1. ' MAQBOOL BAQAR, J.---Through this order, I propose to dispose of C.M.A. No, 4358 of 2008, filed by the plaintiff, under section 41 of the Arbitration Act 1941.
2. ' The relevant facts of the plaintiff case, in brief, are that the plaintiff, a construction company, on or about 9-11-2006, made an offer for the construction, completion and maintenance of the main buildings works contract for the residential development of Creek Marinas, Karachi, at a price of Rs,10.568 billion. In response, defendant No, 1, the Employer, conveyed, its acceptance of the offer, vide letter of intent to award dated 19-11-2006, annexure-A to the plaint, page 45 (L.I.A). In terms of the aforesaid letter, the plaintiff was required to submit a performance bond in the sum of Rs,528,400,000 and insurance for the works and also mobilization advance bonds in the sum of PKR 835,000,000 for Phase 1, and PKR 595,000,000 for Phase 2 respectively. It is stated that as per the requirements contained in the contract documents, the plaintiff requested defendants Nos. 2 and 3 to furnish the following performance guarantee and mobilization guarantees in favour of defendant No,1:--
(1) Performance Guarantee Bank Guarantee dated April 12, 2007 for USD 5,125,250.
(2) Mobilization Advance Guarantee
(i) Bank guarantee dated April 20, 2007 for USD5,000,000.
(ii) Bank Guarantee dated July 23, 2007 for USD3,780,432.
3. ' It is claimed that the plaintiff duly mobilized to the site of work and established its camp for its workforce near the site. It also mobilized its plant and equipment for the effective execution of the work. There were delays in the release of Mobilization Advance on the part of the defendant No,1 which obstructed smooth and expeditious mobilization by the plaintiff and this was duly notified by the plaintiff at the relevant time. According .To the plaintiff, the procedure for the payment of contract price by the defendant No,1 to the plaintiff was stipulated in clause 14 of the General Conditions. However, such agreed procedure was never followed. Instead a procedure alien to the understanding between the parties was adopted which generated lot of confusion and controversy between the parties. This, in turn, impacted the progress of work adversely, and caused delays in the execution of work at site. The defendant No,1 was obliged to enter into a contract agreement with the plaintiff in terms of sub-clause 1.6 of the General Conditions, whereas, clause 3 of the General Conditions provided for the appointment of an Engineer to carryout duties assigned to him in the contract. These duties included all duties of verifications, determination, certification and contract administration. Although the name of the Engineer was mentioned in the appendix of Tender viz. Meinhardt (Pakistan) Limited, however, the said Engineer never took up the assigned role and all powers/ duties of the Engineer were taken over by defendant No, 1, which was contrary to the contract. Despite repeated requests of the plaintiff, defendant No,1, in disregard and defiance of the aforesaid requirement of the General Conditions, ignored/refused to comply with the same and no contract agreement was executed between the parties. It is further contended that defendant No,1 approached defendant No, 2 in the first week of May, 2008, with a request for the encashment of the aforesaid performance guarantee and the mobilization advance guarantees, absolutely without any intimation. It is contended that the aforesaid attempted encashment of the guarantees against the above background of utter disregard for the obligations, voluntarily undertaken by the defendant No, 1 under the arrangement contained in the letter of intent to award dated 19-11-2006 (L.I.A) was a clear and indefensible case of repudiation of contract on the part of the defendant No, 1 and the plaintiff was left with no option but to accept the same. This was done by the plaintiff vide its letter dated 10-5-2008. It is further contended that the General Conditions contained a requirement of obtaining the decision from the Dispute Adjudication Board comprising of the Engineer. Defendant No, 1, however, failed to appoint the Engineer who alone, under the contract, was competent to administer the contract between the Employer and the Contractor. In the absence of such appointment the administration of the contract was throughout in suspension. It is further alleged that all the functions and powers vesting in the Engineer under clause 3 of the General Conditions were usurped/taken over by defendant No,1 in breach of the said provision. It is further contended that since the Engineer never took up the performance of the role assigned to him under clause 3 of the General Conditions the provisions in clause 20 of the General Conditions which could only be operated in the presence of a duly notified Engineer became redundant and unenforceable. The plaintiff was thus not obliged to seek recourse to sub-clauses 20.4 and 20.5 of the General Conditions and the disputes between the plaintiff and defendant No,1 thus become referable to arbitration under sub-clause 20.6 without recourse to the earlier sub-clauses 20.4 and/or 20.5 of the General Conditions. It was on the alleged facts and ground that the plaintiffs has sought a direction to the defendant to file the arbitration agreement in this Court, so that, the various disputes between the parties may be referred to arbitration as provided therein.
4. ' Whereas, through the afore-noted C.M.A., the plaintiff has prayed for an order, restraining defendants Nos. 2 and 3 from entertaining or dealing with any request for encashment of the afore-noted three guarantees.
5. ' Through their written statement, the defendant No, 1 submitted that the plaintiff has failed to identify as to what the alleged dispute in which the plaintiff is seeking to refer to arbitration. It is contended that since the plaintiff has himself accepted the repudiation of the contract by defendant No,1, there is no dispute between the plaintiff and defendant No,
1. As regards the bank guarantees, it is submitted that the same are independent contracts between the defendants Nos.1 and 2 in respect of which the plaintiff is neither a party nor do the bank guarantees provide for arbitration. It is contended that in the circumstances, the plaintiff has no locus standi to bring any action in respect of the bank guarantees and that even otherwise any dispute regarding the same is not under the arbitration agreement, the suit is thus liable to be dismissed on this ground alone.
6. It is submitted that clause 20.4 of the FIDIC Conditions of contract for construction, (annexure-B to the plaint), which constitute a part of the contract between the plaintiff and defendant No, 1 requires any dispute between the plaintiff and defendant No, 1 to be first referred to be Dispute Adjudication Board ("DAB") and that the DAB is required to render its decision within a period of 84 days. In the event of its failure to do so or in case either of the parties is dissatisfied by the decision of the DAB, either party in case of the former and the party dissatisfied in case of the latter may send a notice of dissatisfaction to the other party within 28 days after either the expiry of the 84 days period, or of receipt of the decision of the DAB. Whereas, clause 20.5 of the said Conditions requires the parties to attempt to settle the dispute amicably before commencement of arbitration and in case the parties agree not to attempt an amicable settlement then the dispute may be referred to arbitration on or after the fifty sixth day on which the notice of dissatisfaction was issued. It is submitted that the plaintiff has violated the said conditions by filing the instant suit without fulfilling the prerequisites as agreed upon by way of the said conditions and the suit is liable to be dismissed on this ground also. It is submitted that defendant No, 1 issued a letter of award dated November 19; 2006, which was duly accepted by the plaintiff by way of its acknowledgement at a formal contract signing ceremony thereby, forming a binding contract between the plaintiff and defendant No,
1. It is alleged that the plaintiff has maliciously withheld the production of the said contract with mala fide intentions. It is contended that the plaintiff is intentionally trying to mislead the Court by attempting to create a false impression that the said contract was merely an intention to enter into a contract agreement. Whereas, the last paragraph of the said contract/letter reads as follows:-- "Until a formal Contract is executed, your confirmation of acceptance hereof shall be a binding contract between you and the Employer."
