SHMAS MEHMOOD MIRZA, J. This application is filed under section 6 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (the Act) for recognition and enforcement of award dated 01.12.2015 (the Award) announced by the International Cotton Association (the Association).
2. The applicant on 29.05.2014 entered into a sales contract with the respondent for supply of 500 Tons of Indian Shankar-6 cotton. The contract was to be governed by the Bylaws and Rules of the Association. The respondent committed default of the terms of the contract as it did not establish the letter of credit in favour of the applicant within the stipulated time. The applicant accordingly took the matter before the Association in terms of the arbitration clause in 'the contract for commencing arbitration proceedings. The respondent was put to notice by the arbitral tribunal constituted by the Association and it joined the proceedings and contested the claim of the applicant. The arbitration tribunal announced the Award. The applicant accordingly brought the present proceedings for recognition and enforcement of the Award.
3. The respondent company filed objections on enforcement of the Award in terms of section 7 of the Act.
4. The operative part of the Award reads as under:
7. WE HEREBY AWARD AND DIRECT as follow:
(1) the Buyer shall invoice back to the Seller 500 metric Tonnes net (the equivalent of 1, 102, 300 IBS), being the contractual quantity at the unit price of 65.00 cents per IB net.
(2) The Buyer shall in consequence of the foregoing direction pay to the Seller the sum of US $ 195,658.25 (one hundred and ninety-five thousand, six hundred and fifty-eight point two five US dollars) being the difference between the contract value of 500 metric tonnes net and the market value on the 29th January 2015.
(3) The Buyer shall also pay to the Seller the sum of US $ 12,302.35 (twelve thousand, three hundred and two point three five US dollars) being interest on the sum of US $ 195,658.25 (one hundred and ninety-five thousand, six hundred and fifty-eight point two five US dollars) at the simple rate of 7.5 (seven point five) percent annum from the 29th January to the 1st December 2015, the date of this our Award.
(4) The Buyer shall also pay to the Seller interest on the sum of US $ 207.960.60 (two hundred and seven thousand, nine hundred and sixty point six zero US dollars) being the net cumulative total of the amounts referred to in directions (2) and (3) herein at the rate of 4.25 (four point two five) percent per annum over the NEW YORK PRIME INTEREST RATE or, as appropriate, the calculated average thereof, prevailing from 22nd December 2015 until the date of payment of that sum to the Seller. If any part remains unpaid, this amount will be compounded on each anniversary of the date of his Award and renewed at 4.25 (four point two five) percent over the then prevailing New York Prime Interest rate.
5 At the hearing, the counsel for the respondent company made the following submissions:
(i) The Award was passed in favour of Bashir Cotton Mills Limited but it is being enforced against the respondent which is Bashir Cotton Mills (Pvt.) Limited, which is a different entity.
(ii) The Award was made in accordance with the By-laws and Rules of International Cotton Association and English Arbitration Act, 1996 and thus has to be enforced by the English Courts as a domestic award. It is also stated that the Award is not a New York Convention Award.
(iii) The Award in terms of sub-clause (c) of Clause 1 of Article V of the New York Convention is not enforceable as the terms of the Award are beyond the scope of arbitration agreement. In support of this, contention it is stated that the quantity of Indian cotton under the sale agreement was 500 Tons whereas the arbitration tribunal wrongly adopted the American measurement standard of 'Metric Tons' instead of British weight measurement standard of 'Tons'. It is submitted that the Award cannot be enforced on account of apparent errors. The Award also granted interest and compound interest beyond the scope of arbitration agreement and in terms of Article V(I)(d) of New York Convention it cannot be enforced. The Arbitration Tribunal did not give any reasons in the Award for grant of interest and that interest was granted without recording evidence of the parties.
The procedure adopted by the arbitral tribunal was not in conformity with the provisions of the Arbitration Act, 1996.
(iv) The present application has not been filed by a duly authorized attorney. The board resolution of the applicant is not available on the record to demonstrate that the managing director had the authority to execute special power of attorney in favour of Abdul Ghaffar.
(v) The Award is against the public policy of this County.
6. The applicant controverts the stance of the respondent.
7. It is contended that the Award is against Bashir Cotton Mills Limited whereas the respondent is Bashir Cotton Mills (Pvt.) Limited. This objection is not tenable. The contract that both the parties executed mentioned the name of the respondent as Bashir Cotton Mills Limited. This contract formed the basis for initiation of arbitration proceedings in which the respondent participated and filed replies and documents without taking any objection that it was not the party to the contract.
