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Petitioner: GERRY'S INTERNATIONAL (PVT.) LTD. VS Respondent: AEROFLOT RUSSIAN INTERNATIONAL AIRLINES
Court Name: Supreme Court of Pakistan Judge(s): Ijaz-ul-Ahsan, Mian Saqib Nisar, Faisal Arab Title:GERRY'S INTERNATIONAL (PVT.) LTD. vs AEROFLOT RUSSIAN INTERNATIONAL
AIRLINES Case No.: Civil Appeals Nos, 539 of 2003 and 1773 of 2016 Date of Judgment:2018-01-01 Reported As: 2018 SCMR 662 Result: Order accordingly Judgment ORDER MIAN SAQIB NISAR, C.J.---The facts of these appeals are intertwined and the questions of law arising therefrom are also intrinsically connected, thus the same are being disposed of together. 2. The facts of Civil Appeal No, 1773/2016 shall enable us, for the most part, to decide the other appeal as well. In this context the brief facts of the case are that the respondent is an international airline incorporated in Russia, conducting its business with its office in Karachi. Vide a General Sales Agreement (GSA) dated 22.02.1993 entered into between the parties, the respondent conferred upon the appellant rights as a sales agent, for sale of its tickets, which GSA was subsequently cancelled by it (the respondent) on 19.10.1994. The aggrieved appellant filed a suit bearing No,252/1995 before the learned High Court of Sindh, Karachi, challenging such termination and seeking enforcement of the GSA. In this suit the respondent moved an application under section 34 of the Arbitration Act, 1940 (the Arbitration Act) which was allowed vide order dated 17.12.1995. The other suit bearing No,569/1995 was initiated by the respondent against the appellant for recovery of Rs,97,585,085/60 on account of amounts outstanding against the appellant under the GSA, wherein an application for stay of the proceedings under section 34 of the Arbitration Act was moved, which was allowed vide order dated 11.1.1996 and the proceedings in the said suit were also stayed. The respondent appointed Mr. Justice (R) Abdur Rehim Kazi, as an arbitrator on 12.2.1996, but the appellant refused to agree to his appointment as the sole arbitrator. Since the appellant failed to appoint an arbitrator, on 11.3.1996, pursuant to Clause 14.4 of the GSA, the respondent requested the International Air Transport Association (IATA) to appoint the same. IATA initially required the appellant to appoint an arbitrator itself, but on its failure to do so, appointed Dr. Parvez
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Hasan, Senior Advocate as an arbitrator on behalf of the appellant. Subsequently, the arbitrators unanimously appointed Mr. Justice (R) Shafi-ur-Rehman as the Umpire. The appellant participated in the arbitration proceedings. As the arbitration proceedings could not be concluded within the stipulated period, the respondent filed an application for extension of time period for making the award by two months, which (application) was allowed vide order dated 8.5.1997. Ultimately a unanimous award (award) was made on 25.08.1997, which was filed in Court on 17.3.1998, wherein the respondent was awarded Rs,35,356,171.60. The appellant filed objections thereto, which were rejected and the award was made the rule of Court vide order/decree dated 17.11.1998. The detailed judgment in this regard was released on 19.4.1999. The appellant challenged the said judgment and decree before the learned High Court through H.C.A. No,239/1999, which was dismissed vide judgment dated 8.4.2016 (impugned in C.A. No,1773/2016). 3. After having obtained the decree, the respondent applied for the winding up of appellant company (J.M. No,22-A/1999) under the provisions of section 306 of the Companies Ordinance, 1984 (the Companies Ordinance). The appellant resisted the winding up petition on various grounds. However, the learned Judge in Chambers dismissed the petition of the respondent vide order dated 2.5.2000. On appeal filed by the respondent, vide judgment dated 6.8.2002, the matter was remanded back to the learned single Judge for deciding the case afresh. After the remand, the application for winding up was allowed vide judgment dated 19.03.2003 (impugned in C.A. No,539/2003). 4. For brevity, the respective arguments of the parties are not separately set out, but shall find mention later in our opinion. The questions which emerged from the record and require consideration are: what is the true scope, import and application of sections 30 and 33 of the Arbitration Act; what is the jurisdiction of the Court while making an award rule of the Court; whether the Court can sit in appeal over the decision of the arbitrators; whether the Court can make a roving inquiry and look for latent or patent errors of law and facts in the award; which flaws and shortcomings, if allowed to remain shall cause failure of justice and vitiate the proceedings before the arbitrator and the award; what ate the questions for determination of arbitration agreement; and what are the grounds/basis on which an arbitrator should be held to have misconducted himself? 