1. ORDERS ON C.M.A. 4494 OF 2008.
2. ' MRS. QAISER IQBAL, J.---This order governs C.M.A. 4494/2008 under section 4 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2007 filed by the defendants Nos.1, 2 and 3 seeking stay of the suit filed by the plaintiff and to refer the matter for arbitration in accordance with the covenants contained in the Arbitration Agreements entered with the defendants and the plaintiff.
3. ' For the disposal of the application defendants Nos. 1, 2 and 3 have set up the case that the plaintiff has executed Sales Agency Agreement dated 2-1-1990, 1-1-1993 and 22-12-2000 with the defendant No,1 Sales Agency Agreement dated 1-1-2006 between plaintiff and defendant No,2 engaged in compounding of flavour compounds which are terminated.
4. ' As per clause 27 incorporated in Arbitration Clause, reads as follows:- "27. Governing Law and Settlement of Disputes.
5. ' This agreement shall be governed by Dutch law and all disputes arising out of or in relation to this agreement shall be submitted to Arbitration for settlement under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, by one arbitrator appointed in accordance with such rules and the Arbitration shall be held at Geneva, Switzerland, and shall be conducted in English."
6. ' The above clause was also incorporated in Sales Agency Agreements dated 1st January, 1993, 22nd December 2000, 1st January, 2006. The above mentioned Sales Agency Agreement followed by the compounding agreement executed between the defendant No,1 and the plaintiff. Clause 13 of compounding agreement incorporates the arbitration clause as under:-- "13. Governing Law and Settlement of Disputes.
7. ' This agreement shall be governed by the laws of the Territory (i.e,, Pakistan) and all disputes arising out of or in relation to this agreement shall be submitted to arbitration within the Territory for settlement under the Rules of Conciliation and Arbitration of the International Chamber of Commerce."
8. ' Learned counsel for defendants has contended that the applicability of section 4 of the Ordinance, 2007 cannot be ruled out as it was promulgated on October 3, 2007 and it has been provided protection under Article 270 (AAA) of the Constitution of Islamic Republic of Pakistan 1973 may be read in conjunction with section 34 of the Arbitration Act 1940 Sales Agency Agreement executed between the plaintiff and defendant No,1 contained an Arbitration clause for settlement of disputes executing the validity or termination of the agency which could be resolved by the Arbitral process which shall be held in Geneya Switzerland according to the International Rules and Conciliation of Arbitration of the International Chambers of Commerce. Learned counsel for defendants has contended that the dispute in the case are fully covered by the Arbitration clause, the suit should be stayed, the matter be referred for arbitration. It is next urged that the defendant has a right to terminate the agreement/ agency without assigning any reason. The defendant No,4 is the sister concern of the defendant No,1 and the defendants Nos.4 and 5 could exercise a right of revocation for and on behalf of the defendants Nos.1 and 3 whereas the defendants Nos.6 and 7 had no privity to the agency agreement their acts have been rectified, engaged by the contesting defendants whereas the defendant No,1 itself has terminated the agency on 26-12-2007. The defendants Nos.1 to 5 are associated with Givaudan group of companies an act on behalf of the defendant No,4 had been acted upon on behalf of defendant No,1 the agency stood terminated.
9. ' Mr. Abdul Qayyum Abbasi learned counsel for plaintiff contended that on account of no privity of contract between the plaintiff and defendant No,4 the Sales Agency Agreement could not be terminated in presence of the compounding agreement executed between the parties, defendant No,4 being sister concern cannot exercise the right of proxy for terminating Sales Agency Agreement as it is coupled with the interest in view of section 202 of the Contract Act, later defendants Nos.6 and 7 have been appointed agents in Pakistan, for the subject products. Learned counsel further argued that it will not be possible for the plaintiff to approach and submit to the foreign jurisdiction which shall incur heavy expenses, inconvenience as the plaintiff is not in a position to approach foreign jurisdiction, this Court even in the presence of the arbitration agreement, for preserving the interest of the plaintiff is competent to try the case and decide it on merits. It is next urged that the arbitration agreement is incapable of being performed, the application moved by the defendants Nos.1 to 3 is liable to be dismissed.
10. ' Mr. Nazar Akbar learned counsel for defendants Nos.6 and 7 has contended that the agency has been rightly terminated as its primary requirement was to serve with three months notice the matter cannot be sent for arbitration proceedings as against the defendants Nos. 6 and 7 as their exists no privity of contract between the parties, the defendants Nos.6 and 7 be dropped from the array of the defendants and proceedings against them be struck off.
