1. ' Defendant No.1 has filed the listed-application (C.M.A. No.3247 of 2004) under section 34 of the Arbitration Act, in this suit for declaration permanent and mandatory injunction and recovery of damages filed by the plaintiff against Federation of Pakistan and Pakistan Agricultural Storage and Services Corporation Limited, suit was filed on 5-5-2004.
2. ' It appears that the Plaintiff was awarded a contract for the import of wheat on terms and condition stipulated in agreement dated 17-1-2004. It seems that dispute as to quality of the contracted goods resulted into termination of the. Agreement through notice dated 30-3-2004 and 31-3-2004. Plaintiff has claimed damages on account of such termination. Defendant 'No.2 PASCO filed an application under section 34 of the Arbitration Act seeking stay of the suit and reference of the controversy to the Arbitration in terms of clause 15 of the agreement.
3. ' Plaintiff seriously opposed the application on the grounds interalia that the dispute or the relief claimed in suit is beyond the preview of the arbitration agreement. It is further the case of the plaintiff that, interference has been made by the State functionaries and Federal Minister that has also given cause of action, are not privy to the arbitration contract. Defendants' joint and several liability for direct and indirect losses and damages suffered and claimed under tort is not covered by arbitration agreement.
4. It is settled position in law that any party bypassing arbitration agreement if approaches the Court for resolution of .a dispute covered by A the Arbitration clause, other party to the agreement at its option, may invoke Arbitration and seek stay of the suit. Courts also in such cases, unless sufficient reason to its satisfaction is shown, invariably put the A derailed party on the track of arbitration in terms agreed.
5. ' Learned counsel for the Defendant No.2 contended that, where arbitration. Agreement exists between the parties, the suit must be stayed. He has laid emphasis on the word "under the contract" as used in the Arbitration clause. According to him, the dispute as to the cancellation of the contract or the claim of damage's squarely falls within the ambit of the Arbitration agreement, therefore, the plaintiff is bound by it and this Court must compel the plaintiff to seek relief in the Arbitration proceedings. Reliance was placed on Uzin Export and Import Enterprises v. M. Iftikhar and Co. (1993 SCMR 866).
6. ' It was further contended that, where some relief falls within the Arbitration clause and some falls out then also matter in controversy could always be referred to Arbitration. Reliance was placed on Singaran Coal Syndicate v. Balmakund AIR 1931 Cal.
7. 772.
8. ' Learned counsel for the plaintiff exercising right of rebuttal urged that the Defendant No.2 is not the owner of the wheat. It is the Government of Pakistan who is the owner. It was therefore, contended that, the termination letters dated 30th and 31st March, ,2004 issued by the defendant No.2 that gave cause of action to the Plaintiff. Learned counsel' for the plaintiff urged that, since Government of Pakistan, is not party to the Arbitration agreement, claim in suit cannot be bifurcated between the plaintiff and defendant No.1 on one hand and the plaintiff and defendant No.2 on the other. It was urged that where some of the parties to the suit are not party to the Arbitration agreement, then section 34 of the Arbitration Act cannot be invoked, reliance was placed on Amanullah Piracha v. Tasrieem Baig (1988 MLD 1552), It was next urged that, even in case where the claim could be split between two sets of defendants and the plaintiff then in order to avoid the conflicting decision suit cannot be stayed. In this regard reliance was made on Gulf Iran Co. v. Pakistan Refinery (PLD 1976 Kar. 1060 (1066) and Sunrise Textiles Ltd. v. Tonien Corporation (1994 CLC 2000).
9. ' Plaintiff's counsel further urged that the claims for damages a discretionary relief is always subject to proof, therefore no stay could be granted. Reliance was placed on Meinek Food Processing Equipment v. Danish Butter Cokies (Pvt.) (1992 CLC 1132 (1137), Gaya Electric Supply Co., Ltd. v. State of Bihar (AIR 1953 SC 182) and Jivraj Lakhmsi v. Tahkandas (AIR 1920 Sindh 27).
10. ' Learned counsel for the defendant No.2 controverts the arguments of plaintiff counsel. It was contended that the cancellation of contract was effected in exercise of the authority conferred under the contract entered into between the plaintiff and defendant No.2 therefore, defendant No.1 Federation of Pakistan, through Ministry of Food, Agriculture and Livestock has been implicated to defeat the arbitration.
11. ' I have heard the arguments and perused the record.
12. ' Recapitulating facts in brief appears to be that the PASCO, the defendant No.2 invited the bids for 1,50,000 metric tons of wheat. Plaintiff was declared successful bidder. Letter of intent dated 17-1- 2004 was issued by defendant No.2 and a formal agreement was entered into beween defendant No.2 and the plaintiff for the supply of 1,45,000 metric tons of wheat vide agreement dated 17-6- 2004 agreement also contained an Arbitration clause 15, which reads as follows:--
15. Arbitration. In the event of any question or dispute arising under the contract, the same shall be referred to the award of arbitrators to be nominated one each by the Seller and the Buyers within fifteen days of notice from either side or in the case of the said Arbitrators not agreeing, then to the award of an Umpire to be appointed by the Arbitrators in writing prior to proceedings with the arbitration. The decision of the Arbitrators or The Umpire as the case may be, shall be final and binding on both the parties. The Arbitration shall take place at Lahore under Pakistan law of Arbitration.
