1983 PLP 2745 (CLC)

Liaquatabad, Karachi Dear Sir, Dealership‑Tahir Ali & Sons, Liaquatabad, Karachi. We are in receipt of your resignation dated 31st December, 1978 today arid hereby accept it with effect front today waiving 30 days notice under clause 11 (a) of our Dispensing Pump & Selling Licence. Please arrange to land over company's proper ty/equipments to our District representative Mr, Muhammad Ismail Yousuf today. Please note that you are liable to pay to us the amount of outstanding against you, if any in our books. ' Yours faithfully, ‑ for Pakistan Burmah Shell Limited (Sd.) Md. Azhar Khan." It appears that thereafter the respondent through his Advocate Mr. Abdul Hussain S. Motiwala, served a notice dated 11th January, 1979, infor ming the petitioner that he has appointed Mr. Ghazt Nasiruddrn, Vice‑Presi dent, Federation of Pakistan Chambers of' Commerce and Industry, Bellasis Street, Karachi to be the arbitrator on his behalf to settle by arbitration in pursuance of the proviso in that behalf contained in the Indenture dated 13th May, 1965, the following disputes "(i) due to your ex parte and arbitrary action resulting in grant of .the licence of Dispensing Pump and Selling, of your products in favour of Mr. Sabir Ali son of Babu and further (ii) on 7th January, 1979, you have taken forcible possession of our client's plot bearing City Survey Challan No. ST‑4; Opposite, Super Market, Karachi thereon he was running the same Petrol Pump till his dispossession." By the same letter the Advocate of the respondent requested the petitioner to appoint an arbitrator to decide the aforesaid disputes within a period of 7 days from the date of service of the notice failing which the Advocate of the respondent informed that his client would appoint another arbitrator to act on behalf of the petitioner. The petitioner by its letter dated 16th January, 1979, addressed to the Advocate for the respondent. informed him that the appointment of the arbitrator was not only uncalled for, unwarranted, but also illegal as the licence was already revoked and cancelled and the possession of the petrol pump was voluntarily and willingly handed over by the respondent to Sabir Alt against valuable consideration, also denying the allegation that the possession was forcibly taken and further denying that there was any dispute or disagreement between the parties. It appears that on failure of the petitioner to appoint its arbitrator the respondent appointed Mr. Zia G. Shaikh, Advocate as arbitrator en behalf of the petitioner. The case of the respondent in brief is that he has not written the letter dated 31st December, 1978 to the petitioner. According to the respondent this letter was undated and was handed over to Sabir Ali for its presentation to the petitioner after 3 months as . mentioned in clause (x) of the agreement between the respondent. and Sabir Ali. His further case is that he was in possession of the Petrol Pump site till he was dispossessed on or about 7th January, 1979. Having stated briefly the case of both the parties now I proceed to examine the contention of Mr. Noor Muhammad Advocate for the peti tioner. Mr. Noor Muhammad has raised three‑fold contentions. The first contention is that by the letter of respondent dated‑.31st December, 1978 and the letter of the petitioner dated 31st January, 1979 the agreement dated .13th May, 1965 stood terminated and cancelled by mutual consent. His second contention is that in view of the termination and cancellation of the agreement, the arbitration clause also stood terminated and cancel led, and therefore, no dispute whatever may be' its nature, could be referred to arbitration. The third contention is that the disputes raised by the respondent in his letter dated 11th January, 1979 are not covered by the arbitration clause and that the dispute with regard to the possession does not exist. On the other hand,. it is submitted by Mr. A. F. Motiwala that the respondent never cancelled or terminated the agreement dated 13th May, 1965 and, therefore, the question of cancellation of the arbitration clause does not arise. He otherwise contended that even if it is held that the arbitration agreement dated 31st May, 1965 stood cancelled, still the arbitration clause services and the disputes mentioned in the letter dated 31st December, 1978 and those mentioned in letter dated 11th January, 1979 could be referred to arbitration under the arbitration agreement and that the disputes are covered by the arbitration clause. With regard to the first submission Mr. Noor Muhammad relied on the letters of the respondent dated 31st December, 1978 and petitioner's reply dated 1st January, 1979. Those letters have already been quoted in extenso hereinbefore. It is submitted that by the letter dated 31st Decem ber, 1978 the respondent had resigned and the resignation was accepted by the letter of 1st January, 1979. No doubt the petitioner in its letter 'had stated that it, thereby accepted the resignation from the date thereof but the respondent. by this letter had not resigned but he had only expressed his wish o surrender his dealership in favour of Sabir Ali and requested the petitioner to accept his request. On the language of the letter of the respondent, it is not possible to say that he had resigned from dealership in clear terms. In my view the respondent had expressed only a wish to surrender the dealership in favour of Sabir Ali and requested the petitioner to accept Sabir Ali as its dealer. It was open to the peti tioner to accept the request or not to accept the same. If the petitioner was not .prepared to accept Sabir Ali as its dealer and licensee it could have said so and then if the respondent had stated that he did not wish to continue with the dealership then it could terminate the agreement in the manner provided in the licence. What the petitioner purported to accept was not offered to him. Manifestly, the parties do not appear to be ad idem as to the contents of the letter dated 31st December, 1978. Therefore, it cannot be said that Dispensing Pump and Selling Licence was terminated by mutual consent. In any event this dispute also could be referred to arbitration for the arbitration clause is couched in very wide terms. In support