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Motilal Tejsi and Co. Vs. Ramchandra Gajanan Kherodkar - Court Judgment

LegalCrystal Citation
SubjectContract;Arbitration
CourtMumbai
Decided On
Case NumberO.C.J. Suit No. 1147 of 1941
Judge
Reported inAIR1942Bom334; (1942)44BOMLR745
AppellantMotilal Tejsi and Co.
RespondentRamchandra Gajanan Kherodkar
Excerpt:
building contract--architect--final certificate--grounds on which certificate can be set aside arbitration clause in such contract, effect of certificate--award.;a final certificate given by an architect on the completion of a building can be challenged by the owner of the building only on three grounds, viz. fraud, collusion or misconduct on the part of the architect.;if the parties choose to abide by the certificate of the architect whom they have named in the agreement, they must accept the decision of the architect, however wrong and erroneous it may be.;where there is an arbitration clause in a building contract and there are disputes pending between the parties, the power given to the architect under the terms of the contract to give a final certificate comes to an end, and he can..........there is no dispute with regard to this claim. on september 9, 1940, the architects issued their final certificate certifying that a sum of rs. 3,701 remained due and payable by the defendant in respect of the work done under the contract and also the additional work done by the plaintiffs which was settled at rs. 850 as i have already stated. various part payments were made by the defendant, and the plaintiffs have filed this suit for rs. 2,576 being the balance due under the final certificate of the architects.2. in the written statement the defendant alleges that the plaintiffs left some of the items of work under the contract undone and unfinished and carried out some of the work in a defective manner and also failed to do the work within the time stipulated. the defendant further.....
Judgment:

Chagla, J.

1. The plaintiffs are a firm doing business as building contractors. By a contract dated March 29, 1938, the plaintiffs agreed with the defendant to construct a building on Plot No. 8 at Shivaji Park, Mahim, in consideration of a lump sum of Rs. 26,351. The plaintiffs allege in the plaint that in pursuance of their contract they carried out the building work specified in the contract and duly completed the same. In addition to the principal work specified in the contract, the plaintiffs also carried out certain additional work. The plaintiffs' claim with regard to this additional work was settled for Rs. 850 on September 2, 1940, and there is no dispute with regard to this claim. On September 9, 1940, the architects issued their final certificate certifying that a sum of Rs. 3,701 remained due and payable by the defendant in respect of the work done under the contract and also the additional work done by the plaintiffs which was settled at Rs. 850 as I have already stated. Various part payments were made by the defendant, and the plaintiffs have filed this suit for Rs. 2,576 being the balance due under the final certificate of the architects.

2. In the written statement the defendant alleges that the plaintiffs left some of the items of work under the contract undone and unfinished and carried out some of the work in a defective manner and also failed to do the work within the time stipulated. The defendant further alleges that he brought these facts and disputes to the notice of the architects long before the final certificate was issued by them. He further alleges that the final certificate of the architects is not binding on him and that under the terms of the contract the architects were not entitled to issue the same. He further alleges that the architects issued the certificate without hearing the defendant and adjudicating upon the disputes that subsisted between him and the plaintiffs. He says that having regard to the work which was left undone and the work which was left unfinished and the work which was defective, a sum of Rs. 1,755 should be deducted out of the amount to be paid to the plaintiffs under the final settlement, and in respect of this sum of Rs. 1,755 the defendant counterclaims against the plaintiffs.

