The Parties cannot retract from Arbitration Agreement unless there is Valid Evidence of Bias or Misconduct on the Part of the Arbitrator --- Lahore High Court, Lahore
Islamabad 12-09-2024: The Lahore High Court has dismissed an appeal by M/s Staco Shahid Builders Joint Venture (JV) against the Lahore Cantonment Board in a case involving a dispute over a construction contract for the expansion of a hospital project. The Court upheld the decision of a lower Court that referred the matter to the pre-appointed arbitrator, the Director of Military Lands and Cantonments, Lahore Region.
The case, titled [FAO No. 24690 of 2024], involved a construction contract initially for a 250-bed hospital, which was later expanded to a 500-bed teaching hospital. A disagreement arose between the parties over price variation and the scope of the project, leading the appellant to seek the appointment of an independent arbitrator, arguing that the pre-appointed arbitrator was biased due to his association with the respondent.
The appellant filed an application under Section 20 of the Arbitration Act, 1940, requesting that an independent arbitrator be appointed. However, the Civil Judge/Judge Special Court for Administrative Commercial Cases, Lahore, dismissed the application, referring the matter back to the pre-appointed arbitrator.
The Lahore High Court, presided by Mr. Justice Ahmad Nadeem Arshad, ruled that the arbitration agreement between the parties clearly designated the Director of Military Lands and Cantonments, Lahore Region, as the sole arbitrator, and both parties were bound by the terms of this agreement. The Court emphasized the binding nature of arbitration agreements, stating that parties cannot retract from their agreement unless there is valid evidence of bias or misconduct on the part of the arbitrator.
The Court also highlighted the limited role of the judiciary in arbitration matters, reiterating that the Court’s primary function under Section 20 of the Arbitration Act, 1940, is to ensure the existence of a valid arbitration agreement and make an order of reference to the appointed arbitrator, unless there is just cause to appoint a new arbitrator.
The appellant’s claims that the arbitrator would be biased due to his association with the respondent were rejected as hypothetical and unsupported by evidence. The Court referenced several past cases, including Lahore Stock Exchange Ltd. Vs. Fredrick J Whyte Group and Pakistan Medical Commission Vs. Construction Experts, which upheld the principle that known interests or affiliations of an arbitrator do not automatically invalidate their appointment.
The parties are bound by the arbitration agreement, and Courts have limited powers to interfere unless there is clear evidence of bias or misconduct.
Allegations of bias must be supported by concrete evidence. Known affiliations do not automatically disqualify an arbitrator unless concealed or arising after the agreement.
Courts will respect the terms of the arbitration agreement unless the parties fail to agree on an arbitrator, in which case, the Court may appoint one.
The Court’s decision reaffirms the sanctity of arbitration agreements and limits the grounds on which parties can challenge pre-appointed arbitrators.
In dismissing the appeal, the Lahore High Court concluded that the appellant had failed to establish any legal or factual basis for appointing an independent arbitrator. The dispute will now proceed before the pre-appointed arbitrator, with the possibility of further Court intervention only if there is evidence of bias during the arbitration process. The Court’s judgment serves as a reminder of the limited scope for judicial interference in arbitration matters and the finality of arbitration agreements.
The appeal was dismissed with no order as to costs.
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