2017 C L C 599

[Islamabad]

Before Miangul Hassan Aurangzeb, J

PAK. U.K. ASSOCIATION (PVT.) LTD.----Petitioner

Versus

The HASHEMITE KINGDOM OF JORDAN----Respondent

Arbitration Petition No.24 of 2016, decided on 15th September, 2016.

(a) Arbitration Act (X of 1940)---

----Ss. 20, 5 & 11---Civil Procedure Code (V of 1908), O.VII, R.11---Arbitration

agreement---Condition in the agreement for referring the dispute to the engineer for his
decision---Application for filing the arbitration agreement in Court---Scope---
Allegation of bias of arbitrator---Effect---Petitioner moved petition for filing
arbitration agreement in the Court wherein respondent submitted an application for
rejecting the said petition on the ground that petitioner had not exhausted the
precondition of referring the dispute to the engineer---Contention of petitioner was that
engineer was biased and controversial---Validity---Petitioner was aware of the
requirement to refer the dispute in the first instance to the engineer---Dispute was not
referred to the engineer for decision under the contract---Dispute between the parties
had to be referred in the first instance to the engineer who was supposed to give his
decision within stipulated period---If the engineer gave his decision or did not give his
decision within stipulated period then aggrieved party could refer the matter in dispute
to arbitration---Right of aggrieved party to refer the dispute to arbitration was pre-
conditioned with a reference of such dispute to the engineer---Application for filing the
arbitration agreement in the Court without fulfillment of such condition was liable to
be dismissed as premature---Court could not rewrite the agreement between the parties
or exempt a party from complying with its contractual obligation of the contract---
Where reference to engineer could not be made because he had resigned or refused to
entertain the dispute or had been disengaged by the employer then dispute could be
referred to arbitration without a reference to the engineer---Party could not bypass the
requirement of a reference of dispute to an engineer on the ground of bias unless court
was satisfied that substantial miscarriage of justice would take place if such an
application for filing the arbitration agreement was dismissed as premature---Court
must not lightly relieve the parties from their bargain---Discretion had to be exercised
cautiously and parties should not be relieved from a forum they had chosen because
they feared that the engineer's decision might go against them---Bias of an arbitrator
was one of the grounds on which an arbitrator could be removed or his authority could
be revoked---Mere suspicion of a party must not lead to the conclusion that authority
hearing the proceedings was biased---Apprehension must be judged from a healthy,
reasoned and average point of view and not on mere apprehension of any whimsical
person---Where allegations of fraud, misrepresentation, collusion or mala fide were
attributed then necessary particulars and details should be unfolded---Bald or vague
statement to such effect would be of no legal consequence---Mere fact that engineer
had in past given decision against a party or had expressed a view/opinion adverse to
the said party could not be made a ground for avoiding the contractual obligation---
Respondent had right to insist that dispute should be resolved in accordance with the
procedure provided in the contract---Application for rejection of petition for filing the
arbitration agreement in the court was allowed and petitioner's application was
dismissed as premature---Petitioner might subject to law refer the dispute to the
engineer in terms of contract for decision.

Pakistan Development Corporation (Pvt.) Ltd. v. Ministry of Defence, Government of

Pakistan PLD 1995 Kar. 286; Board of Intermediate and Secondary Education v. Fine
Star and Company 1993 SCMR 530; Karachi Dock Labour Board v. Quality Builders
Ltd. PLD 2016 SC 121; Hanover Contractors v. Pakistan Defence Officers Housing
Society 2002 CLC 1880; Sanad Associates v. General Manager Telephone and
Telegraph 1989 CLC 386; Ayaz Builders v. Board of Trustees of the Karachi Port Trust
and another 2008 CLC 726 and WAPDA v. S.H. Haq Noor & Co. 2008 MLD 1606 ref.

Smith v. Martin [1925] 1 K.B. 745; The President v. Mr. Justice Shaukat Ali PLD 1971
SC 585; Azhar Ali v. Punjab Public Service Commission PLD 2004 SC 4; Sain Rakhio
v. Abdul Ghaffar 2011 CLC 1160; International Airport Authority of India v. K.D. Bali
AIR 1988 SC 1099; Bristol Corporation v. John Aird & Co. 1913 AC 241; Lanvin
Traders v. Presiding Officer, Banking Court 2013 SCMR 1419 and Muhammad
Ishaque Qureshi v. Azad J&K Government PLD 1962 Azad J&K 1 rel.

(b) Bias---

----Allegation has to be established by cogent and clear evidence---Bias stands

included in the attributes of the word "malice"---Principles.

Sardar Arshad Mehmood Khan for Applicant.

Tahir Mehmood Abbasi and Raza Ullah Khan Niazi for Respondent.

Date of hearing: 16th June, 2016.

JUDGMENT

MIANGUL HASSAN AURANGZEB, J.--- On 16.03.2016, M/s. Pakistan U.K.

Associate Private Limited ("applicant") filed an application under Section 20 of the
Arbitration Act, 1940 ("the 1940 Act") praying for the arbitration agreement between
the applicant and the Hashemite Kingdom of Jordan ("respondent"), to be filed in the
court and the matters in dispute between the said parties referred to arbitration.

