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Petitioner: Oil & Gas Development Company Limited VS Respondent: M/s. Marathon Construction Company & another
Court Name: Islamabad High Court Judge(s): Muhammad Anwar Khan Kasi, Shaukat Aziz Siddiqui Title:Oil & Gas Development Company Limited vs M/s. Marathon Construction
Company & another Case No.: R.F.A. No. 98 of 2010 Date of Judgment:2013-03-26 Reported As: KLR 2013 Civil Cases 191 Result: R.F.A. dismissed Judgment ORDER MUHAMMAD ANWAR KHAN KASI, CJ.--- This Judgment shall dispose of captioned Regular First Appeal filed by appellant [Oil & Gas Development Company limited] Under Section 39 read with Section 17 of the Arbitration Act, 1940, challenging the Judgment & Decree dated 22.3.2010 and orders dated 3.3.2010 & 22.3.2010,' passed by learned Civil Judge, Islamabad, whereby the objections of the appellant under Sections 16,30 & 33 of the Arbitration Act, 1940, against the Award dated 29.8.2007 were turned down and the Award rendered by the Sole Arbitration was made Rule of the Court and decree thereon was passed. 2. The fact of the case, relevant for disposal of this appeal are that the appellant (OGDCL), in order to develop Chanda Gas Field located in District Kohat, N.W.F.P. [now KPK] invited bids for "Dismantling, Procurement (Supply), Refurbisment, Construction, Pre-commissioning, Start up and Commissioning of Chanda Gas Processing Facilities". In response thereto, the respondent No. 1 alongwith other contractors submitted tender on 15th November, 2003, for contract price of Rs. 149,234,073. The appellant accepted the tender of respondent No. 1 vide Letter of Intent dated 31st March, 2004 and thereafter, Contract Document was executed between the parties according to which the respondent No. 1 was required to complete "Dismantling, Procurement (Supply); Refurbishment, Construction, Pre-Commissioning, Start-up and Commissioning for Chanda Gas Processing Facilities Phase-I within a period of four months from effective date of contract and the Phase-II was required to be completed within six months from the date of notification, to be issued by appellant to start-work. According to stipulations of contract, the respondent No. 1 was required to execute works under directions and subject to approval in all respects of Engineering
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Consultants. 3. During the execution of the works disputes arose between the parties and respondent No. 1 vide Ietter dated 22nd December, 2004 rescinded the contract and application under Section 20 of Arbitration Act, 1940, for referring the disputes to arbitration in accordance with the arbitration clause and during this period, the respondent on 10th February, 2005, submitted Final Bill to the appellant and requested for its payment. 4. On 16th August, 2006 the appellant and respondent No. 1 held meeting wherein it was mutually decided to refer the disputes as mentioned in Final Bill to the Sole Arbitrator, to be nominated by Chairman/CEO OGDCL, who subsequently vide letter dated 31st August, 2006, requested Mr. Karmat Ullah Chaudhry to act as Arbitrators- 5. Pursuant to arbitration agreement date 16th August, 2006, respondent No. 1 filed claim before the Sole Arbitrator asserting that the contract was frustrated due to change of circumstances and it was rescinded due to various reasons, attributed to the appellant. Compensation for various factors and costs of the arbitration were sought. The claim of the respondent No. 1 was resisted by the appellant. On the pleadings of the parties, the learned Sole Arbitrator on 20th April, 2007, framed as many as 76 issues, and thereafter, exhibited documents [Exh.No. 1 to Exh.468] tendered by both the sides and after procuring written arguments, announced Award on 29th August, 2007, which was filed in the Court of learned Senior Civil Judge, Islamabad, on 4th September, 2007, for making the same as Rule of the Court in terms of Section 14 read with Section 17 of the Arbitration Act, 1940. 6. The appellant filed three applications, one under Section 30 of the Arbitration Act, 1940, the other under Section 33 of the Arbitration Act, 1940 and the third one under Section 16 of the Arbitration Act, 1940. During the pendency of these applications, the appellant also filed another application for framing of issues and yet another application under Order VI, Rule 17, C.P.C. for amendment of the application under Section 30 of the Arbitration Act, 1940. 7. The learned Civil Judge, dismissed the application under Order VI, Rule 17, C.P.C., vide order dated 20th January, 2010, and vide order dated 3rd March, 2010, dismissed application under Section 33 of the Arbitration Act, 1940, against which, the appellant filed F.A.O. No. 83 of 2010 in Hon'ble Lahore High Court, Lahore, which was subsequently got withdrawn on 8th June, 2010. 8. The learned Civil Judge, vide order dated 22nd March, 2010, dismissed the other applications of appellant including objection petition filed under Section 30 of the Arbitration Act, 1940 and the Award filed by the Sale Arbitrator dated 29.8.2007 was made rule of the Court. 