The respondent thus accepted the fact that it was the contracting party with the applicant. Even though the contract mentioned the name Bashir Cotton Mills Limited, the respondent at all material times was under no illusion about its identity and accepted the fact that it had executed the contract with the applicant. If the respondent felt that its name was not correctly mentioned in the Award it could apply to the arbitral tribunal for correction of its name, but it chose not to do so.
Even before this Court, the respondent entered appearance pursuant to notices issued to it and filed objections, some of which relate to the merits of the case thereby accepting that the Award was passed against it. More importantly, the respondent raised no objection before the arbitral tribunal of the nature now agitated in the present proceedings. The respondent, therefore, cannot be permitted to do so in the present proceedings. It is apparent that the contract inadvertently mentioned the respondent as a public company whereas it is registered under the local laws as a private limited company. This unintentional error, in the opinion of this Court, does not provide any valid basis for objecting to the enforceability of the Award that was passed against the respondent.
Be that as it may, the applicant filed an application being C.M. No.1-C of 2020 for incorporating the name of the respondent as Bashir Cotton Mills (Pvt.) Limited and also filed the amended memo of parties. This application is allowed in view of what has been stated above and the amended memo of parties filed with it is allowed to be brought on the record.
8. Lord Hamblen and Lord Leggatt in the introduction of their judgment rendered in Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb [2020] UKSC 38 mentioned the laws that are applicable to arbitration agreements by stating as follows.
Where an international commercial contract contains an agreement to resolve disputes by arbitration, at least three systems of national law are engaged when a dispute occurs. They are the law governing the substance of the dispute; the law governing the agreement to arbitrate; and the law governing the arbitration process. The law governing the substance of the dispute is generally the law applicable to the contract from which the dispute has arisen. The law governing the arbitration process (sometimes referred to as the "curial law") is generally the law of the "seat" of the arbitration, which is usually the place chosen for the arbitration in the arbitration agreement.
These two systems of law may differ from each other. Each may also differ from the law which governs the validity and scope of the arbitration agreement.
9. As per the arbitration clause contained in the contract, the seat of the Arbitration was Liverpool, United Kingdom. Clause 12 of the General Terms and Conditions of the contract provided that: This contract is subject to the By-laws and Rules of the International Cotton Association Limited in force at the time when this contract was entered into. Unless the parties can reach an amicable settlement all disputes relating to this contract will be resolved through arbitration in accordance with the By-laws and Rules of the International Cotton Association Limited and by application of English law.
(Emphasis added)
The contract inter se the parties made the By-laws and Rules of the Association applicable to the contract. The Arbitration process was to be held in accordance with the By-laws and Rules of the Association and the English Arbitration Act, 1996. It is thus clear that the law of the contract (lex Contractus), which governs the existence, validity and interpretation of the main contract and the procedural law (lex arbitri) governing the arbitration proceedings were the same i.e. the By-laws and Rules of the Association. The Arbitration Act, 1996 was also made applicable to the procedure of arbitration.
10. The allegation that the Award was not a New York Convention award was not taken by the respondent in the application filed by it. Be that as it may, the respondent, by invoking the defence of Article V for objecting to the enforceability of the Award, is precluded from taking two contradictory positions at the same time. The contention that the Award is not a New York Convention Award is also misplaced. Article 1(1) and (2) of the New York Convention are reproduced hereunder.
1. This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.
2. The term "arbitral awards" shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted.
The Award was made in United Kingdom which is a signatory to the New York Convention, and thus the Award is a New York Convention Award, which is liable to be enforced under the Act.
11. The objection on the enforceability of the Award is made based on Article V(1)(c) and (d) of the New York Convention. In the objection application, the respondent did not mention Article (1)(c) of the Convention. Be that as it may, the respondent in support of this contention alleges that grant of interest and compound interest in the Award was beyond the scope of the arbitration agreement.
