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While Arbitrators are the Final Judges of Fact and Law, Courts may intervene in cases involving Fraud, Corruption, or Legal Errors apparent on the face of the Award --- Islamabad High Court, Islamabad

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While Arbitrators are the Final Judges of Fact and Law, Courts may intervene in cases involving Fraud, Corruption, or Legal Errors apparent on the face of the Award --- Islamabad High Court, Islamabad

Islamabad 19-10-2024: The Islamabad High Court (IHC) has partially allowed an appeal filed by Pak Gulf Construction (Private) Limited against an arbitration award in its dispute with Godwin Austen Johnson over unpaid consultancy fees for the Movenpick Hotel project at Centaurus, Islamabad. The Court remitted part of the award back to the arbitrator for further reasoning, while upholding the remaining portions of the award.

In the judgment authored by Mr. Justice Sardar Ejaz Ishaq Khan, the Islamabad High Court (IHC) reviewed the civil Court’s decision to enforce the arbitration award, which had been challenged by Pak Gulf Construction. The Civil Court had dismissed the company’s objections and made the award the rule of the Court.

The dispute arose from a design consultancy contract between Pak Gulf Construction (the Employer) and Godwin Austen Johnson (the Consultant). The contract, valued at USD 1.93 million, involved architectural and interior design services for the Movenpick Hotel project. After the Employer terminated the contract in June 2017, the Consultant invoked the arbitration clause to recover unpaid invoices totaling USD 600,001.

The arbitrator awarded the Consultant USD 358,815 for unpaid contract fees and PKR 3.5 million for reimbursable expenses. Pak Gulf Construction objected to this award, but the civil Court dismissed their objections, prompting the company to file an appeal with the Islamabad High Court (IHC).

The Islamabad High Court (IHC) identified several key legal issues in the case, particularly focusing on the scope of judicial review of arbitration awards. In discussing the well-established principles of arbitration law, the Court referred to the Supreme Court’s decision in Gerry’s International (Private) Limited Vs. Aeroflot Russian International Airlines (2018 SCMR 662), which outlines the limited grounds for Court interference in arbitration decisions.

The Court highlighted that while arbitrators are the final judges of fact and law, Courts may intervene in cases involving fraud, corruption, or legal errors apparent on the face of the award. The judgment stressed the need for arbitrators to provide sufficient reasoning under Section 26-A of the Arbitration Act, 1940, particularly when interpreting contractual provisions.

The Court ruled on several objections raised by the Employer, including:

The Islamabad High Court (IHC) rejected the Employer’s argument that the Consultant was in default, finding that the contract had been terminated for convenience, as explicitly stated in the termination notice.

The Employer argued that the Consultant, a foreign entity, could not initiate legal proceedings in Pakistan without complying with company law provisions for foreign companies. The Court dismissed this argument, ruling that the Consultant had not established a business office in Pakistan and was therefore not subject to these provisions.

The Islamabad High Court (IHC) upheld the arbitrator’s award of PKR 3.5 million for reimbursable expenses, finding that sufficient partial evidence had been provided to justify the amount.

However, the Court found that the arbitrator had failed to provide sufficient reasons for awarding payment for phase (d)(iii) of the project, which involved the approval of final detailed drawings. The Court ruled that the Consultant’s entitlement to invoice for this phase was contingent on the Employer’s approval, which had not been clearly established in the award. As a result, the Court remitted this portion of the award back to the arbitrator for further clarification.

In a significant finding, the Court addressed the maintainability of the appeal under Section 39(vi) of the Arbitration Act, 1940, distinguishing it from a recent Supreme Court ruling in Shahin Shah Vs. Government of Khyber Pakhtunkhwa (2022 SCMR 1810). The Islamabad High Court (IHC) ruled that the appeal was properly filed as it challenged the trial Court’s dismissal of objections to the award on its merits.

The Islamabad High Court (IHC) Court partially allowed the appeal by Pak Gulf Construction and remitted the arbitration award for reconsideration on the issue of phase (d)(iii) payments. The remainder of the award, including the Consultant’s unpaid fees and reimbursable expenses, was upheld.