IN THE HIGH COURT OF SINDH AT KARACHI
Judicial Miscellaneous No.12 of 2013
Karachi Development Company
IM Technologies Pakistan & another
Mr. Justice Muhammad Shafi Siddiqui
Date of Hearing:
19.08.2016, 19.09.2016, 20.12.2016, 23.01.2017, 03.02.2017 and 13.02.2017.
Through Mr. Faisal Siddiqui along with Mr. Mohamed Vawda Advocates.
Through Mr. Omer Soomro a/w M/s. Mayhar Qazi and Omer Memon Advocates.
Muhammad Shafi Siddiqui, J.- This is a Judicial Miscellaneous Application under section 33 of Arbitration Act, 1940 and applicant has challenged the invocation of clause 20.6 of the Conditions of Particular Application (COPA) of the contract dated 14.02.2008 as it is claimed that the dispute raised therein pursuant to the termination notice dated 28.12.2009 referred therein is not covered by the said clause. Applicant sought declaration that such invocation of the arbitration clause 20.6 and for referring such dispute to the arbitrator having seat at Singapore through Singapore International Arbitration Center and International Chamber of Commerce is without jurisdiction.
2. Brief facts of the case are that the applicant being a company incorporated under Companies Ordinance, 1984 and respondent No.1 also being a company incorporated under the laws of Pakistan along with CDGK (as it then was) were interested in the construction of project known as High Rise I.T. Complex consists of Phase-I and Phase-II.
3. It is the case of applicant that respondent No.1 IM Technologies Pakistan entered into an agreement for the construction of Phase-II of IT Complex and in terms of clause 3 of the subject agreement some of the documents referred therein deemed to form part and be read and construed as part of the subject contract and in the event of any discrepancy the reliance is to be made to the referred documents in priority sequence as shown.
4. Mr. Faisal Siddiqui, learned counsel for applicant, however urged that the subject contract itself is not self-sufficient to drive the arbitration clause to its ultimate fate however such documents, referred above, provide separate arbitration clauses contained in clause 20.6 of COPA, EPC contract, clause 9 of Appendix, titled as General Conditions of Dispute Adjudication Agreement, and guidance for the preparation of particular conditions.
5. Learned counsel for the applicant submitted that a perusal of these clauses would reveal that there is no governing law of arbitration clause or agreement hence it shall be subject to the laws of Pakistan and that a close scrutiny of the arbitration clause or agreement and other conditions of all four documents referred above would show that the arbitration is limited to a dispute either prior to work or after completion of work and in fact does not cover dispute relating to termination of the subject contract or relating to post termination phase of the subject contact.
6. It is urged that the respondent No.1 started the work of the IT Complex but on account of some issues it could not be completed. The respondent claimed to have leveled allegations as urged by the applicant in pursuance of clause 6 and 8 of the subject contract and in this regard an attempt of termination was made vide termination letter dated 28.12.2009 under clause 16.2 of the subject contract and in fact terminated it w.e.f. 11.01.2010. The applicant in response to said letters tried to convince the respondent and subsequently through notice dated 18.06.2012 the respondent informed the applicant of their intention to refer the dispute to the Dispute Adjudication Board and a request claimed to have been made by respondents through letter dated 19.07.2012 to the Singapore International Arbitration Centre for appointment of a Member of the Dispute Adjudication Board. However, on account of some negotiation Singapore International Arbitration Center was subsequently informed that assistance is not required as to the appointment of Dispute Adjudication Board.
7. Learned counsel for applicant placed his reliance on the terms of letter dated 26.07.2012 as it proposes certain terms for negotiation between the parties for an amicable settlement. He submitted that it only proposed framework of negotiation to explore an amicable settlement and asserted that it cannot override the expressed terms of the subject contract in case such framework comes in conflict with subject contract. It is based on misconception that the terms of arbitration clause is not limited to disputes prior to or after completion of the work and that it goes on to apply to termination dispute or post termination phases. He submitted that under some misconception the applicant however succumbed to the proposition raised in the letter however he urged that even this understanding could not override the expressed provisions of the contract itself.
