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Petitioner: RELIANCE CONSTRUCTION CO. VS Respondent: AGHA KHAN MEDICAL COLLEGE JUDGMENT
Court Name: Sindh High Court Judge(s): Haziqul Khairi Title:RELIANCE CONSTRUCTION CO. vs AGHA KHAN MEDICAL COLLEGE
JUDGMENT
Reported As: 1994 MLD 248 Result: Order accordingly Judgment JUDGMENT ' M/s. Agha Khan Hospital and Medical College Foundation, Karachi (hereinafter called the defendant) had invited tender for construction of Nurses Hostel, Nurses Training, Sisters flats, external area and the Court for its Medical College Complex (hereinafter called 'The Work'). M/s. Reliance Construction Company, Karachi (hereinafter called 'the plaintiff) submitted tender to the plaintiff which was accepted on 14-5-1974 and the contract was executed on 13-11-1974. The rights and liabilities of the parties were to be regulated by the terms and conditions of contract of which other document attached to it also formed part thereof. The total value of the Contract was Rs,84,57,869.87 and the stipulated period of completion of the work was 18 months beginning from 1-7-1974. While the work was pending, the defendant expelled the plaintiff from the site as there were allegations of serious lapses on their part. In the circumstances, the plaintiff invoked the arbitration clause 80 of the contract vide legal notice, dated 29-8-1975 and nominated Mr. Justice (Retd.) Noorul Arfin as their Arbitrator, whereas the defendants on 8-9-1975 nominated the late Mr. Justice (Retd.) Ferozenana Ghulam Ali as their Arbitrator. During the arbitration proceedings Mr. Justice (Retd.) Ferozenana Ghulam Ali, the nominee of the defendant expired and on 6-10-1976 the late Mr. Justice (Retd.) A.S. Farooqui was nominated by them as their arbitrator. The second arbitration tribunal was again dissolved when Mr. Justice (Retd.) A.S. Farooqui, the defendants' second nominee expired. The defendant thereafter on 9-5-1981 nominated Mr. Justice (Retd.) Fakhruddin G. Ibrahim as their Arbitrator. The third tribunal of Arbitrators was thus constituted which entered upon reference on 15-10-1981. The said Arbitrators after hearing the parties gave their separate award as they did not agree with each other. Mr. Justice (Retd.) Noorul Arfin gave his
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award on 31-3-1987, whereas Mr. Justice (Retd.) Fakhruddin G. Ibrahim gave his award on 21-1-1988. It may be noted here that the said Arbitrators had appointed Mr. Justice (Retd.) B.Z. Kaikaus as Umpire, who also expired in May, 1987. However, on 1-2-1988, the said two Arbitrators appointed Mr. Justice (Retd.) K.MA. Samdani as Umpire, who upon disagreement between the two Arbitrators of the said third Tribunal, entered upon the reference on 19-41988 and after hearing the parties on various dates gave his award on 6-6-1991. ' The plaintiff initially claimed Rs, 92,89,913 from the defendant which was subsequently reduced to Rs,71,00,449 during the arbitration proceedings. The defendant also made counterclaim against the plaintiff. There was disagreement between the learned Arbitrators as Mr. Justice (Retd.) Noorul Arfm gave an award for Rs, 68,17,032 in favour of the plaintiff whereas Mr. Justice (Retd.) Fakhruddin G. Ibrahim gave an award of Rs,11,04,754 in their favour. The learned Umpire to whom the matter was referred made an award in the sum of Rs,1,04,56,882 in favour of the defendant. It is pertinent to note that neither the learned Arbitrators nor the Umpire had given any award in respect of counter-claim made by the defendant which was dismissed by all of them. It would be useful to give an analysis of the award given by the learned Arbitrators and Umpire: ANALYSIS OF AWARD {{TABLE}} Amount ClaimedArfin,J ArbitratorEbrahim, J ArbitratorSamdani, J Umpire Claim No.1(Umpire value of materials & Works executed before expulsion)4,09,780.86 4,09,780.86 4,09,780.86 4,09,780.86 Claim No.2 Withdrawn Nil Nil Nil Claim No.3 (Cost of certain additional Works)1,96,800,.00 1,86,300,.00 Nil 1,86,300,.00 Claim No.4 (Termiteproofing) 1,02,450.00 1,02,450.00 1,02,450.00 1,02,450.00 Claim No.5 (Curing block masonry) 42,673.50 42,673.50 42,673.50 