9. Initially the appellant filed the instant appeal against the orders dated 3rd March, 2010 and 22nd March, 2010, in the Hon'ble Lahore High Court, Rawalpindi Bench, Rawalpindi, which was subsequently transferred to this Court due to having jurisdiction. Earlier, the respondent No. 1 filed Civil Revision No. 631 of 2010, against order dated 22nd March, 2010, whereby respondent No. 1 was ordered to pay Stamp Duty on the Award. This revision petition of respondent No. 1 was accepted and judgment and decree dated 22nd March, 2010 was modified by the learned Division Bench of Lahore High Court, Rawalpindi Bench, Rawalpindi vide order dated 21st July, 2010 and in pursuance to. Division Bench Judgment, decree was passed by the Hon'ble Lahore High Court, Rawalpindi Bench, Rawalpindi. 10. The appellant by way of this appeal, seeks setting, aside of Judgment & Decree dated 22nd March, 2010, inter alia, on the following grounds:-- (a) That the learned Arbitrator while rendering the decision on Issues No. 1, 2, 3 & 4 concluded and held that the contract between the parties stood frustrated under Section 56 of the Contract Act, 1872, as such the claimant company was not bound to execute work. This was a patent error of law leading to judicial misconduct. (b) That the finding of the learned Arbitrator relating to frustration of contract is patently erroneous
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and apparent on the face of record when he stated that due to changed circumstances, the work was converted from cold job to hot job and referred to circumstances that in-close proximity the pipe lines of live gas in existence. Mere fact that according to learned Arbitrator, the work was converted into hot job would not render the contract frustrated. This error apparent on the record was not considered by the learned Civil Judge and the objection of the appellant were erroneously rejected. (c) That the learned Arbitrator committed a legal misconduct in holding the contract frustrated on the ground that operational dehydration plant, separator were to work in close proximity of live gas pipe lines in that the learned Arbitrator was not pleased to look into the main contract particularly the scope of work given in Appendix-B of the contract, wherein it was clearly stated that LPG Plant will be dismantled, transported, installed and hooked-up was dehydration plant, and other facilities already installed by OGDCL at the Chanda Gas Field. The learned Civil Judge was also not pleased consider the submission of the appellant. (d) That the learned Arbitrator was biased against appellant and with the intention to give undue benefit to respondent wrongly held the contract frustrated and issued an Award of Rs. 49,636,064/- in favour of the respondent No.1 and without considering loss of the appellant amounting to Rs. 772.0974 Millions which the Appellant had to spent in getting the Contracts Completed through different contractors. All this money had to be spent out of public exchequer. The learned Civil Judge was not pleased to consider this aspect of the case, while deciding the objection petition of the appellant. (e) That the learned Arbitrator, while concluding the frustration of the contract completely mis- read and ignored the evidence on record and failed to appreciate that the contract was of dismantling of LPG. Plant from Fimkasr Gas Field and reinstalling the same at Chanda Gas field which was already operative and by reinstalling the LPG Plant its facilities and working, had to be enhanced. The respondent before submission of its tender had inspected the site and was well- aware of the scope of work as is apparent from the main contract. As such all grounds stated by the learned Arbitrator were patently against the contract. This lead to judicial misconduct, vitiating the Award. The learned Civil Judge, did not consider all the submissions of the appellant erroneously rejected the objection petition. (f)That the learned Arbitrator even did not consider the statement of the main witnesses of the respondent No. 1, who stated that dehydration unit, flare stack and crude oil storage tank were already erected by the OGDCL and these were to be mechanically integrated with Fimkasar Plant items instead the learned Arbitrator without any evidence on record held that there were change circumstances which lead to frustration of contract. The observations of the learned Arbitrator were completely out of record and it vitiated the Award but the learned Civil Judge was not pleased the consider this aspect of the case. The case of the respondent-company was that there was an abnormal increase in the prices but the OGDCL committed breach of the contract when they refused to revice the contract as is explicit from para 28 of affidavit of main witnesses of the respondent No.1 it was not the case of the respondent that the contract was frustrated nor they stated so