SHAUKAT RAZA (PRIVATE) LTD. Versus PAKISTAN STEEL MILLS CORPORATION LTD., KARACHI
The plaintiff has filed this suit under Section 20 of Arbitration Act, 1940 and prayed as follows:‑
"(a) to order that the arbitration agreement contained in the Contract provisions be filed in Court;
(b) make an order of reference to the arbitrator or arbitrators to be appointed by the parties;
(c) grant an injunction restraining the defendants from encashing the Bank Guarantee No.14/84 dated July 26, 1984 of defendant No. 2;
(d) award costs of the suit;
(e) grant any other relief deemed fit and proper in the circumstances of the case."
2. The only objection taken before me by Mr. S.A. Shamsi, Advocate for the defendant is that the parties were required to refer the dispute or differences arising between them to the "engineer" which was a condition precedent to the filing of a suit under Section 20 of the Arbirtration Act. It is, therefore, necessary to refer to the arbitration agreement which is contained in Article 20 of the Contract. Article 20.2 (a) whereof reads as follows:‑
20.2(a). If any dispute or difference of any kind whatsoever shall arise between the Corporation or the Engineer or the Engineer's Representative and the Contractor touching or concerning the Contract or its construction or effect or as to the rights, duties and liabilities of the parties to the contract or either of them under or by virtue of the Contract or otherwise or as to any other matter in any way connected with or arising out of or in relation to the subject‑matter of the Contract or the carrying out of the works (whether during the progress of the Works or after their completion and whether before or after the determination, abandonment or breach of the Contract) it shall be referred to the Engineer in writing and shall be settled by the 'Engineer' who shall state his decision in writing and give notice of the same to the Contractor. Such decision in respect of every matter so referred shall be final and binding upon the Corporation and the Contractor until the completion of the work and shall forthwith be given effect to by the Contractor who shall proceed with the Works with all due diligence whether notice of dissatisfaction is given by him or the Corporation hereinafter provided or not. If the Engineer shall fail to give such decision for a period of ninety days after being requested so to do or if the Corporation or the Contractor be dissatisfied with any such decision of the Engineer then and in any such case either the
Corporation or the Contractor may within ninety days after receiving notice of such decision or within ninety days after the expiration of the first named period of ninety days (as the case may be require that the matter shall be referred to arbitration in accordance with sections 20.3 and 30.4 hereof. If the Engineer has given a decision and given notice thereof as aforesaid within a period of ninety days as aforesaid and no notice of dissatisfaction has been given either by the Corporation or the Contractor within a period of ninety days from receipt of such notice thereof the said decision of the Engineer shall remain final and binding upon the Corporation and the Contractor."
3. A perusal of the above‑mentioned provision of the Contract makes it quite clear that in case of any dispute or difference arising between the parties touching or concerning the contract or in any way connected with or arising out of it shall be referred to the 'Engineer' in writing and shall be settled by the 'Engineer' who shall state his decision in writing. Such decision shall be final and binding upon the parties. If the 'Engineer' fails to give a decision within 90 days of the reference or if any party is dissatisified with such decision then it may within 90 days thereof require that the matter shall be referred to the Arbitrator in accordance with the provisions of Section 20 of the Arbitration Act, 1940.
4. Mr. Kamal Azfer, Advocate who appeared for the plaintiff contended two‑fold. The first limb of his contention was that the plaintiff had made such reference to the 'Engineer' which fact can be ascertained from the following letters filed by him in this case:‑
(1) Letter from defendant to palintiff dated 4‑12‑1983 at page 141 of the file.
(2) Letter from plaintiff to defendant regarding payment of dues dated 24‑4‑1984 at page 61.
(3) Letter from defendant to plaintiff dated 17‑6‑1984 at page 142.
(4) Letter from plaintiff to defendant dated 18‑6‑1984 at page 143.
(5) Letter from defendant to plaintiff dated 29‑8‑1984 at page 145.
(6) Letter from plaintiff to defendant dated 2‑9‑1984 at page 147.
(7) Letter from defendant to plaintiff regarding Completion Certificate dated 21‑10‑1984 at page 18.
(8) Letter from defendant to plaintiff dated 7‑1‑1985 at page 150.
