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Petitioner: KARACHI DOCK LABOUR BOARD VS Respondent: Messrs QUALITY BUILDERS LIMITED
Court Name: Sindh High Court Judge(s): Anwar Zaheer Jamali, Muhammad Ather Saeed Title: KARACHI DOCK LABOUR BOARD vs Messrs QUALITY BUILDERS LIMITED Case No.: High Court Appeal No,18 of 2005 Date of Judgment:2006-03-16 Reported As: 2006 CLC 1060 Result: Appeal dismissed.
JUDGMENT
JUDGMENT MUHAMMAD ATHER SAEED, J.--- This High Court appeal has been filed against the judgment dated 24-11-2004 passed by the learned Single Judge in Suit No,72 of 1998 by which he had made the award of the learned sole Arbitrator delivered on 20-12-1997, rule of the Court. 2. Brief facts of the case are that the present appellant had entered into a contract with the respondent, who was the successful bidder for award of contract for the construction of hospital at Keamari, Karachi, vide formal contract signed on 8-10-1989. This contract also contained arbitration clause 131. Since the controversy in this appeal revolves round this arbitration clause, it will be pertinent to reproduce the above clause for the sake of convenience:-- "131. Settlement of disputes/arbitration If any dispute or difference of any kind whatsoever shall arise between the employer and the Contractor or the consultants and the Contractor in connection with, or arising out of the contract, or the execution of the works, whether during the progress of the works or after their completion and whether before or after the termination, abandonment or breach of the contract, it shall in the first place, be referred to and settled by the Consultants who shall within a period of ninety (90) days after being requested by either party to do so give written notice of his decision to the Employer and the Contractor. Such decision in respect of every matter so referred shall be binding upon the Employer and the Contractor who shall proceed with the execution of the works with all due diligence whether he or the Employer requires arbitration. If the consultant has given written notice of his decision to the Employer and the Contractor and no claim to arbitration has been communicated to him by either the Employer or the Contractor within a period of thirty (30) days from receipt of such notice, the said decision shall remain final and binding upon the Employer and
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the Contractor. If the Consultant shall fail to give notice of his decision, as aforesaid, within a period of ninety (90) days after being requested as aforesaid or if either the Employer or the Contractor be dissatisfied with any such decision, then in any such case either the Employer or the Contractor within ninety (90) days after receiving notice of such decision, or within ninety (90) days after the expiration of the first named period of thirty (30) days, as the case may be required that the matter or matters in dispute be referred for pre-consideration then only in that case the matter shall be referred to the Arbitrator(s) and/or the Umpire as the case may be within the meaning of Arbitration Act, 1940, whose decision shall be final and binding upon the parties." 3. During the validity of the subject contract, other supplementary agreements were also executed between the parties to cater to newly-created circumstances and conditions. A review of the supplementary agreements makes it clear that the arbitration clause and other clauses of the main contract which are not inconsistent with the supplementary agreement were retained. On the basis of arbitration clause it was suggested by the respondent that Arbitrator be appointed for the resolution of the dispute between the parties. The respondent also suggested some names of the Arbitrators in the referred letters. However, on failure of the appellant to agree to any name, plaintiff appointed Mr. S.A. Nizami Additional Federal Law Secretary as their Arbitrator and requested the appellant to suggest the name of their Arbitrator. However, the appellant refrained from doing so. The appellant's objection was that the arbitration clause had abated and had lost its efficacy because according to the appellant on the execution of supplementary agreements, arbitration clause was superseded and was no more in existence and, therefore, no resort to the arbitration clause could be made. The appellant maintained such position when the Arbitrator issued notices. The appellant also challenged the jurisdiction of the Arbitrator to conduct arbitration proceedings. 4. The sole Arbitrator, after issuing number of notices to the appellant, had noted that the appellant, had refrained from attending any proceedings and had resorted to challenging the jurisdiction. He first decided the point of jurisdiction and held that the Arbitration Tribunal duly constituted in accordance with terms of contract between the parties and the law of arbitration had jurisdiction to investigate their dispute and differences arising out of and in connection with the performance of the contract, and went on to arbitrate on the claims of the respondent and finalise the award. 5. The award was filed in the Court on 19-1-1998 and was registered as Suit No,72 of 1998. 6. The learned Single Judge, after hearing the learned counsel for the parties, made the award rule of the Court by holding that the present appellant had not been able to show that in what manner the Arbitrator misconducted himself and further that the award was improperly procured by merely stating that settled procedures of convenience were bypassed as this, according to the learned Single Judge, will not make the award faulty. 7. We have heard Mr. Arshad Tayyebaly the learned counsel for the appellant and Mr. Muhammad Masood Khan learned counsel for the respondent. 8. The contentions of the learned counsel of the appellant are threefold. His first contention is that the supplementary-agreement settled all the disputes between the parties, therefore, there was no basis for resort to arbitration. In this connection he drew our attention to clause 3 of the supplementary agreement dated 1st March, 1995, which reads as under:-- (3) Payment The employer undertakes to allow the following payments to the contractor to enable them to complete and hand over the project as per above schedule of handing over. (a) Retention money amounting to Rs,20,00,000 (Rupees two million) shall be released on signing the Agreement against an Insurance Bond to be forwarded by the Contractor before receipt of the payment.