7. ' It is submitted that subsequent to the execution of the said contract, the parties mutually agreed to waive the requirement of executing any further contract, agreement, and/or any other documentation and that such mutual agreement of the parties is evident from the fact that the plaintiff never raised any such issue while the entire period of eighteen months the contract was in subsistence. However, the plaintiff has filed the instant suit only in an attempt to evade its legal obligations under the contract and to deprive defendant No, 1 of its lawful dues. It is submitted that the terms of the guarantees require payment to be made by defendant No, 2 to defendant No, 1, unconditionally, without reference to the plaintiff, on the first written demand, as may be seen from the relevant portions of the said guarantees. It is stated that the plaintiff was required to commence work on Phase I(a), I(b), and Phase II of the Project on February 1, 2007, April 1, 2007 and August 1, 2007 respectively, however to date the plaintiff has not even fully mobilized the materials, equipment, and the manpower adequate for the construction of Phase I of the project. It is denied that there was any delay on the part of defendant No, 1 in releasing the mobilization advance. It is pointed out that the plaintiff has not produced a single letter wherein it has requested payment of mobilization advance as has been alleged by them. It is further pointed out that the letters filed as annexure 'F-1 to F-6' to the plaint are of the year 2008, whereas, advance payment guarantees had already been issued in April and July of 2007 respectively, against payment of mobilization advance. Moreover, the letters filed as annexure F-2 to F-6 to the plaint do not contain any mention of payment of mobilization advance having been delayed as has been falsely alleged by the plaintiff. It is alleged that it was the plaintiff who delayed providing the advance payment guarantees, which under clause 7.0 of the said contract was required to be submitted by the plaintiff prior to any payment of mobilization advance by defendant No, 1 and that defendant No, 1 recorded its complaint with regard to the plaintiffs failure to submit the advance payment guarantees within the time period prescribed by the said contract, as early as February 9, 2007 and subsequently on a number of occasions and annexed letter dated February 9, 2007, as annexure-B to the written statement. It is claimed that defendant No, 1 has followed and strictly adhered to all the provisions of the contract and all the documents constituting part thereof including but not limited to the said Conditions. In fact, it is the plaintiff who has breached the terms of the contract.
8. It is submitted that the plaintiff has failed to identify in what way defendant No,1 failed to follow the procedure laid down for making interim payments and what alternative procedure was adopted as alleged. It is contended that in view of the termination of the contract by defendant No,1 and the plaintiffs acceptance of the repudiation thereof in terms of its letter dated May 10, 2008 (annexure- H to the plaint), whether or not a formal contract was required to be executed after the execution of the said contract is irrelevant. The defendant No,1 denied that the designated Engineer did not take up its assigned role or that defendant No, 1 performed the same. It is stated that no such allegation has been made by the plaintiff hitherto during the entire period of eighteen months of the contract, which shows that the allegation is merely an afterthought. It is alleged that despite full payment of the mobilization advance as required under the contract and the additional amounts made available to the plaintiff by defendant No,1, the plaintiff failed to perform its obligations under the said contract and that the plaintiff continuously failed to meet the various milestones stipulated in the programs submitted by them to defendant No,1, and kept revising the schedules with undertakings to meet the targets each time. However, the plaintiffs performance remained poor and they persistently failed to comply even with the revised dates. It is further alleged that the plaintiff has in effect caused 15 months delay in respect of the project under the said contract which required 36 months for completion. It is further submitted that based on the plaintiffs own master program dated 13-4-2007, the construction status of the project, as of May 12, 2008, should have been as follows:-- Tower Block 1Level 14 Tower Block 7Level 16 Tower Block 8Level 16 Tower Block 2Level 11 Tower Block 3Level 12 Tower Block 4Level 15 Tower Block 5Level 5 Tower Block 6Level 5 ' However, the actual situation at site as of May 10, 2008 was that the plaintiff was still working on Pile Caps and basement slabs for Tower Blocks 1, 7 and 8, whilst for the remaining Tower blocks the plaintiff was still at the excavation stage. It is submitted that based on the plaintiffs original manpower mobilization schedule, the plaintiff should have had manpower of approximately 1000 workers on site. In effect, as of May 10, 2008 the plaintiff had only 59 workers at the site of the project. The defendant No,1, in order to depict the above annexed photocopies of certain photographs, to the written statement. It is submitted that the mobilization advance made by defendant No,1 to the plaintiff under clause 14.2 of the said Conditions, as an interest-free loan for mobilization against the advance payment guarantees, was to be recovered by defendant No,1 by deductions on the basis of interim progress claims to be submitted by the plaintiff on monthly basis, showing details of work done by the plaintiff. However, since the plaintiff failed to perform its obligations under the contract defendant No, 1 was unable to recover the mobilization advance which is a ground for encashment under the advance payment guarantee. It is further alleged that the defendant No,1 repeatedly raised its concern in respect of the lack of requisite manpower, material and equipment on site and has sent numerous reminders to the plaintiff to expedite the project to meet the various milestones in the contract but each time the plaintiff provided lame excuses for its poor performance and the progress remained dismal. The defendant in that regard relied upon letters dated April 10, 2007, July 16, 2007 and December 28, 2007 (annexure D, D-1 and D-2 to the written statement). It is further alleged that the plaintiffs failure was so acute and the consequent delays were of such a severe nature that defendant No,1 was compelled to engage another contractor for the purposes of completion of certain works, which were the responsibility of the plaintiff under the contract, thereby increasing the losses incurred by defendant No,1 and the plaintiff being cognizant of its defaults, consented to the appointment of such contractor vide letter dated 3-11-2007 and 31-3-2008 (annexures E & E-1 to the written statement). However, the plaintiff still failed to improve its performance and through its letter dated 15-3-2008 expressed his inability to continue performance of the said contract and unilaterally called for amendment to the materials terms of the contract under threats of termination (annexure-F to the written statement).
9. It is further alleged that in view of the plaintiffs persistent breaches of the contract, the Engineer in respect of the project, issued an Engineer's notice dated 2-5-2008 to the plaintiff, directing them to take immediate steps to make good its failure and remedy the breaches/defaults in all including but not limited to completing the earthwork excavation, lean concrete and rebar construction for the basement of Blocks 1 to 8 within seven days from the receipt of such notice failing which defendant No,1 would become entitled forthwith to terminate the contract and take such other action and proceedings against the plaintiff as may be available under the law. However, no steps were taken by the plaintiff toward compliance of the same, and instead the plaintiff caused a letter dated May 10, 2008 (annexure-H to the plaint) to be served upon defendant No, 1 through its legal counsel, whereby the plaintiff denied the existence of a valid contract between the plaintiff and defendant No,1 and without prejudice to such claim accepted, defendant No,l's repudiation of the said contract. Subsequently, defendant No,1 sent a legal notice of termination dated May 12, 2008 to the plaintiff through its legal counsel confirming the termination of the said contract. The plaintiff being aware of its obligation towards defendant No,1 and its failure to perform the same in letter dated 15-5-2008 offered a settlement which clearly shows that the frivolity of the suit (annexure-I to written statement). It is submitted that in view of the constant and persistent breaches committed by the plaintiff and its plain and clear demonstration of its intention not to proceed with the performance of the said contract through its March 15, 2008 letter, defendant No,1 called upon the said guarantees, vide letters dated May 2, 2008 sent to defendant No,2. It is submitted that the said guarantees constitute independent contracts between defendant Nos.1 and 2 with which the plaintiff has no right to interfere with.
10. ' In their written statement, HBL, the defendant No,2, admitted having issued the aforesaid three bank guarantees in favour of defendant No,1, at the request of the plaintiff, and against the counter-guarantee of Messrs Bank of China. They also admitted that the defendant No,1 lodged their claim for payment of USD 5,125,250 in terms of the bank guarantee and that the defendant No,1 also lodged their claim for payment of USD 5,000,000 in terms of advance payment guarantee.
11. It is also stated that letter of intent to award appears to have been countersigned by the plaintiff which seems to be in token of their acceptance. Defendant No, 2 further contended that the dispute with regard to bank guarantees and/or counter guarantees fall within the scope of Banking Ordinance of 2001 and therefore, the suit as framed and filed by the plaintiff is not maintainable under the Law.
