P L D 1957 (W (PLP)

KAIKAUS, J.‑

This is an appeal against the order of Mr. A. U. Khan; Civil Judge 1st Class, Lahore, directing on a review of his previous order that reference be made to the arbitration of a Railway Engineer nominated by the Agent of the North Western Railway. Abdul Ghani Soofi, the appellant before me, entered into an agreement with the North Western Railway on the 19th of December 1952 for executing some earth work. This agreement was subject to the General Conditions of the Contract which were provided by the rules framed for the North Western Railway Administration and also to the special conditions of contract attached to the agreement. Para. 46 of the General Conditions of the contract pro vides that in case of any dispute the matter shall be referred to the arbitration of a Railway Engineer to be nominated by the Agent for the time being of the North Western Railway Administration. According to the definition of the " Agent " in the rules, it includes the General Manager of the Railway. The appellant had executed part of the work assigned to him under the contract when on the 18th of March 1953 he received a notice saying that due to lack of funds the work had been stopped. Such a notice the Railway Admi nistration was entitled to give by virtue of Para. 35 of the General Conditions of the Contract. The appellant thereupon stopped his work and made a claim for payment with respect to the materials which he had supplied and the cost which he had incurred in making arrangements for labour and in clearing jungle. The Railway Administration refused to accept the whole of the claim put forward by the appellant. The appellant called upon the Railway Admi nistration to have the matter referred to arbitration as there was a dispute between the parties. The Railway Adminis tration refused to appoint an arbitrator on the ground that there were no basis for that part of the claim which they had refused to accept and that there was, therefore, no dispute between the parties within the terms of the agree ment. Thereupon the appellant put in an application against the Federation of Pakistan under section 20 of the Arbit ration Act with a prayer that the arbitration agreement be filed and that the matter be referred to arbitration in accordance with para. 46 of the General Conditions of Contract. The application was contested on two grounds : (1) that there was no dispute between the parties, and (2) that the agreement relied upon was not an arbitration agreement at all. At the time of arguments it was also urged on behalf of the respondent that para. 23 of the Special Condi tions attached to the agreement barred an arbitration. The learned judge, who heard the application rejected the contention that para. 23 was a bar and that is no longer a matter of contest between the parties. The learned Civil judge found both the issues in favour of the applicant, i.e., the present appellant, and referred the matter to arbitration. In the operative part of the order, however, the learned judge instead of saying that the matter be referred to arbitration in accordance with para. 46, said, " As a conse quence of my findings the parties are hereby ordered to propose the names of two arbitrators one by each, according to Condition No. 14 of Exh. P. 4 ". Condition No. 14 referred to in this order is‑ also an arbitration clause, but it is admitted by both parties that condition No. 14 governs only contracts relating to bridge girders and its mention instead of para. 46 was due to a slip. The difference between para. 46 and para. 14 is that whereas according to para. 14 one arbitrator is to be named by each patty, according to para. 46 the arbitrator is to be, as stated above, a Railway Engineer appointed by the Agent. As the learned Civil judge had directed, relying upon para. 14, that each party should name an arbitrator, the respondent put in an application before .the Civil judge for a review of his order. The learned Civil Judge accepted the applica tion for review and, substituting para. 46 for para. 14, directed that the case be referred to the arbitration of a Railway Engineer to be nominated by the General Manager of the North Western Railway. This is an appeal by Abdul Ghani Soofi challenging this order and praying that the original order be restored. The first ground taken is that the learned judge had no power of review because he had already considered in his first order the question whether he should allow the Agent to nominate a Railway Engineer or should direct each party to name one arbitrator. This contention is not at all supported by a reference to the order of the Civil Judge. He has nowhere discussed the question whether the reference should be to, one or more arbitrators or to arbitrators named by the parties or appointed by the Court. According to learned counsel for the appellant, the mere fact that he has in the operative part of the order directed that there should be an arbitrator named by each party means that he had considered this question and came to the conclusion that it would not be fair to allow the Agent to nominate an arbitrator. I do not see how such an inference can be drawn from the mere fact that an order of this nature was passed. The learned judge has specifically referred to para. 14 and it should