8. Soon after this letter of 26.07.2012, the applicant learnt that the respondent No.1 through letter dated 17.12.2012 invoked the arbitration clause 20.6 of COPA and proposed name of sole arbitrator and alternatively, in case of disagreement of the applicant, a request was made to the Singapore International Arbitration Center (SIAC) for appointment of an arbitrator for conducting the arbitration under COPA. Respondent No.1 through letter dated 26.12.2012 addressed to SIAC, asked for appointment of Sole Arbitrator by the Arbitration Center for arbitration to be conducted in Singapore under International Chamber of Commerce Rules and by International Chamber of Commerce. Counsel submitted that this request was based on misconception that COPA would prevail and that the dispute that could be referred includes the dispute other than prior to work and after completion of work. He submitted that this letter again expressed exact terms of the subject contract.
9. ICC then issued letter on 11.01.2013 to the applicant for an answer to the above mentioned request for arbitration. However, it was not responded to in view of the objections, referred above. Consequently SIAC vide letter dated 24.01.2013 appointed respondent No.2 Wong Meng Meng as sole Arbitrator. Its appointment and confirmation was also not responded to in view of the abjections referred above.
10. Learned counsel for applicant in view of such facts and circumstances urged that the subject contract is governed by the laws of Islamic Republic of Pakistan and since no law apparently is shown to govern the arbitration clause in the subject contact, the substantive law shall also be the laws of Pakistan. He additionally argued that the dispute referred by the respondent No.1 to SIAC by invoking the arbitration clause does not come within the frame of arbitration as it is neither a dispute in relation to a period prior to work nor after completion of work, which is specifically agreed between the parties, without prejudice to the above reservation in the shape of objections. Hence, per learned counsel, there is/was a primary question as to jurisdiction of the Arbitrator. It is urged that since substantive law, which would govern such contract is Pakistani law, this Court has jurisdiction and the provisions of Arbitration Act, 1940 could be invoked for redressal of the grievances.
11. Learned counsel for the applicant further argued that as apparent from the arbitration clause of COPA it can be significantly distinguished with three arbitration clauses in the subject contract which relates to dispute or claims arising out or in connection with dispute adjudication agreement and expressly mentioned dispute relating to termination of such agreement and since the parties have chosen to exclude it from the arbitration clause COPA therefore the arbitration proceedings of COPA was wrongly invoked.
12. For the purposes of exercising jurisdiction by this Court, learned counsel for applicant relied upon the case of Taisei Corporation v. A.M. Construction Company (Pvt.) Ltd. reported in PLD 2012 Lahore 455 and Hitachi Limited v. Rupali Polyester reported in 1998 SCMR 1618. He submitted that the scope of the Convention and the Act of 2011 for the enforcement of arbitration agreement and foreign arbitral award itself is limited. Learned counsel has further relied upon the judgment in the case of Panchu Gopal Bose v. Board Of Trustees reported in AIR 1994 SC 1615 for the purposes of deciding the jurisdictional question by the National Courts. Learned counsel further relied upon the case of Shabbir Ali Khan v. Rice Export Corporation reported in 1985 MLD 1155 and the case of Board of Trustees of Port of Karachi v. National Construction Company reported in PLD 1981 Karachi 377 on the question as to whether the Court can decide if the issue is covered by the arbitration clause or otherwise. While relying on the case of U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd. reported in (1996) 2 SCC 667, learned counsel submitted that mere acquiescence cannot confer jurisdiction on the arbitrator and that subsequent arrangement cannot override the contractual obligations of the parties.
13. Learned counsel for the applicant thus in his arguments raised questions, which include the applicability of arbitration clause alone, the stage of invoking arbitration, applicability of Arbitration Act, 1940 and arbitrator’s competence to decide its own jurisdiction and hence prayed that it may be declared that clause 20.6 of COPA of the contract dated 14.02.2008 does not cover the dispute raised by respondent No.1 and submits that this Judicial Miscellaneous Application be allowed as prayed.
