S. D. A. GUNAWARDENE, Appellant, and M. MUTTAIH PILLAI et al., Respondents

009-NLR-NLR-V-55-S.-D.-A.-GUNAWARDENE-Appellant-and-M.-MUTTAIH-PILLAI-et-al.-Respondents.pdf

GRATIAN 1ST J.—Qunawardene v. Muttiah Pillai
29
1952-Present: Gratiaen J. and Pulle J.
S. D. A. GUNAWARDENE, Appellant, and, M. MUTTIAHPTTjTjAT et al., Respondents
73—D. G. Colombo, 804/X
Arbitration without intervention of Court—Ex-parte award—Delay in making award—Validity of award—Effect of regular action filed subsequent to reference toarbitration—Bribery of arbitrator—Strict proof necessary—Arbitration Ordi-nance {Cap. 83), s. 7—Civil Procedure Code, ss. 386, 691 (2), 696.
Where parties, ■without the intervention of Court, voluntarily submitted amatter in dispute to arbitration and the award of the arbitrator was attackedon various grounds under section 691 (2) of the Civil Procedure Code—
Held, (i) that the neglect or refusal of one of the parties to avail himselfof the opportunity of presenting his case before the arbitrator did not invalidatethe subsequent proceedings or disqualify the arbitrator from exercising hisjurisdiction in the matter.
that delay of the arbitrator in making his award did not constitute“ misconduct” on his part because no timelimit was fixed in the terms of referenceand the delay was largely occasioned by the dilatory and non-co-operativemethods employed by the party objecting to the award.
that a reference to arbitration is not superseded by the institution of asubsequent regular action, unless the subject matter of the arbitration and thesubject matter of the regular action are clearly identical.
that there was nothing improper in an arbitrator accepting from one ofthe parties, before the date of the award, the fee payable by that party inaccordance with an agreement which bound all the parties.
that the Court should not, by reference to affidavits alone, have arrivedat a finding of corruption or misconduct against the arbitrator. Beforereaching such a conclusion on a disputed allegation the Court should haveframed issues of fact and heard oral evidence.
^lPPEAL from a judgment of the District Court, Colombo.
8. J. V. Ghelvanayakarn, Q.G., with P. Colin-Thome, for the petitionerappellant.
Thiagalingam, Q.C., with G. Manohara, for the respondents.
.Cur. adv. wit.
Jnly 17, 1952. Gratiaen J.—
It is convenient at, the outset to recite the facts regarding wltich thereis no controversy between the parties. The petitioner and the respon-dents had formed a business association in or about November, 1947,whereby they carried on a commercial venture under the name, styleand firm of “ Muttiah Pillai and Co. ” with a view to their mutual finan-cial advantage. On 4th September, 1948, they agreed to terminatetheir t'Acalled “ partnership ” and to submit the disputes which hadarisen in connection therewith to the arbitration of’ a man named
2*-J. N B 27972 (7/53)
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GRATXAEN J.—Gunawardene v. Muttiah Pillai
E. Weerasinghe. The reference to arbitration, which also incorporatesthe agreement to dissolve the business, is contained in a document dated4th September 1948 signed by all the parties in the following terms :—
“ We the undersigned M. Muthiah Pillai, K. Selvadurai andS. D. A. Gunawardene being the three partners of the firm of MuthiahKllai & Company do hereby give notice to each other Cof the finaldissolution of the abovenamed Partnership and agree uni onditionallyto the following procedure with regard to the winding up of the saidfirm :—
That we appoint Mr. Hettiaratchige Edwin Weerasinghe to act
as the sole arbitrator in the dissolution of the partnership.
That we submit to him within the fortnight hereof all account or
accounts connected with the affairs of the said MuthiahPillai & Co.
That our individual statements of accounts showing the actual
capital outlay contributed and the profits or payments receivedfrom the funds of the firm to be submitted to the said Mr.Weerasinghe before the specified date.