2. On 24.03.2016, this Court issued a notice in terms of Section 20(4) of the 1940 Act,
to the respondent to show cause as to why the arbitration agreement between the said
parties should not be filed in the court, and the dispute between the parties not referred
to arbitration. The respondent, instead of filing a reply to the said notice, filed an
application under Order VII, Rule 11 of the Code of Civil Procedure, 1908 ("C.P.C.")
praying for the applicant's application under Section 20 of the Arbitration Act to be
rejected on the ground that the applicant had not exhausted the precondition of
referring the contractual disputes to the Engineer in terms of clause 67.1 of the contract
between the parties, before filing the application under Section 20 of the 1940 Act.

3. Through this common judgment, I propose to dispose of the applicant's application

under Section 20 of the 1940 Act, and the respondent's application under Order VII,
Rule 11, C.P.C.

4. The record shows that on 16.06.2010, a contract was entered into between the
applicant and the respondent for certain works to be executed by the applicant at
Jordanian Embassy and the Jordanian Ambassador's residence in the Diplomatic
Enclave, Islamabad. The applicant was awarded this contract as a consequence of a
tender bidding process.

5. The respondent appointed M/s. Design Advisor as the "Engineer" for the project.
Clause 2.6 of the Instruction to Tenderers and Conditions of Contract - Part-I (General
Conditions) requires the Engineer to act impartially in the exercise of his discretion in
giving his decisions, opinions or consents, or expressing his satisfaction or approval, or
in determining value. On 24.06.2010, the Engineer issued a 'notice to commence'
construction in accordance with the terms of the said contract. This notice inter alia
provided for the works to be completed within 455 days/15 months; the date for
commencement was to be reckoned with effect from 08.07.2010; the maintenance
period was to be 365 days for civil works, and 730 days for electromechanical works
from the date of the issuance of the final certificate for completion.

6. The disputes and differences between the applicant and the respondent in connection
with, or arising out of the contract were to be resolved in accordance with clauses 67.1
to 67.4 of the contract, which is reproduced herein below:--

67.1 "Engineer's Decision

If a dispute of any kind whatsoever arises between the Employer and the
Contractor in connection with, or arising out of, the Contract or the execution
of the Works, whether during the execution of the Works or after their
completion and whether before or after repudiation or other termination of the
Contract, including any dispute as to any opinion, instruction, determination,
certificate or valuation of the Engineer, the matter in dispute shall, in the first
place, be referred in writing to the Engineer, with a copy to the other party.
Such reference shall state that it is made pursuant to this Clause. No later than
the eighty-fourth day after the day on which he received such reference the
Engineer shall give notice of his decision to the Employer and the Contractor.
Such decision shall state that it is made pursuance to this Clause.

Unless the Contract has already been repudiated or terminated, the Contractor
shall, in every case, continue to proceed with the Works with all due diligence
and the Contractor and the Employer shall give effect forthwith to every such
 decision of the Engineer unless and until the same shall be revised, as
hereinafter provided, in an amicable settlement or an arbitral award.

If either the Employer or the Contractor be dissatisfied with any decision of the
Engineer, or if the Engineer fails to give notice of his decision on or before the
eighty-fourth day on which he received the reference, then either the Employer
or the Contractor may, on or before the seventieth day after the day on which he
received notice of such decision or on or before the seventieth day after the day
on which the said period of 84 days expired, as the case may be, give notice to
the other party, with a copy for information to the Engineer, of his intention to
commence arbitration, as hereinafter provided, as to the matter in dispute. Such
notice shall establish the entitlement of the party giving the same to commence
arbitration, as hereinafter provided, as to such dispute and, subject to Sub-
Clause 67.4, no arbitration in respect thereof may be commenced unless such
notice is given.

If the Engineer has given notice of his decision as to a matter in dispute to the
Employer and the Contractor and no notice of intention to commence
arbitration as to such dispute has been given by either the Employer or the
Contractor on or before the seventieth day after the day on which the parties
received notice as to such decision from the Engineer, the said decision shall
become final and binding upon the Employer and the Contractor.

67.2 Amicable Settlement

Where notice of intention to commence arbitration as to dispute has been given

in accordance with Sub-Clause 67.1, the parties shall attempt to settle such
dispute amicably before the commencement of arbitration, Provided that,
unless that parties otherwise agree, arbitration may be commenced on or after
the fifty-sixth day after the day on which notice of intention to commence
arbitration of such dispute was given, even if no attempt at amicable settlement
thereof has been made.

67.3 Arbitration

Any dispute in respect of which:--

(a) the decision, if any of the Engineer has not become final and binding
pursuant to Sub-Clause 67.1, and

(b) amicable settlement has not been reached within the period stated in Sub-
Clause 67.2,

Shall be finally settled, unless otherwise specified in the Contract under the
Rules of Conciliation and Arbitration of the International Chamber of
Commerce by one or more arbitrators appointed under such rules. The said
arbitrator/s shall have full power to open up, review and revise any decision,
opinion, instruction, determination, certificate or valuation of the Engineer
related to the dispute.
 Neither party shall be limited in the proceedings before such arbitrator/s to the
evidence or arguments but before the Engineer for the purpose of obtaining his
said decision pursuant to Sub-Clause 67.1. No such decision shall disqualify
the Engineer from being called as to witness and giving evidence before the
arbitrator/s on any matter whatsoever relevant to the dispute.