14. In reply to the above contentions, learned counsel for respondents submitted that the contract in fact is composed of a number of documents which are required to be considered in accordance with their priority. He submitted that it is a common universal practice to enter into such contract on the basis of model contracts developed by various international organizations, which minimizes the negotiation process and by adopting certain terms in the model contract the adopted version provides pathway for advancing relationship between them. He submitted that likewise in the instance case as well a model contract out of the FIDIC was adopted which is based on several documents. These documents include a covering document setting out the agreed terms, followed by Conditions of Particular Application (COPA), which contained particular changes which the parties have agreed to make in a general model contract out of FIDIC again followed by Model terms of FIDIC known as General Condition of Contract of FIDIC (Model Terms). Counsel thus urged that the contract is composed of a covering documents, COPA, Model Terms, specifications, summary of price and proposal on a design and built base, drawings and CDGK’s letter dated 28.01.2008 and last but not least schedule of payment. It thus require a reading in a manner as an amending Statute requires i.e. all such terms and conditions in a Model Contract, which are being substituted, are to be read accordingly while keeping the original format intact separately for reference. He thus relied upon Article 3 of the covering documents of the contract. Thus, the guidance for the preparation of particular conditions only enables the parties in preparing an arbitration clause to be included in COPA but such document itself does not form part of the contract.
15. As far as general conditions of Dispute Adjudication Agreement are concerned, learned counsel for respondents has attempted to assert that it forms part of an appendix to a model term and nothing better than a template agreement that may be executed with or without amendments. It thus clarifies that this clause only applies to the resolution of dispute arising out of Dispute Resolution Agreement hence it is since never executed and/or agreed not to be exercised, is of no legal effect. Thus in view of the terms, which were entered into, and in view of the fact that all such model terms for FIDIC were replaced and/or substituted to the desire of the parties by clause 20.6 of the COPA, the contract contains a single arbitration clause which is clause 20.6 of COPA.
16. In relation to a reference with regard to a dispute, learned counsel submitted that interpretation to the arbitration clauses, as provided by applicant, is misconceived. Only interpretation of entire para of clause 20.6 is to be read so that none of the sentences or word should be made redundant. He submitted that word ‘commencement’ does not appear in the said clause 20.6 and the word ‘prior’ is clarified in the second sentence which provides that the parties’ obligation shall not be altered in case arbitration is being conducted through the progress of the work.
17. With reference to applicability of Arbitration Act, 1940, learned counsel has relied upon the cases of Taisei Corporation both of learned Single Judge as well as of the learned Division Bench of this Court and the case of Marines Ltd. v. Aegus Shipping Company reported in 1987 CLC 1299. He thus submitted that the scope of section 33 of the Arbitration Act, 1940 has no application to the instant case and instead the Recognition & Enforcement (Arbitration Agreement & Foreign Arbitral Award) Act, 2011 applies. Counsel submitted that in the instant case the Award will be rendered in Singapore as per arbitration agreement, which shall be enforced under 2011 Act, as being Foreign Arbitration Award. Learned counsel has distinguished the judgment of Taisei Corporation reported in PLD 2012 Lahore 455 announced by Lahore High Court however rationale or reasoning provided therein would not withstand the provisions of Act 2011. Learned counsel for respondent has also in relation to the above question distinguished the Rupali judgment (Supra) reported in 1998 SCMR 1618 wherein the Hon’ble Supreme Court found that Pakistani Court has jurisdiction to look into arbitral matters such as where arbitrator has misconducted themselves under the provision of Arbitration Act, 1940. However, such reliance is misplaced in view of promulgation of Act 2011. Additionally the rationale behind it is that the Award was considered as a domestic award. In the instant case both the judgments of Taisei Corporation i.e. of learned Single Judge and Division Bench of this Court agreed that the subject award was a foreign award, therefore, ratio/reasoning of the Rupali judgment (Supra) cannot be applied since it determines the subject Award as domestic and the reasoning is no longer applicable in the light of Act, 2011. Learned counsel thus submitted that the subject arbitration agreement involving foreign arbitration to be held in Singapore, the jurisdiction of this Court is limited in terms of Section 4 of the Act 2011. He submitted that a plain reading of above section reveals that unless the arbitration agreement appears to be null and void, inoperative or incapable of being performed it must be referred to the parties to arbitration.
