P L D 1977 Karachi 21 (PLP)

4. The contract contained an arbitration clause for adjudication of disputes touching the agreement. Subsequently, the parties entered into an arrangement whereby the buyers were allowed to pay a sum of Rs. 2,00,000 by way of partial marginal deposit against L. C. No. 75463 on condition that the amount would be refunded to them in case the credit was not advised for any reason or was advised and not utilized for any reason for subsequently cancelled. This arrangement was incorporated in a letter dated 17‑6‑1976 addressed by the buyers to the Manager, Habib Bank Limited, Foreign Exchange Branch, Karachi with the endorsement of the sellers accepting the terms thereof. It appears the deal for the purchase of the ship "VALL MOON" fell through and the sellers eventually purchased the motor vessel named "MARIE ANN" having a Light Displacement Tonnage of 5100 tons at the price of U. S. $ 1,03 per ton from its owners the Manilla Inter Ocean Linces Inc. The vessel in question had already arrived at Karachi on 4‑6‑1976. By notice dated 12‑7‑1976 the buyers called upon the sellers to give delivery of the said vessel "MARIE ANN" as per the agreement of the parties and also published public notice through newspapers claiming their right to the delivery of the said vessel and warning the public from dealing with the sellers in regard to the same. At the same time the buyers came across a public notice in the press disclosing that a third party had purchased the vessel and similarly warning the public against entering into any kind of deal respecting the vessel with the sellers. Upon this the buyers treating this as breach of contract on the part of the sellers, brought the present suit under section 20 of the Arbitration Act.

5. In the background of the above narrated facts the buyers seek the reference of the dispute relating to the contract evidenced by the agreement dated 2‑6‑1976 and claim that the sellers are bound to give delivery of the vessel "MARIE ANN". On the other hand the sellers have challenged the agreement to refer and oppose the reference on various legal and factual grounds.

6. Learned counsel for the sellers raised various contentions which may be summarized as under (1) The vessel "MARIE ANN" not being the subject of contract between parties, the dispute relating as it does to the delivery of this ship i~ not covered by the submission clause. (2) The agreement dated 2‑6‑1976 contemplated a further agreement in the event the ship "VALL MOON" was not available for sale and a ship of higher price was to be purchased. In absence of a plea that the further agreement was entered into, the original contract came to an end and does not survive. (3) The contract as a whole is uncertain and ambiguous, consequently not capable of performance. (4) The submission clause in the contract, in particular is void for ambiguity. (5) The Arbitration Agreement in any case is invalid having been signed by one partner in absence of express authority to submit the dispute to arbitration from the other partners (section 19(2) Partnership Act). I shall now take up each contention separately.

7. As regards the first contention Mr. Haider Mota, learned counsel for the defendants referred to the recitals of the agreement dated 2‑6‑1976 which read as under r‑ "Whereas a vessel for scrap presently "VALL MOON" of 6545 L. D. T. or any other vessel of about the same L. D. T. to be purchased at the prevailing market rate upto U. S. $. 100, if more, the buyers' consent shall be necessary . . . . . . direct from Owners by opening Letter of Credit against Import Licence No. 668883 dated 19‑5‑1976 issued to the sellers and to be sold to the buyers safely afloat near the buyers' "Gadani Beach" plot, on the following terms and conditions." Counsel submitted that the vessel "MARIE ANN" over which the present dispute has arisen is of lower tonnage having Light Displacement Tonnage of 5100 tons purchased at the price of U. S. $ 103 per ton. It was submitted that the difference in tonnage comes to 1405 tons which works out to about 22 % of the tonnage of "VALL MOON" which was specified in the agreement and therefore, the present vessel cannot be deemed to be "of about the same L. D. T.". It was additionally submitted that the buyers did not consent to the purchase of the present vessel as stipulated although they were aware of the higher price of the vessel. Upon these premises it was contended that vessel "MARIE ANN" cannot be the subject‑matter of the present dispute. The second contention raised by the learned counsel is also connected with the substance of the contents of the agreement. In this behalf it was submitted that in terms of the stipulations re‑produced above, in the event of the deal regarding the "VALL MOON" failing to materialize, the agreement contemplated a further agreement between the parties as to the rate at which another ship was to be purchased. In absence of a plea to the effect that the buyers entered into such further agreement agreeing to the purchase of "MARIE ANN" at U. S. $ 103, the counsel contended there was no subsisting contract touching the vessel.

