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Application in Suit No. 255 of 1978, decided on 27th November, 1982.

‑‑‑ S. 34‑Suit‑Stay of ‑ Defendants awarding work to plaintiff and contract executed between them‑During work dispute arising between parties and defendant cancelling work‑Plaintiff filing suit for declaration of termination of contract illegal and for other conse quential reliefs ‑Defendants filing application under S. 34, Arbitration Act stating agreement provides reference of dispute to sole arbitra tor and in certain circumstances, defendants have right to terminate agreement‑Plaintiff contending after cancelling contract, defendants cannot invoke arbitration clause thereof‑Defendants not challenging existence and validity of contract but have taken action in terms there of‑Held, . if any party seeks to cancel contract in terms of agreement, dispute still referable to arbitration and in circumstances, defendants entitled to invoke arbitration clause‑ Obiter‑Party who repudiates contract and challenges its existence and validity cannot be allowed to rely upon said contract to refer any dispute to arbitration.

Federation of Pakistan v. Abdul Majid Opel P L D 1956 Sind 96 ref.

Azhar Ali Siddiqui for Plaintiff.

S. A. Shamsi for Defendant.

Date of hearing : 7th November, 1982.

This is an application under section 34 of the Arbitration Act filed by the defendants for stay of the suit.

Briefly the facts are that the defendants invited tenders for construction work and although the plaintiff had submitted lesser tender it was not accepted. However, on protests fresh tender was called on 31st March, 1977. The work was awarded to the plaintiff and contract was executed on 5th May, 1977. The plaintiff had deposited with the tender Rs. 60,000 as security and also executed Performance Bond for Rs. 5523.20. The plaintiff started the work and during the excavation work which was almost complete dispute arose between the parties. The plaintiff had brought stone ballast at the site on 28th May, 1977 to which the defendants' Engineer objected on the ground that they were over sized and directed the plaintiff to break it to the specific size. It is alleged that the plaintiff had intention to do so at the site but on 1st June. 1977 the Director project after visi ting the site on 29th May, 1977 cancelled the work and the plaintiff was directed to stop it. The plaintiff, therefore, filed the suit for declaration that the termination of contract is illegal, for permanent injunction restrain ing the defendant from claiming Rs. 46,947 and awarding the work to another contractor and alternatively for damages of Rs. 6,000.

The defendants filed an application under section 34 of the Arbitra tion Act stating that clause 11 of the agreement provides that the dispute relating to the agreement shall be referred to the sole arbitrator nominated by the defendant. The Arbitration clause is reproduced hereunder :‑

"Notwithstanding anything contained to the contrary in any of the documents mentioned hereinabove, in the event of any question, dispute arising at any time under this agreement between the parties hereto in respect of the meaning or effect of any of the clauses mentioned herein or the rights and liabilities of the parties under this agreement, except to any matter the decision of which is speci fically provided for herein the matter in dispute shall be referred to a Sole Arbitrator to be nominated by the Corporation and the award of such sole Arbitrator shall be final and binding on both the parties. The proceedings of Arbitration shall be conducted at Karachi in accordance with the provision of the Arbitration Act, 1940 or any amendments thereof and rules made thereunder. The parties hereto shall equally bear their own other expenses in respect of Arbitration.

The plaintiff has not filed counter‑affidavit. However, Mr. Azhar Ali Siddiqui has contended that as the defendants have cancelled the contract, they cannot invoke the arbitration clause and, secondly, that it is not just to refer the matter to the sole arbitrator appointed by the defendants.

So far as the second contention is concerned suffice it to say that the agreement provides that in case of dispute between the parties it shall be referred to a sole arbitrator appointed by the defendants. In the case of this clear clause to which the plaintiff has agreed, at this stage, he cannot object that the matter should not be referred to the arbitrator appointed in terms of the contract.

So far the first contention is concerned it is to be noted that the arbit ration clause is wide and embraces any question or dispute arising at any time under the agreement between the parties in respect of meaning or effect of the agreement or rights and liabilities of the parties under it. The agreement provides that in certain circumstances the defendants have the right to terminate the agreement. It therefore follows that action taken by the defendants was in terms of the agreement and any dispute arising out of the agreement is covered by the arbitration clause. Where the arbitration clause is comprehensive and wide and embraces any dispute between the parties, if any party seeks to cancel the contract in terms of agreement, the dispute is referable to arbitration. A party who repudiates the contract and challenges its existence and validity, cannot be allowed to rely upon the said contract to refer any dispute to arbitration. Reference can be made to Federation of Pakistan v. Abdul Majid Opel (P L D 1956 Sind 96). In the present case the defendants have not‑challenged the existence and validity of the contract. They have taken action in terms of the contract and therefore they are entitled to invoke the arbitration clause.

For these reasons by a short order the application was allowed. The proceedings are stayed and the dispute shall be decided by the arbitrator in terms of the arbitration clause.

K. M. A. Application allowed.

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