Pakistan June 14: The Supreme Court on Wednesday ruled that Hubco had no right to take its dispute with Wapda for arbitration before the International Chamber of Commerce as amendments to the Power Purchase Agreement required examination by a court of law.

By a majority decision of 3-2, the court upheld the view of Wapda that amendments to the PPA had been obtained through misuse of power by public functionaries for extraneous consideration.

The court restrained Hubco from taking the matter to the ICC's arbitration tribunal in London.

It held: "These circumstances, prima facie, do establish the case of misuse of power by public functionaries for extraneous considerations requiring detailed examination and decision by a court of law after full-fledged trial."

Authored by Justice Sheikh Riaz Ahmad, and endorsed by Justice Sheikh Ijaz Nisar and Justice Munir A. Sheikh, the majority judgment held that the supplemental deed, the first amendment and the second amendment to the PPA were not arbitrable and should be decided by a court of law.

Justice Bashir Jehangiri and Justice Abdur Rehman in their minority judgment held that proper law of arbitration agreement between the parties was applicable and Hubco had a right to take the matter before the arbitration tribunal.

They, however, said that the award by the ICC tribunal be brought to Pakistan for execution and it would then be challengeable in a court here.

The Hub Power Company was represented by a team of 10 lawyers headed by Barrister Hafiz Pirzada.

Fakhruddin G. Ibrahim and Umar Ata Bandial defended Wapda.

The arguments which persuaded the court to restrain Hubco from taking the matter to the ICC tribunal were:

1) The original agreement cost of the plant was $1,275 million which Hubco wanted to raise. The documents produced on record by both parties showed that Wapda had throughout been contesting the case of Hubco to raise the cost of construction. But the same was raised to more than $1500 million which, prima facie, gave one- sided benefit to Hubco as Consumer Power Price (CPP) was also raised, as consequence thereof it was payable on the amount of cost of construction on the plant.

2) In the original agreement the debt-equity ratio was fixed as 80-20 per cent. But it was changed as 75-25pc which allegedly burdened Wapda and gave undue advantage to Hubco as on the amount of equity the rate of interest to be paid by Wapda was 17pc Internal Rate of Return (IRR) whereas on the part of debt it is for less may be about 6pc.

The court noted that according to the original agreement and its schedule 6, such matters were to be referred to Expert, in case of difference of opinion, whose decision was to be final and such matters were kept beyond the pale of the arbitration clause. The provision of Expert was done away with through impugned amendments, giving Hubco a free hand to raise tariff and CPP amount arbitrarily, as a consequence of which Wapda would have to pay an amount of $30 billion in excess on the entire period of the contract.

The judgment said that from the documents it was clear that prolonged negotiations between Hubco and Wapda had taken place as Wapda had been resisting and opposing the demands of Hubco.

After the installation of new government in October 1993, the disputed documents were executed and it was not clear from the record how these hotly contested matters, for such a long time, were brought to an end suddenly and further, for what considerations supplemental deed, the first amendment and the second amendment were abruptly executed and so on whose and for what consideration?

The court noted that the allegations of corruption, as were disclosed in the FIRs lodged by Wapda, were against specified persons with particularity of the newly-installed high officials in the ministry. "These circumstances prima facie do establish the case of misuse of power by public functionary for extraneous considerations requiring detailed examination and decision by a court of law after full-fledged trial."

The court further stated that for arriving at this conclusion it had taken note of the following circumstances:

a) Though in the supplemental deed reference has been made to new schedule 6, but surprisingly the same was not annexed with the said deed as its part. The said new schedule was not got signed by Hubco from the Wapda chairman, whereas the same was signed by one Mohammad Ashraf, who later expressly declared that he was not authorized to sign it. No steps were taken to get this schedule regularized by Hubco by insisting that the same should be got signed by some authorized person.

b) Likewise, schedule 1(A), 1(B) and 1(C) which were placed in place of the previous schedule containing rates of tariff etc., were not signed by Wapda but by the chief economist of Wapda.

c) "We have also taken note that officers of Wapda left the service of Wapda conveniently. One of them was paid the huge amount of security by Hubco at the time joining it on exuberant salary. The fact during arguments was not denied by the counsel for Hubco.

The payment of IRR on the equity amount was allowed retrospectively from Nov 17, 1993, by providing that the actual amount shall be deemed to have been injected on the said date though the same was allegedly injected later on, burdening Wapad with huge amount to be paid to Hubco.

According to the original arrangement between the parties, at the expiry of the contract period, the ownership of the plant was to vest in the Wapda whereas, subsequently, it was decided that the same would vest in Hubco, prima facie, without any consideration or benefit to Wapda. The amount of CPP and rates of tariff had been allegedly unreasonably raised without any plausible reasons.

The court held that the allegations of corruption in support of which the above-mentioned circumstances provided prime facie basis for further probe into matter judicially and, if proved, would render these documents as void. "Therefore, we are of the considered view that according to the public policy such matters, which required finding about alleged criminality, are not referable to Arbitration."

The court held that the dispute between the parties was not a commercial dispute, arising from an undisputed legally valid contract.

It further noted that material placed on record showed that Wapda had been asking Hubco to furnish documents to ascertain the correctness of their stand in the matter of cost of construction and tariff. But Wapda's request fell on deaf ears.

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