18. In support of his contention that it is within the competence of the arbitrator to decide its own jurisdiction under the principle of Kompetanz Kompetanz, learned counsel has relied upon the judgment reported in 2010 CLC 506, New York Convention and Rules of Arbitration of International Chambers of Commerce (ICC Rules). He has relied upon text of Russell on Arbitration, which provides that “unless otherwise agreed by the parties”, the Arbitration Tribunal is expressly given the power to rule on its own substantive jurisdiction which principles have also been recognized by the courts in Pakistan and it was in pursuance of such universal principle that order dated 24.04.2013 was passed and it allowed the arbitrator to proceed with the arbitration to the extent of jurisdiction, which issue was decided by the Arbitrator on 13.02.2014.
19. Lastly learned counsel for respondent submitted that the respondent has submitted to the jurisdiction of the Arbitrator by consenting to allow the Arbitrator to decide his own jurisdiction, which Award in relation to the jurisdiction was passed subsequently. Learned counsel thus submitted that the application under section 33 of Arbitration Act, 1940 is misconceived and liable to be dismissed.
20. I have heard the learned counsel and perused the material available on record.
21. Karachi Development Company has initiated these proceedings under section 33 of Arbitration Act, 1940. Their substantial grievance in the matter is that the dispute between the parties is not covered by Arbitration Clause 20.6 and that the invocation of the arbitration clause 20.6 of COPA dated 14.02.2008 by respondent No.1 for referring the matter/dispute to the Singapore Arbitration Center and International Chamber of Commerce is without jurisdiction, illegal and of no legal effect and so also the appointment of respondent No.2 under Arbitration Clause 20.6 of the COPA. With this background the applicant’s counsel in this Judicial Miscellaneous Application has raised a number of questions during course of his arguments such as whether before invoking clause 20.6 of COPA any other tier is required to be exhausted.
22. In order to understand above, one need to understand how and in what way an international contract, containing international clause of arbitration in the given circumstances, was executed. There are some general documents, which are being merged and combined in a way to achieve the desired terms with a desired contract between the parties. These are selective covenants forming a single document and in case the documents, which are being considered to achieve a final contract, have some ambiguity or inconsistency, the priority of such documents must prevail over in deciding such issues. The complexed or outcome of a contract, based on certain general formats, which may be considered to be a document whose provisions/ contents/terms/articles are amended in a way to transform it into a desired contract. Thus, the ultimate contract is a result achieved after omitting or substituting certain provisions/articles/terms not desired for and leaving the remaining in the format unchanged. The covering document achieved after the exercise is the highest in priority. The contention of learned counsel for the applicant that the contract does not refer to or contain arbitration and the various other documents contain four separate arbitration clauses is apparently an attempt to disregard the covering documents achieved as a result of exercise, referred above.
23. Let us peruse the contract dated 14.02.2008, which is available at page 185. In terms of Clause 3 of the said contract it has been agreed upon that the documents mentioned therein shall be deemed to form part of the subject contract in following priority:-
a) The covering document;
b) Conditions of Particular Application (COPA);
c) Model Terms;
d) The specification;
e) Summary of Price of the Proposal on a Design and Built Basis;
g) CDGK’s letters dated 12.09.2007 and 28.01.2008;
h) Milestone schedule payments.
24. The subject documents, referred above are followed by the covering letter itself and the subject contract dated 14.02.2008. It is inconceivable that the contract does not contain an arbitration clause. The reliance of the applicant on four different sets of documents containing four separate arbitration clauses is an attempt to create confusion. Clause 20.6 in the guidance for preparation of particular condition is a simple guideline provided as part of model term to assist the contracting parties in preparing an arbitration clause to be included in COPA. It does not find its place in the contract. Clause 9 of the Appendix titled as ‘General Conditions of Dispute Adjudication Agreement” forms part of appendix to the model terms. It is only a general format or template agreement for the assistance to the parties and members of the Dispute Adjudication Board. It only applies to the resolution of dispute arising out of Dispute Resolution Agreement. Parties here never constituted a Dispute Adjudication Board and this format of contract was never acted upon hence cannot be relied upon.
