1988 PLP 723 (SCMR)

ZAFFAR HUSSAIN MIRZA, J.‑‑This appeal by leave arises out of judgment, dated 18th March, 1981, by a Division Bench of the High Court of Sind, Karachi, whereby the appeal filed by the present appellant against the order of a learned Single Judge of that Court, rejecting the objections to the award and making the same the rule of the Court was dismissed.

2. The facts briefly are that the respondent Co puny, which does the business of building construction was awarded a building contract for construction of a school, the terms whereof were reduced into writing in an agreement executed by the parties on 15th May, 1971. As a dispute arose between the parties over the payments claimed by the respondent Company on the completion of the contract, in pursuance of the arbitration clause contained in the agreement, the respondent Company appointed one Mr. Zahid Hussain as its Arbitrator and called upon the appellant to appoint his Arbitrator as contemplated in the arbitration clause. However, as the appellant failed to appoint his Arbitrator, the respondent Company nominated their Arbitrator Mr. Zahid Hussain as the sole Arbitrator.

3. In virtue of his appointment as the sole Arbitrator Mr. Zahid Hussain entered upon the reference on 30th October, 1974, but the hearing was adjourned from time to time and ultimately on 18th January, 1975, the appellant took objection in writing to the jurisdiction of the Arbitrator, to adjudicate upon the matter in dispute, on the ground that the learned Arbitrator was not competent to act as such as he was not an incumbent Superintendent Engineer of the relevant building circle of the Government of Sind as required by the arbitration clause. This objection was overruled by the Arbitrator. However, in the meantime as the statutory period of four months for making the award had expired, the Arbitrator moved the Court under section 28 of the Arbitration Act, for extension of time, to which both the parties consented, with the result that the Court allowed extension of time upto 3rd June, 1975. The appellant participated in the proceedings and filed written statement to the claim of the respondent before the Arbitrator, but thereafter did not take part in the proceedings before the Arbitrator. On 2nd June, 1975, the learned Arbitrator passed his award for Rs.3,43,260.87. When the award was filed in the Court the appellant submitted his objections which were dismissed and the award was made the rule of the Court, by the learned Single Judge of the High Court on the original side by his order dated 1st December, 1976. The High Court appeal filed by the appellant challenging the order of the learned Single Judge was dismissed by the impugned judgment by a Division Bench of the High Court. It may be stated that the main objection raised by the appellant to the legality of the award was that the sole Arbitrator appointed by the respondent Company was not qualified as provided in the arbitration clause. The Division Bench of the High Court took the view that in the circumstances of this case, the appellant having participated in the proceedings after having initially objected to the jurisdiction of the Arbitrator without any further protest and subsequently having consented to extension of time to the said Arbitrator for the award, had thereby forfeited his right of objection, on the principles of acquiescence, waiver and estoppel.

4. Leave to appeal was granted to the appellant in view of the law to the effect that an aggrieved party after having raised objection to the jurisdiction of an Arbitrator is not bound to retire from the proceedings and by mere participation in the proceedings after such objection, such party does not lose the right to object to the award on the same ground.

5. In order to appreciate the nature of the objection raised by the appellant it will be profitable to reproduce the arbitration clause of the agreement between the parties, which reads as under:‑ "In case the amount of the referred claim referred is over Rs. one lac the dispute shall be referred to the award of two Arbitrators to be appointed from the Superintending Engineers of the department other than the Superintending Engineer, Incharge of the work, one to be nominated by the Chief Engineer, of the Region concerned and the other by the contractor. In the case of the said two Arbitrators not agreeing the case shall be referred to ‑the award of an Umpire who shall be officer of the Department not below the rank of the Chief Engineer, to be appointed by the Government in the Administrative Department."

6. Mr. A.R. Akhtar has raised the following contentions:‑ (i) That the appellant cannot be held to have submitted to the jurisdiction of the Arbitrator merely with reference to his conduct on which the Courts below have relied, because the arbitration proceedings were ab initio invalid in view of the arbitration clause, which required that each party would appoint their respective Arbitrator from among the Superintending Engineers of the department other than the one incharge of the work. (ii) That the conduct of the subordinate officers of the Government, even if amounting to waiver does not bind the Government if in violation of the legal duties enjoined upon such officers, and therefore, their conduct is not binding on the Government on the principle of waiver or estoppel. (iii) In any case the participation of the appellant in the proceedings after objecting to the jurisdiction of the Arbitrator, does not confer validity upon the award passed by the Arbitrator who was incompetent to act as such. (iv) The fact that a subordinate officer of the Government consented to extension of time to the Arbitrator is of no legal consequence as the said officer was not authorised to give such consent by the competent authority. In support of his contentions learned counsel relied upon M/s. Oil & Gas Development Corporation v. M/s. Karachi Builders 1978 S C M R 278; Munawar & Co. v. Messrs S. A. Rauf & Co. P L D 1959 Kar. 325 and Islamic Republic of Pakistan v Israrul Haq and others PLD 1981 S C 531.