of his second contention that the arbitration ‑agreement also stood cancelled on termination of the agreement dated 13th May, 1965, Mr. Noor Muhammad has relied upon a Single Bench decision of the Calcutta High Court in Union of India v. Kishorilal Gupta & Bros. (A 1 R 1953 Cal. 642). In this case there were three contracts between the respondents and the appli cants and under each of the contracts the respondents supplied raw mate rial and the three contracts were later cancelled. However, much after the cancellation of the contracts the parties entered mo a separate fresh settlement contract whereby the respondents agreed to pay to the Govern ment of India certain amount. One of the terms of‑the settlement contract read that the original contract stood finally concluded in terms of settle ment and no party would have further or other claim against each other. Pursuant to the settlement contract the respondents paid certain amount and defaulted in payment of the balance amount. Thereafter, the Govern ment. referred their claim under all the three contracts to arbitration by appointing their arbitrator, and called upon the respondents to nominate their arbitrator and can respondents failure to do so, the Government appointed a sole arbitrator. Thereupon one of the partners of the respon dents applied to the Court for a declaration that the arbitration clause had ceased to exist. The application was dismissed on technical ground and on award being filed, the objection that there was no arbitration agreement was repeated. It was held that the original contract had ceased to exist in view of the subsequent settlement contract and, therefore, the award was set aside. Here I may reproduce some pertinent observations made in paragraph 32 of the report :‑ "

32. The arbitration clause is distinct from the other clauses in the contract. "It is collateral to the substantive stipulations of the contract. It is merely procedural and ancillary. It is a mole of settling disputes It........depends on there being a dispute or difference in respect of the substantive stipulation." Per Lord Wright in‑Heyman v. Darwins Ltd. 1942 A. C. 356 at p. 377 (k) Total breach of the substantive stipulations even when it is accepted by the other party does not abrogate the arbitration clause and even the party in default may invoke that clause:‑ 1942 A. C. 356 at p. 376‑79 and 400 (k)'. But the parties are not bound to have recourse to arbitration. They may settle the disputes directly and agree not to invoke the arbit ration clause for that purpose. The arbitration clause ceases to exist with reference to the disputes which are thus settled. They may also enter into a substituted agreement in complete super session of the original contract and thereby abrogate the contract and the arbitration clause contained in it." This case was taken to the Supreme Court of India by ‑way of Petition for Special Leave to Appeal and the judgment of the Calcutta High Court was upheld and the case is reported as Union of India v. Kishorilal Gupta& Brothers (A I R 199 S C 1362). Mr. Noor Muhammad particularly relied upon the following observations of the Supreme Court which appear in paragraphs 10 and 11, at pages 1370 and 1371 of the report :=‑ 10.‑The following principles relevant to the present case emerge from the aforesaid discussion : (1) an Arbitration clause is a col lateral term of a contract as distinguished from its substantive terms ; but nonetheless it is an integral part of it. (2) however comprehensive the terms of an arbitration clause may be, the existence of the‑ contract is a necessary condition for its opera tion, it perishes with the contract, (3) the contract may be non last in the sense that it never came legally into existence or it was void ab initio; (4) though the contract was validly exe cuted, the parties may put an end to it as if it had‑ never existed and substituted a new contract for it solely governing their rights and liabilities thereunder; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate for alongwith the original contract, it is also void; in the latter case, as the original contract is extinguished by the substi tute one, the arbitration clause of the original contract perishes with it ; and (6) between the two fall many categories of disputes in connection with a contract, such as the question, of repudia tion, frustration, breach etc. In those cases it is the performance of the contract that has come to an end but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain pur poses, the arbitration clause operates m respect of these purposes." I'll.‑We have held that the three contracts were settled and the third settlement contract was in substitution of the three con tracts; and after its execution, all the earlier contracts were extin guished and the arbitration clause contained therein also perished it alongwith them. We have also held that the new contract was not a conditional one and after its execution .the parties should work out their rights only under its terms. In this view, the Judgment of the High Court is correct. This appeal fails and is dismissed with costs." It will be seen from the facts of the case and the above‑quoted observations that in the settlement contract it was provided that the original contract stood finally determined and no party would have any further claim against the other. Therefore there was full accord and satisfaction of the original contracts. In view of this clause it was held that the arbitration clause contained in the original contract had ceased to exist for no dispute under the original contract had arisen which could be referred to arbitration. The principles laid down in two paragraphs relied upon by Mr. Noor Muhammad cannot be dis puted but in the present case there was no accord or satisfaction or mutual termination of the Dispensing Pump and Selling Licence. In fact the observations made by the Indian Supreme Court help the respondent in that even if the contract comes to an end, the contract still remains in existence for certain purposes in respect of disputes arising under it or in connection with it and since the contract sub sists for certain purposes the arbitration clause operated in respect of these purposes. It is by