P L D 1956 Sind 4 (PLP)

VELLANI, J.‑

This application for stay of suit under section 34, Arbitration Act, is resisted on three grounds with which it is necessary to deal. They arise upon the respective affidavits of the parties and copies of letters exchanged which are annexed to them. It is clear from the partnership deed that the plaintiff obtained from the Government a contract for the supply of cotton waste hard, and entered into a partnership arrangement with the defendant under which the defendant undertook to finance and carry out the entire contract, agreeing to give to the plaintiff 25 percent of the profits. This deed in clause 12 (ii) contains an arbitration clause which begins :‑ That should there be any dispute at any time between the parties, the same shall be referred to arbitration of two persons, one to be nominated by each party . The plaintiff alleges that the defendant has not been willing to refer all disputes under this clause to arbitration, and argues that the defendant not having complied with the conditions mentioned in section 34, is not entitled to stay, and that, in any event, the discretion to stay the suit ought not to be exercised in his favour. It is the plaintiff's case that on the day following the Deed, the defendant advanced to plaintiff Rs. 10,000 by a cheque as security for due perfor mance of the contract which was to be appropriated and adjusted towards the plaintiff's share of profits; but the receipt for this sum, however, had been issued due to misapprehension, by Jaffar Brothers Ltd. (called by the plaintiff as a sister concern, presumably because there are some common share holders and directors being descendants of Sir E. Haroon Jaffar, of the two private companies), by the hand of Yusuf Jaffar, who appears to have been a director of that as well as the plaintiff company. Defendant filed a suit for recovery of the loan in this Court being suit No. 467 of 1950 on 25th August 1950 against Jaffar Brothers Ltd. and then by letter dated 5th October 1950 raised the question of dispute as to partnership affairs and accounts, appointed a close relation called Ghulam Hussain Ismail Dossa as his arbitrator, and called upon the plaintiff to appoint his arbitrator. In his reply dated 17th October 1950, the plaintiff set up the plea that the loan of Rs. 10,000 was of the nature above stated and formed a part of and was to be adjusted in the plaintiff's account, and that although this formed a subject of dispute under the arbitration clause, the defendant had filed a separate suit in respect of it which indicated that the defendant was not willing to refer all disputes. The plaintiff expressed his willingness in spite of the suit filed to go to arbitration, if all these matters were referred. The defendants' answer dated 13th November 1950 called all plaintiff's allega tions to the effect above stated false and untrue, and contained intimation that as plaintiff had not appointed his arbitrator within the time allowed by law, the defendant has constituted his arbitrator as sole arbitrator. This was a categorical refusal to have the plaintiffs contentions as to the loan of Rs. 10,000 considered at the arbitration under clause 12) (ii) the terms of which are very wide. Had the defendant agreed that these might be considered at the arbitra tion, the plaintiff's contentions relating to the loan, the tribunal would have decided whether it was to be adjusted or not towards the plaintiff's profits. It is not for me to go into the merits or demerits of the plaintiff's contentions or into the provisions of section 92 of the Evidence Act and the provisos thereto, but the unexplain ed proximity of the loan to the partnership deed and the fact that Yousuf Jaffer, who is also a director in the plaintiff Company, had executed the letter on which the defendant relies, lay some foundation for inquiry into the true nature and purpose of the loan and into the contentions of the res pective parties‑an inquiry which the defendant did not wish made in arbitration proceedings. The next ground on which stay is resisted by the plaintiff is that he has a prima facie case of fraud made out against the defendant. He has set that out in paras. 11, 12,13 and 14 of his counter affidavit. He says defendant himself purchased the goods at Bombay and has charged commission for his own services and resorted to fabricated accounts, all as expedients to lower the plaintiff's share of profits reserved to him only because he had obtained the contract from Government. At the hearing, plaintiff produced a letter from Amer India Limited of Bombay dated 11th July 1950 which shows that Mr. Haji E. Dossa was the sole proprietor of Amer India before it was converted into a Company. I think therefore that the plaintiff has made out a prima facie case of fraud against the defendant. And this letter makes the facts that the defendant first appointed his own close relation Ghulam Hussain E. Dossa as his arbitrator and constituted him sole arbitrator without due consideration of‑the plaintiff's contentions rather significant. It seems he did not want a just or independent inquiry into what he had done. At the hearing of the application Mr. Wahiddin could not say what the relationship between the arbitrator and Haji E. Dossa was, but it seems to me that they are brothers, being sons of Esmail Dossa. It is now settled law that a Court will generally not grant a stay of suit when the party resisting the stay charges the party wanting the stay with fraud, and that it will not stay the suit at the instance of the party charged with fraud, because he is entitled to be cleared of it in open Court. The authorities have long since recognized that submission clauses would easily be defeated if the party resisting the stay could make allegations of fraud against the party moving for stay. But here we have more than allegations; we have a prima facie case of fraud made out, and evidence that the party charged with it does not desire an independent or just inquiry into it. I will now refer to authorities for the principles which apply to applications for stay of suits. I designedly choose cases in which the submission clause refers disputes between a contractor and an owner, to the owner's named Engineer. In the case of Bristol Corporation. v. John Aird & Co., (L R (1913) A C 241) Lord Atkinson at pages 297/248 observed as follows :‑ My Lords, I do not think there is any dispute between the parties as to the law applicable to such a state of things. If a contractor chooses to enter into a contract