1. ' Ms. RUKHSANA AHMED, J.---Through this common order the main application along with all the listed applications except CMA. No,10630 of 2009 are being disposed off. However, CMA. No,10630 of 2009 is not being pressed by the defendant No,1 and hence the same is dismissed as not pressed.
2. ' The briefly the facts of the case are that Plaintiff who is a private limited company and is engaged in the business of construction is subsidiary, of the highly reputed UAE based construction contract, Arabtec LLC which is considered as the leader in the construction industry in the Middle East has filed present suit under section 20 R/W section 41 of the Arbitration Act, 1940. The defendant No,1 is also a private limited company and recently developing Karachi Financial Towers Project. On 17-12- 2007 the plaintiff and defendant No,1 entered into a "Letter of Agreement" LOA, for construction of the Karachi Financial Towers Project. As per clause of the said Agreement the plaintiff arranged for two bank guarantees:--
(1) Performance Guarantee dated 20-2-2008 and;
(2) Advance Payment Guarantee dated 10-10-2007 favoring defendant No,1 drawn by defendant No, 2 Dubai Islamic Bank Pakistan Limited, Karachi.
3. ' According to clause 5 of the said "LOA" WHEREIN it is provided that any dispute arising out of the agreement would be first settled amicably and within 30 days thereafter if not possible the matter shall be referred to the Arbitration of Sole Arbitrator to be nominated with the consent of the parties and further that decision of the Arbitrator shall take place at Karachi and shall be precondition to any action at law and such Arbitration would be governed by the Arbitration Act, 1940. After execution of this Agreement both plaintiff and the defendant No,1 entered into "Enabling Works Agreement", EWA dated 17-1-2008, wherein by clause 5.2 it was clearly provided that LOA shall have priority over all other contract documents.
4. ' At this stage due to economic downturn in 2008 the defendant No, 1 was struggling to keep the project alive with limited sources but the defendant No,1 not only instructed the plaintiff to suspend works vide Notice 15-10-2008 issued through the Project Manager, but also sought complete re- design of the KFT Project. However, the employer was unable to respond positively to the plaintiff's notice seeking permission to resume suspended works and unpaid invoices of the plaintiff which accumulated to an alarming proportion. On 12-3-2009 the Employer admitted that KFT Project was in financial difficulties and thus an indefinite HOLD on the Enabling Works Contract was sought.
5. According to the plaintiff there was no provision/clause regarding HOLD and thus it was agreed by the plaintiff that parties will move towards an amicable termination of Enabling Works Agreement.
6. Accordingly on 16-3-2009 a 14 day Termination Notice in pursuance of clause 69.1 of the Conditions of Contract was issued by the plaintiff. Instead of responding to the said notice or meeting the defendant No,1 issued a unilateral notice of Termination of Letter of Agreement vide letter dated 18- 3-2009 which was duly responded by the plaintiff vide correspondence dated 21-3-2009 and the defendant No,1 in response thereto has only reiterated its position of forcing the plaintiff to continue expending resources without payment of long outstanding invoices further the defendant No,1 also engaged the plaintiff in discussion for amicable settlement.
7. ' However, after a meeting held on 27-3-2009 the Parties signed a letter on 31-3-2009 whereby it was inter alia provided that:--
(i) Without prejudice both parties withdraw all adverse notices
(ii) Both parties to commence negotiations for amicable settlement.
(iii) Both parties acknowledge that efforts for amicable will not be a waiver of any right or obligation under the LOA or the Enabling Works Agreement
(iv) if parties fail to amicably settle they may take such action as they may be advised in accordance with law.