12. Article (1)(c) is reproduced hereunder.
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced;
13. Article V(1)(c) of the Convention applies to two situations i.e. where the arbitrators have gone beyond the terms of the arbitration agreement, and where they have transgressed and exceeded their mandate whilst remaining within the ambit of their jurisdiction. The term arbitrator's mandate means the delineation of the arbitrator's authority as made by the questions submitted to him (see The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation 312, Kluwer). The claims filed by to parties thus define the limits of the mandate of the arbitrators or in other words circumscribe their mandate. Article V(1)(c), therefore, has application to cases where the arbitrators issue an award in regard to differences which were beyond the scope of the agreement between the parties and also where the arbitrators act in excess of their authority by deciding claims which have not been submitted by the parties. To put it in another way, if the arbitrators exceed the scope of the arbitration agreement by ruling on a dispute which is beyond the terms of the arbitration agreement, the conditions of Article V(1)(c) are satisfied, and as such enforcement may be refused by the Court.
14. Albert Jan van den Berg, a leading authority on the New York Convention, in 'Failure by Arbitrators to Apply Contract Terms from the Perspective of the New York Convention' noted the following distinction: In the case of an arbitration clause (relating to future disputes), the allegation by a respondent that the arbitrator has overstepped his authority may be of two kinds. The first type is that the arbitrator has dealt with a dispute that does not fall within the scope of the arbitration clause. The second is that he has given decisions on matters that are beyond or outside the questions submitted to him by the parties, which may be called the arbitrator's mandate. The latter type of allegation usually concerns the allegation that the arbitrator has awarded more than, or differently from, what was claimed. The difference between the two types of allegations is that the first is based on the arbitration clause itself whereas the second is based on the mandate given to the arbitrator by the parties. The relevance of this distinction is that the mandate may comprise less than the arbitration clause. Consequently, it is the type of allegation that dictates whether the arbitration clause or the mandate must be taken as the measuring standard for determining whether the arbitrator has exceeded his authority.
15. The arbitration clause in the contract relates to disputes between the parties under the contract.
In the present case; the dispute related to the failure of the respondent to open the letter of credit favour of the applicant for supply of cotton. The essential basis of the claim by the applicant before the arbitral tribunal was the breach of the contract by the respondent. The arbitral tribunal assumed jurisdiction as it was concerned with resolution of this dispute that stemmed out of the contract between the parties. The Award found the respondent to be in breach of its obligations under the contract and accordingly awarded not only the price of the cotton but also interest and compound interest thereon.
16. There is no dispute that the contract was to be governed by the By-laws and the Rules of the Association. The seat of arbitration was Liverpool, United Kingdom and arbitration was governed by the Arbitration Act, 1996. The English Supreme Court in the case of Enka Insaat Ve Sanayi v.
Insurance Company OOO Chubb [2020] UKSC 38 held as follows:
119. Even where the parties have not agreed what law is to govern their contract, it is reasonable to start from an assumption - for reasons given earlier - that all the terms of the contract, including an arbitration clause, are governed by the same system of law. Where, however, the parties have selected a place for the arbitration of disputes, there is authority for, as a general rule, regarding the law with which the arbitration agreement is most closely connected as the law of the seat of arbitration. As we have seen, this was the approach adopted by the Court of Appeal in the Sulamerica case (see para 104 above). It was also endorsed by the Court of Appeal in C v D (see para 48 above), albeit that in that case insufficient reason was given, in our opinion, for rejecting the inference that the law chosen to govern the insurance contract was intended to apply to the arbitration clause. Among commentators, this rule notably has the support of Dicey, Morris and Collins on The Conflict of Laws, 15th ed (2012), rule 64(1) and para 16-016; see also Russell on Arbitration, 24th ed, (2015) at para 2-21
17. In the present case, the parties freely decided that their contract and the arbitration clause shall be governed by the By-laws and Rules of Associations and the Arbitration Act, 1996. The arbitrators are often held entitled to make a determination ex officio regarding the content of the substantive applicable law. Section 34(2)(g) of Arbitration Act, 1996 allows arbitrators to decide 'whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law'.
Section 49(3) of the Act grants considerable latitude and discretion to the arbitrators in awarding interest and compound interest. Section 49(3) and (4) of the Arbitration Act of 1996 provides:
(3) The tribunal may award simple or compound interest from such dates, at such rates and with such rests as it considers meets the justice of the case --
(a) on the whole or part of any amount awarded by the tribunal, in respect of any period up to the date of the award;
(b) on the whole or part of any amount claimed in the arbitration and outstanding at the commencement of the arbitral proceedings but paid before the award was made, in respect of any period up to the date of payment.