12. ' Along with their counter-affidavit to C.M.A. No, 4358 of 2008, the defendant No, 1 annexed a number of photographs of the formal contract signing ceremony as annexure A to A-4. It is submitted that Guarantee No,IGT000700033007 dated July 23, 2007 ("Phase-II Guarantee") in the amount of USD 5,000,000 was in respect of Phase-II of the project. No payment has been claimed by defendant No, 1 against the Phase-II guarantee and the same is not even the subject-matter of the said application. As such, the Phase-II guarantee is entirely irrelevant. On the contrary, it has been mentioned by the plaintiff to confuse the issue at hand in an effort to mislead the Court. It is further submitted that since the plaintiff has not even fully mobilized the materials, equipment and manpower in respect of Phase I there was no question of payment of the mobilization advance against the Phase-II guarantee. In any event non-payment of the mobilization advance in respect of Phase-II has no bearing on the progress of Phase-I and as such did not and could not have affected plaintiffs ability to perform its obligations in respect of Phase-I of the project. It is further submitted that under the terms of the said contract, defendant No,1 was only required to pay to the plaintiff the mobilization advance for the performance of its obligations toward the project.
13. However, in spite of full payment of the requisite mobilization advance in the amount of USD 8,638,207 (excluding withholding tax) for Phase-I of the project by defendant No,1, the plaintiff sought assistance and requested defendant No,1 for additional payments which were not otherwise required to be made by defendant No,1 under the terms of the said contract. However, the defendant No,1 accommodated the plaintiffs request without having any legal obligation to do the same so as not to hinder the progress of the project and to date has paid an additional amount of PKR 224,570,343, in respect of which defendant No, 1 reserves it right to institute appropriate legal proceedings against the plaintiff. It is submitted that the defendant No,1's claim under the performance guarantee is in accordance with clause 4.2(d) of the said Conditions, which provides that defendant No, 1 is entitled to claim under the performance guarantee in the circumstances which entitle defendant No,1 to termination clause 15.2 of the Conditions irrespective of whether notice of termination has been given.
14. ' It is further submitted that while the contractual scheme for furnishing the performance guarantee and its encashment is provided in clause 4.2 of the said Conditions the contractual scheme for furnishing and encashing the advance payment guarantees is stipulated in clause 14.2 of the said Conditions as follows:-- "If the advance payment has not been repaid prior to ... Or prior to termination under clause 15 [Termination by Employer] ... The whole of the balance then outstanding shall immediately become due and payable by the Contractor to the Employer."
15. ' It is submitted that the plaintiff has never before disputed the validity or commencement of operation of the said guarantees before. In case, there was any truth in the plaintiffs assertion, the plaintiff would have sought cancellation of the advance payment guarantees and the performance guarantee, which they have not done.
16. ' Mr. Bilal A. Khawaja, learned counsel for the plaintiff submitted that although the clause 12 of the letter of intent to award (LIA), dated 19-11-2006 (annexure-A to the plaint), specifically provides that "until formal contract is executed, your confirmation of acceptance hereof shall be a binding contract between you and the employer." However the above stipulation is to be read together with sub-clause 1.6 of the conditions of contract, which provides that "the parties shall enter into a contract agreement within 28 days after the contractor receive the letter of acceptance, unless they agree otherwise." The learned counsel contended that if the above two conditions/stipulations are read together there remains no doubt that the agreed arrangement between the parties was that within 28 days of the date of LIA, which document is dated 19-11-2006, a formal contract agreement was to be signed between the parties, however, during the intervening period, the LIA and its acceptance shall form a binding contract between the parties and that the document, namely, "Conditions of Contract", which is enlisted in the LIA as a contract document, contained an arbitration clause being clause- 20.6, which clause/provision remained effective during the said period of 28 days, which expired on/or about 20-12-2006. Mr. Khawaja further submitted that before signing of the formal agreement, the parties agreed to commence the execution of work and in this regard the plaintiff furnished a performance bank guarantee dated 12-4-2007, a mobilization advance guarantee dated 30-4-2007 and another mobilization advance guarantee dated 23-7-2004 (annexures C, D and E to the plaint) and that the above guarantees were issued on the basis, that defendant No, 1 had placed with the plaintiff. The "letter of award/contract". However, no such "letter of award/contract" was ever placed with the plaintiff and thus, these guarantees were issued while the plaintiff and the defendant No, 2, bank were under the impression, albit mistaken, that a "letter of award/ contract" had been placed by defendant No,1 with the plaintiff. Mr. Khawaja contended that, in the circumstances, the contract of guarantee became voidable in terms of section 22 of the Contract Act. The learned counsel submitted that the contract of guarantee contained in the bank guarantees suffers from a serious mistake of fact viz. That "letter of award/contract" has been issued/delivered to the plaintiff. He further contended that the guarantees were apparently issued in consideration of such "letter of award/ contract" havirTg been placed by defendant No, 1 with the plaintiff and since no such letter was ever so placed, the contracts of guarantee are a contract without consideration and are therefore unenforceable. Mr. Khawaja in his endeavour to show that there existed no "letter of award/contract", submitted that defendant No,1 never called into question the validity/authenticity of LIA (annexure-A to the application) in the two counter- affidavits filed by them; one in response to C.M.A. No,4358 of 2008, and the other in respect of the C.M.A. No, 4359 of 2008, and in fact relied upon the said document. However, subsequently realizing the strength of the plaintiffs grievance in this regard, defendant No,1 apparently manufactured a "letter of award/contract" bearing the same date viz. 19-11-2006 and filed it as annexure-A to its sur-rejoinder, which sur-rejoinder was filed without permission of this Court. He submitted that the defendant No,1 has not even attempted to explain the existence of LIA and the letter of award in respect of one and the same project, bearing the same date. He further submitted that no attempt was made by defendant No,1 to explain why was there no reference in either of these two documents of the other. The learned counsel frankly conceded that the contract of guarantee is an independent contract of the main contract. He further contended that since as claimed above, the contract of guarantee contained in each of the three guarantees is a contract which has been, apparently entered into under a mistake of fact and, further, is also without consideration and is thus not enforceable. Mr. Khawaja submitted that, the plaintiff, without prejudice to the above, is ready and willing to keep the said guarantees valid and alive, and urged that the dispute may be referred to arbitration and the fate of the encashment of guarantee may follow the outcome of the arbitration proceedings and thus the matter shall be resolved without either party suffering any undue prejudice.
17. ' Responding to the observation of this Court as to how the plaintiff, on the one hand, claim that no formal agreement was concluded between the parties and on the other rely the arbitration clause, contained in the contract, Mr. Khawaja submitted that it is not the plaintiffs case that there was no contract between the parties at all at any point in time, instead the plaintiffs case is that for the period of 28 days, there was a binding contract between the parties reached through the LIA, issued by defendant No, 1 and accepted by the plaintiff, however, as no formal agreement was signed during this period as required in terms of LIA, the entire arrangement between the parties collapsed and there was, thereafter, no agreement between the parties, however, any dispute in the binding contract for that initial period of 28 days has to be resolved and that since the arbitration clause outlives, the parties are thus obliged to resolve their disputes in terms of clause 20 of the conditions of contract, which provides for arbitration.
18. ' Mr. Khawaja further submitted that even if it be assumed that there was no enforceable contract between the parties, the question would be as to what is the status of the work executed by the plaintiff in respect of the project and what consequences, If any, flow therefrom which question can very well be resolved as Chapter-V of the Contract Act provides an answer to the above question.
19. The principle of "Quantum Meruit" will come into play and the plaintiff will be entitled to a reasonable cost of the work executed by the plaintiff, which according to Mr. Khawaja will is to be calculated at the prevailing market rates.