now well‑settled that, once it is found that there was a contract, then although the contract might have come to an end by reason of frustration or rescission of breach of condition or by being avoided for fraud or misrepresentation or coercion, the arbitration clause already survived. it any precedents are needed reference can be had to Radhakishan Chawla v. General Construction Co. (A 1 R 1947 Sind 57) and Par:‑Islamic Steamship Company Ltd. v. .'Messrs General Imports and Exports. Ltd. (P L D 1959 Kar. 750). In the last named case reliance is placed on an earlier decision of this Court in Hoosen Brothers Ltd. v. Pakistan Textile Mills Ltd. (P L D 1954 Sind 1). Reliance can also be placed upon the opinion of Viscount Simon L. C. in Ha vman v. Drawins Ltd. (1942 L C 356) which is a House of Lords case wherein intar alia. it was observed at page 367 of the report as follows:‑ "I do not agree that an arbitration clause expressed in such terms as" above ceases to have any possible application merely because the contract has "come to an end," as, for example, by frus tration. In such cases it is the performance of the contract that has come to an end. The doctrine of discharge from liability by frustration has often been explained as flowing from the inference of an implied term, and. in giving my opinion on the occasion of the recent decision of this House in Joseph Constantine S. S. Line Ltd. v. Imperial Emelting Corporation. Ltd. (1941) 2 All E. R. 165 at page 171 (C). I expressed the view that the most satisfactory basis upon which the doctrine can be put is `that it depends on an implied term in the contract of the parties.' If, therefore, when parties have entered into a contract, circum stances arise before the performance of the contract is completed which, in the view of one party, bring the contract to . an end by frustration, and, therefore discharge both parties from further performance, but the other party does not agree, this is a difference about the applicability of the implied term, and is just as much within the arbitration clause as if it were a‑ difference about an express term of the contract. There is a previous decision of this House which establishes this proposition. I refer to Scott and Sons v. Del Sel (1923) S C. (HL) 37) The House of Lords case "cited above has been followed by a Division Bench of Calcutta High Court in the case of Chandanmull Jhaleria and others v. Clive Mills Co. Ltd. and others (A I R 1948 Cal. 257) and by a Full Bench of Lahore High Court consisting of Harries, C. J., ‑Abdul Rashid, Ram Lal, Beckett and Mahajan, JJ in Firm Karam Narain Daulat Ram and another v. Messrs Volkart Bros. and another (A I R 1946 Lah: 116) I may here quote the relevant observations of Mahajan, J. which appear at page 133 of the report :‑ "Moreover, in its very nature an agreement made between the contracting parties to refer their disputes to arbitration arising out of ‑the contract cannot be said to be an integral part of the contract of sale as defined in the Sale of Goods Act. That Act is not concerned with the forum in which disputes arising out of a sale contract are to be settled. The essence of this agreement is that the parties agreed to nominate a Judge of their own choice to settle their differences if and when they arise. In substance, therefore, such an agreement is an independent agree ment and cannot be held to he an integral part of the contract of sale. The observations of their Lordships of the Privy Coun cil in 1926 A.C. 497 that the arbitration agreement could not survive if the contract of sale which was executory in its nature frustrated can have no application to the case of rescission which results from a contractual re‑sale brought about owing to the default of one of the contracting parties." In the present case it will be seen that arbitration clause is in a very wide term. It provides that any question, or difference or dispute of any nature arising between the parties, touching the terms of the licence of the contents thereof or rights, duties, obligations, outstanding of any nature under the said terms of licence could be referred to arbitration. Therefore, the question whether the licence was properly terminated or not and whether the possession _of the Petrol Pump site was always with the petitioner as contended by it or was with respon dent as contended by him and in support of which allegation the respondent has relied on paragraph 16 of the counter‑affidavit filed by the Law Officer of the petitioner in the civil Court in the proceedings initiated by Sabir Ali, could be referred to arbitration. Having dealt with the first two contentions, I now proceed to examine the third contention. In the present case the disputes referred to arbitration are the granting of licence in favour of Sabir Ali and forcibly taking possession of the petrol pump. So far as the first dispute is concerned the same is not in my opinion, covered by the arbitration clause. However, the second dispute namely, taking forcible possession of the plot is in my view, covered by the arbitration agreement but the question whether the petrol pump always remained in possession .of the petitioner or in possession of the respondent has to be gone into by the arbitrator if referred to him, and it is not for this Court to give a finding in these proceedings, on such a question. However, I have noticed that the respondent by the letter dated 11th January, 1979 required the petitioner to nominate its arbitrator within 7 days from the service of the notice. This notice is neither in record within the provisions of the arbitration clause 16 which requires a notice of 15 days nor is it in accord with the pro visions of section 9 (b) of the Arbitration Act, 1940. Therefore, the appointment of second arbitrator is illegal. For the reasons given above I hold that the arbitration clause exists and the dispute covered by that clause could be referred to arbitration in the manner provided therein. Accordingly, the application is allowed to this extent only that the appointment of the second arbitrator namely, Mr. Zia G. Shaikh is declared to be not according to law. In the circumstances of the case the parties are left to bear their own costs. M.Y.M. Application allowed.