1. MIANGUL HASSAN AURANGZEB, J. -- Through the instant civil revision petition, the petitioner (Federation of Pakistan, through the Director General, National Training Bureau, Ministry of Education and Training), impugns the order dated 7.5.2015, passed by the Court of the learned Civil Judge, Islamabad. Vide the said order dated 7.5.2015, the learned Civil Court allowed the respondent's application under Sections 11 and 12 of the Arbitration Act, 1940 ("the 1940 Act"), by removing the arbitral Tribunal comprising the Hon'ble Mr. Justice (Retd.) Chaudhary ljaz Ahmed and Brig (Retd.) Khalid M. Amin, Ex-Director General, National Highway Board, and appointing the Hon'ble Mr. Justice (Retd.) Sardar Muhammad Aslam, as the sole arbitrator.
2. The facts essential for the disposal of this petition are that on 3.11.1991, the respondent (M/s. James Construction Company (Pvt.) Ltd.) was awarded a contract by the National Training Board (which at that time was under the administrative control of the Ministry of Labour. Manpower and Overseas Pakistanis) for the construction, completion and maintenance of the Second Vocational Training Project at Khairpur, Sindh. As per the notice of award dated 3.11.1991, the total project cost was Rs. 2,10,75,570/-. M/s. Pakistan Environmental Planning and Architectural Consultants Limited ("M/s. PEPAC") were appointed as consultants for the said project. On 12.4.1993, the Ministry of Labour, Manpower and Overseas Pakistanis, informed all concerned about the enactment of the West Pakistan Minimum Wages for Unskilled Workers. (Amendment) Act, 1993, fixing Rs. 1,500/- per month as the minimum wage for unskilled workers with effect from 1.7.1992. This increase in the minimum wage caused the respondent to claim an amount in addition to the contract price from the petitioner. In this regard, the respondent submitted its 30th and 31st running bills, both dated 8.9.2000 to cater for escalation in the cost of labour. These bills were submitted to M/s. PEPAC. Vide letter dated 3.5 2002,PEPAC forwarded the respondent's 31st running bill regarding escalation to the petitioner. M/s. PEPAC was of the view that an amount of Rs. 22,58,536/- was payable to the respondent, but before making any payment, an undertaking should be taken from the respondent to the effect that on receiving payment on account of escalation, it would immediately mobilize at the project site and would complete the punch list work. As payment against the .said running bill was not made to the respondent. the respondent vide its letter dated 1.8.2003, submitted its 32nd running bill as well the final bill amounting to Rs. 26,55,908/-, including escalation to M/s. PEPAC.
2. 3.The respondent claims to have handed-over the project to the petitioner on 10.11.1997. Vide notice dated 15.6.2006, the respondent called upon the petitioner to release a total amount of Rs.
3. 73.92.917/- to the respondent under various heads including escalation. failing which the respondent would refer the matter to the Civil Court for adjudication. Vide letter -dated 31.8 2006, the petitioner refuted the respondent's claim. The position taken by the petitioner was that the West Pakistan Minimum Wages for Unskilled Workers Ordinance, 1969, applied only to workers in industrial and commercial establishments; that neither the respondent nor M/s. PEPAC gave any proof regarding the labour wages paid by the respondent; that the escalation committee constituted by the petitioner had decided in its meeting dated 10 4.1995 that the respondent would submit proof of actual wages paid in light of the increase in the minimum- wages through the said enactment: that payment of escalation regarding labour wages would be allowed on the basis of actuals; and that the petitioner had obtained advice from the Ministry of Law according to which payment of escalation regarding labour charges were to be allowed from 1.7.1992 subject to proof of the actual payment made by the respondent.
4. 4.On 7.9 2006. the respondent issued another notice to the petitioner seeking the release of the withheld payments on account of escalation in the cost of labour as well as payment of retention money. etc. On 16.2.2008, the respondent issued a notice for a reference of the contractual disputes between the petitioner and the respondent to arbitration under the provisions of the 1940 Act. The respondent 'nominated Brig. (Retd.) Khalid M. Amin. Ex-Director General, National Highway Board as one of the two arbitrators. The petitioner did not object to Brig: (Retd.) Khalid M. Amin's nomination.
5. On 28.2.2008, the petitioner informed the respondent that the Hon'ble Chief Justice of Pakistan had appointed Mr. Justice (Retd.) Nazim Hussain Siddiqui, former Chief Justice of Pakistan as the second arbitrator. It appears that since the Hon'ble Mr. Justice (Retd.) Nazim Hussain Siddiqui did not enter upon reference. the petitioner, on 20.6.2008, nominated the Hon'ble Mr. Justice (Retd.)
