Find a Lawyer

Original Civil Suit No. 146 and Miscellaneous Application No. 1436 of 1971, decided on 8th May 1972.

S. 34‑Stay of legal proceed ings‑Contention that application under S. 34 not maintainable because defendant failed to proceed with arbitration when arbitra tion clause was invoked by plaintiff‑Held, readiness on part of parties to contract ‑to refer to arbitration is to be determined at time when suit instituted and defendant called upon to appear and answer.

The readiness on the part of the parties to the contract to refer to arbitration, is to be determined at the time when the suit is instituted and the defendant is called upon to appear and answer, and not when the same was contemplated or threatened. If he decides to ask for stay he can do so before the filing of the written statement. Till that time his choice is absolutely unfet tered and his silence and omission to invoke the arbitration clause will be totally inconsequential.

Governor‑General‑in‑Council v. Simla Banking and Industrial Co. Ltd. and another A I R 1947 Lah. 215 and Daulatram Rala ram v. State of Punjab A I R 1958 Pb. 19 ref.

S. 34‑Contract with Govern ment‑Arbitration clause in agreement providing that a particular officer bf Government was to be the sole arbitrator to resolve any dispute arising' bet weep parties‑‑During subsistence of contract such officer of Government writing letter to other party that "in view of your refusal to meet our demand . . . .I hereby rescind your con tract"‑Held, mere despatch of letter by the officer did not disclose that he had completely sealed of his mind against the other party and was not prepared to hear and decide matter with open judicious mind‑Stay of proceedings under S. 34, in circumstances, could not be refused on ground that the officer had disqualified himself to act as sole arbitrator.

A person entered into a contract with the Government for the supply of meat and vegetables. The contract had an arbit ration clause that in the event of any dispute the matter would be referred to the sole arbitration of the Quarter Master‑General who was also the officer sanctioning the contract. A dispute arose between the parties and the contractor stopped the supply of the goods. The Quarter Master‑General addressed a letter to the contractor informing him that the stoppage of supply was a violation of the terms of the contract and the same there fore stood rescinded. The contractor filed a civil suit in which an application under section 34, Arbitration Act, 1940 was moved by the Government. This application was opposed on the ground that the Quarter Master‑General had, in the circumstances, disqualified himself as the sole arbitrator as he had already formed his opinion by holding the contractor responsible for the breach of the contract.

Held: In these curiously‑coloured contracts, the contractor is bound by the terms and conditions of the contract. He knows for well, that the man, who is ultimately to resolve the dispute in case it crops up, will be forming his opinion and passing certain orders, during the course of the contract, and might be having some rooted views. He, however, trusts his judgment and the sense of fairplay. May be he could not get the contract on any other terms. The risk taken is a calculated one and the situation must be faced, as agreed upon. The arbitrator therefore must perform his duty, unless by any act of his, it can be said that he is unfit for the office or sit in that position.

Messrs Haji Muhammad Ibrahim &. Sons and others v. Karachi Municipal Corporation and others P L D 196OKar.916 distinguished.

Firm Kh1mchand Ramdas v. Udhavdas Varandmal A I R 1928 Sind 97; Messrs McKenzies Ltd. v. Messrs Suleman & Co. A I R 1933 Sind 75; Sakhi Muhammad Hyder v. Tharoomal B. Kirpalani A I R 1941 Sind 202; Mahomed Ishaque Kureshi v. Azad J & K Government P L D 1962 Azad J & K 1; Daulat Ram Rala Ram v. State of Punjab A I R 1958 Pb. 19; Jackson v. Barry Railway Com pany (1893) 1 Ch. D 238; Ives & Barker v Willams (1894) 2 Ch. D 478; Khawaja Muhammad Usaf v. North‑West Frontier Province P L D 1955 Pesh. 72; Sir E. Haroon Jaffar & Sons Ltd. v. Haji E. Dossa & Sons and another P L D 1956 Kar. 4; Bristol Corpora tion and John Arid & Co. 1913 A C 241 and Hickman & Co. and Roberts and others 1913 A C 229 ref.

S. M. Sadiq for Plaintiffs.

Saeed A. Sheikh for Defendant.

Date of hearing: 21st March 1972.

