P L D 1975 Karachi 861 (PLP)

FAKHRUDDIN G. EBRAHIM, J.‑In this application under section 33 of the Arbitration Act, 1940 the court is called upon to determine the existence, validity and effect of the arbitration agreement dated 26th June 1969. A further prayer is for a declaration that the Arbitral Tribunal comprising of respondents Nos. 2, 3 and 4 appointed by the Court of Arbitration, Inter national Chamber .of Commerce, Paris, have no jurisdiction to try and .entertain the claim of the contesting respondent No. 1 against the applicant and that tile reference to arbitration is misconceived, not maintainable in law and of no legal effect or consequence and that the respondents Nos, 2 to 4 be restrained from acting or proceeding further in the reference and arbitration or from giving any award.

2. The facts giving rise to the present application are that the contesting respondent by its cable dated 18‑6‑1969 offered to purchase from the applicant 20,000 tons of chrome‑ore which offer was accepted by the applicant and the applicant on 20‑6‑1969 forwarded to the contesting respondent a copy of its draft agreement. Among other things this draft provided that in the =event of any dispute between the parties arising out of and/or in connection with the contract will be settled by arbitration at Karachi, by reference to ‑two arbitrators and an umpire, and "in case of an arbitrator and/or an umpire not being appointed during the time specified or in case of refusal or inability ‑to accept, the case will be referred to the Arbitration Court of the Interna tional Chamber of Commerce in Paris" and that the award of the Court of Arbitration shall be final and binding on both the parties. The contesting respondent in turn forwarded its draft . agreement which provided that disputes between the parties shall be settled by arbitration by the Arbitration Court of the International Chamber of Commerce in Paris, France and the ‑contract shall be construed in accordance with the laws of the State of New York. In the correspondence that followed, which also included certain other matters, the applicant objected to the application of the New York law and the contesting respondent agreed to delete the same. Accordingly, in the final agreement between the parties there is no provision as regards the law applicable and the parties agreed that the arbitration clause remained the same as was suggested by the contesting respondent, namely, the arbitration by the Arbitration Court of the International Chamber of Commerce, Paris, France.

3. The applicant's case is that due to force majeure conditions, and notwithstanding the two extensions granted by the contesting respondent, the applicant was unable to make any delivery of the contracted chrome .ore. The contesting respondent in its letter dated 3rd March 1972 alleged failure on the part of the applicant to perform its contractual obligations and .called upon the applicant to pay to them compensation for loss of profit .amounting to Dollars 200,000 and unless this payment was received by March, 1972 they threatened to institute arbitration proceedings in accordance with the provisions of the contract. No reply was made by the applicant and the contesting respondent in its letter dated 19th July 1972, reproduced the letter dated 3rd March 1972, and concluded the letter in the following words: "By reason of your default in performance described above, we hereby cancel the aforesaid contract, reserving our rights to pursue all available remedies to achieve payment of the enumerated damages." On 15th February 1973, the contesting respondent made a request to the Secretary of the Court of Arbitration Paris, France for an arbitration of their dispute with the applicant claiming from the latter a sum of Dollars 190,

000. The applicant by its counsel's letter dated 23rd March 1973 addressed to the Secretary‑General, Court of Arbitration, International Chamber of Commerce, acknowledged the receipt of the statement of claim and the documents filed by the contesting respondent and stated that counsel would represent and appear for and on behalf of the applicant in this matter and that the applicant had. nominated Mr. Syed Sharifuddin Pirzada, ex‑Foreign Minister of Pakistan, ex‑Attorney‑General of Pakistan, Senior Advocate of Supreme Court of Pakistan as its arbitrator. Enclosed with the letter was the written statement. on behalf of the applicant together with relevant documents. In this written statement the applicant raised preliminary objections contending that the. contract together with arbitration clause had become void and legally in effective by reason of frustration of the contract and the contesting respon dent had rescinded and cancelled the contract prior to invoking the arbitration clause and, therefore, this clause was of no legal effect or consequence and could not be relied upon by the contesting respondent.

