WATER AND POWER DEVELOPMENT AUTHORITY, LAHORE Versus METROPOLITAN STEEL CORPORATION LTD
1. This is a petition filed under section 33 read with sections 5, 8 and 9 of the Arbitration Act. Respondent No.2, Tarbela Joint Venture, hereinafter referred to as "TJV", were the main contractors of Water & Power Development Authority hereinafter referred to as "WAPDA", for construction of main civil engineering works of the project under Contract No. 651. On 5‑9‑1970, respondent No.l, Metropolitan Steel Corporation Limited hereinafter referred to as "Metropolitan Steel", entered into an agreement, with TJV for supply of 8,000 tons of reinforcement steel on the terms and conditions contained in the said agreement and this agreement was later on amended and the quantity was increased to 15,000 tons. Under clause 10 of the agreement, dated 5‑9‑1970, Metropolitan Steel and TJV had agreed that in case of any dispute between the parties, the same will be referred to arbitration of two arbitrators, one to be nominated by Metropolitan Steel and the other by TJV, and, in case of difference between the two arbitrators, the dispute will be referred to an umpire to be elected by the arbitrators before entering upon the reference. It was also provided that in case any party failed to nominate an arbitrator within 45 days of being called upon to do so by the other party, the arbitrator appointed by the party demanding the reference, will be the sole mutually agreed arbitrator. WAPDA was not a party to the said agreement, dated 5‑9‑1970. In relation to the agreement, dated 5‑9‑1970, dispute arose between Metropolitan Steel and TJV, and Metropolitan Steel made a claim upon TJV. In due course, the dispute was referred to arbitration and Metropolitan Steel appointed Mr. Justice (Retd.) M. Afzal Khan as their arbitrator and TJV appointed Mr. Justice (Retd.) A.R. Changez on their behalf. It is the case of TJV that the work they were required to do under main contract with WAPDA was completed by the end of 1977 and on 31‑12‑1977 TJV wound up and that main contract with WAPDA came to an end and that in respect of the dispute between Metropolitan Steel and TJV, WAPDA took over the responsibilities of TJV and WAPDA confirmed the appointment of Mr. Justice (Retd.) A.R. Changez as arbitrator of WAPDA. The case of WAPDA, on the other hand, is that admittedly they were not party to the agreement dated 5‑9‑1970, which was between Metropolitan Steel and TJV and that WAPDA cannot be dragged into arbitration in respect of a dispute between Metropolitan Steel and TJV. From the record it appears that the two arbitrators, namely, Mr. Justice (Retd.) M. Afzal Khan and Mr. Justice (Retd.) A.R. Changez, held arbitration proceedings on two dates i.e. 26‑12‑1977 and 5‑1‑1978 and, thereafter no proceedings were held by the two arbitrators. Certain correspondence had been exchanged between the parties/their lawyers. Then by letter, dated 11‑1‑1982 of the Advocates of Metropolitan Steel addressed to Chairman WAPDA it was notified that Metropolitan Steel had appointed Mr. Kamal Azfar, Advocate (respondent No.3) as arbitrator in place of Mr. Justice (Retd.) M. Afzal Khan and asked WAPDA to appoint another arbitrator in place of Mr. Justice (Retd.) A.R. Changez. WAPDA was also notified that in case substitution of the arbitrator was not notified within 45 days, Mr. Kamal Azfar shall be appointed the sole arbitrator for adjudicating the dispute. No reply was received by Metropolitan Steel to this letter and on 3‑3‑1982 another letter was addressed to the Chairman WAPDA by the Advocates of Metropolitan Steel calling upon them to notify the substitution of their arbitrator within 15 days of this notice. Then there is further letter dated 30‑3‑1982 of the Advocates of Metropolitan Steel, in which letter reference was made to previous letters and it was pointed out that the previous arbitrator Mr. Justice (Retd.) A.R. Changez had failed/neglected/refused to discharge his functions and perform his duties as arbitrator and it was evident that he was neither interested nor capable of acting as arbitrator and as such WAPDA was asked for substitution of their arbitrator and, therefore, WAPDA was informed that Mr. Kamal Azfar had been appointed as sole arbitrator. Mr. Kamal Azfar then issued notices, dated 15‑4‑1982 to Metropolitan Steel intimating that he had entered upon the reference as sole arbitrator and fixed 8‑5‑1982 as the date for appearance and for filing statement of claim. Then there is the letter, dated 8‑5‑1982 of Mr. Kamal Azfar addressed to Chairman WAPDA enclosing a copy of reply statement of Metropolitan Steel to enable WAPDA to prepare their reply statement and the case was adjourned to 22‑5‑1982. At this juncture, WAPDA approached this Court and filed the present Judicial Miscellaneous No. 11 of 1982 on 20‑5‑1982 and have made the following prayers:‑
(a) That there existed no arbitration agreement between WAPDA and Metropolitan Steel and that the reference to Mr. Kamal Azfar and his appointment as sole arbitrator and all proceedings under the said arbitration are nullity in law.