13. ' The cancellation of a contract is provided for the clause 16, which reads as follows:--
16. Cancellation of contract. If the seller fails to deliver the goods within the specified period for reasons other than Force Majeure the buyer shall be entitled on his option to cancel' the contract and recover the damages besides forfeiture of Performance Guarantee besides any other action of any risks and costs whatsoever in consequence of such cancellation of the contract.
14. ' It appears that the defendant No.2 on the ground inter alia that the wheat supplied is not in accordance with the specification, rejected the same and in purported exercise of the authority in the contract in terms of clause 16 reproduced above, forfeited gurantees vide cancellation notices dated 30-3-2004 and 31-3-2004. (Available at page 201 and 203 of the file). It may be noted that there appears to be no clause similar to clause 16, above, giving similar right of action to the seller on account of any breach that may be committed by the buyer.
15. ' In order to appreciate the contention of both the learned counsel, it will be beneficial to browse section 34 of the Arbitration Act, which reads as under:-
34. Power to stay legal proceedings where there is an Arbitration agreement.---Where any, party to an arbitration agreement or any person claiming under him, commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reasons why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings.
16. On bare perusal of section 34 above, it appears that the following contentions are to be met before invoking Arbitration clause by any party to the agreement;
(i) There must be an agreement containing Arbitration clause between the parties.
(ii) Legal proceeding must be commenced by one of the party to the agreement against the other person who is also party to the agreement.
(iii) Legal proceedings are in respect of a matter agreed to be referred to arbitration.
(iv) The party to such legal proceeding, who is also party to the arbitration agreement, before filing written statement or taking any other step in the proceeding has option to seek stay of the legal proceeding.
(v) The Court, if satisfied, that there is no sufficient reason why the matter should not be referred to the Arbitration may stay the proceedings and direct the dispute to be referred to the arbitration.
17. ' As would appear that the agreement was_ entered into between plaintiff and defendant No.2 admittedly, Government of Pakistan, defendant No.1 holds only 25% shares rest of the shares in defendant No.2 are held by other legal and corporate entities/financial institution. It is apparently for this reason, the D.A.-G. Did not lend any support the claim of the defendant No.2.
18. ' Recently in a Suit No.987 of 2003 Messrs G.M. Tractors v. Messrs Hema Tractors, Turkey, while deciding application seeking stay of suit in case of foreign Arbitration clause, it was observed that; "Both in terms of section 34 of the Arbitration Act, as well as in terms of section 3 of the Arbitration (Protocol and Convention) Act, option and discretion to invoke arbitration clause vest in the party to arbitration agreement. By invoking Arbitration agreement the party who bypassed the arbitration may be driven to follow the path to arbitrate in terms agreed. Use of phrase "that such authority may make an order staying the proceedings" in section 34 of the Arbitration Act, clearly demonstrates that; discretion to stay the legal proceedings or compel a party in breach of agreement, to abide by the arbitration agreement vest in Court. It needs no authority to say that such discretion is to be exercised fairly, properly and judicially. A party bypassing arbitration clause approaching the Court, unless other party submits to the jurisdiction of the Court, has to satisfy the Court that there is "sufficient reason why the matter should not be referred in accordance with arbitration".
19. ' From preponderance of the case-law on the subject, it appears that following were considered "sufficient reasons" where the Court refused to stay the suit.
(a) The dispute falls out of the arbitration agreement, (b). That the forum selected to arbitrate or the arbitrator nominated is not likely to decide the dispute fairly and justly (c). There is personal bias or prejudice against the applicant such bias or prejudice must be demonstrated through tangible material, as a matter of fact and not merely as a matter of opinion, (d). All necessary parties to the suit are not party to the arbitration agreement and it is not possible to segregate the claim or dispute between such parties without fear of conflicting decision, (e). Where difficult and intricate questions of law are likely to arise, such as inevitably necessitate a reference for the opinion of the Court under section 13(b) of the Act, (f). Wherethe defendant invoked arbitration agreement after .Filing a written statement or taking any other steps in the proceedings, (g). Where it is shown that the defendant applying for stay of proceedings at the time when the proceedings were commenced was neither ready and willing nor still willing or ready to do all thing necessary to proper conduct of the arbitration, (h). Where all the parties to the arbitration agreement are residing in Pakistan, contract was executed, breach allegedly committed and cause of action accrued in Pakistan, evidence is local but the seat of arbitration is foreign, then plea of forum inconvenience may outweigh foreign arbitration. It may be observed that, grant or refusal to stay a suit is dependent upon peculiar facts and circumstances of each case. Above "sufficient reasons," are merely illustrative and not exhaustive. (For reference one may see 1992 CLC 1132, AIR 1967 SC 249, 1997 SCMR 988, PLD 1976 Karachi 1060, PLD 1985 Karachi 745, 1988 SCMR 310 and PLD 1989 Karachi 645).
