricted its retrospective applicability to only those foreign arbitral awards that have been made on or after 14 July 2005, not before that date. This date of 14 July 2005 is actually the date when the first Ordinance[6] for recognition and enforcement of foreign arbitral awards was promulgated in Pakistan, to implement the Convention through domestic legislation. After that, eight more Ordinances[7] were promulgated before the enactment of the 2011 Act, and in all those Ordinances as well as in the 2011 Act, the date for retrospective applicability of the new law to foreign arbitral awards was kept the same, i.e., 14 July 2005. Principles for construing a law as to its prospective and retrospective effect 20. The well-settled principle in our jurisdiction is that a new law that only deals with the procedure and does not in any way affect the substantive rights of the parties applies both prospectively to future proceedings as well as retrospectively to pending proceedings. However, a law that takes away or abridges the substantive rights of the parties only applies prospectively unless either by express enactment or by necessary intendment the legislature gives to it the retrospective effect. [8] The notable point is that even a procedural law that affects, though indirectly, the substantive rights of the parties is to be applied only prospectively, in the absence of any contrary provision therein, such as the right to institute an action for the enforcement of a substantive right[9] or the right to appeal arising from that action[10] as an appeal is considered a continuation of the original action.[11] Denial of the remedy, it is said, is destruction of the right.[12] Without remedy, there is no right; it is the remedy that makes the right real.[13] The proper approach, therefore, to the construction of a statute as to its prospective or retrospective applicability, in the absence of legislature's express enactment or necessary intendment, 'is not to decide what label to apply to it, procedural or otherwise, but to see whether the statute if applied retrospectively to a particular type of case would impair existing rights and obligations.'[14] Such an examination, however, is needed only where the legislature has not, by express enactment or necessary intendment, provided for retrospective effect; as the legislature can by express enactment or necessary intendment also affect the existing rights and obligations. The legislature which is competent to make a law also has the power to legislate it retrospectively and can by legislative fiat take away
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even the vested rights.[15] Our Constitution only bars retrospective legislation on criminal liabilities, [16] not on civil rights and obligations. 21. These are the principles in the light of which we are to examine the provisions of subsections (3) and (4) of Section 1 of the 2011 Act and address the arguments of the learned counsel for AMC against the retrospective effect of the 2011 Act. Scope of Section 1(3) as to the retrospective effect of the 2011 Act on arbitration agreements 22. As for subsection (3) of Section 1 of the 2011 Act, which states that the Act shall apply to arbitration agreements made before the date of commencement of the Act, the learned counsel for AMC argued that it only applies for the purpose of Section 4[17] of the 2011 Act to stay the legal proceedings in respect of a matter which is covered by the arbitration agreement and to refer the parties to arbitration. We find the argument convincing as there is no mention of the expression "arbitration agreement" in any other part of the 2011 Act. Likewise, Article II of the Convention also mentions the same purpose of recognition and enforcement of the arbitration agreements. Section 1(3) of the 2011 Act has implemented clause 3…
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