8. ' However, according to plaintiff he took every step to get the dispute resolved but the defendant No,1 has failed to response positively and is trying to linger on the matter to avoid its outstanding payment obligations. Looking to such circumstances the plaintiff was compelled to reinstate its Termination Notice vide letter dated 13-5-2009. The defendant No,1 vide letter dated 20-5-2009 passed on its contractual burden on one of its shareholders with whom there was no privity of contract. Nevertheless, on the same date the defendant No,1 issued another letter regarding finalizing the sums due to the plaintiff and in response to such let ter the plaintiff vide letter dated 21-5-2009 plaintiff welcomed the same but informed that both the parties must attempt to meet the deadline of end of May 2009, but according to the plaintiff the said deadline ended and only defendant No,1 purchased dewatering equipment on site from plaintiff after the meeting held on 3- 6-2009.
9. ' According to the plaintiff on 8-6-2009 NLC one of the share holder of the defendant No,1 informed the plaintiff that in terms of the agreement dated 4-6-2009 the defendant No,1 took over the site and equipment on 10-6-2009. The equipment sold by the plaintiff to the defendant No,1 under the agreement dated 4-6-2009 was to be paid vide post dated cheques. However, another correspondence received by the plaintiff on 9-9-2009 from the defendant No,1 whereby defendant No,1 admitted shortage of funds and restrained the plaintiff from encashment of the said cheques.
10. ' Yet another correspondence received by the plaintiff from the defendant No,1 whereby defendant No,1 requested for extension of aforesaid Performance Guarantee. In response to such correspondence plaintiff vide letter dated 15-9-2009 asked from the defendant No,1 that under what provision such demand is being made especially when Enabling Works Contract had been terminated on 13-5-2009 and Site has been taken over by the defendant No,1 on 10-6-2009 and the plaintiff also requested for return of Bonds and the Guarantees. However, plaintiff also addressed a correspondence to the defendant No,2 Bank informing all the situation arose between the plaintiff and the defendant No,1, but on 24-9-2009 the defendant No, 2 informed plaintiff that the defendant No,1 has lodged a claim on the Performance Guarantee. It was further submitted that Project Manager of the defendant No,1 himself approved and verified the plaintiff's invoices in total sum of USD 9.7 millions which is in excess of the sums guaranteed. Nevertheless, according to the plaintiff he claims much larger amount against the defendant No,1 along with interests, costs and loss of profits. Plaintiff further asserted that plaintiff has not been paid its dues and as per defendant No,1 own Project Manager letter dated 9-1-2009 which though only shows invoices 11 to 16 but the same are also in the sum of USD 9.7 millions, whereas, defendant No,1 is bent upon to encash Performance and Advance Payment Guarantees. Therefore, plaintiff through the instant suit has prayed as under:-- PRAYER
(1) Permit the filing of the arbitration agreement as provided in the LOA in this Hon'ble Court.
(2) Refer the dispute between the plaintiff and the defendant No,1 as raised in notices dated 16-3- 2009, 18-3-2009, 14-5-2009 and 15-9-2009 to arbitration to be conducted at Karachi by an arbitrator to be appointed by the mutual consent of the parties or as the Hon'ble Court may direct.
(3) Till the making of the Award by the Arbitrator, restrain the Defendants from eitheir directly or indirectly encashing the Performance Guarantee or the Advance Payment Guarantee in any manner whatsoever.
(4) To grant any other relief(s) which this Hon'ble Court may deem just and equitable in the circumstances.