in their claims or evidence but the learned Arbitrator was bent upon to issue Award in their favour for a huge amount thus committed judicial mis-conduct in holding that the contract was frustrated because of the circumstances mentioned in the Award. This was not the case of the respondent No.1. The Learned Civil Judge did not consider this aspect of the case, while rejecting the objection petition. (g) That the Impugned Judgment of the Trial Court dated 22.03.2010 offended the principle of natural justice as the learned Civil Judge did not frame issue nor afforded opportunity of evidence to the appellant for substantiating the objections. It was mentioned in record that the respondent No.1 did not execute the work Awarded to them and rescinded it and therefore no payment could
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be claimed. The Award was self-assumptive based on imaginations and was whimsical. It was maintained that the evidence and law were completely overlooked by the Arbitrator, who rendered the Award without any basis and awarded huge amount to the respondent No. 1 without any supporting evidence. (h) That the order sheet clearly reveals that the learned Civil Judge never framed issue on the objections nor allowed opportunity of producing evidence in support of objection petition. The appellant filed an application for framing of issues and evidence has to be produced to prove the misconduct of the Arbitrator. It is settled principle of law that question of misconduct, could not be resolved without evidence. It is submitted that issues No. 1, 2, 3 & 4 decided in the Award dated 29.8.2007 were without any evidence, arbitrary, biased and based on mere speculations. It was the respondent No. 1, who has rescinded the contract, failed to complete the work on the target and recession of the contract by the respondent No. 1 was without any legal and factual justification. These tor objections could be decided after requisitioning the record of the Arbitrator and allowing the appellant/OGDCL with opportunity of producing evidence. The misconduct of Arbitrator being a two mixed question of law and facts can be to decided completely and effectively, if the parties are permitted to produce their to respective evidence. By failing to frame issues and denying opportunity of producing evidence to appellant, the learned Civil Judge fell in error and committed material irregularity. (i) That the Arbitrator has awarded amounts against certain heads of claim, without stating any reasons in respect of his conclusion that whether after the withdrawal of claims by respondent No. 1, it rescind the contract on 22.12 2004 and as such the respondent No. 1 under, the Arbitration Clause 78 of the conditions of contract is liable to continue the contract till the decision by the appellant under the said Arbitration Clause 78 of the Conditions of Contract, as such the Award dated 29.08.2007 is a non-speaking Award and is violative of Section 26-A of the Arbitration Act, 1940. According to this Section, the Arbitrator must give reasons in sufficient with details which he failed and as such Award dated 29.08.2007 is liable to be set aside as being invalid and not maintainable. (j) That the contract was lump sum contract, whereby the respondent No. 1 undertake to execute the contract with specification divided into different parts with a price affixed to each. The contract remained incomplete and neither in the law nor in equity could the respondent No. 1 submit a final bill after the recession of the contract by the respondent No. 1. As such the respondent No. 1 is held liable for damages to the appellant/OGDCL and the respondent No. 1 would be entitled to recover nothing since the contract was rescinded by the respondent No. 1 and it was left incomplete by the respondent No. 1. (k) That the respondents No.1 failed to complete the contract within the prescribed period of the contract when time was essence of the contract and would not operate was waiver of essentials conditions as to time. (l) That the respondent No. 1 failed to produce any director for evidence in support of their claim to prove the 'same and in these circumstances the claim of the respondent No. 1 is not proved. The witness appeared before the Arbitrator did not appear before the Oath Commissioner or before any body for statement on oath made the affidavit inadmissable in evidence as affidavit was not attested in a proper way. The person, who has sworn affidavit in proof has neither stated in the affidavit that the statement of account or for that matter, any document was prepared by him. The deponent did not affirm on Oath that the entries made in the statement or true and correct. As such, the affidavit filed by the respondent No. 1. before the Arbitrator could not be relied upon. (m) That the respondent No. 1 aware of schedule of rates prevalent on date of contract and ,any change, in schedule of rate brought about subsequently would not be, applicable in' respect of contract already executed.
