Order Sheet
IN THE HIGH COURT OF SINDH AT KARACHI
Suit No. 104 of 2010
Date of hearing : 01.11.2012.
Mr. Asadullah Jaral, Advocate for the applicant / plaintiff.
Mr. Walid Khanzada, Advocate for the defendant.
O R D E R
Nadeem Akhtar, J. - This is an application under Section 20 of the Arbitration Act, 1940, whereby the applicant / plaintiff has prayed that the dispute between the plaintiff and the defendant arising out of the contract dated 05.05.2007 (the Contract) be referred for resolution to a sole arbitrator in terms of Clause 16 of the Contract.
2. The defendant has filed detailed objections in opposition to the application. Before discussing the submissions made by the learned counsel for the parties and expressing my views thereon, I would like to highlight that the defendant has not disputed the execution of the Contract and the agreement therein with regard to the reference of any dispute arising therefrom to a sole arbitrator. The only objection raised by the defendant was that there was / is no dispute between the parties, and as such there arises no question for invoking the arbitration clause of the Contract or for referring the matter to a sole arbitrator. In view of the above, this Order will be confined only to the question as to whether or not there was / is any dispute between the parties arising out of the Contract.
3. The parties entered into the Contract whereby the plaintiff was awarded a contract by the defendant for “Construction of New Phosphoric Acid Tank (RT-120D) at Tank Farm Area” at the plant site of the defendant situated in Karachi, which was defined in the Contract as “the Work”. The scope of the Work was fully described in the Contract with specifications, and the amounts payable to the plaintiff by the defendant in consideration of the Work were also mentioned in the Contract. The case of the plaintiff, which is a partnership firm, is that the Work was successfully completed by it strictly in terms of the Contract, which was confirmed in writing by the defendant by issuing a ‘Job Completion Certificate’ dated 23.05.2008 in the following terms :-
“ This is to certify that the job of “Construction of New Phosphoric Acid Tank (RT-120D) at Tank Farm Area” awarded to M/s A. J. Corporation against Contract No. FFBL/P&S/BMR-5910/07 has been completed”.
Mr. Asadullah Jaral, the learned counsel for the plaintiff, pointed out that the aforementioned Job Completion Certificate was issued by the defendant under Clause 11 of the Contract which provided “THE COMPANY will issue Job Completion Certificate for jobs at the time of formal handing over the job under THE CONTRACT by THE CONTRACTOR to THE COMPANY ”.
4. It was submitted by the learned counsel for the plaintiff that after completion of the Work and issuance of the Job Completion Certificate by the defendant, the defendant was obliged to pay the entire remaining agreed consideration to the plaintiff as per the terms and conditions of the Contract. However, after issuance of the Job Completion Certificate when the plaintiff submitted its bill for final settlement, a sum of Rs.5,405,000.00 towards liquidated damages at the rate of 5% of the Contract value was deducted by the defendant illegally, arbitrarily, without assigning any reason, without notice to the plaintiff and in utter violation of the terms and conditions of the Contract. The remaining amount was received by the plaintiff. Mr. Jaral further submitted that the liquidated damages could be claimed by the defendant only under Clause 10 of the Contract, which provided that deductions could only be made in the case of “delay” or “poor workmanship” or “any other default”.
5. The learned counsel vehemently argued that the defendant had no right to deduct the above amount, or any other amount, as the plaintiff had successfully completed the Work, whereafter the Job Completion Certificate was issued by the defendant itself. He submitted that the Job Completion Certificate would not have been issued by the defendant, had there been any delay or poor workmanship or any other default on the part of the plaintiff. He also contended that the amount claimed by the plaintiff was strictly in accordance with the agreed terms and conditions of the Contract. The learned counsel then submitted that, the fact that the defendant has failed to settle the amount of Rs.5,405,000.00 illegally deducted by it from the legitimate claim of the plaintiff despite numerous demands by the plaintiff, is sufficient to establish that there is a dispute between the parties to the extent of the aforementioned amount.