4. That the domestic Tribunal so constituted was competent to deter mine the aforesaid preliminary objections is clear from the rules 3 and 4 o Article 13 of the International Chamber of Commerce rules,. which read as follows:‑ "(3) If one of the parties raise one or more pleas as to the existence or validity of the arbitration clause, and the Court of Arbitration has satisfied itself of the prima facie existence of such a clause, the Court may, without prejudice to the admissibility or the merits of such pleas, order that the arbitration shall proceed. In this case, any decision as, to the arbitrator's jurisdiction shall lie with the arbitrator himself. (4) Unless otherwise stipulated, the arbitrator shall not cease to have jurisdiction by reason of an allegation that the contract is null and void or non‑existent. If he upholds the validity of the arbitration clause, he shall continue to have jurisdiction to determine the respective rights of the parties and to make declarations relative to their claims and pleas even though the contract should be null and void or non‑ existent."

5. After some lengthy correspondence in which parties were at issue as, to how the preliminary objections are heard, the applicant insisting on more than one bearing and the contesting respondent content with written submis sions on the preliminary issues or one. hearing at which, the whole case be heard, the parties appeared before the Court of Arbitration on 4th Novem ber 1974 when the applicant was heard both on the question of law applicable: and the jurisdiction of the Tribunal. At the same hearing evidence on behalf of the contesting respondent was recorded. The next hearing of the arbitra tion was proposed for 8th August 1975 on which date, according to the letter dated 1‑3‑1975 addressed to the Chairman by the applicant's counsel "the defendants are prepared for the full scale hearing as anything short of full length hearing will defeat the interest of justice." More specifi cally the letter states that at the resumed hearing the counsel proposed to. address arguments on the preliminary issue of jurisdiction, examine two defence witnesses and address arguments on merits on all issues framed in the case as set out in the terms of reference. But then came the present applica tion which was filed in Court on i 2‑3‑1975, which led Mr. Salim Akhtar, the learned counsel for the contesting respondent to urge that this application lacks bona fides for the intent appears to be to delay the adjudication of the. claim of the respondent against the applicant. The contention is not without force and more so as the applicant's counsel in his arguments abandoned the grievance made in the application against the procedure adopted by the; arbitrators as regards hearing of his preliminary objections:

6. Mr. Liaquat Merchant, the learned counsel for the applicant in, support of this application contended that the arbitration agreement being an unstamped document was of no legal effect and could not have been acted upon by the arbitrators. His second contention was that the contesting, respondent having cancelled the contract by letter dated 19th July 1972 it obli terated the arbitration clause contained in the contract, and no recourse to this clause was available to the contesting respondent. The arbitration agreement in the present case is not a separate agreement but part of a contract of sale and purchase of goods and, therefore, according to Mr. Salim Akhtar, the learned counsel for the contesting respondent, exempt under Exemptions Clause (a) of Article 5 of the Stamp Act. On the other hand Mr. Merchant contended that the contract by reason of arbitration clause was not one, exclusively for or relating to sale of goods and therefore the exemption was not attracted and that the arbitration clause being independent of and sever able from the agreement required stamping in view of the provisions contained in section 5 of the Stamp Act.

7. In support of his contention that the agreement between the parties did not come within the exemption of clause (a) of Article 5 of the Stamp Act, the learned counsel argued that by reason of the arbitration cruse the '1 ' agreement was not one for or relating to the sale of goods or merchandise exclusively and stress was laid on the word "exclusively " occurring in the article. The argument being that the exemption will only apply where the agreement relates exclusively to the sale of goods and merchandise but not when it also contains some other matter like submission to arbitration. The learned counsel firstly relied on an old Bombay case as Rojabal Kom Bhojraj v. Shivram Bhojraj (High Court Printed Judgment for 1883 pp. 151). In this case this Court came to the conclusion that a Razinama between the parties operated as a submission paper and memorandum of agreement between the parties who passed it to abide by the decision of the arbitrator named in it in the matters therein referred to his arbitration should be stamped as an. agreement. There is little doubt that such a document in the absence of anything more will require to be stamped under Article 5(c) of the Stamp Act.

8. The next case relied upon by the learned counsel is an English case of County of Durham Electrical Power Distribution Co. v. Commissioners of Inland Revenue ((1909) 2 K B 604). In this case an agreement for supply of electricity, a certain minimum sum being payable every quarter though no electricity might be. taken during any quarter, was construed by the Court as a document securing a sum of money at stated period and, therefore, an agreement otherwise specifically charged with duty imposed on "Bond, covenant, or instrument of any kind whatsoever . . . . . being the principal security . . . . . for any sum or sums of money at stated periods . . . . . for a definite and certain period." It, would therefore, appear that the question before the Court was altogether different.