11. ' On the other hand, learned counsel for the defendant No,1 argued that plaintiff and defendant No,1 entered into Letter of Agreement for construction of Karachi Financial Towers Project. The total contract value was USD 163,775,640 and under clause 16, the plaintiff was required to arrange two irrevocable Bank Guarantees in favour of defendant No,l. However, after the LOA the parties entered into Enabling Works Agreement dated 17-1-2008 and according to the defendant No,1 the plaintiff has caused severe delay in starting the work as the plaintiff was under obligation to price the Issued for Construction (IFC) drawings and the Bill of Quantity in a manner enabling the formalization of the main contract, but the plaintiff with mala fide intentions only partly submitted concrete works BOQ's. He further argued that plaintiff significantly increased the costs of concrete works contrary to the terms of LOA and as required by the approved IFC drawings. Further the value of engineering confirmed that the initial workings of the plaintiff were not workable and when the defendant No,1 asked the plaintiff upon which the plaintiff submitted costs estimate by increasing the project cost. Though the defendant No,1 several times asked the plaintiff to submit cost break up but he failed to respond to the defendant No,1 and such attitude of the plaintiff is clear defiance of clause 3 of the LOA. Learned counsel for the defendant No,1 further argued that according to the latest submission made by the plaintiff, the costs of the project were again increased to more than 61% of the agreed costs of LOA. It was further argued that performance of the plaintiff's sub- contractors were below the required standards and even safety and security measures have not been followed by the plaintiff, therefore, defendant No,1 having no other option but to request Messrs Projacs to suspend the works as re-evaluation was required of the structural design of the project had been necessitated because of the plaintiff's departure from the basic design criteria which had resulted in excessive project costs contrary to clause 3 of the LOA. Learned counsel further argued that defendant No,1 under the LOA continued to make the monthly payments to the plaintiff, whereas, upon assessm ent and reconciliation of the actual work done by the plaintiff at the site by Messrs Projacs (Project Manager) and it was found that work is not being done by the plaintiff in accordance with the required standards as provided under LOA. However, learned counsel for the defendant No,1 has asserted that according to clause 17 if at the time of reconciliation, the actual works done are in variation of more than +/- 5% from the expected progress of work, the payment schedule was to be changed/adjusted accordingly. When work was assessed by the Project Manager it transpired that variance of actual work was -13% from the expected progress of work. Further that the design criteria submitted by the plaintiff also did not match with the required design criteria under LOA which caused colossal loss to defendant No,
1. He further argued that the plaintiff has concealed such information from the Court and in fact has relied upon a baseless claim of invoices which have not yet been assessed by the Project Manager.
12. He further argued that plaintiff though was repeatedly required by Project Manager to submit adjusted cash flows and catch up measure but no response was shown by the plaintiff. Further that on 12-3-2009 a meeting was held by the defendant No,1 in the presence of the Project Manager as well as the plaintiff wherein violations by the plaintiff were discussed and it was agreed that the matter would be amicably resolved, but the plaintiff negated the said intent by sending a unilateral 14 days termination notice to the defendant No,1 on 16-3-2009, therefore, the defendant No,1 was compelled to terminate LOA as said project had become commercially non-viable due to the exorbitant project costs being charged by the plaintiff.
13. ' In order to resolve the dispute, the defendant No,1 again sent a letter dated 21-3-2009 by reminding Plaintiff his contractual obligations and in response to which the plaintiff met with the representatives of the defendant No,1 on 27-3-2009 and the defendant No,1 with all good intentions conceded to the request of the Plaintiff to initiate the settlement process once again and accordingly a letter was signed by both the parties on 31-3-2009. Nevertheless, again the plaintiff on 13-5-2009 sent another termination notice to the defendant No,1, which shows that the plaintiff does not want to resolve the matter amicably and on the other hand is charging excessive and undue amounts refused to agree to the fair assessment of the Project Manager and translated such mala fide intention in the form of above said letter of termination.
14. ' However, as regards the Performance Guarantee, learned counsel for the defendant No,1 argued that the same is irrevocable and unconditional as per the LOA and is thus separate contract. He stated that invoices referred to by the plaintiff amounting to USD 9.7 millions are not payable as they are not assessed or confirmed by the Project Manager. He therefore, prayed that matter may please be referred to the sole Arbitrator in accordance with clause 5 of LOA but simultaneously he also prayed to allow encashment of Performance and Advance Payment Guarantees.
15. ' The learned counsel for the defendant No, 2 who is but a performa party has contended that the bank guarantees are not irrevocable and the bank is not a party to the arbitration proceedings, and has asked the court to specify the amount at which the adjustment has to be made by the defendant No,2/bank when the order is being passed.