binding him to submit the disputes which necessarily arise, to a great extent between him and the engineer of the persons with whom he contracts, to the arbitrament of that engineer, then he must be held to his contract. Whether it be wise or unwise, prudent or the contrary, ht bas stipulated that a person who is a servant of the person with whom he contracts shall be the judge to decide upon matters upon which necessarily that arbitrator has himself formed opinions. But though the contractor is bound by the contract still he has a right to demand that, notwithstanding those performed views of the engineer, that gentleman shall listen to argument and determine the tatter submitted to him as fairly as he can as an honest man, and if it be shown in fact that there is any reasonable prospect that he will be so biased as to be likely not to decide fairly upon those matters, then the contractor is allowed to escape from his bargain and to have the matters in dispute tried by one of the ordinary tribunals of the land. But I think he has more than that right. If, without any fault of his own, the engineer has put himself in such a position that it is not fitting or decorous or proper that ~e should act as arbitrator in any one or more of those disputes, the con tractor has the right to appeal to a Court of law and they are entitled to say, in answer to an application to the Court to exercise the discretion which the 4th section of the Arbitration Act vests in them, we ate not satisfied that there is not some reason for not submitting this question to the arbitrator . In the same case Lord Shaw of Dunfermline at pages 251‑2 observed :‑ Where parties have agreed that the undertakers' engineer, whose judgment do details, such as additions alterations, measurements, etc., may of course have to be indicated in course or at the conclusion of a contract is nevertheless, to be arbitrator, then by that contract the parties stand bound For the arbitrator is thus accepted by them as one who will be so guided by the dictates of justice and professional honour as to put aside the bias which is natural in favour of all his own preconceived opinions and to act judicially . . . . . . . . . . . Prima facie a judge ought to be entirely apart from the subject matter upon which he adjudicates; prima facie, in a contract of the kind I have sketched, he is the very opposite of what he ought to be. But, my Lord, the law is now settled in the sense I have mentioned, and I turn with satisfaction 2o the action of the Legislature which, I think, affords an opening for relief. By section 4 of the Arbitration Act, 1889, where proceedings on a contract containing an arbitration clause are taken, the Court, if satisfied that there is no sufficient reason why the matter should not be referred, may make an order staying the proceedings. Upon that it is open to the Court always to affirm that upon the whole there does appear to be sufficient reason why the matter should not be referred . In this case, the House of Lords held that discretion to refuse stay was correctly exercised, as there was a bona‑fide dispute of a substantial character between the contractor and the owner's named Engineer, involving a probable conflict of their evidence In another House of Lords' case, Hickmian & Co. v. Roberts and others ((1913) A C 229), Lord Atkinson at page 238 observed ;‑ I think it is clearly established upon the evidence that this arbitrator had ceased to be a free agent, that he had forfeited his independence as an arbitrator, and had allowed himself to be under the control or under the influence of the building owners. I think it is not satisfactorily found that he ever recovered his independence . . . . . . . . I think these cases are high authority for two principles. The arbitrator must be a person who will act fairly as an honest man, and if there is any reasonable prospect that he will be biased or be likely not to decide fairly, then the party resisting the stay is entitled to have the disputes tried by a Court of law. There exists a very important discretion in the Courts under section 34 of the Arbitration Act to decline a stay, to which Lord Shaw in (1913) A C 241 referred "with satisfaction" for the important relief it affords. These principles apply with greater force to cases where the submission clause is, as it is in this case, and I think in such a case, it is in the contemplation of the parties that the arbitrator to be nominated by each party shall be just and) independent. In Halsbury's Laws of England (Hailsham Edition) Volume I, page 641, there appears the following passage :‑ An order to stay will not be granted if it can be shown that there is a good ground for apprehending that the arbitrator will not act fairly in the matter, or that it is for some reason improper that he should arbitrate upon the dispute . In the case of F. O. Motharam Dowlatram v. F. O. Maya das Dowlatram (A I R (1925) Sind 150), Rupchand Bilaram A. J. C. set aside an award upon disputes referred to the arbitrator who, unknown to the opposite side, was a paternal cousin of one of the parties, because that relationship afforded a real likelihood of an operative prejudice in the mind of the arbitrator. He referred to the Canadian case of Turnbull and Pipestone ((1915) W W R 982) which is mentioned in the second volume of English and Empire Digest at page 549, where the arbitrator was a brother of one of the parties and the Court held that there was a real likelihood of an operative prejudice on the part of the arbitrator. In the case of Nihalchand and another v. Shanti Lai ((1935) Oudh 349) the arbitrator was related to one defendant, and had monetary dealings with another, both of which facts had been concealed from the plaintiff, who had agreed to his arbitration, and the Court set aside his award. Although in the present case, the reference is not as in the two cases cited to a named arbitrator, I think they sufficiently indicate that where the arbitrator is a close relation of one of the parties, there is good ground for apprehending "that the arbitrator will not act B fairly in the matter". I see no purpose in letting the, arbitra tor make an award, which I think, the Court would set aside by reason of the very great likelihood that prejudice has operated upon the mind of the arbitrator. Having regard to all these considerations, I have reached the conclusion that this is a case where the discretion of the Court to refuse a stay should be exercised. Application dismissed with costs. A. H. Application dismissed.