3. The first question that arises is whether the defendant is entitled to go behind the certificate of the architects. It is conceded by Mr. Somjee that if I hold that he is precluded from challenging the certificate of the architects then he has no answer to the plaintiffs' claim, and his counterclaim must fail. Now it is clear on the authorities that there are three grounds on which a final certificate given by the1 architects can be challenged by the owner of the building, and those three grounds are fraud, collusion or misconduct on the part of the architects. It is common ground that in the pleadings the certificate of the architects is not challenged on any of these three grounds. The authorities lay down that if the parties choose to agree to abide by the certificate of the architects whom they halve named in the agreement, then they must accept the decision of the architects, however wrong and erroneous it may be. But Mr. Somjee urges that in this particular contract between the parties there is an arbitration clause and he contends that the effect of the authorities is that if there is an arbitration clause in a building contract and if there are pending disputes between the parties then the power given to the architects under the terms of the contract to give a final certificate comes to an end. They can only act under the arbitration clause as arbitrators and cannot act as certifiers giving their final certificate under the terms of the agreement. In order to appreciate the argument of Mr. Somjee, one must look at the terms of the contract. The question really resolves itself into this: did the parties to this agreement intend that the architects in giving their decision which would be binding on the parties should act judicially or should act administratively? If the parties intended that the architects should act judicially, then undoubtedly they should act as arbitrators and all the formalities of an arbitration must be complied with. Now reading the agreement as a whole, I have no doubt in my mind that the parties never intended to confer on the architects any judicial power or to constitute them a judicial tribunal. All that they intended was that the architects should exercise their skill and judgment and decide difficulties between the parties from time to time administratively and not judicially. Clause 36 of the conditions of the contract, which are annexed to the main contract and which by Clause 5 of the contract are made part of the contract itself, clearly and unequivocally states that a certificate of the architects, showing the final balance due or payable to' the contractor, is to be conclusive evidence of the work halving been duly completed and that the contractor is entitled to receive payment of the final balance, but without prejudice to the liability of the contractor for shrinkage or leakage or any other faults or defects which may appear within the specified period after completing as mentioned in the agreement. Now if this clause stood by itself, there can be no doubt--and Mr. Somjee concedes this--that the final certificate issued by the architects would be conclusive and binding upon the defendant. But Mr. Somjee contends that the stringency of this clause is mitigated by other provisions of the contract which constitute the architects arbitrators, and he strongly relies on Clause (4) of the contract which says:

The within plaint, agreement and documents above-mentioned shall form the basis of this contract and the decision of the said Architects or the other Architects for the time being as mentioned in the printed conditions of the contract in reference to all matters of dispute as to material workmanship or account and as to intended interpretation of the clauses of this agreement or any other document attached hereto shall be final and binding on both parties and may be made a rule of the Court.

4. Mr. Somjee argues that the decision which the architects had to give under this clause was a judicial decision, and he principally relies upon the last part of this clause which provides that their decision may be made a rule of the Court. Mr. Somjee says that it is only an award made by the architects acting judicially as arbitrators that can be made a rule of the Court.

5. Mr. Somjee has also referred to Clause (39) of the conditions of the contract which lays down as follows:--

Should any doubt or doubts arise during the execution of the works or at measuring the extras or at making out the accounts or to any extras or other works, for which the contractor may believe to have a claim, the admission and allowance of any such claim or claims shall be judged of, determined and adjusted solely by the Architects, without reference in any way to any other persons. It being the intention of these conditions, that all such works that may be necessary for completely finishing the works proposed, for the rectifications of any failure from whatever cause arising, and the well maintaining, sustaining and supporting the whole of the works, as well as actions and alterations should such be made, so that the whole may remain sound and firm, are implied in the foregoing specification although the same may not therein be specially expressed; and that on this as well as all other matters, no reference to any other person than the aforesaid Architects, is to be allowed or admitted, his decision on all matters in difference or dispute between the employer and the contractor shall be conclusive and final and binding on both the parties to the contract.

6. This clause provides that in the event of any doubt arising while the building is being constructed it is the architect alone and no one else who should determine and adjust any difference. Mr. Somjee contends that under this clause of the contract the architects can only act judicially ate arbitrators. Now after giving my careful attention to both Clause (4) of the contract and Clause (39) of the conditions of the contract, I am still of the opinion that these clauses do not in any way alter or modify the conclusiveness of the certificate under Clause (36) of the conditions of the contract.

7. Mr. Somjee has relied on various decisions of the English Courts in support of his arguments. The first decision on which he relied is Robins v. Goddard [1905] 1 K.B. 294. In that case in terms the certificate of the architect was not to be considered as conclusive or final, and the agreement further provided that in the case of any dispute or difference the matter was to be referred to arbitration and the arbitrator had express power to open up, review, and revise any certificate and reconsider it on its merits. It was under these circumstances that the Court of Appeal in that case came to the conclusion that the arbitration clause destroyed the finality of the certificates and that consequently the defendant in that case was entitled to set up a counterclaim and go behind the certificate. Collins, Master of the Rolls, in his judgment says (page 301):

If something which purports to be conclusive is made subject to revision, it loses its quality of finality. That is the case here, where the decision of the architect is made subject to the decision of an arbitrator.

8. In this case, even assuming that Clause (4) of the contract is an arbitration clause, it does not in any way affect or modify the conclusiveness of the certificate under Clause (36) of the conditions of the contract nor does it make the certificate open to further consideration or modification by any other person or authority.