25. Clause 20.6 of the Model Arbitration clauses proposed by FIDIC and forms part of the Model Terms. FIDIC is subsequent in priority to the desired contract achieved between the parties and it ranked lower in priority and since this model terms of FIDIC passes through the desire of the parties it therefore filtered out such terms not required and in particular 20.6 of the model terms of FIDIC. Thus, clause 20.6 of the COPA is the most refined and filtered format that passes through tests and desires of the parties and the contract contains a single arbitration clause which is 20.6 of COPA.
26. Let us now understand the depth and intensity of clause 20.6 of COPA as the applicant’s counsel questioned that the nature of the dispute is such that it is not covered by clause 20.6 of COPA. It is the case of the applicant that it could only be triggered prior to commencement, or after completion of the work. The conditions of particular application COPA starts from page 195 of the file. The relevant portion of clause 20.6 of COPA reads as under:-
“Arbitration may commence prior to or after completion of the work. The obligations of the parties and the DAB shall not be altered by reason of any arbitration being conducted during the progress of the work.”
27. I need to find a harmonious interpretation of this entire clause in a way that no part of it would be deemed as redundant and that such understanding as reached between them makes sense. The natural interpretation of the initial part, which may be called as first sentence of the above quoted text of clause 20.6, would be that the parties to commence arbitration either “prior to completion of work or after completion of work”. The word “prior to” has a direct link with “completion of work”. There is no link or articulation of the material text i.e. ‘prior to completion and after completion of the work’ with commencement. The word “commence” is articulated with process of arbitration. In fact there is no word like “commencement”; it is “commence” which is purposely used in the clause which could only be linked with process of arbitration. A simplified and more exhaustive interpretation would be that arbitration may be commenced prior to completion of work and after completion of work. This interpretation finds support from the second part of the clause, which provides that “parties obligations shall not be altered in case arbitration is conducted during the progress of the work”, which reinforces that “prior to” means “prior to completion of work”. The interpretation, as offered by applicant’s counsel, is not practical in the sense that any aggrieved party would not be able to commence arbitration, unless the contract is completed and would be coerced to complete it.
28. The next question, as raised by learned counsel for the applicant, is an attempt to apply the provisions of Arbitration Act, 1940. There could have been a simple answer to this simple proposition that the Arbitration Act, 1940 is not applicable to an agreement involving foreign arbitration or recognition and enforcement as a foreign arbitral award. The applicant has not exhausted the jurisdiction of this Court under Section 9 CPC. They have thrown a challenge to clause 20.6 of COPA that it does not cover the dispute in the above terms. A question here would be whether in terms of 2011 Act, can an aggrieved party throws a challenge to such International Arbitration Agreement. First we need to find an answer under 2011 Act. Subsection 1 of Section 1 of Recognition & Enforcement (Arbitration Agreements & Foreign Arbitral Awards) Act, 2011 (2011 Act) recognizes it as a law in relation thereto. Section 3 deals with the jurisdiction of the Court in terms whereof it is stipulated that notwithstanding anything contained in the law, the Court i.e. High Court shall exercise exclusive jurisdiction to adjudicate and settle the matters relating to and arising out from this Act (2011 Act). Subsection 2 of Section 3 enables the Court to stay the legal proceedings in pursuance of the provisions of Article 11 of the Convention. Subsection 3 relates to exercise of its jurisdiction. The subject lis under consideration is not the remedy invoked under section 9 CPC. Had it been so, the debate could have been made as to the residuary proceedings in the matter. But this debate is not on here. Section 4 of 2011 Act is in fact a remedy, which could be triggered had there been a question of null, void, inoperative and incapable attached to such agreement. Meaning thereby that if at all a challenge has to be thrown on any International Arbitration Agreement or its enforcement, it may ignite section 4 of 2011 Act and only in case if the Court finds the arbitration agreement to be null and void, inoperative or incapable of being performed, the jurisdiction could have been exercised by the applicant and only in such circumstances the proceedings pending before Foreign Arbitrator could be questioned. This being a Foreign Arbitration Agreement, Arbitration Act, 1940 thus has no application and it is instead to be dealt with under 2011 Act, which 2011 Act incorporated into national law under the provisions of Conventions on the Recommendation & Enforcement of Foreign Arbitral Award of which Pakistan is a signatory.
