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Petitioner: SIND CONSTRUCTION Co. VS Respondent: THE KARACHI PORT TRUST, KARACHI
Court Name: Sindh High Court Judge(s): Nasir Aslam Zahid Title: SIND CONSTRUCTION Co. vs THE KARACHI PORT TRUST, KARACHI Case No.: Suit No, 672 of 1976 Date of Judgment:1980-10-26 Reported As: 1981 CLC 1282 Result: Application dismissed
JUDGMENT
JUDGMENT ' By a short order dated 15-10-1980 I had made the award dated 18-10-1976 of the Arbitrator, late Mr. Justice H. T. Raymond, a rule of the Court and passed a decree in terms thereof with simple interest at 9% per annum from the date of the decree till realization with no order as to costs. The reasons for the order are given hereunder:- 2. The facts are that the defendant, hereinafter referred to as the K. P. T., had invited tenders for the laying of a main rail track in the oil installation area at Keamari, Karachi and on 27-7-1972 the plaintiff submitted a tender for the lump-sum amount of Rs, 10,75,847. This bid of the plaintiff was about 20 % higher than the K. P. T's. Estimate of Rs, 8,94,400. According to the tender submitted by the plaintiff, thier bid was open for 90 days. 3. On 19-10-1972 the K. P. T. Accepted the bid of the plaintiff subject to the approval of the Government, which approval was later on granted. By later dated 1-1-1973 addressed to the K. P. T., the plaintiff expressed their willingness to work at quoted rate and asked for issuance of the work order, which work order was issued by the K. P. T. On 6-1-1973. 4. The formal contract was signed between the parties on 3-4-1973 although the work was commenced by the plaintiff on 13-1-1973. Under the contract the stipulated period for completion of the work was 6 months and was to expire on 12-7-1973. The work was, however, completed by the plaintiff on 27-11-1973 and according to Mr. Abbas Ahmad, learned counsel for the K. P. T., no action was taken by the K. P. T. Against the plaintiff for the delay of about 41 months in the completion of the contract. 5. After the completion of the work, the plaintiff made their claim for escalation in the sum of Rs, 5,94,283.87 which included 7 1/2 claim on account of overhead charges. By their letter of 27-2-1974
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the K. P. T. Asked the plaintiff for submission of bills and vouchers in support of their aforesaid claim for escalation. Thereafter the plaintiff kept quiet for 16 months and on 27-6-1975 they wrote another letter to K. P. T. Reminding them of the claim for escalation but with this letter also no bills or vouchers were attached. Thereafter on 2-7-1975, the plaintiff raised their original claim to Rs, 10,42,311. By letter dated 12-7-1975 the K. P. T. Rejected the claim of the plaintiff. After nearly 6 months of the rejection of the claim by legal notice dated 14-1-1976 addressed to the Chairman of K. P. T., the plaintiff sought the nomination of an arbitrator under clause 60 of the General Conditions of Contract. Clause 60 reads as follows :- "60. Any dispute regarding the quality of materials or workmanship or accuracy of measurements or reasonableness of the rate for any item or any other question of an Engineering or Technical nature shall be decided by the Engineer and his decision shall be final and binding on all the parties. ' Any other dispute of whatsoever nature (including the interpretation of this or any other relevant document) arising under this Contract (except as to any matters, the decision of which is specially provided for by these conditions) shall be referred to a sole arbitrator to be appointed by the Chairman, Karachi Port Trust, who shall have absolute discretion either to appoint an officer of the K. P. T. Or anyone else arbitrator. The decision of such sole arbitrator shall be final and conclusive and shall be binding on all the parties to the contract and the provisions of the Arbitration Act, 1940 and any statutory modification thereof and the rules framed thereunder shall be deemed to apply to and be incorporated in this contract. ' The Contractor shall not stop the work during the pendency of the arbitration proceedings, but he shall continue to execute the work with full speed. However, the Chief Engineer shall have the power to ask the contractor in writing to stop the work, in full or in part if he considers this necessary." 