IN THE SUPREME COURT OF PAKISTAN 
(Appellate Jurisdiction) 
 
 
PRESENT:  
MR. JUSTICE MUSHIR ALAM 
MR. JUSTICE QAZI FAEZ ISA 
MR. JUSTICE SAJJAD ALI SHAH 
 
CIVIL APPEAL NO.1547 OF 2019 
(On 
Appeal 
from 
the 
judgment 
dated 
01.08.2019 of the Lahore High Court, Lahore 
passed in ICA.210640/2018) 
 
 
 
Orient Power Company (Private) Limited through its 
authorized officer  
…Appellant(s) 
 
 
VERSUS 
Sui Northern Gas Pipelines Limited through its 
Managing Director  
 
 
…Respondent(s) 
 
 
For the Appellant(s): 
Mr. Salman Akram Raja, ASC 
 
 
For the Respondent(s): 
Kh. Ahmad Hosain, ASC. 
 
 
Date of Hearing: 
12.12.2019 
 
JUDGMENT  
 
MUSHIR ALAM, J.— The Appellant, through Civil Appeal No. 
1547 of 2019 arising out of CPLA No.3027/2019, has challenged the 
legality of the order passed by the Learned Division Bench of the 
Lahore High Court1 in ICA No. 210640/208 in COS No.16/2017. 
Leave to Appeal was granted on 12.09.19 to consider the points 
raised by both the Parties in this case.  
I. 
FACTS: 
1. The Appellant, Orient Power Company (Private) Limited2 is a 
private limited company incorporated under the laws of 
Pakistan, whereas the Respondent, Sui Northern Gas Pipelines 
Limited3 is a public limited company incorporated under the 
                                                   
1 Herein referred to as the “impugned judgment” 
2 Hereinafter referred to as the “Petitioner” 
3 Herein referred to as SNGPL 
CA 1547/19  
2 
 
Companies Ordinance, 1984. SNGPL is the sole authorized and 
licensed distributor of Natural Gas in the provinces of Punjab 
and Khyber Pakhtunkhwa.  
 
2. The Appellant constructed and operated a power generation 
facility4 of approximately 212.7 Megawatts (MW). In this regard, 
the Appellant entered into a Power Purchase Agreement5 on 
08.11.2008 with National Transmission and Dispatcher Company 
Limited6 for a term of thirty (30) years. The PPA governs the 
terms of the sale and purchase of Energy and Capacity to the 
Power Purchaser. 
 
3. The Appellant also entered into an Implementation Agreement 
with the President of the Islamic Republic of Pakistan through 
Private Power and Infrastructure Board which establishes the 
framework under which the Complex is to be set up. 
 
4. For the purposes of running the Complex, the Appellant required 
Natural Gas as a primary fuel, and for this purpose, Appellant 
entered into a Gas Supply Agreement7 with the Respondent. The 
Parties signed the GSA on 18.10.06 which contained a “Take or 
Pay Clause8”. Furthermore, the GSA’s purchase and supply 
arrangement were such that it was divided into two time periods: 
the first being the “Firm Delivery Period”, where the Respondent 
was required to deliver and sell to the Appellant all of the 
Complex’s requirements for Gas, up to the daily contract 
quantity, and the second being the “As-Available Period” which 
comprised of the three months excluded during the Firm Delivery 
                                                   
4 Herein referred to as the “Complex” 
5 Herein referred to as the “PPA” 
6 Herein referred to as the “Power Purchaser” 
7 Herein referred to as the “GSA” 
8Take-or-pay clause are common in the energy sector Contracts and, in particular, for gas sales 
agreements whereby the buyer agrees to either: (1) take, and pay the contract price for, a minimum 
contract quantity of gas each contracted period (the TOP Quantity); or (2) pay the applicable contract 
price for such TOP Quantity if it is not taken during the applicable period see Amoco v Teesside 
Gas 2001 UKHL 18) =[2001]1 All ER (Comm) 865 
CA 1547/19  
3 
 
Period where the Respondent would provide Gas on ‘As Available’ 
basis.  
 
5. During the Firm Delivery Period, the terms of the GSA stated that 
the Appellant had a gas entitlement of 38 MMCFD (million 
metric standard cubic feet per day).  
 
6. Differences arose between the parties with respect to the 
Commissioning Period Start Date,9 during which the Complex 
would be tested, and the subsequent Commercial Operating Date,10 
being the date when the Complex was to start its commercial 
operations, and the Appellant’s obligation to take or pay gas 
under clause 3.6 of the GSA during the CPSD and COD. 
 
7. It was seen vide letter dated 01.07.09 that the parties agreed to 
appoint Mr. Khalid S. Ibrahim as the Expert11 under clause 18.2(g) 
of the GSA to resolve the dispute. The Expert heard the matter 
and issued his Determination12 on 19.12.09, holding that some 
amounts are due from the Appellant to the Respondents in terms 
of the Take-or-Pay Clause calculated on the basis of the declared 
CPSD13 and COD.14 The Appellant was directed to make payment 
in fifteen days. 
 
8. On the basis of the Expert Determination, the Parties, on 11.01.10, 
executed the “Payment Agreement” which required the Appellant 
to make payment in three installments. Under the Payment 
Agreement, it was agreed that the Respondent would be entitled 
to a late payment surcharge at “Delayed Payment Rate, ”which 
would be paid until full payment is made. 
9. For the period of 28.02.2011 till 10.05.2011, the Respondent did 
not supply, and also curtailed supply of gas to the Petitioner, 
                                                   
9 Herein referred to as “CPSD” 
10 Herein referred to as “COD” 
11 Herein referred to as the “Expert” 
12 Herein referred to as the “Expert Determination” 
13 Dated 30 September 2008 
14 Dated 1 April 2009 
CA 1547/19  
4 
 
contrary to the terms of the GSA. This was done through various 
letters written by the Respondent, whereby it purported to 
declare Force Majeure on account of certain alleged terrorist and 
sabotage activities. The Appellant was unable to operate the 
Complex on gas during this period and as a result, payment 
under the head of “Capacity Price” to be made by the Power 
Purchaser to Appellant under the Power Purchase Agreement 
with National Transmission and Dispatch Company Limited (the 
“Power Purchaser”) were withheld and disallowed up to an 
amount of Rs. 201,998,444/-. 
 
10. The Appellant filed a Request for Arbitration (the “Earlier 
Arbitration”) due to the accrual of such losses. The Parties 
received the final award of this arbitration on 09.03.16, wherein it 
was held that Respondent’s claim of Force Majeure events could 
not be classified as such and, that Respondent was in breach of 
the GSA during those periods and that Appellant was entitled to 
compensation for the loss suffered. 
 
11. Furthermore, under the Payment Agreement dated 11.01.10, the 
Appellant made all of the requisite payments to the Respondent 
except that of Rs. 104,133,296/-; which the Respondent claimed 
as late payment surcharge.  
 
12. Simultaneously, another dispute arose between the Parties, with 
respect to six invoices issued by the Respondent from May to 
October 2011 under the GSA, which the Appellant contended was 
not due, as the Appellant had paid the full amount for the 
months in which it was not able to take up the Gas.15 
 
13. The Parties decided to refer these disputes to Justice Khalil-Ur-
Rehman Ramday (“Justice Ramday”) as per Section 18.2 of the 
GSA. However, it must be noted that the dispute pertaining to 
                                                   
15 April to November 2009, March to April 2010 and March 2011 
CA 1547/19  
5 
 
the late payment surcharge under the Payment Agreement was not 
referred to Justice Ramday for determination,16 who declared in 
his Determination dated 11.06.14 that the Respondent was not 
entitled to retain the entire amount of money paid under Clause 
3.6(a) of the GSA for which the gas was not taken, but may still be 
entitled to reasonable compensation under Section 74 of the 
Contract Act, 1872.  
 
14. The Respondent referred the disputes relating to the unpaid 
invoices along with the dispute relating to late payment 
surcharge under the Payment Agreement to arbitration pursuant 
to Section 18.3 of the GSA, which provided for arbitration to be 
conducted in London under the rules of the London Court of 
International Arbitration (the “LCIA”) on 12.06.14. During the 
proceedings, the Parties submitted Expert Opinions by Mr. 
Makhdoom Ali Khan and Chief Justice (R) Tassaduq Jillani. 
 
15. The Respondent, in the arbitration, claimed, inter alia: 
(i) 
A declaration that the Appellant illegally, and in breach of 
the GSA withheld a total amount of Rs. 603,202,083 from 
the bills raised by the Respondent pertaining to the 
months of May to October 2011; 
(ii) 
Late payment surcharge on unpaid amounts under the 
GSA calculated until 31 May 2014 in the amount of Rs. 
485,678,790; 
(iii) 
Continuing late payment surcharge on outstanding 
amounts to be calculated from 31 May 2014 in accordance 
with the terms of the GSA; and 
(iv) 
Interest on any award from the date of award to the date of 
payment; 
16. The Appellant advanced an objection to the jurisdiction of the 
Arbitral Tribunal and, defended the claim on the grounds inter 
alia-:  
(i) 
Declaration that the Respondent cannot raise any issues 
regarding the Payment Agreement in these proceedings. 
                                                   
16 As enumerated in Paragraph 8 
CA 1547/19  
6 
 
Any issue with the Payment Agreement can only be 
settled as per laws of Pakistan and in a court of competent 
jurisdiction. Payment Agreement is a standalone 
agreement and the Appellant has not violated Payment 
Agreement; 
(ii) 
Declaration that the Appellant is entitled to retain the 
disputed amounts from the bills of the Respondent and 
therefore can retain the Make Up Gas amount; 
(iii) 
Declaration that Respondent cannot forfeit the Make Up 
Gas Amount under GSA or Pakistan law; 
(iv) 
Order Respondent that it either provides the Make Up 
Gas against the Make Up Gas Amount (i.e. Rs 
603,202,083/-) or refunds the same; 
(v) 
Declaration that the Make Up Gas is available even after 
the expiry of the one Contract Year on “as available” 
basis; 
(vi) 
Declaration that any valid Force Majeure claims by the 
Respondent extends the period for Make Up Gas on a day 
to day basis including the obligation to supply gas for 
extended period; 
(vii) Declaration that the claims made by the Respondent 
through various letters/notices claiming existence of Force 
Majeure during the period from 28 February 2011 to 10 
May 2011 were illegal, invalid, inapplicable and contrary 
to the facts and the law and Respondent is entitled to 
withheld capacity. 
17. The Sole Arbitrator issued the Partial Award dated 27.02.17 and 
Final Award on 13.06.17 in the Arbitration wherein: 
(i) 
Arbitrator dismissed the claim of the Appellant that it did 
not have jurisdiction over the Payment Agreement; 
 
(ii) 
Respondent’s claim for Rs. 104,133,296/- was allowed; 
 
(iii) 
Respondent’s 
claim 
under 
the 
six 
invoices 
for 
Rs.603,202,083/- was stated to be the amount due under 
the invoices; 
 
(iv) 
Sole Arbitrator directed Appellant to pay Respondent 
simple interest at the rate of 6% per annum on Rs. 
603,202,083/- from 31 October 2011 to the date of the 
Award and simple interest at the rate of 6% per annum on 
all sums payable pursuant to the Award from the date of 
the Award to the date of payment; and 
 
CA 1547/19  
7 
 
(v) 
Respondent was liable to pay Rs. 98,452,322 in respect of 
the Earlier Arbitration. 
 