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(b) Balance Retention amount Rs,2,127,507.71 (Rupees twenty-one lacs twenty-seven thousand five hundred seven and Paisas seventy-one) shall be released immediately on handing over possession of Main Hospital Building against an. Insurance Bond to be separately furnished by the Contractor before receipt of payment. (c) The final bill at its contractual value amounting Rs,3,709,856.56 as certified by the Consultants to be billed as final bill after completion of the remaining work is shown in the enclosed statement which shall stay as full and fixed for final payment subject to recovery of Income Tax and advance if any. (d) After handing over of the complete project in all respects the final bill shall be paid to the contractor within 15 days from its submission by the contractor, after due scrutiny and verification by the consultants. 9. He specifically referred to clause "e" of para.3 which provides that the final bill amounting to Rs,37,09,856.56 shall constitute the full and fixed amount for final payment subject to recovery of income tax and advance fee, if any. His contention was that once the respondent had agreed to receive the above amount as full and final settlement of his bill there was no basis on which the arbitration clause 131 of the final agreement could be resorted to and, therefore, it had become redundant. However, in response to our query as to how he will interpret para.5 of this agreement, which reads as under:-- (5) Claims by both parties if unresolved shall be adjudicated as per terms of contract after handing over the entire project to the employer according to this agreement. He modified his arguments that although the arbitration clause had not become redundant, but once the respondent had agreed to the final payment he could not make any claim before the Arbitrator in this respect and the Arbitrator had no jurisdiction to arbitrate on any such alleged claim. 10. The second ground urged by the learned counsel for the appellant was that there was prerequisite condition for the reference of case to the Arbitrator that the parties had to initially refer the dispute to the consultants who were required to give written notice of the decision to the employer and the contractor within a period of ninety days after being requested by either party to do so. The contention of the learned counsel was that the respondent had appointed the Arbitrator and proceeded on with the arbitration without meeting this prerequisite condition. This ground was also taken before the learned Single Judge and the learned Single Judge after examining the facts of the case had drawn the conclusion that this contention was not substantiated from record and also that the present respondent had adhered to the provisions of clause 131 and followed the requirement of approaching the consultant before invoking the arbitration clause. The appellant has not been able to place any material on record to dislodge this finding of the learned Single Judge. 11. The third ground taken up by the learned counsel for the appellant was that the arbitration clause specified that the matter shall be referred to Arbitrator/s and/or Umpire as the case may be within the meaning of Arbitration Act, 1940. He stated that the case would fall under section 8 of the Arbitration Act, 1940 and not under section 9 of the said Act. According to him since clause 131 of the contract provided for appointment of more than one Arbitrator and since the appellant was not appointing an Arbitrator as the appellant was of the view that arbitration could not be resorted to, therefore, it was mandatory upon the respondents to approach the Court under., the provisions of section 8 of the Arbitration Act, 1940 and request them to appoint Arbitrators to conduct the arbitration. He also argued that since the parties had entered into more than one agreement and there was difference as to which agreement was to apply the respondents should have applied to the Court under section 20 of the Arbitration Act for determining as to which agreement applies. In support of his arguments, the learned counsel for the appellant relied on the following case-laws:-
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- (1) Abdul Hamid v. H.M. Qureshi PLD 1957 SC 145; (2) Sh. Saleem Ali v. Sh. Akhtar Ali and 7 others PLD 2004 Lah. 404; (3) Muhammad Azam Muhammad Fazil & Co., Karachi v. Messrs N.A. Industries, Karachi PLD 1977 Kar. 21; (4) Board of Trustees of Port of Karachi v. Messrs National Construction Co., (Pakistan) Ltd. and another PLD .1981 Kar. 377. 12. Mr. Muhammad Masood Khan, learned counsel for the respondents supported the order of the learned Single Judge and stated that the learned Single Judge after examining complete facts of the case and law on the subject had arrived at the conclusion that the appellant had failed to prove as to how the learned arbitrator misconducted himself or for that matter in what manner the award was improperly procured. He, therefore, submitted that the reasoning adopted by the learned Single Judge in the impugned order is unexceptionable and the appeal is misconceived and deserves to be dismissed. Replying to the first ground taken up by the learned counsel for the appellant he stated that the respondents vide their letter, dated 5th June, 1996, a copy whereof was also endorsed to the appellant, had specifically forwarded their claims to the consultant S.M. Naqvi to which the consultant had called for certain queries, which were responded to, but the consultant failed to deliver decision on the unresolved claims and it was almost more than six months after failure of consultant to deliver the decision on unresolved claims that suggestion was made by the respondent to the appellant that Arbitrator might be appointed for the resolution of their disputes. He, therefore, submitted that although his contention was that there was no mandatory condition for invoking the arbitration clause, but without prejudice to the above contention the respondent had complied with the condition of seeking the decision of the consultant on the unresolved claims. 