9. The other case relied on by Mr. Somjee is the decision in Lloyd Bros. v. Milward (1895) Hudson's Building Contracts, Vol.. II, (4th Edn.), page 262. In this case under Clause (20) of the building contract it was provided that a certificate of the architect, or an award of the referee, as the case may be, showing the final balance due or payable to the contractor, was to be conclusive evidence of the works having been duly completed, and that the contractor was entitled to receive payment of the final balance. Then Clause (22) provided that in the event of any dispute arising between the owner and the contractor it was to be referred to the arbitration and final decision of a third party. In his judgment at page 264 Lord Esher, Master of the Rolls, stated his opinion that Clause (22) was in the nature of a proviso upon Clause (20), so that if the conditions contemplated by Clause (22) arose before the architect had given his final certificate, his power to give it was taken away. Lord Justice Lopes in his judgment at page 264 says that:--

It is important to bear in mind that here there were disputes in existence before the giving of the final certificate of the architect, which were known to him, and that he, knowing of those disputes, gave the certificate.

10. Lord Justice Lopes further says that (page 265):--

The result is that the certificate of the architect is final, if there are no disputes; if there are, the award of the referee is to take its place and be substituted for it.

11. It will be noted that in Clause (20) itself dealing with the final certificate the reference is made alternatively to the award of the referee. Therefore what the contract provided was that the parties were to be bound by the certificate of the architect in the event of there being no disputes and by the award of the referee if there were any disputes. This decision has been considered in Chambers v. Goldtorpe: Restell v. Nye [1901] 1 Q.B. 624. In his judgment at page 635 A.L. Smith, Master of the Rolls, expressed his opinion that, unless there was a dispute and a reference under Clause (22) of the contract which was under consideration in the case of Lloyd Bros. v. Milward, the certificate of the architect with regard to the amount which the building owner had to pay the builder under Clause (20) was final; and Lord Justice Collins in his judgment explained the decision in Lloyd Bros. v. Milward as follows (page 638):--

It was there held that the effect of that clause was that, where a dispute had arisen, by which I think was meant that a dispute had been actually formulated between the parties, before the architect had given his certificate, the jurisdiction of the architect was ousted, and the jurisdiction of the referee was let in; but that, where no such formulated dispute had arisen before the architect's certificate was given, the jurisdiction of the referee was not let in, and the decision of the architect was final, and stood in the same category as the award of a referee would do, as conclusive evidence that the works had been completed, and that the builder was entitled to the balance for which the certificate was given.

12. Therefore, even assuming that Clause (4) of the contract amounts to an arbitration clause, it would not ipso facto oust the jurisdiction of the architects to give a certificate under Clause (36) of the conditions of the contract unless Mr. Somjee satisfies me that there were disputes between the parties which were formulated and which were referred to the architects as arbitrators. If there were no disputes or if they were not formulated or if they were not referred to the architects, the jurisdiction of the architects to give a certificate continued unimpaired, and if they did give a certificate, it would be final and binding upon the parties.

13. As I have already stated, in my opinion it was not the intention of the parties to constitute the architects as arbitrators, and any difficulty that one may feel in construing Clause (4) of the contract because of the words 'the decision of the architects shall be final and binding on both parties and may be made a rule of the Court' is removed by consideration of the decision in William Kennedy, Ltd. v. The Mayor, Aldermen and Burgesses of Borough of Barrowin-Furness (1909) Hudson's Building Contracts, Vol. II, (4th Edn.), page 411. The clause there which the Court considered was if anything much more favourable to the view advocated by Mr. Somjee than the clause here. The architect was described as the 'judge', and with regard to the final certificate he was to issue, it was provided that it was to have the force and effect of an award and may be made a rule of His Majesty's High Court of Justice, or any division thereof, at the instance of either party hereto. In his judgment Lord Justice Buckley says (page 418):--

It is quite true that the architect is to be an impartial person, no doubt; he is to determine the construction of the contract, and he must not 'seek to construe it in favour of the corporation as distinguished from in favour of the contractors; he must act fairly as between the parties. Therefore he owes a duty to the contractors as well as a duty to the corporation, but he, I think, does not hold any judicial duty to one or to the other. Then if you add to that the last words of Section 33, all that you find there is that his certificate as to the work done, the money to be paid and so on, 'shall have the force and effect of an award, and may be made a rule of His Majesty's High Court of Justice, or any division thereof, at the instance of either party hereto'. I do not think that adds anything to it. It is not that this certificate is an award, but it is to be treated as something which it is not, and it is treated as if it were an award. That is the conclusion I come to upon the construction of that clause.