18. Subsequent to the issuance of the Award, the Respondent filed 
COS No. 16/2017 before the Learned High Court at Lahore, and 
on 04.04.18, the suit was allowed and it was held that the Award 
shall be recognized and enforced as a judgment and decree of the 
court under Section 6 of the Foreign Awards (Recognition and 
Enforcement) of Foreign Arbitral Awards 2011 (the “Foreign 
Arbitration Act”).  
 
19. Consequently, the Appellant filed ICA No. 210640/2018, 
impugning the judgment of the Learned Single Judge. The same 
was dismissed by the Learned Division Bench of the Learned 
High Court, at Lahore, inter alia, for the reasons:  
(i) 
High Court has exclusive jurisdiction to recognize and enforce 
foreign arbitral awards which means it has exclusive jurisdiction 
to recognize and enforce the Award; 
 
(ii) The dispute resolution mechanism under the GSA was applicable 
to the Payment Agreement and that the Sole Arbitrator was well 
within his jurisdiction to make determination in terms thereof; 
 
(iii) Public policy exception should not be used as a back door to review 
the merits of a foreign arbitral award or to create grounds which 
are not available under Article V of the Convention as this would 
negate the obligation to recognize and enforce foreign arbitral 
awards; and 
 
(iv) The Take or pay clauses in the GSA, being a common provision in 
commercial contracts, especially gas purchase agreements is valid 
and enforceable and cannot be considered as a penalty provision. 
The terms of the GSA were negotiated and agreed to between the 
parties.  
CA 1547/19  
8 
 
The Appellant has subsequently appealed to this Court, wherein, 
leave to appeal was granted on 12.09.19 to consider the points raised 
by both the Parties in this case.  
II. 
Arguments of the Parties 
 
20. Counsel for the Appellant argues that pursuant to the laws of 
Pakistan, there must be a specific arbitration clause in the 
Payment Agreement in order for the matter to be referred to 
arbitration. The first claim in the arbitration, with respect to non-
payment of Rs. 104,133,296/- was under the Payment Agreement, 
which did not contain an arbitration clause and by virtue of 
accepting the claim, the sole arbitrator exceeded its jurisdiction. 
Learned counsel for the Appellant further argued that  since the 
Payment Agreement did not contain a valid arbitration agreement, 
this was against Article V(1)(a) of the Convention on the Recognition 
and Enforcement of Foreign Arbitral Awards, 1958 (the “New York 
Convention”) which has been incorporated into the law of 
Pakistan via its implementing statute, the ‘Recognition and 
Enforcement (Arbitration Agreements and Foreign Arbitral Awards) 
Act 2011 (the “Foreign Arbitration Act”).Appellant also argued that 
the Payment Agreement does not make any express or specific 
reference to the arbitration clause in the GSA.  
 
21. Learned counsel for the Respondent counters the argument of 
Appellant by relying on Clause 18.3 of the GSA that provided for 
all matters ‘arising out of or in connection with the GSA to be referred 
to arbitration’. He contends that it cannot plausibly be argued that 
amounts due under the Payment Agreement are not “arising out 
of or in connection with” the GSA. The Respondent further submits 
that this is a question of contractual interpretation (i.e. 
interpretation of the scope of the arbitration agreement in the GSA), 
absent a completely perverse finding by the sole arbitrator and 
the division bench, this Hon’ble Court ought not interfere in 
CA 1547/19  
9 
 
these findings and that the findings of the two fora gave effect 
sensibly to the commercial terms agreed in the GSA and are 
therefore, subject to arbitration.  
 
22. The Appellant maintains that the Impugned Judgment has 
wrongfully held that Section 74 of the Contract Act is not attracted 
in the “so called” take or pay clauses, set out in Section 3.6(a) of the 
GSA. Appellant argues that its conduct of not taking the Gas 
during the relevant period amounted to a breach under section 
3.6(a). The Appellant further holds that non- performance of the 
take or pay provisions would amount to breach under the laws of 
Pakistan, consequently this would be a situation governed by 
section 74 of the Contract Act, and that the Take or Pay provisions 
cannot be allowed to operate outside the sphere of the laws of 
Pakistan. 
 
23. Counsel for Appellant also holds that the Award rendered by the 
sole arbitrator was patently illegal since it was contrary to Section 
74 of the Contract Act, 1872 (the “Contract Act”), which essentially 
states that a party should not be allowed to recover more than it 
has actually suffered. Appellant alleges that the Respondent had 
not suffered an actual loss of more than Rs. 356,104,346.25/- and 
that by awarding more than the actual loss suffered amounts to 
unjust enrichment/double recovery since the amount of Gas not 
taken by the Appellant was sold to third parties, unjustly 
enriching the Respondent. The protection against unjust 
enrichment, according to the Petitioner, is a fundamental aspect 
of the public policy of Pakistan and Section 6 of the Foreign 
Arbitration Act read with Article V(2)(b) of the New York 
Convention.  
 
24. Respondent counters that the judgment of Learned High Court 
has made sound formulation on public policy, and that under the 
New York Convention, public policy should be construed narrowly 
CA 1547/19  
10 
 
and should only be used as a ground to refuse enforcement 
where the award is on the face of it in clear violation of 
fundamental notions of morality or justice of the enforcing State. 
Respondent further contends that the Appellant’s disagreement 
is not with public policy but rather with the quantum of the 
award. 
 
25. The above arguments of the learned counsel for the Parties have 
been considered with due care and attention, and the available 
record has been perused at length. Owing to the various issues 
that arise in this case, each will be dealt separately. 
 
III. 
Issue No 1: Incorporation of arbitration clause from the 
Main Contract 
 
26. In today’s commercial reality, it is not unusual for parties to have 
a network of inter-connected, inter-dependent, or multi-contracts, 
which form an “indivisible whole contract”. Therefore, when 
disputes arise, a party who intends to initiate arbitration will 
potentially wish to do so under several of these inter-connected, 
inter-dependent or multi-contracts connected inter-se.  
 
27. Bernard Hanotiau, one of the revered authorities on arbitration, in 
his book titled ‘Complex Arbitrations: Multi-party, Multi-contract, 
Multi-issue – A comparative Study’ aptly explains that  
“in a situation involving a series of agreements 
between the same parties, the main problem is 
determining whether these contracts constitute an 
indivisible whole (ensemble contractuel unique). The 
solution will rest on an interpretation of the will of the 
parties.’.”17 
 
                                                   
17 'Chapter 3: The Possibility of Bringing Together in One Single Proceeding all the Parties Who Have 
Participated in the Performance of One Economic Transaction Through Interrelated Contracts', in 
Bernard Hanotiau, Complex Arbitrations: Multi-party, Multi-contract, Multi-issue – A comparative 
Study (Second Edition), International Arbitration Law Library, Volume 14 Kluwer Law International 
2020) pp. 197 - 310 
CA 1547/19  
11 
 
28. The main consideration for the instant case, therefore, is whether 
the GSA and the Payment Agreement are comprised of inter-
connected or inter-dependent contracts to be treated as “indivisible 
whole contract” or whether they are separate and independent 
from each other.  
 
29. The Learned bench of the High Court has rightfully concluded 
that the terms of the Payment Agreement establish that the parties 
intended to remain within the confines of the GSA as the purpose 
of the Payment Agreement was to give effect to the Expert's 
Determination.18 The Expert Determination itself was a result of a 
dispute arising out of the obligations of the GSA.  
 
30. Furthermore, the intention of the Parties to give effect to the 
obligations under GSA is evident by the Recitals to the Payment 
Agreement, which make explicit mention of the GSA and the 
dispute arising under it. Moreover, Clause 1 of the Payment 
Agreement states explicitly that the definitions set forth in the GSA 
will carry the same meanings under the Payment Agreement, and 
Clause 4 states that after resolution of the issues under the 
Payment Agreement, the provisions of the GSA shall apply and 
prevail. Therefore, this is illustrative of the intention of the 
parties to, not only be bound by the GSA, but also to remain 
within its confines. This continuous reference to the GSA means 
that the Payment Agreement was ultimately guided by, and 
dependant on the GSA for its existence. It was, undoubtedly in 
our minds, a “part of an indivisible whole” and the transaction thus 
must be looked at in its entirety.  
 
31. Philippe Leboulanger, another revered authority on international 
commercial arbitration, urges us to take into account the 
commercial realities of the operation: 
                                                   
18 Paragraph 17 of the impugned judgement 
CA 1547/19  
12 
 
“It is important to take into account the commercial 
reality of the operation, because sometimes the parties’ 
reciprocal synallagmatic19 obligations arise not from a 
single contract, but from different contracts. It should 
be checked whether the obligations undertaken under 
the different agreements are reciprocal, having a 
common origin, identical sources and an operational 
unit. 
When the agreements make up one single business 
transaction, the interplay between the undertaking 
cannot be ignored, as there exists within the 
contractual context a kind of freedom of circulation of 
obligations 
and 
interrelated 
debts. 
Whenever 
obligations were undertaken for the accomplishment of 
a single goal and are economically interdependent, the 
different disputes should be appreciated on an overall 
basis. 
Agreements may be considered to be interrelated when 
they were concluded on the same date, for the same 
duration, for the same purpose. Another indication of 
the interrelation between contracts is the presence of a 
general—or a master, a cover, a basic or a head—
agreement outlining the obligations undertaken by the 
parties, obligations which are usually discussed in 
more detail in the ancillary agreements. General 
agreements often contain a preamble describing the 
transaction and the interrelation between the different 
agreements. In this case, the interdependence between 
a general agreement and its ancillary agreements is 
evident, especially when the general agreement 
expressly refers to each one of the ancillary agreements 
and each one of the ancillary agreements expressly 
refers to the general agreement and to the other 
ancillary agreements. Interrelation also exists in the 
context of framework and application agreements.”20 
 
32. It is therefore, certain that the obligations undertaken under the 
Payment Agreement were for the accomplishment of a single 
goal i.e. the fulfillment of the terms of the GSA, both the contracts 
were economically interdependent and had a common origin. 
 