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(n) That the respondent No. 1 filed an application under Section 20 of the Arbitration Act, 1940. After registering the application as suit, notice was issued to the appellant/OGDCL, who on the other hand, filed the reply of the said suit and the said suit was pending in the Court, whereas Section 20(1) gives an option to a party either to proceed under Chapter-II or apply to Court that the agreement be filed in Court. Both these proceedings cannot be taken simultaneously. The rules states 'of the Arbitration Act, 1940, that application under Chapter IV of the Act shall be instituted as a suit or matter, in which order or reference is made. The application under Section 20 of the Arbitration Act, 1940 of the respondent No. 1 falls within the ambit of reference whereupon no order was passed under chapter IV of the Arbitration Act, 1940 therefore the Award dated 29.08.2007 was barred under chapter IV read with Rules of the Arbitration Act, 1940. This Aspect of the case was not considered by the learned Civil Judge While passing the order dated 22.3.2010. (o) That is an admitted fact that the agreement contained an arbitration clause, the Work could not be completed within the stipulated time, the period of contract was extended while the work was in progress the respondent No.1 was required to complete the contract upon fixed price as mentioned in the contract, but he failed to complete the contract and rescinded the contract. The respondent No.1 issued the Notices under the Arbitration Clause to the Appellate/OGDCL and the respondent No.1 did not allow the appellant/OGDCL to decide the dispute within the prescribed period as in the Arbitration Clause 78 of the Conditions of Contract. The Arbitartor mis-conducted himself in allowing claim without deciding the objection of the appellant/OGDCL in view of specific clause in the contract the respondent No.1 was not legally entitled for any claim. (p) That the rates claimed by the respondent No.1 due to subsequent price escalation were irrelevant as respondent No.1 was not entitiled to claim any escalation in the price, but the learned Arbitrator has judicially misconducted by allowing the escalation price to the respondent No.1. (q) That the impugned orders of the Trial Court are against the Law and Facts and are liable to be set aside. That the impugned orders of the Trial Court are based upon surmises and conjectures and are not decided by the Trial Court justly, fairly and the same are decided arbitrarily. (r) That if the impugned order is not set aside, the appellant shall suffer an irreparable loss. (s) That the grounds taken in the application under Sections 30, 33 of the Arbitration Act, 1940, may also be read as ground of appeals to this appeal. (t) That the learned Trial Court failed to perform its duties in terms of Section 17 of the Arbitration Act, 1940 as it did not take notice of the fact that there was no proper Award before the Court and that the Award was not stamped which is in admissible in law and also till such time the deficiency made up the Court could not proceed to pass decree in terms thereof. The Trial Court did not consider this aspect that the Arbitrator Awarded more than 200% amount of damages over the amounts of claims, which were also in the nature of damages. Such aspect of the Award could be taken into consideration by the Court under Section 17 of the Arbitration Act, 1940 before making the Award as Rule of the Court. Therefore, the order dated 22.3.2010, 3.3.2010 and the Award dated 29.8.2007 are liable to be set aside. (u) That the arbitration clause was not changed by any written agreement, whereas the Award in terms of Section 78 of Conditions of Contract has to be given by two Arbitrators and if two Arbitrators are not agreed then an empire has to be appointed by the Arbitrators under the said arbitration clause. The Award dated 29.08.2007 was not given in terms of the arbitration clause. The respondent No. 1 failed to perform the contract dated 29.6.2004, the arbitration agreement for rendering an Award by Sole Arbitrator does not exist in the Award dated 29.08.2007, the same was not exhibited in the Award nor any amendment in the contract dated 29.06.2004 took place through written agreement, as such Award dated 29.08.2007 is invalid due to non-existence of Sole Arbitrator and the same cannot be substituted after the breach of the contract by the respondent No. 1.