6. A perusal of the second paragraph of the aforesaid clause shows that a dispute under the clause was required to be referred to a sole arbitrator to be appointed by the Chairman K. P. T. By letter dated 22-1-1976 the Chairman K. P. T. Nominated late Mr. Justice H. T. Raymond as the Sole Arbitrator under clause 60. The Sole Arbitrator entered upon the reference on 11-2-1976. The plaintiff filed their claim in the sum of Rs, 11,09,866. A written statement was filed by the K. P. T. Raising several preliminary objections and also a reply on merits. The following consent issues were framed by the Sole Arbitrator in the hearing which took place on 20-3-1976 :- "(1) Can the question of rates or reasonableness thereof, be adjudicated upon in these proceedings? (2) Are the instructions of the Ministry of Finance binding on the respondents or whether the applicants can claim the benefit of these instructions in this case? (3) Whether the devaluation of the Rupee, increase in prices, and/or inflation affected the applicants in the execution of the contract in question? (4) Whether the respondents on account of the devaluation of the Rupee accepted the applicants tender at a rate 20.29 per cent above the respondents estimated costs? (5) Whether the contract in question was a fixed rate contract without any escalation clause? If so, what is its effect? (6) Whether the applicants were able to precure the permanent way materials from the Railway Authorities at a reasonable price on the recommendation of the respondents within the contract period? If so, what is its effect? (7) Whether the applicants were able to obtain most of the sleepers more or less within the contract period? If so, what is its effect? (8) Whether the applicants were awarded extra items of the work on the basis of the market rates quoted by the applicants? If so, what is its effect?
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(9) Whether the respondents have allowed enhanced rates to other contractors over and above the rates tendered and accepted on the basis of instructions issued by the Ministry of Finance, Government of Pakistan? If so, what is its effect? (10) Whether the applicants are entitled to the amount mentioned in the statement marked "A" on account of escalation of prices? (11) Are the rates shown in the statement marked 'A' reasonable, fair and market rates? (12) Whether the instructions of the Ministry of Finance, Government of Pakistan relating to escalation of prices are not binding on the respondents or whether the respondents are estopped from disputing the binding effect of these instructions? (13) Are the applicants materials shown in the statement marked `B' in the custody of respondents: or whether this was left behind without permission of the respondents and at the applicants risk? (14) Whether the applicants can sue the respondents for any misfeamaterial sance, malfeasance and non-feasance of any of their servants or officer in spite of section 88 of the K. P. T. Act? (15) Whether the applicants can recover any amount in respect of surplus materials even though the respondents have no objection to the removal of the by the applicants? (16) Whether the alleged claim of the applicants is time-barred by virtue of section 87 of the K. P. T. Act? (17) What should be the Award?" 7. A perusal of the consent issues would show that several legal issues had also been framed by the Sole Arbitrator at the request and with the consent of both the parties. On 23-6-1976, on an application moved by the K. P. T., an order was passed by the Sole Arbitrator that by leading evidence before him the legal objections raised by the K. P. T. Would not stand waived. The record of proceedings of the Sole Arbitrator shows that on several dates, evidence produced by the parties was recorded and after the evidence had been closed, learned counsel for both the parties argued at length in support of their respective cases. 8. By an award made on 18-9-1976, the Sole Arbitrator awarded a sum of Rs, 3,09,418 against the K. P. T. And in favour of the plaintiff in satisfaction of their total claims in the proceeding before the Arbitrator. The Sole Arbitrator made no provision for payment of interest and left the matter of interest for the Court under section 29 of the Arbitration Act. No reasons have been given for the award but in the recital reference has been made to the agreement between the parties, the making of claim on account of escalation, invoking of the arbitration clause by the plaintiff, appointment of the Arbitrator by the Chairman K. P. 1'. Etc. As arguments were addressed by learned counsel for the K. P. T. On matters referred to in the recital, a reference will have to be made thereto and in the circumstances I consider it convenient to reproduce the entire award :- "In the matter of an Arbitration Between, ' Messrs Sind Construction Co. Government approved contractors of 30-37/D Block 6, Nursery Pechs, Karachi & The Karachi Port Trust, Karachi. ' Whereas Messrs Sind Construction Co. Had on the 3rd day of April, 1973 entered into an agreement with the Board of Trustees of the Port of Karachi for the laying of a Main Rail Track from the siding of Messrs Dawood Petroleum Ltd. To the P. N. O. Siding and Plots Nos. 31/1 to 32/3 in the Oil Installation Area at Keamari within the precincts of the Karachi Port Trust: ' And whereas Messrs Sind Construction Co. After completing the said work and having received payment for the same from the Karachi Port Trust at the rates mutually agreed upon between them had preferred a claim for enhanced rate described as "escalation rate" on account of devaluation, abnormal rise in the prices during the year 1973 and thereafter on account of inflation which claim was rejected by the K. P. T. ' And whereas in pursuance of the arbitration clause in the aforesaid agreement of 3-4-1973 the said parties have by their letters of 14-1-1976 addressed by Messrs Sind Construction Co. To the