7. Mr. Ali Ahmad Fazeel, learned counsel appearing on behalf of the respondent has supported the judgment of the High Court and has maintained that in the circumstances of this case the appellant had given up his objection to the jurisdiction of the Arbitrator and had indeed invited him to adjudicate the dispute between the parties, therefore, the High Court was right in repelling his objection on the principles of acquiescence, waiver and estoppel.

8. Now it is common ground that the respondent appointed Mr. Zahid Hussain as an Arbitrator on its behalf and notified the appoint ment to the appellant calling upon him to appoint his Arbitrator but the latter failed to do so, as a result of which the said Arbitrator was appointed as the sole Arbitrator to adjudicate upon the dispute between the parties. Keeping the question of competence of the said Arbitrator to be so appointed apart, tire procedure adopted by the respondent is perfectly in accordance with the requirements of section 9 of the Arbitration Act which deals with an arbitration agreement providing for a reference to two Arbitrators, one to be appointed by each party. But the mainstay of the objection of appellant is as regards the legal competence of the said Arbitrator to act as such in view of the stipulations contained in the arbitration agreement and there is no controversy before us that Mr. Zahid Hussain was not a serving Superintending Engineer of the Department. However, although this aspect of the matter has not been noticed by any of the Courts below, it appears to us, from the record placed before us, that the first objection raised before the Arbitrator questioning his jurisdiction on 18th January, 1975, was in the following terms:‑ "The Honourable Court is prayed that the powers for appointment of an Arbitrator as per terms and conditions of arbitrator clause attached with the agreement of the plaintiff (copy enclosed) rest with the Superintending Engineer, Provincial Building Circle, Karachi/Chief Engineer, Buildings Department Government of Sind, Hyderabad. In view of the above it is stated that this Hon'ble Court has no jurisdiction to take up this matter." The plain reading of the language employed in raising the objection as reproduced above, makes out that the objection was not with regard to the fact that the Arbitrator appointed by the respondent was not a serving officer in the capacity of a Superintending Engineer of the Department but that the power to appoint an Arbitrator rested with the Superintending Engineer, Provincial Building Circle, Karachi Chief Engineer Building Department, Government of Sind, Hyderabad. on the face of it and having regard to the clear terms of the Arbitration Agreement the objection was wholly misconceived, because the res pondent was competent to appoint its own Arbitrator and it was only the Arbitrator on behalf of the Department who had to be appointed by the Chief Engineer of the concerned region. But since the, Department had failed to appoint its own Arbitrator within the statutory period, the Arbitrator appointed by the respondent was nominated the sole Arbitrator. Therefore, the nature of the objection raised subsequently in the written statement filed before the Arbitrator was on different grounds, inasmuch as at that stage the appellant for the first time raised the question of incompetence of the sole Arbitrator on the ground that he was not an officer of the Department in the rank of Superintending Engineer.

9. Now as a general proposition of law it is correct that the appointment of Arbitrator or Arbitrators is normally governed by the provisions contained in the agreement of parties, subject only to certain provisions which are implied by the Act where the parties do not agree otherwise. However, the question of invalid appointment of Arbitrator as a ground for rendering the award invalid is subject to certain well‑settled principles. Two of these principles mentioned by Russell on Arbitration, 19th edition, are relevant and may be stated as under:‑ "(1) If the parties to the reference either agree beforehand to the method of appointment, or afterwards acquiesce in the appointment made, with full knowledge of all the circumstances, they will be precluded from objecting to such appointment as invalidating subsequent proceedings. Attending and taking part in the proceedings with full knowledge of the relevant fact will amount to such acquiescence. (2) And acquiescence by the solicitor or agent of a party who is conducting the reference on his behalf will bind that party as much as his own personal acquiescence would." In view of these well‑settled principles we find no substance in the argument that a defective appointment of an arbitrator can under no circumstances lead to a valid and binding award. The case of Oil and Gas Corporation does not support the proposition advanced on behalf of the appellant as the award in that case was set aside on the ground that the parties had consented to the appointment of Production Manager as the Arbitrator, whereas the award was made by another officer who was for the time being performing the duties of the Production Manager, which was contrary to the intention of the parties when they made the appointment of the Arbitrator. This was, therefore, a case of an unauthorised person not appointed Arbitrator giving the award. Thus, the case relied upon was a case of inherent lack of jurisdiction in the person who purported to act as the Arbitrator, with the result that such defect was not an irregularity curable by waiver through conduct in submitting to the jurisdiction of such Arbitrator.

