P L D 1976 Karachi 496 (PLP)

(a) parties must have entered into an arbitration agreement. (b) The agreement must have been entered into before the suit with respect to its subject-matter is filed in Court. (c) The differences contemplated in the agreement, must have arisen. If these conditions are satisfied either of the party to the agreement may invoke the jurisdiction of Court and have the agreement filed in Court; whereafter the Court is required to make an order of reference to the arbitrator in terms of subsection (4) of section 20 of the Act.

5. There is no controversy between the parties that the aforesaid conditions for action under the above provision of law exist. That is, it is admitted that the contract was entered into and contained an arbitration clause which has been reproduced verbatim in the counter-affidavit filed on behalf of the defendant. There is also no question of any suit having been filed with respect to the subject-matter of the Contract before the arbitration agreement. Finally there is also no controversy with regard to the question that differences base arisen between the parties which are within the purview of the arbitration clause of the contract. Thus there appears to be no impediment for ordering the agreement to be filed and for making an order of reference to arbitration. In other words no sufficient cause has been shown or even alleged against the filing of the agreement. In fact the defendants have in para. 12 of their counter-affidavit shown their willingness to have any dispute raised by the plaintiff referred to arbitration as provided in the arbitration clause of the contract. The relevant part of the said para. is as under :

"I submit that the respondent No. 1 has not refused to refer any dispute for arbitration as provided under Clause 14 of the Contract. As provided in the Contract, the respondent No. 1 were and are ready and willing to refer any dispute for decision to an officer of Govern ment of Pakistan not lower in rank than the Joint Secretary to the Government of Pakistan."

6. The only controversy, however, raised by the parties concerns the question as to whether the reference be made to an arbitrator in terms of the arbitration clause or to any other arbitrator appointed by the Court. The arbitration agreement, as is reproduced above, provided for a reference to a sole arbitrator to be nominated by the first defendant from amongst officers of the Government of Pakistan not lower to rank than the Joint Secretary to the said Government. In this behalf learned counsel for the plaintiff urged that the reference be made to a person well versed in law preferably a retired Judge of the High Court or Supreme Court. He contended that in the agreement no arbitrator has been appointed as no specific person has been mentioned in the arbitration clause and in the alternative, he further contended, that there was no bar in law to appoint any person other than the one nominated in the agreement. On the other hand, the learned counsel for defendant submitted that after the agreement is ordered to be file the reference has to be made to the arbitrator appointed by the parties. It is the contention of the learned counsel for the plaintiff that the disputes in this case involved the decision of intricate questions of law arising out of the fact that during the currency of the contract the American dollar was devalued. Therefore, he contended that it would be appropriate to refer the dispute to the decision of a person of unquestioned legal talent. In his view an officer of the Government of Pakistan even of the status mentioned in the agreement would be incapable to decide properly the legal issues involved. He next supported his claim by submitting that the claim involves an amount to the tune of Rs. 3,92,00,000 which also justified the reference to a man of unquestioned integrity. In support of his contention, learned counsel for the plaintiff relied on Hormuz G. and Daruwala v. District Local Board. Karachi (A I R 1934 Sind 200 ). Karam Chand v Sant Ram rare Chand and others (A I R 1958 Pb. 418 ) and University of Punjab v. Perfect Electric Concern, Lahore (P L D 1973 Note 154 at p. 234 ). On the other band, learned counsel for the defendant placed reliance on. M. A. Ghant Sooli & Sons v. Federation of Pakistan (P L D 1957 Lah. 363 ), Messes Pakistan Builders Co. v. Pakistan (P L D 1961 Kar. 365) and Abdul Aziz Cotton Ginning Factory v. Ali Muhammad Abdullah & Co. (P L D 1966 Kar. 197 ).

7. Section 20 of the Act provides for powers and duties of the Court which could be divided into two distinct parts. The first part deals with the judicial function to consider the question whether the arbitration agreement should be filed in Court or not. This question has reference to the cause shown by the defendant as to why the agreement should not be ordered to be filed and normally refers to objections as to the existence and validity of the agreement. After the Court has heard the parties with regard to the question whether to order filing of the agreement or not, and if the Court orders the filing of the agreement the first part of its powers and duties is over. The procedure thereafter to be followed relates to the ministerial act of reference to the arbitrator or arbitrator appointed by the parties. If the parties have appointed the arbitrator or arbitrators, the Court has simply to make a reference to him or them as the case may be. But if the parties do not agree the Court may be required to make a decision as to who should be selected as an arbitrator, which may again be a judicial function. In order to appreciate the contentions of the learned counsel for the parties the relevant part of section 20 of Act, namely subsection (4) may with advantage be reproduced as under :

"(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court."