6. Muhammad Nawaz Abbas as the second arbitrator. On 8.2.2011 the petitioner nominated the Hon`ble Mr. Justice (Retd.) Chaudhary ljaz Ahmed as the second arbitrator. The petitioner's above- mentioned letters dated 28.2.2008, 20.6.2008, and 8.2.2011 nominating the second member of the arbitral Tribunal were all copied to Brig. (Retd.) Khalid M. Amin, who was the respondent's nominee on the arbitral Tribunal.
7. 5.Vide letter dated 25.4.2011, the Registrar of the Hon'ble Supreme Court forwarded a copy of letter dated 12.4.2011 containing the decision of the Honble Mr. Justice (Retd.) Chaudhary ljaz Ahmed. The decision contained in the letter dated 12.4.2011 is to the effect that the reference of the dispute to the arbitrators is premature and in violation of the procedure laid down in Article 18 of the contract.
8. 6.It was in these circumstances that the respondent filed an application under Sections 11 and 12 of the 1940 Act before the learned Civil Court praying for the removal of the two member arbitral Tribunal comprising of Brig. (Retd.) Khalid M. Amin. and the Hon'ble Mr. Justice (Retd.) Chaudhary ljaz Ahmed, and for the appointment of the sole arbitrator in the matter. As mentioned above, vide order dated 7.5.2015, the learned Civil Court allowed the respondent's said application, and appointed the Hon'ble Mr. Justice (Retd.) Sardar Muhammad Aslam, as the sole arbitrator. The learned Civil Court also fixed Rs. 10,00,000/-as the arbitrator's fee to be paid equally by the parties.
9. The said order dated 7.5.2015 has been impugned by the petitioner in the instant civil revision petition. The memorandum of the civil revision petition does not set out the grounds on which the impugned order dated 7.5.2015 is sought to be set aside.
10. 7.The learned Deputy Attorney-General submitted that on 3.11.1991 the contract for the construction of the Vocational Training Centre at Khairpur was awarded to the respondent; that the total contract price was 21.07 million; that the project was substantially completed on 31.7.1996; that the project was handed-over to the Government of Sindh, partially on 12.11.1997, and finally on 30.1.2001; that the respondent raised a claim of Rs. 7.329 million, primarily under the head of labour escalation; that an over payment had been made by the petitioner to the respondent; that the respondent was liable to repay the overpaid amount to the petitioner: that the respondent invoked the arbitration clause in the contract by appointing Brig. (Retd.) Khalil M. Amin as one of the arbitrators: that the Hon'ble Supreme Court at first appointed Mr. Justice (Retd.) Nazim Hussain Siddiqui (who declined to act as an arbitrator), and then Mr. Justice (Retd.) Muhammad Nawaz Abbasi (who neither initiated the proceedings nor gave any instructions), and finally Mr. Justice (Retd.) Chaudhary Ijaz Ahmed, who unilaterally/singly held that the arbitration was premature and against the procedure laid down in Article 18 of the Contract: that "findings" of Mr. Justice (Retd.)
11. Chaudhary ljaz Ahmed are "self-speaking and relevant" and: that invocation of the jurisdiction of the learned Civil Court by-the respondent by filing an application under Sections 11 and 12 of the 1940 Act, was misconceived.
12. 8.Furthermore, it was submitted that under the terms of the President's Order No. 1 of 2001, the Judges of the Hon'ble Supreme Court were given certain benefits and facilities in return whereof the Hon'ble Judges. after their retirement, were to sit as arbitrators free of charge in cases involving Government interests; that in view of the provisions of President's Order No. 1 of 2001, the learned Civil Court could not require the petitioner to pay half of the arbitrator's fee. The learned Deputy Attorney-General prayed for the instant revision petition to be allowed, and for the impugned order dated 7 5.2015 to be set aside.
