Arbitrator's Impartiality challenge in High Court .
یہ مقدمہ M/s Staco Shahid Builders JV اور لاہور کینٹ بورڈ کے درمیان تھا۔ سٹاکو شاہد بلڈرز نے لاہور کینٹ بورڈ کے ساتھ ایک معاہدہ کیا تھا جس کے تحت انہوں نے ایک ہسپتال کی تعمیر کرنی تھی۔ بعد میں، معاہدے میں تبدیلیاں کی گئیں جس سے قیمتوں کے اختلافات پیدا ہوئے۔
1. تنازعہ اور درخواست:
جب قیمتوں میں تبدیلیاں آئیں، تو تنازعہ نے جنم لیا۔ M/s Staco Shahid Builders نے ثالثی کے لیے درخواست دی اور اس مطالبہ کیا کہ معاملے کو آزاد ثالثوں کے ذریعے حل کیا جائے کیونکہ وہ Director Military Lands and Cantonments کو غیر جانبدار نہیں مانتے تھے۔
2. عدالت کا فیصلہ:
سیشن کورٹ نے اس درخواست کو مسترد کرتے ہوئے اسے قبل از وقت قرار دیا اور کہا کہ معاملہ پہلے سے مقرر کردہ ثالث کے پاس جائے۔
3. ہائی کورٹ کا فیصلہ:
لاہور ہائی کورٹ نے سیشن کورٹ کے فیصلے کو برقرار رکھا۔ عدالت نے یہ فیصلہ کیا کہ معاہدے میں جو ثالث پہلے سے مقرر تھا، اس کے فیصلے کو تسلیم کیا جائے۔ عدالت نے اپیل کے دلائل کو ناکافی قرار دیتے ہوئے اپیل کو مسترد کر دیا۔
مختصر میں، عدالت نے یہ فیصلہ کیا کہ معاہدے میں طے شدہ ثالث کو برقرار رکھا جائے اور اپیل کو مسترد کر دیا کیونکہ اپیل کے دلائل کے حق میں کوئی کافی وجہ نہیں تھی۔
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| Arbitrator's Impartiality challenge in High Court . |
Stereo.HCJDA 38.
Judgment Sheet
IN THE LAHORE HIGH COURT, LAHORE.
JUDICIAL DEPARTMENT
….
F.A.O. No.24690 of 2024.
M/s Staco Shahid Builders Joint Venture (JV).
Versus
Lahore Cantonment Board.
J U D G M E N T.
Date of hearing:
03.09.2024.
Appellant by:
Mr. Zahid Saleem, Advocate.
Respondent by:
Mr. Shahzada Muzaffar Ali,
Advocate with Sidra Azmat and
Hanan Masood on behalf of LCB.
AHMAD NADEEM ARSHAD, J. Through this First Appeal
against Order, the appellant has called into question the validity and
legality of order dated 25.03.2024 whereby learned Civil
Judge/Judge Special Court for Admin. Commercial Cases, Lahore,
disposed of the appellant‟s application under Section 20 of the
Arbitration Act, 1940 (hereinafter referred to as “The Act”), by
maintaining that the same is premature and referred the matter to the
already appointed Arbitrator/Director Military Lands and
Cantonments, Lahore Region.
2.
Tersely, the facts forming background of proceedings in hand
are that the appellant was awarded a contract by the respondent for
construction of 250 Beds Family Wing Hospital with the estimated
cost of Rs.954-50 million at Sarfraz Rafique Road, Lahore Cantt,
being the lowest bidder. In this regard, a contract/agreement was
duly signed between the parties. Subsequently, the project was
converted and its scope was enhanced to 500 Beds Teaching Hospital.
Meanwhile, a dispute arose between the parties with respect to the
F.A.O No.24690 of 2024.