5. In order to ascertain the answers to the above questions, it is imperative to consider the relevant provisions of the Arbitration Act as well as the case-law concerning the powers and authority of the arbitrators in arbitration proceedings viz. the jurisdiction of the Court while determining the validity of the award. The relevant provisions of the Arbitration Act read as under:- 2. (a) "arbitration agreement" means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not". 13. Powers of arbitrator. The arbitrators or umpire shall, unless a different intention is expressed in the agreement, have power to: (a) administer oath to the parties and witnesses appearing; (b) state a special case for the opinion of the Court on any question of law involved, or state the award, wholly or in part, in the form of a special case of such question for the opinion of the Court; (c) make the award conditional or in the alternative; (d) correct in an award any clerical mistake or error arising from any accidental slip or omission; (e) administer to any party to the arbitration such interrogatories as may, in the opinion of the arbitrators or umpire, be necessary. 15. Power of Court to modify award. The Court may by order modify or correct an award: (a) Where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred; or
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(b) Where the award is imperfect in form, or contains any obvious error which can be amended without effecting such decision; or (c) Where the award contains clerical mistake or an error arising from an accidental slip or omission. 26-A. Award to set out reasons: (1) The arbitrators or umpire shall state in the award the reasons for the award in sufficient detail to enable the Court to consider any question of law arising out of the award. (2) Where the award does not state the reasons in sufficient detail, the Court shall remit the award to the arbitrators or umpire and fix the time within which the arbitrator or umpire shall submit the award together with the reasons in sufficient detail: Provided that any time so fixed may be extended by subsequent order of the Court. (3)" An award remitted under subsection (2) shall become void on the failure of the arbitrators or umpire to submit it in accordance with the direction of the Court. 30. Grounds for setting aside award. An award shall not be set aside except on one or more of the following grounds, namely: (a) that an arbitrator or umpire has misconducted himself or the proceedings; (b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35; (c) that an award has been improperly procured or is otherwise invalid. 36. Power of Court, to order that a provision making an award a condition precedent to an action shall not apply to a particular difference. Where it is provided (whether in the arbitration agreement or otherwise) that an award under an arbitration agreement shall be a condition precedent to the bringing of an action with respect to any matter to which the agreement applies, the Court, if it orders (whether under this Act or any other law) that the agreement shall cease to have effect as regards any particular difference, may further order that the said provision shall also cease to have effect as regards that difference. 6. In order to ascertain the principles set out by the Courts on the questions cited above, firstly we shall consider the case-law from the foreign jurisdictions. In the case of Hodgkinson v. Fernie [(1857) 3 C.B. (N.S.) 1891 = (140 Er 712) Williams, J. held that where a cause or matters in difference are referred to an arbitrator, he is the sole and final Judge of all questions, both of law and of fact. However, the only exceptions to that rule are cases where the award is the result of corruption or fraud, and where the question of law necessarily arises on the face of the award or upon some paper accompanying and forming part of the award. In Anchor Marine Ins. Co. v. Corbett. [(1882) 9 SCR 731 the Supreme Court of Canada held as under:- "The award of the arbitrators is conclusive, and the appellants cannot go behind it. Russell on Arbitration (P. 476); Hodgkinson v. Fernie et al. (3 C. B. N. S. 189); Cummings v. Heard (L. R. 4 Q. B. 668). In order to entitle the appellants to impeach the award, they should have made the submission a rule of court and moved to set aside the award, and not having done so, the court cannot in this suit review the award, nor entertain any question as to whether the arbitrators decided properly or not in point of law or otherwise. Delver v. Barnes (1 Taunt. 48)." In Champsey Bhara Company v. The Jivraj Ballo Spinning and Weaving Co. Ltd. (AIR 1923 PC 66), it was held that an error in law on the face of the award means that you can find in the award or a document actually incorporated thereto, some legal proposition which is the basis of the award and which you can then say is erroneous. In the cases of Government of Kelantan v. Duff Development Company Ltd. (1923 A.C. 395) and F. R. Absalom Ltd. v. Great Western (London) Garden Village Society Ltd. (1933 A.C. 592) it was held that if it is evident that the parties desire to have a decision from the arbitrator rather than from the Court on a question of law, then the Courts