14. My conclusion on the construction of Clause (4) of the contract is the same. The mere fact that Clause (4) provides for the decision of the architects being made a rule of the Court does not alter their capacity in giving their decision which is not judicial but administrative, and in giving their decision under Clause (4) they do not act as arbitrators at all. If their decision is not an award, the mere fact that the parties provide that it may be made a rule of the Court would not any more make it an award.

15. Assuming I am wrong in my construction of Clause (4) and that Clause (4) is an arbitration clause, the next question that arises is whether there were any disputes between the parties before the issuing of the certificate which were referred to the arbitration of the architects within the meaning of Clause (4). Mr. Somjee has tendered four letters which his client wrote to the architects. In the first letter of June 7, 1938, he drew the attention of the architects to certain defects in the sanitary works and he called upon the architects to arrange to remove the present defective fittings and to replace them, with new ones.

15. It is to be noted that in this letter the defendant wanted the architects to act administratively and do certain administrative acts. The decision of the architects was not sought on any dispute between the parties. The next letter of August 11, 1938, makes a grievance of various works which were left incomplete, and these incomplete works are set out seriatim. Here again the request made to the architects is that they should ask the contractors to complete the incomplete works. On January 14, 1939, a reminder was sent, and the architects were again called upon to request the contractors to attend to the defective and incomplete works. A final reminder was sent on June 26, 1939, and there again the grievance was that the architects had not yet got the contractors to complete the incomplete portions of the work and they were further asked to get the contractors to settle the claim of one Thakorlal & Co. in respect of some plumbing and sanitary works. Therefore it would be noted that in all these four letters the defendant was seeking the assistance of the architects to get the contractors to do certain things which he had the power to do under the contract and was making a complaint about various incomplete works which, according to him, the plaintiffs were bound to complete under the terms of the contract. But nowhere do these letters even suggest that there were any disputes between the defendant and the plaintiffs --let alone formulating these disputes, and I fail to understand how these letters can be possibly read as calling upon the architects to take upon themselves the burden of arbitration under Clause (4) of the contract and resolve the disputes between the parties. I therefore hold that assuming Clause (4) of the contract is to be read as an arbitration clause, on the evidence before me there were no formulated disputes between the parties which were referred to arbitration under Clause (4) and, therefore, the jurisdiction of the architects to issue a final certificate under Clause (36) of the conditions of the contract was not in any way ousted.

16. It is finally argued by Mr. Somjee that the certificate of the architects (exhibit C) is not a final certificate. Now the law does not make it necessary for the architects to issue their final certificate in any prescribed form. All that is required of a final certificate is that it should give clear intimation to the owner what is the amount finally due and payable by him under the contract, and it is only from this point of view that one must approach this final certificate. I concede that this certificate might have been more artistically drafted, but it undoubtedly serves the purpose for which final certificates are meant. I do not think that the defendant can have any grievance that on getting the certificate he did not know what he had finally to pay to the contractors under the contract. The certificate is headed as 'Final Certificate.' It mentions the contract amount as Rs. 26,251. It mentions the Extras, which were agreed upon, at the sum of Rs. 850 as I have already mentioned. It mentions the amount previously certified as Rs. 23,500, and it finally states that a sum of Rs. 3,701 is payable by the defendant to the plaintiffs. I do not think there is much substance or merit in the argument that this is not a final certificate.

17. I, therefore, hold that as the defendant has not pleaded that the final certificate was issued by the architects by any fraud or collusion between him and the plaintiffs nor has he alleged that there was any misconduct on the part of the architects, the final certificate is binding upon him and he cannot go behind it. It is not; therefore, open to me to consider the counterclaim of the defendant on its merits.

18. My answer on preliminary issue No. 2 is, therefore, in the affirmative.

19. I, therefore, decree the suit of the plaintiffs with costs and dismiss the counterclaim with costs. I fix the costs of the suit and counterclaim which the defendant has to pay to the plaintiffs at Rs. 1,200.

20. Liberty to the plaintiffs to withdraw the amount deposited under the Judge's order of December 1, 1941, and apply the same towards part satisfaction of the decretal amount.


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