8. The nature of the aforesaid two contentions clearly shows that they relate to the interpretation of the various clauses of the agreement between the parties. Now section 33 of the Arbitration Act empowers the Court in law to determine the existence or validity or effect of an arbitration agreement. Similarly, under section 20 of the Arbitration Act, the Court can refuse to make a reference only where sufficient cause is shown why the agreement should not be filed and an order of reference be made. The scheme of the Arbitration Act very clearly shows that the existence or validity of an arbitration clause may be successfully attacked either on grounds upon which the whole contract can be attacked or only the arbitration clause may be attacked as invalid although the contract of which it forms part is not open to such attack. 1f the challenge is to the validity of the arbitration clause itself obviously the objection has to be decided by the Court for, in that case the objection goes to the very foundation of the jurisdiction of the arbitrator and he cannot decide the question so as to give jurisdiction to himself. However, if the arbitration clause is challenged collaterally alongwith the challenge to the contract itself of which it forms part, different considerations would arise. If the whole contract is questioned as void or non‑existent in law on any ground, such a question also affects the validity of the arbitration clause which falls or stands alongwith the main contract. But if the challenge to the arbitration clause is founded on disputed question of interpretation of other terms of the contract, the decision of such a question would amount to usurping the jurisdiction of the domestic forum which the parties have chosen for adjudication of their disputes. Both on authority and principle it is proper to leave such question to be adjudicated and decided by the arbitrator. Russel on Arbitration (18th Edition) at page 69 observes as under :‑ "Phrases such as "disputes arising out of the contract" do not cover disputes as to whether the contract was entered into at all, or whether it was void ab initio, or whether it sets out the true intention of the parties. .nut it the parties are agreed that a binding contract was made, and it is necessary to have recourse to the contract to settle the dispute that has arisen then it is a "dispute arising out of the contract." (See also Keyman v. Darwins Limited (1942 A C 356).

9. There is no controversy that the parties entered into the contract which was reduced into writing in the agreement dated 2‑6‑1976. 1t is also not disputed that this agreement contained in term No. 5 an arbitration clause. This clause provides for reference to arbitration by adoption of words of such wide import as "in case of dispute touching upon this agreement." The questions raised under the two contentions are therefore, clearly within the ambit of the arbitration clause and it is for the arbitrators to decide whether the sellers committed breach of contract by their refusal to deliver the vessel "MARIE ANN" or whether the sellers declined to give their assent for the purchase of ship at higher rate and thereby committed breach of contract. In this view of the matter I find no force in the first two contentions advanced by the learned counsel for the sellers.

10. The next contention also comes within the purview of the principles discussed above. The submission in this behalf was that the terms of contract between the parties were ambiguous and incapable of rational meaning and therefore, the contract was void for vagueness and uncertainty as provided by section 29 of the Contract Act. In this connection, counsel referred to clause (1) of the agreement relating to rate and submitted that the rate stipulated in the agreement for the sale of scrap also included interest which was described only as "bank interest". He also referred to clause (2) of the agreement which relates to advance and provides that buyers will pay to the sellers an advance at the rate of Rs. 183.35 per L. D. T. out of which Rs. 4 lacs were payable soon after signing the contract but before opening L. C. and the "balance" within 15 days after beaching of the vessel. Counsel contended that the balance referred to in this clause is vague as its meaning is not clear as to balance of what. There is no substance in this contention. Firstly it is for the arbitrator to construe the meaning of these clauses and secondly these clauses are capable of being made certain. The bank interest obviously can be ascertained with reference to the relevant time and the balance relates to the advance calculated at the stipulated rate mentioned in Clause 3 of the agreement. Section 29 of the Contract Act is based upon the principle that the contracting parties must be shown to be at ad idem with reference to the essential terms of the contract and therefore, if there is any vagueness or uncertainty incapable o B being made certain, the contract fails for vagueness. For, in that case the parties cannot be said to agree to the same thing in the same sense. This, however, is not the position in this case. This ground of attack therefore fails.

