By a reference dated the 19th December 1966 the plaintiff and the defendants had referred the disputes between them to the sole arbitration of Mr. mehdi All Siddiqui, a retired District and Sessions Judge, Karachi. As this reference did not specify the disputes that were referred to arbitration, in due course the plaintiff and the defendants filed their statements of claim before the arbitrator, who, after hearing the parties, gave his award on 28th December 1968. By this award he allowed most of the claims of the plaintiff, but he also allowed the claims of the defendants aggregating Rs, 76,000, therefore, after adjusting the accounts awarded, he directed the defendants to pay Rs, 1,51,116.88 in cash to the plaintiff. Further, as there was a dispute between the parties about a van, he directed the defendants either to deliver the van in working order to the plaintiff or in lieu thereof give a sum of Rs, 20,000 to the plaintiff. Finally he directed the defendants to pay Rs, 7,500 as costs to the plaintiff. This award was filed in due course in this Court, and the defendants have filed objections which have now come up for hearing before me.
2. Mr. Sange's first objection was that the arbitrator had committed misconduct by ordering the delivery of the van to the plaintiff. According to learned counsel, there was an agreement of arbitration between the parties dated the 11th February 1965 which did not contain any reference to a dispute about a van, therefore this part of the award, according to learned counsel, was beyond the reference to the arbitrator. However, learned counsel was not able to deny the execution of the reference of 19th December 1966 by the defendants, and the further fact that in pursuance of this reference both the parties had filed their claims before the arbitrator. In these circumstances, it is obvious that the agreement of 1965 had been superseded by the reference of 19th December 1966.
Further, not only did the plaintiff claim the van in its claim before the arbitrator, but I find that the defendants also advanced their claim for this van, therefore they are estopped from contending that the arbitrator's order about the van was beyond the reference. There is therefore no force in learned counsel's first argument.
3. Learned counsel then submitted that, although the defendants had claimed possession of the plot of land on which the plaintiff's factory was situated, the arbitrator had refused to decide this claim, therefore, according to learned counsel, he had committed misconduct. It is true that the arbitrator has declined to decide the defendants' claim for possession of the land in dispute. But he has observed in his award that he could not decide this claim because inter alia the second defendant had filed a suit in the Court of the Civil Judge, Lahore for this very property. Mr. Sange admitted that the defendants had filed a suit, as stated in the award, but he did not appear to know what had happened to the suit. As the suit was pending, the arbitrator acted very correctly in declining to consider a matter which was sub judice before a competent Court ; therefore learned counsel's submission that he has committed misconduct is without merit and further, as the present position of this suit is not known, the question of remitting the case to the arbitrator to decide this dispute does not arise.
4. Learned counsel's third submission was that, although the arbitrator had framed many issues, he had not given his findings on all the issues. He was not able to show how the arbitrator was required to give findings on every issue framed by him, and Mr. Ashfaque Hussain, learned counsel for the plaintiff, rightly pointed out that issues were framed by the arbitrator merely for his own convenience. As issues were framed by the arbitrator merely for his own convenience, he was not required to consider every issue, and Mr. Sange's argument is without merit.
5. Mr. Sange then submitted that the arbitrator had given his findings without any reasons, therefore he had committed misconduct, and in support of this argument he referred me to a judgment of the East Pakistan High Court in Tasiruddin Brothers v. Faizullah Gungjee & Co. Ltd. .
There a Division Bench of the East Pakistan High Court held that an arbitrator, who did not permit the parties to lead evidence as they desired, had committed misconduct. I respectfully agree with the view taken in this judgment. But, as it is not the case of the defendants that any evidence had been shut out by the arbitrator, the judgment cited is irrelevant. I therefore invited learned counsel to produce any judgment or authority in support of his submission that an arbitrator should give reasons for his award. But he was not able to do so. On the other hand, this very question has been considered by this Court in Pakistan Builders Co., Karachi v. Pakistan . Faruqui, J. has stated in para. 10 of his judgment in that case as follows : "Coming to the merits of the case, the first contention of the learned counsel for the defendant was that the award were bad, because the arbitrator had given no finding whether cancellation of the contract was justified or not. He further argued that the award did not contain enough material, from which it could be seen as to what were the grounds upon which the decision was reached by the arbitrator. But an arbitrator is not bound to give reasons for his decision, nor is he bound by any technical rule or procedure and he need not record separate findings on the point on which the parties are at issue. What has to be seen is whether he has given an intelligible decision which determines the rights of parties in relation to the subject-matter of the reference."
I am in respectful agreement with these observations which state the settled law, and as the award is clear, argument advanced!' is not correct.
6. Mr. Sange then submitted that the arbitrator had given excessive costs to the plaintiff. The question of costs was within the sole discretion of the arbitrator, and learned counsel's argument is utterly devoid of merit.
7. Finally, Mr. Sange contended that the award could not have been decreed against the second defendant. But Mr. Ashfaque Hussain sought to meet this argument by showing that the second1 2 defendant was a party to the reference and had taken part in the proceedings before the arbitrator. It is true that the second defendant had signed the reference both on behalf of himself and the first defendant. However, I fidnd the following statement at page 3 of the award which is contrary to the settled law: "I find that Messrs K. B. & Co., though in form of a private limited company, is a proprietary concern of Mr. K. B. Kathoria who has also floated fictitious private companies in the name of Kathoria Farm and Kathoria Corporation etc. So the decree which I pass will be against Mr. Yousuf Kathoria and Messrs K. B. Joseph & Co. Ltd., jointly and severally."