(b) Respondent No. 3 has no jurisdiction to enter upon the reference and proceed with the arbitration proceedings and that the appointment of respondent No.3 as sole arbitrator be set aside.
(c) In the alternative, nomination of respondent No.3 as sole arbitrator be set aside and the petitioner be granted permission to appoint their own arbitrator.
(d) Respondents be restrained from proceeding with the arbitration.
2. C.M.A. No. 2202 of 1982 was also filed in this case seeking stay of the arbitration proceedings by respondent No. 3. By order dated 20‑5‑1982, ad interim stay was granted, whereby the proceedings before the respondent No.3 had been stayed.
3. C . M. A . No. 90 of 1982 had been filed under Order 1, rule 10 read with section 151, C.P.C. by TJV praying that their name be struck off from the array of respondents and the matter be adjudicated upon as between WAPDA and other respondents. I have heard the arguments of Mr. Talmiz Burney, learned counsel for WAPDA; Mr. A.H. Mirza, learned counsel, who appeared for respondent No. 1, Metropolitan Steel, and Mr. Naseem Bukhari, learned counsel for respondent No.2, TJV
2. The main argument of Mr. Talmiz Burney, learned counsel for petitioner WAPDA, was that the dispute, in which WAPDA is being dragged, arises out of the agreement. dated 5‑9‑1970, which admittedly had been entered into between Metropolitan Steel and TJV, and to which WAPDA was not a party and WAPDA was neither the successors nor assigns of TJV. This contention was supplemented with the submission that there was no arbitration agreement between Metropolitan Steel and WAPDA and as such Metropolitan Steel cannot, under the law, compel WAPDA to go into arbitration in respect of the dispute, which was essentially a dispute between Metropolitan Steel and TJV Mr. Talmiz Burney relied upon a judgment given by me in the case of Pakistan Refinery Limited v. Transworld Oil Limited P L D 1981 Kar.
15. In that case Pakistan Refinery Limited had filed an application under section 33 of the Arbitration Act seeking an order from this Court that there was no arbitration agreement between Pakistan Refinery Limited and Transworld Oil Limited (respondent No.l in that case) and that all proceedings under any such arbitration were nullity in law and without any legal effect. On the facts of that case, I had come to the conclusion that there was no agreement between Pakistan Refinery Limited and Transworld Oil Limited and that the contract had shown the parties to be Pakistan Refinery Limited and Jamia Industries Limited and that from the documentary evidence on record the intention of the parties was that Transworld Oil Limited should not be a party to the contract. I came to the conclusion that there was no privity of contract between Pakistan Refinery Limited and Transworld Oil Limited and as a consequence it was held that there was no arbitration agreement between the parties.
3. Mr. Naeem Bukhari, learned counsel for TJV, took me through the agreement, dated 5‑9‑1970 executed by Metropolitan Steel and TJV. Specific reference was made to clauses 7 and 12 of this agreement to emphasize the connection of WAPDA with the agreement. Mr. Naeem Bukhari, learned counsel for TJV, relied heavily on the letter, dated 30‑8‑1977 of WAPDA addressed to Metropolitan Steel, which reads as follows: ‑
4. "Subject.‑‑Agreement 5th September, 1970 for supply of 15,000 tons Steel Bars Arbitration Proceedings.
5. Please refer to your letter No. PM/ARB/TJV, dated July 16, 1977 addressed to TJV which was passed on to us through CRE TAMS.
6. We have noted that you have nominated Mr. Justice Muhammad Afzal Khan, retired Judge of Lahore High Court in substitution of your originally nominated arbitrator.