9. On the other hand, learned counsel for the respondent submitted that the respondent had completely performed its obligations under the contract but the petitioner had withheld amounts due and payable to the as retention money and escalation due to an in the minimum wage of labour employed by the execution of the project works: that after the petitioner wade for one-killed workers was enhanced by Government with effect from 17.1992, the entitled to be paid escalation in the cost of respondent had raised 30th and 31st running the to escalation in the labour cost petition did nor pay the amounts approved and endorsed by M/s PE PAC /consultant for payment to the respondent that perusals the letter dated 31 8 2006 from the petitioner shows that the respondent s assertions had been denied by the petitioner. and therefore a dispute arising from the terms of the contract existed between the parties: that the said contractual disputes were to be resolved in accordance with, the dispute resolution mechanism enshrined in Article 18 of the contract that after the petitioner nominated an arbitrator, it could not assert that the prerequisites for nominating an arbitrator had not been satisfied; that since the dispute between the petitioner and the respondent arises from the terms of the contract, it needs to be resolved in accordance with the arbitration clause contained in the contract: that the petitioner by nominating the Second arbitrator through letters mentioned hereinabove had waived its right to assert that the dispute had to be referred in the first instance to M/s PEPAC/consultant. Learned counsel prayed for the revision petition to be dismissed.
13. 9.10. I have heard the contentions of the learned Deputy Attorney-General as well as learned counsel for the respondent, and have perused the record with their able assistance. The facts leading to the filing of the instant petition have been set out 4n sufficient detail in paragraphs 2 to 6 above and need not be recapitulated.
11. For deciding this petition it is not necessary to delve into the merits of the contractual disputes between the petitioner and the respondent as that would _be tantamount to usurping the jurisdiction of a domestic Tribunal in the case at hand, the parties resorted to arbitration without the intervention of a Court by constituting a two-member arbitral Tribunal. Chapter-II of the Act deals with the arbitration without intervention of question that needs to be determined is whether the learned Civil Court remolding' the two-member. Tribunal and nominating a sole arbitrator suffers jurisdictional irregularity or material illegality so as to interference in the revisional jurisdiction of this Court.
14. 12The record shows that on 16.2 2008 the respondent issued a notice for a reference of the contractual disputes between the petitioner and the respondent to arbitration under the provisions of the 1940 Act. The respondent nominated Brig. (Retd.) Khalid M Amin as an arbitrator. The petitioner did not object to Brig (Retd ) Khalid M. Amin's nomination. On 8.2.2011, the petitioner nominated the Hon'ble Mr. Justice (Retd.) Chaudhary ljaz Ahmed as the co-arbitrator. In this way, a two-member arbitral Tribunal was constituted.
15. 13.At page 13 of this petition is letter dated 12 4.2011 from the Hon'ble Mr. Justice (Retd Chaudhary Ilaz Ahmed's Secretary conveying to the Director of the National Training Bureau (Ministry of Labour and Manpower) the learned arbitrator's decision not to assume jurisdiction for the settlement of the claim filed by the respondent This letter shows that the co-arbitrator (Brig. (Retd ) Khalid M.
16. Amin), had, vide letter dated 14.2.2011. requested the Hon'ble Mr. Justice (Retd.) Chaudhary ljaz Ahmed for a meeting for making a schedule for the arbitration proceedings. It is not disputed that a meeting between the arbitrators did not take place. The respondent had, on 18.2.2011, submitted its claim separately to the arbitrators. The said letter dated 12.4.2011 also shows that on the Hon'ble Mr. Justice (Retd.) Chaudhary Ijaz Ahmed's invitation, the Director, National Training Bureau, had delivered the record of the case and appraised him of the issues in the case. This happened in the absence of the respondent. The primary reason for the learned arbitrator to decline assumption of jurisdiction in the matter was that the pre-condition in the arbitration clause of a reference of the disputes to the consultant had not been satisfied. The learned arbitrator decided that the reference was premature and violative of the procedure laid down in Article 18 of the contract. For ease of reference, Article 18 of the contract is set out in "Schedule-A" to this judgment.
14. In December, 2012 the respondent filed an application under Sections 11 and 12 of the 1940 Act praying for the removal of the two-member arbitral Tribunal, and for the appointment of a sole arbitrator. The portions of Sections 11 and 12 of the 1940 Act, which are relevant for this case, are reproduced herein below:- "11. <i>Power of Court to remove arbitrators or umpire in certain circumstances. -- (1) <u>The Court may, on the application of any party to reference, remove an arbitrator or umpire who fails to use all reasonable dispatch in entering on and proceeding with the reference and making an award. </u> (2)The Court may remove an arbitrator or umpire who has misconducted himself or the proceedi (3) Where an arbitrator or umpire is removed under this section, he shall not be entitled to receive remuneration in respect of his services, (4 For the purposes of this section the expression "proceeding with the inference" includes, in a case where reference to the umpire becomes necessary, giving notice of that fact to the ,parties and to the umpire.