11. ' I have given due consideration to the arguments advanced by the learned counsel for the parties.
12. Much of the emphasis has been laid on the arbitration clause contained in the sales Agency Agreement referred supra.
13. ' Before I proceed further to discuss the contentions of the parties. I would refer to the arguments of the learned counsel for plaintiff (sic) stressed that section 34 of the Arbitration Act, 1940 would be applicable to the facts of the present case as this law ousted the jurisdiction of the Ordinance No, LVII of 2007 providing Recognition and Enforcement of Foreign Arbitral Awards, 1958 pertains to the jurisdiction of the Court for adjudication and settled matters relating to arising out of this Ordinance, under section 4 the Enforcement of arbitration agreements is provided which reads as under:-- "Enforcement of arbitration agreements."
(1) A party to an arbitration agreement against whom legal proceedings have been brought in respect of a matter which is covered by the arbitration agreement may, upon notice to the other party to the proceedings, apply to the Court in which the proceedings have been brought to stay the proceedings in so far as they concern that matter.
(2) On an application under subsection (1), the Court shall refer the parties to arbitration, unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
14. ' The principle propounded in the above piece of legislature indicates that for Arbitral proceedings as far as possible the Court shall refer the parties to arbitration unless it finds the arbitration agreement is null and void and inoperative of incapable of being performed. In case of Messers.
15. Neincke Food Processing Equipment v. Messrs Danish Butter Cookies (Pvt..) (1992 CLC 1132) in a suit for damages although the defendant was a foreign company for supply of machinery was arrived at in Pakistan. Subject-matter for dealings between parties being also in Pakistan, it would be both inconvenient as well as expensive for plaintiff to produce evidence before. Arbitration outside Pakistan when plant was to be installed by defendant foreign company in Pakistan. The stay was declined and the proceedings were not stayed. For arriving on the above conclusion reliance has been placed on the cases of PLD 1985 Karachi 425, PLD 1973 SC 373 and PLD 1984 Karachi 138.
16. ' It is next urged that in case of violation of section 202 of the Contract Act 1872 the plaintiff shall continue agency or may claim damages from the principal in terms of the Contract section 202 of the Contract Act is reproduced herein below:- "202. Termination of agency where agent has an interest in subject matter.-Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest."
17. ' It is urged that on account of the termination of the agency by incompetent party, the plaintiffs are entitled to continue their business as held in case of Muhammad Aref Effendi v. Eypt Air (1980 SCMR S88), Karachi Catholic Cooperative Housing Society Ltd. v. Mirza Jawad Baig (PLD 1994 Karachi 194). It is next urged that there exists sufficient ground not to stay the proceedings because, of the evidence of case is available at Karachi and it will be impossible and incapable to produce the same before arbitration Tribunal at Geneva. Defendant No,l has already appointed defendants Nos.6 and 7 as their agent in Pakistan and under section 34 of the Arbitration Act 1940 the Court has discretion to refuse the stay of the proceedings despite of Arbitral clause in the agreement between the parties which provided for reference of the dispute to arbitration as held in the case of. Akbar Cotton Mills Ltd. v. Messrs Ves/Ojuanojo Objedienije Tech/Amesh Export And another (1984 CLC 1605), Michael Goldetz and others v. Serajuddin and Co. (AIR 1963 SC 1044 (V50 C 155) (From Calcultta). Messrs Uzin Export and Import Enterprises For Foreign Trade v. Messrs. M.
18. Iftikhar and Company Limited (1993 SCMR 866), Zubair Ahmed v. Pakistan State Oil Co. Ltd. And another (PLD 1987 Karachi 112), Messrs Universal Trading Corpn. (Pvt.) Ltd. v. Messrs Beecham Group PLC and another (1994 CLC 726), Rachappa Gurudappa, Bijapur v. Gurusiddappa Nuraniappa and others (1990 MLD 1383), (Supreme Court of India) Balagaimwala Oil Mills (Pvt.) Ltd. v. Shakarchi Trading A.G. And 2 others (PLD 1990 Karachi 1) and Mian Tajammul Hussain and 3 others v. State Life Insurance Corporation of Pakistan (1993 SCMR 1137).
19. It is next urged that if an act was required to be performed by the defendant No, 1 in specific manner under law and rules ought to have been performed according to such prescribed manner alone or not by the third party which would have no legal effect and would not be binding upon the plaintiff. This view is supported by the dictum laid down in case of Aziz-ur- Rehman v. Presiding Officer, Local Council Elections and others (2005 CLC 1201).