                                                   
19Synallagmatic Contractin civil law. A bilateral or reciprocal contract, in which the parties expressly 
enter into mutual engagements, each binding himself to the other. Poth.Obl. no. 9. Such are the 
contracts of sale, hiring, etc. See State ex rel. Waterman v. J. S. Waterman and Co., 178 La. 340, 151 
So. 422, 426. Black law Dictionary 4th Edition) 
20 Philippe Leboulanger 'Multi-Contract Arbitration' (1996) 13 (4) J In't Arb 43, 47 
CA 1547/19  
13 
 
33. The Appellant further argues that the arbitration clause in the 
GSA did not cover the Payment Agreement, and thus the Sole 
Arbitrator exceeded his jurisdiction by deciding the issues arising 
out of the Payment Agreement. The arbitration clause in Clause 18.3 
in the GSA covers disputes, disagreements or default of the seller 
and buyer “in connection with or arising out of” this Agreement. 
The dispute under the Payment Agreement was inarguably a 
dispute connected to the GSA, and also arose out of the 
obligations under the GSA. 
 
34. Furthermore, we are guided by the following case law and 
authorities on this matter.In the case of Fiona Trust& Holding 
Corporation v. Privalov,21 the U.K House of Lords, held that the 
proper approach is for courts to give effect to the commercial 
purpose of the arbitration clause and that parties, as rational 
businessmen, were likely to have their disputes arising out of 
their relationship by the same forum i.e. the arbitral tribunal in 
this case wherein it is stated that: 
“7…parties, as rational businessmen, were likely to 
have intended that only some of the questions arising 
out of their relationship were to be submitted to 
arbitration and others were to be decided by national 
courts. Could they have intended that the question of 
whether the contract was repudiated should be decided 
by arbitration but the question of whether it was 
induced by misrepresentation should be decided by a 
court? If, as appears to be generally accepted, there is 
no rational basis upon which businessmen would be 
likely to wish to have questions of the validity or 
enforceability of the contract decided by one tribunal 
and questions about its performance decided by 
another, one would need to find very clear language 
before deciding that they must have had such an 
intention. 
8. A proper approach to construction therefore requires 
the court to give effect, so far as the language used by 
the parties will permit, to the commercial purpose of 
the arbitration clause...” 
                                                   
21 [2007] UKHL 40 
CA 1547/19  
14 
 
 
35. Since the decision rendered in Fiona Trust (supra) several cases 
have since been decided, fine tuning the rationale laid down 
therein, and courts have considered whether the presumption 
also applies in a multi-contract scenario, where contracts contain 
different, potentially inconsistent arbitration agreements. In some 
of the cases, the presumption has been applied to discover the 
real intention of the parties, insomuch as that the arbitration 
clause in one agreement also envisages a dispute under another 
agreement. Recently, an English Court in multi-contract conflicts 
expanded the “centre of gravity” approach,  and held that a 
carefully and commercially minded construction 
of the 
agreement at hand is required,  and the Court of Appeal in the 
case of AmTrust Europe Ltd v Trust Risk Group SpA 22, further 
examined which of the inter-related or inter-dependent contracts 
was the “centre of gravity” of the dispute, based on which the 
dispute resolution provisions of the “centre of gravity” contract 
will govern the resolution of the inter-related or inter-dependent 
contracts.  
 
36. In a case decided by the French Supreme Court on 14 May 1996,23 
an exclusive distribution agreement had been concluded by two 
companies and contained an arbitration clause providing that 
any dispute resulting from the agreement or its termination, or 
relating thereto, would be decided through arbitration. A dispute 
had arisen, and the parties had concluded an additional 
agreement providing for the payment of commissions to the 
distributor for sales performed outside the scope of the 
distribution agreement. This second agreement did not contain 
any arbitration or jurisdiction clause. A dispute arose under the 
second agreement and the distributor started an action before the 
Commerce Court of Bobigny. The lower court upheld its 
                                                   
22 [2015] EWCA Civ 437 
23 1st Civ. Chamber, 14 May 1996, 1997 Rev. Arb. 535. 
CA 1547/19  
15 
 
jurisdiction considering that the second agreement was not an 
accessory of the first one since the two agreements concerned 
different types of transactions and the absence of any explicit 
reference to the arbitration clause in the second agreement 
excluded any acceptance of the said clause in the context of this 
second agreement. The French Supreme Court reversed the 
finding, deciding that the second agreement was based on a 
breach of the first agreement and was thus its complement, with 
the consequence that it fell within the scope of the arbitration 
clause contained in the first contract. 
 
37. In another case by the French Supreme Court decided on 5 March 
1991,24 the dispute arose from a share transfer agreement 
concluded between A and B and containing a guarantee in favour 
of the purchaser. It contained an arbitration clause. Two months 
later, another agreement was concluded by the same parties to 
the effect that after the establishment of a final accounting, the 
debt of the Seller amounted to a certain sum. This second 
agreement did not contain any arbitration clause. A dispute arose 
and the purchaser started an action before the French courts. The 
French Supreme Court considered that the second contract was 
only the implementation of the first, which both formed a whole 
and that therefore the force obligatoire (the binding force of the 
contract) of the arbitration clause included in one agreement 
extended to the other. 
 
38. The same approach prevails in Singapore, in the case of Tjong 
Very Sumito and Ors v. Antig Investments Pte. Ltd; the 
Singapore Supreme Court,25 considered a Share Sale and 
Purchase Agreement (SPA), which contained a clause providing 
for disputes to be resolved by arbitration. The arbitration clause 
                                                   
24 Commercial Ch., 1992 Rev. Arb. 66 and note by L. Aynès 
25 [2009] 4 S.L.R.(R) 732, [2009] S.G.C.A. 41 
CA 1547/19  
16 
 
stated: “…any and all disputes, controversies and conflicts arising out 
of or in connection with this Agreement or its performance (including 
the validity of this Agreement) shall be settled by arbitration…” The 
same 
parties 
subsequently 
entered 
into 
four 
further 
Supplemental Agreements. Each Supplemental Agreement was 
considered supplemental to the SPA.A dispute arose as to 
whether a payment arrangement under the fourth Supplemental 
Agreement, (which did not contain an arbitration clause) was 
subject to the arbitration clause in the SPA. The Court of Appeal 
held that since the fourth Supplemental Agreement ‘owes its 
existence to the SPA, such Supplemental Agreement cannot stand 
independently on its own. Like the first three supplemental 
agreements, its purpose was to supplement and/or modify 
certain terms of the SPA’.  The dispute therefore, arose in 
connection with the SPA. The Court concluded that the intention 
of the parties was manifest to be bound by the Arbitration Clause 
contained in the principal SPA and such clause extended to the 
fourth Supplemental Agreement, as well. 
 
39. From the above discussion, and keeping in sight judicial 
consensus across globe, we decide as follows. In the instant case, 
both the Agreement i.e GSA and the Payment Agreement are by 
and between the same parties, therefore we are inclined to apply 
the liberal interpretation as expounded in the case of Fiona Trust 
case (supra). We have no hesitation in holding that the 
controversy arising out of Payment Agreement is a progeny of the 
GSA and cannot be divorced from the parent GSA. The 
arbitration clause contained in the GSA would therefore be the 
“centre of gravity” and would be deemed to be anchored in the 
Payment Agreement which itself was merely an implementation of 
the GSA. The disputes “arising out of” the GSA were thus wide 
enough to cover the Payment Agreement. We hold that it would 
neither be commercially sensible nor realistic to decide that both 
CA 1547/19  
17 
 
the Agreements were to be decided by separate forums. Had this 
been the case, the parties, as rational businessmen, would have 
been prudent in expressly excluding the arbitration clause from 
the Payment Agreement. We therefore, are inclined to uphold the 
reasoning and conclusion drawn by the Learned Bench of the 
High Court, and the Arbitral Tribunal. 
 
40. Learned Counsel for the Appellant has relied upon the UK 
Supreme Court case of Dallah Real Estate and Tourism Holding 
v. Government of Pakistan26 in support of his contention that the 
award, cannot be sustained on the ground inter-alia; of Article 
V(1)(a) of the New York Convention. We have examined the cited 
case, which essentially revolved around the issue of non-
signatories to the contract which is a common and recurring issue 
in international commercial arbitration. Certain others aspects 
were also explored in this case, more significantly the doctrine of 
Kompetenz-Kompetenz 
or 
competence 
competence. 
Kompetenz-
Kompetenz, or competence-competence, is a jurisprudential 
doctrine whereby a legal body, such as a court or arbitral 
tribunal, may have competence, or jurisdiction, to rule as to the 
extent of its own competence on an issue before it. The concept 
arose in the Federal Constitutional Court of Germany.  This 
principle, which is accepted by the general international law in 
the matter of arbitration, assumes particular force when the 
international tribunal is no longer an arbitral tribunal […] but is 
an institution which has been pre-established by an international 
instrument defining its jurisdiction and regulating its operation27. 
The principle was also considered by this Court in the case of 
Karachi Dock Labour Board v. M/s Quality Builders Ltd28, wherein it 
was observed that the arbitral tribunal is indeed a judge of both 
fact and law, the latter of which includes the question of its own 
                                                   
26 [2010] UKSC 57 
27 (Nottebohm Case (Liech. v. Guat.), 1953 I.C.J. Reports 7, 119 (21 March) 
28 PLD 2016 SC 121  
CA 1547/19  
18 
 
jurisdiction29. In numerous cases in Pakistan, it has been held that 
there is no legal impediment in the way of the court or tribunal to 
decide its own jurisdiction30. The principle Kompetenz-Kompetenz 
was also recognized by Indian Supreme Court see SBP& Co. v. 
Patel Engineering Ltd31. (Seven-member bench), overturning its 
earlier judgment in Konkan Railway Corp. Ltd. v. Rani Construction 
(P) Ltd;32. This doctrine, therefore, essentially allows the arbitral 
tribunal to determine its own jurisdiction. 
 
41. Under the facts and circumstances of this case and in accordance 
with the doctrine of competence competence, the Sole Arbitrator 
was well within his rights to determine his own jurisdiction, and 
the learned counsel for Appellant has not been able to 
demonstrate that the tribunal lacked jurisdiction, or that 
assuming jurisdiction as regard the Payment Agreement, exceeded 
his mandate under Article V(1)(c) of the New York Convention.  
 