17. "12. Power of Court where arbitrator is removed or his authority revoked -- (1) Where the Court removes an umpire who has not entered on the reference or one or more arbitrators (not being all the arbitrators) the Court may, on the application of any party to the arbitration agreement, appoint persons to fill the vacancies.
18. (2 Where the authority of an arbitrator or arbitrators or an umpire is revoked by leave of the Court, or where the Court removes an umpire who has entered on the reference or a sole arbitrator or all the arbitrators, the Court may, on the application of any party to the arbitration agreement, either- - (a)appoint a person to act as sole arbitrator in the place of the person or persons displaced, or (b)order that the arbitration agree merit shall cease to have effect with respect to the difference referred.
(3) A person appointed under this section as an arbitrator or umpire shall have the like power to act in the reference and to make an award as if he had been appointed in accordance with the arbitration agreement.</i> 15.On a conjoint reading of the aforesaid Sections. the Court is empowered to remove arbitrators on an application of either party to a reference. Under Section 1 of the 1940 Act, the power of the Court for removing an arbitiator is limited to the grounds of his failure to use all reasonable dispatch in entering upon and proceeding with the reference or his misconduct. Where the Court removes arbitrators and/or the authority of arbitrators is revoked the Court can as has been done in this case appoint a person act as a sole arbitrator in pike of the persons displaced. Section 12(2) inter alia provides that where the Court removes a sole arbitrator or all the arbitrators the Court may on the application of party to the arbitration agreement, appoint a person to act 3 a some arbitrator in place of the personperson. airspace if an arbitrai Tribunal moreone is removed by the Court to Section 11 et the 1940 Act, the Court is empowered.. under Sector) 12(2.)(a of the 1940 Act to appoint a sole arbitrator in replacement of the displaced arbitrai Tribunal this so even if the arbitration agreement between the parties privates for disputes.to be referred to an arbitral Tribunal comprising more than one arbitrator. The agreement between the parties cannot override the express provisions of statute which empowers the Court to appoint a person to act as sole arbitrator in place of the person or persons replaced.
19. 16.An 'arbitrator enters upon reference when he applies his mind and does something for the furtherance and execution of the arbitration proceedings. In the case at hand, after the two- members arbitral Tribunal was constituted, they did not convene at any material stage; did not issue notices to the parties; and did not set a schedule for the arbitration proceedings. Even though one of the arbitrators requested the other one for a meeting so as to make a schedule for the arbitration proceedings, but a meeting between the arbitrators did not take place. One of the arbitrators after meeting a representative of one of the parties to the dispute decided that tile reference was prenatal and, therefore, declined to assume jurisdiction in these it can safely be concluded that the arbitrator's did riot enter upon or proceed with the reference.
20. 17The decision of one of the learned arbitrators not to assume jurisdiction the matter cannot. by any stretch of imagination be termed as an 'award Perusal of the said letter dated 12 4 2011 shows that The :decision contained therein is not the decision the two-member arbitral Tribunal The contesting parties are in on their submission that at no material stage did any proceedings take place before the said Nub-member arbitral Tribunal. In fact the said arbitral Tribunai never convened and never issued notices to the panics decision of one of the learned arbitrators (acting solely obtained the said letter dated 12 4 2011 could certainly not be termed as an award of an arbitral Tribunal It is an admitted position that the two-member arbitral Tribunal did not appoint an umpire as required by Article 18.4 of the contract and paragraph 2 of the First Schedule to the 1940 Act Hence the said decision dated 12.4.2011 cannot be termed as a majority award. In the case of A.M. Associates v.s Government of Khyber Pakhtunkhwa (PLD 2015 SC 21) the terms of the contract provided that the disputes between the parties were to be resolved by three arbitrators one of whom was to be Chairman of the Arbitration Council. The two members and the Chairman of the Dispute Adjudication Board were to act as arbitrators. Since the Chairman of the Arbitration Council was not included in the arbitration proceedings. and did not take part in the making of the award the proceedings were held to be without jurisdiction and the arbitrators were held to be guilty of misconduct. Paragraph 13 of the said report is reproduced herein below:-- "13. We are also of the view that since the Arbitration proceedings were conducted by only two Arbitrators and not the entire arbitration council despite the fact that the third member/chairman had not recused himself from serving as an arbitrator, therefore, the arbitration council had become coram non judice for passing the award which therefore could not be made the rule of the Court.