That we agree unconditionally to accept as full and final settlement
any settlement or decision that the said Mr. Weerasinghe asArbitrator may bring about after due examination of theaccounts and affairs of the said firm. ”
The arbitrator duly entered upon his reference but, for reasons whichare controversial, he did not make his award for some considerable time.Pending that event the 1st respondent, who had admittedly usedthe business name of “ Muttiah Pillai and Co. ” in his own right priorto November 1947, sued the petitioner in action No. 22215 in the DistrictCourt of Colombo on 12th December, 1949, praying (a) for a permanentinjunction restraining the petitioner from carrying on the business namein connection with his own business, (6) for damages in the sum ofIts. 25,000 for the fraudulent and improper use of the business name since4th September, 1948. The plaint in that action alleges that the partieshad, during the period November, 1947, to 4th September, 1948, carriedon business in partnership under the name of Muttiah Pillai & Co. onthe express understanding inter alia that after the dissolution of thepartnership, which had in fact occurred on 4th September, 1948, thegoodwill of the business name was to revert exclusively to the 1st res-pondent. It was on this ground that the 1st'respondent formulated hiscause of action based on the alleged improper use by the petitioner of thebusiness name after the partnership had been dissolved. The plaintalso recites that the arbitrator had been appointed “ to take an accountof the partnership assets and liabilities and divide the nett; assets (ex-cluding, of course, in the 1st respondent’s submission, the business nameof Muttiah Pillai & Co.) among the partners It also attributed thedelay in bringing the arbitration proceedings to a conclusion up to thatdate to “ the failure of the (petitioner) to attend the sittings fixed by thearbitrator
GRATIAE3ST J.—Qunawardene v. Muttiah Pillai
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On 23rd March, 1950, the arbitrator addressed a letter to therespondents in the folio-wing terms :—
“ Dear Sirs,
Muttiah Pxllai & Co.
With reference to the above arbitration it is regretted that so faryou have*neither given me any assistance nor furnished the accountsand statements which you undertook to do in spite of numerousreminders by me.
This is to give you notice that unless these documents are submittedto me before the 26th instant I shall give an ex-parte award to theremaining partner.
I would ask you to remit to me Rs. 250 from each of you to covermy arbitration fee.”
No reply was sent to this letter nor was any request contained thereincomplied with. Thereupon, the arbitrator purported to proceed with thearbitration ex parte and on 31st March, 1950 be made an award declaringthat the petitioner was entitled to receive from the respondents an aggregatesum of Rs. 23,233-59 on account of (a) the petitioner’s share of the nettprofits of the partnership business during the relevant period November,1947 to 4th September, 1948, and (b) the proportionate share payableby the respondents out of the expenses incurred in carrying on the busi-ness during that period. These figures were admittedly computed onstatements prepared and relied on by the petitioner in the course of theex parte proceedings in which the respondents had, on their own version,declined to co-operate. This circumstance, however, is not sufficientto vitiate an award, because the bare neglect or refusal of a party to availhimself of the opportunity of presenting his case before the arbitratordoes not invalidate the subsequent proceedings or disqualify the arbitratorfrom exercising his jurisdiction in the matter. Aitken Spence and Go. v.Fernando x. The ex parte award is enforceable against all the partiesto the dispute unless it is vitiated for one or other of the reasons specifiedin section 691 of the Civil Procedure Code or unless some superveningcircumstance has occurred which the law regards as having divestedthe arbitrator of the jurisdiction which he had previously assumed.Mr. Thiagalingam has made no submissions to the contrary.
On 1st June, 1950, the petitioner, in an application under Section 696of the Code, moved the District Court by way of summary procedure tohave the award in his favour filed of record, and he asked for a decreein terms thereof against the respondents. An interlocutory decree asprayed for was entered on 19th June, 1950, and on 29th June, 1950, therespondents filed a joint affidavit setting out their objections to thepetitioner’s application. The matter was then fixed for inquiry undersection 384Jof the Code.
The affidavit of the respondents is an unsatisfactory document becauseit contains many allegations and argumentative submissions which clearlyoffend f=-ae imperative requirements of section 181 of the Civil Procedure
(1903) A. c. 200.
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GRATIAJEN J.—Qwnawardene v. Muttiah Pillaii
Code. Be that as it may, the main grounds on which the arbitrator’saward was attacked in the lower Court may he summarised as follows :—
that the arbitrator’s delay in making an award was such as to
constitute “ misconduct” on his part within the meaning ofsection 691 (2) (a) of the Code ;
that the petitioner, by submitting certain false and. fabricated
documents in support of his case at the ex parter&Tbitrationproceedings, had “ wilfully misled or deceived the {Arbitrator ”within the meaning of section 691(2) (6) ;
that the institution of the regular action by the 1st respondent on
12th December, 1949, operated automatically to supersede thearbitration proceedings and to divest the arbitrator of juris-diction to make an award thereafter ;
that the arbitrator had been guilty of “ corruption ” and/or
“ misconduct ” within the meaning of section 691 (2) (a) byaccepting from the petitioner a sum of Rs. 250 during thependency of the arbitration proceedings.