Arbitration may be commenced prior to or after completion of the Works,

provided that the obligations of the Employer, the Engineer and the Contractor
shall not be altered by reason of the arbitration being conducted during the
progress of the Works.

67.4 Failure to Comply with Engineer's Decision

Where neither the Employer nor the Contractor has given notice of intention to
commence arbitration of a dispute within the period stated in Sub-Clause 67.1
and the related decision has become final and binding, either party may, if the
other party fails to comply with such decision, and without prejudice to any
other rights it may have, refer the failure to arbitration in accordance with Sub-
Clause 67.3 the provisions of Sub-Clauses 67.1 and 67.2 shall not apply to any
such reference."

7. Clause 67.3 of the Clause 2.6 of the Instruction to Tenderers and Conditions of
Contract - Part-II (Particular Conditions of Contract) amends Clause 67.3 of the
Instruction to Tenderers and Conditions of Contract - Part-I (General Conditions) only
to the extent of requiring the disputes to be settled under the provisions of the 1940 Act
instead of the Rules of Conciliation and Arbitration of the International Chamber of
Commerce.

8. I do not feel the need to go to the details of the correspondence between the parties
and the Engineer, but suffice it to say that disputes and differences developed between
the parties in connection with or arising out of the contract. These disputes and
differences developed primarily on account of the delay in the execution of the
construction work. The applicant and the respondent made allegations and counter
allegations against each other regarding the cause for the delay. The applicant had
inter-alia alleged that the provision of the complete structural and construction designs
were delayed by the Engineer, who had been appointed by the respondent; and that the
drawings provided by the respondent did not match the actual position on the spot due
to seepage of water. On the other hand, the respondent had taken the position that the
applicant's excuses for not performing its contractual obligations were lame, and that
after the execution of the Memorandum of Understanding dated 03.07.2013, there was
no reason for any complaint by the applicant.

9. The applicant seems to have lost faith in the decisions made by the Engineer. The
applicant, in its letter dated 19.08.2013, made reference to 23 letters addressed by the
applicant, and complained that the Engineer was not performing its duties under the
terms of the contract, and had unduly delayed the decisions which he was supposed to
take regarding the provision of approved construction drawings, and the payment
against Interim Payment Certificate ("IPC") No.12, dated 19.08.2013. It is pertinent to
reproduce herein below the last three paragraphs of the said letter dated 19.08.2013:-

"We would bring in your kind notice that we are unable to fulfill the irrelevant
demand of the Engineer as such he has been received han[d]som[e] amount
illegally however; he is further. blackmailing us for the fulfillment of the either
demands for which our pending payments are not being processed.

After going through the above your good self would realize that in the
prevailing situation, when work completion target has been fixed and work
activities are in progress in full swing, we are unable to account for the
Engineer irrelevant demand and it seems the Engineer has been controversial
and in their presence work would not be completed in given time frame.

You are therefore requested to please intervene and an emergency meeting may
be called so that we may be able to prove our stance and an appropriate action
towards the Engineer may be initiated under the provision of COG so that we
may get out our self in the unpleasant situation and project may be completed
as soon as possible." (Emphasis added)

10. Earlier, vide letter dated 06.08.2013, the applicant had complained against the
"negative attitude" of the Engineer towards the timely completion of the works. The
applicant was of the view that the Engineer had delayed payment against IPC No.12
for more than 45 days. Furthermore, in the said letter, the applicant took the following
position:-

"Please note that we are unable to fulfill your unfair demands for which you
have been delayed our IPC-12 for more than 45 days and subsequently, bill was
returned due to non-compliance of your unfair demands." (Emphasis added)

11. On 20.09.2013, the applicant instituted a Civil Suit (C.S. No.67/2013) before this
Court seeking the specific performance of the contract dated 16.06.2010; cancellation
of the Memorandum of Understanding dated 03.07.2013; declaration and mandatory
injunction, against the respondent. On 09.10.2013, this Court on the applicant's
application directed status quo to be maintained. On 09.10.2013, the respondent filed
an application under Section 34 of the 1940 Act praying for the proceedings in the civil
suit to be stayed and the matters in dispute to be decided in accordance with the
arbitration clause contained in clause 67 of the contract. This application was contested
by the applicant, who took the position that the respondent had not shown his
willingness and readiness to settle the contractual disputes through arbitration. Vide
order dated 13.11.2013, the learned Single Judge-in-Chambers allowed the
respondent's application under Section 34 of the 1940 Act, and dismissed the suit.
Thereafter, the applicant, on 8.11.2013, issued a notice to commence arbitration to the
respondent. The applicant did not, however, refer the contractual disputes for the
decision of the Engineer under clause 67.1 of the contract. The applicant, in the said
notice dated 28.11.2013, stated that "the engineer has proved himself as bias and
controversial". The applicant requested the respondent for an amicable settlement of
the contractual disputes in terms of clause 67.2 of the contract, before the said disputes
could be referred to arbitration.

