Judgment Sheet
IN THE HIGH COURT OF SINDH AT KARACHI
Suit No. 949 of 2010
Present :
Mr. Justice Nadeem Akhtar
Date of hearing : 01.11.2012.
Plaintiff : Haji Naimatullah through
Chaudhry Atif Rafiq, Advocate.
Defendant : The Federation of Pakistan and another through Syed Tariq Ali, Standing Counsel.
J U D G M E N T
Nadeem Akhtar, J. - This is an application under Section 20 of the Arbitration Act, 1940, (the Act) whereby the applicant / plaintiff has prayed that an Arbitrator may be appointed by this Court to resolve the dispute between the plaintiff and the defendant arising out of contract No. PAFW-2249 dated 07.11.2006 for construction of major structure Nai German Dhoro at RD 586.60 of RBOD-II PROJ (the Contract).
2. Clause No. 67 of the ‘General Conditions for Contracts’ annexed to the Contract, which is an integral part thereof, relating to arbitration is reproduced below for ready reference and convenience :-
“ 67. Arbitration. All disputes between / among the parties to the contract arising out and or relating to the contract or execution of work, other than those for which the decision of GE/CsMES/DW&CE or of any other person is under the contract expressed to be final shall, after written notice by either party to the other be referred to the sole arbitrator to be appointed by the Secretary, Law, Justice and Human Rights Division. While appointing the sole arbitrator, he may also consider the panel submitted by Engineer-in-Chief of Pakistan Army. Unless the parties otherwise agree, such reference shall not be made until after completion / alleged completion, abandonment of work of the termination of the contract. The venue of arbitration shall be fixed by the sole arbitrator at his discretion. The award thus made shall be final and binding on the parties to the arbitration.”
3. In this case, both the parties admit that there is an arbitration agreement between them, there is a dispute between them that has arisen out of the Contract, the dispute should be resolved through arbitration, and that the ‘General Conditions for Contracts’ annexed to the Contract are an integral part of the Contract. The only difference of opinion between the parties is that the plaintiff is seeking appointment of an Arbitrator by this Court through the present application, whereas according to the defendants, an Arbitrator should not be appointed by this Court as the mode and forum of his appointment is provided in the Contract itself. In view of the above position, if the validity of the arbitration clause itself is challenged, the objection has to be decided by the Court, as such an objection goes to the very foundation of the jurisdiction of the Arbitrator who cannot decide the question so as to give jurisdiction to himself. This view is supported by the case of Muhammad Azam Muhammad Fazil & Co., Karachi V/S Messars N. A. Industries, Karachi, PLD 1977 Karachi 21, decided by this Court. Therefore, this judgment will be confined only to the question as to whether an Arbitrator should be appointed by this Court, or should the Arbitrator be appointed in terms of Clause 67 of the Contract.
4. Chaudhry Atif Rafiq, the learned counsel for the plaintiff, submitted that Clause 67 of the Contract provides that, in case of a dispute, the dispute was to be referred to a Sole Arbitrator to be appointed by the Secretary, Law, Justice and Human Rights Division. He emphasized that, under the said Clause, the only person who had the authority and was competent to appoint the Sole Arbitrator was the Secretary holding the portfolios of Ministry of Law, Justice and Human Rights. He submitted that the said Ministry does not exist anymore as it has been reconstituted and divided into two Ministries ; namely, (i) the Ministry of Human Rights, and (ii) the Ministry of Law, Justice and Parliamentary Affairs. He further submitted that the present Secretary is the Secretary of the reconstituted Ministry, who does not have the portfolio of Human Rights, and he now holds a new portfolio of Parliamentary Affairs. The main thrust of his argument was that because of the sub-division of the Ministry, reconstitution / division thereof into two Ministries, and the change in its composition / structure, the present Secretary, not holding the same portfolios that had been agreed to by the parties, is not authorized or competent to appoint an Arbitrator in terms of Clause 67 of the Contract. Lastly, it was submitted by the learned counsel that the Federal Government itself is a party to the Contract, therefore, it cannot be a judge in its own cause. He prayed that in view of the above, only this Court can appoint an Arbitrator.