42,673.50 Claim No.6 (15% profit & overheads for value of supplies petitioner nominated supplier)90,900.00 90,900.00 Nil 90,900.00 Claim No.7 (Interest & damages for delay of 72 days in payment of 1RB)4,18,147.50 1,368.50 1,368.50 1,368.50 Claims 8,9,10, &11 (Idle overheads tools plants and machinery etc.)6,20,000.004,46,000.00 Nil 4,38,000.00 Claim No.12 (Increase in cost of executed works/ escalation due to delays)14,08,162.79 8,53,659.05 Nil 8,53,659.05 Claim No.13 Withdrawn Nil Nil Nil Claim No.14(Advances to Sub- contractors/ Suppliers)2,52,914.00 2,914.00 Nil 2,915.00 Claim No.15 (Loss of credit witness of respondent) Not pressed5,00,000.00Nil Nil Nil Claim No.17 (Value of seized plants equipment and materials)8,60,560.467,66,346.12 1,82,357.00 7,66,346.12 Claim No.18(Cost of shop drawings) 32,000.00 25,600.00 Nil 25,600.00 Claim No.19 (Trunk and labour charges for steel and cement) Not pressed.3,849.25 Nil Nil Nil
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Claim No.20 (Fees paid to Nazir of High Court of Sindh) Not pressed.1,500.00 Nil Nil Nil Claim No.21 (Fees paid to Commissioner of High Court of Sindh) Not pressed.5,200.00 Nil Nil Nil Sub Total: 76,10,998.3638,65,040.697,38,629.386 38,57,041.69 Claim No.22(Interest @ 10% P.A. .from 19- 9-1975 date of expulsion to date of payment)27,51,991.38 9,16,125.00 60,74,841.00 Claim No.23 (Cost of arbitration) 20,00,000.00Nil 5,25,000.00 Claim No.24 (Return of performance bond)Nil Nil Nil Claim No.25 (Return of bank guarantee) Nil Nil Nil Grand Total 76,10,998.3668,17,032.0713,54,757.86 1,04,56,383 ' The following are the consent issues on the basis of which the learned Arbitrators and the learned Umpire had given their awards: "(1) Which of the claims 1 to 25 of the plaintiffs are valid and to what extent? (2) Which of the claims of the defendants are valid and to what extent? (3) Whether the certificate issued by Bhamani Associates is valid and binding and what are its effect? (4) Who committed breach of contract and in what matters? (5) To what amount, if any, the plaintiff is entitled? (6) To what amount, if any, is the defendant entitled? (7) What would be the award?" ' The defendant filed objections under section 30 of Arbitration Act against the award of the Umpire and also filed a separate application No,J.M. No,38 of 1991 under section 33 read with section 30 of the Arbitration Act for setting aside the award. The defendant has raised more or less identical grounds in both the proceedings which were duly replied by the plaintiff in their counter-affidavit, both of which I propose to dispose of by this common judgment. ' At the outset it was urged by Mr. Kamal Azfar, learned counsel for the defendant that the award was without jurisdiction as the appointment of the learned Umpire was made by the Arbitrators after they had become functus officio and possessed no jurisdiction to appoint an Umpire. It was contended that once an Umpire is appointed who accepts the appointment, the power of appointment would be exhausted and if a vacancy arises, fresh appointment will be made only by the Court. Thus after the demise of Justice Kaikaus, the only course open to a party was to move to the High Court under section 8(1)(b) of the Arbitration Act, 1940 for the appointment of an Arbitrator. ' In rebuttal the plaintiffs contention was that the appointment of the learned Umpire was accepted by both the parties who had submitted to the jurisdiction of the learned Umpire and raised no objection whatsoever. Besides the learned Arbitrators had not become functus officio as on 1-2- 1988 Mr. Justice (Retd.) Noorul Arfm concurred with the appointment of Mr. Justice (Retd.) K.MA. Samdani as Umpire but the disagreement between the Arbitrators arose on 24-2-1988 when Mr. Justice (Retd.) Noorul Arfm wrote to his co-arbitrator Mr. Justice (Retd.) Fakhruddin G. Ebrahim that he could not agree with him and accordingly on 29-2-1988 the said two Arbitrators jointly signed the instrument of disagreement intimating the parties that difference between them had arisen and the matter may be referred to the Umpire. In fact the learned Umpire was appointed by them 28 days earlier.