20. 'Learned counsel for defendants Nos.l to 3 has categorically invited my attention to the Ordinance 2007, for Enforcement of Arbitration Act and Foreign Arbitral Awards is protected under the law as it was promulgated on October 3, 2007 provided protection under Provisional Constitutional Order 1 of 2007 it was validated under Article 270 (AAA) as such the Ordinance is fully enforced, per amenity provided under the Constitution.
21. 'Section 4 is mandatory in nature would be applicable to the present case, the cases cited by the learned counsel for plaintiff relating to the applicability and consequences of section 34 of the Act 1940 would not be attracted to the present case.
22. The discretion available to the Court under section 34 of the Arbitration Act shall not be available under Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards)
23. Ordinance, 2007 being mandatory in nature, the foreign elements could not be considered nor the discretion vests with the court to stay or not to stay the proceedings in terms of the arbitration agreement. In this context reliance has been placed on the case of Messrs Travel Automation (Pvt.)
24. Ltd. Through Managing Director v. Abacus International (Pvt.) Ltd. Through President and Chief Executive and 2 others (2006 CLD 497), the learned Single Judge relying on Article II of United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 arrived at the conclusion that under section 4 of the Ordinance XXII of 2004 the Courts are no more left with the discretion for adjudging the convenience or inconvenience of the parties, availability of the evidence at a place other than the arbitration place and whether or not to stay the proceedings was no more within the discretion of the Court and the Arbitral Courts shall have exclusive jurisdiction to adjudicate or settle matter, the Court has to stay the proceedings unless it Ends that Arbitral agreement was null and void, inoperative or incapable of being performed.
25. ' So the only question left over for determination is whether the agency agreement was void agreement. It appears that the plaintiff has sought declaration and injunction on the basis of the valid agreement and its enforcement against the defendant No,l coupled with compounding agreement, clothed with interest and mandatory injunctions.
26. ' Learned counsel for plaintiff did not dispute the status of the agreement much of the emphasis has been laid by him on its termination by an unauthorized party having no privity to the agency agreement. There appears to be no dispute about the existence of the agreement between the parties except with the defendants Nos.4 and 5.
27. ' Adverting to clause 27 contained in each agency agreement whereby for termination of agency period of termination of notice for three months is required, in case of dispute the arbitration proceedings would be held at Geneva. This clause provides for arbitration proceedings under International Arbitration Rules, the plaintiff has sought declaration that the termination of agency agreement is not valid and its termination is illegal therefore the dispute arising thereto is fully covered by clause 27 of the Agency Agreement. In support of the above contention learned counsel for plaintiff has placed reliance on the case of Bolan Beverages (Pvt.) Ltd. v. PepsiCo. INC.
28. And 4 others (PLD 2004 SC 860), in connection with the applicability of section 202 of the Contract Act, 1872 the dictum laid down is that on close examination of the section would show that it can be split up into two parts. The first part contemplates that the interest of the agent himself should exist in the property that forms the subject matter of agency. The second part of the section is that when such an interest is created, it cannot be terminated to the prejudice of an agent unless it is expressly provided in the contract. The facts of .The instant case reflect that the agent must have interest in the agency contract and interest can be settled after its revocation/termination by the principal and by way of compounding agency agreement it could not be held that a specific interest has been created in favour of the plaintiff. In case of Messrs Time N Visions International (Pvt.) Ltd v. Dubai Islamic Bank Pakistan Ltd. (PLD 2007 Karachi 278), the scope of section 202 was considered broadly it has been held that contract of agency by its very nature is personal to the parties and revocable at their violation subject to agreement terms. It does not create eternal legal relations. In certain exceptional circumstances, such contracts can be considered irrevocable. The principal is precluded from revoking the authority of such agent unless otherwise interest in the property is not retained by him but is passed on the agent, it can be inferred from documents forming the basis of agency or from thq course of dealings between the parties and from the other surrounding circumstances whether the agency was revocable or not. Relying on the judgment in the case of Huma Enterprises and 3 others v. S. Pir Ali Shah and others (1985 CLC 1522), it was held that even where termination notice is not given as provided in the agreement, the plaintiff could only ask for damages and not for declaration and permanent injunction, as such an agreement cannot be specifically enforced. Reliance has been placed on the case of Worldwide Trading Company v. Sanyo Electric Trading Company Ltd. (PLD 1986 Karachi 234).