be obvious that it was on account of the wording of para. 14 that he was allowing each party to name an arbitrator. The reference to para. 14 being admittedly a slip there was good ground for review. I may l. point out here that in the application for review notice had been issued by the same Judge who had passed the order, though the application was decided by his successor. The second contention of the learned counsel is that in accordance with section 20 (4) of the Arbitration Act, in a case like the present, the Court can only appoint an arbitrator itself in spite of any provision in the agreement entitling one party to name the arbitrator. It will be con venient to quote here section 20 of the Arbitration Act. (1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject‑matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them. instead of proceeding under Chapter II may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agree ment be filed in Court. (2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or if otherwise, between the applicant as plaintiff and the other parties as defendants. (3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed. (4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. (5) Thereafter the arbitration shall proceed in accordance with, and shall be governed by, the other provisions of this Act so far as they can be made applicable. The order has to be passed under subsection (4) and it is urged by learned counsel that as it is not a case where an arbitrator has been appointed by the parties either in the agreement or otherwise, and the parties are also not agree ing upon an arbitrator, the arbitrator has to be appointed by the Court. There is no doubt that on a superficial reading this subsection gives one the impression that unless an arbitrator has already been named, he is to be appointed by the Court. However, this interpretation is not consistent with section 4 of the Act which runs :‑ (4) The parties to an arbitration agreement may agree that any reference there under shall be to an arbitrator or arbitrators to be appointed by a person designated in the agreement either by name or as the holder for the time being of any office or appointment. According to this section it is permissible to the parties to an agreement to agree that the arbitrator shall be appointed by a particular person designated in the agreement by office or otherwise. If I were to accept the interpretation put upon section 20 (4) of the Act by learned counsel for the appellant, such a clause in an agreement would become unenforceable. For instance, if in the present case the appellant did not agree to an arbitration and the North‑Western Railway applied that the agreement be filed, and the matter in dispute referred to arbitration, they would not be entitled to have an arbitra tion by the person named by the Agent, for an application for the filing of an agreement lies only under section

20. Section 4 would in this view be a dead letter and all agree ments which provide that an arbitrator has to be named by a particular person would practically be void and of no effect. I see no reason to accept that the Legislature was giving with one hand and taking away by another. I will assume that the Legislature had the intention of enforcing the agreements which it pronounced to be valid. I would hold that the intention in the enactment of section 20 is that the parties' should have arbitration in accordance with the valid agree ment into which they had entered. The ‑words used in section 20 are no doubt "the arbitrator appointed .by the parties", but taking into consideration section 4, these words are quite capable of an interpretation which includes "an arbitrator to be appointed by a person designated in the agreement". An arbitrator who is appointed by the person designated can also be said to be a person appointed by the parties. A half‑hearted argument was addressed that it was not proper that the arbitrator should be an employee of one of the parties. I asked learned counsel whether it was his contention that such an agreement would be void. Learned counsel does contend that it is, but the only authority to which he has referred in support of his contention is Hickman v. Roberts (1913 A C 229), That case instead of supporting his contention goes against him. It shows that there is nothing per se objectionable in such an appointment. In that case the architect of one of due parties had acted as an arbitrator. The House of Lords did not hold that the appointment of the employee of one of the parties was void; on the other hand, their Lordships assumed that the appointment was valid. It was only on account of the conduct of the person appointed as arbitrator that his acts were held to be invalid. It is not even clear whether that was a case of arbitration. It was a case of a certificate by an expert who was not to give a judicial finding. On the other hand, there is a good deal of authority saying that known interest of an arbitrator does not in any way invalidate the appointment and that it is only in a case where such an interest is concealed or comes into existence after the appointment that the appointment is rendered in valid or liable to be revoked. I may refer in this connection to Russel on Arbitration, 1949 Edition, page 