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' I agree with Mr. Kamal Azfar learned counsel for the defendant that once an Umpire has been appointed by the Arbitrators they are divested of this power and they become functus officio. Thus they do not possess any power to fill in any vacancy unless conferred under arbitration agreement. This power admittedly was not there. However the peculiar circumstances of the case may not be lost sight of. After the demise of Justice (Retd.) Kaikaus, the learned Arbitrators had appointed Mr. Justice (Retd.) K.MA. Samdani as Umpire in place of the former. The defendant raised no objection to the new appointment either before them or before the learned Umpire. In fact the defendant fully submitted themselves to the jurisdiction of the learned Umpire. The diary of the Umpire shows that the defendant's Advocates filed Vakalatnama, whereafter on 4-4-1988, their Advocates attended the preliminary hearing. From 18-4-1988 till 29-12-1990 they participated in the proceedings without any objection as to his jurisdiction. On 14-4-1991, the defendant made appearance before the High Court and consented to the application for extension of time for giving award by the learned Umpire. In the circumstances of the case, the defendant is estopped from questioning the jurisdiction of the learned Umpire to enter into reference. In fact there was active participation by the defendant before the learned Umpire tantamounting to their acquiescence. In Haji Sattar Haji Muhammad v. Abdul Karim Haji Issa PLD 1958 (W.P.) Karachi 378 a similar objection was raised and it was held: "The failure to invoke the aid of section 8 of the Act amounts to a waiver of the defect of the non- appointment of an umpire. It is not open to the aggrieved party now to raise an objection on the basis of a breach which was curable by its own action and there is no justification for treating the breach as the breach of a provision of law, and thus forgetting the conduct of the aggrieved party itself." ' In Muhammad Saghir Ahmed Bhatti & Sons v. Federation of Pakistan PLD 1958 SC (Pak.) 221 the supra had held: "The next contention of Mr. Shafi was that the appointment of the arbitrator who gave the award was not according to the Act as the Court's permission was not obtained for the purpose. In this connection he relied on section 5 of the Arbitration Act which is to the effect that the authority of an appointed arbitrator or Umpire shall not be revocable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement. The argument was that after the first arbitrator was appointed Quarter Master General had no power to make without the permission of the Court, another appointment; but the appellant did not raise this objection at the time the third arbitrator started holding the enquiry. In the circumstances the appellant must be deemed to have agreed to the appointment of Mr. Muirhead as the Arbitrator." ' In Habib & Sons v. Virah & Co. PLD 1957 (W.P.) Karachi 245, a Division Bench observed: them to proceed with the arbitration proceedings and permitted them to give an award in respect of the matters in dispute between the parties. After participating in the arbitration proceedings and by not raising any objection to the jurisdiction of the arbitrators, in our opinion, they waived their objection to the jurisdiction of the arbitrators to deal with the matter and any irregularity in the appointment of the arbitrators on account of this conduct of the respondents was cured. They could not, at the time of the hearing of objections in the trial Court be allowed to agitate the question about the defect in the appointment and jurisdiction of the arbitrators to decide the matter." ' Other citations which may be referred to and cited by the learned counsel for the plaintiff on acquiescence and estoppel by conduct were United Printing & Binding Works Limited v. Kishori Lal (AIR 1956 Cal. 593; Ch. Murtaza Hussain v. Musamat Bibi Bechunnisa 3 Indian Appeal 209; Naseem Muhammad Naseem v. Quality Steel Works Ltd. PLD 1981 Karachi 553, Zahir Hussain v. Province of Sindh 1981 CLC 379; Ghulam Mohyuddin v. Federation of Pakistan PLD 1967 Lahore 204; N.