This application under section 34 of the Arbitration Act, 1940, has been filed in the following circumstances :‑

2. Messrs Gabole Brothers, filed a suit for the recovery of Rs. 4,13,270.00 against the Government of Pakistan on the allegation that the three contracts awarded to them for the supply of meat, vegetables and fruits for the year 1970‑71, had been wrongfully rescinded by the Quarter Master‑General, G. H. Q., Rawalpindi. All the contracts had an arbitration clause to the effect that in the event of any dispute arising out of the contract between the parties, shall be referred to the sole arbitration of the Quarter Master‑General, who was the officer sanctioning the contracts.

3. It is an admitted position that as a result of the dispute, the plaintiffs had stopped the supply of the goods pertaining to the Contract No. I., i.e. meat, from the 3rd of November 1970. On the 4th of December 1970, they addressed a letter to the Quarter Master‑General, asking him to proceed with the arbitration and fix an early date for hearing. The Quarter Master‑General, by his letter dated the 23rd December 1970, informed the plaintiffs that the stoppage of the supply was a violation of the terms of the contract, which therefore stood rescinded. As for the arbitration, there was a tardy acknowledge ment from Lt.‑Col. Ch. Abdul Rehman that the request for arbitration would be considered after the termination of the period of contract, that is, 30th June 1971, when full financial effects were known. Thereafter, the plaintiffs filed the suit on the 10th of May 1971, resulting in the instant application, which has been resisted on two grounds firstly. that when the arbitra tion clause was invoked, the defendants did not proceed with the arbitration ; and secondly, that the Quarter Master‑General had disqualified himself as the sole arbitrator as he had already formed his opinion by holding the plaintiffs responsible for the breach of one of the contracts.

4. The first contention raised by Mr. S. M. Sadiq learned counsel for the plaintiffs, is extremely tenuous, since the readiness on the part of the parties to the contract to refer to arbitration, is to be determined at the time when the suit is instituted and the defendant is called upon to appear and answer, and not when the same was contemplated or threatened. If he decides to ask for stay he can do so before the filing of the written statement. Till that time his choice is absolutely unfettered and his silence and omission to invoke the arbitration clause will be totally inconsequential. This was the view taken in Governor‑General‑in‑Council v. Simla Banking & Industrial Co. Ltd. and another (A I R 1947 Lah. 215) and Daulatram Ralaram v. State of Punjab (A I R 1958 Pb. 19). It is beyond the pale of any controversy that the move for stay was made at the earliest possible opportunity and Mr. S. M. Sadiq, learned counsel for the plaintiffs, could not muster any support for his contention.

5. The second objection is based on the letter addressed to the plaintiffs by the Quarter Master‑General, who is the sole arbitrator under the arbitration clause. As the decision turns upon the construction to be placed on this letter, it will be in the fitness of things to reproduce the same. It reads as under :‑

"1. In accordance with Clause 1 of PAFZ‑2120 attached to the contract Deed, you are bound to meet the demands of OCSSD Karachi/Malir. It has been brought to my notice that you completely stopped the supplies with effect from 03 Nov. 70. In spite of repeated warnings issued by ADST Quetta Log Area and this Headquarters, you have not resumed the supplies so far. This is a clear violation of terms and c9nditions of your contract. The supplies are therefore being obtained at your risk and expense for the remaining period, i.e. up to 30th June 1971 and any excess costs so incurred over the contracted rates (together with all incidental charges and expense) shall be recovered from you in terms of clause 7 (ii) and 9 (ii) of PAFZ‑2120.

2. In view of your refusal to meet our demand and your services being unsatisfactory. I hereby rescind your contract under Clause 8 (iv) of PAFZ‑2120 attached to the contract deed.