7. We have also noted from your letter No. MF/F/Arbitration/TJV, dated December, 20, 1976, that Arbitration Penal was constituted in February, 1976. We understand that TJV's arbitrator was Mr. Justice A.R. Changez. It has been agreed by us that WAPDA will participate in the arbitration proceedings in lieu of TJV. WAPDA agrees to retain Mr. Justice A.R. Changez as its arbitrator. We have noted from your letter of July 16, 1977, that you have already called upon the arbitrators to enter upon the reference under intimation to the parties. We request you to correspond with us directly instead of TJV during the proposed arbitration proceedings.
8. We also suggest that avenue of the arbitration proceedings should be Lahore instead of Karachi since both the arbitrators belong to Lahore. Please indicate your acceptance thereof."
9. This letter, dated 30‑8‑1977 of WAPDA supports the contention raised on behalf of TJV that WAPDA had taken over the responsibilities of TJV and that they had also agreed to retain Mr. Justice (Retd.) A.R. Changez as arbitrator of WAPDA. However, Metropolitan Steel, through their Advocates, sent a reply, dated 8‑10‑1977 to WAPDA which reads as under:‑
10. "Our clients Metropolitan Steel Corporation Limited have forwarded a copy of your letter, dated 30‑8‑1977 addressed to them with instructions to reply in the following terms:‑
11. The captioned contract was entered into between our clients and TJV and in pursuance of this contract reference was made to arbitration and arbitrators appointed by TJV and clients.
12. In view of the said position our clients do not see how they can accede to their request to correspond with you directly instead of TJV and treat you as the opposite party in the arbitration proceedings.
13. However, if you are of the opinion that you are a necessary party it is upon to you to apply to the Arbitration Tribunal to make you a party or to join in the proceedings as an intervenor.
14. This letter issues without prejudice."
15. Reference may also be made here to a letter, dated 17‑12‑1977 addressed by Arbitrator Mr. Justice (Retd.) Muhammad Afzal Khan to the Advocates of Metropolitan Steel, which reads as follows:‑
16. "As desired, I contacted Mr. Justice (Retd.) A.R. Changez on 16th December, 1977, who had been appointed as arbitrator by TJV in letter, dated 9‑2‑1976 issued by Messrs Hassan and Hassan, advocates, Lahore, to your address and learnt from him that:‑‑
(a) He had not heard from TJV or his Advocates for a pretty long period;
(b) TJV was no longer in existence and WAPDA was successor/ assign thereof; and
(c) we had been assured by WAPDA that he would act as their arbitrator.
17. In these circumstances you are requested:‑‑
(i) to write to Messrs Hassan and Hassan Advocates and seek confirmation that TJV is still in existence and appointment of Mr. Justice (Retd.) A.R. Changez as their arbitrator still stands; and
(ii) if reply to (i) above is in the negative to write to WAPDA to know if WAPDA is successor/assign of TJV and they ratify the appointment of Mr. Justice (Retd.) A.R. Change as their arbitrator."
18. The correspondence filed alongwith the various affidavits filed on behalf of the parties in the present suits shows that the lawyers of TJV and Metropolitan Steel had been writing to each other in connection with an assignment deed to be executed between the parties, in which there should be a specific clause that WAPDA shall take over full responsibilities and accept fully the rights and liabilities of TJV under the agreement, dated 5‑9‑1970 and that TJV be substituted by WAPDA. However, no need of assignment was actually signed by the parties. Later on " Metropolitan Steel apparently withdrew their objection that TJV could not be substituted by WAPDA and could participate in the arbitration proceedings in place of TJV and started asking WAPDA to go ahead with the arbitration by appointing an arbitrator in substitution of Mr. Justice (Retd.) A.R. Change.
19. According to Mr. Naeem Bukhari, learned counsel for TJV, from the documents of WAPDA specially the letter, dated 30‑8‑1977 it is clear that WAPDA had taken over the responsibilities of TJV under the agreement, dated 5‑9‑1970 at least in regard to dispute, which had been referred to arbitration and had in fact confirmed that Mr. Justice (Retd.) A.R. Change, who had earlier been appointed by TJV, was the arbitrator of WAPDA. According to learned counsel for TJV, although there is no specific arbitration agreement in writing, to which WAPDA is a signatory, there is more than adequate documentary document on record to show that WAPDA had agreed to go into arbitration in place of TJV and as such TJV is no longer a respondent in the claim of Metropolitan Steel in the arbitration proceedings.