42. Furthermore, reliance of learned counsel on Article V(1)(a) of the 
New York Convention, is misplaced, relied Article allows refusal of 
recognition and enforcement of an award if: 
“(a) The parties to the agreement referred to in article 
II were, under the law applicable to them, under some 
incapacity, or the said agreement is not valid under the 
law to which parties have subjected it or, failing any 
indication thereon, under the law of the country where 
the award was made…” 
Thus, enforcement of an award under this Article may be 
refused if the arbitration agreement is invalid or if the parties 
lacked the capacity to arbitrate, which is not the position in the 
instant case. 
                                                   
29 Para. 14 Ibid. 
30 See  Government of Punjab v. Sanosh Sultan PLD 1995 SC 541 and Raunaq Ali v.Chief Settlement 
Commissioner PLD 1973 SC 236 
318 SCC 618 = AIR 2006 SC 450Judgment is on the Section 11 (6) of the Arbitration and conciliation 
Act, 1996, which empowers the Chief Justice to appoint arbitrator in case of disagreement between 
the parties, such powers as against earlier judgment, is held to be judicial power. 
32[2000] (8) SCC 15 
CA 1547/19  
19 
 
43. Under the Commentary of the New York Convention by Herbert 
Kronke et al titled ‘Recognition and Enforcement of Foreign Arbitral 
Awards: A Global Commentary on the New York Convention’, it has 
been stated that Article V(1)(a), permits a court to deny 
recognition and enforcement of an award if no arbitration 
agreement exists. We must however, be careful in noting that the 
issue here is not the existence of the arbitration agreement, but 
rather, whether the existing arbitration clause could have been 
read into another agreement i.e. the Payment clause. We are 
therefore unable to subscribe to the view of the learned counsel 
for the Appellant that the case is covered by Article V(1)(a). 
 
44. More broadly on the issue of incorporation of an arbitration 
clause from one contract into another in international commercial 
arbitration, as a guideline for future cases in Pakistan, we find it 
necessary to dilate upon the trend followed across various 
jurisdictions:  
 
(i) UNITED KINGDOM: 
45. One of the earliest adjudications regarding the incorporation by 
reference was the landmark case of TW Thomas & Co. Ltd v. 
Portsea Steamship Co Ltd.33While this was the initial view, the 
jurisprudence has significantly evolved and departed from the 
principles dilated in this case. The question arose as to whether 
an arbitration clause in the charter party, which was referred to, 
in the margin of the bill of lading had been incorporated into the 
bill of lading or not. The margin of the bill of lading was inked 
with the words “…all other terms and conditions and exceptions of 
charter to be as per charter party, including negligence clause.”The 
charter party itself provided “any dispute or claim arising out of any 
of the conditions of this charter shall… be settled by arbitration.” The 
House of Lords held that that the arbitration clause could not be 
                                                   
33 [1912] A.C 1 HL 
CA 1547/19  
20 
 
incorporated because firstly, if the parties are to be deprived of 
the ordinary legal remedies of approaching the court, the same 
should be done explicitly; secondly, requisite modifications may 
be required according to the parties; and thirdly, there is need for 
certainty in law.  
 
46. The Court of Appeal case of Aughton Limited v MF Kent Services 
Ltd.34gave rise to differing view by the judges. Sir John Megaw, 
relied on the case of Thomas v. Portsea (supra) and reinforced the 
strict rule that maintained that specific words were necessary to 
incorporate an arbitration clause into a contract and that the 
reference in a sub-contract to another contract’s terms and 
conditions would not suffice to incorporate the arbitration clause 
into the sub-contract.  
 
47. The reasoning, of the learned Judge, for imposing the 
requirements of specific words of incorporation, is based on three 
important factors; with respect to arbitration agreements. Firstly, 
that an arbitration agreement may preclude the parties from 
bringing a dispute before a court of law, which is not only a 
permissible, but also desirable way of settling disputes. Secondly, 
it was held that Section 7(1)(e) of the Arbitration Act 197935provide 
that an arbitration agreement, has to be a “written agreement”. The 
object and effect of which is to ensure that one is not deprived of 
their right to have a dispute decided by a court of law, unless he 
has “conspicuously and deliberately” agreed that it should be so. 
Thirdly, he emphasized on the peculiarity of arbitration clauses, 
as an arbitration clause, according to him, is a “self-contained 
contract”, for example, it is capable of having a different proper 
law from the main contract.  
 
                                                   
34 [1991] 57 B.L.R 1 
35 As it was before the advent of the Arbitration Act, 1996 
CA 1547/19  
21 
 
48. In the same case, Ralph Gibson L.J reached the conclusion that 
express words of incorporation were not always necessary. In 
some circumstances, general words would be sufficient to effect 
incorporation depending on the terms of the arbitration 
agreement. His preferred approach was to look at the precise 
words of the contract alleged to permit incorporation and to the 
precise terms of the arbitration agreement. If the terms of the 
arbitration clause are such that they only apply to the contract in 
which they appear, Ralph Gibson LJ’s view was that general 
words of incorporation would be insufficient, but if they apply to 
both, then general words of incorporation are sufficient.  
 
49. The case of Habaş Sinai ve Tibbi Gazlar Isthisal Endustri A.Ş. v 
Sometal S.A.L.,36 expounded upon the approach taken by Justice 
Langleyin Sea Trade Maritime Corp. v. Hellenic Mutual War 
Risks Association (Bermuda),37 wherein, cases were divided into 
‘single contract’ cases. Where parties sought to incorporate a set 
of standard terms or agreements, which contained an arbitration 
clause. And ‘two-contract’ cases, where parties incorporate a set of 
terms belonging to another contract. Habas, decided ‘one contract 
cases’ to be those cases, where both the contracts, were entered 
into by the same parties. The rest of the cases were classified as 
‘two contract’ cases. In Habas case, there had been fourteen (14) 
previous contracts between the same parties. The issue in this 
case was whether general wording mentioned below were 
capable of incorporating an arbitration clause: 
“All disputes, or controversies, or differences, which 
may arise between the buyer and seller under this 
contract, shall be settled in London, according to 
London Arbitration Rules, by the United Kingdom 
Law.” 
 
                                                   
36 [2010] EWHC 29 (Comm) 
37 [2006] 2 C.L.C 710 
CA 1547/19  
22 
 
50. The final contract was prepared by an agent of one of the parties, 
and did not contain the London arbitration clause but provided 
that "All the rest will be same as our previous contracts". It was held 
that in principle, English law accepted incorporation of standard 
terms by the use of general words. The principle did not 
distinguish between a term which was an arbitration clause and 
one which addressed other issues.  
 
51. A stricter rule was applied in charter party/bills of lading cases. 
In relation to two contract cases, where contracts where not 
entered into by the same parties, a more restrictive approach to 
incorporation was required. In such a case, it might not be 
evident that the parties intended to incorporate not only the 
substantive provisions of the other contract but also provisions, 
such as an arbitration clause, particularly if a degree of verbal 
manipulation was needed for the incorporated arbitration clause 
to work. Those considerations however, did not apply to a single-
contract case, and the stricter rule was not to be extended to 
single-contract cases since that would involve the exception 
swallowing up the rule. In a single-contract case, the independent 
nature of the arbitration clause should not determine whether it 
was to be incorporated. General words of incorporation were 
capable of incorporating terms which included an arbitration 
clause without specifically referring to it and the question was 
whether in the instant case they did so.  
 
52. Therefore, it was held that the words of incorporation in the last 
contract were apt to incorporate the London arbitration clause. 
Application of the arbitration clause did not require any 
linguistic manipulation. When the parties referred to "all the rest" 
being the same, there was no good reason to treat them as 
meaning all of the rest except the arbitration clause. 
 
CA 1547/19  
23 
 
53. It may, thus be seen, that the English approach to incorporation 
by reference has evolved from a strict approach into one with 
exceptions and carve-outs such as the “single contract” rule.   
 
(ii) 
Singapore: 
 
54. Singapore advocates the “contextual approach” at present in order 
to promote arbitration and adopt a pro-arbitration regime, 
wherein the question of incorporation of an arbitration clause 
depends on the contractual interpretation of the agreement 
between the parties.  
 
55. The Court of Appeal of Singapore passed the landmark judgment 
of International Research Corp v Lufthansa Systems Asia Pacific 
Pte Ltd;38 and discontinued the strict rule of interpretation that 
had been earlier borrowed from English Common Law. The court 
provided two primary reasons for distinguishing itself from the 
UK jurisprudence and its previous decisions. First, it held that 
ousting the jurisdiction of the court is no longer considered 
"odious", and therefore, there is no point in requiring such a high 
threshold of proof for establishing the intention to arbitrate; and, 
secondly, businessmen, cannot be expected to differentiate 
between arbitration clause and any other clause of the contract. 
 
56. The said view of the Singapore Court of Appeal was further 
endorsed in R1 International Pte Ltd v Lonstroff,39 where the 
court affirmed the position that an arbitration clause can be 
incorporated into a contract even after its formation provided 
there was a prior understanding between the parties.  
 
(iii) Hong Kong: 
                                                   
38 [2012] SGHC 226 
39 [2015] 1 S.L.R 521 
CA 1547/19  
24 
 
57. Hong Kong also follows the contextual approach of incorporation 
i.e. there is no requirement of a specific reference to the 
arbitration clause for its incorporation if intention of the parties 
was to have arbitration as a dispute resolution mechanism. 
 
58. In Astel Peiniger Joint Venture v. Argos Engineering,40 the Hong 
Kong High Court did away with the strict approach laid down in 
Thomas v. Portsea (supra), and explicitly stated that this rule is not 
applicable in Hong Kong. It further held that ultimately, courts 
must endeavor to give contractual and commercial effect to the 
actual words used by the parties. This was also endorsed in the 
case of Gay Constructions Pty v. Caledonian Techmore 
(Building) Ltd.41 
 
(iv) 
India: 
59. The general rule for incorporation by reference was laid down by 
the Indian Supreme Court in the case of Alimenta SA v. National 
Agriculture Co-op Marketing Federation of India.42 The Indian 
Supreme Court held that it is now well established that the 
arbitration clause of an earlier contract can be incorporated into a 
later contract by reference; provided it is not repugnant to or 
inconsistent with the terms of the contract in which it is 
incorporated.43 In this case, the contract was for the sale and 
supply of HPS groundnut kernel Jaras. After the usual terms as to 
quality, quantity, price, etc., the contract provided in clause 11 
that ‘other terms and conditions are per FOSFA-20 contract terms.’ 
The question therefore, was whether the arbitration clause in 
FOSFA-20 contract, was incorporated by reference, in the contract 
for sale and supply of HPS groundnut kernels. The Supreme 
Court held that the arbitration clause in FOFSA-20 contract was 
incorporated by reference into the contract for sale and supply of 
                                                   
40 [1994] 3 HKC 328 
41 [1995] 2 HKLR 35 
42 (1987) 1 SCC 615 
43 Ibid at Paragraph 7 
CA 1547/19  
25 
 
HPS groundnut kernel jaras. This judgment established an 
important principle of the doctrine of incorporation, i.e. 
incorporation can be considered valid only when it is “consistent, 
sensible and intelligible” with the terms of the contract in which 
it is incorporated. In doing so, the Indian Supreme Court 
endorsed the approach laid down by a full bench of the Calcutta 
High Court in Dwarkadas & Co. v Daluram Gaganmull44. A very 
fine distinction between the phraseology of the provision 
incorporating the arbitral clause was drawn and accepted.45 
 
60. The next significant case that asses the proposition if an 
arbitration clause can be incorporated by reference into 
subsequent contracts; is that of Atlas Export Industries v. Kotak 
Company46 which followed the approach laid down in the case 
Alimenta S.A (supra).  
 