3. Please acknowledge receipt."

6. It was urged by Mr. Saeed A. Shaikh, learned counsel for the defendants, that the mere despatch of the letter by the Quarter Master‑General did not go to show that he had a completely sealed mind and was not prepared to hear the case of the plaintiffs and decide the matter with an open, judicious mind. According to him, as the Quarter Master‑General, besides being the sole arbitrator, was also the authority sanctioning the contracts on behalf of the Government of Pakistan, once the plaintiffs had stopped the supplies, it was for him to intervene in the matter, and learning that the supplies were not being resumed he had to make alternative arrangement. The matter would brook no delay. The expression of any opinion on his part was inherent in the nature of his duties and he could not shirk the same. Further, according to him, it was a special contract where the plaintiffs had agreed to abide by the arbitrament of the Quarter Master‑General, and in case of a dispute, they could not wriggle out of the arbitration clause by which the Quarter Master‑3eneral was the sole arbitrator merely on the ground that he had passed an order not to their liking. He went on to say that the letter addressed to the plaintiffs by the Quarter Master‑General, did not indicate even remotely that he had formed a final opinion on the merits of the case from which he could not be dislodged. Further Lt.‑General, Abu Bakar Usman Mitha, who had beet the author of the letter had been compulsorily retired and his successor‑in‑office, who was to be the sole arbitrator, could not be accused of any ready‑made views on the subject. In support of his contention he cited the following cases Firm Khimchand Ramdas v. Udhavdas Vorandmal (A I R 1928 Sind 97), Messrs McKanzies Ltd. v. Messrs Sideman &c Co. (A I R 1933 Sind 75), Sakhi Muhammad Hyder v. Tharoomal B. Kirpalani (A I R 1941 Sind 202), Mohomed Ishaque Kureshi v. Azad J & K Government (P L D 1962 Azad J & K 1), Doulat Ram Rala Ram v. State of Punjab (A I R 1958 Pb. 19), Jackson v. Barry Railway Company ((1893) 1 Ch. D 238) and Ives & Barker v. Willans ((1894) 2 Ch. D 478). In all these cases there was an arbitration clause and the sole arbitrator was to be an employee of one of the parties. As most of these decisions have followed the principles enunciated in Jackson v. Barry Railway Co., referred to above, it will be proper to advert to the same.

7. In the precedent case Jackson, the plaintiff, undertook certain works for the Barry Railway Company for the construc tion of a dock. The contract provided that any dispute between the company and the contractor as to the meaning of my part of the contract, or as to the quality or description of the materials to be used, should be referred to the company's engineer as arbitrator. A dispute arose, and a correspondence took place between the contractor and the engineer, in which the latter unequivocally expressed himself against the contractor. The company then referred the dispute to the arbitration engineer. After the reference the engineer again repeated his former view. The contractor then brought his action to restrain the company from proceeding further with the arbitration. The learned Judge, being of the view that the letter of the engineer showed that he had made up his mind and was therefore disqualified to act as an arbitrator, granted the injunction. In the Appeal, Lindley, L. J. held that the engineer had merely repeated in his letter what he had expressed on many an occasion earlier and it did not imply that :

"I have made up my mind, and whatever I may hear or my assessor may advise me, I shall stick to my opinion."

Brown, L. J., had the following to say :‑

"Where I differ from my Brother Kakewich is, that he seems to me not to have made sufficient allowance for the very special character which by the contract this arbitrator had to fulfil, and to have required from the engineer of the company who must necessarily be a somewhat biased person, but, by whose decision, nevertheless (fairly given), the parties had contracted to be bound the icy impartiality of a Rhadamanthus. This difficulty in the contrator's way arises, not from the engineer's utterances in the letter of the 2nd of August but from the fact that the contractor, by his contract, has pledged himself to submit this very dispute that has arisen to the person with whom he virtually is waging it. The contractor is, as it appears to me, catching at a straw ; endeavouring on the ground that the engineer had revealed a view which every one was aware he entertained, to escape from an onerous arbitration clause which the contractor accepted as part of the considera tion for his bargain. To release him on such a pretext would be to dissolve his obligations under contract and to substitute, by force of the power of this Court, a wholly different and far more agreeable kind of arbitrament before either some stranger or a jury of strangers a tribunal which it was the express object of this contract to exclude."

Similarly, it was held in Ives & Barker v. Williams, referred to earlier, that :

"They knew the arbitration clauses contained in the original contract, and they knew what the duties of these engineers were, and they knew that amongst other duties was that of passing or rejecting the materials."

8. In the case of Sakhi Mohomed Hyder v. Theroomal B. Kirpalani, the allegations against the sole arbitrator were that he had already given the final certificate to the contractor and shown his mind in the matter ; and further that he had a dispute with the respondent No. 2 regarding his fee threatening even to file a suit. But that was not found sufficient to release the party from the obligations under the arbitration clause. The same view was taken in the other cases referred to above.