The inquiry held by the learned Judge into these grounds of objectionproceeded entirely upon a consideration of the respondent’s affidavitthe petitioner’s contra-affidavit dated 18th November, 1950, certain state-ments of fact (unauthenticated even by affidavit) contained in the arbi-trator’s award, and the arguments of counsel. The learned Judgerejected the 1st and the 3rd grounds of objections which I have enumeratedabove and ignored the 2nd ground on the assumption, presumably, thatit was not very seriously pressed before him. He, however, upheld thefourth ground of objection and refused the petitioner’s application tohave the award made a rule of Court. The present appeal is from this,decision.
Mr. Thiagalingam has urged that the learned Judge should have upheld)each of his clients’ grounds of objection, and it is convenient thereforeto consider them in the order in which I previously have set them out.
I find it impossible to differ from the learned Judge’s view that thedelay in making the award could not, in the circumstances of this case,be attributed to “ misconduct ” on the part of the arbitrator. No timelimit had been fixed in the terms of reference, but he was neverthelessunder a duty to discharge his functions with reasonable diligence. Inthe present case, however, there was ample material upon whichthe learned Judge could accept, as he did, the explanation that thedelay was largely, if not entirely, occasioned by the dilatory and non-co-operative methods employed by the respondents themselves. The presentcase is therefore clearly distinguishable from Purshottam v. Amrittal 1where an arbitrator’s “ unconscionable and unexplained delay ” in makingan award was held to constitute legal misconduct and indeed a virtualabandonment of the judicial functions which he had undertaken toexercise.'
The only evidence on which the respondents relied in support of thesecond ground of objection is contained in certain vague avermentsin their affidavit. These allegations were denied by the petitioner in'i A. I. R. (1928) Bom. 49.
GRATIAEN J.—Chinawardene v. Muttiah Pillai
S3
his counter-affidavit, and were, in the absence of more precise proof,insufficient by themselves to substantiate grave charges of fraud anddeceit. Mr. Thiagalingam argued that the petitioner had misled thearbitrator into the belief that the partnership agreement had been re-duced to writing and was therefore enforceable. It seems to me that,as far as vhe arbitration proceedings were concerned, the respondentsmust be deemed to have waived any defence which they had the oppor-tunity of basing on the provisions of section 18 (c) of the Prevention ofFrauds Ordinance. Besides, they do not deny even now that the basisof the de facto partnership was that the profits, if any, should be distri-buted in equal shares between the three partners. The award gives effectto this basis of computation, and no fraud or deceit is alleged against thepetitioner in that respect.
The third ground of objection raises an interesting question of law, andwas strenuously pressed before us by Mr. Thiagalingam. In my opinionthe learned Judge came to a correct conclusion on this point. The principleto be applied is clear enough, and has been authoritatively laid down inthe majority judgments of Fletcher Moulton Ii.J. and Farwell L. J. inDoleman and Sons v. Ossett Corporated1. Once a regular action has beeninstituted by a party to a dispute in a Court of Law, the Court has soleseisin of that particular dispute. If, prior to the institution of the action,the parties had mutually agreed to refer the same dispute to the arbi-tration of a private tribunal—or, a fortiori, if such arbitration proceedingshad already commenced and were still pending—the defendant may invitethe Court, in the exercise of its discretion, to stay the action and to compelthe dispute to be decided by the private tribunal previously selectedby the parties. Section 7 of the Arbitration Ordinance {Gap. 83). Butunless such order be obtained within the period fixed by the Ordinance,the reference to arbitration is superseded by the regular action, and anyaward made thereafter by the arbitrator would be invalid for want ofjurisdiction.