11. The fourth contention of the learned counsel for the defendants was that the arbitration clause itself was void for ambiguity. In order to appreciate the argument of the counsel, it would be advantageous to re produce the arbitration clause in extenso which reads as follows :‑‑ "In case of dispute touching upon this Agreement, the same will be decided by two arbitrators appointed by each party in writing in accordance with Arbitration Act, and the award made by the arbitrators or umpire shall be final and binding on each party." Learned counsel for the sellers submitted that the .arbitration clause can be construed to have the following meanings (1) That there shall be two arbitrators one to be appointed by each party. (2) That there shall be in ail four arbitrators two to be appointed by each party. (3) Since the clause refers to appointment in accordance with the Arbitration Act, it would mean that sole arbitrator was to be appointed. Taking up the first construction, the learned counsel stated that since the opening part of the clause says the dispute "will be decided by two arbitrators", the intention could be that one was to be appointed by each party but this intention can only be attributed to the parties if the words "one to be" are added to the language of the clause ; otherwise with the present language, the clause does not expressly say so. Therefore, the counsel contended that it is not permissible to supply the missing words as it will amount to substituting as entirely new agreement for the one entered into by the parties. As regards the second construction, counsel submitted that it cannot be said clearly whether the parties intended to appoint four arbitrators, as the first part of the clause clearly says that the dispute shall be decided by two arbitrators. As regards the last construction counsel referred to the words "two arbitrators appointed by each party in writing in accordance with Arbitration Act" and submitted that this was an obvious reference to implied conditions of arbitration agreement in that 1st Schedule of the Arbitration Act, condition No. 1 of which says that unless otherwise expressly provided the reference shall be to a sole arbitrator. However, counsel pointed out the clause expressly provides for reference to two arbitrators and therefore, the different parts of the clause are contradictory. Learned counsel for the buyers on other hand urged that the arbitration clause does not suffer from inherent inconsistency and that its various parts can be reconciled. According to him the use of the words "decided by the two arbitrator" clearly means that the number of arbitrators was expressly agreed to be two only. The expression "appointed by each party", counsel submitted, can only mean that the two arbitrators will be appointed by both parties. He further submitted that the expression "in accordance with Arbitration Act" imports the provisions of section 9 of the Arbitration Act in which the clause contemplates two arbitrators one to be appointed by each party.

12. There is no doubt in my mind that merely because the terms of the arbitration agreement are capable of different and various interpretations, it cannot ipso facto be liable to be struck down as void. Like any other contract, an arbitration agreement can only be regarded as void for uncertainty if its meaning is not certain or capable of being made certain as provided by section 29 of the Contract Act. It is axiomatic in matters of interpretation of statutes or other documents that effort should be made to interpret the various provisions in a manner so as to give effect to all Of them and repugnancy cannot be readily inferred without attempting to reconcile the various clauses for a rational meaning. Now the only issue relevant. for these proceedings is whether there is a binding arbitration agreement between the parties and if so whether an order for reference be made. Section 2(a) of the Arbitration Act defines the arbitration agreement to mean a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. Strictly applying this definition and having regard to the fact that the agreement in which the arbitration clause is contained is not denied, it cannot be disputed that there was an arbitration agreement between the parties, The only remaining question to consider is whether the various clauses of this agreement are capable of yielding any rational meaning so far as the number of arbitrators is concerned. It is quite clear and there is no ambiguity that it was intended that only two arbitrators were to be appointed. The controversy has arisen as to the mode of appointment of these arbitrators. On the one hand it is contended that without supplying the missing words, it is not possible to interpret the agreement to mean that one arbitrator was to be appointed by each party. On the other it is urged that this omission is covered by a reference to the Arbitration Act which prescribes the mode of appointment in a case where two arbitrators are to decide the dispute. I am unable to agree with the learned counsel for the buyers that a reference to section 9 of the Arbitration Act can be implied in the language adopted. Section 9 in the very opening words provides that "where an arbitration agreement provides that a reference shall be made to two arbitrators, one to be appointed by each party" which plainly exclude the procedure provided in the section in a case where it was not agreed that one arbitrator was to be appointed by each party. In the present agreement these are the very missing words. However, I also do not agree with the learned counsel for the sellers that this clause means the appointment of a sole arbitrator as the provisions of condition I of the 1st Schedule of the Arbitration Act are subject to express provision to the contrary in the agreement. The present agreement‑ provides for the appointment of two arbitrators which excludes the reference to ‑the sole arbitrator. I also do not think that it is possible to interpret any clause ‑of the agreement to mean that four arbitrators, two by each party were to be appointed.