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Chulappaw v. Kerale S.E. Board AIR 1975 SC 230; Prince & Co. v. G.G. Council, AIR 1955 Punjab 240; Vaseem Construction Co. v. Province of Sindh 1991 CLC 1081. ' Next it was argued by Mr. Kamal Azfar, learned counsel for the defendant that as per clause 80.1 of Contract, Volume I all disputes or differences have to be first referred to and settled by the Architect within the period stipulated therein. Therefore, it is a condition precedent that disputes, differences or claims raised by the plaintiff shall have to be referred in the first instance to the Architect for his decision, whereafter the same could have been referred to arbitration. However, such claims as were not referred to by the plaintiff to the Architect could not be referred afterwards by them to the arbitrators. Such claims if referred afterwards would not only be outside the scope of the Arbitration Clause 80 of the Contract, but also outside the scope of reference to the arbitrators/Umpire and a fresh reference would be necessary. ' In reply learned counsel for the plaintiff Mr. Samiuddin Sami pointed out towards the various claims made by the plaintiff in order to show that firstly all of them were not required to be referred to the Architect claim for damages after the defendant had committed breach of contract all expelled the plaintiff. With regard to those claims which were referred to the Architect, the conditions of Contract under Clause 80.1 have clearly provided that "the said arbitrators shall have full power to open it, review and revise any decision, opinion, direction, certificate or valuation of the architect" and that "the arbitrators could not enter into reference until after completion of the work but the contract makes an exception to the effect that in case of forfeiture certificate issued by the Architect under clause 75.2 the arbitrators could enter ' on the reference immediately without waiting for the work to complete. The forfeiture certificate thus could not attain finality till reviewed by the arbitrators. "Further the conclusiveness of a fmal certificate under clause 24(f) was subject to arbitrators' right to review and revise the certificate under the express power given to him by clause 27." ' It would be useful here to take note of some aspects of the case in order to fully comprehend the real disputes between the parties. The grievance of the plaintiff had been that the defendant had considerably delayed supply of final drawings which contained anomalies and technical defects etc. Further delay was caused by the defendant in removing these faults. The defendant also did not supply material in time and although the plaintiff made blocks under the direct supervision of the defendants these blocks did not achieve the desired strength. For these reasons the work was held up at foundation stage for over a period of six months. As a result of these breaches the plaintiff suffered heavy losses, and ultimately the defendant decided to expel the plaintiff from the site. ' The claim of the plaintiff falls under three categories, firstly claim arising out of work done, secondly claim for restitution of moneys paid by them and lastly claim for damages. ' It is an admitted position that on 4-4-1988 both the parties had consented that the dispute may be decided by the learned Umpire on the basis of the existing record without fresh evidence. Subsequently, the defendant attempted to produce during the course of arguments Annexures A & B to their objections under sections 30 and 33 of the Arbitration Act which formed the basis on which the defendant took a reversal in their stand. Learned counsel for the defendant took me the case of Uzair Export and Import Enterprises for foreign trade v. M/s: Iftikhar and Company Ltd., 1989 SCMR 225 in which it was held that an Arbitration agreement can give rise to successive arbitration in respect of different disputes. It was therefore, argued by him that it was open to the plaintiff to submit their. Successive disputes to successive arbitration but the same could not be referred to the learned Arbitrators and the learned Umpire. ' Reference was made by him to the case of M/s. Aslam Saeed and Company v. M/s. Trade Construction of Pakistan Ltd., PLD 1965 SC 69 wherein it was held:
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"The award of damages by the Arbitrator was outside the scope of clause of agreement, therefore, it was not permissible under law to award damages." ' He next made reference to Sheikh Muhammad Sadiq v. Muhammad Afzal PLD 1962 (West Pakistan) Karachi 113, in which it was held that since the question whether it was the duty the Government or Contractor to propose an alternative method for treatment of poles of Sundri Wood for ariel transmission line was not before the learned Arbitrator, therefore, there was an error on the face of record and in the circumstances the award was set aside. ' Other cases relied upon by him were Fateh Muhammad v. Bhag Bhari PLD 1956 (W.P.) Lahore 596, Bengal Jute Mills v. Jawry Heralal AIR 1943 Cal. 13, Province of East Pakistan v. Abdul Halim Nizamuddin PLD 1968 Dacca 937, Shaikh Muhammad Sadiq-Muhammad Afzal v. Ministry of Industries PLD 1966 Kar. 412, Alpha Insurance Company Limited v. M.A. Nawaz and Company PLD 1972 Kar. 265. ' Mr. Samiuddin Sami, learned counsel for the plaintiff first referred to the case of Federation of Pakistan v. Anwar Khan PLD 1987 Karachi 563, in which Justice Saleem Akhtar (as he then was) held as follows:- "The principle deduced from these authorities is that where the arbitrator is seized of a matter which is within his jurisdiction and scope of the agreement, but if during the proceeding any party makes a claim outside the scope of the agreement on which the other side joins the contest without any objection then it amounts to fresh submission and agreement to refer such dispute to the Arbitrator. Such a party cannot challenge the award on the ground that the dispute was beyond the scope of the Arbitration Agreement or was not within the jurisdiction of the Arbitration. The main reason for such enunciation is that the parties by making such claim and joining the contest without objection agree to refer the dispute to the Arbitrator. Thus having acquiesced no party can be allowed to resile or challenge the jurisdiction." ' Further reference was made to Muhammad Saleem Butt v. Trading Corporation of Pakistan 1966 CLC 254 in which other learned Judge of High Court of Sindh, namely Justice Naimuddin (as he then was) observed as under: "It would suffice to say that this question was directly raised in the statement of claim before the arbitrator and therefore, he had jurisdiction to deal with it and to allow or disallow the amount claimed. Here it may be mentioned that in the written statement filed before the arbitrators and placed before the Umpire the defendant has nowhere taken the stand that the claim of the plaintiff could not be the subject-matter of reference under the arbitration agreement." ' Other cases cited by the learned counsel for the plaintiff were Islamic Republic of Pakistan v. Ata Hussain PLD 1988 SC 13; Natha v. Sh. Muhammad Amin, 1979 CLC 532, The Lahore Improvement Trust v. Sh. Karamat Ali PLD 1959 (W.P.) Lahore 597; Dr. S.M. Qarim v. R. Raisul Hassan Naqvi and 2 others 1981 SCMR 950; Muhammad Zaman v. Abdul Ghaffar and 3 others PLD 1980 Lahore 582; M/s. Haji Hashim Haji Ahmed and Brothers v. M/s. Trading Corporation of Pakistan Limited, Karachi, PLD 1977 Karachi 480; F.J. Rambarts (Pakistan) Limited v. Pakistan Steel Mills Corporation Limited 1987 CLC 2198; M/s. Ibad & Co. v. Government of Sindh PLD 1981 Karachi 236; Muhammad Farooq Textile Mills Workers Union v. The Registrar of Trade Union Sindh and two others, 1988 PLC 280; National Tyre and General Insurance Company Limited v. Union of India and another AIR 1956 Calcutta 11; Pratabmull Rameshwar v. K.C. Sethia AIR 1960 Ca1.702. Here let us further examine as to what was the effect of the Architects certificate and if it was binding on the learned arbitrators/umpire. This position was thoroughly examined by the learned Umpire who admittedly was the sole Judge of facts and of law. In reply to objection that the arbitrators could not go into the forfeiture certificate issued by the architect resulting into
