1. ' This award for Rs,4,86,128 in favour of the plaintiff is given by M/s. (Retd.) Major Rifatullah Khawaja and Mr. Hassan Siddiqui who were appointed as arbitrators by the plaintiff and defendant respectively in terms of arbitration agreement read with order passed in J.M. No, 19/81 by the High Court of Sindh. The said sum of Rs,4,86,128 is arrived at after adjustment of Rs,53,662.50 awarded to the defendant towards their counter-claim against the plaintiff.
2. ' Briefly the facts of the case are that the plaintiff being lowest tenderer were awarded work of construction of Federal Government Hostel at the campus of the University of Karachi through written agreement dated 30-5-1979 at a cost of Rs,27,60,342. The said construction work was to be completed within 12 months. This work, however, could not be completed within time but was completed within the next five months being the agreed extended period.
3. ' Before the Arbitratiors, the plaintiffs had lodged a claim for Rs,28,43,592 and the defendants filed a counter claim for Rs,19,62,355.50 the details whereof are as follows:-{{TABLE}} "PLAINTIFF'S CLAIM:
(1) Balance of cost of work doneRs.9,87,918
(2) Escalation in prices Rs.8,86,976
(3) Interest at 14% . Rs.9,18,698
(4) Costs of proceedings Rs. 50,000 Total. Rs.28,43,592 DEFENDANT'S COUNTER-CLAIM:
(1) Defects in work got removedRs. 53,802.50
(2) Liquidated damages. Rs.18,08,553.00
(3) Costs of proceedings Rs.1,00,000.00 Total Rs.19,62,355.50 ' The plaintiff lodged their claim on 19-11-1983 and the defendant filed their counter claim/written statement on 5-12-1983 and the proceedings continued till 7-10-1984 for about 10-1/2 months. The plaintiffs have not filed any objection to the award but the defendant in their application under sections 30 and 33 of the Arbitration Act while praying for setting aside/modification of the award have raised the following objections:--
(1) That the proceedings before the arbitrators continued for 10-1/2 months. In the said proceedings the arbitrators were requested vide application filed on 7-1-1984 to frame issues arising from the assertions and denials of the parties and to record evidence but no evidence of the parties was recorded, no witness was produced, no document was produced, exhibited or proved.
(2) That the arbitrators had adopted a procedure not warranted by the record and facts of the case, is opposed to natural justice and breach of duty and have as such committed misconduct.
4. The arbitrators cannot be absolved of the duty of recording evidence.
(3) That the award is based on no evidence and departs from the basic principles of Evidence Act.
(4) That the Award is liable to be set aside as the arbitrators based their deductions as to escalation in price on material outside the ambit of the agreement and have relied upon the decisions of Government of Sindh and guidelines of the Government of Pakistan although they were not parties to the proceedings.
(5) That there is an error on the face of the record inasmuch as in terms of Agreement no claim on account of escalation or raise or fluctuation in prices of relevant material can be entertained but the arbitrators while overlooking the said agreed term proceeded to examine the said claim and thus have acted beyond the terms of reference.
(6) That the work was found defective, incomplete and contrary to specification in terms of the joint inspection report.
(7) That the arbitrators did not apply their mind honestly and completely ignored the provisions as contained in Section 26A of Arbitration Act.
5. ' The plaintiff opposing the defendant's said application have stated that the defendants are not entitled to any compensation from them as the contract was completed within time and their responsibility to the defect of the building in question is confined to the maintenance period.
6. According to them both oral and documentary evidence was duly considered by the learned arbitrators. Reference was made to the examination of Mirza Ayub Baig on behalf of the plaintiff and for Azeem and Akhtar defendants' witnesses have signed as token of their examination in the proceedings. Mr. Kamil Gulzar Tharani, consultant was also examined during course of inspection of site and further documentary evidence as at Serial No, 15 to page 272 was filed. It is contended by them that although no issues were framed, the plaintiff and defendant had agreed to follow the procedure indicated by the arbitrators at page 5, para 2 of the award. With regard to compensation on account of escalation, it is stated that the same was approved by the Government of Pakistan for their project in execution under the contract as per reference quoted in the award. Other allegations made by the defendant were also denied by them as contrary to the factual position. "
7. ' Before I proceed further it will be fruitful to refer to the arbitration clause which is as follows:-- "7.64 ARBITRATION;
(i) Subject to Clause 7.64 (iv) all disputes, claims, questions arising out of or under or in connection with the Contract or in connection with the interpretation or application thereof between the parties thereto shall be referred to Arbitration in pursuance of and under the provisions of the Pakistan Arbitration Act, 1940, any modification, amendment and rules made thereto or thereunder in force. Both the parties shall be entitled to appoint an Umpire before entering upon the Reference.
