National Sports Council (Petitioner)
Vs.
A Latif and Company (Opposite Party)
Supreme Court
High Court Division
(Civil Revisional Jurisdiction)
JUSTICE
Md. Abdur Rashid J
Judgment dated : July 4, 2001.
Cases Referred To-
Novelty Cinema, Lyallpur Vs. Firdaus Films and another, PLD 1958 (WP) Lahore 208; British Airways PLC Vs. Bang Air Services Pvt 47 DLR 544; Union of India Vs. DP Singh, AIR 1961 Patna 228; State of Orissa and others Vs. BC Pasayat and another, AIR 1983 1 Orissa 29.
Lawyers Involved:
M Enayetur Rahim with Md Shahidul Islam, Advocates—For the Petitioner.
Faizul Kabir with ARM Shahidul Islam, Advocates— For the Opposite Party.
Civil Revision No. 785 of 1999.
JUDGEMENT
Md. Abdur Rashid J.- This Rule was obtained by the employer by making a revision application under section 115 of the Code of Civil Procedure against an order dated 19-11-1998 passed by Subordinate Judge 5th Court, Dhaka in Arbitration Miscellaneous Case No. 16 of 1998 by which an arbitrator was appointed by the Court for each of the parties.
2. Opposite party, the contractor, made an application under section 8(2) of the Arbitration Act, 1940, hereinafter referred to as the Act, for appointment of arbitrators for each of parties under clause 50 of the contract. His case, in short, is that the was awarded the contract for construction of office-hostel building of the Rajshahi Divisional Women’s Sports Complex and on 30-05-1996 the work order was issued to him pursuant to the contract dated 12-02-1996 as executed by both parties. The work was stipulated to be completed within 270 days. But the employer took 9 months to hand over the site to him. On 06-03-1997 physical layout of the work was fixed up. After construction of three foundation piles, those failed load test for faulty design as supplied by the employer. Then, the employer decided to go for mat foundation and changed the design but ultimately did not supply any revised design. No work under the contract then proceeded. As a result, the contractor suffered loss to the tune of more than one crore. He addressed several letters to the employer requesting for arbitration as per terms of Clause 50 of the contract. Getting no response, he then served a notice dated 08-02-1998 under section 8(1) of the Act upon the employer requesting them for appointment of an arbitrator for arbitration of a claim for Taka 1,01,41,242.00 on account of loss, etc. The employer did not give any reply to that and the contractor was constrained to make an application under section 8(2) of the Act before the above Court for appointment of arbitrators for the parties for arbitration of the dispute.
3. The employer opposed the application by filing a written objection. It was mainly contended therein that there was no cause of action for the contractor for making the application. The work under the contract having not commenced, there was no scope for invoking the arbitration clause 50 of the contract. Under the contract, there might be some change in the design and the contractor was obliged to do the work. He also informed his readiness by his letter dated 01-06-1997 to do the work as per changed design which was necessitated for unavoidable circumstances. The employer addressed various letters requesting the contractor for holding discussion, but he preferred to make the application. After the work order was issued, the contractor killed time on various pretexts. The contractor never made any demand of loss nor there was any scope given to the employer to deny such claim. Even in his statutory notice, he could not assert that he ever made the demand for payment of any money and the employer denied any such claim. He made the demand for payment of money for the first time in his application under section 8(2) of the Act. Such claim must be premature. Moreover, his notice was motivated and intended to bring upon the employer undue pressure, and also hamper the work itself which is a part of the national plan for development of the sports.
4. Hearing the application, the learned Subordinate Judge by the impugned order allowed the application and appointed Mr. Justice Abdul Wadud Chowdhury as the arbitrator of the contractor and Justice KM Sobhan as that of the employer however, without any consent of them.
5. Mr. Enayetur Rahim, learned Advocate for the petitioner, submits that the Court erred in law in appointing arbitrators in the absence of any dispute or difference either within the meaning of the contract or the Act which has resulted in occasioning failure of justice. He also submits that the Court also erred in law in appointing one arbitrator for each of the parties beyond the terms of the arbitration agreement. In support of his submissions, he cites the decision in the case of Novelty Cinema, Lyallpur Vs. Firdaus Films and another PLD 1958 (WP) Lahore 208 and that of British Airways PLC Vs. Bangladesh Air Services Pvt. 47 DLR 544.
6. Mr. Faizul Kabir, learned Advocate for the opposite party, on the other hand, submits that the opposite party suffered heavily for no fault of him but for the faulty design, making available the site after a delay of nine months and then, by abandoning the original design. Thereby, he had to incur loss more than one crore. Opposite party on several occasions requested the petitioner for arbitration as per clause 50 of the contract but the petitioner did not pay any heed to that. As there was difference with regard to the loss suffered by the opposite party and the petitioner was not willing for arbitration, the Court has rightly appointed the arbitrators and such order does not call for any interference. He also cites the decision in the case of the Union of India Vs. DP Singh, AIR 1961 Patna 228 and that of State of Orissa and others Vs. BC Pasayat and another, AIR 1983 Orissa 29. Referring to clause 50 of the contract, he also submits that the arbitration agreement having provided that after the difference arose, the parties are required to appoint arbitrators and the Court did not commit any error in appointing one arbitrator for each of the parties when the petitioner failed to appoint their arbitrator.
7. I have perused the revision application and also the affidavit-in-opposition and other papers annexed thereto. In order to evaluate the order on the basis of the rival submissions of the learned Advocates the provisions of section 8 of the Act demands close examination. The section reads,
“8 (1). In any of the following cases—
(a) 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 appointment or appointments; or
(b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or
(c) Where the parties or the arbitrators are required to appoint an umpire and do not appoint him; any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy.