61. The Indian Supreme Court in the case of M.R. Engineers & 
Contractors (P) Ltd v Som Datt Builders Ltd.47 provided a list of 
guidelines with respect to section 7(5)48 of the Indian Arbitration 
and Conciliation Act, 1996 that are to be followed when dealing 
with incorporation by reference:  
1) the contract should contain a clear reference to the 
documents containing arbitration clause; 
 
2) the reference to the other document should clearly 
indicate an intention to incorporate the arbitration 
clause into the contract; and 
 
3) the arbitration clause should be appropriate, that is, 
capable of application in respect of disputes under 
the contract and should not be repugnant to any 
term of the contract.49 
 
                                                   
44 AIR 1951 Cal 10 
45 Ibid at Paragraph 9 and 10 
46 (1999) 7 SCC 61 
47 (2009) 7 SCC 696 
48 “The reference in a contract to a document containing an arbitration clause constitutes an 
arbitration agreement if the contract is in writing and the reference is such as to make that arbitration 
clause part of the contract.” Pakistan does not have an analogous provision.  
49 Ibid at Paragraph 13 
CA 1547/19  
26 
 
62. The apex court also clarified that only a specific reference from 
the referred document in the contract between the parties should 
have the effect of incorporating the arbitration clause. There is a 
requirement of a "conscious" acceptance of the parties before 
incorporation can take place. However, where the contract 
provides that the standard form of terms and conditions of an 
independent trade or professional institution should be 
incorporated, a general reference to the referred document would 
suffice.  
 
63. Therefore, it would appear that when it comes to standard form 
of contracts, the Indian Court is eager to take a more relaxed 
view of interpretation, however, where standard form of 
contracts are not concerned, a requirement of intention of the 
parties to incorporate the arbitration clause into the contract is 
needed.  
 
(v) 
Pakistan: 
 
64. Under the current regime in Pakistan, the case of Messrs 
MacDonald Layton v. Associated Electrical Enterprises50 held 
that parties can incorporate an arbitration clause from another 
agreement in their own agreement provided it is so mentioned 
expressly. Further, it was decided that 
“a mere reference that the terms and conditions of a 
certain agreement will apply to the agreement between 
the parties will not import the arbitration clause into 
the agreement. A reference to the arbitration clause 
should be specific so that there may not be any 
ambiguity and the intention of the parties be made 
clear.”  
 
 
(vi) Conclusion: 
65. An analysis, and surveillance from various jurisdictions, as 
discussed above, seems to indicate that the adoption of the United 
                                                   
50 PLD 1982 Karachi 786 
CA 1547/19  
27 
 
Nations Commission on International Trade Law on International 
Commercial Arbitration (the “UNCITRAL Model Law”) has a 
bearing on application of the approach taken by the courts on 
incorporation of an arbitration clause by reference. The 
UNCITRAL Model Law is designed to assist the States in 
reforming and modernizing their laws on International 
Commercial Arbitration and to develop a pro-arbitration regime 
in their national regime. It covers all stages of the arbitral process 
from the arbitration agreement, the composition and jurisdiction 
of the arbitral tribunal and the extent of court intervention 
through to the recognition and enforcement of the arbitral award. 
It reflects worldwide consensus on key aspects of international 
arbitration practice having been accepted by States of all regions 
and the different legal or economic systems of the world. 
 
66. For the purposes of incorporation of the arbitration clause by 
reference, a noteworthy aspect of the UNCITRAL Model Law is 
Article 7, which relates to arbitration agreements. More 
specifically, Article 7(2) of the Model Law, states that: 
“the reference in a contract to a document containing 
an arbitration clause constitutes an arbitration 
agreement provided that the contract is in writing and 
the reference is such as to make that clause part of the 
contract.” 
 
67. Thus, the UNCITRAL Model Law, in furtherance of its pro-
arbitration aims, has explicitly allowed for incorporation by 
reference. Legislation based on the Model Law has been adopted in 
85 States in a total of 118 jurisdictions51 including United Kingdom, 
Singapore, Hong Kong, and India have all incorporated 
provisions of the UNCITRAL Model Law into their national laws, 
and have therefore, incorporated Article 7 into their Acts.  
 
                                                   
51 https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration/status 
CA 1547/19  
28 
 
68. Indeed, Section 6(2) of the English Arbitration Act, 1996, Section 7(5) 
of the Indian Arbitration Act, 1996, Article 19(6) of the Arbitration 
Ordinance No. 17 of 2010, the National Arbitration Act for Hong 
Kong, and Section 4(7) of the Singapore Arbitration Act, 2001 all state 
that the reference in a contract to a document containing an 
arbitration clause constitutes an arbitration agreement, if the 
contract is in writing and the "reference is such as to make that 
arbitration clause part of the contract". 
 
69. Pakistan is a contracting State to the New York Convention on the 
Recognition and Enforcement of Foreign Arbitral Awards (the New 
York Convention). Pakistan became a signatory to the Convention 
on 30 December 1958 and ratified it on 14 July 2005. It was first 
implemented through the Recognition and Enforcement (Arbitration 
Agreements and Foreign Arbitral Awards) Ordinance 2005. The 
Ordinance, being temporary in nature, was occasionally re-
promulgated 
until 
2011 
when 
the 
Recognition 
and 
Enforcement(Arbitration Agreements and Foreign Arbitral Awards) 
Act 2011 was passed by Parliament. Pakistan is also a party to the 
Washington Convention on the Settlement of Investment Disputes 
between States and Nationals of Other States of 1965 (ICSID 
Convention), the Geneva Protocol on Arbitration Clauses of 1923 and 
the Geneva Convention on the Execution of Foreign Arbitral Awards of 
1927 (the Geneva Treaties). However, the Geneva Treaties do not 
apply to arbitration agreements and awards to which the New 
York Convention applies. 
 
70. In a commercially fast paced world, where the world is 
essentially a global village, it is regrettable that Pakistan, 
although a signatory to UNCITRAL, has till date not incorporated 
the provisions of the Model Law into its domestic law and the 
Foreign Arbitration Act makes no mention of incorporation by 
reference.  
CA 1547/19  
29 
 
 
IV. 
ISSUE NO. 2: WHETHER A BREACH OF SECTION 74 HAS 
OCCURRED? 
71. We note that barring the Impugned Judgment, Take or Pay 
clauses and their significance have not been adjudicated upon by 
this Court. We therefore, deem it pertinent to dispel any 
misconceptions regarding such clauses.  
 
72. Briefly, Take or Pay provisions are a very familiar feature in gas 
and liquefied natural gas (LNG) sales contracts, power purchase 
contracts and many other common energy industry contracts, 
and provide an option for the buyer to take supply of gas, LNG 
or power, or to pay for it even if it does not take the commodity. 
The reasoning provided by Paula Hodges QC and James Rogers 
in an article titled ‘Take or pay clause tested in English Courts’52 
illustrate the need for such clauses: 
 
“The significant financial commitment required for 
exploration, production, shipping and distribution 
facilities leads participating companies to seek a 
measure of security as regards the level of supply and 
demand throughout the duration of any supply 
arrangements so as to guarantee future returns on 
their investment. Take or pay clauses have therefore 
developed to the benefit of both purchasers and 
suppliers. The supplier is guaranteed a regular income 
stream, while the purchaser commits to pay for a 
minimum quantity to guarantee a regular but flexible 
supply. In the event that the purchaser is not able or 
willing to take the agreed minimum amount, it is 
nonetheless required to pay for it.  
Take or pay clauses usually operate to the benefit of 
both purchaser and supplier. The purchaser is given 
the flexibility to vary his order quantity throughout 
the life of the contract, subject to the minimum 
quantities and the supplier has some certainty of 
income in relation to the sale of the product. There is 
therefore a commercial justification for including such 
a provision in a supply contract. Moreover, in the 
energy sector at least, such provisions will typically be 
                                                   
52 I.E.L.R. 2008, 3, 60-62 
CA 1547/19  
30 
 
negotiated by sophisticated, commercially experienced 
parties with comparable bargaining power.”  
 
73. Take or Pay clauses are also widely utilized in the petroleum 
industry in Pakistan. Therefore, it can be seen that Take or Pay 
clauses are a common occurrence in energy contracts, and their 
significance in maintaining a regular income stream for the seller 
and a regular supply stream for the buyer is paramount.  
 
74. There are two separate obligations in most take or pay contracts. 
First, there is the obligation on the seller to make the gas 
available to the Buyer. Secondly, there is the obligation on the 
Buyer to pay for the gas that has been made available (either as 
well as, or instead of, taking up the gas).53 Furthermore, take or 
pay payments have been widely understood to be an amount due 
to the seller or transportation company as a debt for having made 
the gas or transportation services available, and not as damages 
for failure on the other party to take gas. The rule of penalties in 
this case is not held to apply generally, because the seller or the 
transportation company is providing the service of making gas or 
transportation services available to the other party, in accordance 
with the Gas Sale/Supply Agreement or the Gas Transportation 
Agreement which creates a debt owing to the seller or the 
transportation company for that service.54 
 
75. In the House of Lords case of Amoco v. Teeside Gas,55 the issue 
was not whether the send or pay agreements (similar to take or 
pay agreements) were damages or a debt, Lord Hoffman refereed 
to send or pay agreements as an “income stream”. This was held to 
be a clear reference that this “income stream” would create a debt 
in favour of the gas transporter, should the shipper avail the 
                                                   
53 B. Holland ‘Enforceability of take-or-pay provisions in English law contracts-resolved’ 2016 Journal 
of Energy & Natural Law Resources  
54 Ibid  
55 [2001] 1 All ER (Comm) 865 
CA 1547/19  
31 
 
service. In the same vein, an “income stream” would be created 
for the Seller of the gas, as a debt in its favour for supplying the 
gas to the Buyer.  
 
76. Similarly, in the case of Associated British Ports v. Ferryways 
and Another,56 it was held, in relation to a send or pay clause at 
paragraph 50 that the obligation to pay was held not to be “…a 
secondary obligation that is triggered by a breach…but is itself a 
primary obligation given in exchange for ABP’s promise to 
provide a new linkspan, and as such cannot be a penalty.” 
 