13. Replying to the other contention of the learned counsel for the appellant that in accordance with para. 3(c) of the supplementary agreement dated 1st March, 1995 when the respondent had agreed that the final bill amounting to Rs,37,09,856.56 shall constitute full and fix amount of final payment against the subject contract, they were barred from making any further claims after payment of this bill. He stated that the appellant had prescribed this condition for the payment of the bill and the respondent had no option but to agree to this condition. He further relied upon clause No,5 of the supplementary agreement, which has also been reproduced above. According to him when these two clauses are read together, it becomes apparent that the arbitration clause does not become redundant, and despite provisions of clause 3(c) the respondent could not be barred from making any further claim before the Arbitrator. On this point he also relied upon the judgment of the Honourable Supreme Court of Pakistan in the case of Rizwan Hussain v. The State 1999 SCMR 131. 14. In reply to the last ground taken by the learned counsel for the appellant that the case would not fall under section 8 of the Arbitration Act, but under section 9 of the Arbitration Act and that the respondent should have approached the Court under section 20 of the Arbitration Act, he submitted that this point was not raised before the learned Single Judge. 15. Without prejudice to the above, he further argued that the respondent's case fell within the clause (b) of section 9 of the Arbitration Act, which clearly provides that if one party fails to appoint an Arbitrator within fifteen days after the service by the other party of a notice in writing to make the appointment, such other party having already appointed his Arbitrator on giving the notice may appoint his Arbitrator to act as sole Arbitrator in the matter and his award shall be binding on both the parties as if he has been appointed by consent. He said that in view of this clear cut provision the respondent was not required to approach the Court under section 8 of the Arbitration Act as none of the conditions provided in that section apply to the circumstances of the case as there was no difference in the appointment of Arbitrators but the major objection of the appellant at that point of time was that the arbitration clause had abated in view of the clause 3(c) of the
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final supplementary agreement. He also stated that the arbitration clause did not provide arbitration with the intervention of the Court, therefore, there was no need for the respondent to file an application under section 20 of the Arbitration Act. Even otherwise, had he opted to file application under section 20, which falls under Chapter III of the Arbitration Act, 1940, he could not have proceeded under Chapter II after opting for intervention under Chapter III as provided under section 20. Learned counsel for the respondent then submitted that the appellant had opted to remain away from the arbitration proceedings and despite issuance of at least thirteen notices by the Arbitrator he had not attended the proceedings but only sent letters challenging the jurisdiction of the Arbitrator and the validity of the arbitration proceedings. He said that by their conduct the appellant are estopped from challenging the award as there were various remedies available to the appellant under the provisions of the Arbitration Act, to approach the Court under section 5 of the Arbitration Act or under section 11 of the Arbitration Act, but the appellant decided to keep mum and did not approach the Court under any of these provisions of law for removal of the Arbitrator. In support of his contentions he relied on the following case-laws:-- (1) Messrs Commodities Trading International Corporation v. Trading Corporation of Pakistan Ltd. and others 1987 CLC 2063; (2) Abdul Khanum Jan and others v. Begum Khanum Jan and others 1989 MLD 1304; (3) Messrs Joint Venture KG/gist v. Federation of Pakistan PLD 1996 SC 108; (4) Project Director, Balochistan Minor Irrigation and Agricultural Development Project, Quetta Cantt. v. Messrs Murad Ali & Company 1999 SCMR 121; (5) M.Y. Corporation (Private) Ltd. v. Messrs Erum Developers and 2 others PLD 2003 Kar. 522. 16. We have examined the case in the light of the arguments of the learned counsel, the judgments relied on by them the impugned order of the learned Single Judge, the arbitration. award, the relevant provisions of the Arbitration Act, and the records of the case. Since various sections of Arbitration Act, 1940 have been relied by the learned counsel, it would be useful to reproduce sections 5, 8, 9, 11 and 20 of the Arbitration Act, which read as under:-- "5. Authority of appointed arbitrator or umpire irrevocable except by leave of Court.---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. 8. Power of Court to appoint Arbitrator or Umpire.