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(v) That respondent No. 2 filed an application under Order I, Rule 10, C.P.C. in the proceedings under Section 20 of the Arbitration Act, 1940. This application of the respondent No. 2 was dismissed on 11th February, 2009. The respondent No. 2 moved an application for its restoration and as such no separate order for restoration of the application of the respondent No. 2 exist in the order sheet of the Trial Court, whereas the learned Trial Court passed the decree in his favour on 22.3.2010 without looking into the record that the application of the respondent No. 2 was dismissed then how an order in favour of the respondent No. 2 could be passed when they were not made party to the suit. Hence, the learned Trial Court, while passing the Judgment & Decree dated 22.3.2010 has exceeded its jurisdiction and further the respondent No. 2 was not party in the Award, as such the respondent No. 2 could not be made party in the Judgment & Decree dated 22.3.2010. 11. In rebuttal, the arguments advanced by learned counsel for respondent No. 1 are condensed to the following points:--- (a) Court hearing the objection to the Award cannot undertake reappraisal of evidence recorded by the Arbitrator in order to discover the error or infirmity in the Award. The error or infimirty in the Award invalid must appear on the face of the Award and should be discoverable by reading the Award itself. Where reasons recorded by the Arbitrator are challenged as perverse, the perversity in the reasoning has to be established with reference to the material considered by the Arbitration in the Award; (b) that the word "misconduct" with reference to arbitration proceedings is interpreted in the sense in which it is used in English Law and it did not akin to fraud but it means neglect of duties and responsibilities of the Arbitrators; (c) the effect of frustration of contract was immediate and automatic as it guillotines the contract without the action of either party; (d) Where the Arbitrator is appointed by the Department or Statutory Body then the Award given by the Arbitrator must be accepted; (e) that the Arbitrator is not bound to record evidence. On the factual side the sole Arbitrator recorded the evidence of the parties through audio cassette and latter on got prepared transcriptions of the same and sent the for verification to both the parties. The said transcripts were checked by both the parties and their witnesses and after necessary corrections, counsel for the parties signed in token of its correctness; (f) an Award in which each and every issue has been discussed separately and in sufficient detail the requirements of Section 26-A of the Arbitration Act, 1940, are fulfilled. Admittedly, Award published by the Sole Arbitrator fulfills the requirements of Section 26-A of the Arbitration Act, 1940; (g) an Award' cannot be set-aside on the ground that the Arbitrator has not discussed the evidence produced by any party; (h) The instant appeal is not maintainable, in terms of Section 17 of the Arbitration Act, which envisages that no appeal shall lie against the decree of the Court when the decree is in accordance with the Award; (i) the appeal is also hit by the principle of constructive res judicata as enshrined in Section 11 of the Code of Civil Procedure, 1908 (j) The Hon'ble Division Bench of Lahore High Court, Rawalpindi Bench, vide its judgment & decree dated 21st July 2010, has modified the judgment & decree dated 22nd March, 2010, in Civil Revision No. 631 of 2010, which resulted merger of judgment & decree dated 22nd March, 2010 with judgment & decree of Hon'ble Lahore High Court, Rawalpindi Bench, dated 21st July, 2010. As such, the principle of constructive res judicata as enshrined in Section 11 of the Code of Civil Procedure, 1908 is applicable; (k) in case of delay in execution of the works, which is attributable to the employer, the Contractor is entitled to losses, which it had incurred due to delay;
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(I) the loss of profits, which the contractor could reasonably have been expected to earn, be treated as fair measure of the compensation for the breach; and (m) it is established principle of law that the omission of oath is merely an irregularity and on this irregularity, the proceedings and evidence cannot be invalidated. 12. Learned counsel for the respondent No. 1 in support of above submissions, referred various case-law reported as 1985 SCMR 597, PLD 1996 Supreme Court 108, 2002 SCMR 1662, PLD 2003 Supreme Court 301, 2004 SCMR 590, PLD 2006 Supreme Court 169, PLD 2003 Supreme Court 301, 2004 SCMR 590, PLD 1980 Supreme Court 122, 1984 SCMR 77, 1983 SCMR 718, PLD 2006 Lah. 314, PLD 1998 Lah. 132, 2004 YLR 274, 2006 SCMR 614, 1981 CLC 311, PLD 1992 SC 479, 1973 SCMR 555, 1973 SC PLD 311, PLD 1991 Federal Shariat Court 1, 1992 SCMR 408, 1997 PLD Supreme Court 559 and 2001 YLR 2604. 13. Heard record perused. 14. In order to see as to whether the Award passed by the learned Sole Arbitrator and the decision thereupon by the learned Civil Judge. while making the Award as Rule, of the Court deserve any interference in this appeal, we have also gone through the exhaustive findings rendered by the Sole Arbitrator and the decision thereupon by the learned Civil Judge, whereby Award was made as Rule of the Court. 15. The grounds agitated in the appeal pertain to frustration, framing of issues, recording of evidence, recession of contract, condition precedent, non-examination of witnesses, escalation in prices, pendency of application under Section 20 and change of Arbitration Clause. It is the contention of the learned counsel that while…
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