20. ' Examining the fact of the case in hand in the light of above, plaintiffs' claim is contained in para. 48 and para. 49 of the plaint, which are reproduced as follows;
48. Claim in suit:
(A) That termination of the agreement contract vide letters dated 30th and 31st March, 2004, by MINFAL/PASSCO was not bona fide and of no legal effect and they are liable for all consequences, such as losses and damages suffered by Tradesman;
(B) That apart from breach of agreement committed by MINFAL/PASSCO they are also liable to pay exemplary damages for acts, which are actionable under the law of Torts, including but not limited to a preconceived plan to cause wrongful harm and loss to Tradesman and by traducing it to its good name and standing.
(C) As an interim measure to seek mandatory directory orders to MINFAL/PASSCO to deposit, sealed and jointly signed., samples of wheat imported by the Tradesman, in custody of this Honourable Court and the samples be got tested from independent laboratories in and out of Pakistan.
(D) For return of US$ 1,011,375.00 deposited by the Tradesmen as cash Performance Guarantee, together with Mark-up @ 0.85% per month from the date of deposit till the date of suit, Rs.1,5500,000.00 from the date of suit till the date of decree and from date of decree till the date of payment.
(E) For payment by MINFAL/PASSCO sum of Rs.600,000,000.00 as unliquidated damages, exemplary damages, damages in tort, on account of loss of reputation, business prospects, projected losses, QUANTIFICATION OF DAMAGES: 49.Tentatively and without prejudice the losses suffered by tradesman, as per current estimate are as under . However, these numbers will increase during pendency of the suit:-- Particulars Amount in US DollarPak Rupees 1 Bank, charges for Opening L/C, NegotiationUS$32,700,000 @ 1% = US$ 327,00018,800,000 2 Insurance Rs.7,000,000 3 Financial charges from the date of making payment to AWB till reinbursement of partial amount to bank from Re-Sale of cargo.US$. 32,700,000 @ 4% 9,400,000 annum. Charges for per 1.5 month.
21. 4 Losses in Re- Sale of goods Average for all four vessel Losses in terms of detention Paid for all four vesselsUS$. 30.50 x 154, 141.09 = 270,300,000 = US$: 4,701.303.24 US$. 13.50 x 154,141.09 = 120,130,000 US$: 4, 701,303.24 5 Losses due to paying freightUS$. 15 x 154,141.09 = 133, 000,000 6 For new DestinationUS$. 2,312,116.
22. 7 Expenses for travelling and, US$. 3,000,000 fees paid to the foreign experts who visited Pakistan for sampling and testing.
23. 8 Third party (independent) inspection at load port & discharge port.US$.1,500,000 9 Paid for testing in several laboratories. 574,000 10 Losses in expected profit difference between purchase and Sale price to PASSCOUS$.75x154,141.09 59,700,000 11 Losses in running business due to adverse impact because of rejection of cargo. 100,000,000 12 Defamation 100,000.000 13 Loss of reputation domestic & International 500,000.00.
24. 14 Loss in future business Total in Pak Rs. 250.000.000 1,574,900,000 It is settled, position in law that existence of Arbitration clause simpliciter would not oust or bar the jurisdiction of the Court, despite existence of Arbitration clause. Court for sufficient reason may not deem it expedient to stay the suit and or refer the matter to arbitration. Arbitration agreement merely provides alternate forum for the resolution of the differences that may crop up between the parties and covered by the arbitration agreement. Stay of legal proceedings and reference to arbitration is subject to the objective satisfaction of the Court that there is no sufficient reason why the matter should not be referred to the arbitration.
25. On examining the pleadings and relief claimed by the plaintiff, it is apparent that there are specific allegations against the defendants Nos.1 and 2 in paragraphs 36 to 37 of the plaint, defendant No.1 admittedly is not party to the arbitration agreement. Claim contained at serial number (B) and (E) in para. 48 reproduced above and financial claims at Serial No.8 to 14 seems to be beyond the purview of the Arbitration clause. Claims of the plaintiff are also directed against the defendants No.1, who is not privy to the arbitration agreement. In event proceedings in suit are stayed as against the defendant No.2 then the suit founded on allegations contained in paras. 36 to 37 will proceed as against the defendant No.
1. The nature of suit is such that, without fear of conflicting decision, in my opinion, it will not be possible to segregate or bifurcate the suit between the plaintiff and defendant No.1 on the one hand and between the plaintiff and defendant No.2 on the other. Claim in suit requires common evidence as against both the set of defendants referring some of the difference/dispute as between the plaintiff and defendant No.2 to the arbitration would serve no better purpose as some of the claim would still be triable by this Court. In this View of the matter, it is not found desirable to stay the proceedings in suit and refer some of the dispute urged in suit as between the plaintiff and defendant No.2 to the arbitration.
26. ' It was for the foregoing reasons, the application under 'section 34 of the Arbitration Act was dismissed vide short order dated 4-6-2004.