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Civil Revision Petition No. 154 of 1956, decided on 13th May 1957 under section 115, Civil P. C. for revision of the order of Chaudhri Muhammad Din, District Judge, Gujranwala, dated the 17th March 1956 affirming that of Chaudhri Bashir Ahmad. Civil Judge. II Class, Gujranwala, dated the 28th February 1955.
Ss. 34, 37 (2)‑Arbitra tion clause in contract‑Arbitration not necessarily condition precedent to action in Court‑Jurisdiction of Civil Court not ousted by such clause‑Stay of suit not applied for before filing written statement‑Effect.
The plaint in a suit based on a contract‑one of the terms of which contract was that "in matters of dispute the case shall be referred to the Superintending Engineer of the Circle whose order shall be final"‑was returned by the trial Court holding that in view of the arbitration clause the Court had no jurisdiction to hear the suit. The order returning the plaint was upheld in appeal.
Held (on revision by the High Court), that in accordance with section 37 (2), Arbitration Act (X of 1940), a cause of action had accrued to the plaintiff: and it could not be said that the Court had no jurisdiction over the suit. In the circumstances of the case the suit could not be stayed under section 34 of the Act inasmuch as the defendant had not asked for stay of the suit at any stage of the proceedings.
The trial Court must therefore proceed to decide the suit on merits.
Arthur Andrew Cipriani v. Macdonald Burnett A I R 1933 P C 91 Scott v. Avery (1856) 5 H. L. 811 Collins v. Locke 1879 (4) A C 674, Woodall v. Peal Assurance Company Limited 1919 (1) K B 593 and Freshwater v. Western Australian Assurance Company Limited (1933) 1 K B 515 examined.
The arbitration clause in a contract is not necessarily a condition precedent to the institution of a suit and the relevant clause in the contract in dispute was not such a condition.
Roper v. Lendon (1859) 1 E & E 825; Brown v. Overbury (1856) 11 Ex. 715 ref.
The word "final" in the expression "whose order shall be final" in condition No. 5 of the contract cannot be said to point necessarily' to the conclusion that the condition was intended by the parties to operate as a condition precedent.
There was no reason for holding that by agreeing to refer their disputes under the contract to the arbitration of the Superintending Engineer, the parties intended that reference to arbitration was to be a condition precedent for seeking redress in a Court of law for any breach of the substantive contract.
S. 34‑Reference of dispute to "Superintending Engineer of Circle"‑Reference, held, not vague.
Held, that a clause in the contract providing that "in matters of dispute the case shall be referred to the Superin tending Engineer of the Circle" was intended by the parties to refer to the Superintending Engineer for the time being, The reference, therefore, could not be said to be vague or vitiated.
Basantlal Jagatramka v. Dominion of India A I R 1952 Cal. 340 rel.
Province of the Punjab v. Messrs, Irfan & Co. P L D 1956 Lah. 442 dissented from.
Governor‑General v. Simla Banking and Industrial Company Ltd. A I R 1947 Lah 215 distinguished.
Muhammad Akbar for Petitioner.
S. M. Naseem, for A. G. for Respondent,
Date of hearing : 1st April 1957.
The petitioner brought a suit against the respondent for recovery of Rs. 2,536 on the basis of a contract for excavating a certain portion of Bombanwala Bedian link canal. This contract is embodied in the work Order No. 9, dated the 24th of January 1949. Condition No. 5 printed on the back runs: "In matters of dispute the case shall be referred to the Superintending Engineer of the Circle whose order shall be final" one of the pleas raised by the defendant was that the Court had no jurisdiction to entertain the suit in view of this condition. The learned trial Court framed the following issues :‑
(1) Whether the plaintiff is not bound by the conditions on the back of the Work Order
(2) If issue No. 1 is decided against the plaintiff, whether the Civil Court has got no jurisdiction to try this case
(3) Whether the plaintiff has not completed the work entrusted to him according to the Work Order
(4) What is due to the plaintiff from the defendant
(5) Relief.
Having decided the first two issues, against the plaintiff, the plaint was ordered to be returned to the plaintiff without deciding the remaining issues. An appeal to the learned District Judge, Gujranwala, having remained unsuccessful, the petitioner‑plaintiff has come up to this Court in revision.
The finding of the two lower Courts that they lack jurisdiction is obviously erroneous. This was a dispute of a civil nature and was clearly cognizable by the trial Court as such. Learned counsel for the respondent, however, relying upon the ruling of the Privy Council in Arthur Andrew Cipriani v. Macdonald Burnett (AIR1933PC91), contended that the arbitra tion clause in question constitutes a condition precedent which, not having been fulfilled so far, is a bar to the present suit. Such a clause is generally referred to by the English lawyers as the Scott v. Avery ((1856)5HL811) clause, after the name of the case which was decided by the House of Lords in England in 1856 5 H L 811 and which was relied on by the Privy Council in Cipriani's case. It was held by the House of Lords in Scott v. Avery that where such a condition exists in a contract and it has not been fulfilled, no cause of action can arise to any of the parties to the contract. In delivering his speech, Lord Campbell said: "Now in this contract of insurance it is stipulated, in the most express terms, that until the arbitrators have determined, no action shall lie in any Court whatsoever. That is not ousting the Courts of their jurisdic tion, because they have no jurisdiction whatsoever, and no cause of action accrues until the arbitrators have determined".
