1982 PLP 126 (CLC)

Date of hearing : 11th January, 1980. ZAFFAR HUSSAIN MIRZA, J.‑This Letters Patent Appeal arises out of judgment dated 20‑8‑1973 by a learned Single Judge, sitting on the original side whereby the application of the respondent under section 33 of the Arbitration Act was allowed and the dispute sought to be referred by the appellant to arbitration was declared to be out of side the arbitration clause.

2. The facts briefly are that the appellants the Government of Pakistan awarded a contract dated 25‑5‑1969 to the respondents Messrs Pakistan Pipe and Construction Co. Ltd. for supply of M. S. G. I. Gisterns by 15‑8‑1969 in accordance with the approved drawings and specifications. It is common ground that no supplies were made by the respondent within the stipulated period and correspondence was exchanged between the parties over certain matters. Ultimately the appellants cancelled the contract through their letter dated 23‑1‑1971 under clause 16 of the conditions of contract and purchased the contracted goods invoking the risk purchase clause contained in the contract. Thereafter, the appellants demanded the payment of Rs.68,026.90 as the difference of re‑purchase price. The respondent repudiat ed the claim of the appellants and questioned their right to cancel the con tract making a counter claim of Rs.2,39,577 as damages suffered by it on account of breach of contract on the part of the appellants. The appellants then informed the respondent that the matter was being referred to the sole arbitrator, as envisaged in the arbitration clause of the contract.

3. The respondent then filed the application under section 33‑32 of the Arbitration Act, 1940‑on the ground that the dispute between the parties was not referable to arbitration as it fell outside the ambit of the arbitration agreement. The learned Single Judge, by the impugned judgment, upheld the plea of the respondent and allowed the application.

4. It is not disputed that the contract was governed by the general conditions governing contracts as incorporated in Form No. D. P. 35 issued by the Government of Pakistan, Ministry of Defence. The arbitration clause is contained in para. 38 in the following terms:‑ "All matters of dispute or difference, except regarding rejection of stores by the Inspector under clause 12 (e) and (f) and/or cancellation of the contract by the purchaser under clause 16, arising out of this agreement between the parties hereto, the settlement of which is not otherwise specially provided for in this agreement shall be referred to the deci sion of the Secretary Ministry of Defence and his decision shall be final and binding on the parties. Work under the contract shall if reasonably possible, continue during the proceedings before the said Secretary and no payment to or payable by the Director shall be with held on account of such proceedings unless they are the subject of the dispute. The venue of arbitration shall be the place from which the contract is issued or such other place as the purchaser at his discretion may determine." Before us the learned counsel for the appellant has reiterated the conten tion that the dispute between the parties was within the ambit of the arbitration clause as it was covered by clause 8 of the contract, which pro vides for recovery of amount fallen due from the supplier on account of liquidated damages risk purchases etc. The plain reading of the arbitra tion clause as reproduced above, however, clearly makes out that a dispute or difference inter alia regarding cancellation of the contract by the pur chaser under clause 16 is excepted from the purview of the arbitration clause. We have no doubt in our mind that the appellants purported to cancel the contract and purchased the goods at the risk and expense of the respondent under clause 16 of the contract. We also agree with the inter pretation of the learned Single Judge, as conceded to by the counsel for the appellants before him, that in order to determine the claim for damages preferred by the appellants, the Arbitrator will have to justify the cancel lation of the contract by the appellant. We might with respect add that the question of whether the cancellation of contract was justified in the circumstances of the case is germane to the adjudication of the claim for damages and is ancillary to the claim being awarded. In other words, if the cancellation of the contract is not sustainable in law the question of awarding liquidated damages to the appellants does not arise. Our attention was drawn to similar view taken by Naimuddin, J. in J. M. 69 of 1976 Messrs Pioneer Trading Co. v. Federal Government and others, in which his Lordship view taken in this case and extensively examined the question in all its aspects. We have, therefore reached the conclusion that the dispute in this case is beyond the scope of the arbitration clause of the contract and is not referable to arbitration. ,

5. For the foregoing reasons we find no merit in this appear and accordingly dismiss it with no‑, order as to cost. Appeal dismissed.