9. The third case relied upon by the learned counsel was decision of Mr. Justice Fletcher in Hurdwary Mull v. Ahmad Musaji Seloji and others ((1909) 1 1 C 371). In this case the contract notes, in addition to the intimation by the broker of the purchase and sale of goods, contained a submission in writing by the buyer and seller to refer disputes to arbitration signed by the broker as the authorised agent of the parties, and the learned Single Judge held that the notes, accordingly fell within the provisions of section 6 of Stamp Act and were therefore, chargeable with higher duty under Article 5(c) of the Stamp .,Act as an agreement not otherwise provided for and if they do not do so the submission was not valid and, accordingly, he refused to make the award ‑before him a rule of the Court. The case is not strictly relevant for the present .argument of the learned counsel inasmuch as the Court was not called upon to construe the exemption (a) of Article

5. The Court's conclusion in this :case was based on section 5 of the Stamp Act. According to the learned . Judge the submission clause was a `distinct matter' within the meaning of the expression contained in section 5 of the Stamp Act and, therefore, the contract notes comprising several distinct matters came within two or more of the description in Schedule I of the Stamp Act and, therefore, chargeable to higher duty under section 6 of the Stamp Act. This case came up for consideration before another Single Judge of the Calcutta High Court in the case of The Bombay Co. Ltd. v. National Jute Mills Co. Ltd. (I L R 39 Cal. 669) the learned Judge, Mr. Justice Chitty refused to follow Hurdwary Mall's case for in his opinion the agreement to refer any dispute whatever . arising out of the contract to arbitration is a part of the contract itself and not a distinct matter within the meaning of section 5 of the Stamp Act and that whole of such contract fell under the exemption clause (a) of Article 5 as being an agreement or memorandum of agreement for or relating to the sale of goods or merchandise exclusively, unless of course, the contract was chargeable under Article

43. The Division Bench of the Calcutta High Court in appeal reversed Hurdwary Mall's case and even refused to notice the argument in support of the finding of Fletcher J , that the whole proceedings in the arbitration were defective because the submission was insufficiently stamped for according to the Division Bench the parties had stamped their document in accordance with the practice which bad been recognized by the Calcutta High Court for a long series of years and the Division Bench was not prepared to question that practice on material before them.

10. In so far as this Court is concerned it has in the case of Tarachand Ghanshamdas v. Messrs Louis Dreyfus& Co. ((1916) 10 S L R 14) followed the decision of Chitty J., reported in the case of Bombay Co. Ltd. v The National Jute Mills Ltd.

11. The last case relied upon by the learned counsel was the Full Bench . decision of the Allahabad High Court in the matter of Mahant Raj Balamgir (A I R 1931 All. 392). The question before the Court in this case was whether a document under which a certain person purchased standing timber on terms that the purchaser will remove the timber in course of one year and would pay the price in lump sum on a particular date amounted to an agreement of ,lease or an agreement of sale of goods which was exempt from stamp duty under Schedule I of Article

5. The Court came to the conclusion that the document was not a lease and would have been exempted from stamp duty but for stipulation in the agreement that if the rival proprietor raised any objection in the cutting of the timber and the removal of the same the responsibility would lie on the vendor, which stipulation, according to the learned Judges was a matter independent of the transaction of the sale of :goods or merchandise and, therefore, an agreement not otherwise provided for, for which a duty was payable under Article 5(c) of the Stamp Act. The learned Judges have not spelled out the test applied by them in coming to the conclusion that the stipulation in question was a matter independent of the transaction of sale of the timber. 11‑A. Mr. Salim Akhtar, the learned counsel for the contesting respon dent relied on the decision of Chitty, J., in the case of Bombay Co. Ltd. v. National Jute Mills Ltd. and Tarachand Ghahshamdas v. Messrs Louis Dreyfus & Co. Additionally, he invited my attention to the case of KYD and another v. Mohammad (I L R 15 Mad. 150). In this case an agreement for sale of goods contained additionally stipulations as regards the payment of godown rent, fire insurance and reference to arbitration and the Court held that these stipulations being collateral and subsidiary incidents relating to the sale of goods, the document was exempt from stamp duty under exemption (a) of Article

5. The test applied was: where the document evidences only a transaction of sale or a sale and some other independent transaction, and if the former, the number of subsidiary stipulations it may contain, cannot alter the nature of the transaction. This case was followed by me in the case of Mohammad Amin Mohamr:ad Bashir v. Zafar Cotton Ginners (P L J 1973 Kar. 286).