16. ' I have heard the counsel at length and have perused the material placed on record, at the very onset this order will be disposing of the main application filed under section 20 r/w section 41 of the Arbitration Act, 1940 which is granted and as the learned advocates had jointly suggested for the appointment of Arbitrator the name of Retd. Justice Salman Talibuddin, the Court appoints him as Sole Arbitrator. The Arbitrator's fee will be determined by the Arbitrator at the start of the proceedings before him.
17. ' While starting his arguments the advocate of the defendant No,1 did not press CMA 10630 of 2009 which is an application for the encashment of the Performance Guarantee by defendant No,1 and the same is disposed off as not pressed.
18. ' CMA 10628 of 2009 is another application filed by the defendant No, 1 where in it has been prayed for encashment of the Advance Payment Guarantee issued by defendant No, 2 in favor of defendant No, 1 as the same is alleged to be unconditional and irrevocable guarantee.
19. ' To this application, counter affidavit has been filed by the plaintiff wherein it has been specifically denied that the Advance Payment Guarantee is unconditional, and the conditions for the recovery of the advance payment are stipulated in clause 16 of the LOA, which states that the "Advance Payments are to be recovered over the whole project programme starting with the first monthly payment." And it is the contention of the plaintiff that a portion of the advance Payment has already been recovered in the monthly payments and the conditions governing the recovery of the balance portion in the case where the contract has been terminated are specified by sub-clause 65.8 of the general conditions of the contract dealing with the "payment if contract terminated".
20. ' The balance amount if any should be determined by the engineer and if the recovery if any left after deducting what is due to the contractor, should be made from the final payment.
21. ' In the present case the final payment has long been with held by the defendant No, 1, and is in fact much more than the advance received by the plaintiff. It is further contended that the exact final amount can only be determined after all the claims of the contractors have been presented and considered in the proposed arbitration. The penultimate paragraph of the guarantee has additional conditions specified such that the original full value of the guarantee may not be called in when portions there off have already been recovered by the defendant No,1 via the contractual mechanism of monthly payments. A request to the contrary by the defendant No, 1 is not only misleading but tantamount to being an additional fraudulent act.
22. ' It has been denied that the plaintiff had acted with mala fide and obtained the order dated 25-9- 2009 without disclosing true facts. The guarantees are issued under the specific provision of the agreements entered into between the parties and the same cannot be read or treated as independent of such covenants. Further it has been specifically denied that the defendant No, 1 has continued to make monthly payments. After the initial 2 two monthly payments and partial payment in March 2008, which was made after a delay of 4 months, the defendant No,1 had actually stopped paying even before the first revision of progress of work of the project, even though the plaintiff was working up to the required standards and not in contravention of the schedule. The standard of work was witnessed by the consulting engineers on site and attested by the consultant engineer hired by the defendant No,
1. Plaintiff has not suppressed any material information from the court and the allegation to the contrary by the defendant No, 1 is denied.
23. ' The invoices cited by the plaintiff were not baseless as alleged and not assessed by the Project Manager was false and belied by the record and neither had the defendant No, 1 made enormous extra payments to the plaintiff, and at no point did the plaintiff have any responsibility associated with the design of works. The Design Criteria as set out in Appendix C of the LOA was agreed to form the basis for the prices in the LOA and it was the responsibility of the defendant No,1 to ensure CPG'S Design was in accordance with the Design Criteria and due to this very fact the same led to increase in project cost which is a matter of record. The responsibility of this increase did not lie with the plaintiff but on CPG, the firm hired by the defendant No, 1.
24. ' Lastly, it is submitted that adjusted cash flows and catch up measure sought by the Project Manager were duly complied and the same is established by letters dated 10-6-2008, 11-8-2008.