20. ' Concluding his arguments, the learned counsel, in support of his request for restraining the defendants from encashing the bank guarantees in question, referred to the following case-law:-- ' Pakistan Engineering Consultants v. Pakistan International Airlines Corporation and BCCI (1993 CLC 882). In this case, the plaintiff filed a suit for perpetual injunction, restraining the defendant from encashing the bank guarantee and performance bond and from making any payment under the said instruments and also for restraining defendant No, 1 from completing the work in accordance with the plaintiffs designs, pending payments of the plaintiffs dues. A money decree was also sought against defendant No,1 on account of plaintiffs' dues and by way of compensation/ damages in the sum of Rs,9,749,775. The plaintiff in the above case was awarded a contract for architectural design, drawings, procurement of requisite equipment, consultancy and supervision of the work by a building contractor. The stipulated mobilization advance representing 10% of the contract price upon plaintiffs submission of the relatable guarantee on 17-11-1983 was released to the plaintiff on 31-12-1983. The contemplated period for completion of the work was two yeaRs, Plaintiffs were to get 3% of the value of work by way of consulting charges; the plaintiffs submitted to the defendant No,1 the requisite mobilization advance, bank guarantee and performance bond for corresponding value, commenced the work after effecting mobilization submission of relative drawings and appointing the approved building contractor. It was alleged in the plaint that the relative drawings although timely submitted by the plaintiff were belatedly approved by the defendant No,1 which delay effected their services. It was further alleged that though the work was in full swing its progress was retarded owing to the defendant No,l's act of omission and commission. The defendant No,1 in order to avoid payments indulged in dilatory tactics which adversely affected the progress of the work. In the meantime the Managing Director of the plaintiff firm died on 28-11-1985. A formal supplemented deed dated 30-11-1985, envisaging the appointment of the another managing partner was executed by the partners of the firm. The defendant No,1 /employer accepted the alteration in the firm and continued dealing with the firm.
21. However, during its final phase of completion and with a view to eliminate the plaintiffs from the scene, the defendant No,1 with mala fide intention embarked on a preconceived design at the managerial level to exclude the plaintiffs and get the finishing done by the building contractor with whom during the execution of work requisite liaison had developed by the concerned managerial staff. The plaintiffs formal written request for extension of time submitted on 1-1-1986 though ostensibly granted but its written confirmation was withheld. The plaintiff, however, in good-faith continued the work on the defendant No, l's re resonation in the arising.
22. ' It was further alleged that the defendant No,1, addressed a notice dated 13-8-1986, contending primarily on account of the death of the previous managing partner that the subject contract had come to an end. The plaintiffs received a further letter dated 19-8-1986 to the effect that in connection with the completion of the contract the plaintiffs were required to prepare the requisite documentation in furtherance of the contract. It was contended that on account of defendant No,l's illegal action including breach of contract the plaintiffs were entitled to recover their dues, interests and damages. It was further alleged that defendant No,1 with a view to justify their delay in making payment, have set up baseless and vague charges regarding the plaintiffs purported default.
23. ' The learned single Judge of this Court whilst observing that "the petitioners were under the obligation in terms of the contract to use the advance for the work for due fulfillment of the terms and conditions of the contract and were allowed to furnish the concerned bank guarantee. The bank guarantee contains in unequivocal term an undertaking to pay without demur merely on demand from the defendant No,1 stating the amount claimed was due. Similarly the plaintiffs were under the obligation in terms of the contract to duly perform and observe all terms/provisions and conditions and stipulations of the said contract and were allowed, in lieu of that obligation to furnish performance bond. The performance bond contains in unequivocal terms, an undertaking to pay without any demur merely on demand from the defendant No,1 stating that the amount claimed was due and payable by way of loss or damages caused or to be caused to or suffered by the defendant No,1," and after examining the relevant case-law, dealing with the question of the nature of the obligation of the bank under performance bond, held that "the Court in U.K. India and Pakistan have in some recent cases, come to the conclusion that the performance guarantees, letters of credit and bank guarantees are autonomous and independent contracts and are irrevocable in character and that the obligations arising under these bank guarantees, performance guarantees, performance banks letters of credit are independent of the obligations arising out of the contract between the parties and the said instruments impose an absolute obligations on the banks to pay, irrespective of any dispute which may arise between the parties on the question whether the parties have fulfilled their part of the contract or not. The instruments being independent of the primary contracts of sale/supply of goods between the buyer/suppliers and seller /contractor and have inferred an absolute obligation of the bank to pay in accordance with their terms and conditions against any judicial interference in such obligations except in rare cases of fraud and rejected the plaintiff request for restraining the defendant No,1 to invoke the bank guarantee and performance bond/guarantee in accordance with their terms and set the defendant No,1 at liberty to make the payment in accordance with the terms of the bank guarantee and performance guarantee and expressly vacated the ex parte interim order.
24. ' The above order was assailed by the plaintiff through an appeal filed before a Division Bench of this Court on the ground (i) that the ground on which the contract was repudiated by the respondent/employer was not sustainable in law and, therefore, encashment of the bank guarantee and the performance bond was not justified; (ii) that there was no default committed by the appellant/ consultants, and thus the bank guarantee and the performance bond could not be encashed.
25. ' In rebuttal, the respondent/employer have contended (i) that since the original partnership of the petitioner/ consultant's firm with which the respondent/employer had entered into the contract was a partnership-at-will, upon the death of Mr. Kafiluddin because of whom the work was awarded to the consultants, the partnership stood dissolved and, therefore, the contract had come to an end; (ii) that there were defaults on the part of the consultants inasmuch as the work was not completed within the contract period and some of the works which were executed were defective;
(iii) that since the consultants had furnished unconditional bank guarantee against the money advanced by the respondent/employer, the latter is entitled to encash the same; (iv) that since there is an admitted default on the part of the consultants inasmuch as the work had not been completed within the contract period, the respondent/employer was entitled to encash the bank guarantee.
26. ' The learned counsel for the appellants submitted that the ground on which the contract was repudiated by the respondent/employer was not sustainable in law and, therefore, encashment of the bank guarantee and the performance bond was not justified and referred to section 47 of the Partnership Act, which according to the learned counsel kept the contract intact notwithstanding the death of the managing partner. He further contended that in terms of the contract there was no condition that the work awarded to the consultants was to be personally executed by the then Managing Director or that the work was awarded to the consultants because of personal qualification of the deceased and, therefore, the ground on which the contract had been repudiated by the respondent/employer was not available to them.
27. ' On the other hand, it was contended on behalf of the respondent that it was because of the deceased Managing Director that the work awarded to the appellants and the respondent was not bound to get the work executed through some other persons; and that in any case upon. The dissolution of the partnership the respondent was obliged to allow the new partnership firm to execute the work. A Division Bench of this Court in their order reported as Pakistan Engineering Consultants v. Pakistan International Airlines Corporation (1993 CLC 1926), whilst observing that they would not like to make any observation on the above submissions as the same will be main issues in the suit, which will require recording of evidence; and further that though in para. 3 of the contract, it was stated that the documents for the purpose of identification have been signed by the deceasod Managing Director on behalf of the appellant, but there seems to be no clause providing that the work was' to be executed personally by the deceased and taking note of the fact that the other reason for repudiation of the contract as mentioned in the repudiation letter was defaults committed by the appellant, held that on the basis of the material placed before them it cannot be said at this stage, whether the default was committed by the appellant or the respondents. Dealing with the question as to whether in terms of the bank guarantee and the performance bond the respondent was entitled to encash the same during the pendency of the suit or that the Court should restrain the respondent from encashing the same during such time, the Bench referred to and examined a number of judgments and held that there seems to preponderance of judicial view that in case of a letter of credit and an unconditional bank guarantee, the Court would generally be reluctant to grant an ad interim injunction restraining a bank from honouring its contractual obligation. However, in exceptional cases, where refusal to grant an ad interim injunction, will perpetuate fraud or injustice, which should be apparent from the material on record, the Court may grant an ad-interim injunction, and further held that in their view the instant case does not fall under the category of exceptional cases. It was observed that the bank guarantee was given against the cash amount paid by the respondent towards the mobilization advance which amount was to be adjusted against the running bills and the final bill at the rate of 10% which has not been fully adjusted, and, therefore the balance amount of the bank guarantee in fact belongs to the respondent under the terms of the bank guarantee, the bank has given undertaking to pay the amount on demand by the respondent without questioning it and without making a reference to the consultants and, therefore, it will not be just and proper to grant an ad-interim injunction. However, it will not be just to allow the encashment of the full amount of the bank guarantee, as the respondent has withheld two running bills amounting to Rs,20,00,000.