12. In addition to issuing a notice to commence arbitration, the applicant impugned the
said order dated 13.11.2013, passed by the learned Single Bench in Regular First
Appeal No.164/2013, which was allowed, vide order dated 02.02.2016, passed by the
learned Division Bench of this Court. The said order dated 13.11.2013, was set aside
and the matter was remanded to the learned Single Bench of this Court. The said
appellate order dated 02.02.2016, is reproduced herein below:-

"After hearing the learned counsel for the parties, this proposition of law urged
through consensus that suit of the appellant could not have been dismissed
rather proceedings in the suit are required to be stayed.

2. In this view of the matter we accept the instant appeal, set aside the
impugned order dated 13.11.2013 passed by learned Single Judge, and remand
the case back to learned Single Judge for decision with regard to appointment
of Arbitrator or sending the matter to the Arbitrator as per agreement. The
parties are directed to put appearance before learned Single Judge on
25.02.2016."

13. After the remand of the case, this Court vide order dated 04.05.2016, stayed the
proceedings in the suit under Section 34 of the 1940 Act. This order was passed with
the consent of the learned counsel for the contesting parties. The applicant had agreed
to the proceedings in the suit to be stayed because it had, on 17.03.2016, already filed
an application under Section 20 of the 1940 Act, before this Court.

14. On 16.05.2016, the respondent filed an a application under Order VII, Rule 11,
C.P.C., for the dismissal of the applicant's application under Section 20 of the 1940
Act, inter alia on the ground that the applicant had not, prior to filing the application
under Section 20 of the 1940 Act, referred the matters in dispute between the parties to
the Engineer in accordance with clause 67.1 of the contract. This application was
contested by the applicant by filing a written reply. In Paragraph 4 of the applicant's
reply to the respondent's application under Order VII, Rule 11, C.P.C., it has been inter
alia pleaded as follows:--

"4. ... That dispute cannot be resolved through clauses 67-1, and 67-2 of the
agreement because the so-called engineer proved himself as bias and
controversial because he claimed a heavy amount from the plaintiff's company
as Bribe for the clearance of the outstanding bills, therefore the plaintiff's
company not satisfy with the determination, evaluation and decision of the
engineer therefore both the clauses cannot be invoked. Letter dated 18.11.2013
is attached at page No.112 with the main suit."

15. As mentioned above, through the instant judgment, I propose to dispose of the
applicant's application under Section 20 of the 1940 Act, as well as the respondent's
application under Order VII, Rule 11, C.P.C.
16. Learned counsel for the applicant submitted that the contract dated 16.06.2010
between the applicant and the respondent contains an arbitration clause providing for
the settlement of the contractual disputes between the said parties to be resolved
through arbitration under the provisions of the 1940 Act; that the documents on the
record show that there are several dispute and differences between the parties arising
out and in connection with the terms of the said contract; that this Court has the
jurisdiction to refer the contractual disputes between the parties to arbitration and
appoint an arbitrator; that the arbitration agreement between the parties was executed
prior to the filing of the application under Section 20 the 1940 Act; that the applicant
had been languishing in the courts since the past three years seeking an adjudication of
its disputes with the respondent; that the disputes between the parties could not be
referred to the Engineer, because the applicant had no faith in his wisdom and had
raised allegations of bias against the Engineer in letters, which were a part of the
record; that if the claims raised by the applicant were not valid, they could be spurned
by the arbitrator; that the applicant had already made an effort for the amicable
settlement of disputes with the respondent through its letter dated 28.11.2013. In
conclusion, the learned counsel for the applicant prayed for the respondent's
application under Order VII, Rule 11, C.P.C. to be dismissed, and the applicant's
application under Section 20 of the 1940 Act to be allowed. In making his submission,
the learned counsel for the applicant placed reliance on the case of Pakistan
Development Corporation (Pvt.) Ltd. v. Ministry of Defence, Government of Pakistan
(PLD 1995 Karachi 286).

17 On the other hand, learned counsel for the respondent submitted that clause 67 of
the contract required the parties to refer disputes, in the first instance, to the Engineer,
and only after the Engineer gives his decision, or does not give his decision within
eighty-four days; that the disputes can be referred to arbitration under the provisions of
the 1940 Act; that without satisfying the essential precondition of a reference to the
Engineer contemplated by clause 67.1 of the contract, the applicant could not jump-
the-gun and directly file an application under Section 20 of the 1940 Act; that the
Engineer had not been disassociated from the project, and could adjudicate upon the
disputes referred to him by either party; and that the allegations of bias hurled by the
applicant against the Engineer are baseless and frivolous. In making his submissions,
the learned counsel for the respondent placed reliance on the law laid down in the
cases of Board of Intermediate and Secondary Education v. Fine Star and Company
(1993 SCMR 530), Karachi Dock Labour Board v. Quality Builders Ltd. (PLD 2016
SC 121), Hanover Contractors v. Pakistan Defence Officers Housing Society (2002
CLC 1880), Sanad Associates v. General Manager Telephone and Telegraph (1989
CLC 386), Ayaz Builders v. Board of Trustees of the Karachi Port Trust and another
(2008 CLC 726), and WAPDA v. S.H. Haq Noor & Co. (2008 MLD 1606).