12. The next case to which Mr. Salim Akhtar invited my attention was a Special Bench decision of the Allahabad High Court on a reference by the Secretary Board of Revenue reported in A I R 1936 All.

481. In this case one of the agreements which the Court was called upon to construe related to sale of sugarcane. It also contained severely other covenants and the Court held that these being of a subsidiary or auxiliary nature and none of them being independent of the main agreement did not result in the change of the nature of the transaction. The Special Bench approved the test laid down in I L R 15 Mad. 150.

13. Lastly, I may refer to a decision to which Mr. Sharifuddin Pirzada had invited my attention in another case which is reported in Gopalsami Naidu v. Perumal Naidu (A I R 1967 Mad. 190). In this case the agreement related to the purchase of mango trees as felled timber, and the executant who had already paid an advance agreed to pay the balance within the time stipulated and cut and remove the trees. The Court held that the document related only to the sale of timber and the cutting was only ancillary to the agreement of sale and the agreement would come under exemption (a) of Article 5 of the Stamp Act. The Court followed the test laid down In re: Reference by Junior Secretary, Board of Revenue, U. P. (A I R 1936 All. 481) that‑ "As to whether the agreement is one for or relating to the sale of goods or merchandise exclusively, we think that the instrument embodies only one agreement with several subsidiary covenants which do not detract from its exclusive character". I am in respectful agreement with the test laid down in the aforesaid decisions and more so as the intention behind the exemption is to facilitate trade and should, accordingly, receive liberal construction. There is, therefore, n doubt in my mind that the agreement in this case comprised a single transaction of sale of chrome ore and the subsidiary or auxiliary arbitration clause did not alter the nature of the transaction which remained an agreement for relating to the sale of goods exclusively.

14. Now I come to the other contention of the learned counsel in rela tion to section 5 of the Stamp Act. The learned counsel contended that the arbitration clause was independent and severable and, therefore, a `distinct matter' within the meaning of the expression contained in section 5 of the Stamp Act and, therefore, chargeable to duty under clause (c) of Article

5. With a view to demonstrate that the arbitration clause has to be construed as independent and severable, the learned counsel invited my attention to several decisions reported in Radhakishin C. Chawla v. General Construction Co. (A I R 1947 Sind 57 ); Hoosan Brothers Ltd. v. Pakistan Textile Mills Ltd. (P L D 1954 Sind 1); Raja Mohammad Sarwar Khan v. The Federation of Pakistan (P L D 1958 Kar. 224 ) and Karachi Shipyard and Engineering Works Ltd., Karachi v. General Iron & Steel Works Ltd. (P L D 1971 Kar. 501). In all these cases the question before the Court was whether or note rescission or repudiation of a contract resulted in the obliteration of the arbitration clause contained in the contract and the question was answered in, the negative on the ground that the arbitration clause was a separate and severable clause and continues to remain binding notwithstanding the res cission or repudiation of the contract. These cases have in turn relied upon the Full Bench decision of the Lahore High Court in a case reported in Firm Karam Narain Daulat Ram and another v. Volkart Brothers and another (A I R 1946 Lah. 116 ). It may at once be noted that the context in which the Court held that the arbitra tion clause was separate, independent or severable was altogether different. Not a single case was cited at the Bar, except the overruled decision of Fletcher, J., in support of the contention that arbitration clause in an agree ment for or relating to the sale of goods was a distinct matter within the meaning of section 5 of the Stamp Act.

15. In addition to the cases already referred to above, Mr. Salim Akhtar, the learned counsel for the contesting respondent invited my attention to a. Full Bench decision of the Madras High Court in Reference under Stamp Act reported in .I L R 15 Mad.

3. In this case the Court repelled the contention that a lease which contained a covenant on the part of the lessor to renew the lease at the option of the lessee for a further period of one year was an instrument comprising or relating to several distinct matters within the meaning of section 5 of the Stamp Act. The Court held that such an instru ment contained but one contract, namely, a demise and that the option to renew was ancillary to and formed part of the consideration for entering into the lease.

16. In another Full Bench decision of the Madras High Court reported In re: Secretary to the Commissioner of Salt Abkari and Separate Revenue, Madras (A I R 1920 Mad. 225) there were three sale‑deeds in question in each of which the vendor mortgaged lands not included in the sale as security for the due performance of his covenants and the Court held that the document need not be stamped both as a sale and as a mortgage under section 5 of the Stamp Act as the sale -deeds were not instruments comprising or relating to distinct matters within the meaning of the section.