28. Even if the above bills are to be taken into consideration for the purpose of adjustment of the mobilization advance, only 10% amount of the bills could be adjusted towards the amount of the bank guarantee, namely, Rs,2,00,000. It was further held that the question whether the respondent has illegally withheld the above running bills or any other amount, will be an issue in the suit. If they have done so, they will be rendering themselves liable to face the consequences under the Law.
29. With regard to the performance bond, it was held that the same stands entirely on different footing than the bank guarantee and unless and until the Court prima facie finds that the default was on the part of the appellant/ consultants, it would not be just and proper to allow its encashment as the encashment depends on the commission of default and since we have already observed that on the basis of material available on record, it cannot be said who has committed the default; allowed respondent to encash the bank guarantee to the extent of the balance un-adjusted amount minus Rs,2,00,000 on account of the above two running bills but restrained the respondent from encashing the performance bond.
30. ' Against the order of the Division Bench, the petitioner filed petition for leave to appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court through its order reported as Pakistan Engineering Consultants v. Pakistan' International Airlines Corporation and another (1989 SCMR 379), whilst observing that "it was a case where claims and counter-claims have been made and the question whether the: Airlines was justified in annulling the contract and whether the amount payable to the petitioner on account of the work already done and damages exceeds the amount of guarantee can only be decided after a proper trial, upheld the order of the High Court and refused leave to appeal against the said order".
31. ' Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 SC 311), where the bank guarantees furnished by the appellant contained categorical undertaking and imposed absolute obligations on the bank to pay the amount, irrespective of any dispute which may arise between the parties regarding the breach of the main contract, the Hon'ble Supreme Court repelling the contention of the counsel for the appellant that in the event, the appellant succeeded in the arbitration proceedings they will not be able to recover the amount, as beyond the point in issue; held that the Courts must give effect to the covenants of the bank guarantees, the performance guarantees, for the smooth performance of the contracts and that such guarantees are independent contracts and the bank authorities must construe them, independent of the primary contracts. They should encash them notwithstanding any dispute arising out of the original contract between the parties; dismissed the appeal.
32. ' U.P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (Pvt.) Ltd. (1989 65 CC 283), the Hon'ble Supreme Court of India held that "an irrevocable commitment either in the form of a confirmed bank guarantee or an irrevocable letter of credit cannot be interfered with except in the case of fraud or where a case of apprehension of irretrievable injustice has been made out. In order to restrain the operation either of an irrevocable letter of credit or of a confirmed letter of credit or of a bank guarantee, there should be a serious dispute and there should be a good prima fade case of fraud, and special equities in the form of preventing irretrievable injustice between the parties. Otherwise, the very purpose of bank guarantees would be negatived and the fabric of trading operations would get jeopardized."
33. ' MacDonald Layton and Co. Ltd. v. Pakistan Services Ltd. And 2 others (1983 CLC 2252), through the above order, a learned single Judge of this Court disposed of two separate applications for temporary injunction in two separate suits as the main contract involved in the two suits was the same. The context in which the 'application were made was that defendant No, 1 awarded to the plaintiffs a contract for construction of a hotel Chalets and staff residence. The defendant No, 2 was associated with the contract as a subsidiary of defendant No,
1. A formal contract was entered into. The defendants Nos.1 and 2/employers appointed Messrs Zaheeruddin Consultants Ltd. As their consultants in respect of the said contract; plaintiffs received an amount of Rs,3.5 million as mobilization advance under the terms of the contract which amount was to be adjusted at the rate of 10% from each running bill. The plaintiffs furnished to the defendants/employers a guarantee of defendant No,3 bank in Suit No, 265 of 1982 in respect of the mobilization advance amount. The plaintiffs also furnished a performance bond of defendant No,3, Insurance Company in Suit No,270 of 1982 to ensure execution of the work in pursuance of the contract. After the mobilization advance, the plaintiff started work at the site. However, by their letter dated 14-3-1982, the employers reduced the quantity of work. With consequent reduction in the value of the same from Rs,380 millions to Rs,149 millions and odd. In May, 1982, the plaintiffs started mobilization during the winter, work used to remain suspended due to in accessibility of the site on account of snowfall. On or about 21-6-1982 the plaintiffs received from defendant No,2 a letter dated 20-6-1982 terminating the contract for the Malam Jabba Resort Project on the alleged ground that the plaintiffs had not resumed the work and had abandoned the contract. The plaintiffs wrote to the consultants on 21- 6-1982 to protest against this action of the employers and alleged that the termination of the contract was in contravention of clause 17.6 of the General Conditions of the Contract. In terms whereof, a certification of the fact that the contractor has abandoned the contract and/or failed to achieve due progress etc., and also the written consent of the consultant was required for the employer to determine the contract.
34. ' Pursuant to the termination of the contract, the defendant No,2 called upon the bank to pay the amount of the guarantee which is subject-matter of Suit No, 265 of 1982. The defendants Nos.1 and 2, who were employers in both the suits filed their counter-affidavits to the injunction applications, however, nothing was said in the counter-affidavits about the contravention of clause 17.6 of the General Conditions by the employers and it was thus not denied that the employers had not consulted their own consultants before terminating the contract, and that no prior notice of 7 days was given as contemplated by clause 17.5 of the General Conditions. It was also not denied that after mobilization, the plaintiffs had started work at the site. On the contrary a letter dated 24-11- 1981 produced by defendant No,2 with his counter affidavit (in both suits) showing that some running bills submitted by the plaintiff for the work were pending with defendant No,2 for payment.
35. Again it was also not denied that after as many as two years of the date of the contract, the quantity of the work was reduced and that the value of the reduced work was also reduced to about more than half of the original value and that there was some dispute between the parties over the revised rates of the quantities submitted by the plaintiffs in respect of the reduced work.
36. The plaintiffs had, therefore, emphatically pleaded that the impugned action of the employers was calculated to pressurize the plaintiff to accept the rates dictated by them in respect of the reduced work.
37. ' It was in view of the foregoing and for the reason that the performance bond provided that the contractor, the plaintiff-company, shall carry out the work strictly in accordance with the terms and conditions on which the work has been awarded to them and shall complete the work in terms of the contract and if they do not complete the execution of the work within the stipulated period or such extended period as may be allowed to them by the employers, or abandon the work or leave it partially completed or do not commence the work or commence the work but do not complete it or commit a breach of failure in the performance of any part of the contract, the said Bond shall come into force, and that a learned single Judge of this Court held that before claiming of the amount under the Bond, the defendants/employers have to prove that the contractor has abandoned the work or that the contractor has committed breach of the contract or that they have failed to complete the work within the stipulated period and/or that they did not commence the work.
38. ' It is important to note that during the course of the arguments in the above referred case, the learned counsel for the defendants/employers, who incidentally was Mr. Bilal A. Khawaja, had conceded that the Bond was conditional but as noted in the judgment, the learned counsel did not advert to the most important question whether the conditions have been fulfilled.