29. The cases of Taisei and Hitachi (supra) are based on different rationale and scope, perhaps the subject matter is now to be seen through the windows of 2011 Act, besides having other distinguishing features therein. Based on presumption in Taisei’s case that the Award under consideration was a domestic Award the learned Judge at “Lahore” exercised the jurisdiction to entertain the objections to the Award under the provisions of Arbitration Act, 1940. Though the decision of Civil Judge was upheld by Lahore High Court in revisional jurisdiction but as a further development in the matter the Hon’ble Supreme Court awaited the decision of this Court in the case of Taisei Corporation. In the case of Taisei Corporation, learned Single Judge of this Court considered the Award to be a foreign award and therefore held it to be governed under 2011 Act and further held that the exercise of jurisdiction over such Award could only be under 2011 Act and not under Arbitration Act, 1940. Despite such observation the learned Single Judge dismissed the suit on the ground that the decision of the Lahore High Court would operate as resjudicata however that part of the decision of the learned Single Judge was successfully challenged by Taisei Corporation and was ultimately set aside with the observation that it cannot be termed as resjudicata on account of pendency of the matter before Hon’ble Supreme Court. Additionally I may add that a Court passing a judgment had there been questions of its compliance as determined by learned Single Judge of this Court, there could be no res-judicata. The observation of the learned Division Bench of this Court in unreported judgment in the case of Taisei Corporation v. A.M. Corporation Company (Pvt.) Ltd. observed as under:-
“Also it is pertinent to mention that the 2011 Act is primarily a procedural law and it has not repealed the 1940 Act, rather it has repealed the Arbitration (Protocol and Convention) Act, 1937 therefore even today domestic awards have to follow the 1940 Act path, however, after the enactment of the 2011 Act, all foreign awards have to sail through the waters of the 2011 Act. Thus the 2011 Act merely changed procedures applicable to a certain kind of arbitral awards, and it is well established legal proposition that the procedural laws are always retrospective, ready reference can be made to the case of (Air League of PIAC Employees vs. Federation of Pakistan – 2012 PLC 89 SC: Rehan Saeed Khan vs. Federation of Pakistan – 2001 PLC(CS) 1275 SC and Muhammad Amin Qamar vs. Bank of Punjab – 2013 PLC 291 Islamabad) holdings that all procedural laws have retrospective applicability (unless something to the contrary was provided expressly or impliedly – which is not the case), therefore notwithstanding that the arbitration commenced before the enactment of the 2011 Act and the Award was announced after the said enactment, provisions of the 2011 Act will be applicable to the instant Award.
For the reasons mentioned hereinabove, in the light of the orders of the Hon’ble Supreme Court which clearly mandated this court to announce its decision on Section 6 application of the Appellant, in our view the bar assumed by the learned Single Judge resulting him to treat the Respondent’s application as a preliminary objection to the suit on account of res-judicata arising out of the decision of the Lahore High Court was unfounded, and we, while allowing the instant appeal dismiss the Respondent’s CMA 1727/2012 and direct the trial court to proceed with the Appellant’s Section 6 application/suit in accordance with the 2011 Act.”