25. ' In view of the suspension dated 15-10-2008, termination of the enabling works on 10-5-2009 taking over the project site by the defendant No, 1 on 10-6-2009 the plaintiff stood released from performance and as such there was no basis for the renewal of the said guarantee and there was no contractual provision on which an extension could have been justified. The reliance on the termination of the EWA is entirely lawful as the terms thereof were made to govern the performance guarantee. It was further being specifically denied that the plaintiff had not complied with PROJACS request for the adjusted cash flow and catch up measures. The plaintiff invoices were denied to be at variance with its contractual rights or otherwise inflated and it was further denied that the invoices were not payable and were not assessed or confirmed by the project Manager. The reference to the adjusted cash flow, catch up measures and revised cash flow were entirely misconceived as request of the Project Manager on such counts were duly complied with to its full satisfaction by the plaintiff , in fact it was after a detailed reconciliation in November 2008 that the Project Manager verified and confirmed the invoices for payment.
26. ' The plaintiff retains their right to claim funds in excess of the approved reconciled amounts as these were done upto a certain point and without due consideration to additional claims being prepared. It is further stated that in wilful violation of its obligations, the defendant No,1 first delayed and then resiled from its commitment to honour the same. The contentions of the defendant No,1 have only validated the lawful apprehension of the plaintiff with regard to the defendant No, 1 's mala fide and fraudulent intentions regarding the guarantees. The defendant No,1 owes the plaintiff, sums in excess of USD 9.7 millions as duly certified and approved by its own Project Manager and in such circumstances any attempt to obtain payment under either of, the guarantees would not only be fraudulent but cause irretrievable harm and injustice to the plaintiff.
27. The balance of convenience weighs clearly on the side of the plaintiff and not the defendant No, 1.
28. ' The defendant No,1 has filed their affidavit in rejoinder of one Naveed Jilani being the authorized person and they have submitted that the plaintiff had already received the consideration of dewatering equipment and denied having ever threatened the plaintiff and further submitted that they were within their legal rights to demand extension of the guarantees. The plaintiff's rigid attitude and non-performance of the terms of LOA and EWA, that defendant No,1 was forced to exercise its lawful right for encashment of the guarantees. As to the invoices being unpaid by 15 months was due to the fact that the same have neither been verified or confirmed by the Project Manager and the performance of the plaintiff and its delay in work are clearly identifiable from the correspondence of the Project Manager. The defendant No,1 did not agree to the return of the performance guarantee as part of the settlement, in fact till the final settlement it was agreed that the Guarantees will be extended in case it expires during the negotiations. They have further stated that the invoices raised by the plaintiff are not indicative of the actual work undertaken by the plaintiff as the appendix B to the LOA includes a pre-agreed monthly payment schedule spreading out the entire costs of the Project and to avoid delays it was agreed under clause 17 of the LOA that defendant No,1 would continue to make the pre-agreed monthly payments notwithstanding the value of the actual work carried out by the plaintiff and these payments would then be reconciled after every quarter with the actual value of the works.
29. ' It was further specifically denied that USD 9.7 millions worth of invoices have been verified by the Project Manager. The invoices attached were not the final approved amounts payable to the plaintiff as the same did not reflect the actual earned value of works by the plaintiff. All the invoices included "preliminaries" which were still under negotiations and had not been finally approved by the Project Manager. Therefore without prejudice to the fundamental contention that the guarantees are encashable without any reference to the plaintiff, it is pertinent to mention here that the actual works earned value upto December 2008 of the plaintiff as assessed by the Project Manager is USD 6,795,656.00 whereas defendant No,1 has already made payments of Rs,658,388,502.00 (far in excess to the earned value by the plaintiff). Moreover out of the advance payment of Rs,503,907,782 extended to the plaintiff, the defendant No,1 has only deducted Rs,31,115,688 whereas Rs,472,792,094 out of the total advance payment is still outstanding, with the plaintiff thus there is no payment due to the plaintiff from defendant No,l. In fact it is stated that the plaintiff has received payments in excess of actual works done and as such the said amount is payable by the plaintiff to defendant No,l.