33, Oberoi's Law of Arbitration in British India, paras 241 and 301, Jubilee Chamber of Commerce Ltd. v. Amrit Sha (A I R 1940 Lah.180), Me‑Kanzies Ltd. v. Sulleman & Co. (A I R 1933 Sind 75), Mulchand Sobhraj v. Radakishin Parumal (A I R 1926 Sind 27), Paryathamma v. Subbamma (A I R 1935 Mad. 349) and Eckersley v. Mersey Docks and Harbour‑ Board ((1894) 2 Q B 667). I must state that I do not agree that in all cases the fact that the interest of the arbitrator was known to the party that now impeaches his appointment would debar all objections being taken by that party. Even though a party has for some reason accepted such a person as an arbitrator, we may relieve him of the consequences of the act if not to do so would be opposed to public policy. It is essential that private tribunals like Courts should give the parties the essence of justice and it is not at all desirable that they should act as arbitrators in circumstances which may throw doubt on whether the matter has been decided justly and fairly. I am conscious of the argument that the fact that the person named as arbitrator had an interest cannot invalidate an agreement, there being no statutory bar to such an agreement. But I am of the opinion that the absence of a statutory bar does not exclude the application of a rule of public policy though it is not necessary to state the extent or the limitations of that rule. At the same time it may be possible to avoid a reference to an employee by finding in the words of section 20 (4) that "sufficient cause" exists for not making a reference. This would not, however, affect cases where an award has already been made. I think the proper course would be an amendment of the Arbitration Act so as to add a provision allowing the Court a discretion to revoke even a valid submission if the circumstances justify it, like the one that exists in the English Arbitration Act. In our Arbitration Act, as it stands at present, although there is provision for the revocation of the authority of an arbitrator in section 6 (2), there is no similar provision for revoking a submission altogether. Position in England was the same before the Arbitration Act (English) was amended in 1934. In the Act of 1934, however, they introduced section 14 (1), the effect of which is that the Court is able to grant relief even in a case where the interest of the arbitrator was known to the parties at the time they entered into an agreement and to allow the submission to be revoked altogether. However, in the present case even if I were to distinguish the authorities that have been cited and to hold that clauses like the present are not to be supported, I do not see of what assistance that would be to the appellant. The appellant before me had himself applied for arbitration ; not only that, he specifically mentioned para 46 in the application and prayed that reference to arbitration should be in accordance with that para. He never objected that any part of this paragraph was invalid. It is urged on behalf of the respondent that the appellant can either accept the whole agreement as good or reject it as a whole, and particularly in view of the fact that the applicant never took any plea with respect to any portion of it he cannot be allowed now to argue that it is in part unenforceable. I am of the opinion that not only because of his pleadings but because of another consideration it will not be proper to consider the contention of the appellant with respect to the unenforceability of this clause. It is open to a party to enter into an agreement that he will have only a particular arbitrator, and if that arbitrator is unable to decide that dispute, he will not have the matter decided by arbitra tion at all. That there can be such an agreement is apparent from section 8 (1) (b), which provides that it is only in a case where there was no intention of not supplying the vacancy that another arbitrator can be appointed in place of one who is incapable of acting. Now the Railway Administration can in this case say that they agreed only to an arbitration by a Railway Engineer to be appointed by the Agent, and that if the arbitrator is not to be appointed by the Agent, they are not prepared to have arbitration at all, Had they said so expressly in the agreement, I do not see how the appellant could ask the Court to have an arbitration by a person other than one appointed by the Agent. I attach no importance to the fact that this is not expressly stated in the agreement. I regard it as necessarily implied. Therefore, I do not think that the Railway Administration can be forced to have the matter decided by an arbitrator who is not appointed in accordance with para.

46. The difficulty of the appellant is that he is not prepared to give up the agreement for arbitration. Learned counsel for the respondent has given him the choice that he may not have the matter decided by the Railway Engineer at all and may file a suit in Court. Learned counsel for the appellant is not agreeable to this. He would have the matter decided by arbitration but he does not want the arbitrator to be appointed in accordance with the agreement. That however is a some thing to which I believe he is not entitled. As a result, this appeal is dismissed, but there is no order as to costs. A. H. Appeal dismissed