8. Only if the Arbitrators are unable to agree the Reference be made to the Umpire for his decision.
9. The Arbitrators' Award or upon failure of the Arbitrators to agree on Award, the decision of the Umpire shall be final and binding upon the parties.
(ii) The Contract and the arbitration proceedings under it shall be governed by Pakistan Law and the Arbitration language shall be English.
(iii) The venue of any Arbitration shall be in Karachi, Pakistan.
(iv) Provided, however, that the following matters shall not be liable to be referred to Arbitration as contemplated under Clause 7.64 (i) hereof:-
(a) Any decision of Owner Architect/Engineer or its authorised representative as contemplated in the Contract.
(b) Owner's right to permit or refuse any assignment or sub-contracting by the Contractor.
(c) Any decision by owner/Architect/Engineer or its authorised representative regarding variation or modification of the scope of work and/or any decision as to the meaning and implementation of the specifications.
(d) Owner's right to delegate any powers and rights in respect thereto.
(v) In the event of any valid reference to. Arbitration prior to the completion of the work, the Contractor shall not stop the progress of the work during the pendency of the arbitration proceedings, but he shall continue to execute the work with due diligence. However, the Engineer shall have the power to ask the Contractor in writing to stop the work in full or in part, if he considers this necessary."
10. Objections 1, 2 & 3: ' At the outset the award refers to consensus reached between the parties with regard to the manner in which proceedings before the arbitrators were to be conducted. Relevant portion is reproduced as under:-- "However, after submission of statement of claim, counter claim, documentary evidence, the parties agreed that instead of the whole evidence of each party, being recorded on all questions, each item of Memo of Claim and counter-claim may be taken up and inquiry recorded on it for separate consideration as these will ultimately help in resolving the general issue. We have followed the above agreement,"
11. ' The case of the plaintiff is that despite request made by them in their application dated 7-1-1984 to frame issues and record evidence, no issues were framed by the arbitrators, no evidence was recorded nor any document was produced or proved. Further the arbitrators had adopted a procedure not warranted by the record and facts of the case. As such it is contended by Mr. Rehanul Hassan Farooqui learned counsel for the defendant that the arbitrators have misconduct themselves and the proceeding. In support he first placed reliance on Brooke Bond (Pakistan)
12. Limited v. Conciliator and 6 others, PLD 1977 SC 237 where it was held:-- ' "The term 'misconduct' used in connection with arbitration does not necessarily imply anything in the nature of fraud or moral turpitude. In the judicial sense the misconduct of an Arbitrator means his failure to perform his essential duty, resulting in substantial miscarriage of justice between the parties. According to Atkin, J. The words "misconducted the proceedings" means such a mishandling of arbitration as is likely to cause some substantial miscarriage of justice. In the American Jurisprudence it is observed that awards which are valid on their faces may be set aside in equity for misconduct on the part of the arbitrators, and the extrinsic evidence is admissible to prove such misconduct. Conduct inconsistent with the duties imposed upon those selected as the arbitrators, either at the hearing or in reaching their conclusions will frequently constitute misconduct as will impeach an award."
13. ' In M/s. Qamar Din Ahmed & Co. v. Pakistan and another reported in PLD 1971 Lahore 38 it was held:-- "It is the duty of the arbitrator to act fairly to both the parties, and in the proceedings throughout the reference, he must not favour one party more than another, or do anything for one party which he does not do or offer to do for the other and he must observe in this the ordinary well understood rules for the administration of justice. In order to render the award bad, evidence whether material or not must have been improperly taken or admitted.
14. ' Naturally, if the decision of the dispute is dependent on a particular question or issue raised before the arbitrator, it is the duty of the arbitrator to adjudicate upon that particular issue and then to give a decision in the case but that does not mean that the arbitrators are bound to give a reasoned judgment on each and every issue and point raised in the controversy before them."