30. The second case relied upon is the case of Hitachi v. Rupali (Supra) for the purpose that curial law of the arbitration is the law of Pakistan and this Court therefore should assume jurisdiction to apply Arbitration Act, 1940. In the first instance the reliance of the subject case is immaterial in the sense that the subject matter now is being dealt with under the provisions of 2011 Act. The discretion of the Pakistani Court in respect of the Foreign Arbitration Agreement and Award has been significantly restricted by 2011 Act. The resistance could only be provided on the basis of the grounds enumerated in the New York Convention (Section 4 of 2011 ACT).
31. One of the rationale in Rupali case was that an arbitration agreement governed by the laws of Pakistan (curial law) is a domestic award for the purposes of the Arbitration (Protocol & Convention) Act, 1937 despite it having a seat of arbitration outside Pakistan. The Court went on to find that the Court could assume jurisdiction over arbitration under such arbitration agreement in several cases such as where arbitration has misconducted himself however the Courts ought to be reluctant to assume such jurisdiction. The dispute in hand is admittedly of a Foreign Arbitration Agreement pending before Foreign Arbitration having curial Pakistani laws but for all intent and purposes would be a foreign award as and when passed.
32. As I have already observed the applicant has not availed jurisdiction of this Court under section 9 CPC and has perhaps invoked provisions of Section 33 of Arbitration Act, 1940 for a declaration that the subject clause 20.6 of COPA does not cover the dispute raised by respondent No.1 before the Arbitrator and hence it is without jurisdiction. The applicant has not been able to distinguish the foreign arbitral agreement to be followed by a foreign arbitral award as that of a domestic award hence the subject matter is not covered by any provision of Arbitration Act, 1940. The subject dispute could however be seen from the provisions of section 3 and 4 of 2011 Act.
33. In the case of M/s Travel Automation (Pvt.) Ltd. v. Abacus International (Pvt.) Ltd. reported in 2006 CLD 497 and Cummins Sales & Service (Pakistan) Limited v. Cummins Middle East reported in 2013 CLD 291 it has been held that the Ordinance 2005 i.e. Recognition & Enforcement (Arbitration Agreement and Foreign Arbitral Awards) Ordinance, 2005 has taken away the discretion of the Court whether or not to stay the proceedings in terms of the arbitration agreement except where the arbitration agreement is found to be null and void, inoperative and incapable of being performed.
34. In the case of Abid Associated Agencies International v. Areva & others reported in 2015 MLD 1646, the Islamabad High Court has defined the four words as under:-
“12. …..The phrase 'Null and void, inoperative or incapable of being performed' is not defined in the Act of 2011. The 'arbitration agreement' attracts the standard principles of contract law, therefore, as a corollary 'null and void', 'inoperative' or 'incapable of being performed' will also have to be construed and interpreted accordingly. Consequently, an 'arbitration agreement' may be null and void due to several factors recognized by the applicable law e.g. for lack of consent, capacity, fraud etc. The invalidity in the case of being 'null and void' is from the very inception. The arbitration agreement will be 'inoperative' if for some reason it ceases to have effect. It will, therefore, be inoperative if, for example, disputes have been settled, or a judicial order has been passed by a competent court of law restraining the parties from giving effect to the arbitration agreement. Likewise, 'incapable of being performed' relates to circumstances where the enforcement or performance of the 'arbitration agreement' becomes impossible e.g. the forum agreed for arbitration no more exists, or the conditions of the 'arbitration agreement' are such that they are not capable of being enforced…...”
35. The applicant has not presented facts which could challenge the contractual validity of the arbitration agreement. In fact applicant has admitted to be a party to the contract which includes the arbitration clause. The case of the applicant is not that the agreement is null and void, inoperative or incapable of being performed. It is the case that the dispute is not within the frame of the arbitration clause, which I have explained above.