8. Now the contention of the learned counsel for the plaintiff was that where the parties have not appointed an arbitrator the only course open to the Court is to appoint the arbitrator itself. Referring to the facts of this case, he submitted that although the arbitration clause does designate the defendant to appoint an officer of the Government of Pakistan, since the plaintiff does not agree to the appointment of arbitrator in that manner at present, the relevant clause of section 20, subsection (4j reproduced above is not attracted, as in his contention the relevant time for the agreement of parties for the appointment of arbitrator is when the agreement is ordered to be filed. Accordingly he contended that the case is covered by the last clause of the above subsection namely "or where the parties cannot agree upon an arbitrator the Court shall make an order of reference to an arbitrator appointed by the Court." None of the cases cited above by the learned counsel at the bar supports the proposition of law canvassed by him. The Sind case cited by the learned counsel is not relevant in this regard. In University of Punjab v. Perfect Electric Concern, Lahore, the parties had agreed to refer their disputes if any arising out of contract, to the Chancellor of the Punjab University, who, however, declined to enter upon the reference. Thereupon one of the parties filed an application under sections 8 and 20 of the Act for appointment of new arbitrator. The question that was raised in the case was that on the refusal of the appointment of an arbitrator the agreement to refer to arbitration was rendered ineffective. 1 am not in a position to say what other points were raised in that case as the full judgment is not before me. However, as pointed out and note reported indicates that the facts of that case were distinguishable inasmuch as the arbitrator nominated by the parties in the cont,azt had refused to act. Of course in a situation like that, by virtue of subsection (5) of section 20 of the Act the provisions of section 8 of the Act are attracted and the Court was empowered in case of neglect or refusal of any arbitrator appointed by the parties to act, to appoint a new arbitrator. In Karam Chand v. Tara Cnand arid others the arbitration agreement provided for reference to a named arbitrator who was a close relation of one of the parties. The disputes having arisen between the parties, the same party presented an application under section 20 of the Act which was contested by the opposite-party on the ground that the arbitrator was unfit on account of relationship, to act as an arbitrator. The first Court accepted the -objection but ordered the filing of the arbitration agreement. In appeal the contention was that after accepting the objection of the appellant the only course open to the Court was to dismiss the application for filing the agreement. Therefore, the question for determination in that case was whether the arbitration agreement had become inoperative on account of incapacity of the named arbitrator to act or whether the Court was competent to keep the agreement alive. It was held in that case that the Court was competent to keep the agreement alive in spite of incapacity of the named arbitrator to act and had jurisdiction to order the filing of the agreement. The Court further justified the appointment of the new arbitrator by invoking the provisions of section 8(l)lb) of the Act However, the question raised by the learned counsel for the plaintiff was not directly in issue in that case and with all respect to the learned Judges I do not regard this as an authority for the proposition advanced. A bare perusal of the provisions of subsection (4) of section 20 ,q reproduced above 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". Thus I find no force yin the contention advanced by the learned counsel. The statute quite clearly refers to the arbitrator appointed in the agreement, accordingly the interpreta tion put by the learned counsel that the relevant time for the agreement of parties to the appointment of particular arbitrator is when the order of filing of the agreement is made is inconsistent with the express language of the provision.

9. It was next contended that in the facts of this case no arbitrator had been appointed by the parties inasmuch as no person was named in the agreement. There is lure in this argument. But on closer scrutiny I do not find force in this contention also. Section 4 of the Arbitration Act lays down as under "The parties to an arbitration agreement may agree that any reference thereunder shall be to an arbitrator or arbitrators to be appointed by a person designated in the agreement either by name or as a holder for the time being of any office or appointment." The arbitration clause in the contract in this case clearly designates the first defendant to nominate an arbitrator from the class of Government servants of the rank of Joint Secretary to the Government of Pakistan. It could therefore be argued that merely to designate a person to appoint an arbitrator in terms of section 4 of the Arbitration Act, is not tantamount to actually appointing an arbitrator in so far as appointment of an arbitrator takes .place when a person is actually nominated and not when the act of appointment is contemplated to take place at a future date at the will of the person designated. This precise question was considered in M. A. Ghani Soofi & Sons v. Federation of Pakistan relied upon by the learned counsel for the defendant and at page 367 of the report Kaikaus, J. (as he ;,.hen was) observed as under :- "According to this section it is permissible to the parties to an agreement to agree that the arbitrator shall be appointed by a particular person designated in the agreement by office or otherwise. If 1 were to accept the interpretation put upon section 20(4) of the Act by learned counsel for the appellant, such a clause in an agreement would become unenforceable. For instance, if in the present case the appellant did not agree to an arbitrator and the North-Western Railway applied that the agreement be filed, and the matter in dispute referred.-to .arbitration, they would not be entitled to have an arbitration by tile person named by the Agent, for an application for the filing of an agreement lies only under section