10. The next case of Munawar and Co., on which reliance was placed by the learned counsel, is indeed a case in which identical ground of attack on the award was urged, namely, that the umpire nominated by the Arbitrators was not in accordance with the conditions stipulated in the agreement of the parties which confined such an appointment to be made by approaching the Board of Karachi Cotton Association Limited but in fact the two dissenting Arbitrators had made such a request to the Board of Pakistan Cotton Association, which is turn had appointed the umpire who gave the award. The fact that the aggrieved party had submitted to the jurisdiction of the umpire by participating in the proceedings without protest was not considered sufficient to preclude the party from subsequently challenging the award as invalid, on the ground that such participation by conduct did not constitute a proper agreement of arbitration, which is required by section 2 of the Arbitration Act to be in writing. On this reasoning the Court held that the matter thus went to the root of the jurisdiction of the umpire and in the absence of consent in writing of the parties deprived the umpire so appointed in violation of the original agreement of any jurisdiction to enter upon the reference. We are not inclined to agree with the proposition laid down by the learned Judges in that case, if it amounts to laying down that a deviation from the manner of appointment of an Arbitrator or an umpire, would ipso facto be a question of inherent lack of jurisdiction. It seems to us that the view taken by the learned Single Judge is more in consonance with reason and law. The learned Judge following an earlier decision of the same Court reported as Messrs Habib & Sons v . Messrs Virak & Co. P L D 195? Karachi 295, pointed out that there was a distinction between "want of jurisdiction and irregular exercise or assumption of jurisdiction." The importance of this distinction, according to the view taken by the learned Judge, lay in the legal consequences which flowed from such states in the domain of jurisdiction. An inherent want of jurisdiction results in vitiating the proceedings taken by the Tribunal and is incurable H notwithstanding waiver by conduct or otherwise, whereas an irregular assumption of jurisdiction is always subject to waiver. A defect in the nomination of the Arbitrator, according to the view taken, was curable by waiver by the party going before the Arbitrator and taking the chance of a favourable decision without raising protest. An instance of total lack of jurisdiction quoted from the judgment of the Karachi Bench was in case there was no agreement between the parties to refer their dispute to arbitration, in which case if one of the parties to the dispute appoints an Arbitrator and the other party submits to the jurisdiction of such Arbitrator, nevertheless, such proceedings would be void for inherent lack of jurisdiction which would be incapable of being waived. The learned Single Judge did not agree with the wide proposition laid down in Munawar & Co's. case on the ground that, the essential requirements for a valid arbitration agreement under section 2(,A) of the Arbitration Act are that an arbitration agreement must be in writing to submit present or future differences to arbitration, whether an Arbitrator is named therein or not. Therefore, if any provision is made in the arbitration agreement relating to the machinery for appointment of an Arbitrator or as regards the class of persons out of whom an Arbitrator is to be appointed, such parts of the agreement, although binding upon the parties, do not form the essential foundation to sustain an arbitration agreement in law. Such subsidiary or supplementary stipulations in the agreement accordingly stand on a different footing and can be waived by the parties by acquiescence without in any way affecting the jurisdictional basis of the Arbitrator giving the award. We think this is a well‑founded view of the law and we have no hesitation to subscribe to it. The conclusion reached in the Munawar and Company's case was sustainable on another basis, namely, that the Arbitrators had requested the Pakistan Cotton Association, in deviation from the agreement of the parties, without there being evidence that they were authorised to do so. In that event in accordance with the dictum laid down in Rachcassi Shipping Company S.A. v. Blue Star Line Ltd. (1969) 1 Q.B. 173, upon their disagreement to make a joint award the Arbitrators ceased to be the Arbitrators of their respective principals and were merely the agents of their respective principals to carry out the terms of the agreement of the parties, with the result that in approaching the Pakistan Cotton Association and not the Karachi Cotton Association, they had done an act without authority. An appointment made in such circumstances was not an appointment of an umpire on behalf of the parties upon valid authority, so that the umpire's competence to arbitrate suffered from want of jurisdiction which was not subject to waiver by submission to it. In the present case the defect in the appointment of the sole arbitrator, upon which the jurisdiction of the arbitrator is being challenged, is of the nature relating to the subsidiary clauses in the agreement of arbitration with regard to the class of persons from whom the arbitrator was to be appointed and, therefore, was clearly subject to estoppel by waiver and acquiescence. Thus, there is no substance in the first contention raised by the learned counsel.