20. Mr. Naseem Bukhari, learned counsel for TJV, cited the following reported judgments in support of his submissions:‑
(a) Shamim Akhtar v. Najma Baqai P L D 1977 S C 644.
(b) Nawab Brothers Limited v. Project Director 1981 C L C 638.
21. The latter judgment was delivered by me. In para. 32 of this judgment it had been observed by me as follows:‑
22. "Under the law, that is section 2(a) of the Arbitration Act, 1940, it is not necessary that arbitration agreement should also be signed by the parties. What is required is that the arbitration agreement be in writing. Arbitration clause No. 28 is contained in the tender documents which are the basis of the contract between the parties. Mr. Sarfraz had conceded that the tender documents were a part of the contract between the parties before the second agreement was signed.
23. For the established principle that under section 2(a) of the Arbitration Act only a written agreement of arbitration is required and the same need not necessarily be signed by the parties as long as its terms and conditions are readily ascertainable and freely agreed to between the parties, I may refer to the judgment of our Supreme Court in the case of Mst. Shamim Akhtar v. Mst. Najma Baqai. In this judgment of the Supreme Court reference has been made to various judgments of the superior Courts of our country as well as of foreign jurisdiction."
(c) Province of Punjab v. Industrial Machine Pool P L D 1978 Lah. 829.
24. In this judgment it was observed that although the Arbitration Act requires the agreement to be in writing, it does not require that it should be contained in a formal document and it may be in any form attributable to the parties whereby their intention to refer their dispute to arbitration is manifestly proved in accordance with law and it may be by correspondence between the parties or by a statement by their counsel and recorded by the Court.
4. Mr. A. H. Mirza, learned counsel for Matropolitan Steel, supported the case of TJV. According to Mr. A.H. Mirza, WAPDA is bound to go into arbitration in so far as the claim of Metropolitan Steel is concerned, which arises out of the agreement dated 5‑9‑1970.
5. Admittedly, the agreement dated 5‑9‑1970 is not signed by l WAPDA, as WAPDA was not a party to the said agreement. The mere fact, that some reference has been made to WAPDA in clauses 7 and 11 of the said agreement, does not make WAPDA a party to the agreement. However the case of TJV and Metropolitan Steel that WAPDA had agreed to participate in the arbitration proceedings in lieu of TJV and had also agreed that Mr. Justice (Retd.) A.R. Changez would be WAPDA's arbitrator is supported by the letter, dated 30‑8‑1977 of WAPDA addressed to Metropolitan Steel. Mr. Talmiz Burney is correct in his submission that the agreement, dated 5‑9‑1970 containing the arbitration clause is not signed by WAPDA and WAPDA is not a party to the said agreement but the letter, dated 30‑8‑1977 of WAPDA refers to the following points specifically:‑
(i) Reference was made to the letter, dated 16‑7‑1977 of Metropolitan addressed to TJV and instead of Metropolitan Steel replying to it, WAPDA replies to the letter of Metropolitan Steel;
(ii) WAPDA noted the nomination of Mr. Justice (Retd.) Muhammad Afzal Khan as the arbitrator of Metropolitan Steel in substitution of their originally nominated arbitrator;
(iii) WAPDA agreed to participate in the arbitration proceedings in lieu of TJV;
(iv) TJV had nominated Mr. Justice (Retd.) A.R. Changez as the arbitrator and WAPDA had retained him as its arbitrator;
(v) Metropolitan Steel was requested to correspond with WAPDA directly instead of TJV during the arbitration proceedings;
(vi) It was suggested that the venue of arbitration proceedings should be Lahore instead of Karachi as both the arbitrators belonged to Lahore.
25. WAPDA asked Metropolitan Steel to indicate their acceptance. As noticed earlier, Metropolitan Steel through a reply, sent by their Advocates on 8‑10‑1977 to WAPDA, informed that the contract was between Metropolitan Steel and TJV and that in the circumstances, Metropolitan Steel could not accede to the request of WAPDA to correspond with WAPDA directly instead of TJV and treat WAPDA as the opposite party in the arbitration proceedings but added that if WAPDA considered itself a necessary party it may apply to the Arbitration Tribunal to make it a party or WAPDA may join the proceedings as an intervenor.
