1989 (PLP)

Salahuddin for Plaintiff. S.A. Sarwana for Defendant. Date of hearing: 23rd February, 1989. Admittedly there was an agreement dated I1‑1‑1981 between the parties by which the opponent /defendant hired services of the petitioner /plaintiff which was a private Limited Company of Consulting Engineers. The agreement contained arbitration clause under para. 11.1 which reads as below: "Any difference or dispute arising between the parties hereto arising out of or in connection with the Contract or any clause herein contained or any question concerning the construction or interpretation thereof which cannot be amicably settled shall be referred to arbitration in Karachi of a sole Arbitrator to be appointed by the Managing Director/ General Manager of the Company. The Arbitration proceedings shall be conducted in accordance with the Pakistan Arbitration Act, 1940 as amended from time to time."

2. It appears that certain disputes arose between the parties and a complaint was lodged against the petitioner by the Opponent with the Pakistan Engineering Council. In view of all this, the Petitioner moved this Court by invoking the provisions contained by section 20 of the Arbitration Act. Petitioner also filed his objection to the appointment of General Manager (Operation) Southern Gas Company Limited (Mr. Javed Hussain) as the sole arbitrator on the grounds that he was an employee of the opponent and was concerned with the operation of projects of the opponent and was not expected to give independent and judicious decision in the matter.

3. Opponent filed objections admitting the agreement including its arbitration clause. It was stated that the opponent had appointed Mr. Javad Hussain, General Manager (Operations) as the sole arbitrator in terms of the arbitration clause.

4. I have heard Mr. Salahuddin, Advocate for the petitioner and Mr. S.A. Sarwana, Advocate for the opponent.

5. The sole question to be determined in this matter relates to interpretation of section 20(4) of the Arbitration Act. Learned counsel for the petitioner argued that powers of a Court to appoint an arbitrator remain unhindered if the arbitration agreement required appointment of a particular person as the Sole Arbitrator but the parties were not in agreement about the person who was to act as a sole Arbitrator. It was added thaw in the instant case the Arbitrator appointed by the Managing Director/ General Manager of the opponent Company was not likely to be impartial. as he was an Officer of the Southern Gas Company. It was argued that a small doubt about the proposed Arbitrator being not impartial, gave power to the Court to appoint another person as Sole Arbitrator. In support learned counsel for the Petitioner relied upon the case of Fertilizer Corporation of India Limited v. M/s. Domestic Engineering Installation AIR 1970 Allahabad 31 where the view taken was, that there were three courses open to the Court under clause (4) of section 20 of the Arbitration 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 whom the parties agree otherwise, or (iii) when the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court itself. It was also observed that a party was entitled to be released from a bargain if he could show that the selected arbitrator was likely to show bias or that there were sufficient reasons to suspect that he would act unfairly or that he had been guilty of continued unreasonable conduct. Counsel for the petitioner also relied upon the case of C.V. Krishna v. State of Madras AIR 1977 Madras 30 where the view taken was, that if it was proved that the person named or specified as the arbitrator under the contract, is biased towards one of the parties or the arbitrator overtly or covertly involved himself in the subject‑matter of the contract from the time of its inception and during the course of its working so as to give an impression to a reasonable person that a reference to him of the disputes that had arisen between the parties in relation to the contract would be futile and in the ultimate analysis would not be a means to secure justice to the complaining party, then the parties could come to the Court to seek for the appointment of an arbitrator other than the named arbitrator before whom the differences between them could be laid for final adjudication.

6. Learned counsel for the opponent argued that this application had become infructuous because the sole Arbitrator to arbitrate between the parties, had already been appointed. It was added that the sole arbitrator was Manager of Southern Gas Company Limited which had nothing to do with opponent Sui Gas Transmission Company Limited. It was next argued that the Court cannot impose its will and appoint arbitrator other than the one mentioned in the arbitration clause. In support learned Counsel for the opponent cited the case of M/s. Hafiz Abdul Aziz Cotton Ginning Factory v. M/s. Haji Ali Muhammad Abdullah and Co., P L D 1966 Kar. 197 where it was observed by a learned Single Judge of this Court that in terms of section 20(4) of the Arbitration Act, the Court can order reference to an arbitrator appointed by itself "where the parties cannot agree upon an arbitrator" which in other words means that the Court can replace a person appointed by itself. This observation goes more in favour of the petitioner than in favour of the opponent. In the same authority it was held that 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, and that where the agreement itself could not be acted upon having become inoperative, the Court was not entitled to appoint an arbitrator of its own choice. This limitation pointed out in the aforesaid observation does not appear to exist in the instant case. Reliance was also placed on the case of M.A. Ghani Soofi & Sons v. Federation of Pakistan P L D 1957 Lah. 363; where an arbitrator had not been appointed by the parties to the agreement either under the agreement or otherwise, and the parties were not agreeing upon an arbitrator, but the agreement provided that an arbitrator would be appointed by a person designated in the agreement. In such a case reference by the Court to the arbitrator appointed by the person designated in the agreement was held in order. It was observed that 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. Cited case is distinguishable from the instant case. In the cited case arbitrator was to be appointed by a person named in the agreement. No direct question arose in the cited case about powers of the Court under section 20(4) of Arbitration Act. Observations made in the cited case show that where known interest of an arbitrator is concealed or comes into existence after his appointment then his appointment is rendered invalid or is liable to be revoked. The view taken by this Court in the case of Hafiz Abdul Aziz Cotton Ginning Factory is not materially different from the view taken by the Courts of Indian jurisdiction in the cases cited above.

7. Section 20(4) of the Arbitration Act enjoins upon the Court to make an order of reference to the arbitrator, appointed by the parties under the agreement or otherwise. This is subject to the condition that the parties agree upon the arbitrator. The words "where the parties cannot agree upon an arbitrator" appearing in subsection (4) of Section 20 of the Arbitration Act, are separated from the main text of subsection (4) by the letter 'or'. In the circumstances the words "where the parties cannot agree upon an arbitrator" suggest an alternative situation. Such a situation would not exist where the parties do not disagree upon the appointment of an arbitrator. This view seems to be in line with the Indian authorities discussed above.

8. In the circumstances I am of the view that this Court is competent to make an order of reference to an arbitrator ‑other than) the one mentioned in the arbitration agreement.

9. In this view of the matter, the parties are called upon to suggest panel of persons out of whom an arbitrator can be appointed for the purpose of dealing with this matter under section 20(4) of the Arbitration Act.