77. Therefore, it followed that payment under take or pay clause will 
be a debt, and the law on penalties ought not apply. This settled 
position was challenged in the case of M & J Polymers Ltd v. 
Imerys Minerals Ltd;57 wherein the Commercial Court considered 
the application of the rule of penalties in the context of take or 
pay provisions in a commercial contract. This case famously held 
the claim under the take and pay provisions was a debt. 
However, Burton J also held that as a matter of principle, take or 
pay clauses may operate as a penalty, but this would not be their 
ordinary classification, and would apply where “a sum is 
specified which is found not to be a "genuine pre-estimate of 
damage" or a sum is stipulated as "in terrorem" of the offending 
party”. In this case, however, Burton J upheld the take or pay 
clause on the basis:  
“On the facts of this case, I am entirely satisfied that 
the take or pay clause was commercially justifiable, did 
not amount to oppression, was negotiated and freely 
entered into between parties of comparable bargaining 
power, and did not have the predominant purpose of 
deterring a breach of contract nor amount to a 
provision "in terrorem". The evidence was wholly 
clear. The negotiations took place between extremely 
well qualified, able and savvy commercial men against 
                                                   
56 [2008] EWHC 1265 (Comm) 
57 [2008] EWHC 344 (Comm) 
CA 1547/19  
32 
 
a very significant commercial background, including a 
background of previous dealings.“ 
 
78. A middle course was navigated in the UK Supreme Court case of 
Cavendish Square Holdings BV v. Talal El Makdessi58 which 
held that: 
“13… There is a fundamental difference between a 
jurisdiction to review the fairness of a contractual 
obligation and a jurisdiction to regulate the remedy for 
its breach. Leaving aside challenges going to the reality 
of consent, such as those based on fraud, duress or 
undue influence, the courts do not review the fairness 
of men’s bargains either at law or in equity. The 
penalty rule regulates only the remedies available for 
breach of a party’s primary obligations, not the 
primary obligations themselves.  
14…where a contract contains an obligation on one 
party to perform an act, and also provides that, if he 
does not perform it, he will pay the other party a 
specified sum of money, the obligation to pay the 
specified sum is a secondary obligation which is 
capable of being a penalty; but if the contract does not 
impose (expressly or impliedly) an obligation to 
perform the act, but simply provides that, if one party 
does not perform, he will pay the other party a 
specified sum, the obligation to pay the specified sum is 
a conditional primary obligation and cannot be a 
penalty.” 
This approach illustrates that a take or pay payment should be 
viewed as being due on the performance of the seller’s “specified 
obligation” in making gas available. There will not be any 
parallel breach by the buyer’s failure to take gas as the buyer will 
have an option to take gas. 
79. In the present case, Learned Counsel for Appellant has argued 
that the fact that the Appellant did not take up the Gas during 
the specified time, amounted to a breach of the Take or Pay 
provisions, thereby rendering Section 74 of the Contract Act 
applicable to the case. It was further argued that its conduct of 
not taking the Gas during the relevant period amounted to a 
                                                   
58 [2015] UKSC 67  
CA 1547/19  
33 
 
breach under Clause 3.6(a) of the GSA, which imposed an 
obligation on the Appellant to take the Daily Contract Quantity of 
Gas from the Respondent from and after the Commercial 
Operations Date during the Firm Delivery Period.  
 
80. Section 74 of the Contract Act reads:  
“74. Compensation for breach of contract where penalty 
stipulated for.- 
When a contract has been broken, if a sum is named 
in the contract as the amount to be paid in 
stipulation 
by 
way 
of 
penalty, 
the 
party 
complaining of the breach is entitled, whether or not 
actual damage or loss is proved to have been caused 
thereby, to receive from the party who has broken 
the contract reasonable compensation not exceeding 
the amount so named or as the case may be, the 
penalty stipulated for.” 
 
81. Retired Chief Justice Tassaduq Hussain Jillani, one of the Experts 
in the arbitration proceedings, at page 30 of his Opinion, lays 
down when the above provision of law would be attracted:  
(i) 
Firstly, when a contract has been broken; 
(ii) 
Secondly, if a sum is named in the contract in 
the case of breach, or 
(iii) 
Thirdly, if the contract contains any other 
stipulation by way of penalty; 
(iv) 
Fourthly, the party complaining of the breach 
would be entitled, whether or not actual damage 
has been proved to have been caused thereby, to 
receive from the party who has broken the 
contract, 
reasonable 
compensation 
not 
exceeding the amount so named or as the case 
may be, the penalty stipulated for.  
 
82. The first condition for an invocation of Section 74, therefore, is 
breach of Contract.  Learned Counsel for the Appellant argues 
that, by not taking up the Make-Up Gas, there had been a breach 
of Clause 3.6(a) of the GSA (the “Take or Pay” payment) on part of 
the Petitioner. Counsel for Appellant states that this is attributed 
to the wording of the Section, which, by use of the word “shall”, 
CA 1547/19  
34 
 
imposes an obligation on the Appellant to take up the minimum 
quantity of gas; and the latter part of the section which states 
“…if not taken pay for a minimum quantity of Gas…” was a 
provision providing for damages as a consequence of the breach 
of the Appellant’s obligation. This Section is reproduced below 
for ease of reference: 
 
“Section 3.6: Take or Pay/Make-Up Gas 
3.6(a): From and after the Commercial Operations Date 
and during a Month in the Firm Delivery Period, the 
Buyer shall take and if not taken pay for a 
minimum quantity of gas (the “Take or Pay 
Quantity”) equal to fifty percent (50%) of the Daily 
Contract Quantity multiplied by the difference between 
the number of days in that Month (or portion thereof) 
and (i) the number of days (or fractions thereof) of Force 
Majeure Events declared by the Seller or the Buyer in 
that month, (ii) the number of days (or fractions thereof) 
of non-delivery of Gas by the Seller in that Month for any 
reason, including a breach or default by the Seller or 
maintenance undertaken by the Seller pursuant to 
Section 12.1, and (iii) the number of days of Scheduled 
Outages in that Month notified to the Seller pursuant to 
Section 12.2.” 
 
  
 
 
 
 
 
(Emphasis supplied) 
 
83. The case of Muhammad Saleh v. Tim Chief Settlement 
Commissioner59 is clear authority on whether or not the word 
“shall” is always to be construed so as to create a compulsive 
obligation; this case laid down that the words “may” and “shall” 
in legal phraseology are interchangeable, depending on the 
context in which they are used, and are not to be interpreted with 
the rigidity which is attributed to them in ordinary parlance.  
 
84. Furthermore, this case stressed upon the need for a contextual 
analysis of provisions. Upon our analysis, we find the 
Appellant’s approach of dividing Section 3.6(a) of the GSA into 
two different parts redundant. The provision, if looked at in its 
                                                   
59 1972 PLD SC 326 
CA 1547/19  
35 
 
entirety, creates an obligation not to take up Gas, but rather, to 
pay for it even if it is not taken up. The Take or Pay payment is 
not due as a result of a contract breach or default, but rather, it 
flows from the Appellant’s valid choice/decision not to take the 
take or pay quantity. The take or pay payment under Section 3.6 
is therefore essentially an agreement whereby the Appellant 
agrees to either take and pay the contract price for, a minimum 
contract quantity of Gas; or pay the applicable contract price for 
such Take or Pay Quantity if it is not taken. Thus, the Appellant’s 
obligation may be described as being in the “alternative” as it can 
be satisfied in either of the two ways. Therefore, even if the 
Appellant did not take up the Gas, but did pay for it, there would 
be no breach of contract. No penalty was attracted as a result of 
the Appellant not taking up the Gas, rather, conversely, under 
Section 3.6(c) of the GSA, the Appellant was allowed to ‘make up’ 
for the amount he had paid for. Thus, we are unable to agree 
with the contention of the Appellant that failure to take up the 
Gas had resulted in breach of contract. Section 3.6(c) of the GSA is 
reproduced as follows: 
“Section 3.6(c): Except for the Gas taken or paid by 
the Buyer pursuant to Section 3.6(b) above, any Gas 
paid for by the Buyer pursuant to this Section 3.6(a) 
above during a Contract Year but not taken prior to 
the time of payment (“Make-Up Gas”) may be taken 
with payment by the Buyer of the difference between 
the Gas Price prevailing at the time the Make-Up Gas 
is taken by the Buyer and the Gas Price used to 
determine the payment for the Take or Pay Quantity, 
using the “first in, first out” method and any increase 
in taxes on the sale and purchase of Gas applicable to 
Gas sales hereunder, during the Firm Delivery Period 
of the immediately following one (1) Contract Year of 
the Term, provided that the Buyer shall have first 
taken and paid for a quantity equal to but not less than 
the Take or Pay Quantity in the applicable Contract 
Year and provided further that in no event shall the 
Seller’s obligation to deliver the Gas hereunder on any 
Day exceed the Daily Contract Quantity. At the end of 
the Gas Allocation, the Buyer shall be entitled to the 
CA 1547/19  
36 
 
Make-Up Gas during the immediately following 
twelve (12) Months on as-available basis.” 
(Emphasis supplied)  
 
85. Furthermore, even though it is clear that Section 74 of the 
Contract Act would not be attracted because there is no breach of 
contract that triggers the application of this Section, even if it 
were to have applied to the circumstances of the case, the 
Appellant would not have been able to make out an arguable 
case. This is because as per Section 74, the Respondent would be 
entitled to “reasonable compensation”. In the case of Syed Sibte 
Raza v. Habib Bank Limited,60 it was held that in working out 
the amount for reasonable compensation, it would be relevant to 
consider whether any loss has or has not accrued to the party, 
which has suffered on account of the breach, and the extent of 
that loss. As per the facts of this case, the fact that the Respondent 
Bank had spent more than the amount of security it withheld 
from its now departed employees on their training, therefore the 
amount of security deposit forfeited by the Bank was not held to 
be unconscionable or excessive.  
 
