livelawpk.com - Lahore High Court Rules in Favor of SNGPL

Lahore High Court Rules in Favor of SNGPL: Arbitrator Lacks Authority to Award Interest on Compensation

6 months
226

Lahore High Court Rules in Favor of SNGPL: Arbitrator Lacks Authority to Award Interest on Compensation

Islamabad 22-06-2024: In a significant ruling, the Lahore High Court has upheld the decision of the Civil Judge, Lahore, affirming that arbitrators do not possess the jurisdiction to award interest on compensation amounts from a date prior to the decree. This decision came in the case of “Saif Power Limited vs. Sui Northern Gas Pipelines Limited (SNGPL)”, where multiple appeals were consolidated due to common questions of law and fact.

Saif Power Limited had entered into a gas supply agreement with SNGPL, which included an arbitration clause stipulating that disputes would be resolved according to the rules of the London Court of International Arbitration (LCIA). A dispute arose concerning the non-supply of gas during a specific period in 2011, leading Saif Power to initiate arbitration proceedings.

The arbitration process culminated in an award on March 9, 2016, wherein the arbitrator ruled in favor of Saif Power Limited, ordering SNGPL to pay Rs. 23,96,84,090 in compensation along with a 6% interest per annum starting from August 18, 2014. SNGPL challenged the award, particularly the interest component, contending that the arbitrator lacked the authority to grant such interest.

The Civil Judge, Lahore, in an order dated October 16, 2023, modified the arbitrator’s award by stipulating that the 6% interest would only be calculated from the date of the court’s decree, not from 2014. Saif Power Limited appealed this modification.

In the appeals [R.F.A. No.1630/2024, R.F.A. No.1628/2024, and R.F.A. No.1655/2024], the Lahore High Court examined whether the arbitrator had the jurisdiction to award interest and if the trial court had the authority to modify the award. The High Court, referencing Sections 15 and 29 of the Arbitration Act, 1940, concluded that only the court holds the power to grant interest from the date of the decree. The court cited several precedents from the Supreme Court of Pakistan which consistently ruled that arbitrators cannot award interest on damages or compensation for periods preceding the decree.

This ruling reinforces the legal position that arbitrators’ powers are limited concerning the award of interest, ensuring that such financial determinations remain within the purview of the judiciary. Legal experts believe this decision will influence future arbitration proceedings and the drafting of arbitration clauses in commercial agreements.

The Lahore High Court dismissed all appeals by Saif Power Limited, affirming the lower court’s decision to modify the commencement date of the interest. This judgment underscores the court’s exclusive authority to grant interest from the date of decree, maintaining the integrity of judicial oversight in arbitration matters.