It is widely said that arbitration is one of the alternative dispute resolution (ADR) modes adopted between parties to resolve disputes, as it is expeditious compared to court proceedings. The focus of this article is the scope of judicial review in the event a party is aggrieved by the award/decision rendered by the arbitral tribunal.

Under the Pakistan Arbitration Act, 1940, an aggrieved party has only one remedy: challenging the arbitration award before the competent civil court by way of an application. The grounds for challenge are enumerated in Section 30 of the Arbitration Act. It lists three grounds on the basis of which an award can be challenged: (i) the arbitrator has misconducted himself or the proceedings; (ii) the award was made after a court order superseding the arbitration or after the proceedings had become invalid; or (iii) the award was improperly procured or is otherwise invalid.

The most common ground, however, which is invoked in Pakistan to challenge an arbitration award—and the ground which has been the subject of judicial interpretation the most by the courts in Pakistan—is ‘misconduct’ of proceedings by the arbitrator. Through interpretation, the courts in Pakistan have, over the years, consistently held that misconduct does not mean misconduct in the moral sense only. Rather, it includes misconduct in the judicial or legal sense as well, which is a term of wider import.

Once a party challenges the award, the court has four options: (i) set aside the award; (ii) remit the award; (iii) modify the award to a limited extent; or (iv) dismiss the challenge and pronounce judgment in terms of the award. If the challenge is dismissed, the arbitration award becomes a decree of the court, which can be enforced or executed like any other court decree.

However, the battle in Pakistan has always been as to what is the extent or scope of scrutiny of the arbitration award in judicial proceedings, if a party challenges it in court. This is because it has long been settled, not only in Pakistan but globally, that arbitration awards are final and binding. The courts do not sit in appeal over arbitration awards. The arbitrator is the sole and final judge with respect to issues of law and fact. Thus, a party is fully entitled to make out, plead, and establish its case before the arbitrator. It is inherent in the arbitration agreement that whatever decision or award is rendered by the arbitrator is binding and final.

The reasonableness of an award is not, by itself, a matter for the court, unless the award is so preposterous as to defy rational explanation

The reasonableness of an award is not, by itself, a matter for the court, unless the award is so preposterous as to defy rational explanation

However, arbitrators are human, and they are bound to err. If a judge in a court renders an erroneous judgment, a party, in most instances, has a remedy of appeal in law. Therefore, to protect the interests of all parties, the Arbitration Act in Pakistan provides a remedy of challenge to the award as well.

Keeping this context in view, the Supreme Court of Pakistan, in the landmark case of Gerry's International (Pvt.) Ltd. v. Aeroflot Russian International Airlines (Gerry’s), after thoroughly examining the law on arbitration and the scope of judicial scrutiny in Pakistan and other jurisdictions, settled the law to a great extent.

The Supreme Court reiterated settled principles and held that an arbitrator is the sole and final judge of all questions of both law and fact. The arbitrator alone assesses the quality and quantity of evidence. The court cannot re-examine or reappraise the evidence; the court cannot hold the arbitrator's conclusion wrong merely because a different view was possible; and the court cannot interfere by substituting its own interpretation of the contract.

The reasonableness of an award is not, by itself, a matter for the court, unless the award is so preposterous as to defy rational explanation. An award is not invalid merely because a process of reasoning can demonstrate that the arbitrator made some mistake in arriving at his conclusion. The error which renders an award invalid must be apparent on the face of the award, i.e. discoverable by reading it, not by excavating behind it.

The Supreme Court, after reiterating these settled principles, further held that courts, when making an award a rule of court, are not supposed to act mechanically like a post office and simply rubber-stamp it. Rather, a court must look into the award and, if it finds patent illegality on the face of it, may remit it or set it aside.

From a legal standpoint, if Gerry’s was hailed as a landmark judgment clarifying the law on arbitration in Pakistan, Godwin is also an outstanding attempt at further clarifying the confusion that existed subsequent to Gerry’s

From a legal standpoint, if Gerry’s was hailed as a landmark judgment clarifying the law on arbitration in Pakistan, Godwin is also an outstanding attempt at further clarifying the confusion that existed subsequent to Gerry’s

The examples given by the court are instructive: an award made beyond the scope of the reference; a void arbitration agreement; damages awarded on a basis prohibited by law or on no evidence; or an award made after the arbitration had already been superseded. These are some of the errors visible on the surface, on the basis of which a court can accept a challenge to an arbitration award.