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Chairman K. P. T. Asking for arbitration in the matter of their claim of escalation and letter dated 22- 1-1976 from the said Chairman K. P. T. To the undersigned Mr. Justice H. T. Raymond (Retd.) nominating me as the Sole Arbitrator for the claim of the contractors: The parties have referred to me this matter in difference between them: ' And whereas Messrs Sind Construction Co. Thereafter filed their statement of claim before me, the Sole Arbitrator for a total sum of Rs, 11,09,866 inclusive of the sum of Rs, 67,555 being the actual cost of the excess/surplus material purchased by them but remaining over and left behind within the territorial jurisdiction of the K. P. T. To which statement of claim an elaborate written statement was filed on behalf of the respondent K. P. T. ' Now, I, Mr. Justice H. T. Raymond (Reid.) having duly considered the matter referred to me and having heard and examined the submissions made, evidence led, including documents of the said parties, and arguments advanced by their respective Advocates at no less than 42 sittings (time duly enlarged by a consent order of the High Court of Sind and (Baluchistan) and having applied my mind in great detail to the whole matter in dispute make my award as under :- (1) I award to Messrs Sind Construction Co. a sum of Rs, 3,09,418 to be paid to them by the Karachi Port Trust in satisfaction of their total claims in their present proceedings against the Karachi Port Trust. (2) I have made no provision for payment of interest on the sum awarded by me for under section 29 of the Arbitration Act I consider it is for the Court to do so. (3) The costs of this Reference and stamping the award have been shared equally by both the parties. (Sd.) H. T. Raymond (Justice Retd)." 9. The award was presented by the Sole Arbitrator through his Advocate in this Court on 1-10-1976. Notices were issued to the parties and in response the K. P. T. Has filed objections under section 33 read with section 30 of the Arbitration Act, 1940. 10. I have heard Mr. Abbas Ahmad, learned counsel for the K. P. T. And Mr. Shah Jamil Alam, learned counsel for the plaintiff. Mr. Abbas Ahmad raised the following contentions in support of his objections to the award under section 33 read with section 30 of the Arbitration Act :- "(a) No arbitration was possible in respect of the claim made by the plaintiff as the claim was outside the scope of the arbitration agreement between the parties. (b) The claim of the plaintiff was based on certain Government instructions and memorandum which were not part of the agreement between the parties and according to learned counsel, a claim arising out of documents, not part of the contract between the parties, could not be subject- matter of arbitration under clause 60 of the General Conditions of the Contract. (c)In any case, a perusal of the memoranda and instructions of the Government did not permit the making of the claim by the plaintiff. According to Mr. Abbas Ahmed no escalation could be allowed to the plaintiff under these memoranda and instructions of the Government. (d) The award was arbitrary as evidence adduced before the Sole Arbitrator had not been properly considered. (e)Two separate claims had been made by the plaintiff in their statement of claims, namely a claim on account of escalation and a separate claim on account of materials left behind at site by the plaintiff. The award gives one lump sum amount against these claims and therefore it cannot be determined what amount was awarded against the claim of escalation and what amount was granted against the other claim. According to counsel for the K. P. T., by making one lump sum award in the face of two separate claims the Arbitrator misconducted himself and the award is liable to be set aside being capricious. 11. According to the learned counsel for defendant, the claim of the plaintiff in fact related to unreasonableness of the rates and was, therefore, outside the scope of the arbitration agreement between the parties. It was argued very strenuously that question of reasonableness of rates was a