86. Relating back to the case at hand, we note that the Take or Pay 
clause in the GSA was a reasonable pre-estimate for the loss 
suffered by the Respondent. This is because if the Take or Pay 
Quantity was not taken up by the Petitioner, the Respondent 
suffered losses insomuch as the fact that the Gas not taken by the 
Appellant is provided to the domestic consumers through its 
Distribution System. As a result, the Respondent suffered 
significant loss because domestic consumers enjoy a lower tariff 
as per the Regulations of the Oil and Gas Regulatory Authority 
(OGRA). It is a matter of record that when the GSA was executed 
the IPP tariff was Rs. 264.87 per MMBTU, while the tariff for 
                                                   
60 PLD 1971 SC 743 
CA 1547/19  
37 
 
domestic consumers consuming up to 500M3 per month was Rs. 
85.03, and for domestic consumers consuming between 50M3 per 
month, the tariff was Rs. 162.07. Moreover, Appellant’s obligation 
under Section 3.6 may be regarded as a reasonable pre-estimate of 
damages and not a penalty inserted in the contract for the reason 
that the Appellant is not burdened with the task of paying for the 
whole quantity of Gas which was to be taken, but rather 50% of 
the daily contract quantity after the Commercial Operations Date 
and 15% of the daily contract quantity during the Commissioning 
Period. Secondly, if the Appellant did not take/buy gas during 
the stipulated period, it was given a chance to make up the said 
quantity of gas not taken, during a specific period mentioned in 
the GSA i.e. during the Firm Delivery Period of immediately 
following one (1) Contract Year of the term. This appears to be a 
reasonable term stipulated in the contract, which has been 
evidently agreed upon by both parties prior to the signing of the 
GSA. The Appellant cannot now turn around and claim 
otherwise.  
 
V. 
ISSUE NO. 3: WHETHER AWARD RENDERED BY THE 
ARBITRATOR AMOUNTED TO UNJUST ENRICHMENT? 
 
87. The Appellant vehemently asserts that a party should not be 
allowed to recover more than it has actually lost; as enshrined in 
Section 74 of the Contract Act, 1872 and that allowing more than 
the actual loss amounts to unjust enrichment/double recovery. 
Counsel for the Appellant further contends that Respondent 
admitted that it had not suffered an actual loss of more than Rs. 
356,104,346.25/-, and the Sole Arbitrator, by awarding more than 
the actual loss suffered unjustly enriched the Respondent. The 
Appellant has stressed upon the fact that for a loss of Rs. 365 
million rupees, the Respondent has been awarded Rs. 603 
million, which plainly exceeds reasonable compensation for the 
losses suffered by the Respondent.  
CA 1547/19  
38 
 
 
88. The Appellant, in furtherance of his claim, relies on the Witness 
Statement of the Chief Billing Officer of the Respondent, who, 
according to the Petitioner, has admitted that the Respondent 
only suffered an actual loss of Rs. 356,104,346.25/- as a result of 
the Appellant’s inability to take the Gas. Upon perusal of the said 
document, we are unable to find such an admission on part of the 
Chief Billing Officer regarding the amount. Rather, conversely, the 
Chief Billing Officer explicitly states, at paragraph 4, that the total 
principal amount payable is Rs. 603,202,083.61 
 
89. The Appellant, by its failure to pay for the six invoices issued by 
the Respondent from May to October 2011, was undeniably in 
breach of its obligation under the GSA. This invariably attracted 
Section 74 of the Contract Act, which was been discussed at 
length above.  
 
90. We are guided by the case of Province of West Pakistan v 
Messers Mistri Patel & Co;62 wherein it was held that the award 
of compensation by the court under Section 74 of the Contract Act 
will depend upon a case by case factual and circumstantial 
analysis as to what would be reasonable compensation in each 
case subject to the limit of the amount mentioned in the contract. 
It is noteworthy that as per the facts of this case, the Government 
was entitled to forfeit five percent of the contract price in case of 
breach of contract by the other party. However, it so transpired 
that because the Government of Pakistan had earned a profit on 
sale of the remaining goods, the Court declined to award 
compensation of 5% of the total value of goods that had not been 
lifted by the supplier by the stipulate date.  
 
                                                   
61 Page 392 of the File 
62 PLD 1969 SC 80 
CA 1547/19  
39 
 
91. In the present case, we note that the alleged harshness awarded 
by the Sole Arbitrator has already been reduced to Rs. 400 million 
Rupees, with the agreement of both parties by the Court and to 
be deposited in court, while interpreting Section 74 of the Contract 
Act. 
 
92. However, we find it necessary to dilate upon whether the 
Appellant’s claim for unjust enrichment holds the ground. For a 
claim of unjust enrichment to succeed, there are certain factors 
that ought to be taken into account. In the case of Fecto Belarus 
Tractor Ltd v. Government of Pakistan,63 the Supreme Court 
explained this doctrine as one in which a person gains a 
“windfall…in respect of an amount which is not owned by him nor it 
has sustained any loss in respect thereof”. 
 
93. In more recent decisions, the Sindh High Court in the case of 
Arabian Sea Enterprises  v. Abid Amin Bhatti,64 has held that the 
necessary ingredients for a claim of unjust enrichment to succeed 
are as follows:  
i. 
The plaintiff must prove that defendant has become 
enriched by the receipt of a benefit; 
ii. 
This enrichment is at the expense of plaintiff; 
iii. 
The enrichment and/or its retention is unjust; and 
iv. 
The defendant can legally be compelled to compensate 
the plaintiff. 
 
94. The Lahore High Court in the case of Sui Northern Gas Pipelines 
v. DCIR65 explained unjust enrichment in the following terms:  
“Unjust enrichment occurs when a person retains 
money or benefits which in justice, equity and good 
conscience, belong to someone else… 
The doctrine of unjust enrichment, therefore, is that no 
person can be allowed to enrich inequitably at the 
                                                   
63 PLD 2005 SC 605 at 636 
64 PLD 2013 Sindh 290 at paragraph 22 
65 2014 PTD 1939 
CA 1547/19  
40 
 
expense of another. A right of recovery under the 
doctrine of “unjust enrichment” arises where retention 
of a benefit is considered contrary to justice or against 
equity.” 
 
95. The Canadian Supreme Court in the case of Garland v. 
Consumers’ Gas Co.66 that: 
“As a general matter, the test for unjust enrichment is 
well established in Canada.  The cause of action has 
three elements: (1) an enrichment of the defendant; (2) 
a corresponding deprivation of the plaintiff; and (3) an 
absence of juristic reason for the enrichment.” 
 
96. Upon analysis of the above cases, it must be seen that for a claim 
of unjust enrichment to succeed, there must be enrichment at the 
expense of the plaintiff and this enrichment must be unjust in 
such a way that there should be no lawful justification for the 
same. Relating back to the case at hand, learned counsel for the 
Appellant argues that the fact that the Respondent was entitled to 
recover the amounts for the same Gas twice, amounts to unjust 
enrichment of the Respondent, which is therefore contrary to the 
Contract Act, and also the principles of public policy. We cannot 
agree with this argument. While it may be so that the Respondent 
is receiving payment for the same amount of Gas twice, it needs 
to be clarified that this is upon failure of the Appellant to take up 
the Gas, and further, the Respondent, in any case, is not 
recovering the same amount, due to the fact that it is redirecting 
transmission to its domestic consumers, which pay a lower tariff 
than Independent Power Producers (IPP). Furthermore, to allow the 
Appellant’s claim would mean overlooking the fact that the 
Respondent is still under an obligation to supply the Make-Up 
Gas to the Appellant at any time within the duration stipulated 
under Section 3.6(c) of the GSA. There is, therefore, presence of 
‘juristic reason’ for the enrichment. Further, the Appellant has 
failed to prove its deprivation as it is entitled to Make-Up Gas at a 
                                                   
66 [2004] 1 S.C.R. 629 at Paragraph 30 
CA 1547/19  
41 
 
later date, which it failed to avail within the stipulated time 
frame. It is by now settled law that that if a party failed to avail a 
remedy within the period of limitation then after the expiry of the 
said period, the other party acquires a valuable right.67 Therefore, 
we hold that the Appellant has failed to make out a claim for 
unjust enrichment of the Respondent.  
 
97. We are also fortified in our view by the reasoning of the Sole 
Arbitrator who very succinctly explained the factors to be taken 
into account when dismissing the claim for unjust enrichment:  
o Claimant 
expanded 
monies 
to 
construct 
the 
infrastructure to deliver Gas to the Respondent; 
o Claimant having to be ready and able to provide under 
the GSA, be it Daily Contract Quantity or the Take or 
Pay Quantity to the Respondent during Firm Delivery 
Period; 
o Claimant remaining liable to its upstream suppliers 
even if the Respondent chose not to take the Take or 
Pay Quantity but opted to pay instead and to Make 
Up Gas later; 
o Claimant having to bear the responsibility of cutting 
its losses and finding an alternative Buyer (even at a 
lower price) for the Gas not taken by the Respondent 
and the likely additional costs of transmission, 
distribution and unaccounted for gas. 
 
98. Conclusively, we hold that the Appellant has failed to make out a 
claim for unjust enrichment, and we find that the award rendered 
by the Sole Arbitrator was not disproportionate to the losses 
suffered by the Respondent. 
 
VI. 
ISSUE NO 4: PUBLIC POLICY 
 
99. Article V of the New York Convention lays down instances where 
courts may refuse recognition and enforcement of an arbitral 
award 
brought 
before 
them, 
more 
specifically, 
Article 
                                                   
67 (See Messrs Lanvin Traders Karachi v. Presiding Officer, Banking Court 2013 SCMR 1419) 
CA 1547/19  
42 
 
V(2)(b)states that recognition and enforcement may be refused if 
the award would be contrary to “public policy” of “that country”. 
Thus, since recognition and enforcement of the award is being 
sought in Pakistan, it is the public policy of Pakistan that one 
must adhere to while perusing the award, which, in turn requires 
a discussion on what amounts to a violation of public policy 
under the laws of Pakistan.  
 
100. It is noteworthy that neither the New York Convention nor the 
corresponding Foreign Arbitral Awards Act has defined public 
policy. This was purposefully done by the drafters of the 
Convention so as to allow each country to derive its own notions 
of public policy, as it would be unrealistic and utopian to expect all 
States to adhere to one harmonized ideal of public policy.  
 
101. The dilemma of defining public policy has adequately been by 
Albert Van Den Berg in his book titled ‘The New York Arbitration 
Convention of 1958. Towards a Uniform Judicial Interpretation’ 
wherein he states that the reason why the concept of public 
policy is so difficult to grasp is that the degree of fundamentality 
of moral conviction or policy is conceived differently for every 
case in the various States. Indeed, this is true, and to that effect 
both Parties have relied on a great many cases from different 
jurisdictions to illustrate the views taken by courts and 
commentators on the interpretation of public policy.   
 
102. Owing to paucity of judicial commentary and literature alike in 
Pakistan, we find it necessary to expound upon the meaning of 
public policy, more specifically within the realm of international 
commercial arbitration.   
 