21. 18.Additionally, in the case of Muhammad Sharif Vs. Rose Deen (2015 M LD 1804), the arbitral Tribunal comprised of five arbitrators, two to be appointed by each party to the dispute and the fifth one by both the parties. Since the two arbitrators appointed by one party were not made part of the arbitration proceedings, and they had also not signed the arbitration award the Hon'ble Lahore High Court upheld the orders passed on the learned Courts below setting aside the arbitration award.
22. 19.In the case of Sheodutt Vs. Pandit vishnudutta (AIR 1955 Nagpur 116), it has been held inter alia that where all the arbitrators do not jointly deliberate in the proceedings or in the making of the award, the whole award becomes vitiated. in the case of Chhaganlal Asaram Vs. Jeevanlal Gangabisan (AIR 1954 Nagpur 263), it was held that it is a fundamental principle of natural justice that arbitrators who are enjoined to act jointly must act together. Furthermore, it was held that where the application for reference and the order for reference passed by the Court clearly enjoin this duty on the arbitrators, but one or the other of the arbitrators remains absent on material dates of hearing, the arbitrators misconduct the proceedings and the award is liable to be set aside. In the case of Dhooli Atchayya Vs. Dhoodi Peddenti (AIR 1928 Madras 983), the parties referred the disputes to five arbitrators. The parties had agreed that the opinion of the majority should prevail. Two of the arbitrators did not act. It was held that if some of the arbitrators did not act, the award was null and void. Additionally, in the case of Fazalally Jivaji Raja Vs. Khimji Poonji & Co, (AIR 1934 Bombay 473), it has been held as follows:-- <i>If there is one proposition which is firmly established by authorities more than any other in regard to arbitration, it is this that where there are several arbitrators, all must act together and each must act in the making of the award; and this is not denied. Indeed Mr. Setalvad concedes it.
23. Every stage of the proceedings must be in the presence of all, and every judicial act to be done by two or more must be completed in the presence of all who do it. In 11 WR (Eng) 265(14) the facts were that the umpire and one of the arbitrators in the absence of the other arrived at a decision, though they informed him of it and afforded him an opportunity of objecting thereto before finally and formally making their award. The Court consisting of Cockburn, C.J., Crompton and Blackburn, JJ., observed as follows:-- "..... it would be dangerous to allow an award to stand under such circumstances. It was not a mere communication of the decision, which was sufficient, for it was not easy to eradicate an impression once produced and allowed to sink in the mind. There ought to have been a meeting of all three, for the purpose of mutual discussion of the matter. before arriving at any decision. It was essential to the right exercise of the judicial function by several persons, that there should be this joint consideration and discussion of the matter, before any of them arrived at a decision upon it. In this case the arbitrator of the appellant ought to have been allowed an opportunity of hearing what was urged by the other, and of making any answer to it. and urging any arguments in support of the opposite view before the umpire had formed an opinion upon the question. It would be a most dangerous precedent to allow an award to stand which had virtually been arrived at and resolved on by the umpire on the ex-parte statement of one of the arbitrators, in the absence of the other.
24. On that ground therefore the award must be set aside....." </i> 20.Since I have already held that the decision of one of the arbitrators contained in the letter dated 12.4.2011 is not an arbitration award of the two-member arbitral Tribunal, the said arbitral Tribunal had not become functus officio. Section 14 of the 1940 Act obligates the arbitrators and the umpire to sign the award after making it. The arbitrator nominated by the respondent never participated in any proceedings and did not sign the decision given by the arbitrator nominated by the petitioner. The respondent, having lost all hopes of the said arbitral Tribunal entering upon reference, or being heard by them, was well within its rights to have applied to the Court for the removal of the arbitral Tribunal and for the appointment of a sole arbitrator.
25. 21.Section 11 of the 1940 Act authorizes the Court to remove an arbitrator who mis-conducted himself or the proceedings. With utmost respect and humility. I am of the view that one of the learned arbitrators mis-conducted the arbitration proceedings by meeting the representative of the petitioner (in the respondent's absence) and taking a decision (in the co-arbitrator's absence) to the detriment of the respondent by not assuming jurisdiction over the matter. Now, one of the two arbitrators was "appraised" about the "issues" in the case by the representative of the petitioner in the respondent's absence. The decision of one of the arbitrators not to assume jurisdiction in the matter was based not just on requirements in Article 18 of the contract not being complied with, but also the appraisal of the issues made by the representative of the petitioner to one of the arbitrators at the lather's residence. This ipso facto is a violation of the principles of natural justice. Each party must be given a reasonable opportunity to present and explain his own case. The Court has the power to remove an arbitrator if it concludes that the applicant had not been given an opportunity to deal with an issue upon which the arbitrator based his findings and suffered substantial injustice as a result.