18. I have heard the arguments of the learned counsel for the contesting parties, and
have perused the record with their able assistance. The facts leading to the filing of the
application under Section 20 of the 1940 Act, and the application under Order VII,
Rule 11, C.P.C, have been set out in sufficient detail in paragraphs 4 to 14 above, and
need not be recapitulated.
19. I do not intend to go into the merits of the contractual disputes between the parties.
At this stage all that this Court has to determine is whether the applicant could have
filed an application under Section 20 of the 1940 Act, without exhausting the pre-
condition of referring the contractual disputes to the Engineer for his decision under
clause 67.1 of the contract; and if the answer to the said question is that the applicant
could have filed such an application, whether the matters in dispute between the
applicant and the respondent could be referred to arbitration.

20. There is no denying the fact that clause 67.1 of the contract requires disputes of any
kind whatsoever arising between the Employer (respondent) and the Contractor
(applicant) in connection with or arising out of the contract to be referred, in the first
place, to the Engineer for his decision. If the Engineer does not give his decision
within eighty-four days, the matters in dispute between the parties can be referred to
arbitration under cause 67.3 of the contract, after an attempt to resolve the disputes
amicably in terms of clause 67.2 of the contract. If the Engineer does give his decision
within eighty-four days, the aggrieved party can assail the same in arbitration
proceedings, after trying to resolve the matters amicably.

21. It appears that the applicant was aware of the requirement to refer contractual
disputes, in the first instance, to the Engineer in terms of clause 67.1 of the contract.
The applicant did not refer the contractual disputes for the decision of the Engineer
under clause 67.1 of the contract, because as mentioned in the notice dated 28.11.2013,
the applicant took the position that "the engineer has proved himself as bias and
controversial". It was also complained that the Engineer had failed to fulfill his
contractual obligations, and that the applicant was not satisfied with the
determinations, evaluations and decisions of the Engineer. The applicant put the cart
before the horse by requesting the respondent for an amicable settlement of the
contractual disputes in terms of clause 67.2 of the contract, before the said disputes
could be referred to arbitration.

22. Now the vital question that needs to be answered is whether the applicant could be
relieved from his obligation of referring disputes to the Engineer in terms of clause
67.1 of the contract before the filing of an application under Section 20 of the 1940
Act. At this stage, a reference to the following case law on the subject would be
apposite:--

(i) In the case of Board of Intermediate and Secondary Education v. Fine Star &
Company (1993 SCMR 530), an application under Section 20 the 1940 Act
before the trial court seeking a direction for the filing of the arbitration
agreement in the court and for the appointment of a sole arbitrator was
dismissed on the ground that before moving the said application, the applicant
had not approached the Chairman of the Board of Intermediate and Secondary
Education for his decision in accordance with the arbitration clause in the
agreement. The arbitration clause in the agreement provided that in the event of
any disagreement arising out of the contract, it was to be referred in the first
instance to the Chairman of the Board who was required to give his decision
within three months or within such period as might be allowed by the court.
Furthermore, it was provided that in case the Chairman failed to give his
decision within the said period or the extended period or if a party was not
satisfied with his decision, the dispute was to be referred to a sole arbitrator to
be appointed by the Board. It was held that since the applicant had not fulfilled
the requirement of the arbitration clause by not approaching the Chairman of
the Board before filing the application under Section 20 of the 1940 Act, the
said application as correctly dismissed.

(ii) In the case of Karachi Dock Labour Board v. Quality Builders Ltd. (PLD
2016 SC 121), it has inter alia been held as follows:-

"It is a settled principle that where the law requires an act to be done in a
particular manner it has to be done in that manner and not otherwise and this
rule shall be stringently applicable when it comes to the question of
appointment of arbitrators; as the conferment of jurisdiction upon the arbitrator
should be strictly in line with the letter and spirit of the agreement between the
parties and the express provisions of law. Obviously, any award passed by such
an arbitrator who is not appointed in the above manner shall also be invalid,
having been passed by an arbitrator without jurisdiction." (Emphasis added)

(iii) In the case of Hanover Contractors v. Pakistan Defence Officers Housing

Society (2002 CLC 1880), it was inter alia held by the Hon'ble High Court of
Sindh as follows:--

"It has already been settled that precondition contained in the arbitration clause
are binding upon the parties. The documents were prepared by the defendants
and they themselves incorporated that condition of prior reference of the claim
to the consultant and attached the element of finality to the decision in case it
was not challenged within a period of 28 days. They cannot now be allowed to
turn around and disown the conditions laid down by them which has been
relied and acted upon by the plaintiff on the basis of the documents provided by
them to the contractor.

In view of the above I am of the opinion that the arbitration clause cannot be
resorted to by the defendant at this stage accordingly C.M.A. 6203 of 2001 is
dismissed and C.M.A. 7592 of 2001 is allowed."