6. At the very outset, Mr. Walid Khanzada, the learned counsel for the defendant, raised an objection that this Application / Suit is not maintainable under Section 69 of the Partnership Act, 1932, as the plaintiff firm has not filed any document to establish that it is a registered partnership firm. At the time of hearing, the learned counsel for the plaintiff filed a statement dated 01.11.2012 along with copies of the undermentioned two documents, the originals whereof were also produced by him in Court which were returned to him after comparison, and the statement along with the following documents were taken on record :-
i) “Acknowledgment of Registration of Firm” in Form ‘C’ dated 30.01.1997 issued by the Registrar of Firms, Lahore Division, confirming the registration of the plaintiff, and allowing the plaintiff to add after its name the wordings “Registered under the Partnership Act, 1932”.
ii) Taxpayer Online Verification dated 31.10.2012 issued by the FBR showing as taxpayers the names of the plaintiff and its partners, including Mr. Muhammad Azam Bhatti who has signed, sworn and filed this Application / Suit.
7. The learned counsel for the plaintiff submitted that, since no such objection has been raised by the defendant in its reply / objections, the defendant cannot be allowed to urge any ground beyond its pleadings. I am of the view that the documents shown and filed by the plaintiff are sufficient to establish that it is a registered partnership firm. The record shows that the Contract was executed on behalf of the plaintiff by its Chief Executive / Managing Partner Mr. Muhammad Azam Bhatti, and also that the defendant addressed most of the correspondence to the plaintiff through the same person as its Chief Executive. The partners of the plaintiff, through a Resolution, authorized the said Mr. Muhammad Azam Bhatti to file proceedings against the defendant. Even otherwise, every partner is deemed to be an agent of the firm. This being the legal position, the above named partner had / has the authority to file and pursue these proceedings as an agent of the plaintiff. It is not the case of the Defendant that the above named person is not a partner of the plaintiff. This Application / Suit signed, sworn and filed by him is, therefore, maintainable.
8. In reply to the main contention about the dispute between the parties, the learned counsel for the defendant submitted that the Work was not completed by the plaintiff within time, which was of the essence of the Contract, the Work was not according to the standard and specifications set out in the Contract, and the plaintiff did not rectify the deficiencies despite several demands by the defendant. He submitted that the Work was indeed completed by the plaintiff, but with a delay of 22 days. He further submitted that the defendant was fully justified in claiming and deducting liquidated damages in view of Clause 10 of the Contract, which was included in the Contract in line with Section 74 of the Contract Act, 1872, specifically for such eventualities. He further submitted that, since execution of the Contract containing the said Clause 10 is not disputed by the plaintiff, and the liquidated damages were deducted thereunder, there is no dispute between the parties. The learned counsel referred to a series of correspondence in support of his above submissions. Mr. Khanzada then submitted that the case of the plaintiff is hit by the doctrine of promissory estoppel. In support of this contention, he relied upon the cases of Pakistan through Ministry of Finance, Economic Affairs and another V/S Fecto Belarus Tractors Ltd., PLD 2002 Supreme Court 208, and Crescent Industrial Chemical Ltd. V/S Federation of Pakistan and 3 others, PLD 2004 Quetta 92.
9. In his rebuttal, the learned counsel for the plaintiff argued that there was no delay on the part of the plaintiff as the Work was completed within the schedule agreed by the parties. He submitted that the time originally agreed was not only extended by the defendant, but the defendant itself provided a revised schedule for the remaining portion of the Work. He specifically referred to a chart showing different stages for completion of the Work at different dates as per the revised schedule, and claimed that the same were strictly followed by the plaintiff. He submitted that, in view of the completion of the Work as per the agreed schedule, the defendant had no right to claim or deduct liquidated damages by invoking Clause 10 of the Contract. The learned counsel further submitted that the stance taken by the defendant is liable to be rejected in view of Sections 55 and 74 of the Contract Act, 1872.