103. Perusals of the Travaux préparatoires (preparatory works) of the 
New York Convention clearly indicate that the public policy 
exception was never meant to be given a wide scope of 
CA 1547/19  
43 
 
application. Article 1(2)(e) of the Geneva Convention, the 
predecessor to the New York Convention contained the provision 
of public policy in such a way that not only a violation of public 
policy of the country of enforcement hindered recognition and 
enforcement; an award could also be contrary to public policy if 
it was contrary to the “principles” of the law of the country in 
which it was seeking enforcement. The reference to principles of 
law was omitted by the International Court of Commerce (ICC) 
Draft of 1953, and Article IV(1)(a) of this draft was limited to only 
a violation of public policy. In the final discussions leading up to 
the adoption of the New York Convention, Working Party III was 
instated to present its report on 3 June, 1958. The wording 
“incompatible with the public policy of the country in which is award is 
sought to be relied upon” was recommended, the reasoning behind 
the same was that the public policy criterion should not be given a 
broad scope of application. The Convention adopted the draft of 
Working Party III, which now reads as Article V(2)(b) under the 
New York Convention.  
 
104. Article V(2)(b)’s defense of public policy is one ground that is 
frequently invoked by a party resisting enforcement of the 
award, but rarely is it granted. We find that it would be remiss if 
we did not echo the Learned High Court in quoting the words of 
an English Court upon this issue, which are by now almost 
inextricably linked to this topic and oft cited: “public policy is a 
very unruly horse, and once you get astride it you never know where it 
will carry you. It may lead you from sound law. It is never argued at all, 
but when other points fail.” 
 
105. Another frequently cited judicial comment on public policy is 
from Judge Joseph Smith in Parsons & Whittemore Overseas Inc. v. 
RAKTA,68 who observed that the public policy defense ought only 
                                                   
68 508 F.2d 969 (1974) 
CA 1547/19  
44 
 
to succeed where enforcement of the award would violate the 
forum State's most basic notions of morality and justice. 
 
106. The recent Privy Council decision of Betamax Ltd (Appellant) v 
State Trading Corporation (Respondent) (Mauritius)69is of some 
guidance, in which, on appeal, the Privy Council overturned the 
decision of the Supreme Court of Mauritius which had set aside 
an award for being contrary to the public policy of Mauritius, 
because the underlying contract between the parties was in 
breach of the public procurement law of Mauritius. The Board 
held that the court was not entitled to use the guise of public 
policy to reopen issues relating to the meaning and effect of a 
contract or whether it complies with a regulatory or legislative 
scheme. For that reasons the decision of the Supreme Court of 
Mauritius setting aside the Award fell to be reversed. 
 
107. In Pakistani jurisdiction, public policy has been interpreted in the 
context of the Act preceding the Foreign Arbitral Awards Act, 
2011 i.e. the Arbitration (Protocol and Convention) Act 1937 in Nan 
Fung Textiles Limited v. Sadiq Traders Limited70 as being objects 
which are illegal by common law or legislation, which are 
injurious to good government which are adverse to justice, 
family life or public interest and objects economically against the 
public interest.  
 
108. This court has also touched upon public policy in the case of Haji 
Abdul Karim and others v. Sh. Ali Muhammad as:71 
“Similarly, the appellants not having proved that a 
license for the working of the factory was necessary 
because the Chief Executive Officer had formed the 
opinion that the running of the factory was dangerous 
to life, health or property or likely to create nuisance, it 
                                                   
69 [2021] UKPC 14 
70 PLD 1982 Karachi 619 
71 PLD 1959 SC 167 
CA 1547/19  
45 
 
cannot be held that running of the factory was opposed 
to public policy.” 
 
109. The Supreme Court of Azad & Jammu Kashmir in the case of 
Sardar Muhammad Yasin v. Raja Feroze Khan72 has defined 
public policy as: 
“…any act the allowing of which would be against the 
general interests of the community. This policy has 
involved itself with the growth of organised society. 
Certain standards in the domain of morality, used in 
its widest sense, have assumed sanctity on account of 
the acceptance by the general community. Therefore, 
any agreement which would destroy these standards or 
adversely effect [sic] the development of society or its 
organization have to be viewed from this angle and it 
is here that the principle of public policy is born.”  
 
110. Therefore, it is easy to adduce the hesitance of courts and drafters 
alike in invoking public policy frivolously and without the most 
exceptional of circumstances. Most courts world over have 
favoured a restrictive approach to public policy in international 
commercial arbitration. It is imperative that, Pakistan is one of 
the countries that have yet to develop jurisprudence on 
international commercial arbitration, and we must be cautious, 
and ought to adopt standards of practice in line with the 
international community. There is also a need to develop best 
standing practices for our own courts, which are seeing a rise in 
cases 
pertaining 
to 
international 
commercial 
arbitration; 
therefore, there is an utmost need to deliver precedent that is 
consistent and does not open floodgates to frivolous litigation. 
Indeed, the very purpose of parties going to arbitration is the 
(relatively) speedy settlement of disputes, which ought not to be 
impeded by a party resorting to litigation once an award is 
rendered.  
 
                                                   
72 PLD 1972 AJ&K 46 
CA 1547/19  
46 
 
111. The jurisdiction of courts under international commercial 
arbitration is merely supervisory; we deem it necessary to step in 
under circumstances, where, if not remedied, the arbitration 
award or agreement could lead to an unfair outcome for one of 
the parties. This is in no way means that domestic awards would 
be treated less favourably than foreign awards, but rather, the 
aim is to create a level playing field between the two and treat 
them at par.  
 
112. A restrictive interpretation on challenge to enforcement of an 
award would therefore, ensure finality of award at its last stage, 
giving greater certainty to parties after having gone through 
rigorous arbitrations. The New York Convention itself advocates 
for a “pro-enforcement bias” and we are mindful of the same.  
 
113. This does not in any way mean that the pro-enforcement bias 
impedes State interests however, and where a claim for violation 
of public policy is made, due care and attention ought to be 
awarded to that claim. However, one must be mindful that the 
public policy defense is an exceptional one at that, which demands 
heightened standards of proof that courts would normally 
require in order to refuse recognition and enforcement of a 
foreign arbitral award. Thus the Canadian courts have requested 
that the party opposing recognition and enforcement should 
present 
compelling 
evidence, 
and 
that 
recognition 
and 
enforcement should only be refused in instances of a “patently 
unreasonable award”.73 
 
114. This heightened standard of proof is compatible with the 
exceptional nature of the public policy defense as well as with the 
fact that Article V (2)(b) ibid; provides a mere facility to the courts 
and not an obligation.  
                                                   
73 See Karaha Bodas Company, L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara 
and P.T. PLN (Persero) 2007 ABQB 616 
CA 1547/19  
47 
 
 
115. Under the present scenario, we are convinced that this was not a 
case of unjust enrichment; rather, this was a case where the 
Appellant was aggrieved by the quantum of compensation 
awarded by the Sole Arbitrator. There had therefore, been no 
violation of public policy.  
 
116. The German case of the Higher Regional Court of Frankfurt 
(Oberlandesgericht 
Frankfurt) 
in 
Oberlandesgericht 
[OLG] 
Frankfurt, Germany,74dismissed the argument of the Defendant 
that enforcement of the award would violate German public 
policy. It was held that even if the Defendant could prove that 
damages had been awarded arbitrarily by the Arbitral Tribunal, 
this would not amount to a violation of public policy.  
 
117. Furthermore, in Oberlandesgericht [OLG] Celle, Germany,75 the 
Higher Regional Court of Celle also dismissed a claim of public 
policy presented by the Defendant. The Court held that the 
penalty, though representing 40% of the main obligation under 
the contract and being therefore "disproportionally high", did not 
per se violate the international public policy of Germany. The 
same principle applied to the decision on costs. In order to violate 
public policy, the Court held that additional circumstances such 
as abuse of economic power would have been necessary. 
 
118. Finally, the Supreme Court of India in the case of Renusagar 
Power Co. Ltd v. General Electric Co76 held that enforcement of a 
foreign award would be refused on the ground that it is contrary 
to public policy if such enforcement would be contrary to (i) 
fundamental policy of Indian law; or (ii) the interests of India; or (iii) 
justice or morality. More specifically, on the objections of one of 
the parties based on unjust enrichment, the Court held, in 
                                                   
74 26 Sch 13/08, 16 October 2008 
75  8 Sch 06/05, 6 October 2005 
76 1994 SCC Supl. (1) 644 
CA 1547/19  
48 
 
paragraph 100, that the case in question was not one of unjust 
enrichment, and that the objections raised were with regard to 
the quantum of the award by the Arbitral Tribunal. To hold that 
this amounted to unjust enrichment would hold to mean that in 
every case where an arbitrator awarded an amount higher than 
what should have been awarded would open the award to be 
challenged on the ground of unjust enrichment. Such a course 
was not permissible under the New York Convention.  
 
119. In light of the above cited case law, and in the same vein as 
Renusagar (supra), we hold that awarding a greater quantum of 
compensation than that was due by an Arbitral Tribunal does not 
amount to violation of public policy, as the same would open 
floodgates and would require the courts to undertake an 
examination of each and every award, which is against the very 
spirit of the New York Convention. Resultantly, we hold that the 
award rendered by the Sole Arbitrator was not in violation of the 
public policy of Pakistan.  
 
120. We agree with the finding of the Learned High Court at 
paragraph 57 of the Impugned Judgment, wherein it is stated: 
“…[the] non-interference or the pro-enforcement 
policy is in itself a policy of Contracting States, which 
is not easily persuaded by the public policy exception 
argument… The public policy exception acts as a 
safeguard of fundamental notions of morality and 
justice, such that the enforcement of a foreign award 
may offend these fundamentals… [T]he public policy 
exception should not become a back door to review the 
merits of a foreign arbitral award or to create grounds 
which are not available under Article V of the 
Convention as this would negate the obligation to 
recognize and enforce foreign arbitral awards. Such 
kind of interference would essentially nullify the need 
for arbitration clauses as parties will be encouraged to 
challenge foreign awards on the public policy ground 
knowing that there is room to have the Court set aside 
the award.”  
CA 1547/19  
49 
 
121. Conclusively, for the foregoing reasons, we hold: 
i. the Appellant’s contention that the award of the Sole 
Arbitrator to the extent of the Payment Agreement 
ought to be set aside is dismissed;  
ii. there has been no breach of Section 74 of the 
Contract Act on part of the Appellant by failure to 
take up the Make Up Gas, 
iii.  the award rendered by the Sole Arbitrator does not 
violate the public policy of Pakistan.  
 
122. The Appellant’s contentions are therefore misconceived, and this 
Appeal is dismissed accordingly. No order as to costs.  
 
123. Lastly, I would like to extend and acknowledge my deepest 
gratitude for the diligent and extensive research carried out by 
Law Clerks Mahnoor Waqar and Ahmad Hassan on global 
jurisdictions 
and 
new 
points 
in 
issue 
on 
Arbitration 
Jurisprudence under Pakistan Law.   
 
 
 
 
Judge 
 
 
Judge 
 
 
Judge 
 
ANNOUNCED ON _________________ 
 
 
JUDGE 
 
“Approved for Reporting” 
 
 
 