15. ' To further substantiate his contention learned counsel referred to Haji Tayab and 2 others v.
16. Eastern Textile Mills Ltd., Chittagong and 12 others PLD 1970 Karachi 357 in which it was held as follows:-- "Although the arbitrator is allowed considerable latitude in the procedure to be followed by him at the hearing, it is his paramount duty to afford the parties a reasonable opportunity to know the case against them. He cannot condemn a party without letting him know the case. If he makes an award without complying with this elementary principle of natural justice, he does so at the risk and peril of award being set aside on grounds of misconduct. It has been repeatedly held that unless the terms of reference dispense with holding an enquiry, the right of hearing is to be presumed. In any case, the arbitrator cannot hold secret enquiries behind the back of the parties and if he does so the award will be vitiated."
17. ' In reply learned counsel for the plaintiff Mr. Mohammad Sharif has urged before me that although the learned arbitrators did not frame issues they took up each item of claim and counter-claim made by the parties and gave their findings thereon as is evident from the award itself. It is contended by him that failure on the part of the arbitrators to frame issues and give finding thereon will not amount to misconduct. In Ibad & Co. v. Government of Sindh and others PLD 1981 Karachi 236, Nasir Aslam Zahid, J. Had held as follows:- "I am of the view that it is not necessary for an arbitrator to frame issues and even if issues are framed by the arbitrator it is not necessary for him to give separate findings on each issue but the law permits him to give one but same award without separate findings on each issue."
18. ' In Gul Hasan Shah v. Sardarali Shah and others PLD 1960 (W.P.) Peshawar 14 it was held that: "there is nothing in the Arbitration Act which compels an arbitrator to record oral evidence or the statements of the witnesses or admissions of the parties. There is no bar in the Act against relying on oral evidence. The failure of the arbitrator to reduce the evidence into writing is not an omission fatal to the award and does not constitute misconduct on the arbitrator's part." Similar view was taken in Province of Balochistan and another v. Malik Haji Gul Hassan PLD 1982 Quetta 52.
19. ' In Mst. Ameer Begum v. Syed Badarul Hussain and others reported in AIR 1914 P.C. 105 it was held as follows:-- "If irregularities in proceeding can be proved which would amount to no proper hearing of the matters in dispute, there would be misconduct sufficient to vitiate the award without any imputation on the honesty or partiality of the arbitrator, but the onus of proving the irregularities in procedure is on the person alleging the same."
20. ' In Suleman Haji Muhammad & Co. v. State Bank of Pakistan, PLD 1960 Karachi 78 following the decision of the Privy Council in the case of Champsey & Co. v. Jirsay Baloo, AIR 1923 P.C. 66 the late Wahiduddin J, observed as follows:-- "I have already cited the view of their Lordships of the Privy Council that arbitrators are both judges of law and facts and in my view once the matter is found to be within the jurisdiction of the arbitrators, it is not permissible for Courts of law and find out whether their decision is right or wrong on the facts urged before them by travelling outside the award for finding out what evidence was led before them and whether their conclusions are based on sufficient evidence."
21. The overall legal position emerging from the case-law cited above leaves no doubt that the arbitrator is not bound by any set rules of evidence nor he is required to frame issues and give his findings separately on each one of them. In the present case, the arbitrators with the consent of the parties have taken up each item of the claim and counter-claim and have given their findings thereon. According to the defendants as early as 7-1-84, an application for framing issues was moved by them before the arbitrators and since this application was not taken up and disposed of by the arbitrators, it was again a clear case of their misconduct. I do not agree. The award spells out the tacit consensus between the parties as to the manner in which the proceedings were to be conducted by the arbitrators which it is pertinent to note, has not been specifically denied by the defendants. The award refers to evidence, inquiry and inspection which forms the basis of the award. The award was given on 7-10-1984 after more than nine months of the date of the said application during which period the defendants admittedly had given their assent before the Court to extension of time for giving the award and throughout the defendants never raised any objection to the alleged illegal manner in which arbitration proceedings were being conducted by the arbitrators. It appears that the defendants rather elected to wait and see if the award was favourable to them and upon coming to know that it was not, as an afterthought, took up a plea not consistent with their conduct. Hence I find no substance in these objections which are hereby rejected.