(2). If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties.”
8. Under the above provisions, the Court is empowered to appoint arbitrator or umpire in any of the cases as enumerated in clauses (a), (b) or (c) of sub-section (1). Facts of the instant case nearly attract clause (a). In view of clause (a), the Court can appoint arbitrator only when the Court is satisfied that all the conditions under the clause are present.
Clause (a) lays down the conditions as hereunder,
i. there must be existence of an arbitration agreement;
ii. such agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties;
iii. the parties do not concur in the appointment, after the differences have arisen.
9. The key phrase ‘after the differences have arisen’ seems to me the prime mover to other conditions to invoke the provisions for appointment of arbitrators. No doubt, there must be the existence of an arbitration agreement providing the machinery for reference to the dispute or difference, and there must also arise some dispute or difference within the meaning of the contract. Not otherwise. Let it be stated more clearly that where there is no dispute or difference raised within the tenor of the contract, there cannot be any occasion for the Court to assume any jurisdiction under the section.
10. Relevant portion of the arbitration agreement as contained in clause 50 of the contract in the instant case is as hereunder:
50. “If at any time any question, dispute or difference shall arise during the progress or after the completion of the work as to any matter or thing arising under or out of the contract such difference shall not be ground for delay in the work but shall be immediately referred to arbitrators so appointed by the parties shall appoint an umpire before entering in reference of the arbitration. The arbitration shall be conducted as per the provisions of Arbitration Act, 1940. Performance of the contract shall continue during the arbitration proceeding unless the owner by order in writing orders the suspension of the work or any part thereof.”(Emphasis supplied)
Under the arbitration agreement, the parties intended that during the progress or after the completion of the work, if any question, dispute or difference arises as to any matter or thing under or out of the contract, such difference shall be immediately referred to arbitrators appointed by the parties. So, the dispute or difference will include all questions relating to the execution of the work and/or any terms of the contract. But no question outside the work or the terms of the contract can validly be raised. It is to be noted that what is a dispute or difference has not been defined in the Arbitration Act. May be, arbitral dispute or difference originates from the arbitral agreement as entered into the contract and all contracts could neither be uniform nor be for the same purpose, such dispute or difference cannot be precisely defined.
11. Under sub-section (2) of section 8 of the Act, the powers of the Court are no doubt a discretionary one. Exercise of such discretion will be protected only when it was exercised as per the tenor of the clauses of sub-section (1), in our case clause (a) as stated above. Upon the application, it was duty of the Court to be satisfied that there arose really an arbitral dispute or difference in between the parties as to any thing or matter under or out of the contract for reference to the arbitrators.
12. In the case before me, it is not disputed that the opposite party got the contract and the work order for execution of the work under the contract, that the three foundation pilings made by him failed the load test which necessitated change of the design. Thereafter, he did not work. It is also not disputed that opposite party never made any formal demand before the petitioner either by submitting any bill for any amount due to him or by otherwise. Opposite party avoided all the requests of the petitioner for discussion face to face about any problem. Opposite party though addressed several letters but all of them were for straight arbitration, and he raised the claim for money on account of loss, for the first time, in his statutory notice. Thereafter, he made the application before the Court. So, the petitioner had no opportunity to consider the claims of the opposite party.
13. In order to raise an arbitral dispute, there must be some sort of formal demand to be made by one side and denied by other side either explicitly or by silence. Purpose is very clear. What can be resolved by negotiation that cannot be allowed to be taken to the Court for the interest of the work itself.
14. In the above view of the legal position, when I consider the impugned order I find that the Court disposed of the application and the objection thereto in few lines. The Court appears to have passed the order as a matter of course and appointed the arbitrators on the assumption of existence of arbitral dispute, and agreement to arbitral reference. Had the order been passed on consensus, there could riot be any grievance from any party. But the matter was highly contentious. The Court did not take any pain to find whether there existed any arbitral dispute or difference for reference. Nor the order appears to have taken consent of the petitioner for appointment of one as their arbitrator. The order does neither reflect the facts or circumstances of the case nor is backed by any reason. The order was passed in slip-shod manner.
15. In such contested proceeding, the order passed under section 8(2) of the Act in the absence of any finding of existence of an arbitral dispute or difference within the tenor of the contract, and bereft of any reason whatsoever cannot be sustained in law. There is no difficulty to declare such order illegal and arbitrary being based on total non-application of mind and for want of any reason. Such order has no doubt resulted in serious miscarriage of justice.
16. In the Orissa case, a contractor issued a series of letters demanding payment of amount due to him for the work executed by him under the contract but the department took no action. The Court found existence of an arbitral dispute. It is stated,
‘the existence of a dispute is an essential condition. If there is no dispute, there can be no reference.”
17. When the dispute arises with an assertion of right by one party and that denied by the other may be expressed or implied. It is also stated,
“A failure to pay is not a difference, and the mere fact that a party could not or would not pay does not in itself amount to a dispute unless the party who chooses not to pay raises a point of controversy regarding, for instance, the basis of payment or the time or manner of payment.”
18. The Patna case is in respect of the discretion of the Court in the matter of appointment of arbitrators. So none of the decisions helps Mr. Faizul Kabir nor is applicable in the facts of the case at hand. Submissions of the learned Advocate for the opposite party fail.
19. In the result, the Rule is made absolute. No order as to costs. The impugned order is hereby set aside. The application of the opposite party made under section 8(2) of the Arbitration Act is rejected. Order of stay granted at the time of issue of the Rule is hereby re-called.
Ed.
Source : 53 DLR (2001) 386