HUBCO Vs.

WAPDA
(PLD 2000 SC 841)
A brief Case Study on the Future of Int’l Arbitration in
Pakistan
 Introduction to Int’l Arbitration
International Commercial Arbitration has evolved to be one of the most exclusive ways of
dispute settlement outside of realm of national courts. The corporate interests like its
efficiency as there is far better possibility of achieving a relatively economical solution and
provides finality through a quick and less formal procedure. The parties are able to maintain
confidentiality which is important especially when they wish to protect their trade secrets
and commercial interests. These factors are essential when dealing with cross border
transactions involving foreign investment where neutrality in terms of venue, the law and the
arbitrators are considered prime by the parties in settling their disputes. The neutrality ensures
that the arbitral tribunal deciding the matter at hand is detached from any direct national
influence therefore giving loyalty primarily to the parties. Thus such mechanism provides a
level playing field for both parties involved.
Following are the notable Institutions working for International Arbitration.
• ICSID (International Centre for Settlement of Investment Dispute)
• UNCITRAL (United Nations Commission on International Trade Law)
• ICC (International Chamber of Commerce) Rules
 Bench of Hon’ble Judges of Supreme Court of Pakistan

A larger Bench of Five Judges including,

Muhammad Bashir Jehangiri, Actg, C.J.

Sh. Ijaz Nisar, Abdur Rehman Khan,

Sh. Riaz Ahmed and Munir A. Sheikh, JJ.

heard the Case

 Team of Lawyers
HUB Power Company WAPDA

The Hub Power Company Fakhruddin G. Ibrahim and Umar

was represented by a team Ata Bandial defended WAPDA.
of 10 lawyers headed by
Barrister Hafiz Pirzada.
 A Brief of Facts
An Agreement was signed between HUBCO and WAPDA on 3-8-1992 wherein an arbitration clause was enacted.

It was agreed that all the disputes arising between the parties were to be brought before the Int’l Arbitration Courts i.e., ICC or ICSID or
the matters arising to be solved according to the Laws of England.

• The original agreement cost of the plant was $1,275 million which was subsequently raised by HUBCO to more than $1500 million.

• In the original agreement the debt-equity ratio was fixed as 80-20 per cent which was changed as 75-25pc.

• 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.

• The amount of CPP and rates of tariff had been allegedly unreasonably raised without any plausible reasons.

• 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.

• Allegations of corruption were disclosed in the FIRs lodged by WAPDA.

• The supplemental deed reference has been made to new schedule 6.

• No steps were taken to get this schedule regularized by HUBCO by insisting that the same should be got signed by some authorized
person.

• 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 .

• 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.
 Main Issues in the Case
• Whether the Doctrine of Separability is applicable to the
Arbitration Agreements where corruption, and illegality is
involved ?

• Whether the Pakistani Courts are competent to try the case

explicitly bearing an Arbitration clause in the Agreement ?

• Whether the issue of public policy is to be solved by the

Arbitration ?
 Preference of Appeals
Appeal No. 1398 and 1399 Of 1999 were preferred
from the impugned Orders of High Court of Sindh,
Karachi dated 11-08-1999 and 23-01-1999
respectively passed on Miscellaneous Applications in
H.C.A No.90 of 1999
 Parties to Appeals
• CIVIL APPEAL NO. 1398 Of 1999
The Hub Power Company Limited (HUBCO), through its Chief Executive Syed
Khurshid Hussain … Petitioner.

VERSUS

• CIVIL APPEAL NO. 1399 Of 1999

Pakistan WAPDA … Petitioner.
 Decision in the Appeals

The larger bench of the Supreme Court of Pakistan

pronounced the judgment wherein the ratio of Judges

was of Three(Agreeing) against Two(Disagreeing).

 Decision in the Appeals
Minority View

Bashir Jehangiri, Actg C.J

Abdur rehman Khan , J.

• Allowed the Civil Appeal No. 1398 of 1999 (HUBCO V. WAPDA)

• Ordered to Recall and Lift the injunction proceedings of DB of HC of Sindh, Karachi in

C.M.A No.975 preventing HUBCO from proceeding with arbitration in ICC Arbitration
Case No. 10045/OLG

• Suggested that the award favorable to one party or another shall obviously be brought to
Pakistan for execution .

• It would be then challengeable in case any party choose to on any grounds of validity.

• In view of the complicated nature of the case, parties were left to bear their own costs.
 Decision in the Appeals
Majority View
Sh. Ijaz Nisar,

Munir A. Sheikh,

Sh. Riaz Ahmed, JJ.