26. From the record it appears that the parties corresponded with each other. Metropolitan Steel wanted as assignment deed to be signed between TJV and WAPDA, whereby TJV may assign all its rights and liabilities to WAPDA under the contract, dated 5‑9‑1970 but apparently Metropolitan Steel wanted one clause to be added/modified and there is no letter on record to indicate that WAPDA and TJV agreed to incorporate such clause in the assignment deed. In any case, as observed earlier, no assignment was signed between TJV and WAPDA in respect of the contract, dated 5‑9‑1970.
27. If the letter, dated 30‑8‑1977 of WAPDA addressed to Metropolitan Steel had been accepted by Metropolitan Steel, TJV would no longer have remained a party to the arbitration proceedings. In such a situation, in spite of absence of an agreement in writing signed by Metropolitan Steel and WAPDA to go into arbitration, the exchange of letters would have amounted to agreement for reference of the dispute to arbitration. Reference has already been made to the three judgments cited by Mr. Naeem Bukhari, learned counsel for TJV, wherein it has been laid down that it is not necessary that arbitration agreement should also be signed by the parties but what is required is that the arbitration agreement should be in writing that is not necessarily in formal document/ agreement and it may be in any form attributable to the parties, where their intention to refer a dispute to arbitration is proved and this can also be correspondence. between the parties.
28. However, by letter, dated 8‑10‑1977 Metropolitan Steel did not agree to accept WAPDA as the opposite party to the arbitration proceedings. Nevertheless, correspondence took place between the parties, which shows that Metropolitan Steel had no objection to WAPDA taking the place of TJV but wanted a formal assignment deed to be executed between TJV and WAPDA. Later on, in spite of insisting that TJV and WAPDA should execute an assignment deed and only then Metropolitan Steel would go into arbitration with WAPDA in respect of the claim of the Metropolitan Steel, Metropolitan Steel apparently did not insist on their condition of execution of assignment deed and started writing letters to WAPDA to go ahead with the arbitration proceedings. By not insisting on the execution of an assignment deed between TJV and WAPDA and asking WAPDA to go ahead with the arbitration proceedings, in my view, Metropolitan Steel accepted the position contained in the letter, dated 30‑8‑1977 of WAPDA. It may be observed here that the record shows that letter, dated 30‑8‑1977 was never withdrawn by WAPDA. The letter, dated 30‑8‑1977 shows that some arrangement must have been arrived at between WAPDA and TJV, as otherwise WAPDA would not have agreed to substitute itself in place of TJV in the arbitration proceedings arising out the claim made by Metropolitan Steel. The exchange of correspondence with the Advocates of the parties also leads to the conclusion that the parties were clear on the point that in so far as the arbitration proceedings were concerned, WAPDA had agreed to take over the responsibilities /liabilities of TJV but Metropolitan Steel wanted more protection for its rights and interests and was, therefore, insisting on an assignment deed to be executed between TJV and WAPDA, but as observed earlier, Metropolitan Steel gave up their demand on this point.
6. On the basis of the record, my decision, therefore, is that in respect of the claim made by Metropolitan Steel originally against TJV, WAPDA has substituted itself in place of TJV and there is in existence arbitration agreement between WAPDA and Metropolitan in respect of the claim made by Metropolitan Steel and on account of the substitution of TJV by WAPDA, TJV is no longer a defendant /respondent in the arbitration proceedings arising out of the claim made by Metropolitan Steel.
29. As regards the appointment of respondent No.3 (Mr. Kamal Azfar. Advocate) as arbitrator, Mr. A . H . Mirza had submitted that he would not insist on respondent No.3 remaining as the sole arbitrator and that respondent No. 3 may be considered as the arbitrator nominated by Metropolitan Steel and WAPDA may nominate another arbitrator. The appointment of respondent No.3 as sole arbitrator in the dispute between Metropolitan Steel and WAPDA is hereby set aside. Respondent No.3 remains the arbitrator nominated by Metropolitan Steel. Within one month from today, WAPDA may nominate their arbitrator. The two arbitrators, before proceeding with the arbitration proceedings, will elect an umpire. In case the arbitrator is not nominated by WAPDA within one month from today respondent No.3 will become the sole arbitrator to decide the dispute between Metropolitan Steel and WAPDA.
30. C . M. A . No. 2202 of 1982, C . M . A . No. 90 of 1985 and Judicial Miscellaneous Application No. 11 of 1982 stand disposed of.
31. M . Y . H . Petition disposed of.