2
price variation, upon which the appellant moved application under
Section 20 of the Act, with the following prayer:
“…that while accepting the application the respondent Board be
issued directions to file reply of this application and resolve the
disputes/difference in between the parties of this application in the
light of the tender notice, agreement, initial work order,
subsequent changes/enhancement in the project scope with further
direction to the respondent Board to decide the complete balance
work scope (including deleted scope under PPRA Rule 8 read in
conjunction with PPRA Rule 9) with its increased cost on the
present market rates applicable presently under 70.1 (Price
adjustment/escalation) Rules, Regulations, Laws and other
Government applicable Notifications in accordance with law of the
Country; for the purpose parties be allowed to appoint arbitrator
each of own choice, having no conflict of interest and impartial
status to address all issues in the light by the Hon’ble Court,
following Arbitration Act, 1940. Arbitrators so appointed by the
parties be directed to file its Award on the issues raised by the
applicant on the date fixed by this Hon’ble Court and Award filed
by the neutral arbitrators be made rule of the Court.”
3.
Respondent contested the application by filing written reply in
contrast. Learned Trial Court, after hearing both sides, disposed of
the application vide order dated 25.03.2024 by maintaining that the
same is premature and referred the matter to the already appointed
Arbitrator/Director Military Lands and Cantonments, Lahore Region.
Hence, this appeal.
4.
Learned counsel appearing on behalf of the appellant argued
that impugned order is against the facts & law and result of misreading/non-reading of the record. He adds that although in the
agreement Director, Military Lands & Cantonments Lahore Region
is appointed as Arbitrator but he cannot render an impartial award as
he is representative of the respondent; that it is settled proposition of
law that no one can be judge of his own cause. In last, he prayed that
while accepting the application independent Arbitrators be appointed
and after their Award, the same be made Rule of the Court. To
augment his arguments, he relied upon the case laws cited as
“MESSRS COMMODITIES TRADING INTERNATIONAL CORPORATION V.
TRADING CORPORATION OF PAKISTAN LTD AND ANOTHER” (1987
CLC 2063), “MESSRS ALLIED ENGINEERING CONSULTANTS (PVT) LTD,
LAHORE. V. MESSRS SUI GAS TRANSMISSION COMPANY LTD” (1989
CLC 1143), DIRECTOR HOUSING, A.G’S BRANCH, RAWALPINDI V. M/S
F.A.O No.24690 of 2024.
3
MAKHDUM CONSULTANTS ENGINEERS AND ARCHITECTS (1997
SCMR 988), “ENGR. INAM AHMAD OSMANI V. FEDERATION OF
PAKISTAN AND OTHERS” (2013 MLD 1132), “UNIVERSITY OF
ENGINEERING AND TECHNOLOGY, LAHORE AND ANOTHER V. MESSRS
UPRIGHT ENGINEERS (PVT) LTD. (2021 CLC 596).
5.
On the other hand, learned counsel for the respondent hotly
resisted this appeal by controverting the arguments advanced by the
learned counsel for the appellant and prayed for its dismissal.
6.
Heard. Record perused.
7.
It evinces from the record that a contract/agreement for
construction of hospital was arrived at between the parties on
23.08.2018. In the agreement an arbitration clause (clause 30 Part-IIB) was also settled between the parties, which reads as under:
“In case any dispute arises during the subsistence of the contract, it shall
be referred to the Director Military Lands & Cantonments, Lahore
Region who shall be the sole Arbitrator and his decision shall be final
and binding on the both the parties who will not challenge the same in
any court of law/higher authorities. ”
In addition to above, clause 67.3 of Part-II particular
conditions of contract under the heading „Arbitration‟ again provides
that “DML&C Lahore Region is the sole arbitrator in the case of
disputes arises between (LCB) and contractor, his decision will be
final and binding on both the parties”.
8.
The appellant maintained that during the currency of
agreement, disputes arose between the parties qua initial work order,
subsequent changes/enhancement in the project, the complete
balance works scope (including deleted scope under PPRA Rule 8 read in
conjunction with PPRA Rule 9) with its increased cost on the present
market rate applicable presently under PEC particular conditions of
contract (PCC) including clause 70.1 (price adjustment/escalation)
Rules, Regulation, Laws and other government applicable
Notifications. The appellant posed his no confidence upon the
already appointed arbitrator being the appellate authority of
respondent by maintaining that the agreements were got signed
under coercion and duress. Further submitted that the appellant wrote
F.A.O No.24690 of 2024.