(9)Letter from defendant to plaintiff dated 23‑9‑1985 at page 63.
(10) Letter from plaintiff to defendant dated 30‑10‑1985 at. Page 157.
(11) Letter from defendant to plaintiff dated 30‑1‑1986 at page 158.
(12) Letter from plaintiff to defendant dated 6‑2‑1986 at page 114.
(13) Letter from plaintiff to defendant regarding final bill dated 11‑12‑1986 at page 115.
(14) Letter from defendant to plaintiff regarding final bill dated 20‑2‑1986 at page 67.
(15) Letter from plaintiff to defendant dated 12‑3‑1986 at page 116.
(16) Letter from defendant to plaintiff regarding maintenance certificate dated 27‑3‑1986 at page 19.
(17) Letter from plaintiff to defendant regarding final measurements dated 6‑4‑1986 at page 118.
(18) Telex from plaintiff to defendant regarding final bill dated 20‑4‑1986 at page 121.
(19) Letter from defendant to plaintiff regarding final bill dated 13‑5‑1986 at page 65.
(20) Letter from defendant to plaintiff dated 18‑6‑1986 at page 59.
(21) Telex from plaintiff to defendant regarding final bill dated 19‑6‑1986 at page 125.
(22) Letter from plaintiff to defendant regarding final bill dated 23‑6‑1986 at page 122.
(23) Letter from plaintiff to defendant regarding final bill dated 24‑6‑1986 at page 126.
(24) Store Return Form of defendant. dated 2‑7‑1986 at pages 132, 133 and 134.
(25) Letter from plaintiff to defendant dated 10‑7‑1986 at page 128.
(26) Letter from defendant to plaintiff regarding return of surplus material dated 24‑7‑1986 at page 60.
(27) Letter from plaintiff to defendant dated 9‑10‑1986 at page 130.
5. I have perused all these letters. These letters contained certain directions made by the defendant from time to time calling upon the plaintiff to make certain compliances and the intimation of the compliances thereof or the explanations for non‑compliance for the same offered by the plaintiff. At least none of the letters or documents referred to above can be treated as a reference to the "Engineer" which was the condition precedent to the filing of this suit.
6. The second limb of the contention of Mr.Kama1 Azfer was that in case these letters which were written by the parties to each other before the filing of this suit were not considered as reference, at least the letter from the plaintiff sent after the filing of the suit to the defendant dated 8‑1‑1987 which is at page No.163 should be treated as a reference to the "Engineer" as it fulfilled all the requirements of the reference which was a condition precedent. Mr. Kamal Azfer then relied upon the case of Central Insurance Co. Ltd. v. Khyber Textile Mills Ltd. reported in P L D 1978 Kar. 908; where it was held as follows:‑
"We are, therefore, of the humble opinion that though the two applications for reference to arbitration were premature when they were filed, they had ceased to be so during the pendency of the proceedings before the learned Single Judge, and hence it was open to him, in the absence of any other legal impediment, and we say with due respect to the learned Judge, to allow the two applications. In any case, in view of the observations of the Supreme Court in the above reported case, we have the power to allow the applications for reference as they are no longer premature." and submitted that even a reference made to the Engineer after the filing of the suit can be treated by the Court as valid compliance of I the condition precedent. I do not agree with this contention.
7. In that case certain applications under section 20 of the Arbitration Act were made by the plaintiff against the Insurance Company praying for reference of the disputes to the Arbitrator in consequence of a loss suffered by the plaintiff due to fire. The Insurance Company resisted the references on the ground that the dispute as to existence of the loss was not referable to arbitration but it was the dispute as to the amount of the claim which could be referred to the arbitration. Since the Insurance Company had disputed the very existence of the loss and had not yet disputed the amount of claim therefore the condition precedent to the reference had not arisen as yet. A meeting had taken place between the plaintiff and the Insurance Company two months after the filing of the applications wherein Insurance Company had put forward their estimate of loss at a certain amount and offered to settle the claim of the plaintiff at that amount. The plaintiff rejected the offer. It was held by the D.B. that such offer by the Insurance Company and rejection by the plaintiff created a dispute as to the amount of loss sustained by the plaintiff and thus the condition precedent for referring the dispute to the Arbitrator had been fulfilled though after the filing of the suit. It was therefore held that in the absence of any other impediment the Court should allow such applications for reference.