10. I have considered the submissions made by both the learned counsel and have also examined the record and the relevant provisions of law relied upon by them. It would not be appropriate at this stage to discuss the documents referred to by the parties, the contents and/or the effect thereof, or to express my opinion as to whether or not the Work was completed within time or if there was any breach of the Contract by any of the parties, or whether or not the liquidated damages were claimed and deducted by the defendant rightfully or illegally. The contention raised by the learned counsel for the defendant in relation to the promissory estoppel is linked directly with the above. Any finding given or opinion expressed by me in respect of any of the above at this stage would affect or influence the proceedings before the Arbitrator, in case the matter is referred to arbitration. I will, therefore, confine myself at this stage to the question as to whether or not there was / is any dispute between the parties arising out of the Contract.
11. Both the learned counsel have relied upon Section 74 of the Contract Act, 1872, which provides that if a contract is broken, the party complaining of the breach is entitled to receive compensation from the party who has broken the contract. Though this Section provides that if a sum is named in the contract to be paid in case of breach, the party complaining will be entitled to receive compensation, yet it also provides that such compensation would be reasonable not exceeding the amount so named. The word “reasonable” specifically used in this Section is of great importance because a reasonable amount according to one party may not be reasonable for the other. What is reasonable and what is not cannot be decided by the parties themselves, but can be decided only by an independent and impartial person / forum in a fair and proper manner. It is a well established principle of law that a party cannot be the judge of its own cause.
12. Section 55 relied upon by the learned counsel for the plaintiff inter alia provides that if the promisee accepts performance of the promise / contract at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless at the time of acceptance he gives notice to the promisor of his intention to do so. In the instant case, according to the plaintiff the time originally agreed by the parties was extended by the defendant, whereafter the defendant accepted the Work and issued the Job Completion Certificate without any protest.
13. It appears that the parties have not been able to resolve any of the following differences :
Whether the time stipulated in the Contract for completion of the Work was extended or not ?
Whether the Work was completed within the agreed time or the extended time, or was there any delay or breach of the Contract on the part of the plaintiff ?
Whether or not the defendant had any right to claim and deduct the liquidated damages after extending the time, accepting the Work and issuing the Job Completion Certificate ?
If the defendant had the right to claim and deduct the liquidated damages as compensation, then what should have been the reasonable amount of compensation ?
In my humble opinion, the very fact that the parties are unable to resolve any of the above proves that there is an obvious dispute between them.
14. It was held by this Court in the case of Messers Friends Trading Co. V/S Messers Muhammad Usman-Moula Bux, PLD 1954 Sind 56, that an existing dispute is an essential condition for reference to an arbitration. In the case of Ghulam Ishaq Khan Institute of Engineering, Science and Technology and another V/S Messers Hassan Construction Co. (Pvt.) Ltd. Engineer and Consultants, 1998 CLC 485, it was held by the Lahore High Court that assertion of a claim by one party and repudiation thereof by the other party, would constitute a dispute to warrant recourse to Section 20 of the Arbitration Act. Similarly, in the case of Muhammad Umar V/S Yar Muhammad through his legal heirs and others, 2009 CLC 348, it was held by this Court that, before referring the matter to arbitration, three conditions are necessary ; (1) existence of an arbitration agreement, (2) existence of a dispute under the agreement, and (3) proceedings under Chapter-II of the Arbitration Act, 1940, not having been commenced.
15. The defendant has not disputed the execution of the Contract and the agreement therein with regard to the reference of any dispute arising therefrom to a sole arbitrator. I have already held that there is an obvious dispute between the parties. The dispute is, therefore, referred to Mr. Justice (Rtd.) S. Ali Aslam Jafferi, who shall be the Sole Arbitrator in this matter. The learned Sole Arbitrator shall himself settle his fee which shall be paid to him by the parties in equal proportions. The Application is allowed in the above terms.
J U D G E
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*Suit 104-2010 Sec.20 Arb. Act/Order Single/Court Work*