(4) The tribunal may award simple or compound interest from the date of the award (or any later date) until payment, at such rates and with such rests as it considers meets the justice of the case, on the outstanding amount of any award (including any award of interest under subsection (3) and any award as to costs).
18. Interest is granted in recognition of the principle that the claimant ought to be restored to the position it would be in if breach of contract had not occurred. Interest thus takes the shape of compensation to the claimant for the loss of use of its money on account of delay by the other party in performing its part of the bargain. The award of compensation in the form of interest also recognizes the fact that the party in breach of the contract has retained the money of the claimant and has benefited from it. The opportunity cost of the money to which the claimant was entitled to is made up by awarding interest.
19. The following passages in the Award would reflect the reasoning by the arbitral tribunal for grant of interest and compound interest.
(55) International Cotton Association arbitrators endeavor to discharge their responsibilities under the provisions of Rule 238 in such a way as to lace the parties, in so far as it is possible, in the same financial position as that which they would have occupied had the contracts been performed, bearing in mind any variation to the terms of such contracts as may have been brought about by either written amendments or by the conduct of the parties and/or their accredited agents.
(57) The Tribunal examined the possible dates for the closure of the balance of the contracts. The Tribunal concluded that on receipt by the Buyer of the Seller's debit note of the 29th January 2015 both the parties knew or should have known that they could expect no further consideration from the other.
(58) The Tribunal conducted an investigation as to market price of the contracted cotton on the 29th January, 2015. The following message detailing the range of prices discovered was sent to both parties for comment on the 20th October, 2015: "As part of its work, the Tribunal has examined the market value for the contracted cotton on and around the 29th January, 2015. The Tribunal contacted a variety of trade participants and was received a number of prices. These ranged from 65 usc/lb to 71 usc/lb. The price information was based on both actual business and offers.
There were slight difference in terms on some of these offers, which the Tribunal will take into account. The Tribunal wishes to give both parties the opportunity to comment on these prices. Any comments must be received within seven days and should be confined to the prices only."
(59) The Seller's comments were received on the 27th October, 2015 and forwarded to the Buyer on the 2nd November 2015 and stated.
"....Thanks for feedback. Based on actual business transacted feel our invoice back lever 64.50 justified."
(60) No response from the Buyer was received.
(61) The Tribunal examined all the price evidence before it, including the comments of the Seller.
The Tribunal obtained evidence of actual business on similar terms and either side of the breach date. The Tribunal took into consideration both the premium that an international merchant may obtain over less respected sellers, along with the market reality of being a distressed seller through a contractual default. The Tribunal found the market price for the contracted cotton to be 65.00 usc/ib on the 29th January 2015.
The reasoning of the arbitral tribunal shows that they regarded interest corresponding to the loss the applicant sustained on account of breach of contract by the respondent and that the grant of interest/ compound interest would restore the applicant to the same position as if the breach had not occurred. The arbitral tribunal also proceeded to grant interest in terms of the By-laws and Rules of the Association. Section 49(3) and (4) furthermore establishes that arbitral tribunals located in England have the necessary authority to award interest and compound interest subject to any contract to the contrary between the parties. The literature on International Arbitration furthermore also shows that interest/compound interest in the awards is routinely granted by the Arbitral Tribunals.
20. In the case of Management and Technical Consultants S.A. v. Parsons-Jurden Intl Corp. 820 F.2d at 1531, the dispute involved the authority of the arbitrators to determine the amount of additional compensation which according to the respondent was to be decided by negotiations between the parties and was not part of the agreement. Repelling the argument of the respondent, it was held that An agreement to arbitrate 'any dispute' without strong limiting or excepting language immediately following it logically includes not only the dispute, but the to consequences naturally flowing from it here, the amount of additional compensation. By agreeing to arbitrate the decision of whether there had been US$ 350 million in sales and by using such broad language in the letter agreement, we find the parties also conferred arbitral authority to determine the amount of additional compensation due [to the claimant].
21. Aasma v. American Merican SS Owners Mutual Protection, 238 F. Supp. 2d 918 (N.D. Ohio 2003) was a case in which the arbitrator ruled for the insurers "...as to all claims and assessed Plaintiffs with costs and fees totaling, with accrued interest, well over $500,000". The plaintiffs specifically invoked Article V (1) (c) of the New York Convention as a defence by asserting that the award of costs was beyond the scope of the parties arbitration agreement. The Court found that the ...parties agreement established that the arbitration was to be conducted in accordance with the Arbitration Act, 1996. Sections 59-64 of the Act specifically provide for the awarding of costs and set forth default provisions in the absence of an agreement between the parties as to costs.....