• Allowed the Civil Appeal No.1399 of 1999 (WAPDA V. HUBCO)

• Restrained HUBCO from invoking the arbitration clause of the agreement proceeding with
arbitration in ICC Arbitration Case No. 10045/OLG

• Dismissed the Civil Appeal No. 1398 (HUBCO V. WAPDA)

• 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.
 Brief grounds for Majority Decision
• The original agreement cost of the plant was $1,275 million which was raised by HUBCO to more than $1500 million.
• In the original agreement the debt-equity ratio was fixed as 80-20 per cent which was changed as 75-25pc which gave undue
advantage to 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
WAPDA.
• The amount of CPP and rates of tariff had been allegedly unreasonably raised without any plausible reasons.
• 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.
• Allegations of corruption were disclosed in the FIRs lodged by WAPDA.
• The supplemental deed reference has been made to new schedule 6.
• No steps were taken to get this schedule regularized by HUBCO by insisting that the same should be got signed by some
authorized person.
• 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 .
• 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.
• 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.
• "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.“
 Relevant Laws Discussed
• The Law and Practice of International Abitration , 3rd ed. 1999, pp.5-33 to 5-36

• Sec. 23, 28 of Contract Act, 1872

• Sec. 7, 30 of English Arbitration Act, 1996

• Article 6(4) of the ICC Rules

• ICSID Rules

• Sec. 33 of Arbitration Act, 1940

Book:

• Russell on Arbitration 21st ed. 1997, pp.2-095

 Notable Case Law References
• Harbour Assurance V. Kansa (1993) 1 Lloyd’s Rep.455

• Woolf V. Collis Removal Service (1948) 1KB 11

• Hitachi V. Rupali (PLD 1998 SCMR 1618 at 1658)

• 1997 SCMR 1928

• PLD 1990 SC 48

• Port Qasim Authority V. Al-Ghurair (PLD 1997 Kar. 636)

• AIR 1959 Cal. 423

 Critical appreciation of the Judgment

This decision negated and violated the basic premise on which

international of arbitration rested which was doctrine of separability.
Pakistan is labeled to have a defensive and interventionist posture rather
than just a supervisory one in the arbitration process.

While more recently it has been accepted that arbitral tribunals can resolve
claims of corruption, bribery and related illegality mainly due to the
doctrine of separability presumption. There have many cases to this date
that explain this point e.g.,

Fiona Trust & Holding Corp v. Privalov (2007 1 All E.R.)

 Int’l Arbitration in Pakistan
Though there have been cases in Pakistan where the clause in the Arbitration Agreement has
been wide enough to allow the arbitrators to rule on its validity and retain their jurisdiction.
However, International Arbitration is considered more Risky than Advantageous due to
interventionist approach of the local courts during the arbitral process and at the time of
enforcement of awards. Such behavior shows that there is an inherent distrust amongst the
courts of Pakistan in the International process of arbitration especially in the field of foreign
investment. Therefore arbitration is a mechanism considered inferior to the court. Such
attitude has led Pakistan to earn reputation as Arbitration black spots.

In Pakistan it is established law that “matters involving questions of criminality or public

policy cannot be referred to arbitration”
(1991 SCMR 1928);
Ali Muhammad et al v Basheer Ahmad
(PLD 1965 SC 425)
Manzoor Hussain et al v Wali Muhammad et al
 After Effects of the Judgment
The Supreme Court verdict in HUBCO and RekoDiq cases is a sign of
discouragement for foreign investors. Such decisions have not only created
uncertainty for foreign investment in Pakistan but also upset the entire process of
international commercial arbitration. Following HUBCO and the RekoDiq, it is
inappropriate to submit a foreign investor to the national courts.

For free flowing capital investment, the foreign investor needs to have faith in the
Pakistan legal system which is clearly not the case as discussed. The above
discussed decisions highlight one main important point and that is simply the fear
amongst the investors that the arbitration agreements will not be respected.

Thus the reality is that their capital will flow elsewhere to a much safer neutral
destination where courts are not using a suffocated approach towards
international commercial arbitration.
 It’s Never too Late!
• To enhance Pakistan image in the global arbitration arena serious steps need to be
taken to overcome the wrong precedents set.

• The Pakistani courts need to redefine the approach of its courts to international
arbitration. There is a need for the reform of law especially in the field of arbitrable
disputes. A criteria needs to be set that specifically defines the stage at which the
courts could interfere in determining matters of public policy.

• Most importantly there is a need of changing judicial mindset towards the arbitral
process.

• Furthermore the case of Pakistan more so can be improved if the neighboring

countries follow a pro-arbitration stance and overall help in building a positive
image of arbitration.