17. In a case reported in Tej Ram and another v. Maqbul Shan and` others (A I R 1928 Lah. 370), the Division Bench repelled the contention that a mortgage deed which contained an additional collateral security embodied two separate ands distinct matters. The Court held that section 5 did not apply to a document, which embodied different covenants relating to the same transaction and the ‑test was not whether the instrument embodied distinct contracts, but whether it comprised distinct matters and that the distinct contracts are immaterial if they relate to the same transaction.

18. The Supreme Court of India in a case reported in The Member Board of Revenue v. Arthur Paul Benthall (AIR 1956 SC 35) observed that whether or not a document relates to a single matter or distinct matters will depend on a number of factors such as who are the parties thereto, which is the subject , matter on which it operates and so forth.

19. Nearer home in the case of Inayat and others v. Nawab Khan (PLD 1971 Lah. 938), Mr. Justice A. R. Shaikh laid down the test that a matter which is ancillary to the leading object of the instrument is not distinct.

20. Finally a recent case from India to which my attention was drawn by Mr. Syed Sharifuddin Pirzada, in another case, reported as Santdas Moolchand Jhanglani and another v. Sheodayal Gurudasmal Massand (AIR 1971 Bom. 237), the test which was reiterated was that an instrument stamped for its leading and principal object covers every thing accessory to that object and is not to be charged with any further duty by reason of the inclusion of provisions which are merely ancillary to the leading object and that section 5 does not apply to a document which embodies different covenants relating to the same 'transaction for distinct matters in section 5 means matters which are separate transactions.

21. Applying the aforementioned test which has been followed for several decades I have little doubt in my mind that the arbitration clause in the agreement between the parties was not a separate transaction but merely ancillary to the main object, namely, the sale and purchase of chrome ore. Moreover, it was right from the very inception in contemplation of the parties that their dispute will be settled by or through the International Chamber of Commerce, and as was contended by Mr. Salim Akhtar, it formed an impor tant consideration for entering into this international contract for sale of chrome ore.

22. For reasons aforesaid my view is that the agreement between the parties was not required to be stamped.

23. This brings me to the next contention of the learned counsel for the applicant that the contesting respondent having cancelled the contract by its letter dated 19th July 1972, it was no longer open to them to invoke the arbitration clause. Assuming that the cancellation has the effect of comple tely annulling the contract and with it the arbitration clause, the cancellation in the present case is not unconditional but expressly subject to "reserving our rights to pursue all available remedies to achieve payment of the enumerated damages". The learned counsel argued that this reservation will only enable the contesting respondent to seek damages through a Court action, for the contesting respondent had invoked the arbitration clause earlier in its letter dated 3rd March 1972 but had abandoned the same by its omission in the subsequent letter dated 19th July 1972. The argument is devoid of substance for more than one reason. Firstly the language of reservation of rights contained in letter dated 19th July 1972 is wide enough to include the remedy available to the contesting respondent to go to arbitration for settlement of its claim, and secondly, there is no question of the contesting respondent having abandoned its earlier request for arbitration, for the whole of the letter dated 3rd March 1972 was reproduced in the subsequent letter dated 19th July 1972 with the addition only of the reservation of rights paragraph reproduced hereinabove. Even otherwise I am unable to accept the interpretation given to the words, "we hereby cancel the contract", as resulting in annulment of the contract for all purposes. The letter had to be read in its proper context. The applicant had, accordingly to the contesting respondent failed to deliver any part of the contracted goods in spite of exten sions given, the last of which had expired as far back as August 1971. In other words in so far as contesting respondent is concerned the applicant was already in breach. In the circumstances by using the words "we hereby cancel the contract," the contesting respondent meant no more than that owing to the events that had happened, the respondent was no longer prepared to keep the contract open and be obliged to accept delivery of the contracted goods. The respondent could not be said to have meant that the contract had come to an end for all purposes as when a contract has been rendered void by frustra tion. The contesting respondent was therefore, not deprived of big right to invoke the arbitration clause.

24. There is still another difficulty for the applicant. Under the Inter national Chamber of Commerce Rules reproduced above it is within the competence of the arbitrators to determine the effect of the alleged cancellation t or repudiation of the contract by the contesting respondent and since the applicant has raised this very issue before the arbitrators, it is to my mind not open to them to seek its adjudication in the present proceedings.

25. The result is that there is no merit in this application which is dis missed with cost to the contesting respondent. s. A. H. Application dismissed.