5. At the very outset, Syed Tariq Ali, the learned Standing Counsel, raised a preliminary objection that the defendants entered into the Contract with M/S Haji Naimatullah & Co., whereas the present application has been filed by Haji Naimatullah. He contended that Haji Naimatullah has not filed any resolution of the company authorizing him to file the present application. He submitted that the present application is liable to be dismissed on this ground alone. With respect to the learned Standing Counsel, this objection has no force. As rightly pointed out by the learned counsel for the plaintiff, M/S Haji Naimatullah & Co. is not a Limited Company, but is the sole proprietorship concern of Haji Naimatullah, the present plaintiff. The contention of the learned counsel appears to be correct, as the word “Limited” is not mentioned in the description of M/S Haji Naimatullah & Co. given in the Contract. By simply mentioning the word “Co.” or “Company” in the description, not accompanied with the word “Ltd.” or “Limited”, does not make the entity a Limited Company. To fall under the definition of a Limited Company, a company has to meet certain mandatory requirements under the Companies Ordinance, 1984. Moreover, it is clearly mentioned in the title of the present application that the plaintiff is the sole proprietor of Haji Naimatullah & Co. Being a sole proprietorship concern, that has the status of an individual, no resolution was necessary for filing this application. This objection is, therefore, rejected.
6. On the merits of the present application, the learned Standing Counsel vehemently opposed the appointment of an Arbitrator by this Court. He submitted that it is a settled principle of law that the arbitration agreement between the parties should be respected, and the courts should not interfere in the agreement arrived at between the parties for appointment of an Arbitrator. He further submitted that the arbitration agreement / clause has remained unaffected despite the reconstitution of the Ministry, as the Ministry of Human Rights had / has no role at all in relation to the Contract, whereas, the portfolio of Parliamentary Affairs has always been related to the Ministry of Law and Justice. He also submitted that the present Secretary of the Ministry of Law, Justice and Parliamentary Affairs is fully authorized and competent to appoint an Arbitrator, as he has substituted the Secretary of the previous Ministry, which in essence, is the same. The learned Standing Counsel further submitted that the Contract was executed by the plaintiff with his own free will and after fully understanding the implications of all its terms and conditions. Therefore, the plaintiff cannot ignore or bypass the mode and forum of appointment of the Arbitrator provided in the Contract. He prayed for the dismissal of this application.
7. In support of his submissions, the learned Standing Counsel, cited and relied upon the cases of (i) , Project Director, Balochistan Minor Irrigation and Agricultural Development Project, Quetta Cantt. V/S Messrs Murad Ali and Co. 1999 SCMR 121, (ii) Board of Intermediate and Secondary Education, Multan V/S Fine Star and Co., Engineers and Contractors, 1993 SCMR 530, (iii) Lahore Stock Exchange Ltd. V/S Fedrick J. Whyte Group (Pakistan) Ltd and others, PLD 1990 Supreme Court 48, (iv) Intertrade Ltd., Karachi V/S Trading Corporation of Pakistan Ltd. and another, PLD 1976 Karachi 496, (v) Design Group of Pakistan V/S Clifton Cantonment Board, 1990 MLD 2010, and (vi) Messrs Hafiz Abdul Aziz Cotton Ginning Factory V/S Messrs Haji Ali Muhammad Abdullah & Co. and another, PLD 1966 (W.P.) Karachi 197.
8. In the case of Intertrade Ltd., Karachi (supra), relied upon by the learned Standing Counsel, it was held by this Court that the contention of the party applying for appointment of an Arbitrator under Section 20 of the Act, that the relevant time for the agreement of parties to the appointment of a particular Arbitrator is when the order of filing of the agreement is made, was inconsistent with the express language of Section 20(4) of the Act. It was further held by this Court that a bare perusal of the provisions of Section 20(4) of the Act shows that the statute by mandatory provisions directs the Court to make “an order of reference to the Arbitrator appointed by the parties, whether in the agreement or otherwise”.