Even before Scott v. Avery, the proposition had been laid down in many other cases; but from 1856 onwards that case continued to be the leading authority on the subject as it finally set at rest all doubts to the contrary. The case was followed by the Privy Council in Collins v. Locke (1879 (4) A C 674) where Sir Montague E. Smith, delivering the opinion of the Board observed: "Since the case of Scott v. Avery, in the House of Lords, the contention that such a clause is bad as an attempt to oust the Courts of jurisdiction may be passed by. The questions to be considered in the case of such clauses are whether an arbitration or award is necessary before a complete cause of anion arises, or is made a condition precedent to an action, or whether the agreement to refer disputes is a collateral and independent one". In Woodall v. Peal Assurance Company Limited (1919 (1) K B 593), decided by the Court of Appeal in England, Bankes L. J. said: "The first of these questions is whether the language of the arbitration clause is such as to give the same effect to the clause as was given to the arbitra tion clause in Scott v. A very; or whether the clause is merely one by which the parties have agreed to refer disputes to arbitration without more, in which case the defendants cannot set up as a defence to an action that there is no cause of action". Speaking of the arbitration clause in the contract which was the subject‑matter of the dispute in Freshwater v. Western Australian Assurance Company Limited ((1933) 1 K B 515), Lord Hansworth M. R., delivering the judgment of the Court of Appeal, said: "It seems to me that that clause is a very wide one indeed, and far wider than the clause in Scott v. Avery, but the principle of that case applies to it‑namely, that the juris diction of the Court is not ousted; the clause is not bad the condition is lawful; and all that has happened is that no action can be brought until the award has been made. It postpones but does not annihilate the right of access to the Court".
It would be observed that in England actions in which Scott v. Avery clause was pleaded as defence were dismissed not because the Courts' jurisdiction was ousted thereby, but on the sole ground that the Courts had acquired no juris diction because no complete cause of action could accrue to the plaintiffs without an award having been made by the arbitrator in accordance with the arbitration clause. This position, however, has been radically altered, in India and Pakistan, by section 37 (2) of the Arbitration Act of 1940 which runs ;‑
"Notwithstanding any term in an arbitration agreement to the effect that no cause of action shall accrue in respect of any matter required by the agreement to be referred until an award is made under the agreement, a cause of action shall, for the purpose of limitation, be deemed to have accrued in respect of any such matter at the time when it would have accrued but for that term in the agreement".
This statutory provision, which the learned counsel for the respondent failed to notice, completely alters the situation. It cannot now be said that no cause of action can arise in the absence of an award made in accordance with the condition precedent in an arbitration agreement. The cause of action after the passing of the Arbitration Act in 1940, shall be deemed to have accrued to the plaintiff before compliance with the arbitration agreement ; the limitation for the action shall run from the date of the accrual of the cause of action and, therefore, Courts obviously have the jurisdiction to entertain a suit upon the contract containing an arbitration clause and the aggrieved party to the contract has a legal right to bring a suit for the redress of his grievances. Section 37 (2) incorporates the provisions of section 16 (2) of the English Arbitration Act of 1934 which were subsequently transferred to section 27 (2) of the English Limitation Act of 1939. Thus the proposition laid down in Scott v. Avery was altered by statute in England in 1934 in the same way as it was altered in this country in 1940.
Section 34 of the Arbitration Act of 1940 runs as follows :‑
"Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and. willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings".
An analogous provision was made in English law by section 4 of the Arbitration Act of 1889 which was subsequently in corporated in section, 4 (1) of the Arbitration Act of 1950. Before the enactment of the Indian Arbitration Act of 1940, the position in England was that section 4 of the Arbitration Act of 1889 was inapplicable to an arbitration agreement containing a Scott v. Avery clause; because in such a case there was no complete cause of action, and the Courts con sequently had‑no jurisdiction over the matter and, therefore, the question of applying section 4 of the 1889 Act could not arise. After the passing of the Act of 1934 in England; and that of 1940 in this sub‑continent, however, section 4 of the English Act of 1889, and the corresponding section 34 of the Indian Act 1940, would become applicable to all arbitration agreements whether they contained or not a condition in Scott v. Avery form; because section 34 of Act of 1940' (as section 4 of the English Act of 1889) does not differentiate between arbitration agreements containing a Scott v. Avery clause and those not containing such a clause. After the enactment of section 37 (2)‑ of the Indian Arbitration Act (‑As that of section 16 (2) of‑the English Arbitration Act of 1934) a complete cause of action accrues regardless of the form or contents of an arbitration agreement and section 34 is in terms applicable to all suits at the instance of a party to an arbitra tion agreement of any kind.