13. Now the plain meaning of the language adopted in the arbitration clause is that any dispute between the parties will be decided by two arbitrators appointed by each party in writing, which clearly means that both arbitrators are to be appointed by consent of parties and not that one arbitrator is to be appointed by each party. There is no provision in the Arbitration Act which in any way prohibits the appointment of more than one arbitrators by consent of parties. Section 10 of the Arbitration Act clearly contemplates this. Section 8(1)(a) of the Arbitration Act lays down that where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the p appointment or appointments, any party may serve the other parties with a written notice to concur in the appointment or appointments. If within 15 days after notice appointment is not made, the Court is empowered on the application by the party giving the notice to appoint an arbitrator or arbitrators. This, therefore, clearly means that an arbitration agreement may provide for appointment of two arbitrators by both parties. In I. H. Woks v. B. W. Mills Ltd. (A I R 1953 Cal. 488), the arbitration clause read as follows :‑‑ "All disputes whatsoever arising in or out of or in connection with the said contract or arising in any way whatsoever in connection with any other contract for the supply of goods by the company to the Buyers shall be referred to arbitration at Calcutta. The decision of its Tribunal of Arbitration shall be final and binding on both parties, either of whom may make the same a Rule of Court." It was contended upon the language of the above arbitration clause that the arbitration agreement was void for uncertainty. Repelling the contention, the learned Judges observed as follows :‑‑ "Where the agreement provides for mote than one arbitrator and they are not each to be appointed by all parties, it is necessary to provide expressly which of them will be appointed by whom, as in the case of the agreements contemplated by sections 9 and

10. But where different arbitrators are not to be appointed by different parties and the intention is that all of them must concur its the appointment of the sole arbitrator or each of the arbitrators where there are more than one, it is not necessary to make any express provision in the agreement that the appointment or appointments are to be made "by consent of the parties". Without such consent, no arbitrator can be appointed or can act in such a case. Where, therefore, the agreement does not assign the right of appointment distributive to different parties in respect of different arbitrators, it is inherent in the agreement that the appointment of the arbitrator or of each of the several arbitrators must be by the consent of all parties. There may be an express provision to such effect, but even in the absence of any express provision, such a provision must be taken to be necessarily implied. It is for that reason that where the agreement does not specify the number of arbitrators, nor specifies the mode of appointment, the Court first takes the agreement as providing for reference to a single arbitrator by reason of the provisions of rule 1 of Schedule I, then takes the mode of appoint ment intended necessarily to he appointed by consent of the parties and, next, if it finds that the parties cannot concur in the appointment of an arbitrator, it appoints one itself. It takes and can take the agreement to be an effective agreement, because the mode of appoint ment by consent of the parties is implied in it and it is not required to supply the mode of appointment and does not require any provision enabling it to do so"

14. For the aforesaid reasons, I have come to the conclusion that the arbitration clause is not void for ambiguity and that it means that the disputes between the parties are to be decided by two arbitrators to be appointed by consent of parties. Accordingly this contention is also without merit and fails.