The validity of the present award which was made after the proceedingsin D. C. Colombo No. 22215 were instituted necessarily depends on thequestion whether the arbitrator’s award or any part of it purports toadjudicate on any right which is identifiable with the subject matter ofthe 1st respondent’s claim over which the District Court of Colombo wasvested with exclusive jurisdiction in the pending action. Applying thistest, I would say that the subject matter of the award and the subjectmatter of the action are demonstrably distinguishable. The award,on the one hand, declares the petitioner entitled to receive from bothrespondents a sum of money representing his share of the net profitsof the business up to the admitted date of the dissolution of a de factopartnership between the parties ; the subsequent regular action, on theother hancj^ is concerned only with a claim which is based on an allegedinfringement by the petitioner of the 1st respondent’s rights after thedissolution of the partnership had occurred. It follows that there wasno usurpation by the arbitrator of the jurisdiction vested in the Court,■and tftat the learned District Judge was perfectly correct in rejecting
1 (1912) 3 K. B. 257.'
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GRAflAEN J.—Gunawardene v. Muttiah PiUai
the third ground of objection. With respect, I would adopt the ratiodecidendi of the High Court of Lahore in Jai Narain v. Nain X$as 1 onthis issue.
There remains for consideration the final ground of objection whichrelates to the alleged impropriety on the part of the arbitrator in receivingfrom the petitioner a sum of Its. 250 pending the proceedings. / The arbi-trator’s award expressly states that the three partners had /.greed thathe should receive a fee of Us. 750, payable by them in equal'Shares, andthe terms of his letter It6 dated 23rd March, 1950 (to which no reply wasapparently received), are consistent with that position. Admittedly,,the petitioner paid a sum of Its. 250 to the arbitrator before the date ofthe award, but paragraphs 15, 16 and 17 of the respondent’s affidavit ofobjection unambiguously allege that this payment represented a bribe.If that allegation could be established, the award would clearly be vitiatedon the grounds of corruption and misconduct ; but if the version of thearbitrator and the petitioner be substantially correct, there would cer-tainly be nothing improper in an arbitrator receiving from one of the-parties the fee payable by that party in accordance.with an agreementwhich bound them all; indeed, Mr. Thiagalingam concedes that the sub-sequent failure of the other parties to implement their part of the agreementcould not taint such a payment with illegality. The facts which arose-for consideration in Shepherd v. Brand 2 and in Fernando v. Migel Appuaare distinguishable, and we are not called upon to deal with Mr. Chelva-nayagam’s argument that the rulings in those decisions should, in thelight of modern conditions, no longer be regarded as good law.
The learned District Judge upheld the fourth ground of objection and,by reference only to the affidavits and to certain documents which wereread in evidence at the inquiry he decided that the arbitrator’s awardwas vitiated by “ misconduct ”. With great respect, I do not see howany Court of law, either in a regular action or in summary proceedingsunder Chapter 24 of the Code, could without hearing oral evidence arriveat such a definite conclusion upon issues involving disputed charges ofcorruption and dishonesty. This was essentially a case in which thelearned Judge, after consideration of the allegations in the respondent’saffidavit and the denials in the petitioner’s counter-affidavit, should haveframed issues of fact, to be tried by oral testimony, upon the allegationsof “ corruption ” and “ misconduct ” in relation to the acceptance bythe arbitrator of a sum of Rs. 250 from the petitioner. Section 386expressly provides for such a procedure, and in my opinion the caseshould now be sent back for a fresh inquiry before another DistrictJudge upon this ground of objection. If, after framing appropriate^issues upon the specific allegations in the respondent’s affidavit withreference to the payment and receipt of this sum of Rs. 250 the learnedJudge decides that the arbitrator, in accepting this sum, was guilty ofcorruption or misconduct within the meaning of section 691^(2) (a) ofthe Civil Procedure Code, he must make order refusing the petitioner’sapplication to have the award made a rule of Court. If, however, the-
t
1 A. J. R. (1922) hah. 369.2 (1734) 94 E. R. 620.
(1913) 16 N. L. R. 357.
GTJNASEKARA J.—Anthony v. The Queen
35
issues on this ground of objection are answered against the respondents,the petitioner’s application must be allowed in terms of paragraphs {a}and (b) of the prayer of the petitioner dated 1st June, 1950. The partieswill, of course, be entitled to appeal against the order made by the learnedJudge in the fresh proceedings, but I desire to make it clear that therespondents should not be permitted at this late stage to attack theaward on .py fresh grounds.
For the i Masons given by me, I would set aside the judgment underappeal and send the case back for fresh proceedings to be held for thelimited purpose indicated in my judgment. The petitioner is entitledto his costs of appeal, but all other costs will he costs in the cause.
Pulle J.—I agree.
Sent back for further inquiry.