20. Section 4 would in this view be a dead letter and all agreements which provide that an arbitrator has to be named by a particular person would practically be void and of no effect. I see no reason to accept that the Legislature was giving with one hand and taking away by another. I will assume that the Legislature had the intention of enforcing the agreement which it pronounced to be valid. I would hold that the intention in the enactment of section 20 is that the parties should have arbitration in accordance with the valid agreement into which they had entered. The words 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 person designated can also be said to be a person appointed by the parties." There is no doubt that the whole object underlying the Arbitration Act is to enforce the Arbitration agreement whereby the parties have bound themselves down, to have their disputes, arising out of transaction to which such an agreement is applicable, adjudicated upon and decided by the domestic Tribunal. The Act permits the parties by section 4 to, instead of appointing the arbitrator at the time of the agreement, designate a person who could appoint the arbitrator in future in case the necessity arises. And section 5 of the Act in unmistakable terms reveals the intention of the law maker in providing that the authority of an appointed arbitrator shall not be revokable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement. The power of the Court to remove or substitute an arbitrator appointed by the parties has been vested in Court if the prescribed conditions exist which is provided in section 8 relevant part of which is as follows :- "(1) In any of the following cases . . . . . (a) .. (b) If any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies and the arbitration agreement does not, show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply vacancy ; (c) . . . . . any party may serve the other party or the arbitrators, as the case may be, with written notice to concur in the appointment of appointments or in supplying the vacancy. (2) If the appointment is not made with 15 clear days after the service of the said notice the Court may, on the application of the party who gave the notice and after giving the other party an opportunity of being heard, appoint an arbitrator or arbitrators or umpire as the case may be, who shall have like powers to act m the reference and to make an award if he or they had been appointed by consent of all parties." This shows the extent to which the law attaches importance to an arbitrator appointed in terms of the arbitration agreement. Thus it was observed in Messrs A. Ranjibhai & Co. v. Messrs Yousufati Muhammadali Antaria &,: Bros. (A I R 1925 Sind 12) : "The nomination or appointment, in the words, may be part of the agreement to refer in which provision is made for the subsequent nomination of the arbitrator or arbitrators by one or both of the parties or by a third person. In the later event the subsequent nomination or appointment is not separate agreement between the parties, nor it is in true aspect an offer-preceding from one or both of the parties or from a third person to the arbitrator which can only take effect as in the case of contracts on expedience. The nomination or appointment is an act for which provision has been made in the prior agreement between the parties and when that act is performed when one of the parties is communicated his nomination or appointment in clear and unequivocal language in writing to the other or when the third person has communicated it to the parties in the manner intended by the parties to the agreement the nomination or appointment is completed."

10. There is yet another aspect to this case which if taken into consideration would show the untenability of this argument. After they Court passes an order for filing of the agreement, in this case, the question for appointment of a new arbitrator would arise only when the parties do not agree to the appointment of an arbitrator. For this it would be necessary for the Court to ascertain from both parties the name of the arbitrator that they wish to appoint. At this stage the defendant is bound to name an arbitrator in terms of the arbitration agreement in this case, as was urged before me in the arguments. The moment such nomination is made the arbitrator thus appointed would refer to the agreement of parties and would be deemed to be an arbitrator appointed by the parties in the agreement. Accordingly, in the view that I have taken the Court would be required to make a reference to such an arbitrator.

11. 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 can not 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 to 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 questions arising for adjudication of disputes. Similarly mere fact of a dispute involving a huge sum of money is no ground for substitution of an arbitrator.

12. For the foregoing reasons I order that the agreement be filed and I direct that the defendant shall be called upon within a period of one month to nominate an arbitrator in terms of arbitration agreement, after which further orders shall be made for reference of the disputes arising between the parties for decision of such arbitrator. To come up for orders after the aforesaid period for nomination of arbitrator has expired or an arbitrator has been appointed. S. Q. Order accordingly.