39. ' Messrs Jamia Industries Ltd. v Pakistan Refinery Ltd. Karachi (PLD 1976 Karachi 644). In the above case, the plaintiff has entered into a contract of fuel, oil sales with the defendant, the contract period was from 4-7-1974 ending 31-12-1974. It was stipulated that during the said period, the plaintiff would purchase for export, quantities of fuel oils based on defendant company's estimates of surplus as would be available from the operations of the defendant's refinery after meeting the internal requirement in Pakistan. The contract also stipulated in detail the programming, shipping and delivery arrangements agreed to between the parties. In terms whereof, defendant was required to give at least 35 days notice to the plaintiff specifying a 5 days range of dates within which the plaintiff was required to receive a consignment. Within 15 days whereof the plaintiff was required to give to the defendant a firm nomination of day/cancelling days in accordance with the defendant's request and shipping instructions. Acceptance or rejection of the plaintiffs above nominations was to be advised by the defendant within two working days of receipt of such nominations giving an approximate estimated time of arrival of vessel or to reject such nomination, stating the reasons in case of rejection. A bank guarantee of Rs,5,00,000 was furnished by the plaintiff from a bank to ensure performance of the contract, in terms whereof, the bank undertook to make un-conditional payment of the said amount to the defendant on its written demand without further question or reference to the plaintiff, in case of any default on their part in the due performance by them of all or any of their obligations under the said contract.
40. ' However, the contract was not performed, as no supplies were given or taken and no payment was made. Each party accused the other of breach of contract. There was a dispute regarding sufficiency of notice to receive the consignment. After discussing the rival contention of the parties, Zaffar Hussain Mirza, J., as he then was, held that "it is clear from the pleadings and respective contentions on behalf of the parties that the true interpretation of the clauses of the contract is required for holding whether in the case of first cargo the notice served was sufficient or whether the estimated tentative 5 days range given by the plaintiff was binding on the plaintiffs and that with regard to the second cargo a question has arisen whether the notice dated 11-11-1974 by the defendants would attract the application of the 35 days' notice clause of the contract.
41. ' It was further held that the question as to what rights the creditor has against the principal debtor, the plaintiff, is yet to be adjudicated and determined; allowed the application under section 20 of the Arbitration Act and also granted the application for injunction.
42. ' Discount Records Ltd. v. Barclays Bank Ltd. And another (AER 1975 1071). In this case, the plaintiff ordered certain quantity of goods from a foreign company and established irrevocable documentary credit through defendant No,1 bank. The first defendant notified the plaintiffs of discrepancies between the goods and the relevant documents and the plaintiffs' instructions.
43. According to the plaintiffs, the cartons, when opened, were found to contain only a small quantity of the goods ordered; otherwise they were empty or contained rubbish. The plaintiffs brought an action against the defendants, alleging that the French company had been guilty of fraud, and sought an interlocutory injunction restraining them from paying the draft drawn on them by the French company pursuant to the irrevocable letter of credit. It was held that the Court would only interfere with bankers' irrevocable credits if a sufficiently grave cause was shown and that since no such cause had been shown, refused the injunction.
44. ' Concluding his arguments, Mr. Khawaja urged the Court to restrain the defendants from acting upon the bank guarantee and the performance bond.
45. ' Mr. Arshad Tayebally, learned counsel for the defendant No,1, on the other hand, while commencing his arguments submitted that he would demonstrate to the Court that even if all the plaintiffs facts and assertions are taken to be true without any question, the plaintiff would still not be entitled to any order, restraining the encashment of the bank guarantees. He submitted that it is beyond comprehension that the plaintiff mistakenly believed that LOA has been issued. He further submitted that for the LOA to be valid, it was essentially required to be signed by the plaintiff as it was meant to be a contract and it is, therefore, incomprehensible that a person can be mistaken about the existence of an instrument if its existence required his signatures. The learned counsel further contended that it is absolutely unbelievable that the plaintiff had never seen the LOA earlier as in compliance of its requirement and on its very basis the plaintiff have furnished the three guarantees for the specific amounts as stipulated in the LOA. He further submitted that had the LOA not been executed between the parties, the plaintiff would not have furnished bank guarantees, as unless recorded in the LOA, the condition for furnishing such guarantees could have been varied or waived altogether. The learned counsel referred to the performance bond (page 455), wherein it is stated that the said bond was being given "pursuant to clause 5.0 of the letter of award" and submitted that bond itself belies the plaintiffs' claim of having not seen the letter of award. He then referred to para. 7 of the plaint, wherein it is stated that "as per the requirements contained in the contract documents, the plaintiff requested defendants Nos.2 and 3 above named to furnish the following performance guarantees and mobilization advance in favour of defendant No,1" and then referred to the letter of intent to award, which mentions the LOA as one of the contract documents. Mr. Tayabally further submitted that contrary to the plaintiffs' contention that after 28 days the LIA was terminated as no subsequent contract in the form of LOA was executed, the plaintiffs admittedly continued to perform its obligations even after expiry of the 28 days from the date of issuance of LIA, which was issued on 19-11-2006. In order to substantiate defendants' above contention, the learned counsel referred to the performance bond, which was issued by defendant No,2 ("HBL") on 12-4-2007, and the advance mobilization guarantees, which were issued on 30-4-2007 and 23-7-2007 respectively and submitted that it is preposterous to the claim that the plaintiff remained under the mistaken impression that LOA has been issued, all the way till May, 2008 when the defendant No,1 invoked these guarantees. He pointed out that the plaintiff had at no point in time from the issuance of such guarantees till May, 2008 asked HBL to withdraw the said guarantees on the basis that LOA had not been issued. Mr. Tayebally further submitted that it was against the two mobilization advance guarantees that the defendant No,1 paid the amount mentioned in those guarantees to the plaintiff and thus if it is held that the mobilization advance guarantees were issued under a mistake, then the payment given to the plaintiff also was a mistake as the LOA supposedly never existed and, therefore, since the plaintiff received those payment by mistake it had to forthwith refund those payments and in fact the plaintiff has taken huge amount over and above the amounts pertaining to the mobilization advance guarantees. The learned counsel submitted that reliance of the plaintiffs counsel on the provisions of section 22 of the Contract Act is wholly misplaced as contrary to his contention, section 22 of the Contract Act, provides that a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact and thus under the law a mistake as to a matter of fact entertained by one of the parties does not make the contract voidable.
46. ' The learned counsel further submitted that in any event there was no chance of fraud because it was not beyond the plaintiff to have discovered whether or not the LOA has been executed. He submitted that the existence of the LOA depended on the acceptance and the signature of the plaintiff. Hence no matter what the defendant No,1 would have represented, the plaintiff would have known whether the LOA existed or not. And above all it is the plaintiff who informed HBL about the existence of the LOA and not defendant No,
1. The learned counsel submitted that even if for the arguments sake it is assumed that HBL was mistaken, the guarantees still cannot be held to be void on the basis of a mistake by HBL. The learned counsel submitted that the plaintiffs' case is hit by the doctrine of Estoppel by Convention, which estops HBL and the plaintiff from claiming that the guarantee is void due to a mistake of fact. To elaborate his contention, the learned counsel submitted that where the parties to a transaction have acted on the agreed assumption that a state of facts can, for the purpose of that transaction, be regarded as true, the parties are by the above doctrine precluded from denying the truth of those assumed facts if it would be unjust to allow them or only one of them to do so. In support of his contention, the learned counsel relied on the case of Bank of Scotland v. Wright and another (1991 BCLC 244), where Brooke J. Laid out the criteria for the application of the principle of estoppel by convention:-- "For present purposes, like Peter Gibson J., I am content to follow the general principle that estoppel by convention applies where (1) parties have established by their construction of their agreement or their apprehension of its legal effect a conventional basis; (2) on that basis they have regulated their subsequent dealings; and (3) it would be unjust or unconscionable if one of the parties resiled from that convention.
