Jurisdiction of Sole Arbitrator Appointed by One Party

Jurisdiction of Sole Arbitrator Appointed by One Party Arbitrator Case Laws Civil Law Jurisdiction Knowledge - Civil Law Litigation & Arbitration Solutions - Civil Law Supreme Court Mr. Justice Mian Saqib Nisar in his judgment has decided the issue regarding jurisdiction of sole arbitrator appointed by one party in Civil Appeal No. 305 of 2008.

1. This appeal involves the key question, in that, whether the award made, announced and signed by the sole arbitrator appointed by the respondent was with jurisdiction or not and thus should not have been made rule of the Court. The ancillary questions to the above are, whether the appellant had waived etc. its objection about the jurisdiction; whether lack of jurisdiction can be compromised; whether the court, considering the matter qua making the award rule of the Court, should itself consider the jurisdictional aspect and decline to make an award, made without jurisdiction, rule of the Court. In this context, leave was granted vide order dated 27.02.2008 reproduced below to consider certain points highlighted therein:

“After hearing learned counsel for the parties, leave to appeal is granted, inter alia, to consider:

1. Whether in the instant case sections 8 & 9 of the Arbitration Act, 1953 would apply; and

2. Whether the award given by the Arbitrator was according to the terms of the agreements entered into by the parties.

2. Since a short point is involved, as such office is directed to fix the case during 1st week of May 2008. Meanwhile interim order dated 06.2.2008 shall hold the field.”

2. The relevant facts of the case are:- The appellant (employer) entered into a contract dated 08.10.1989 with the respondent (contractor) for the construction of a hospital at Kemari, Karachi. The contract contained an arbitration clause (clause 131). The parties subsequently entered into multiple supplementary agreements dated 17.06.1991, 12.11.1992, and 31.05.1993 which amended various clauses of the original contract including inter alia the time for completion of the contract. The fourth and final supplementary contract dated 01.03.1995 not only extended the time for completion of the contract but also, according to the appellant, settled finally certain claims of the respondent. Subsequently the respondent, claiming that certain dues/claims remained unpaid, invoked the arbitration clause by referring to the consultants certain disputes vide letter dated 05.06.1996. Due to non-determination by the consultant of the disputes alleged by the respondent, the latter proceeded to approach the appellant vide letter dated 19.01.1997 for the appointment of arbitrator and also suggested some names therein. Since the appellant did not appoint an arbitrator in response thereof, the respondent vide letter dated 02.07.1997 informed the appellant that they had appointed one Mr. S. A. Nizami and requested them to appoint an arbitrator for resolution of their disputes, in the absence of which Mr. Nizami would become the sole arbitrator.

In response the appellant stated in its letter dated 12.07.1997 that since the final supplementary agreement satisfied the respondent’s claim fully therefore the arbitration clause cannot be invoked and that the arbitrator cannot be appointed in the terms as suggested by the respondent. The respondent then sent a letter dated 20.08.1997 to the arbitrator stating therein that since the appellant had failed to appoint an arbitrator, Mr. Nizami should act as a sole arbitrator in terms of Section 9 of the Arbitration Act, 1940 (Act), after which the arbitrator issued notices to the parties dated 22.08.1997 and entered upon the reference. However, the appellant took the plea before the arbitrator which is envisaged by the letter dated 19.09.1997 to the effect that because the original contract was in effect superseded by the final supplementary agreement, therefore the arbitration cannot be invoked and, hence the arbitrator had no jurisdiction. Notwithstanding this the arbitrator conducted ex-parte proceedings as the appellant refused to appear and rendered the award dated 20.12.1997 in favour of the respondent which was filed in court on 19.01.1998 for making it the rule of the Court. Notice of the same was sent to the appellant on 27.01.1998 pursuant to which they filed objections under the provisions of Section 30 of the Act on 24.02.1998 on various grounds including inter alia that the arbitrator had no jurisdiction in the matter and therefore the award was a nullity in the eyes of the law. However the learned Single Judge vide judgment and decree dated 24.11.2004 overruled the objections and made the award a rule of the court pursuant to Section 17 of the Act. The appellant filed an appeal against the said judgment which was dismissed vide impugned judgment dated 19.04.2006, against which they have filed the instant appeal before this Court.

3. Learned counsel for the appellant, while relying upon Textile Machinery Corporation Ltd v Nalinbhai B. Munshaw (AIR 1969 Calcutta 146), submits that in order to invoke the provisions of Section 9 of the Act as the respondent necessarily did, certain preconditions need to be met, in that, the agreement should provide a reference to two arbitrators, one to be appointed by each party. He then referred to the arbitration clause, i.e. clause 131 of the contract and pointed out that since it did not specifically provide for two arbitrators, one to be appointed by each party, therefore the application of Section 9 was ousted. Reliance in this regard was placed on Port Qasim Authority, Karachi v Messrs Nadeem Brothers and another (1982 CLC 1506). Instead, recourse should have been made to Section 8 read with Section 20 of the Act according to which the Court, and not the respondent, was empowered to appoint an arbitrator. He relied on Muhammad Azam Muhammad Fazil & Co., Karachi v Messrs N. A. Industries, Karachi (PLD 1977 Karachi 21). He further submitted that where the number of arbitrators is not specified in the arbitration agreement, as was so in the instant case, recourse has to be made to Section 3 which when read with clause 1 of the First Schedule of the Act implies a condition that unless otherwise expressly provided, the reference shall be to a sole arbitrator. Reference was also made to the respondent’s letter dated 02.07.1997 requesting the appellant to appoint their arbitrator, and the appellant’s response dated 12.07.1997 wherein it was specifically pointed out to the arbitrator that lacking jurisdiction, he should abstain from entering upon the reference and proceeding with the matter. He stated that whenever the appellant was sent a notice by the arbitrator, they raised an objection regarding the latter’s jurisdiction. The propositions which have been framed by the learned counsel for the appellant’s counsel is as follows:

i. The arbitrator rendered the award having no jurisdiction as his appointment was not in terms of the arbitration a greement, therefore the award is a nullity;

ii. The pre-conditions of reference to the consultant to invoke the arbitration clause was not met as the respondent did not apply to the consultant before asking for the appointment of the arbitrator and making a reference thereto;

4. When confronted as to why the appellant did not invoke the provisions of Section 5 of the Act, learned counsel for the appellant responded by stating that in order for the said section to be applicable there has to be a validly appointed arbitrator, which he contends was not in the present case.

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