--- (1) In any of the following cases:-- (a) Where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments; or (b) If any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators; as the case may be, do not supply the vacancy; or (c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him; any party may serve the other parties or the Arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. (2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other partiers an opportunity of being heard, appoint an Arbitrator or Arbitrators or reference and to make an award as if he or they had been appointed by consent of all parties. 9. Power to party to appoint new Arbitrator, or in certain cases, a sole Arbitrator.--- Where an Arbitration agreement provides that a reference shall be to two Arbitrators, one to be appointed by each party then, unless a different intention is expressed in the agreement: -- (a) if either of the appointed arbitrators neglect or refuses to act, or is incapable of acting, or dies the party who appointed him may appoint a new Arbitrator in his place;
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(b) if one party fails to appoint an Arbitrator, either originally or by way of substitution as aforesaid for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference and his award shall be binding on both the parties as if he had been appointed by consent: 10. Provided that the Court may set aside any appointment as sole arbitrator made under clause (b) and either, on sufficient cause being shown, allow further time to the defaulting party to appoint an arbitrator or pass such other order as it thinks fit. 11. Power of Court to remove Arbitrators or Umpire in certain circumstances.,--- (1) The Court may, on the application of any party to reference, remove an Arbitrator or umpire who fails to use all reasonable dispatch in entering on and proceeding with the reference and making an award. (2) The Court may remove an Arbitrator or umpire who has misconducted himself or the proceedings. (3) Where Arbitrator or umpire is removed under this section, he shall not be entitled to receive any remuneration in respect of his service. (4) For the purpose of this section the expression "proceeding with the reference" includes, in a case where reference to the umpire becomes necessary, giving notice of that fact to the parties and to the umpire. 20. Applicant to file in Court arbitration agreement.--- (1) Where any persons, have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceedings under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court. (2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant as plaintiff and the other parties as defendants. (3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed. (4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the Arbitrator appointed by the parties, whether in the agreement or otherwise, or where the parties cannot agree upon an Arbitrator to an Arbitrator appointed by the Court. (5) Thereafter the arbitration shall proceed in accordance with and shall be governed by the other provisions of this Act so far as they can be made applicable. 17. Taking up the first argument of the learned counsel for the appellant, it is our considered view that the respondents were not bound by paragraph 3(c) of the supplementary agreement dated 1st March, 1995 in which they had accepted that the bill amounting to Rs,3,709,856.56 will be considered full and final payment of the contract. This view is strengthened when we read paragraph 3(c) of the supplementary agreement along with paragraph 5, therefore there is no force in the arguments of the learned counsel for the appellant that clause 131 of the contract i,e, arbitration clause had become redundant and after the execution of the supplementary agreement, no action could be taken on the basis of this clause. Here we would also like to observe that the learned counsel for the appellant did not seriously press this argument before us. In our opinion, the judgment of the Honourable Supreme Court of Pakistan in the case of Project Director, Balochistan Minor Irrigation and Agricultural Development Project, Quetta Cantt. v. Messrs Murad Ali
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and Company 1999 SCMR 121 relied on by the learned counsel for the respondent, also supports his arguments that despite the provisions of paragraph 3(c), the matter could be referred to and decided by the Arbitrator. 18. The second argument of the learned counsel for the appellant regarding the fulfilment of prerequisite condition for the reference of the case to the Arbitrator has already been set at rest by the learned Single Judge after examining the facts of the case and the learned counsel for the appellant has not been able to place any material on record before us to dislodge this finding of the learned Single Judge. 19. The learned counsel for the appellant has relied on a number of cases quoted above in support of his contention that the case does not fall under section 9 of the Arbitration Act reproduced above. We would take up these cases one by one. 20. In the case of Abdul Hamid v. H.M. Qureshi PLD 1957 SC 145; the Honourable Supreme Court held as under:-- "Held, therefore, that the intention was to appoint three Arbitrators of whom one was to be a Surpanch or Chairman, rather than that the person to be appointed, either by parties or by the two Arbitrators should be regarded as an umpire. Hence, section 9, Arbitration Act, which spoke of reference to two Arbitrators had no application to the case and an award by a "sole" Arbitrator, upon failure of the other party to appoint his Arbitrator, was invalid." However, the facts of the case are distinguishable as in that case a minimum of three Arbitrators had to be…
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