26. 22.Although an arbitrator is not bound by technical rules of procedure, he cannot ignore the rules of natural justice. The thread of natural justice should run through the entire arbitration proceedings and the principles of natural justice require that a party who is to be prejudiced by an order of the arbitrator should be heard first. No decision .entailing adverse consequences could be made by one of the learned arbitrators against the respondent without giving him an opportunity to make submissions in rebuttal to the "appraisal" made by the Director of the National Training Bureau (in the respondent's absence) to the learned arbitrator at his residence. In exercise of judicial or quasi-judicial powers, the rules of natural justice should be observed. According to Lord Hewart, C.J. in R v. Sussex Justices, Ex-parte McCarthy ([1924) 1 KB 256 = [19231 All ER 233) "it is not merely of some importance but is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done".
27. 23.In the instant case, an elementary rule of natural justice was not followed as no opportunity was given to the respondent by the learned arbitrator nominated by the petitioner to present its case in respect of the issue whether non-reference of the dispute between the parties to the consultant made the reference to the arbitrators invalid. I am accordingly of the considered opinion that the learned arbitrator had mis-conducted the proceedings.
28. 24.It must be appreciated that "Misconduct" for the purposes of the 1940 Act is legal misconduct and not moral turpitude, dishonesty or any unethical or immoral conduct. Misconduct not amounting to moral turpitude is called legal misconduct and has a very wide meaning. It is difficult to give an exhaustive definition of what amounts to legal misconduct. It may however be stated that legal misconduct means misconduct in the judicial sense arising from some honest, though erroneous. breach and neglect of duty and responsibility on the part of the arbitrator causing miscarriage of justice. There may be ample misconduct in a legal sense to make the Court set aside the award even when there is no ground to impute the slightest improper motive to the arbitrator. It includes failure to perform the essential duties which are cast on an arbitrator. It also includes any irregularity of action which is not consonant with general principles of equity and good conscience which ought to govern the conduct of an arbitrator.
29. 25."Misconduct" is not defined in the 1940 Act, but covers a wide range of errors on the part of an arbitrator. In the case of Pakistan Steel Mills Corporation, Karachi Vs. Messrs Mustafa Sons (Pvt.) Ltd., Karachi (PLD 2003 SC 301), it has been held that the word "misconduct" with reference to arbitration proceedings is interpreted in the sense in which it is used in English Law and is not akin to fraud, but it means neglect of duties and responsibilities of the Arbitrator. In Russell on Arbitration (Twenty- First Edition), misconduct is explained in the following terms:-- <i>"It ranged from a fundamental abuse of position to what was often referred to as "technical misconduct", i.e., where the arbitrator made errors but not in a culpable way or so as to impugn his integrity. Where the misconduct was more serious in the sense that the arbitrator's integrity parties lost confidence in him setting aside of his awards the award to him, was cons,-- appropriate.
30. Misconduct could arise in various circumstances. For example, the arbitrator may have failed to deal with all the issues in the award, or may made an accidental error in the award, or failed to observe the principles of natural justice. He may also have misconducted himself by acting in excess of his jurisdiction by purporting to decide issues which were not within his terms of reference, or by making an error of law in an award, although in the last case may challenge to the award had to be by way of appeal." </i> 26.In London Export Corporation Ltd. v. Jubilee Coffee Roasting Company Ltd. ([1958] 1' WLR 661 = [1958] 2 All ER 411), Jenkins.explains the meaning of misconduct in the following terms:- <i>"Misconduct' is, of course, used in the technical sense in which it is familiar in the law relating to arbitrations as denoting irregularity, and not any moral turpitude or anything of that sort." </i> 27.Regardless of the adverse effects on the respondent caused by the meeting of the Director of the National Training Bureau with one of the arbitrators the fact remains that the two-member arbitral Tribunal never met: did not issue notices to the parties; and carried out no adjudication.
31. This would undoubtedly come within the ambit of 'misconduct' giving the aggrieved party the right to seek their removal under Section 11 of the 1940 Act.