22. Objections 4 & 5: ' Next it is contended by the learned counsel for the defendants that the learned arbitrators while awarding escalation claim of the plaintiff have acted outside the ambit of the arbitration agreement, as no claim on account of escalation of rise or fluctuation in prices can be made by the plaintiff in terms of para 7.56 of Tender Documents which is as follows: "The contract price as determined on the basis of quantities is fixed and firm and so also all the rates and prices in the bill of quantities and no claim on account of fluctuations in the prices of materials, labour rates, equipment or on account of increases in certain Sale Tax, Toll Tax, or other taxes levied by contract or provincial Government or Corporate bodies or on account of any fresh taxes, levies or charges will be entertained."
23. ' However, the reasons given by the arbitrator for award escalation claim are as under-- "(i) In fact the major reason for the increase in prices is due to the high cost of oil and imposition of taxes/duty by the Government of Pakistan.
24. This increase in the cost of oil has been effected by the Government at various occasions resulting thereby; there have been constant rise in the cost of material as well as wages of labour. This position has been testified by the monthly statistical bulletin issued by the Statistical Division, Government of Pakistan and Energy Year Book 1983 issued by the Ministry of Petroleum and Natural Resources, Government of Pakistan. The plaintiff/Claimant also placed before us the Memorandum issued by the Government of Pakistan Finance Division regulation wing for grant of compensation on account of escalation, similar decisions have also been taken by Government of Sindh.
(iii) Such claims on account of rise in market prices of material as well as wages had not been denied by the Defendant/Opponent in the past".
25. ' According to the plaintiff this objection is misconceived as their claim is not based upon fluctuations but on account of escalation of market prices of material and cost of wages and the difference between the two is poles apart. Learned counsel, however, has failed to point out if there was any clause in the agreement or Tender documents with regard to "escalation" in prices as opposed to "fluctuation in prices". As to how a claim which is barred on the basis of fluctuations can be justified on account of "escalation" has not been explained by the learned arbitrators. In Sindh Construction Co. v. Karachi Port Trust 1981 CLC 1282 Karachi which has been relied upon by the learned arbitrators, clause 80 of the General Conditions of the contract relating to arbitration covers "any dispute of whatsoever nature (including interpretation of this or any other relevant document) arising under this contract". In this context Nasir Aslam Zahid, J., (as he then was) had held that instructions and memoranda of the Government were relevant documents and the applicability or otherwise of such documents is within the scope of the arbitration clause. Further, it was held "the contract between the parties was subject to Government approval and although Government may not directly be a party as a signatory to the contract, the contract came into existence only when approval was given by the Government. The Government had every right to issue instructions regarding payment of additional amounts on account of escalation and the Government instructions and memoranda entitled him to additional payments in respect of the work done under the contract.
26. ' In the present case, the position is entirely different. Firstly, there is a clear cut embargo placed upon the plaintiff by virtue of para 7.56 of Tender Documents referred to above whereby the plaintiff are not entitled to claim any fluctuation in price. Learned arbitrators have neither considered this bar nor given any reasons for not considering the same Besides in the above-cited case escalation was awarded to the plaintiff on the basis of instructions, memoranda and approval given by the Government as contained in the relevant documents which were produced before the arbitrators and as such were not documents extraneous to the award. The contract was dependent upon the approval of the Government. On the other hand, it is admitted by the learned counsel for the parties that the defendant namely, University of Karachi, is a statutory body and there is nothing to show that the contract required Government approval or the parties were bound in any manner by any Government directive, instruction, memoranda or documents.
27. Learned arbitrators have completely misread the judgment dated 27-10-1980 in Suit No, 672/76 reported in 1981 CLC 1282 which in fact goes against the plaintiff. Hence I set aside the claim of the plaintiff on account of escalation of prices.
28. ' Objections pertaining to all other claims awarded by the arbitrators have not impressed me as these claims relate to questions of facts and come within the exclusive domain of the arbitrators, who have considered them and given sufficient reasons for coming to their conclusions.
29. ' As a result, the award after the exclusion of escalation claim stands at Rs,2,01,946 is hereby made rule of the Court with proportionate cost and interest at the rate of 14% per annum from the date of the decree till the date of payment.