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will not interfere. However, in cases where the question of law is incidentally material in order to decide the question actually referred to the arbitrators it is open to the Court to set aside the award if an error of law is found patent on the face of the record. In Heyman v. Darwins Ltd. [(1942) A.C. 356], it was held _ that if a party has to have recourse to the contract in a dispute, that dispute is a dispute under the contract. In Durga Prasad Chamria v. Sewkishendas Bhattar (AIR 1949 PC 334) the Privy Council applied the above English view to Indian cases and upheld the award on the ground that the error of law was committed on points of law which were specifically referred to the arbitrator. In A.M. Mair & Co v. Gordhandass Sagarmull (AIR 1951 SC 9) it was held that a dispute, the determination of which turns on the true construction of the contract, would be a dispute, under or arising out of or concerning the contract. Here, the respondents must have recourse to the contract to establish their case and therefore it is a dispute falling within the arbitration clause. In Ruby General Insurance Co. Ltd v. Pearey Lal Kumar and another (AIR 1952 SC 119) the Court observed that the test is whether recourse to the contract by which the parties are bound is necessary for the purpose of determining the matter in dispute between them. If such recourse to the contract is necessary, then the matter must come within the scope of the arbitrator's jurisdiction. In M/s. Alopi Parshad v. Union. of India (AIR 1960 SC 588) it was observed that a contract is not frustrated merely because the circumstances in which the contract was made are altered. In Jivarajbhai ah 41 Ujamshi Sheth and others v. Chintamanrao Balaji and others [(1964) 5 S.C.R. 481] it was held as under: "The Court in dealing with an application to set aside an award has not to consider whether the view of the arbitrator on the evidence is justified. The arbitrator's adjudication is generally considered binding between the parties, for he is a tribunal selected by the parties and the power of the Court to set aside the award is restricted to cases set out in section 30. It is not open to the Court to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. On the assumption that the arbitrator must have arrived at his conclusion by a certain process of reasoning, the Court cannot proceed to determine whether the conclusion is right or wrong. It is not open to the Court to attempt to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of his award. ... The primary duty of the arbitrator under the deed of reference in which was incorporated the partnership agreement, was to value the net assets of the firm and to award to the retiring partners a share therein. In making the "valuation of the firm" his jurisdiction was restricted in the manner provided by paragraph 13 of the partnership agreement." (Emphasis supplied) In Tarapore & Company v. Cochin Shipyard Ltd. Cochin and another (AIR 1984 SC 1072) = [1984 SCR (3) 118] while considering the question whether the claim made by the contractor and disputed by the respondent would be covered by the arbitration clause, it was held that if it becomes necessary to have recourse to the contract to settle the dispute one way or the other then, certainly it can be said that it is a dispute arising out of the contract. The test is whether it is necessary to have recourse to the contract to settle the dispute that has arisen. In Continental Construction Co. Ltd. v. State of Madhya Pradesh (AIR 1988 SC 1166) = [1988 SCR (3) 103] it was held that if no specific question of law is referred, the decision of the arbitrator on that question is not final however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. The arbitrator is a tribunal selected by the parties to decide their disputes according to law and so he is bound to follow and apply the law, and if he does not the award can be set right by the Court provided the error appears on the face of the award. The arbitrator misconducted himself in not deciding the specific objection raised by the State regarding the legality of extra claim of the contractor. In Indian Oil Corporation v. Indian Carbon Ltd. (AIR 1988 SC 1340) it was held that when the