47. ' There is, however, an import feature of this type of estoppel, which Robert Goff, J. Had found as a fact to have been present in the post-contract dealings between the parties before him, and this is that the party who is sought to be estopped must have contributed in some active way towards the creation or continuance of the mistaken basis on which the parties thereafter conducted their dealings, so that it would be unconscionable to allow him to resile from the stance he had taken, which had to a certain extent influenced the other party to behave as it did." (page 261)
48. ' The learned counsel also referred to the case of Amalgamated Investment & Property Co Ltd. (in liquidazion) v. Texas Commerce International Bank Ltd. 11981] 3 All ER 577, where Lord Denning MR while dealing with the doctrine of estoppel by convention in respect of the guarantees held that:-- "So I come to this conclusion: when the parties to a contract are both under a common mistake as to the meaning or effect of it and thereafter embark on a course of dealing on the footing of that mistake, thereby replacing the original terms of the contract by a conventional basis on which they both conduct their affairs, then the original contract is replaced by the conventional basis. The parties are bound by the conventional basis. Either party can sue or be sued upon it just as if it had been expressly agreed between them .... When the parties to a transaction proceed on the basis of an undefying assumption (either of fact or of law, and whether due to misrepresentation or mistake, makes no difference), on which they have conducted the dealings between them, neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands" (page 584)
49. ' Mr. Tayebally further submitted that without prejudice to the defendant No,1's case that there was no mistake and in fact a LOA was executed between the parties, even if it is shown that the whole thing was a mistake, the plaintiff should now not be allowed to take undue advantage of the same by avoiding the contract on the basis of a mistake. The situation in the present case meets the criteria set out by Brooke J. In the Bank of Scotland v. Wright case in that:
(1) It has been established by the wording of the guarantees that at the time of their issuance and for a period of almost one year after that (until defendant No,1 tried to encash them) all the parties (i.e. Plaintiff, Defendant No,1 and HBL) proceeded on the basis that the LOA existed and thus the guarantees were valid.
(2) On the basis of this assumption (i.e. Existence of LOA) the guarantees were issued. On the basis of these guarantees the defendant No,1 paid the advance amount to the plaintiff. The plaintiff accepted the advance amount and worked on the site.
(3) It would now be unconscionable to allow the plaintiff to resile from this assumption. Not least because the plaintiff took the advance amount from the defendant No,
1. Furthermore the plaintiff itself chose to abandon the project.
(4) The plaintiff who should be stopped, actually actively helped in the continuance of this mistaken belief by asking the defendant No,1 to give it the advance after the issuance of the guarantees. It also accepted the advance money. Not once did plaintiff tried to bring it to anyone's attention that the guarantees were unenforceable because the LOA (allegedly) did not exist. Not until the defendant No,1 tried to encash the guarantees.
50. ' As regards the question of consideration, the learned counsel referred to the guarantees and pointed out that in each guarantees the phrase "Letter of Award/Contract" is used and not just "Letter of Award" which means that the document that is being addressed must be titled "Letter of Award/ Contract" and not just "Letter of Award". Although as per standard practice this almost never happens. Either a document is entitled "Letter of Award" or a "Contract" or a "Construction Agreement" and so on so forth. The point is that there is always a single title and not two separate titles being jointed by "/". One could even imagine the following title, "Letter of Award Contract", but not "Letter of Award/ Contract". The learned counsel submitted that in each of the guarantees the phrase used is: 66 the "Letter of Award/Contract" for the Main Building Works at Creek Marina the Proposed Residential Development Project in D.H.A. Karachi Pakistan (hereinafter called the "Works"), ' and thus it can be seen that the background to the guarantees was the "Works". The "/Contract" was deliberately put in the guarantees to give flexibility to ensure that it is not the title of the agreement that matters but the substance/and thus the whole phrase should be taken to mean that a development project has been awarded to the plaintiff vide a Letter of Award or a document having similar effect thereto. This interpretation would therefore cover both the LIA and the LOA, as both achieve the same effect. The learned counsel further contended that the LIA itself contain provisions imposing an obligation on the plaintiff to issue the guarantees and the reasoning behind having such provisions in the LIA was that it was understood between the parties that the guarantees will be issued no matter if the LOA was signed or not. He further submitted that LIA itself was a sufficiently comprehensive agreement under which the project could have been completed.
51. Although it was agreed that a LOA would be subsequently signed, it was understood that this was not necessary and hence the flexibility was provided in the words of the guarantee by incorporating "Contract". This is also why the Pen-ultimate paragraph of the LIA stated:-- "Until a formal contract is executed, your confirmation of acceptance hereof shall be a binding contract between you and the Employer."
52. ' The learned counsel further submitted that in the background it can be seen that the execution of the LOA is not needed for the recital in each of the guarantees to hold true. What needs to be established is whether or not the development project was granted to the plaintiff. This was done so through the execution of the LIA and this can be substantiated by the subsequent actions of the two parties. The defendant provided the mobilization advance and the plaintiff started working on the site. The learned counsel further submitted that the language of the guarantees themselves clearly show that the consideration for the guarantees was the works awarded and the advance to be given (for the mobilization advance guarantees).
53. ' The performance bond states:-- ........... Whereas Habib Bank Limited in" consideration of the Works to the Contractor has agreed to stand surety for the Contractor....................................................
54. ' In the Mobilization Advance Guarantees, HBL clearly states it is to stand as surety in consideration for the advance for the execution of the works that the defendant No, 1 had agreed to' pay. This consideration was fulfilled as the advance had been duly given by defendant No,1 to the plaintiff.
55. ' The other submission of the learned counsel was that since the guarantees are contracts between HBL and defendant No,1, it is only HBL who is competent (has locus standi) to contest the validity of the guarantees on the basis of lack of consideration. HBL has not once in its pleadings done so and relied on a case of Van Oord International B V and 2 others v. Amsterdam-Rotterdam Bank N V & Anor [1992] SGHC 169, where the following argument was submitted:- "Mr. Woo's submission on the issue of lack of consideration was a simple one based on first principles. He said that the plaintiffs have failed to appreciate that the Performance Bond was between the first defendants and the second defendants. As the plaintiffs are not parties to the Bond, the plaintiffs have no locus standi to raise the question of lack of consideration. That is an issue for the first defendants to take the second defendants, if they so choose to do." (page 4)
56. ' The learned Judge upheld the above in the following words: "In my opinion, for the reasons advanced in the submissions for the two defendants, there was indeed no serious questions to be tried on these two grounds." (page 6)
57. ' The learned counsel further submitted that the Court should look at the substance of the guarantee to decide as to what the guarantee was for, and hence what was the consideration, as in all cases of construction, the Court is entitled to look at the surrounding circumstances in order to see what was the subject- matter which the parties had in contemplation at the time the contract was made, and to determine the scope and object of the guarantee and referred to the case of Heffiel v. Meadows (1869) L.R. 4 C.P. 595, where Willes, J. Held as follows:-- "It is obvious that we cannot decide that question upon the mere construction of the document itself, without looking at the surrounding circumstances to see what was the subject-matter which the parties had in their contemplation when the guarantee was given. It is proper to ascertain that for the purpose of seeing what the parties were dealing about, not for the purpose of altering the terms of the guarantee by words of mouth passing at the time, but as part of the conduct of the parties, in order to determine what was the scope and object of the intended guarantee. Having done that, it will be proper to turn to the language of the guarantee, to see if that language is capable of being construed so as to carry into effect that which appears to have been the real intention of both parties." (page 599)
58. ' In the same case Montague Smith, J. Held: "I am of the same opinion. The consideration is defectively stated in this guarantee. It does not show in what the supply is to consist. We may, therefore, look at the surrounding circumstances, in order to see for what it was given and to what transactions or dealings it was intended to apply, not to alter the language, but to fill up the instrument where it is silent, and to apply it to the subject-matter to which the parties intended it to be applied. That being the principle upon which we ought to proceed in construing this guarantee" (page 601)
59. ' The learned counsel also referred the Leathley and others v. Spyer (1870) L.R. 5 C.P. 595, where it was held:-- "that the guarantee was to be construed with reference to the circumstances " (page 595)
60. ' The learned counsel also referred to the case of Bank of Scotland v. Wright and another (1991)
61. BCLC 244, where both the above cases were considered and the issue was addressed in great detail, and the decision made with regard to the interpretation of guarantee in other commonwealth jurisdictions were referred to, and it was held that:-- "The precise wording of no two guarantees is the same and differences in single words are often all important in litigation of this type. However, this decision and the decision of the Court of Appeal in the Amalgamated case evidence in my judgment the modern determination of the higher courts to use all the available aids for the construction of written documents to seek out from the words actually used what they believe to have been the true intention of the parties when the guarantee was executed and not to be over-constrained by what Lord Wilberforce described in Prenn v.