15. The last contention relates to the authority of Muhammad Aslam one of the partners to bind the other partners of the firm by the arbitration agreement. Section 19 of the Partnership Act has been invoked to impeach the validity of the agreement. This section in clause (2) provides that in p absence of any usage or custom of trade to the contrary, the implied authority of the partner does not empower him to submit the dispute relating to the business of the firm to arbitration. The contention was that it was for the buyers to plead specifically that the executing partner had express authority from the other partners of the firm. As against this, the argument on the other side was that this plea was raised on second thought inconsis tently with the original pleadings, in the Rejoinder affidavit for the first time. which deprived the buyers from proving the authority the partner. Additionally it was submitted that the act of Muhammad Aslam was ratified by the other partners impliedly. Now section 196 of the Contract Act provides for ratification of acts done by one person on behalf of another without his knowledge or authority and section 197 provides that such ratification may be express or implied in the conduct of the person on whose behalf the acts are done. The provisions of section 19 are obviously intended to protect the interests of the partners on whose behalf, on the basis of implied authority another partner of the firm does certain acts in the course of partnership business. It would, therefore, ordinarily not lie in the mouth of a thud party to plead such absence of authority. However, in the events that have happened, it appears that the sellers accepted authority of Muhammad Aslam to enter into a binding contract containing the arbitration clause. The buyers in their application under section 20 have expressly pleaded that the agreement was entered into between the plaintiff firm (buyers) and the defendants (sellers). In the Counter Affidavit filed by the sellers this fact has not been denied nor absence of authority pleaded therein. On the contrary in para. 4 of their petition (J. M. No. 50 of 1976) they clearly averred that they accepted the offer of the firm of Messrs Muhammad Azam Muhammad Fazil 8t Company for the sale of the ship and reduced the terms and conditions of the contract between the parties to agreement dated 2‑6‑1976.

16. The principle that a submission to arbitration by one partner can be ratified by the co‑partners so as to be binding on the firm is well established. As early as 1878 in Thomas v. Atherton ((1878) 10 Ch. D 185 ), the Chancery Division laid down the rule that there may be such conduct on part of the other partners as would imply or supply the deficiency of any express authority. In Messrs Ahmad Bakhsh Abdul Rasheed v. Muhammad Aslam (P L D 1934 Lah. 620) it was held that the other partne.m can ratify the agreement to refer after which it would become binding. It was similarly held in Hanuman Chamber of Commerce v. Jassaram (A I R 1949 E Pb. 46), where the learned Judges further held that such ratification may be inferred from inaction or silence on the part of the co‑partners. This case was followed by Allahabad High Court in Messrs R. B. Thakur v. Messrs Thakur Das (A I R 1958 All. 522). where it was held : Partners of a firm will only be bound by a submission to arbitration upon proof that they have either expressly authorised it beforehand, or have subsequently adopted and ratified it. Such authorisation need not to be in writing, or otherwise formal, but it must be actual. When other partners do not come forward before the Court at any stage in order to repudiate the suggestion of reference to arbitration that is made by one of the partners, it will be construed that they by their act or conduct or at least by their acquiescence have ratified the act of the partner. Similar view was taken in Parmeshwar Lal & Co. v. Jay Narain (A I R 1952 Pb. 373). The weight of authority, therefore. supports the submission that the ratification of a submission clause can be proved by conduct. In this case the suit has been brought in the name of the firm and none of the other partners other than the submitting partner has appeared to object to his authority. Having regard, therefore, to these circumstances and the fact that this plea was not raised in original pleadings, I find no force in the last contention which stands rejected.

17. In the result. I hold that no sufficient cause has been shown against the application under section 20 of the Arbitration Act and in consequence the arbitration agreement is valid and binding upon the parties.