32. 28.The decision of one of the learned arbitrators to decline assumption of jurisdiction over the matter on the ground that the disputes between that parties had not been referred, in .the first instance, to the consultant in terms of Article 18.2 of the contract, does not appeal to reason. Now, Article 18.2(a) of the contract in effect provides that disputes and differences between the petitioner and the respondent are to be referred to the consultant who is to give a decision within a period of ninety days. In case. the consultant does not give a decision within the said period or gives a decision which one of the parties is aggrieved by. such a party can require the matter to be referred to arbitration. Article 18.4 of the contract inter alia provides that matters in dispute between the parties are to be referred to arbitration under the 1940 Act. It also provides that the .reference can be to a single arbitrator or two arbitrators (one to be appointed by each party to the dispute). The parties are deemed to have failed to concur in the appointment of a sole arbitrator if one is not appointed within a period of fourteen days of a notice from the party seeking the appointment. A two-member arbitral Tribunal is also required to appoint an umpire "immediately" after their appointment.
33. 29.Although the M/s. PEPAC/consultant, vide letter dated 3.5.2002, forwarded the respondent's 31st Running Bill to the petitioner, wherein it was observed that the amount payable to the respondent comes to Rs. 22,58.536/Th there is nothing on the record to ,suggest that either the petitioner or the respondent had referred disputes and differences to M/s. PEPAC/consultant in terms of Article 18.2 of the contract. Hence, the pre-condition of a reference to the consultant before the matters in dispute between the parties could be referred to arbitration, was clearly not satisfied. Nonetheless, both the petitioner and the respondent resorted to arbitration without the intervention of the Court by constituting a two-member arbitral Tribunal.
34. 30.Could the nomination of a co-arbitrator by the petitioner or the constitution of the two- member arbitral Tribunal be considered as a waiver of the petitioner's right to have the disputes between the petitioner and the respondent to be referred, in the first instance, to the consultant in terms of Article 18.2 of the contract? In my view, it would. While a Court of Law derives jurisdiction from statute, the arbitrator derives jurisdiction from agreement. An agreement might be altered by course of conduct. It is well-settled that arbitration is a creature of contract and consent can confer jurisdiction. It is a private procedure established by an agreement between the parties. The parties to such an agreement can vary, amend or waive either expressly' or impliedly/by conduct the procedure established by the agreement. A party can be precluded from setting up a precondition (like the one envisaged by Articie 18.2 of the contract) as a defence' if he has waived his right to insist on a reference ci the disputes to the consultant as a condition precedent to arbitration. Whether or not a right to have the dispute referred to the engineer/consultant has been waived would depend upon the facts of each particular case.
35. 31.To constitute 'waiver', there must be an intentional relinquishment of a known right or the voluntary relinquishment or abandonment of a known existing legal right. Now. the petitioner was well aware of its rights under Article 18.2 of the contract before it nominated a co-arbitrator. The petitioner's decision to nominate co-arbitrator in response to a notice from the respondent shows that waiver was intended. Therefore, one of the learned arbitrators could not have decided that the reference was pre-mature on the ground that disputes had not been referred to the consultant in the first instance.
36. 32.It is well-settled that if the parties, after the expiry of a period of four months submit themselves to the jurisdiction of the arbitrators and take part in the proceedings enabling the arbitrators to render an award, no objection can be taken later by either party that the arbitrators continued with the proceedings beyond the four-month period. This is because the principle of waiver and estoppel has full application to arbitration proceedings. Similarly, the petitioner having nominated a co-arbitrator, without any demur, reservation or protest, is estopped from asserting that the disputes should have been first referred to the consultant.
33. Where the dispute resolution mechanism enshrined in a contract provides for the disputes between the parties to the contract to be referred to the engineer/consultant before they could be referred to arbitration, and one of the parties to the contract, without exhausting the pre-condition of a reference to the engineer/consultant, files an application under Section 20 the 1940 Act praying for the appointment of arbitrator(s) and a reference of the disputes to arbitration, the Court generally turns down such an application as premature Reference in this regard may be made to the law laid down in the cases of Board of Intermediate and Secondary Education Vs. Fine Start & Company (1993 SCM R 530), Hanover Contractors Vs. Pakistan Defence Officers Housing Society (2002 CLC 1880), Sanad Associates Vs. General Manager, Telephone & Telegraph (1989 CLC 386), Ayaz Builders Vs. Board of Trustees of the Karachi Port Trust and another (2008 CLC 726).