(iv) In the case of Sanad Associates v. General Manager Telephone and

Telegraph (1989 CLC 386), it has inter alia been held as follows:--

"As I have analysed the facts of the case from the conduct of the plaintiff, it has
been demonstrated clearly it has no intention to refer the disputes to the
consultant in the first place and then to go to arbitration. Apart from the said
facts the plaintiff himself alleged bias and unsuitability of the
consultant/arbitrator appointed under the arbitration clause and therefore,
asking for variation of the arbitration agreement under section 20 of the Act and
in para. 12 of the plaint makes the said intention of the plaintiff to vary the
arbitration agreement by changing the consultant/arbitration unilaterally by the
Court in favour of making an order for filing the arbitration agreement as the
arbitration agreement as stands now, is not asked for by the plaintiff to be filed
but the plaintiff asking for a different arbitration agreement by changing the
name of the arbitrator to be filed which the Court has no power to do so.

In the result, there will not be an order under section 20 of the Arbitration Act
to refer the disputes to the arbitrator and the application is dismissed with no
order as to costs."

(v) In the case of Ayaz Builders v. Board of Trustees of the Karachi Port Trust
and another (2008 CLC 726), it was inter-alia held by the Hon'ble High Court
of Sindh as follows:--

"... the parties have agreed to a mechanism or resolution of their dispute and
they cannot bypass the same by initiating legal proceedings. Furthermore, the
plaintiff after referring the matter to the Engineer has not waited for his
decision and has filed this suit, due to which the Engineer cannot take decision.
The plaintiff cannot take advantage of its own deeds and cannot avoid
proceedings in terms of the contract.

The suit filed by the plaintiff under section 20 of the Arbitration Act appears to
be premature. The defendant No.1 has at no stage disputes the arbitration clause
in the contract and has also not disputed the authority of the Engineer to take
decision and has agreed to join the proceedings pending before the Engineer,
therefore, the suit at this stage is not maintainable. The plaintiff may avail
remedy available to him under the contract after the decision of the Engineer."

(vi) In the case of WAPDA v. S.H. Haq Noor & Co. (2008 MLD 1606), the
arbitration clause in the agreement was similar to the one in the case at hand.
The aggrieved party had referred contractual disputes to the Engineer under
clause 67.1 of the contract, and without waiting for the Engineer's decision,
filed an application under Section 20 of the 1940 Act before the Court. The
Hon'ble Lahore High Court held that a specific procedure had been laid down
for dispute resolution between the contracting parties which had to be resorted
to before approaching the Court under Section 20 of the 1940 Act. Furthermore,
it was held that no plausible and cogent justification had been made out for
prematurely approaching the Civil Court without fulfilling the prerequisite for
resorting to arbitration proceedings. The application under Section 20 of the
1940 Act was held to have been correctly dismissed.

(vii) Conditions precedent for the operation of the arbitration clause my take
different forms. In the case of Smith v. Martin ([1925] 1 K.B. 745), an
arbitration clause in a works contract provided that the "reference shall not be
opened until after the completion of the works." It was held that the arbitrators
had no jurisdiction to determine whether the works had been completed; that
the works had in fact not been completed and, therefore, an award by the
arbitrator was invalid.
23. It is well settled that certain conditions precedent to the operation of an arbitration
clause step in to prevent its operation. For instance, in the case at hand, the dispute
resolution clause in the agreement, in effect provides that a dispute between the parties
has to be referred, in the first instance, to the Engineer, who is supposed to give his
decision within a stipulated period; and that only where the Engineer gives his decision
or does not give his decision within such a period, can the aggrieved party refer the
matters in dispute to arbitration. Thus, the right of an aggrieved party to refer
contractual disputes to arbitration is pre-conditioned with reference of such disputes to
the Engineer. An application under Section 20 of the 1940 Act, without the fulfillment
of the pre-condition of a reference of the disputes for the decision of the Engineer in
terms of clause 67.1 of the contract, is liable to be dismissed as premature.

24. The Court cannot rewrite the agreement between the parties or to exempt a party
from complying with its contractual obligation of referring the disputes to the Engineer
under clause 67.1 of the Contract before initiating arbitration under clause 67.3 of the
Contract. It is in situations where a reference to the Engineer cannot be made because
he has resigned or refuses to entertain the dispute or has been disengaged by the
employer, can the disputes be referred to arbitration without a reference to the
Engineer. On a Court query, the learned counsel for the applicant submitted that the
Engineer is still performing his functions under the contract and that the
Employer/Respondent has not disengaged his services.