4
letters to the respondent/Board as well as DGML&C but they did not
give any response which constrained him to file the application.
9.
Arbitration is a method for investigation and determination of
a dispute or disputes between the parties by one or more persons
chosen by them. The essence of arbitration is the settlement of
disputes by the decision not of a regular or ordinary court of law, but
of one or more persons acting as arbitrators chosen by the parties,
whose decision the parties agreed to accept as binding whether they
agree with the decision or not. The concept of arbitration is based
upon the principle of withdrawing the dispute from the ordinary
courts and enabling the parties to resolve their disputes before a
domestic Tribunal. The persons deciding such private disputes are
called arbitrators as they have an arbitrary power, if their decision is
within the four corners of the dispute referred to them by the parties.
The arbitral tribunal derive jurisdiction solely from the arbitration
agreement.
10. Where differences have arisen between the parties to
arbitration agreement, either both the parties or any of them could
adopt procedure provided under Sections 3 to 19 of the Act, or could
apply to the Court under Section 20 of the Act, that agreement be
filed in the Court. Comprehensive procedure for appointment of
arbitrator, without intervention of Court has been prescribed under
sections 03 to 19 of the Act. Non-invoking of provisions of said
Sections would entitle a party to apply for filing the agreement in the
Court. Effect of such proceedings would be that the Court after
notice and hearing the parties and where no sufficient cause was
shown could order agreement to be filed and would make order for
reference to arbitrator appointed by the parties in terms of agreement.
Where parties failed to agree for appointment of arbitrator, Court
would appoint one. Option is given to the parties either to proceed
under Section 03 to 19 or apply to the Court that agreement be filed
under Section 20.
11. Before further discussion, first I discuss the language of
Section 20 of the Act, which reads as under:
F.A.O No.24690 of 2024.
5
Application to file in Court arbitration agreement.--(1) Where any
person have entered into an arbitration agreement before the institution
of any suit with respect to the subject-matter of the agreement or any
part of it, and where a difference has arisen to which the agreement
applies, they or any of them, instead of proceeding under Chapter II may
apply to a Court having jurisdiction in the matter to which the agreement
relates, that the agreement be filed in the Court.
(2) The application shall be in writing and shall be numbered and
registered as a suit between one or more of the parties interested or
claiming to be interested as plaintiff or plaintiffs and the remainder as
defendant or defendants, if the application has been presented by all the
parties, or, if otherwise, between the applicant as plaintiff and the other
parties as defendants.
(3) On such application being made, the Court shall direct notice thereof
to be given to all parties to the agreement other than the applicants,
requiring them to show cause within the time specified in the notice why
the agreement should not be filed.
(4) Where no sufficient cause is shown, the Court shall order the
agreement to be filed, and shall make an order of reference to the
arbitrator appointed by the parties, whether in the agreement or
otherwise, or, where the parties cannot agree upon an arbitrator, to an
arbitrator appointed by the Court.
(5) Thereafter the arbitration shall proceed in accordance with, and
shall be governed by, the other provisions of this Act so far as they can
be made applicable.”
Perusal of the above-quoted section, it appears that before a
person can make an application under that provision for a prayer that
an agreement be filed in the Court, following conditions have to be
satisfied:-
a. That there should be a pre-existing arbitration agreement between
the parties;
b. That the parties should not have taken any steps under Sections 3 to
19 of the Act prior to the institution of the application under Section
20;
c. That differences or disputes have arisen between the parties to which
the arbitration agreement applies;
d. That the application is not barred by limitation; and
e. That the Court to which the application under Section 20 has been
made has jurisdiction in the matter to which the agreement relates.
12.
Section 20 of the Act provides for powers and duties of the
Court which could be divided into two distinct parts. The first part
deals with the judicial function to consider the question whether the
arbitration agreement should be filed in Court or not. This question
has reference to the cause shown by the defendant as to why the
agreement should not be ordered to be filed and normally refers to
objection as to the existence and validity of the agreement. After the
Court has heard the parties with regard to the question whether to
order filing of the agreement or not, and if the Court orders the filing
F.A.O No.24690 of 2024.