37. WAPDA Vs.S. H. Haq Noor & Co. (2008 M LD 1606), Pak. U.K. [Associates] (Pvt.) Ltd. Vs. The Hashemite Kingdom of Jordan (2017 CLC 599) and Smith Vs. Martin ([1925] 1 K.B. 745). This is where the arbitration sought is with the intervention of the Court. In the case at hand, we are concerned with arbitration without the intervention of the Court. In the latter case, the arbitral Tribunal is constituted by the parties to the dispute with mutual consent or, where the parties cannot agree on name(s) of the arbitrator(s), by the Court under Section 8 or 9 of the 1940 Act. In this case. the two- member arbitral Tribunal was constituted with the mutual consent of the petitioner and the respondent. Prior to nominating the co-arbitrator, the petitioner did not require the respondent to refer the disputes to the consultant in terms of Article 18.2 of the contract. When the respondent sent notice dated 16.2.2008 informing the petitioner that the respondent had nominated Brig.
38. (Retd.) Khalid M. Amin as the arbitrator, and requiring a reference of the disputes to arbitration, the petitioner instead of appointing a co-arbitrator should have insisted that the disputes be referred to the consultant before they could be referred to arbitration. Not having done so, the petitioner waived its right to insist on the reference of the disputes to the consultant.
39. 34.The learned arbitrator (acting solely) did not appreciate that neither the petitioner nor the respondent objected to their respective nominees on the arbitral Tribunal, that in the absence of such an objection, two-member arbitral Tribunal can be said to have been constituted with mutual consent of the parties; that prior to the constitution of the said arbitral Tribunal, the petitioner did not insist that the pre-condition of making a reference of the disputes to the consultant in terms of Article 18.2 of the contract should be exhausted; that by appointing a co-arbitrator, the petitioner had waived his right to have the disputes referred to the consultant; and that the arbitral Tribunal had been constituted to adjudicate upon the respondent's claims against the petitioner. Now, the learned arbitrator (acting solely) did not even issue notice to the respondent before giving a decision regarding the arbitration being pre-mature. It remained to be seen whether the petitioner would have objected to the jurisdiction of the arbitral Tribunal on the ground that the matters in dispute between the parties had not been referred to the consultant in terms of Article 18.2 of the contract. The occasion for the petitioner to file a reply/defence to the respondent's claims never came. For one of the learned arbitrators to have refused assumption of jurisdiction over the matter without an objection to jurisdiction being taken by the petitioner would also fall within the rubric of 'misconduct'.
35. Now I propose to deal with the contention of the learned Deputy Attorney-General that the petitioner -cannot pay the sole arbitrator's fee fixed by the learned Civil Court on the ground that in terms of President's Order No. 1 of 2001, the Judges of the Hon'ble Supreme Court of Pakistan, after their retirement, were to sit as arbitrators free of charge in cases involving Government interests. By President's Order No. 1 of 2001. the Supreme Court Judges (Leave, Pension and Privileges) Order, 1997 (President's Order No 2 of 1997) was amended. Under paragraph 25(3) of President's Order No. 2 of 1997 (as amended by President's Order No. 1 of 2001) a Judge of the Hon'bie Supreme Court on retirement opting to avail the facilities specified in Paragraph 25(1) was to undertake to perform the work of arbitration involving Government interests if assigned to him without charging any fee.
40. This appears to be the reason why the petitioner went to the Hon'ble Supreme Court for the nomination of the second arbitrator. The petitioner is again desirous of an appointment of an arbitrator who will not charge any fee. This is the petitioner's wishful thinking. Where an arbitrator appointed by a party is removed under Section 11 of the 1940 Act, the Court is not bound to ask the party whose nominee had been removed to nominate another person to replace the removed arbitrator. The Court is also not bound to appoint the nominee of the party to replace the removed arbitrator. The Court may however, ask the party whose nominee had been removed to suggest names of suitable persons so as to enable the Court to fill up the vacancy caused by the order of, removal of an arbitrator. But it is the Court which has to make the final choice for the appointment of the arbitrator. In appointing a sole arbitrator after removing the two-member arbitral Tribunal, the Court is certainly not bound to appoint a retired Judge of the Hon'ble Supreme Court at the petitioner's instance. Therefore, there is no infirmity in the .order of the learned Civil Court appointing the Hon'ble Mr. Justice (Retd.) Sardar Muhammad Aslam as the sole arbitrator and fixing his fee which both the parties to the dispute are bound to pay
36. In view of the above discussion, I am satisfied that given the facts and circumstances of the case and the applicable law, it must be held that the two-member arbitral Tribunal was correctly removed by the learned Civil Court and that the sole arbitrator was correctly appointed in exercise of the powers conferred under Section 12(2)(a) of the 1940 Act. Accordingly. this civil revision petition is dismissed with no order as to costs.