25. Now, it needs to be determined whether allegations of bias against an Engineer, not
substantiated by any cogent evidence, could relieve a party from the requirement of
referring disputes to the Engineer under clause 67.1 of the contract. Since the
requirement of a reference of disputes to an Engineer is an integral part of the dispute
resolution mechanism enshrined in the contract, a party cannot by-pass the requirement
of a reference of disputes to an Engineer (named in the agreement by
designation/position or otherwise) on the ground of bias, unless the Court hearing an
application under Section 20 of the 1940 Act, is satisfied that substantial miscarriage of
justice will take place, if such an application is dismissed as pre mature on account of
no reference having been made to the Engineer in first instance. However, as
mentioned above, the Court must not lightly relieve the parties from their bargain.
Discretion has to be exercised cautiously, and the parties should not be relieved from
forum (i.e. the Engineer) they have chosen because they fear that the Engineer's
decision may go against them. I am of the view that in exercising its discretion whether
to exempt a party from referring the disputes for the Engineer's decision, to Court has
to apply the test for revoking the authority of an arbitrator (under Section 5 of the 1940
Act) or removing an arbitrator (under Section 11 of the 1940 Act).

26. Section 5 of the 1940 Act provides that the authority of an appointed arbitrator or
umpire shall not be revocable except with the leave of the Court, unless a contrary
intention is expressed in the arbitration agreement. Additionally, Section 11 of the 1940
Act, empowers the Court to remove an arbitrator in certain circumstances. Bias of an
arbitrator is one of the recognized grounds on which an arbitrator can be removed or
his authority he revoked. It has been consistently held that it is not every suspicion felt
by a party which must lead to the conclusion that the authority hearing the proceedings
is biased. The apprehension must be judged from a healthy, reasonable and average
point of view and not on mere apprehension of any whimsical person.

27. Now, can a simple allegation of possible or probable bias be a ground for the
removal of the Engineer, who is supposed to adjudicate upon contractual disputes
between contracting parties, or to nullify a term of a contract which requires a party to
a contract to refer such disputes to the Engineer before initiating arbitration
proceedings. I think not, in view of the following case law:--

(i) In the case of The President v. Mr. Justice Shaukat Ali (PLD 1971 SC 585),
it has been held that 'mere assertion of a bias can never be sufficient to
disqualify a Judge in hearing a cause or matter.'

(ii) In the case of Azhar Ali v. Punjab Public Service Commission (PLD 2004
SC 4), it has been held that mere allegations of bias are not sustained in the
absence of any tangible evidence in support thereof.

(iii) In the case of Sain Rakhio v. Abdul Ghaffar (2011 CLC 1160), it has been
held as follows:--

"9. Apprehension of bias, in my humble view, cannot be extended to judicial

bias, on the ground that since a Judge while deciding a similar matter has
already expressed an adverse opinion, therefore, the other case of similar nature
might have the same fate. Reference in this regard can be made to a Full-Bench
judgment of this Court in the case of Syed Tahir Hussain Mahmoodi and others
v. Tayyab and others PLD 2009 Karachi 176."

(iv) In the case of International Airport Authority of India v. K.D. Bali (AIR
1988 SC 1099), it has been held that there must be reasonable evidence to
satisfy that there was a real likelihood of bias. Furthermore, it has been held as
follows:--

"Vague suspicions of whimsical, capricious and unreasonable people should not

be made the standard to regulate normal human conduct. In this country in
numerous contracts with the Government, clauses requiring the Superintending
Engineer or some official of the Govt. to be the arbitrator are there. It cannot be
said that the Superintending Engineer, as such, cannot be entrusted with the
work of arbitration and that an apprehension, simpliciter in the mind of the
contractor without any tangible ground, would be a justification for removal.
No other ground for the alleged apprehension was indicated in the pleadings
before the learned Judge or the decision of the learned Judge. There was, in our
opinion, no ground for removal of the arbitrator. Mere imagination of a ground
cannot be an excuse for apprehending bias in the mind of the chosen arbitrator."

(v) In the case of Bristol Corporation v. John Aird & Co. (1913 AC 241) Lord
Atkinson has observed:--

" But though the contractor is bound by that contract, he has a right to demand
that, notwithstanding those preformed views of the engineer, that gentleman
 shall listen to argument and determine the matter submitted to him as fairly as
he can as an honest man; and if it be shown in fact that there is any reasonable
prospect that he will be so biased as to be likely not to decide fairly upon those
matters, then the contractor is allowed to escape from his bargain and to have
the matters in dispute tried by one of the ordinary tribunals of the land. But I
think he has more than that right. If, without any fault of his own, the engineer
has put himself in such a position that it is not fitting or decorous or proper that
he should act as arbitrator in any one or more of those disputes, the contractor
has the right to appeal to a Court of Law and they are entitled to say, in answer
to an application to the Court to exercise the discretion which the 4th section of
the Arbitration Act vests in them..."

28. The allegations of bias and mala fide had to be established by cogent and clear
evidence. It is well settled that "bias" stands included in the attributes of the word
"malice". In the case of Lanvin Traders v. Presiding Officer, Banking Court (2013
SCMR 1419), it has been held that an elementary principle of pleadings was that where
allegations of fraud misrepresentation, collusion or mala fide were attributed,
necessary particulars and details in such context were to be unfolded in the
application/pleadings, and any bald or vague statement to such effect was of no legal
consequence. It is my view that allegations of bias and bribery stand on the same
footing and unless full particulars with respect to the same are given in the pleadings,
they are to be discarded.