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matter specifically excepted from arbitration, as a dispute in relation thereto was to be decided by the Engineer. Mr. Abbas Ahmad would have been correct if the claim of the plaintiff raised a dispute respecting reasonableness of the rates. However, it was Mr. Abbas' own case that the claim of the plaintiff was based on certain government instructions and memoranda. In my view the question of applicability of the said government instructions and memoranda to the plaintiff is altogether distinct from the question of reasonableness of rates. The Government had taken some decisions that in respect of certain types of building contracts, contractors be paid extra amounts against claims for escalation at specified rates and these decisions were incorporated in the aforementioned government instructions and memoranda. If such decisions had not been taken and the said government instructions and memoranda were not in existence, and the claim of the plaintiff had been that the rates specified in the contract were no longer reasonable, I might have accepted the contention of the counsel as then, the dispute would have been regarding the reasonableness of the rates, and Mr. Shah Jamil Alam, counsel for the plaintiff also agreed that in such a case the award could not have been supported by him being outside the scope of the arbitration clause. I accordingly held that the claim of the plaintiff which is admittedly based on the said government instructions and memoranda does not come within the mischief of or is hit by first para of the arbitration clause in this case. 12. The second contention of counsel for the plaintiff was that the said Government instructions and memoranda were not a part of the agreement between the parties and, therefore, the claim of the plaintiff based on such documents could not be the subject-matter of arbitration under clause 60 of the General Conditions of the Contract. The agreement was that these documents were alien to and had no connection with the contract between the parties. Second leg of this argument was that it was a fixed rate contract without an escalation clause and the plaintiff could not in law make a claim for any amount over and above the contracted amount. It was contended that if the plaintiff could not in law make a claim for extra amount on account of escalation or otherwise, such an incompetent claim could not be subject-matter of arbitration under the arbitration clause in the instant case. On the point that the contract between the parties was a fixed rate contract, learned counsel referred to para. 2 of the Tender condition 11 of the General Conditions of Contract, para. 9 of the preamble to the Schedule of quantities under the heading "General Erections". Part II of the Specifications and the evidence of P. W. 5. He also relied upon the following judgments :- {{FOOT NOTE}} (i) AIR 1956 All. 601. (ii) AIR 1955 SC 468. (iii) AIR 1956 Nag. 245. (iv) PLD 1977 Kar. 21. (v) PLD 1978 Kar. 585. (vi) AIR 1960 SC 588. (vii) (1956) 2 A E R 145. PLD 1973 SC 577. (ix) 1973 SCMR 555. {{FOOT NOTE}} 13. Learned counsel also relied upon the following passage at page 48 of the 17th Edition of Russel on Arbitration- "A reference of 'any dispute. . . Touching these presents or any clause or matter or thing herein contained, or the construction thereof' has been held to cover disputes as to the scope of the
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arbitration clause. The contrary has been held as to references of 'any differences or disputes which may arise between the partners' and of 'all questions arising under these terms of settlement' and it has been said that prima facie the common form, 'all disputes arising out of this contract', ' would not cover questions as to the ambit of the clause. No doubt the decision in such case will in practice depend upon whether, on the face of the arbitration clause, its scope is open to any real doubt." 14. In the case of Co-operative Development & Marketing Union Ltd. v. Ganesh SugarMills Ltd. (1), there were two agreements between the parties and a dispute arising out of the first agreement was sought to be decided through arbitration provided for in the second agreement. The dispute relating to the first agreement was referred to the Cane Commissioner who was the arbitrator provided for disputes touching the second agreement. It was held by a Division Bench of the Allahabad High Court that there was no dispute touching the second agreement which could be referred to the Cane Commissioner and, therefore, the award of the Cane Commissioner was quashed. The facts of the Allahabad case are clearly distinguishable. There were two separate agreements and a dispute arising out of the first agreement, which admittedly did not provide for arbitration, could not obviously be referred to arbitration provided for disputes arising under the second agreement. 15. In the case of Thawardas Pherumal v. Union of India (2), there was an agreement between the parties for delivery by the contractor of pucca bricks according to the Schedule to the agreement. The Government did not remove the burnt bricks which were ready for delivery and on account of this delay lacs of Katcha bricks were destroyed by rain. Agreement between the parties contained an express stipulation that the Government would not entertain any claim for damage to unburnt bricks due to any cause whatsoever. It was held by the Indian Supreme Court that in view of the express clause the contractor was not entitled to claim anything on account of the price of the kutcha bricks. I am in agreement with the principle enunciated in this case but, as discussed later, the principle is not relevant to the instant case. In this judgment section 16(1) (c) of the Arbitration Act was also dealt with it was observed that this provision covered cases in which an error of law appeared on the face of the award. It was further observed that in determining what such error is, a distinction must be drawn between eases in which a question of law is specifically referred to and it is evident that the parties desire to have a decision from the arbitrator about that rather than one from. The Courts, that the Courts will not interefere. 