From the time of the decision of the House of Lords in Salomon v. Salomon & Company it has been settled law that, although a private limited company may be owned by a few persons it is something completely different in law from the persons who own it, therefore, even though the second defendant may have been the person running the first defendant, he could not automatically be made responsible for the debts of the first defendant as held by the arbitrator.
This very question was considered by the House of Lords in Rainham Chemical Works Ltd. v.
Belvedere Fish Guano Co. and I may quote here the observations of Lord Buckmaster at page 475 which are directly applicable to the present case : "It not infrequently happens in the course of legal proceedings that parties who find they have a limited company as debtor with all its paid-up capital issued in the form of fully-paid shares and no free capital for working suggest that the Company is nothing but an alter ego for the people by whose hand it had been incorporated, and by whose action it is controlled. But in truth the Companies Acts expressly contemplate that people may substitute the limited liability of a company for unlimited liability of the individual, with the object that by this means enterprise and adventure may be encouraged. A company, therefore, which is duly incorporated, cannot be disregarded on the ground that it is a sham, although it may be established by evidence that in its operations it does not act on its own behalf as an independent trading unit, but simply for and on behalf of the people by whom it has been called into existence."
I am in respectful agreement with these observations, therefore, it seems to me that the learned arbitrator has committed E an error of law within the meaning of section 30 of the Arbitration Act.
8. Mr. Ashfaque Hussain submitted that even if the arbitrator had committed an error of law his award could not be set aside because this error of law was with regard to a question which had been expressly referred to him for his decision. As learned counsel relied on the judgment of the Privy Council in Attorney-General for Manitoba v. Kelly and of the House of Lords in Absolom Ltd. v.
Great Western (London) Garden Village Society , I shall consider these judgments.
9. In the first case, in refusing to set aside an award, the Judicial Committee stated as follows at page 283 : "Where a question of law has not specifically been referred to an umpire, but is material in the decision of matters which have been referred to him, and he makes a mistake, apparent on the face of the award, an award can be set aside on the ground that it contains an error of law apparent on the face of the award."
Turning now to the decision of the House of Lords in Absolom Ltd. v. Great Western (London) Garden Village Society the dispute in that case arose out of a building contract which contained an arbitration clause. The arbitrator had awarded damages to the appellant in pursuance of a clause in the building contract and, as he had misconstrued that clause, the question was whether his finding amounted to an error of law apparent on the face of the award. According to the c oust of Appeal, as the clause in dispute had to be construed by the arbitrator, even if he misconstrued it, this did not amount to misconduct. This judgment was reversed by the House of Lords, and it will be sufficient to refer here to the judgment of Lord Wright. After referring to the settled rule of law that an award can be set aside only "there an error of law appears on the face of the award" Lord3 4 5 6 Wright observed with reference to this principle at page 615 as follows : "The rule was again restated with approval by Lord Dunedin giving the opinion of the Privy Council is Champsey Bhara & Co. v. Jivraj Balloo etc. Co. 1923 A C 480. I know of no authority that limits its application so as to exclude cases in which a question of law must necessarily arise ; indeed, if that were so, the rule would be in effect meaningless. The rule in truth applies to the ordinary case where, in the words of Lord Dunedin (1923 A C 488), the submission refers `to the arbitrator the whole question whether it depends on law or on fact.' To be contrasted with such cases there is the special type of case where a different rule is in force, so that the Court will not interfere even though it is manifest on the face of the award that the arbitrator has gone wrong in law. This is so when what is referred to the arbitrator is not the whole question, whether involving both fact or law, but only some specific question of law in express terms as the separate question submitted, that is to say, where a point of law is submitted as such, that is, as a point of law, which is all that the arbitrator is required to decide, no fact being, quoad that submission, in dispute."
The principle laid down in both the judgments cited is that an award will not be set aside on account of an apparent error of law only when that error is with regard to a question of law expressly referred to the arbitrator, and further in both the judgments it has been laid down that in order to determine whether a question of law was expressly referred to the arbitrator or not, the Court has to examine the submission to arbitration and the pleadings of the parties before the arbitrator.
10.Turning now to the instant case, as I have pointed out, the reference to arbitration did not specify the disputes that were to be determined by the arbitrator, therefore, in order to determine whether any question of law was expressly referred to the arbitrator or not. I have to go by the statements of claim filed by the parties before the arbitrator. Mr. Ashfaque Husain admitted that the question whether the second defendant would be liable for the first defendant's debts merely because he was substantially its proprietor had not even been raised by the parties in their pleadings. But he submitted that, as this question had been raised by the arbitrator in an issue framed by him, it must be deemed to have been expressly referred to the arbitrator for his decision.
It is true that an issue had been framed as submitted by Mr. Ashfaque Hussain. But merely because it was framed it did not mean that this was a question of law which had been expressly referred to arbitration, otherwise it would enable an arbitrator to exclude the scrutiny of the Courts by framing issues on legal questions. Accordingly I hold that the question of the second defendant's liability for the first defendant's debts merely because he managed the first defendant had not been expressly referred to arbitration, therefore the arbitrator has committed an error of law apparent on the face of the award in holding the second defendant liable for the reasons given in his observations which I have quoted.
11.In the result, the award is decreed against the first defendant, but it is set aside against the second defendant. In the circumstances of the case I leave the parties to bear their own costs in this Court. PLD 1966 Dacca 145 PLD 1961 Kar. 365 1897 A C 22 (1921) 2 A C 465 (1922) 1 A C 268 1933 A C 592 1 2 3 4 5 6