Can it, therefore, be said that section 37 (2) of the Indian Arbitration Act, section,16 (2) of the English Limitation Act of 1934 and section 27 (2), of the English Arbitration Act of 1889 have placed all, arbitration agreements on exactly the same footing and have wiped out the distinctions between an arbitration. agreement which is a condition precedent to a suit and one which is merely a collateral and independent one Unfortunately, this question was not discussed, or noticed, on either side at the Bar. That the distinction has not been completely obliterated is apparent from the language of section 36 of the, Arbitration Act, of 1940 which is, as follows :‑
"Where it is provided (whether in the arbitration agree ment or otherwise) that an award under an arbitration agreement shall be a condition precedent to the bringing of an action with respect, to any matter to which the agree ment applies, the Court, if it orders (whether under this Act or any other law), that the agreement shall cease to have effect as regards any particular difference, may further order that the said provision shall also cease, to have effect as regards that difference".
In the absence of any discussion of the question at the Bar, and also because it is not necessary for the decision of the present case, I do not feel called upon to state the extent to which, and the Purpose for which, the distinction may still exist. It seems, however, clear. that it can no longer be said to exist for the purpose of the initial application of section 34. Apart from the fact, as already pointed out, that the section applies in terms to all arbitration agreements. there is another consideration which would seem to support the conclusion. It is indisputable that a party to a contract may waive any of its terms or conditions‑even a condition precedent. Section 34 makes two provisions. In the first place, it provides that a party to a suit can apply for stay of the proceedings on the basis of the existence of an alleged arbitration agreement only before filing the written statement or taking any other steps in the proceedings. In other words, no party can, notwithstanding an arbitration agreement, ask for stay of proceedings after a certain stage. This provision is obviously founded upon the doctrine of waiver. The second provision of the section deals with discretion of the Court to stay pro ceedings where an application to that effect has been made at the proper stage. It may be, and indeed it seems greatly probable, that the distinction between a condition precedent and a collateral agreement to refer would become material when the Court proceeds to exercise its discretion under section 34. In the present case. however, that stage has not been reached. The suit was instituted on the 3rd of February 1954. Appearance was put in on behalf of the defendant on the 13th and the 24th of April and 12th of May, and on each occasion an adjournment for filing the written statement was asked for. On none of these hearings, the Court was moved to stay the proceedings. The written statement was filed on the 7th of June. Even then, or at any subsequent stage until now, stay of the proceedings was not asked for. Even during the hearing of this appeal, no such request or suggestion was made on behalf of the defendant‑respondent. The result, therefore, is that a cause of action arose to the plaintiff the Court has jurisdiction over the suit ; the suit cannot be stayed in order to allow the parties to go to arbitration in accordance with the conditions in the contract and the Court must, there fore; proceed with the adjudication of the suit between the parties. Before parting with this aspect of the case, I would like to observe that since 1934 actions in England had been stayed and not dismissed‑when an application to that effect was made at 'the proper stage. See Dennehy v. Ballamy (1938 (2) A E R 282) and Smith v. Pearl Assurance Co. (1939 (1) A E R 95).
I must however not be taken to have decided that the arbitration clause in the contract in this case amounts to a condition precedent to resort to Courts. The agreement itself does not say so in so many words. It is true that in Cirpriani's case their Lordships of the Privy Council ruled "It is not essential in order to exclude a right of action at law that the contract should in terms prescribe that the award of the specially constituted tribunal shall be a condition precedent of any legal proceedings". The contrary view in Ropes v. Lendon ((1859) 1 E & E 825) cannot, therefore, be accepted. The existence and meaning of a term or a condition in a contract rest upon the intention of the parties 'to the contract which has to be gathered from the language employed by them and, where necessary, upon the surrounding circumstances. In Cipriani's case, their Lordships did not base their conclusion upon the language of the contract but primarily upon "the circumstances belonging to it". The dispute related to the drawing of tickets in a sweep‑stake. The tickets bore on their face a printed condition: "This ticket is sold subject to the condition that in the event of any dispute arising with respect to any matters connected with drawing of the sweep stake or the awarding of the prizes the decision of the Stewards of the Trinidad Turf Club thereon shall be accepted as final". Their Lordships relied upon the well‑known case of Brown v. Over bury ((1856) 11 Ex. 715) where Baron Alderson pointed out‑
"Every contract must be determined according to the circumstances belonging to it. This is one of racing and the universal practice has been that in order to ascertain who is to have the stakes, it must first be determined who is the winner, not in the opinion of a jury, but of the persons appointed to decide it, viz the judge or the Stewards".
