Orient Power Company (Private) Limited v. Sui Northern Gas Pipelines Limited

At a glance

Parties

Orient Power Company (Private) Limited (appellant; respondent in the arbitration) v. Sui Northern Gas Pipelines Limited (SNGPL) (respondent; claimant in the arbitration)

Case no.

ICA No. 210640/2018 (appeal from COS No. 16/2017)

Court

Lahore High Court, Division Bench (intra-court appeal)

Underlying award(s)

LCIA award of 27 February 2017 and costs award of 13 June 2017, seat London, by a Sole Arbitrator

Treaty

Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011, implementing the New York Convention

Court

Ayesha A. Malik J (author) and Shahid Jamil Khan J (separate concurring note)

Sector

Gas supply for power generation

Outcome

Appeal dismissed on 1 August 2019. The Single Judge's order of 4 April 2018 recognising and enforcing the award was upheld.

Amount

The award covered Rs.104,133,296 (late payment surcharge under the Payment Agreement) and Rs.603,202,083 (six invoices for May–October 2011).

The dispute

On 18 October 2006, SNGPL agreed under a Gas Supply Agreement (GSA) to supply gas to Orient Power's power generation complex. The GSA contained a take-or-pay and make-up gas clause (Clause 3.6) and an arbitration clause (Clause 18.3). An expert, Khalid S. Ibrahim, decided disputes about the take-or-pay payments on 19 December 2009, and the parties then signed a Payment Agreement on 11 January 2010 to schedule the payments. In an LCIA arbitration seated in London, a Sole Arbitrator awarded SNGPL the late payment surcharge under the Payment Agreement and the amount of six unpaid invoices for gas that Orient had consumed between May and October 2011. Orient had sought to set those invoices off against make-up gas it never took. Orient had challenged the award before a civil court under the Arbitration Act, 1940, while SNGPL sought recognition before the Lahore High Court. Once the Single Judge granted recognition ex parte, Orient appealed. It argued that the civil court had concurrent jurisdiction, that the Sole Arbitrator had no jurisdiction over the Payment Agreement (Article V(1)(c)), and that the take-or-pay award was a penalty under Section 74 of the Contract Act, 1872 and amounted to unjust enrichment contrary to public policy (Article V(2)(b)).

Key holdings

1. Under Section 3 of the 2011 Act, the High Court has exclusive jurisdiction to recognise and enforce foreign arbitral awards. The Arbitration Act, 1940 does not give the civil courts concurrent jurisdiction. Taisei Corporation v. A.M. Construction (PLD 2012 Lahore 455) rested on the repealed 1937 Act. Under the 2011 Act, an award made in a Contracting State is foreign whatever law governs the contract. ¶¶ 7–11
2. The parties agreed that the objections should be decided on the merits. The Court therefore examined them under Section 7 of the Act and Article V of the Convention. ¶ 12
3. The Article V(1)(c) objection failed. The Payment Agreement was not an independent contract: it gave effect to the expert's determination of obligations under the GSA. Its Clause 4 made the GSA's provisions apply and prevail, so the GSA arbitration clause covered the first claim and the Sole Arbitrator had jurisdiction. ¶¶ 17–19
4. The take-or-pay clause is valid and is not a penalty. The buyer's primary obligation is to pay. Taking the gas, or taking make-up gas within the period fixed by Clause 3.6(c), is an option, so failing to take gas is not a breach and Section 74 of the Contract Act does not apply. ¶¶ 37–38, 46–47
5. Under Article V(2)(b), public policy is to be read narrowly. It protects fundamental notions of morality and justice and may not be used as a back door to review the merits of a foreign award. ¶¶ 49, 57
6. There was no unjust enrichment and no breach of public policy. The Rs.603,202,083 was due under a freely negotiated contract for gas that Orient actually consumed, and Orient's attempt to set it off against lapsed make-up gas could not be justified. The appeal was dismissed and the order of 4 April 2018 maintained. ¶¶ 58–61
7. Shahid Jamil Khan J agreed with the dismissal and with the High Court's exclusive jurisdiction, but for different reasons. He did not subscribe to the Sole Arbitrator's view that Pakistani law has lacunae on take-or-pay clauses. In his view, Orient was estopped by its acceptance of the Payment Agreement, and its unilateral set-off was unjustified. Separate note, ¶¶ 1–4

Procedural history

1. 18 October 2006The parties sign the Gas Supply Agreement.
2. 19 December 2009Expert Khalid S. Ibrahim issues his take-or-pay determination. The parties sign the Payment Agreement on 11 January 2010.
3. 27 February 2017LCIA award for SNGPL, followed by a costs award on 13 June 2017.
4. 12 December 2017Orient's objections before the civil court under Section 14 of the 1940 Act are stayed by a Single Judge of the Lahore High Court.
5. 21 March 2018Orient's right to file objections in COS No. 16/2017 is closed.
6. 4 April 2018The Single Judge recognises and enforces the award under Section 6 of the 2011 Act.
7. 17 June 2019Hearing of the intra-court appeal.
8. 1 August 2019The Division Bench dismisses the appeal. Shahid Jamil Khan J adds a separate note.

Tribunal, counsel and experts

Decided by

• Ayesha A. Malik Judge, Lahore High Court
• Shahid Jamil Khan Judge, Lahore High Court (separate note concurring in result)

For the claimant

Khawaja Ahmad Hosain · Chaudhry Muhammad Usman · Faryal Nazir · Zaheer Cheema · Shahzad Ahmad Cheema · Munawar Karim · Imran Javed

For the respondent

Salman Akram Raja · Faisal Islam · Umer Akram Chaudhary · Ahsan Mahmood · Usman Ali Bhoon · Majid Jehangir · Mian Ahmad Hammad · Shabbir Hussain · Mehrunissa Sajjad

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Keywords

• New York Convention
• enforcement of foreign award
• Pakistan
• Recognition and Enforcement Act 2011
• exclusive jurisdiction
• Arbitration Act 1940
• take or pay clause
• make up gas
• penalty clause
• Section 74 Contract Act
• public policy
• unjust enrichment
• Article V(1)(c)
• excess of jurisdiction
• incorporation of arbitration clause
• LCIA
• gas supply agreement
• Taisei

Summary generated with AI from the published documents — refer to the award for the authoritative text.