' The background of facts giving rise to this application under section 33 of the Arbitration Act is as under: ' The petitioner and the respondent No, 1 (hereinafter referred to as the contractor) entered into an agreement on 4-10-73 whereby the Contractor was entrusted with the work of carrying out construction at F-3, Hub Chowki Road, Karachi. The value of the contract was Rs, 11,08,882,50, on item rate basis. Clause 25(A) of the agreement, which is relevant for the consideration of the dispute between the parties, is reproduced hereunder :- "25(A). Fluctuations.- During the currency of the Contract any fluctuation in prices shall not alter the rates quoted by the Contractor."
' The Agreement also contained an Arbitration Clause, as per clause 26 thereof, according to which in case of any dispute or difference between the parties, 'as to the construction of the contract or as to any other matter ' arising thereunder, the same was to be referred for decision to an Arbitrator to be appointed on the request of either party by the President or Vice-President, for the time being, of the Institute of Architects of Pakistan and the award of such Arbitrator was to be final and binding on the parties.
2. The Contractor approached the petitioner on 1-2-1974 for increase of the rates on account of price like resulting from abnormal market conditions. The contractor pressed for the demand and threatened that the progress of the work would not be maintained unless the question was settled.
The matter was discussed by the parties in a meeting held on 29-10-74 and it was decided as under:-- "There has been some delay in the work because of late decision by N. M. L. The work was delayed beyond the stipulated scheduled time due to this account. It was agreed that N. M. L. Would consider price escalation for the percentage of work which was delayed on this beyond the stipulated period of completion and according to the programme of works given by the Contractor. This was further clarified that escalation would not be considered for any work delayed due to no fault of N. M. L. As there has also been considerable delay due to no fault of N. M. L. As well.
The escalation would take into account the percentage of work delayed due to the fault of N. M. L., period of delay and the price escalation in building material, labour cost, etc. From the original scheduled completion period to the time when this should have been completed. The Architect would be requested to work out the details."
' In terms of the above agreement the petitioners Architect recommended increase equal to 29% of the rates originally quoted. The contractor submitted his final bill on 11th January, 1975, which was scrutinized by the petitioners' Architect for payment. The amount of bill on the contracted rates was worked out at Rs, 9,77,809.51, to which an amount of Rs, 2,83,564.61, was added at the rate of 29 % in terms of the recommendation of the Architect. The Architect, however made certain deductions to the same. The amount on account of escalation was reduced to Rs, 2,77,829.46, and the balance due was shown at Rs, 3,27,065.52, inclusive of the added cost on account of escalation. The petitioners settled the aforesaid bill on 3rd November, 1975, and paid Rs, 1,51,982.56, only on account of escalation. Thus the original claim on account of escalation stood reduced by Rs, 1,25,847 and it was stated that such reduction was on the basis of percentage of work delayed because of late decision by the petitioners, in terms of the decision arrived at the meeting dated 29-10-75. The contractor served a notice dated 7-1-77 upon the petitioners invoking the arbitration clause No, 26 of the agreement alleging that a dispute had arises on account of non-payment of Rs, 2,42,705.21, by the petitioners. The petitioners in reply to the same contended that no dispute had arisen within the meaning of the contract agreement and the amount claimed by the contractor was on account of price escalation which matter was beyond the scope of the arbitration in view of clause 25(A) of the agreement. It was further stated that the escalation on the cost of the contracted items was allowed as a gesture of goodwill and since the contractor had failed to appreciate tie same, he should refund the amount already received by him on the said account. The contractor in the circumstances approached the President of the Institute of Architect, who nominated Mr. Minoo Mistry to act as an Arbitrator in the matter in terms of clause 26 of the agreement. The petitioners filed objections before the learned Arbitrator contending that there was no dispute between the parties within the meaning of clause 26 of the agreement. The statement of the Architect was recorded by the learned Arbitrator on 4-6-1978. The Architect, Mr. A. R. Kazi, clearly admitted in his statement that he had recommended 29% escalation on the basis of the Minutes of the Meeting dated 29-10-74.
3. In the background of the above facts, the petitioners have moved this Court for having the effect of the Arbitration Agreement determined. The case of the petitioners is that the reference to the Arbitrator was beyond the scope of clause 26 of the agreement as the claim of the contractor concerned escalation on the contracted costs, which was a matter that arose out of a separate and distinct agreement arrived at in a meeting held on 29-10-74 and which did not contain any Arbitration Clause.
4. The moot question in the matter entirely depends upon the interpretation of paragraph 25(A) of the agreement and the Minutes of the Meeting dated 29th October, 1974. There is no doubt that paragraph 25(A) of the agreement completely excluded consideration of any fluctuations in the market rates and the contractor was, therefore, hound to complete the contract on the rates quoted by it. The Minutes of the Meeting dated 29-10-1974 are couched in clear language, as reproduced hereinabove, according to which the Architect was to work out the details on account of escalation to be awarded to the contractor and it was upon his recommendation that the petitioners were to consider price escalation for the percentage of work which was delayed beyond the stipulated period due to certain inaction on the part of the petitioners. The fact that the petitioners had left the matter to be decided by themselves on the recommendation of the Architect rules out any reference to Arbitrator and it is undisputable that the agreement dated 29- 10-1974 fell outside the scope of the main agreement. In this behalf Mr. Iqbal Ahmad, learned Advocate for the petitioners, relied upon a Judgment reported in AIR 1956 All. 601 which supports his contentions.
5. As a result of the above discussion it is declared that the claim of the contractor on account of price escalation on the rates quoted in the agreement dated 4-10-73 does not fall within the scope of arbitration in terms of paragraph 26 of the agreement and the reference to the Arbitrator to that extent is incompetent and void. It is, however, clarified that claim of the contractor, if any, as to the rest, will be open for consideration by the learned Arbitrator who is already seized of the matter which can be looked into by him and decided on proper consideration of the facts. The application succeeds as above and the parties are left to bear their own costs.