9. In the case of Board of Intermediate and Secondary Education, Multan (supra), the dispute arising out of contract was to be referred to the Chairman, Board of Intermediate and Secondary Education. In case of his failure to give decision within the specified time or the extended period or in the event of dissatisfaction of the Engineer and Contractor with his decision, the dispute was to be referred to the Sole Arbitrator to be appointed by the said Chairman. The Engineer and Contractor filed an application under Section 20 of the Act before the trial Court praying that the arbitration agreement be filed in Court and a Sole Arbitrator be appointed. The application was dismissed by the trial Court on the ground that the Engineer and Contractor had not approached the said Chairman before filing the application. In appeal, the order was set aside by the High Court and the trial Court was directed to proceed further in the matter in accordance with law. The judgment of the High Court was set aside by the Hon'ble Supreme Court on the ground that the Engineer and Contractor had failed to fulfill the requirements of the arbitration clause by not referring the dispute in the first instance to the Chairman before applying to the Court for filing the arbitration agreement and appointment of an Arbitrator.
10. It was held by this Court in the case of Messrs Hafiz Abdul Aziz Cotton Ginning Factory (supra), that under Section 8(1)(b) of the Act, the Court can appoint an Arbitrator or Umpire when the Arbitrator or Umpire appointed by the parties “neglects or refuses to act, or is incapable of acting, or dies”, and that in terms of Section 20(4), the Court can order reference to an Arbitrator appointed by itself “where the parties cannot agree upon an Arbitrator”. It was further held in this case that the Court can replace a person of its choice to give effect to the intention of the parties, but this power does not confer the authority on the Court to substitute the original agreement of the parties by an entirely new agreement of its own choice.
11. With respect to the learned Standing Counsel, the other cases reported as 1999 SCMR 121, 1993 SCMR 530 and 1990 MLD 2010 relied upon by him, are not relevant to the facts and circumstances of this case.
12. In addition to the cases relied upon by the learned Standing Counsel, I would like to discuss the following cases of the Superior Courts of Pakistan and India, in order to understand and decide the controversy involved in the present case :
A. AIR 1916 Calcutta 689
Chaitram Rambilas V/S Bridhichand Kesrichand.
It was held by a learned Division Bench of the Calcutta High Court in the above cited case that when the party to a contract agreed to submit to an arbitration of the Bengal Chamber of Commerce, then the rules of the Chamber stood incorporated into the contract and the party was bound by those rules. If this Division Bench authority is applied in the present case, it would mean that the rules / Rules of Business of the concerned Ministry are to be incorporated into the Contract.
B. PLD 1957 (W.P.) Lahore 363
M. A. Ghani Soofi & Sons V/S The Federation of Pakistan.
It was held inter alia in the above cited case that “The words used in section 20 are no doubt “the arbitrator appointed by the parties”, but taking into consideration section 4, these words are quite capable of an interpretation which includes “an arbitrator to be appointed by a person designated in the agreement”. An arbitrator who is appointed by the person designated can also be said to be a person appointed by the parties ”.
C. 2009 YLR 799
Saadullah Khan and Brothers (SKB) Engineers and Contractors, Karachi and another V/S Province of Sindh through Secretary, Works and Services Department, Government of Sindh, Karachi, and another.
In the above case, the parties to the arbitration agreement had agreed to refer the dispute to the Engineer before approaching the Arbitrator. One of the parties filed an application under Section 20 of the Act before this Court for appointment of an Arbitrator. The Engineer confirmed before the Court that neither the dispute was referred to him, nor had he given any decision relating to the dispute. The party was directed by this Court to file his grievance before the Engineer within one week ; the Engineer was directed to decide the same within three weeks after notice to the concerned parties, and to submit his report to the Court. It was further held that, within one week from the decision by the Engineer, the matter will be referred to the Arbitrator, who shall decide the same within three weeks thereafter.