18. I will now consider the request for temporary injunction wherein the buyers seek an order to restrain the sellers from selling or transferring the motor vessel "MARIE ANN" and from grounding, scraping, or removing any articles from it. Various objections were raised by the learned counsel for the sellers against the prayer for injunction but to my mind, the important question for consideration in this regard is whether the interlocutory relief sought would be ancillary to the main relief eventually to be obtained by the award. Learned counsel for the buyers strenuously contended that the buyers are prima facie entitled, upon the documentary evidence to the delivery of "MARIE ANN". To this the submission on behalf of the sellers was that the contract between the parties as embodied in the agree ment was in substance for the sale of goods which cannot be specifically enforced. Additionally, he submitted that since the alleged breach of the contract in question can adequately be compensated in money, the specific performance of the contract is barred under section 21 (a) of the Specific Relief Act. I find great force in these submissions.

19. The agreement between the parties clearly specifies that the subject vessel was being purchased for scrap purposes and was to be acquired by the sellers at the "prevailing market rate". There is no doubt and in fact the contract expressly provides for delivery of the scrap material obtained upon breaking the ship. Indeed the payment of the price was directly related to the scrap material yielded by the ship. The contract also expressly provides the formula for the determination of the sale price. It is not the case of the buyers that the scrap secured from the ship is not available in the market or for that matter that ships for scraping are not available. Documents Annexures 'N', 'II', 'JJ', 'KK', and 'LL' which are market reports issued by Tramanship International Limited of Pakistan clearly establish that vessels for demolition purposes are available in the International Market at competitive prices. There is thus no doubt that the buyers' loss is ascertainable and capable of compensation in monetary terms. Indeed the buyers' own document Annexure 'E' which purports to be a notice served upon them in connection with an advance contract for the sale of scrap to a third party, quite clearly establishes that damages arising out of the contract were assessable in terms of money.

20. Additionally section 58 of the Sale of Goods Act which provides for specific performance of a contract to deliver specific or ascertained goods, in its opening clause makes the power of the Court to grant such relief subject to the provisions of Chapter II of the Specific Relief Act which contains section 21 referred above. I am, therefore, clearly of the opinion that if a suit had been brought by the buyers upon the same cause of action., in a Court of Law, it would not have been permissible in law to order specific performance of the contract in question. Confronted with this! position, learned counsel for the buyers contended that under section 41 read with the II Schedule to the Arbitration Act, the Court has nonetheless, the power to grant the relief sought in order to preserve the goods which are the subject‑matter of the reference. The perusal of the IInd Schedule, shows that while dealing with the powers of the Court separately it provides in Clause I for preservation, interim custody or sale of any goods which are the subject‑matter of the reference and in clause 4 with the power to grant interim injunction or the complainant of the receiver. The applications made for the interim relief have been expressly made for an injunction to restrain specified acts by the defendants. I do not think therefore, that the present is a case falling within the purview of clause (1) of the IInd Schedule. The case of the buyers is not that the goods are subject to decay or deterioration so as to require preservation. In any event as stated earlier. I have taken the view that the present contract is not capable of specific performance. Therefore, no useful purpose will be served by keeping the defendants from demolition of the ship or disposal of the materials obtained therefrom.

21. It is quite well laid down that an arbitrator cannot act against the law of the land and therefore, even in arbitration proceedings, the arbitrator is not competent to order specific performance against the prohibi tions contained in section 21 of the Arbitration Act. The buyers, if they succeed in establishing before the arbitrators, the breach of contract can well be granted damages in the award. For these reasons. I find no justification for grant of interlocutory relief claimed in the two applications.

22. In the result, while rejecting the application of the sellers under sections 31 and 33 of the Arbitration Act, I would order that the arbitration agreement be filed and a reference be made to the two arbitrators as agreed. The parties are allowed one month's time from today to submit the names of the two arbitrators by consent. In case the two arbitrators are so appointed they shall appoint an umpire in accordance with the provisions of Arbitration Act and proceed to hear the reference. In case the parties cannot consent to the appointment of the two arbitrators, the case will come up for further orders. In the circumstances of the case there will be no order as to costs. S. Q. order accordingly.