16. In the case of Javantilal Keshavlal Dave v. Surendra Gangsa Johrapurkar (3), it was held that the failure of the arbitrator to enquire {{FOOT NOTE}} (1) AIR 1956 All. 601 (2) A R 1955 SC 468 (3) AIR 1956 Nag. 245 '{{FOOT NOTE}} ' into the objections raised by a party to the arbitration amounts to misconduct of the arbitration proceedings. In that case the High Court of Nagpur had found that the objections raised by the appellant were not enquired into by the arbitrator but the proceedings were closed and in these circumstances it was held that the trial Court had rightly come to the conclusion that this conduct on the part of the arbitrator amounted to misconduct of the arbitration proceedings. This case is distinguishable too as there is no allegation that the sole arbitrator failed to enquire into the objections raised. 17. The other judgment cited was in the case of Muhammad Fazil Muhammad Azam & Co. v. Messrs N. A. Industries (1), where a learned Single Judge of this Court held that the objections to the existence or validity of an arbitration clause are to be decided by the Court and a challenge to arbitration clause founded on disputed question of interpretation of other terms of the contract is
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to be adjudicated and decided by the arbitrator. In the instant case, the existence or validity of the arbitration clause is not under challenge. The other principle laid down does not support the case of the defendant at all. 18. In the case of Jaffar Brothers Ltd. v. Pakistan (2), it was held that the arbitrator had stated reasons in his decision and such reasons were erroneous on point of law and, therefore, there was an error of law apparent on the face of the record and the award was liable to be set aside. The award under challenge in the present case is a non-speaking award and, therefore, a judgment laying down a principle in relation to a speaking award would not be applicable. I may nonetheless observe that I am in complete agreement with the aforesaid principle confirmed in PLD 1978 Kar. 585. 19. Learned counsel for the defendant also relied upon the case of Alopi Prasad & Sons Ltd. v. Union of India (3), where it was held that the Contract Act does not enable a party to a contract to ignore the express covenants thereof and to claim payment of compensation for performance of the contract at rates different from the stipulated rates on some vague plea of equity. In my view, this case is also distinguishable as in the instant case the claim of the plaintiff is based on government instructions and not equity. 20. In the case of Devis Contractor v. Farghan Urban District Council (4), a decision of the House of Lords where both parties to a contract expected that it would be possible to complete the work within eight months, it was held that the contract was not frustrated on account of change of circumstances, which included scarcity of labour and these expectations were not realised with the consequence that the contract became more onerous than the parties had contemplated. This decision might have helped the learned counsel for the defendant had been no Government instructions and the claim was made on equitable or other general grounds. 21. In the case of Abdul Mannan v. Province of N.-W. F. P. (5), a building contract was entered into with the Government on the basis of {{FOOT NOTE}} (1) PLD 1977 Kar. 21 (2) PLD 1978 Kar. 585 (3) AIR 1960 SC 588 (4) (1956) 2 A E R 145 (5) PLD 1973 SC 577 {{FOOT NOTE}} ' certain schedule of rates prevalent on the date of the contract and after entering into such contract, the contractor started working. A change took place later on in the schedule of rates of the Government. It was held that subsequent changes in the schedule of rates were not applicable in respect of contract already acted upon. Rationale of this judgment has no bearing on the points involved for decision in the present case. 22. In the case of WPIDC v. Aziz Qureshi (1), it was held that a stipulation not expressed in a written contract should not be implied merely because the Court thinks that it would be reasonable to imply it and such implication can be made only if, on a consideration of the terms of the contract in a reasonable and businesslike manner, the Court is satisfied that it should necessarily have been intended by the parties when the contract was made. 23. Mr. Shah Jamil Alam, learned counsel for the plaintiff, in reply contended…
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