6
of the agreement the first part of its powers and duties is over. The
procedure thereafter to be followed relates to the ministerial act of
reference to the arbitrator or arbitrators appointed by the parties. If
the parties have appointed the arbitrator or arbitrators, the Court has
simply to make a reference to him or them as the case may be. But if
the parties do not agree the Court may be required to make a
decision as to who should be selected as an arbitrator, which may
again be a judicial function. In this regard, the relevant part of
Section 20 of the Act is sub-section 4. A bare perusal of the
provision of sub-section 4 of Section 20 shows that the statute by
mandatory provisions directs the Court to make “an order of
reference to the arbitrator appointed by the parties, whether in the
agreement or otherwise”. The statute, quite clearly refers to the
arbitrator appointed in the agreement.
13. There is no doubt that the whole object underline the
Arbitration Act is to enforce the arbitration agreement whereby the
parties bound themselves down to have their disputes, arising out of
transaction to which such an agreement is applicable, adjudicated
upon and decided by the domestic tribunal.
14. Section 5 of the Act, in unmistakable terms, reveals the
intention of the lawmakers in providing that the authority of an
appointed arbitrator shall not be revocable except with the leave of
the Court, unless a contrary intention is expressed in the arbitration
agreement. For ease, Section 5 of the Act is reproduced as under:
“Authority of appointed arbitrator or umpire irrevocable except by
leave of Court.--The authority of an appointed arbitrator or umpire shall
not be revocable except with the leave of the Court, unless a contrary
intention is expressed in the arbitration agreement.”
15. The power of the Court to remove or substitute an arbitrator
appointed by the parties has been vested in Court, if the prescribed
conditions exist which is provided in Section 8 of the Act. For better
understanding it is reproduced as under:
“Power of Court to appoint arbitrator or umpire.--(1) In any of the
following cases:--
(a) where an arbitration agreement provides that the reference shall be
to one or more arbitrators to be appointed by consent of the parties, and
all the parties do not, after difference have arisen, concur, in the
appointment or appointments; or
F.A.O No.24690 of 2024.
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(b) if any appointed arbitrator or umpire neglects or refuses to Act, or
is incapable of acting, or dies, and the arbitration agreement does not
show that it was intended that the vacancy should not be supplied; and
the parties or the arbitrators, as the case may be, do not supply the
vacancy; or
(c) where the parties or the arbitrators are required to appoint an
umpire and do not appoint him;
any party may serve the other parties or the arbitrators, as the case may
be, with a written notice to concur in the appointment or appointments or
in supplying the vacancy.
(2) If the appointment is not made within fifteen clear days after the
service of the said notice, the Court may, on the application of the party
who gave notice and after giving the other parties an opportunity of
being heard, appoint an arbitrator or arbitrators or umpire, as the case
may be, who shall have like power to act in the reference and to make an
award as if he or they had been appointed by consent of all parties.”
Section 8 of the Act stipulates under what situations the Court
has power to appoint an arbitrator or an empire. Three situations are
enumerated by the Section which are as under:
a. Where an arbitration agreement provides that the reference shall be
to one or more arbitrators to be appointed by the consent of the
parties, and all the parties do not, after differences, have arisen,
concur in the appointment or appointments; or
b. If any appointed arbitrator or empire neglects or refuses to act, or is
incapable of acting, or dies, and the arbitration agreement does not
show that it was intended that the vacancy should not be supplied,
and the parties or the arbitrators, as the case may be, do not supply
the vacancy; or
c. Where the parties or the arbitrators are required to appoint an
empire and do not appoint him.
16. It was held in the case of “M/S HAFIZ ABDUL AZIZ
COTTON JINNING FACTORY VS “M/S HAJI ALI MUHAMMAD
ABDULLAH & CO. AND ANOTHER” (PLD 1966 (W.P) Kar. 197)
that under Section 8 (1) (b) of the Act, the Court can appoint an
Arbitrator or Umpire when the arbitrator or Umpire appointed by the
parties “neglects or refuses to act, or is incapable of acting, or dies”,
and that in terms of Section 20(4), the Court can order reference to
an arbitrator appointed by itself “where the parties cannot agree upon
arbitrator”. It was further held in this case that the Court can replace
a person of its choice to give effect to the intention of the parties, but
this power does not confer the authority on the Court to substitute
the original agreement of the parties by an entirely new agreement of
its own choice.