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Contractor's expulsion, learned counsel for plaintiff brought to my notice clause 80.1 at page 50 of conditions of contract which, inter alia, reads: "The said arbitrators shall have full power to open up, review and revise any decision, opinion, direction, certificate or valuation of the architect." ' And further: "the arbitrators shall not enter on the reference only after the completion or alleged completion of the work..Provided always: (a) for such reference may be opened before such completion or alleged completion....In respect of the exercise of the Architect's power to give a certificate under sub-clause 75.2 hereof...." ' To support his contention, he placed reliance on Windson RDC v. Otterway and Try Ltd., Ali England Report 1954 Volume 3 page 721, in which it was held: "....The conclusiveness of a final certificate under clause 24(0, was subject to arbitrator's right to review and revise the certificate under the express powers given to him by clause 27." ' And further: "In these circumstances, it appears to me quite plain that by the express words of clause 27 the arbitrator is entitled to open up the fmal certificate given under clause 24(f)" ' The learned Umpire while dealing with the validity of the Architect's certificate inter alia observed that the Architect was a mere diploma holder and that too in Electrical Engineering and not being a Civil Engineer was unable to appreciate the real problem and he condemned the plaintiff without investigation. It was also held by him that clause 80 of the General Conditions empowered the Arbitrator/Umpire to open up, review and revise the opinion of the Architect, "On the basis of fact and legal position enunciated before him it was observed by him that the defendants having been held in breach of contract on several counts and the delay on their part having been conceded in the certificate itself, the time for the completion of the contract was set at large. Therefore the complaint that the plaintiff failed to apply for extension of time is totally misconceived. The second allegation that the plaintiff did not programme their work also stands refuted by the evidence on the record." It was further observed by him "Having rejected all the grounds on which the certificate is based as untenable on facts and in law, I have no alternative but to hold that the expulsion of the plaintiff on the basis of this certificate was totally unjustified." The overall position as emerges from the above discussion is, firstly the Annexures 'A' and 'B' referred to above were documents extraneous to the record and the award and cannot be taken into consideration, secondly the defendant having not taken the stand either before the arbitrators or the Umpire that the said claims were not the subject-matter of reference, cannot be allowed to challenge the award on this ground, thirdly, even if such claims were outside the scope of the agreement on which defendant joins that contest without any objection, the learned Umpire being seized of the matter, it amounts to fresh submission on the principle of acquiescence and lastly those claims which were consequential to cancellation of contract and expulsion of the plaintiff were clearly outside the ambit of the Architect and could be referred straightaway to the arbitrators without recourse to the architect. As to these claims which were duly submitted to the Architect and were rejected by him, suffice to say that the contract itself states that the decision of the Architect was subject to scrutiny by the arbitrators/umpire as aforesaid and could be set aside by them/him. ' During the course of arguments learned counsel for the defendant Mr. Kamal Azfar made special reference to the plaintiff's Claim No,22 for 10% interest per annum from 19-9-1975, i,e, the date of expulsion. It was submitted by him that whereas Justice (Retd.) Noorul Arfm had awarded interest to plaintiff in the sum of Rs,27,51,991.38 and Justice (Retd.) Fakhruddin G. Ebrahim in the sum of Rs,6,16,125.00, the learned Umpire arbitrarily and without any basis whatsoever had awarded interest of Rs,60,74,841.00 to the plaintiff out of total award amount of Rs,1,04,56,883.00. According to
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him there was an error on the face of the award as…
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