29. ' Previewing cases from the Indian jurisdiction in case of Palani Vannan and others v. Krishnaswami Konar and others (AIR (33) 1946 Madras 9), it has been laid down in the above report that where an authority or power is coupled with an interest, it is irrevocable, unless there is an express stipulation to the contrary; but the right of the agent to remuneration, although stipulated for in the form of part of the property to be produced by the exercise of the power, is not an interest in this sense. In case of Sheoparsan Singh and others v. Ramnadan Prasad Narayan Singh and others (AIR 1916 Privy Council) (From Calcutta), Sir Lawrence Jenkins dealing with section 42 of the Specific Relief Act came to the conclusion that the plaintiff must be entitled to a legal character or right as to the property for bringing a case of action for adjudication on merits.
30. ' From perusal of the record it appears that the plaintiff has also questioned the agency agreement, the arbitration clause is open to the effect that it has provided that the proceeding shall be initiated in English according to the Rules of Conciliation and Arbitration of the International Chambers of Commerce. The Arbitration agreement is capable of performance, objection raised by the plaintiff, precondition for refusing the stay that the agency agreement and the clause contained about arbitration therein is null and void inoperative and incapable of performance is missing in the present case. Much of the stress has been laid by the learned counsel for action on behalf of the defendant No,4 in proxy for defendant No, 1 would not create bar in preference to the covenants contained in agency, agreement. From the perusal of the record it appears that the plaintiff did not ask for any relief against defendants Nos.6 and 7 the only relief claimed is against defendant No,l to the extent that the revocation assigned to defendant No,4 or on belief of defendant No,l would not diverse interest to the benefit of the plaintiff.
31. ' Mr. Nazar Akbar learned counsel for defendants contended that no relief has been claimed against the defendants Nos.6 and 7 being newly appointed agents by defendant No,l. It is urged that a party cannot be allowed to invoke arbitration clause by way of joining a party who was not a party to arbitration agreement therefore I have come to the specific conclusion that the defendants Nos.4, S, 6 and 7 were not party to the agency agreement and are not governed by the arbitration clause, the suit filed against them is not maintainable in law.
32. ' Reverting to the contention of the learned counsel for plaintiff that the compounding agreement executed between the plaintiff and the defendant No,l was coupled with interest and cannot be unilaterally cancelled. As a matter of fact defendants Nos.l to 5 are affiliated belonged to Givaudan groups involved in the fragrance and flavour business. The defendant No,2 with effect from 31st December 2008 changed his name as Quest International India Private Ltd to Givaudan (Flavours)
33. India Private Ltd. And the defendant No,3 with effect from December 2007 changed its name to Givaudan UK Limited. Admittedly plaintiff being agent of defendants in Pakistan for -despatch of imported Flavours fragrance carried out business under the agency agreement which was terminated by serving at least three calendar months' notice in writing. In any event plaintiff per annexure C attached to the counter-affidavit to C.M.A. No,2805/2008 at page 215 of the file received through e-mail at Karachi for a settlement, in connection with the dilution together with FEI therefore the compounding agency agreement would not have adverse bearing to the case of the defendants nor it will affect the arbitration proceedings as held in case of Messrs Business Computing International (Pvt.) Ltd. v. IBM World Trade Corporation (1997 CLC 1903), dealing with the question of agency coupled with interest it has been held that by making of substantial investments in business of agency does not make the agency irrevocable and produce a passage as held in the case of IBM World Trade Corporation (supra) in support thereof that interest of the agent, forming subject matter of the agency, is to be some sort of an adverse nature qua the principal, this view is also held in Bolan Bevarages (supra) dealing with section 202 of the Contract Act the Honourable Supreme Court has observed that agency is irrevocable which is created with adequate consideration and is designed to serve as security for some interest of the agent. Any expenditure in setting office and necessary infrastructure for carrying on business of agency does not tantamount to the creation of interest of agent in the subject-matter.
34. For the foregoing reasons I am of the considered opinion that the plaintiffs suit as against defendants Nos.4, 5, 6 and 7 is not maintainable in law and is hereby dismissed. The plaintiff has failed to bring out the case, within the limitation provided under section (2) of subsection 4 of the Ordinance 2007 therefore, listed application is granted and thq proceedings of the suit are hereby stayed. The dispute between the plaintiff and the defendant No,l be referred for the Arbitral proceedings in terms of arbitration clause. The above observations are tentative in nature which shall not influence the arbitrator while deciding the matter on its own merits.