17. After the Court passes an order for filing of the agreement,
the question for appointment of a new arbitrator would arise only
when the parties do not agree to the appointment of an arbitrator. In
F.A.O No.24690 of 2024.
8
the present case the parties agreed to appoint the Director Military
Lands and Cantonments, Lahore Region as their sole arbitrator. The
parties at the time of agreement, had obviously contemplated the
disputes to arise in the future for which provision made for reference
to the arbitrator of a person. The appellant who is a leading
construction company having wide experience had willingly and
with his free consent entered into the agreement with the respondent.
Since the parties by an agreement had chosen to refer the dispute to
arbitration, they were bound to honour the agreement and could not
by pass the mechanism provided in the agreement on flimsy grounds.
18. It is a fundamental principle of interpretation of documents
and Statutes that they are to be interpreted in their entire context
following a full consideration of all provisions of the documents or
Statute, as the case may be, that every attempt shall be made to save
the document and for this purpose a difference between general
statements and particular statements of the document be
differentiated properly to save the document rather to nullify it, that
no provision of the document be read in isolation or in bits or pieces,
but the entire document is to be read as a whole to gather the
intention of the parties, that the court for this purpose can resort to
the correspondence exchange between the parties, that the court shall
lean to an interpretation, which will effectuate rather than one, which
will invalidate an instrument. The said principles have been
contended before the learned Full Bench of the Hon‟ble Supreme
Court in the case of “SAUDI PAK INDUSTRIAL AND
AGRICULTURAL INVESTMENT COMPANY (PVT) LIMITED,
ISLAMABAD VS M/S ALLIED BANK OF PAKISTAN AND
ANOTHER” (PLD 2003 SC 215).
19. Learned counsel for the appellant maintains that the
appellant signed the agreement under undue influence, under
pressure and threats of blackmailing he submitted consent for
appointment of Director Military Lands and Cantonment Lahore
Region as sole Arbitrator. He added that the Arbitrator is of the same
department as respondent Board, therefore, appellant has no hope
F.A.O No.24690 of 2024.
9
from him to do complete justice between the parties, therefore, an
independent arbitrator is required to be appointed under the
supervision of the Court. This argument of the learned counsel
cannot be accepted in view of the clear pronouncement to the
contrary by the Supreme Court of Pakistan in “LAHORE STOCK
EXCHANGE LIMITED V. FREDRICK J. WHYTE GROUP,
PAKISTAN LTD. AND OTHERS” (PLD 1990 SC 48), in which it
has been ruled that the question whether the consent of a party to an
agreement has been procured through fraud, coercion or
misrepresentation is to be decided by the arbitrator appointed by the
parties and not the Court.
20. There were three courses open to the Court under clause 4 of
Section 20 of the Act, after the arbitration agreement had been
ordered to be filed viz. i. to make reference to the arbitrator appointed
by the parties in the agreement, or, ii. To make reference to the
arbitrator not named in the agreement but with regard to him the
parties agree otherwise, or iii. When the parties cannot agree upon an
arbitrator, an arbitrator is appointed by the Court itself. Power of the
Court to order reference to an arbitrator appointed by itself, does not
confer the authority on the Court to substitute the original agreement
of the parties by an entirely new agreement of its own choice. If the
parties out of their free-will and consent appointed third person
knowingly fully well his relation with any one of the parties to
dispute, such arbitration agreement shall not be invalid on the
principle of bias and the arbitrator cannot be removed on this ground.
Known interest of an arbitrator does not in any way invalidate the
appointment, and it was only in a case where such an interest is
concealed or comes into existence after the appointment, that the
appointment is rendered invalid or liable to be revoked. This Court in
a case titled “M. A. GHANI SUFI & SONS VS FEDERATION OF
PAKISTAN” (PLD 1957 (W.P) Lahore 363) held that “there is a
good deal of authority saying known interest of an arbitrator does not
in any way invalid the appointment, and that it is only a case where
such an interest is concealed or comes into existence after the
A.O No.24690 of 2024.