11. As regards the second contention of the learned counsel for the appellant, it may be stated that the Courts below held that the appellant was precluded from raising the question of incompetence of the arbitrator on the basis of two facts, namely, that the appellant participated in the proceedings after having initially objected to the jurisdiction of the arbitrator without any protest and subsequently consented to the application for extension of time for giving the award made by the Arbitrator. As already held the nature of objection in this case was capable of waiver, but the position now taken by the appellant is that the bar of estoppel, on the basis of the acts of the subordinate functionary in the conduct of proceedings before the arbitrator, is not binding on the Government as the same were in violation of the legal duties enjoined upon such functionary. The plea thus, raised in this argument was not taken in the objections to the award before the learned Single Judge. On the contrary the appellant in clear terms made a concession in the Court that the appellant had acquiesced in the appointment of the arbitrator, which is clear from the following observations in the judgment of the learned Single Judge: ‑ "Mr. Suleman Memon, the learned Additional Advocate‑General did not seriously contest that the Department had acquiesced in the appointment of the arbitrator nominated by the contractor as the sole arbitrator and rightly so for though this objection was taken and overruled by the arbitrator, the department participated in the arbitration proceedings with a view to resist the plaintiff's claim and even consented to an application under section 28 of the Arbitration Act filed in this Court by the Arbitrator for extension of time following which the impugned award was given." On behalf of the appellant the only argument advanced was based on. the inherent lack of jurisdiction in the sole arbitrator for want of: qualification prescribed in the agreement. Nonetheless before the Division Bench the contention was raised with regard to the lack of authority on the part of the functionary concerned to bind the Government by his acts in the proceedings arising out of the reference, In this connection the learned Judges, besides pointing out that this question was not urged before the learned Single Judge, further found that no evidence was produced to show that the concerned official had no authority to act on behalf of the Government. On the other hand it was found that the particular official was incharge of the proceedings on behalf of the Government all along right from the F beginning when he appeared before the Arbitrator and participated in the proceedings before the extension of time for the award was granted by the Court and even later. He also signed the initial objection taken to the jurisdiction of the Arbitrator, he gave consent to ‑the extension of time to the Arbitrator and also signed the written statement on behalf of the Government. All these circumstances abundantly show that the conduct of the reference was entrusted to him by the competent authority in the Government and, therefore, ill accordance with the second principle quoted in para. 9 above, the acquiescence by conduct of such functionary would be binding on his' principal whom he represented in the proceedings.

12. In regard to the third contention suffice it to say that this is not a case of participation in the proceedings after objecting to the jurisdiction of the Arbitrator. As pointed out the objection initially taken was untenable but in any case the appellant in not raising the question of jurisdiction of the Arbitrator during the proceedings in the Court while considering the question of extension of time and on the contrary consenting to give further authority to the arbitrator to' proceed to make the award, clearly acquiesced in submitting to his jurisdiction with full knowledge of the defect if any in his appointment] It was not necessary for the appellant to be a party to the continuation of the proceedings before the arbitrator in order to raise objection to his jurisdiction. This conduct on the part of the appellant, on the contrary, attracted the rule of approbation and reprobation in the same proceedings, which had the effect of depriving him of the right) to object to the jurisdiction of the Arbitrator subsequently.

13. The last contention stands already disposed of by what has been said in connection with the previous contentions herein above and need not, therefore, be separately dealt with. For the same reasons the case of Ismail Brothers is not relevant in the facts of this case and in no way advanced the argument of the learned counsel for the appellant.

14. In the result this appeal fails and is accordingly dismissed with costs. M.B.A./C‑16/S Appeal dismissed.