The Supreme Court also affirmed the significance of Section 26-A of the Act, which requires an arbitrator to furnish reasons in sufficient detail to enable the court to consider any question of law arising out of the award. The purpose is to allow the court to examine whether those reasons are consistent and not contradictory to the material on record. Brevity of reasons is not alone a ground for interference, but reasons that contradict the very record on which the arbitrator purported to rely are a different matter entirely.

The Supreme Court's framework in Gerry’s has been consistently followed by the courts in Pakistan while adjudicating challenges to arbitration awards. It is, however, noticed in practice that courts, while adjudicating such challenges, mostly rely on Gerry’s to hold that they are not to act as a court of appeal—that they cannot reappraise evidence or substitute their own findings, as the arbitrator is the sole and final judge on both questions of law and fact.

Here lies the challenge for a party aggrieved by an award. While the Supreme Court held that courts are not to act like a post office, in a large majority of cases, in practice—perhaps due to sheer volume of workload—the courts have been found doing exactly that: acting like a post office.

A similar situation arose before the Islamabad High Court, where the court had dismissed the challenge to an award on the basis of the law laid down in Gerry’s by the Supreme Court. The matter reached the Islamabad High Court in appeal. The High Court noted in its judgment in Pak Gulf Construction (Private) Limited v. Godwin Austen Johnson (Godwin) that both parties had cited Gerry’s at their convenience.

The High Court correctly noted that while Gerry’s comprehensively analyses the law in Pakistan, it still leaves much room for interpretation. Thus, the Islamabad High Court attempted what it referred to as synthesising Gerry’s.

The Islamabad High Court in Godwin, while interpreting Gerry’s—or, as referred to in the judgment, synthesising Gerry’s—held as follows:

“…Where a dispute is referred to an arbitrator, he is the sole and final judge of all questions, both of law and fact. However, the only exceptions to that rule are cases where: (a) the award is the result of corruption or fraud; (b) a question of law necessarily arises on the face of the award; or (c) the award does not state the reasons in sufficient detail to enable the court to answer a question of law arising out of the award. Provided that, where two opinions on a question of law are equally plausible, the court shall not substitute its preferred view for that of the arbitrator expressed in the award; and provided further that, in relation to both (b) and (c), reference to the expression 'award' includes the 'record' on which the award is based, if the answer to the question of law necessitates a reference to the record. The expression 'question of law' includes conclusions drawn from proven facts…”

The High Court then concluded as follows:

“…The improvised Hodgkinson principle identifies the 'triggers' for, and then the 'scope' of, the scrutiny of the award by the court. The starting point is the presumption of correctness of the award. It falls on counsel to identify any of the exceptions in the improvised Hodgkinson principle and to satisfy the court—as a threshold question—that the trigger really exists. Only then will the court take a deeper look at the award (and, to the extent necessary, the record) to see if the presumption of correctness of the award is possibly rebuttable in the case before it.

If counsel can cross that threshold, only then will the court embark on a further examination of the award and, to the extent necessitated in that inquiry, the rest of the record, with the assistance of counsel. The court should not try to fish out or dig out latent errors in the proceedings or the award. Still, it ought ordinarily to limit itself to the triggers identified by counsel at the bar with reference to the memoranda of applications or appeal and the replies. This progression of the court's function would strike a balance between the two extremes of a completely hands-off approach and a deeply interventionist approach concerning the triggers for and scope of scrutiny of the award by a court…”

Perhaps, from a legal standpoint, if Gerry’s was hailed as a landmark judgment clarifying the law on arbitration in Pakistan, Godwin is also an outstanding attempt at further clarifying the confusion that existed subsequent to Gerry’s. Godwin removes one significant confusion that persisted post-Gerry’s: that courts, while examining awards, are not to turn a blind eye to the record before the arbitrator.

Courts, while hearing challenges to an award, are competent to look into the reasons and their sufficiency to conclude whether or not an award suffers from legal misconduct and is required to be set aside. This clarity is what was missing post-Gerry’s.

Be that as it may, one thing remains settled in Gerry’s: that an arbitrator’s findings are final and binding and are not to be lightly interfered with. It is only in exceptional cases that an arbitration award will be interfered with. Such exceptions will remain exceptions and not the norm.

© The Friday Times