10
appointment that the appointment is rendered invalid or liable to be
revoked. In any event, the plaintiff was fully aware of the fact at the
time of entering into the contract that, in case of any dispute, the
same will have to be referred to the Federal Government for
appointment of an arbitrator. Therefore, the plaintiff is estopped
from objecting to the reference of dispute to the Secretary of the
Federal Government.” In the present case the appellant was well
aware of the authority and department of the arbitrator from the very
first date. The Director Military Lands and Cantonments is not the
official of the Lahore Cantonment Board rather he is an Appellate
Authority under Section 84 of the Cantonment Act, 1924, who is
appointed by the Government as defined under Pakistan Cantonment
Service Rules, 1952. The said Director is not a participant in the
meetings of Cantonment Board, therefore, any kind of allegation of
biasness or partiality on his part is purely hypothetical and
presumptuous, without any kind of evidence at all.
21. In the instant case, the parties have already appointed the
Director Military Lands and Cantonments Lahore Region as
arbitrator for adjudication of the disputes arising out of the
agreement and the appellant cannot wriggle out from his
commitment and precluded from approaching the court for
appointing an arbitrator other than the named arbitrator. The
appellant can approach the already appointed arbitrator for redressal
of his grievance and thereafter if there appears any instance of
biasness he may approach the court for redressal of his grievance
under relevant provisions of law. The learned Division Bench of
Islamabad High Court while dealing with similar type of situation in
a case “PAKISTAN MEDICAL COMMISSION (PMC) THROUGH
SECRETARY(SUCCESSOR OF REGISTRAR, PMDC),
ISLAMABAD CAPITAL TERRITORY VS CONSTRUCTION
EXPERTS (PVT) LIMITED THROUGH CHIEF
EXECUTIVE/DIRECTOR, ISLAMABAD AND ANOTHER” (PLD
2023 Islamabad 01) held as under:-
“The basic idea of arbitration is the settlement of disputes by Tribunals
chosen by the parties themselves whose decision is to be accepted as final
between themselves. Due weight has to be given to the arrangement made
F.A.O No.24690 of 2024.
11
by the parties themselves relating to the personnel and machinery for the
settlement of their disputes. It is settled law that in the case of named
arbitrator, reference has to be made to him and a party is precluded from
approaching the court for appointing an arbitrator other than the named
arbitrator. Once a party enters into an agreement with eyes wide open, it
cannot wriggle out of the situation on the claim that the designated person
would not be impartial or objective. However, if at the conclusion of the
arbitration proceedings respondent No.1 feels that the arbitrator had not
acted independently or impartially or had suffered bias while rendering the
award it will always be open to it to take this as a ground in its application
under section 30 of the 1940 Act for setting aside the award. Additionally,
during the course of arbitration proceedings, if the arbitrator proceed with
the reference in a manner as to give reason to respondent No.1 to believe
that he is misconducting the proceedings, he can file an application under
section 5 of the 1940 Act to revoke the authority of the arbitrator or an
application under section 11 of the said Act for the removal of the
arbitrator. In paragraphs 5-52 of Russell on Arbitration (22nd Edition), it
is stated that “an arbitrator must also appear impartial and if there are
justifiable doubts as to his impartiality this will provide a ground for his
removal by the court.”
22. In these circumstances, learned Court has rightly referred the
matter to the already appointed Arbitrator for adjudication upon the
dispute.
23. Learned counsel appearing on behalf of the appellant
remained unable to point out any illegality, irregularity or
jurisdictional defect in the impugned order. As far as the case laws
referred by him are concerned, the same are not helpful to the
appellant being distinguishable from the facts/circumstances of the
case.
24. For the foregoing reasons, this appeal has no force/substance,
hence, the same is dismissed. No order as to costs.
(AHMAD NADEEM ARSHAD)
JUDGE.
APPROVED FOR REPORTING.
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