The winning tickets were drawn in that case by means of a complicated process with the help of an apparatus. Their Lordships held that the dispute before them was as "appropriate" for the determination by the stewards as the one in Brown v. Overbury. No "universal practice", as referred to in Brown v. Overbury, or any special "circumstances belonging to" the contract have been pointed out in the instant case. Nor has it been. shown that the dispute in this case was "appropriate" only for the determination of the Superintending Engineer.
The word "final" in the expression "whose order shall be final" in Condition No. 5 of the contract cannot be said to necessarily point to the conclusion that the condition was intended by the parties to operate as a condition precedent. Even a collateral or independent condition to refer to arbi tration by parties must necessarily contemplate, either expressly or impliedly, that the decision of the arbitrator shall be final otherwise there will be no point in arriving at such an agreement. If the decision of an arbitrator is not intended to be final, the role of the arbitrator would be reduced to merely that of an investigation or inquiring agency. I find no reason for holding that by agreeing to refer their disputes under the contract to the arbitration of the Superintending Engineer, the parties clearly intended that reference to arbitration was to be a condition precedent for seeking redress in a Court of law for any breach of the substantive contract.
It only remains to consider an alternative argument urged on behalf of the appellant that the condition is vague and, therefore, unenforceable. At the time of the execution of the contract, the canal, to which the contract relates, was within Bambanwala‑Bedian Ravi Link Circle ; but since then it has been brought under the Upper Chenab Circle. Relying upon the ruling of a learned Single judge of this Court in the Province of the Punjab v. Messrs Irfan & Co. (P L D 1956 Lah. 442), learned counsel for the appellant contended that since the parties intended, at the time of entering into the contract, to refer their disputes to the Superintending Engineer of Bambanwala Bedian Ravi Link Circle, and as there is no such Circle now, the dispute cannot be referred to the Superintending Engineer of the Upper Chenab Circle. I am unable to accept the logic of this contention. The parties did not name any particular person as the arbitrator. They intended to refer their dispute to the Superintending Engineer of the Circle and, therefore. they must clearly be taken to have intended that any person who may be 1holding that office for the time being would act as the arbitrator. Nor can the parties be reasonably said to have attached any importance to the name or formation of the Circle. These considerations could not have been of any significance to them. All that they could have intended was that the disputes should be referred to the officer who may happen to be the Superintending Engineer of the Circle to which the canal in question may happen to be attached at the time of the disputes. A Division Bench ruling of the former Lahore High 'Court in Governor‑General v. Simla Banking and Industrial 'Company Ltd. (A I R 1947 Lah. 215) was relied on by the learned single judge in Province of the Punjab v. Messrs. Irfan & Co., I confess I have been unable to follow the reasoning of the learned judges its the Simla Banking and Industrial Company's case. They found tote expression "for the time being" in 'the condition that "the decision of the Superintending Engineer of the Circle for the time being shall be final" as too vague and indefinite. Referring to this case in Basantlal Jagatramka v. Dominion of India (A I R 1952 Cal. 340), decided by a Division Bench of the Calcutta High Court. Harries, C. J., observed ;‑
"With very great respect to the two learned Judges who decided this case, I am unable to agree. It appears to me that when parties refer disputes to the decision of the Superintending Engineer of the Circle for the time being, their meaning is clear. They agree to refer the disputes to the gentleman holding the office of the Engineer of the Circle at the time the disputes are to be referred. The use of the words "for the time being" so far from creating ambiguity snakes the matter in my view beyond all question attic therefore I cannot agree with the view of the learned Judges of the Lahore High Court".
The case of Simla Banking and Industrial Co. Ltd., may have to be reconsidered by an appropriate Bench of this Court in future; but for the purpose of the present case I must accept it as binding upon me sitting in Single Bench. Ft is not necessary to refer the matter to a larger Bench because in my opinion the revision fails on other grounds as well, as indicated above. I may point out that the facts in the case of Simla Banking and Industrial Co., were quite different from those in the present case and in the case of Messrs. Irfan & Co.; and, therefore, that case cannot, to my mind, be considered to be an authority either in this case or for the decision in Punjab Province v. Messrs. Irfan & Co.
For the above reasons I allow this revision and set aside the judgments and decrees of both the lower Courts and hold that the suit can neither be dismissed nor stayed under section 34 of the Arbitration Act on account of the 5th condition in the arbitration agreement Ex. P. 1. I remand the case to the trial Court for decision on merits. In view of the fact that neither of the parties made any serious effort in any of the Courts to ascertain the real questions involved and to come to grips with them, I order that both the parties shall bear their own costs in all the Courts.
A.H. Case remanded.
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