30. ' Defendant No,1 has prayed for this Court to set aside the order dated 25-9-2009 passed in CMA.
31. No,8816 of 2009 in the instant suit or vary such order to allow the defendant No,1 to encash the advance payment guarantee No,98GTEP07283002 issued by the defendant No,2 in favour of defendant No,l. The said guarantee is placed on page 39 of the pleadings and is not unconditional and irrevocable as alleged. On perusal of the said guarantee a sum of Pak Rs,503,907,782.00 (Pak Rs, Five Hundred Three Millions, Nine Hundred Seven Thousands, Seven Hundred Eighty Two Only) was executed for the advance payment of an equal amount being 5 PCT of the contract value for the above mentioned works. It came to effect as when the amount of Rs,397,907,782.00 was received by Messrs Arabtec Pakistan (Pvt.) Limited, the plaintiff in their account No, 009-0025681001 at the Bank's Clifton Branch at Karachi. The validity of the Guarantee was until 15th September, 2010 whereupon the same would become null and void whether or not returned to the Bank. Any claims hereunder should have been submitted to the Bank in writing, within the business hours stating that Messrs Arabtec Pakistan (Pvt.) Limited (Plaintiff) had failed to fulfil their contractual obligation under the said contract and should have been received by the Bank within the validity of the Guarantee. The Bank would not admit any claims whatsoever after the date of validity. However, as and when the advance payment was recovered against progress payments then the amount of the Guarantee would automatically be reduced to the extent of such recovery based on the progress payment certificate evidencing recovery of advance payment. Lastly the Guarantee would be governed and construed in all respects in accordance with the laws of Pakistan.
32. ' After hearing the arguments advanced by both the learned advocates who have also supported their arguments with case laws. The plaintiff has fortified his arguments with the following:--
(1) AIR 1988 DEHLI 207. (Which is identical on facts of the present case).
(2) PLD 1996 Karachi 183.
(3) 2002 SCMR 1781.
(4) 2008 CLC 726.
(5) PLD 1976 Karachi 644.
(6) PLD 2003 SC 191.
(7) 1993 CLC 1926.
(8) 1993 MLD 1234.
(9) PLD 1994 SC 311.
33. ' The main contention of plaintiff has been that irretrievable injustice will be metted to plaintiff if this Court allows the encashment of Bank. Guarantee as they have continued to suffer due to the internal level of confusion and disarray within the defendant No,1 and as admitted by themselves that their finance were hardly envious and were in dire straits to raise funds.
34. ' The fact being that what was owed to plaintiff by defendant No,1 was more than the total value of the Bank Guarantees.
35. ' The arguments of the plaintiff are further summarized as under:--
(1) The Language of Bank Guarantees are both conditional upon default of contractual obligations.
(2) Admittedly work had been stopped by defendant No,1 for redesign Project.
(3) Reconciled and verified invoices payable to the plaintiff were far in excess to the Bank Guarantee's.
(4) The conditions of calling the Bank Guarantees under clause 10.3 of General Conditions of Contract has not been done by defendant No,1.
(5) Defendant No,1 agreed in writing for return of original Bank Guarantees to plaintiff vide letter dated 31-3-2009 available at page 113 of the plaint. Further the Amicable Settlement Referred to in email which is available at Page 939.
(6) Case of plaintiff is distinguishable.
36. ' The main contention raised by both advocates is centered as to whether payment is due to the plaintiff or whether the defendant No, 1 has paid to plaintiff more than what is due. This would at its best be successfully decided by the Arbitrator meanwhile, the Guarantees would remain intact till the award is given on the Arbitration proceedings.
37. ' Therefore, the present application wherein the defendant No,1 has prayed for encashment of the advance payment guarantee or in the alternative encashment of the advance payment guarantee to the extent of unverified and undisputed invoices is dismissed. Lastly the application for restraining the encashment of the Guarantees filed by the plaintiff in which a stay had been already granted is disposed of accordingly. Suit is also disposed of.