8. In the case of this ruling the meeting had taken place in the ordinary course of events before the filing of the objections by the defendant and was not a contrivance to defeat the agreement, whereas in the present case it is not so. It is quite clear that no reference was made to the "Engineer" as provided under Article 20 before the filing of this suit which was a condition precedent. The reference that was made after the filing of the suit was also not an event which had taken place in natural course of things but it was an act deliberately done by the plaintiff to circumstances the provisions of the arbitration clause contained in the agreement. It must be remembered that the agreement entered into by the parties voluntarily has a sanctity which should not be allowed to be violated easily. Reference in this connection may be made to the case of Intertrade Limited v . Trading Corporation of Pakistan reported in P L D 1976 Kar. 496. It was held by Zaffar Hussain Mirza (as he then was) as follows:‑
"The only remaining contention of the learned counsel for the plaintiff relates to the incapacity of an arbitrator of the class mentioned in the agreement to decide what he termed to be intricate questions of law involved in the dispute. I have not been shown any authority for the proposition that this could be a ground for removal or substitution of an arbitrator. In the preceding part of this order I have referred to the provisions of Arbitration Act that the agreement of parties has a sanctity which cannot easily be allowed to be violated. The power of the Court under Section 8 of the Act does not confer the authority on the Court substitute the original agreement of the parties by entirely new agreement of its own choice and in my view, to allow at this stage, on merely conjectural grounds to substitute an arbitrator appointed by the parties is not warranted. The parties at the time of agreement, had obviously contemplated the disputes to arise in the future for which provision was made for reference to the arbitration of a person from the class of Government servants of the status stipulated. It, therefore, does not lie in the mouth of the plaintiff before the submission to complain that such a person would be incompetent to decide the question arising for adjudication of disputes."
9. The plaintiff having realized that he had rushed to the Court before making a reference to the "Engineer" and before enabling him to settle the matter between the parties, gave this notice, after filing suit when such objection was raised. The "engineer" was justified in refusing to take parallel proceedings to the suit fully realizing that this reference was only to fulfil the lacuna left by the plaintiff and was not an earnest endeavour to reconcile the dispute or the differences that had arisen between the parties. In 1980 CLC 1226 B.R. Harman & Mohatta v. Ghee Corporation of Pakistan Naimuddin, J. (the present Chief Justice) in a case where the parties to the agreement contemplated that the party dissatisfied should first approach Board of Directors of defendants before going to the arbitration held that when such condition precedent was not fulfilled before approaching the Court, the suit under Section 20 of the Arbitration Act was premature and was not maintainable in the circumstances.
10. Reliance was also placed in the well‑known case of Muhammad Jamil Asghar v. The Imrovement Trust, Rawalpindi reported in PLD 1965 SC 698 where it was held as follows:‑
"It may also be pointed out that a Court is not bound to take: notice of events subsequent to the institution of the suit though it has discretion to do so. It can adjudicate upon rights of parties as they existed at the date of the institution of the suit leaving the question arising out of subsequent events to be decided in fresh proceedings."
11. A perusal of Article 20 of the agreement clearly shows that the parties contemplated that before filing a suit under Section 20 of the Arbitration Act the party dissatisfied should first approach the "engineer" for redregs of his grievance for it is possible that it may be redressed by him thus obviating even the necessity of going to arbitration or to Court. By doing so he was likely to gain some thing and to lose nothing because if the plaintiff was dissatisfied with the decision of the "engineer" he could still come to this Court for a reference to arbirtation.
12. Since the condition precedent mentioned in the arbitration clause has not been fulfilled, I am, therefore, of the view that the suit is premature and not maintainable. I, therefore, dismiss the suit leaving the parties to bear their own costs. Before parting with the R&P of the case I would like to observe that the defendant shall see that their "engineer" likes earnest efforts to redress the grievances of, the plaintiff and to settle the dispute and differences between the, parties and make bona fide use of this provision, instead of using it'', as a contrivance for delaying the suit and thus harassing the plaintiff.,
A . A . /S‑135/ K Order accordingly.