Under the Act, "costs of the arbitration" is a term of art and includes arbitrators' fees and expenses, fees and expenses of the arbitral institution, and "the legal or other costs of the parties." Id., ch. 23, 59(1) (a)-(c). Based on the foregoing,, the Court finds the award of costs to be within the scope of the parties' arbitration agreement.'
This decision is an authority for the proposition that cost even though not included in the agreement between the parties can be awarded based on lex arbirri. The objection put forward by the respondent regarding the gram of interest and compound interest, therefore, has no merit.
22. The respondent made another allegation that the finding of the Arbitral Tribunal relating to measurement standard of 'Metric Tons' was erroneous. Suffice it to state that this Court cannot go into the merits of the decision of arbitral tribunal. Paragraph 9 of the United Nations Commission on International Trade Law (UNCITRAL) Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Awards (2016 Edition) states as under:
9. The grounds for refusal under Article V do not include an erroneous decision in law or in fact by the arbitral tribunal. A court seized with an application for recognition and enforcement under the Convent n may not review the merits of the arbitral tribunal's decision. This principle is unanimously confirmed in the case law and commentary on the New York Convention.
23. In relation to the grant of interest/compound interest or the alleged erroneous findings of the arbitral tribunal about the measurement standard, the respondent had the remedy of appeal available to it under the By-laws of the Association or by recourse to the curial law. The respondent chose not to avail the remedies available to it with the result that the Award has become final and the respondent shall be deemed to have waived its right for raising such objections at the enforcement stage.
24. The grounds listed in the New York Convention on the basis of which a Court may refuse to enforce an arbitral award are exhaustive.
The standard of review on the defence based on Article V(1)(c) of the New York Convention is fairly limited as these defences do not include mistakes of fact or law by the arbitrators. The Court before which a petition for enforcement of award is brought cannot review the merits or substance of the award on the principle that the Court cannot substitute its judgment for that of the- arbitrators. The Court thus cannot enter into reappraisal of the merits of the award like an appellate court. Albert J. Van Den Berg notes in The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation, Kluwer (1982) that: The court's scrutiny of the award is strictly limited to ascertaining whether the award contains things which may give rise to refusal of enforcement....it does not involve an evaluation by court of the arbitration findings.
In the present case, it is the conclusion of this Court that the Award resolved the parties claims arising from their contract and that the grant of interest and compound interest could not form any basis for refusing to endorse it. The Award was within the parameters of the dispute referred to the arbitral tribunal and as such it did not exceed its authority or mandate. The US Court of Appeals in the case of Parsons and Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier (RAKTA) 508 F.2d 969 (2d Cir. 1974) held that: Although the Convention recognizes that an award may not be enforced where predicated on a subject matter outside the arbitrator's jurisdiction, it does not sanction second-guessing the arbitrator's construction of the parties agreement. The appellant's attempt to invoke this defense, however, calls upon the court to ignore this limitation on its decision-making powers and usurp the arbitrator's role.
25. We may now take some other minor objections of the respondent. It was stated that the Award was required to be enforced under the Arbitration Act, 1996. This plea is without any merit. The Act recognizes enforcement of awards made by foreign arbitral tribunal in a contracting state. United Kingdom is a contracting state and thus the Award is enforceable under the provisions of the Act.
The authority of Abdul Ghaffar who instituted the present application on behalf of the applicant on the basis of power of attorney was also challenged by the respondent on the ground that the Board resolution in favour of the managing director who executed the power of attorney was not appended with the application. This plea is devoid of any force in view of the law laid down by the Hon'ble Supreme Court in the case of Rahat and Company v. Trading Corporation of Pakistan PLD 2020 SC 366. Suffice it to state that Article of Association No.85 granted the power to the Board to issue power of attorney with such powers and for such period as it may think fit. Similarly, the learned counsel did not address any meaningful arguments on public policy defence.
26. In the result, the respondent has failed to raise any valid defense in accordance with Article V of the New York Convention for the enforcement of the Award. Their application is accordingly dismissed. The main application filed by the applicant is allowed and the Award is recognized which shall be enforced as a judgment of this Court.
27. Now to come up for hearing on 05.09.2023 for further proceedings.