29. The allegations of bias made by the applicant against the Engineer in letters dated
19.08.2013 and 06.08.2013, and in paragraph 4 of the reply to the respondent's
application under Order VII, Rule 11, C.P.C., are, in my view, bare allegations with no
particularities or specificities. No material was placed on the record to indicate that the
decision/judgment of the Engineer would be coloured, let alone be affected by any
bias. Credence must not be given to bald allegations of bias against a person
designated to carry out adjudication. As regards the offence of bribery allegedly
committed by the Engineer, the applicant chose neither to file a criminal complaint, nor
an application before the Pakistan Engineering Council. Clause 2.2 of the Instruction to
Tenderers and Conditions of Contract - Part-II (Particular Conditions of the Contract),
requires the Respondent/Employer to ensure that the Engineer's Representative is a
professional engineer as defined in the Pakistan Engineering Council Act, 1975,

30. It must be borne in mind that in this case the matters in dispute between the
applicant and the respondent have not been referred for the Engineer's decision under
Clause 67.1 of the contact. There is only an apprehension of bias lurking in the mind of
the applicant. The question, whether the named or selected Engineer is likely to act in a
biased or unfair manner is always a question of fact which must be answered with
reference to the facts and circumstances of each case. in this case, the allegations made
by the applicant against the Engineer are not, in my view, sufficient to relieve the
parties from their bargain and nullify Clause 67.1 of the contract.

31. FIDIC stands for Federation Internationale Des Ingenieurs-Conseils, which is an

association of national associations of Consulting Engineers. FIDIC have produced
standard forms of contracts for civil engineering projects. The contract dated
16.06.2010 between the applicant and the respondent is one such contract. "The
Engineer" plays a significant role in the execution of such a contract. The Engineer is
intended to act both as agent of the Employer in the process of obtaining for the
Employer the project required, and as an independent person for the administration of
the contract and for the settlement of disputes. The Engineer is required to make
certifications and other determinations independently of the Employer and impartially
as between the parties. Clause 2.6 of the contract places an express obligation upon the
Engineer to act impartially as between the parties. The Engineer performs the functions
of a designer, quality controller, valuer and certifier, and that of an adjudicator under
clause 67.1 of the contract. The Engineer is required to consult with the parties under
several clauses prior to granting extensions of time, fixing rates, or making an award of
costs.

32. More often than not, the Engineer's certifications, valuations, determinations and
decisions are subjected to challenge under Clause 67.1 of the contract. The Engineer is,
therefore, called upon to judge whether his own actions were correct or not. The mere
fact that the Engineer has taken a certain position on a certain matter does not
disqualify him from sitting in an adjudicating capacity over that matter under clause
67.1 of the contract. In exercise of his adjudicatory powers, the Engineer can review,
modify, uphold or reverse his certifications, valuations, determinations or decisions
which have been subjected to challenge under clause 67.1 of the contract. The
Engineer sits in a different capacity when settling disputes as an independent
adjudicator.

33. In the case of Muhammad Ishaque Qureshi v. Azad J&K. Government (PLD 1962
Azad J&K 1), it has been held by the Hon'ble Supreme Court of Azad Jammu and
Kashmir as follows:--

"I am of the opinion that where the parties have entered into an agreement with
their eyes open knowing fully well that the Arbitrator agreed upon is an
employee of one party and that as executive head of the department he is likely
to make certain orders they cannot be allowed to resile from this agreement
simply on the suspicion that the said officer would stick to his decisions taken
or opinion formed while acting as such executive officer. When a party accepts
an employee of the other party as an Arbitrator he accepts him as a gentleman
who has an open mind and also a judicious mind."

34. The mere fact that the Engineer had, in the past, given decisions against the
applicant or had expressed a view/opinion adverse to the applicant regarding his
performance as contractor, cannot be made a ground for avoiding the contractual
obligation of referring disputes to the Engineer in terms of clause 67.1 of the contract.

35. The contention of the learned counsel for the applicant that the conduct of the
respondent (by filing an application under Order VII, Rule 11, C.P.C. for the dismissal
of the applicant's application under Section 20 of the 1940 Act) indicates that the
respondent was not ready and willing to refer the matters in dispute to arbitration at
any stage and its intention was to avoid adjudication of the contractual disputes, is in
my view, misconceived. It is the respondent's right to insist that the disputes between
the applicant and the respondent are resolved in accordance with the procedure
provided in clause 67 of the contract. The learned counsel for the respondent submitted
that the respondent was ready, willing and able to have the disputes resolved in the
manner as expressly agreed between the parties; and that as it was the applicant, who
was agitating the disputes, to have the matters in dispute referred to the Engineer in
accordance with clause 67.1 of the contract.

36. In view of the above, the respondent's application under Order VII, Rule 11, C.P.C.
is allowed and, consequently, the applicant's application under Section 20 of the 1940
Act is dismissed as premature. Since there is no express time limit in clause 67.1 of the
contract for a reference to the Engineer, the applicant may, subject to law, refer the
contractual disputes to the Engineer in terms of clause 67.1 of the contract for his
decision. There shall be o order as to costs.

ZC/131/Isl. Order accordingly.

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