P L D 1959 (W (PLP)

The facts are that the plaintiffs insured stocks of general merchandise, which were stored in a godown situated at Strand Road Chittagong against loss or damage by fire for Rs. 1,50,000‑0‑0 by fire policy No. 11597/CH/5/54. Fire occurred and damage was caused, and therefore they made a claim for Rs. 54,560/8/ against the defendants as insurers. The defendants repudiated the claim and therefore the plaintiff gave a notice dated the 22nd of July 1955 under item 18 of the Conditions of the policy calling upon the insurers to appoint their arbitrator, and appointed Mr. Baboolal Narayandas to be their owns arbitrator. The defendants by their letter dated 28th July/2nd August, 1955, declined to appoint their arbitrator and contended that no refer ence could be made to arbitration. Their contention in their own language was as follows:‑ ".... We have already repudiated for several reasons our liability for the loss suffered by your clients and the question of entering into any arbitration does not arise. On a perusal of item 18 of our Policy Conditions, you will please observe that the condition of arbitration only applies when any difference arises as to the amount of loss". The plaintiffs thereupon appointed Baboolal Narayandas to be the sole arbitrator, who gave a notice to the parties in order to proceed with the arbitration. In reply to his notice, the defendants again took up the same stand and did not participate in the proceed ings. The sole arbitrator, therefore, gave his award and has filed it in Court with the object that it should be made a rule of the Court. The only question to be decided in this suit is as to whether there was a difference regarding the amount of any loss or damage suffered by the plaintiffs so that it could be referred to arbitration under item 18 of the Conditions of Policy. Under that item a difference as to the amount of loss or damage only can her referred to arbitration in terms of the conditions independently of all other questions. Moreover, every right of action or suit upon the policy is made conditional on first obtaining an award as to the amount of loss or damage, if there be la dispute regarding it. Mr. Ibrahim Ahmed contended that the amount of loss alleged to have been sustained by the parties was not in dispute as the defendants had repudiated their liability to pay. As there was no such dispute, there was no difference between the parties which could be referred to arbitration in terms of item

18. The reference to arbitration made by the plaintiff was, therefore, outside the agreement of the parties and could not be made a rule of the Court. Mr. Farooqui for the plaintiffs argued in reply that ascertainment of the amount of loss was a condition precedent to any right of action and therefore, the plaintiffs had to obtain an award first. Secondly, there was a dispute regarding the amount of loss because the plaintiffs had claimed a certain amount and the defendants had refused to pay it on certain grounds. Both the arguments of Mr. Farooqui need elucidation, because the ascertainment of the amount of loss by arbitration is a condition precedent under item 18 only if there is a dispute regarding it and such a dispute cannot be said to have necessarily existed merely on the ground that the liability to pay had been repudiated by the defendants. As appointed in the Eagle Star and British Dominions Insurance Co. v. Dinanath and Hemraj (I L R 1947 Bom. 509) the correctness of the repudiation of liability could not be the subject‑matter of arbitration under a provision of this nature and‑ " . . . . therefore, when the defendants had rejected the claim, the plaintiffs hail a right of action in order that it might be decided by the Court whether such rejection was right or wrong, and it was only in the events of that question being decided in favour of the plaintiffs that it would have become necessary that the amount of loss or damage should be ascertained". Kapur, J. held in Chiranjiy Lal and others v. The Tropical Insurance Company Ltd. (A I R 1952 Pb. 63) while interpreting a term as the one which is before me now, that as there was no difference between the parties regarding the amount of loss which the plaintiffs had suffered, there was no question which could be referred to arbitration, and therefore the civil suit was not barred under the terms of the policy. Mr. Farooqui has relied on the judgment given in Great American Insurance Co. Ltd. v. Bodh Raj (A I R 1953 Pb. 50) in support of his contention that where an insurance company is not in a position to deny the loss or admit it, there is a dispute between the insured and the company as to the amount of loss or damage. Waston C. J. and Harnam Singh, J. held in that case as follows :‑ "In the present case the Company maintains that they have appointed surveyors who have so far not reported on the loss and that in the circumstances the Company is not in a position to admit or deny the loss. If so, the dispute between the parties is as to the amount of loss or damage within the arbitration clause". The arbitration clause before the learned Judge was almost the same as the clause which is to be interpreted in this case. Mr. Ibrahim Ahmed for the defendants contended that mere postpone ment of the consideration of a question does not amount to an existing dispute. There is no doubt that the difference or dispute regarding the amount of loss contemplated by item 18 is not an imaginary, possible or historical dispute but an actual and present dispute. Yet I think that there was an actual and present dispute, though not at the time at which the defendants merely repudiated their liability but subsequently when the plaintiff insisted that the amount of loss sustained by them should be accepted. The plaintiffs, though probably under a misapprehension regarding their right to sue without the ascertainment of the quantum of loss, insisted on referring to arbitration their claim for a certain amount. They in this manner called upon the defendants to say ` yes or no to the correctness of the amount claimed by them. The defendants again wanted to postpone . the determination of the quantum of loss on 'the ground that they had repudiated their liability to pay. But at this stage their refusal to say yes to the sum claimed was equal to, their denial to accept it. They were free to rely on their plea of general repudiation of liability for purposes of resisting the claim of the plaintiffs, but that plea became insufficient or even irrelevant when the plaintiffs pointed the finger to the sum named by them and wanted the defendants to say whether they accepted it or not. The defendants counsel contended that their refusal to admit or deny the correctness of the actual amount claimed by the plaintiff did not amount to a dispute regarding the quantum but to a dispute as to whether they were bound to join issue with the plaintiffs at that stage regarding the quantum of loss. I would concede that there is a difference between the two disputes, but it is slight and I think that their refusal to join issue on the question, impliedly and in reality was equal to the rejection of the claim for the amount. There was, therefore a dispute between the parties, as to the quantum of loss also after the plaintiffs called upon the defendants to appoint their arbitrator to consider their claim for Rs. 54,560/8/‑ The plaintiffs should however, have referred the difference as to the amount of their loss only to arbitration. Their terms of reference are in excess of it. The agreement of Reference after reciting the preliminary facts went on as follows :‑ "Now . . . do hereby appoint Mr. Baboolal Narayandas as the sole arbitrator to decide the dispute about the quantum of damages to be awarded . . . . ". The words "to be awarded" ought to have been omitted. In consequence of these words the arbitrator has held. "Messers Eastern Federal Union Insurance Company Limited to pay to Messers Ismail Abdus Sattar & Bros. the sum of Rs. 37500/‑/‑ only". What the arbitrator ought to have done in view of the terms of the insurance policy was to determine the quantum of loss and no to order the amount determined by him to be paid. Mr. Farooqui for the plaintiffs has conceded that his order for payment of the amount is in excess of the scope of item

18. Mr. Ibrahim Ahmed conceded on his part that 'if the award determined the quantum of loss and contained no direction for its payment, then the plaintiffs would not be prejudiced because their liability to pay would still be open for determination in a suit. I, therefore, modify the award, and replace the above sentence of the award by the following sentence :‑ "Messers Ismail Abdus Sattar & Bros. have suffered loss or damage in the amount of Rs. 37,500/‑/-". Subject to the above modification I order the award to be made a rule of the Court, and decree the suit with no order as to costs. A. H. Award modified and made rule of Court.