D. 2009 CLD 305
Muhammad Umar V/S Yar Muhammad and others.
In the above cited case, it was concluded by this Court that the three necessary conditions were present ; namely, existence of an arbitration agreement, existence of dispute under the agreement, and proceedings under Chapter-II of the Act having not been started. It was held that, since the parties by an agreement had chosen to refer the dispute to arbitration, they were bound to honour the agreement and could not bypass the mechanism provided in the agreement on flimsy grounds.
E. 1988 CLC 1865
Waqqas Limited V/S Province of Punjab.
The Lahore High Court held in the above case that the party applying for appointment of an Arbitrator under Section 20 of the Act is first bound by his own overtures made in the arbitration agreement. If he had agreed to be bound to refer the matter first to the Superintending Engineer, he had to observe that stipulation, and if he failed in that effort, he could then invoke Section 20 of the Act.
13. An arbitration is an arrangement for investigation and determination of a dispute or disputes between parties by one or more persons chosen by the parties. It must be kept in mind that the essence of arbitration is the settlement of dispute by the decision not of a regular or ordinary court of law, but of one or more persons acting as Arbitrators, whose decision the parties agree to accept as binding whether they agree with the decision or not. The concept of arbitration is based upon the principle of withdrawing the dispute from the ordinary courts and enabling the parties to resolve their dispute before a domestic tribunal. The persons deciding such private disputes are called arbitrators as they have an arbitrary power, if their decision is within the four corners of the dispute referred to them by the parties. The arbitral tribunal derives jurisdiction solely from the arbitration agreement that may be found in the underlying contract between the parties, which in this case, is the Contract.
14. Section 2(a) of the Act defines an arbitration agreement as ““arbitration agreement” means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not ”. In the present case, it is an admitted position that the parties had agreed that all the disputes between them arising out of or relating to the Contract, other than those specified in Clause 67, after written notice by either party to the other, be referred to the Sole Arbitrator to be appointed by the Secretary, Law, Justice and Human Rights Division. It was also agreed by the parties vide Clause 67, that unless the parties otherwise agree, reference to the Sole Arbitrator shall not be made until after completion / alleged completion, abandonment of work or the termination of the Contract. Thus, a written notice by either party to the other party was the condition precedent for reference to the Sole Arbitrator. This condition was fulfilled by the plaintiff by giving a notice to the defendants on 29.05.2010 for termination of the Contract. In the said notice, the defendants were called upon to settle the plaintiff’s claim, and it was specifically mentioned that in case the claim of the plaintiff was not settled within 72 hours from the receipt of the said notice, the Contract shall stand terminated without any further notice.
15. The question of interpretation and application of the arbitration clause is involved in the present case. In this context, the well settled principles inter alia are that it is a fundamental principle of interpretation of documents and statutes, that they are to be interpreted in their entire context following a full consideration of all provisions of the document or statute, as the case may be ; that every attempt should be made to save the document, and for this purpose, a difference between general statements and particular statements of the document be differentiated properly to save the document rather to nullify it ; that no provision of the document be read in isolation or in bits and pieces, but the entire document should be read as a whole to gather the intention of the parties ; and that the Court shall lean to an interpretation which will effectuate rather than one which will invalidate an instrument. The above principles have also been noted by the learned Full Bench of the Hon'ble Supreme Court in the case of Saudi-Pak Industrial and Agricultural Investment Company (Pvt.) Ltd., Islamabad V/S Messers Allied Bank of Pakistan and another, PLD 2003 Supreme Court 215.