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arbitration clause requires the arbitrator to give a reasoned award and the arbitrator does give his reasons in the award, the sufficiency of the reasons depends upon the facts of the particular case. He is not bound to give detailed reasons. The Court does not sit in appeal over the award and review the reasons. The Court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusions or if the award is based upon any legal proposition which is erroneous. In Sudarsan Trading Co. v. Govt. of Kerala and another (AIR 1989 SC 890) = [1989 SCR (1) 665] the questions for consideration before the Court were that as to how the Court should examine an award to find out whether it was a speaking award or not; and if it be a non- speaking award, how and to what extent the Court could go to determine whether there was any error apparent on the face of the award so as to be liable for interference by the court; and to what extent can the Court examine the contract though not incorporated or referred to in the award. It was held in the said judgment that there are two different and distinct grounds involved in many of the cases. One is the error apparent on the face of the award, and the other is that the arbitrator exceeded his jurisdiction. In the latter case, the Courts can look into the arbitration agreement but in the former, it can not, unless the agreement was incorporated or recited in the award. One of the grounds of misconduct is that the decision by the arbitrator is on a matter which is not included in the agreement or reference. But in such a case one has to determine the distinction between an error within the jurisdiction and an error in excess of the jurisdiction. In Puri Construction (Pvt.) Ltd. v. Union of India (Uol) (AIR 1989 SC 777) it was held as under:- "When a court is called upon to decide the objections raised by a party against an arbitration award, the jurisdiction of the court is limited. as expressly indicated in the Arbitration Act, and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits. However, so far as the present case is concerned, the decision of the arbitrator is supported by the evidence led before him including the evidence of the Union of India, and appears to be correct on merits also. .............Mr. Sibal, therefore, appears to be right that apart from the fact that the award is not vulnerable to any objection which can be entertained under the Arbitration Act, it is a fair one. But this does not lead to the conclusion that for upholding an award the court has to examine the merits of the award with reference to the materials produced before the arbitrator. The court cannot sit in appeal over the views of the arbitrator by re-examining and re-assessing the materials. The scope for setting aside an award is limited to the grounds available under the Arbitration Act, which have been well defined by a long line of decided cases, and none of them is available here. For this reason the decision of the Division Bench of the High Court has to be set aside." In Associated Engineering Co. v. Government of Andhra Pradesh and another [1991] 4 SCC 93 the Court set aside the award by holding that the conclusion is reached not by construction of the contract but by merely looking at the contract. The authority of an arbitrator is derived from the contract and is governed by the Arbitration Act which embodies principles derived from a specialized branch of the law of agency. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award. In Hindustan Construction Co. Ltd. v. State of Jammu and Kashmir (AIR 1992 SC 2192) = [(1992) 4 SCC 217] the Court observed that where the award was a non-speaking one and contained no reasoning which could be declared to be faulty; the scope of the Court's jurisdiction in interfering with the non-speaking award is extremely limited. It was further observed that even if, in fact, the arbitrators had interpreted the relevant clauses of the contract in making their award on the impugned items and even if the interpretation is erroneous, the Court cannot touch the award as it is within the jurisdiction of the arbitrators to interpret the contract. ... The clauses are not so clear or unambiguous as to warrant an inference that the interpretation placed on them by the arbitrators is totally unsustainable. This is purely a technical matter and we have no material to hold that the arbitrators' interpretation was