36. The next point argued by learned counsel for the applicant is of course Kompetenz - Kompetenz. The principle that arbitrators have jurisdiction to consider and decide the existence of their own jurisdiction invariably referred to as “competence competence” doctrine, the “Kompetanz Kompetanz” doctrines “jurisdiction competence” principle, or “who decides?”. This issue may not have been dealt with specifically in the New York Convention yet there are certain articles which may be of utmost importance in coming to a justified conclusion. Article II(3) and Article V(1) of the Convention recognized that both the arbitral tribunal and courts may consider and decide the dispute about the arbitrator’s jurisdiction. These articles of the Convention that an arbitral tribunal may have made an Award notwithstanding jurisdictional objection and will have addressed explicitly or implicitly issues of existence or validity of the arbitration agreement, which shall be subject to the judicial review.
37. The usual practice under Modern International & Institutional Rules of Arbitration is to spell out in express terms the power of Arbitral Tribunal to decide upon its own jurisdiction. This is supported by Article 23 of UNCITRAL Arbitration Rules, which is reproduced as under:-
1. The arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause that forms part of a contract shall be treated as an agreement independent of the other terms
of the contract. A decision by the arbitral tribunal that the contract is null shall not entail automatically the invalidity of the arbitration clause.
2. A plea that the arbitral tribunal does not have jurisdiction shall be raised no later than in the statement of defence or, with respect to a counterclaim or a claim for the purpose of a set-off, in the reply to the counterclaim or to the claim for the purpose of a set-off. A party is not precluded from raising such a plea by the fact that it has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.
3. The arbitral tribunal may rule on a plea referred to in paragraph 2 either as a preliminary question or in an award on the merits. The arbitral tribunal may continue the arbitral proceedings and make an award, notwithstanding any pending challenge to its jurisdiction before a court.”
38. This is also supported by Article 6(9) of the ICC Rules and Article 16 of the Model Law which, for the sake of convenience, are reproduced as under:-
6(9) of ICC Rules:
“Unless otherwise agreed, the arbitral tribunal shall not cease to have jurisdiction by reason of any allegation that the contract is non-existent or null and void, provided that the arbitral tribunal upholds the validity of the arbitration agreement. The arbitral tribunal shall continue to have jurisdiction to determine the parties’ respective rights and to decide their claims and pleas even though the contract itself may be non-existent or null and void.”
Article 16 of Model Law:
“The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbirration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”
39. The ICC however provides a counter check on prima facie existence of the arbitration agreement by the ICC Court to which issues may be referred by Secretary General, for decision.
40. The above rules suggest that the Tribunal may not be sole judge to decide its jurisdiction but it is the first judge to decide i.e. subject to a challenge of an Award, the aggrieved party may take such recourse while challenging the Awards as to its enforcement along with jurisdiction of the Arbitrator.
41. To a question as to whether the matter ought to have been referred to the Dispute Adjudication Board prior to initiate arbitration proceedings, it may be observed that the entitlement of a party to bypass the DAB procedure and proceed to arbitration under a FIDIC contract has been recognized internationally.
42. Based on the above it is clear that the parties were not bound to submit a dispute to the DAB before invoking the arbitration clause. This position is also supported by the facts of the present case. On 26.07.2012 respondent No.1 wrote a letter to the applicant seeking consent and agreement of the applicant prior to commencing negotiations including but not limited to an unconditional acceptance of a waiver of any requirements of Clauses 20.2, 20.3, 20.4 and 20.7 of the Model Terms as amended by COPA to refer disputes to a DAB and to confirm the parties’ entitlement to pursue arbitration in case negotiations fail. The applicant granted such confirmation by countersigning the letter of the respondent No.1 on 26.07.2016. As such the respondent No.1 was entitled to directly initiate arbitration proceedings against the applicant. Such does not amount to bypassing the terms of contract as the contract itself is the outcome of negotiation and not by any operation of law, departure of which is unquestionable.
43. The respondents however cannot plead under the facts and circumstances that the applicant surrendered to the jurisdiction of the arbitrator. The consent was without prejudice to the rights of the applicant and on this count is not included in the reasoning and decision that I proposed to give as under.
44. The cumulative effect of the above discussion is that the application under section 33 of the Arbitration Act, 1940 is not maintainable in relation to foreign arbitration agreement and foreign arbitral award and hence the same is dismissed along with injunction application.
Dated: 15.03.2017 Judge