9. Mr. S. M. Sadiq, learned counsel for the plaintiffs, has, however, based his contention on Khawaja Muhammad Usaf v. North‑West Frontier Province (P L D 1955 Pesh. 72), Sir E. Haroon Jaffar & Sons Ltd. v. Haji E. Dossa & Sons and another (P L D 1956 Kar. 4) and Messrs Haji Muhammad Ibrahim & Sons and others v. Karachi Municipal Corporation and others (P L D 1960 Kar. 916).

10. In the Peshawar case It was found that the sole arbitrator, under the agreement, had taken certain decisions on behalf of the Government to the prejudice of the plaintiffs and the allegations were not denied by the counsel appearing for the Government. The nature of the decisions has not been dwelt upon in the judgment, nor there appears to be any discussion of the case‑law. In the second case the dispute was between two partners ; and the ground on which the stay was resisted was that the plaintiffs had a 'prima facie case of fraud made out against the defendants. However, there are references in the judgment to disputes in which the sole arbitrator was an employee of one of the parties. In the case of Bristol Corporation v. John Aird & Co. (1913 A C 241), it was found that a bona fide dispute of a substantial character existed between the contractor and the engineer involving a probable conflict of their evidence ; and in Hickman & Co. v. Roberts and others (1913 A C 229), it was found that the arbitrator had ceased to be a free agent and had forfeited his independence as an arbitrator. Even in these cases it was found that the contractor is to be held to his contract, though he had the right to demand that the engineer, notwithstanding his rooted views, would listen to the argument and determine the matter submitted to him, as fairly as he could as an honest man. The last case is more to the point. There the predecessor of the Municipal Commissioner had, in an earlier suit on the same contract between the plaintiff No. 1 and the Karachi Municipal Corporation, filed a written statement on merits, and verified its contents on his personal knowledge. On those facts, it was observed that

" . . . . . in view of the categorical assertions and denials made on behalf of the Corporation in its written statement in the earlier suit arising out of the same contract and substantially on the same cause of action, and verified by the then Municipal Commissioner, it would embarrass the present Commissioner if the proceedings go to him."

11. The verification of pleadings, as is common knowledge, is done by w person "proved to the satisfaction of the Court to be acquainted with the facts of the case" According to Order VI, rule 15(2) of the Code of Civil Procedure :‑

"The person verifying shall specify, by reference to the numbered paragraphs of the pleading, what he verifies of his own knowledge and what he verifies upon information received and believed to be true."

Verification is not a mere formality ; the object Is to fix responsibility on the verifier. It was held in In re : An Attorney (I L R 41 Cal.113) that :‑

"A verification is a matter of great Importance (Girdhari v. Kanhaiya Lal I L R 15 All. 59 and has been described by a Full Bench of this Court, as possessing the security of being made with the sanction of a solemn declaration for which the person making it, would be liable to the penalties attaching to the crime of giving false evidence, if the declarations were false to his knowledge. Ram Mohan Mukerjee v. Rayah Narsing Deb 1862 W R 54.

The circumstances of the case are clearly distinguishable.

12. The position therefore that emerges is that in these curiously‑coloured contracts, the contractor is bound by the terms and conditions of the contract. He knows for well, that the man, who is ultimately to resolve the dispute in case it crops up, will be forming his opinion and passing certain orders, during the course of the contract, and might be having some rooted views. He, however, trusts his judgment and the sense of fairplay. May be he could not get the contract on any other terms. The risk taken is a calculated one and the situation must be faced, as agreed upon. The arbitrator therefore must perform his duty, unless by any act of his, it can be said that he is unfit for the office or sit in that position.

13. After anxious consideration I have reached the conclusion that the letter in question does not create that impression. The Quarter Master‑General had nothing to his personal knowledge. He terminated the contract because the supplies had been stopped by the plaintiffs and he had to make some other arrangements, without any loss of time. What is more, the officer concerned has been retired and the function of the sole arbitrator devolved on his successor who has had nothing to do with the happenings. Further there are three contracts and out of them the letter deals with only one. It cannot, therefore, be said that there was any expression of views about the other two contracts. I have no reason to doubt that the present Quarter Master‑General, will be far from having any jaundiced view and will do his duty to the best of his conscience.

14. In this view of the matter, I will allow the application and stay the suit.

K. B. A.

Find a Lawyer Near You

Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.