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erroneous. It is difficult to say that the arbitrator's interpretation is erroneous on the face of it. In The Superintending Engineer v. B. Subba Reddy [1993 (2) ALT 687] the Andhra High Court while explaining the concept of "misconduct" by an arbitrator highlighted some of the examples of the term, which reads as under: (i) if the arbitrator or umpire fails to decide all the matters which were referred to him; (ii) if by his award the arbitrator or umpire purports to decide matters which have not in fact been included in the agreement or reference; (iii)if the award is inconsistent, or is uncertain or ambiguous; or even if there is some mistake of fact, although in that case the mistake must be either admitted or at least clear beyond any reasonable doubt; (iv) if there has been irregularity in the proceedings, as, for example, where the arbitrator failed to give the parties notice of the time and place of meeting, or where the agreement required the evidence to be taken orally and the arbitrator received affidavits, or where the arbitrator refused to hear the evidence of a material witness, or where the examination of witnesses was taken out of the parties' hands, or where the arbitrator failed to have foreign documents translated, or where, the reference being to two or more arbitrators, they did not act together, or where the umpire, after hearing evidence from both arbitrators, received further evidence from one without informing or hearing the other, or where the umpire attended the deliberations of the appeal board reviewing his award. In State of Rahjasthan v. Puti Construction Co. Ltd. [(1994) 6 SCC 485] it was observed as under:- "The arbitrators have given the award by referring to various documents and statements available on record and indicating the reasons for basing the findings. Even if it is assumed that on the materials on record, a different view could have been taken and the arbitrators have failed to consider the documents and materials on record in their proper perspective, the award is not liable to be struck down in view of judicial decisions referred to hereinbefore. Error apparent on the face of the record does not mean that on closer scrutiny of the import of documents and materials on record, the finding made by the arbitrator may be held to be erroneous. Judicial decisions over the decades have indicated that an error of law or fact committed by an arbitrator by itself does not constitute misconduct warranting interference with the award." In The Punjab State through ... v. Amar Nath Aggarwal [(1993) 105 PLR 1] Punjab-Haryana High Court summed up the legal principles as under:- (1) The arbitrator is the final Judge of all questions, both of law and of fact. The only exceptions to this rule are cases of corruption or fraud or where the basis of the award is a proposition of law which is erroneous. (Champsey Bhara and Company v. Jivraj Balloo Spinning and Weaving Company Ltd., 5 A.I.R. 1923 P.C. 66). (2) The arbitrator is the sole judge of quality as well as quantity of evidence. (M/s. Sudarshan ah 41 Trading Co. v. The Govt. of Kerala and another, 6 A.I.R. 1989 S.C. 890 and Municipal Corporation of Delhi v. M/s. Jagan Nath Ashok Kumar, A.I.R. 1987 S.C. 2316). It is not open to the Court to re-examine and reappraise the evidence considered by the arbitrator to hold that the conclusion reached by the arbitrator is wrong. (Union of India v. Kalinga Construction Co. (Private) Limited), A.I.R. 1971 S.C. 1646). (3) The Court cannot sit in appeal over the view of the arbitrator by re-examining and reappraising the materials. (Puri Construction Pvt. Limited v. Union of India, 16 A.I.R. 1989 S.C. 777). (4) Where two views are possible, the Court is not justified in interfering with the award by adopting its own interpretation. (M/s. Hind Builders v. Union of India, 19 A.I.R. 1990 S.C. 1340). (5) An award is not invalid if by a process of reasoning it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion. (Subhash Chandra Das Mushib v. Ganga Prosad Das Mushib and others, 20 A.I.R. 1967 S.C. 878 and M/s. Hindustan Tea Co. v. K.
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Sashikant and Co. and another, 19 A.I.R. 1987 SC 81). (6) Though it is not possible to give an exhaustive definition as to what may amount to misconduct, it is not a misconduct on the part of the arbitrator to come to an erroneous decision, whether his error is one of fact or law and whether or not his findings of fact are supported by evidence. (Food Corporation of India v. Joginderpal Mohinderpal and another, 17 A.I.R. 1989 SC 1263). (7) Assuming that there is an error of construction of the agreement by the arbitrator, it is not amenable to correction even in a reasoned award. (UP. Hotels etc. v. U.P. State Electricity Board, 21 A.I.R. 1989 SC 268). (8) Even in cases where the arbitrator is required to give his reason, it is not obligatory to give a detailed Judgment. (Indian Oil Corporation Ltd. v. Indian Carbon Ltd., 14 A.I.R. 1988 SC 1340). (9) Reasonableness of an award is not a matter for the Court to consider unless the award is preposterous or absurd (Gujarat Water Supply A Sewerage Board v. Unique Electors (G) (P) Ltd., 15 A.I.R. 1989 S.C. 973). The amount awarded being quite high does not per se vitiate the award. (State of Orissa v. Dandasi…
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