16. The contention of the learned counsel for the plaintiff that, as the Federal Government is a party to the Contract, it cannot be a judge in its own cause, is not tenable. I have said so in view of the case of M. A. Ghani Soofi & Sons (supra), wherein it was held that there is a good deal of authority saying that known interest of an arbitrator does not in any way invalidate the appointment, and that it is only in a case where such an interest is concealed or comes into existence after the appointment that the appointment is rendered invalid or liable to be revoked. In any event, the plaintiff was fully aware of the fact at the time of entering into the Contract that, in case of any dispute, the same will have to be referred to the Federal Government for appointment of an Arbitrator. Therefore, the plaintiff is estopped
from objecting to the reference of dispute to the Secretary of the Federal Government.
17. After hearing both the learned counsel and examining the law discussed above, the settled legal position that has emerged is that the relevant time for the agreement of parties to the appointment of a particular Arbitrator is the time of the agreement and not the time when the order of filing of the agreement is made ; that, if the arbitration agreement provides reference of dispute to a person or authority before applying to Court for appointment of an Arbitrator, then application for appointment of an Arbitrator cannot be filed without first fulfilling such a requirement, and if he fails in that effort, he could then invoke Section 20 of the Act ; that under Section 20 of the Act, the Court can replace a person of its choice to give effect to the intention of the parties, but this power does not confer the authority on the Court to substitute the original agreement of the parties by an entirely new agreement of its own choice ; that when the plaintiff agreed to submit to an arbitration of the Ministry of Law, Justice and Human Rights Division, then the rules / Rules of Business of the Ministry stood incorporated into the Contract ; that an arbitrator who is appointed by the person designated can also be said to be a person appointed by the parties ; that if, by an agreement, the parties had chosen to refer the dispute to arbitration, they are bound to honour the agreement and they cannot bypass the mechanism provided in the agreement ; that, while interpreting a document, every attempt must be made to save the same rather to nullify it ; that no provision of the document be read in isolation or in bits and pieces, but the entire document is to be read as a whole to gather the intention of the parties ; and that the Court should lean to an interpretation which will effectuate rather than one which will invalidate an instrument.
18. As a result of the above discussion, I have come to the conclusion that the real intention of the parties was to refer the dispute to some senior and responsible officer of the Federal Government for appointment of an arbitrator. It is not necessary that more than one portfolios of different Ministries held by a Secretary always remain permanent, as Ministries in our country are often reconstituted, and sometimes are completely abolished. It was certainly not the intention of the parties to keep on objecting whenever the composition or structure of the Ministry is changed. At the relevant time, the parties admittedly agreed to refer the dispute to the Secretary, Ministry of Law, Justice and Human Rights Division. It is also an admitted position that the said Ministry does not exist exactly in the form in which it existed at the time of the Contract, but it does exist with two major portfolios of the Law and Justice. Nevertheless, the intention, purpose and object of the parties have not been defeated and the same can still be achieved. There is a possibility that the present Ministry, to which the plaintiff is objecting, may once again be changed. Further, in view of the Division Bench authority in the case of Chaitram Rambilas (supra), when the plaintiff agreed to submit to an arbitration of the Ministry of Law, Justice and Human Rights Division, then the rules / Rules of Business of the Ministry stood incorporated into the Contract. Both the parties are bound by the said Rules of Business of the Ministry whatever they may be. The plaintiff ought to have approached the Secretary of the present Ministry before filing this application for appointment of an Arbitrator.
19. Consequently, the plaintiff may within fifteen (15) days apply to the Secretary of the present Ministry of Law, Justice and Parliamentary Affairs for appointment of an Arbitrator. In case an Arbitrator is not appointed by the said Secretary after notice to the parties within fifteen (15) days from the date of the plaintiff’s application, or if the Arbitrator appointed by the said Secretary within the prescribed time does not proceed to arbitrate in accordance with law, the plaintiff will be at liberty to invoke Section 20 of the Act.
This application / suit is disposed of in the above terms.
J U D G E
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*Suits 949-2010 - Arbitration-Composition of Arbitrators/Judgments Single/Court Work*