62. Simmonds [1971] 3 All ER 237, 11971] 1 WLR 1381 as an interpretation based purely on internal linguistic considerations." (Page 259)
63. ' The last case cited by Mr. Tayabally in the above context was Amalgamated Investment and Property Co. Ltd. (in Liquidazion) v. Texas Commerce International Bank Ltd. 11981] 3 All ER 577, where the Courts of Appeal held that:-- "(1) The guarantee was to be construed in the general context of the parties' transaction, rather than as a separate document in isolation, and it was clear from the context of the transaction as a whole " (page 577)
64. ' The learned counsel submitted that it is thus shown that if one looks at the substance of the guarantee, then the question of whether a document entitled LOA was executed is of no relevance to the issue of the validity of the guarantees.
65. ' Concluding his arguments, the learned counsel reiterated that his above submissions are without prejudice to the defendant No, l's claim and version of facts, as the facts and assertions as narrated by the plaintiff is off course completely false and denied. However, the defendant No,1 went through the above to show that even if the whole story of the plaintiff is accepted without question, the plaintiffs claim as to the guarantee being void still does not have a leg to stand on.
66. Learned counsel submitted that contrary to the plaintiffs claim a LOA was issued and executed after the issuance of the LIA and that all three guarantees were issued on the basis of the said LOA.
67. ' The grievance of the plaintiff, as set out in the plaint, are that (i) there were delays in the release of mobilization advance on the part of the defendant No,1, which obstructed smooth and expeditious mobilization of the plaintiff; (ii) the defendant No,1 deviated from the procedure prescribed for the payment of the contract price, adversely impacting the progress of the work. (iii) Although in terms of the sub-clause 1.6 of the General Conditions, the defendant No,1 was obliged to enter into a contract agreement but no contract was executed between the parties; (iv) the engineer, namely, Meinhardt (Pakistan) Engineers Ltd. Appointed in terms of the contract, never took up the assigned role and all powers and duties of the Engineer were taken up by defendant No, 1 in violation of the contract; (v) defendant No,1 approached for encashment of the performance and mobilization advance guarantees without prior notice to the plaintiff.
68. ' However, Mr. Bilal A. Khawaja, the learned counsel for the plaintiff argued his case only on the ground that although the agreed arrangement between the parties was that within 28 days of LIA a formal agreement was to be signed between the parties, however no such contract agreement was executed and therefore, the subject guarantees which were purportedly issued in consideration of such contract, in the absence of the contract, are without consideration and are, therefore, not enforceable. The learned counsel submitted that the subject guarantees were in fact issued on the basis that defendant No,1 has placed with the plaintiff the letter of award, however, since no such letter of award was ever placed with the plaintiff and these guarantees were issued under the mistaken impression that the letter of award had been placed by the defendant No,1 with the plaintiff, and thus the contracts of guarantees contained in the subject guarantees suffers from a serious mistake of fact viz. That the letter of award has been issued/delivered to the plaintiff. In his endeavour to show that there existed no letter of award, the learned counsel submitted that defendant No,1 never called into question the validity/authenticity of LIA, in the counter affidavits, filed by them in response to C.M.As. Nos. 4358 of 2008 and 4359 of 2008 respectively, and it was only subsequently that defendant No,1 apparently manufactured a "letter of award/ contract" and submitted the same as Annexure-A to their sur-rejoinder. He, however, frankly conceded that the contract of guarantee is a contract independent of the main contract. The learned counsel contended that since the subject guarantees are contracts, which have been apparently entered into under a mistake of fact and are also without consideration, the same, therefore, are not enforceable.
69. ' The above contention of the learned counsel is wholly misconceived and untenable and has absolutely no force as in the first place LIA (Annexure-A to the plaint), which has been countersigned on behalf of the plaintiff in acknowledgement and confirmation of the acceptance of the terms and conditions stipulated therein, itself says that until a formal contract is executed, the confirmation of acceptance thereof by the plaintiff shall be a binding contract between the parties, whereas, sub-clause 1.6 of the Conditions of contract provides that the parties shall enter into a contract agreement within 28 days after the contractor receives the letter of acceptance, unless they agree otherwise, and the documents listed under clause 1.5 of the Conditions of contracts, and prescribed as document; forming the contract, though mentions "contract agreement" as one of such documents but the words "if any" added to the words "contract agreement, clearly signifies that the parties could dispense with such requirement, and as noted above, and more significantly the phrase "unless they agree otherwise" incorporated in clause 1.6, shows that it was agreed between the parties that they may even dispense with the requirement of executing "the contract agreement" Furthermore, in their written statement, defendant No,1 has clearly stated that a letter of award dated 19-11-2006 was issued by the defendant No,1 and was duly accepted by the plaintiff by way of its acknowledgement at a formal contract signing ceremony, thereby forming a binding contract between the plaintiff and defendant No,1, and that the plaintiff has maliciously withheld the production of the said contract, and has annexed to the written statement, a copy of the said letter of award as annexure-A thereto. In any view of the matter since on the plaintiffs own showing it was through LIA (Annexure-A to the plaint) that the defendant No,1 conveyed their acceptance of the plaintiffs offer for the construction of the project on the terms and conditions contained therein and since the LIA has, as noted earlier, been countersigned on behalf of the plaintiff company by way of acknowledgement and confirmation of acceptance on such terms and conditions, the above by itself constitute a valid and binding contract between the parties. It is also significant to note that the acknowledgement and confirmation of acceptance of the terms and conditions of the contract as contained in the defendant No, l's letter dated 19-11-2009, Annexure-A to the plaint, duly signed on behalf of the plaintiff, itself describes the said letter as "letter of Award".
70. ' Furthermore, as rightly submitted by the counsel for defendant No,1, it is unbelievable that the plaintiff mistakenly believed that the LOA has been issued, as for the LOA to be valid the same was required to be signed by the plaintiff as the same was meant to be a contract. A party cannot be said to be mistaken about the existence of an instrument if its existence require the signature of the said party. It is also illogical to claim that the plaintiff never saw the LOA before furnishing the subject guarantees for the amounts stipulated in the LOA, as the plaintiffs could not have furnished the bank guarantees without seeing the LOA as the conditions for furnishing guarantees could have been varied or waived altogether. In any event, the contents of the three guarantees themselves, bellies the plaintiffs claim that the LOA was not received by them, as it is clearly mentioned in the recital of the performance bank guarantee that the defendant No,1 have placed with the plaintiff the "letter of award/ contract', dated 19-2-2006. Similarly, the two mobilization advance guarantees also records the above fact in their recital. It is crucial to note that the bank guarantees were issued by defendant No,2 at the request of the plaintiffs, and on the basis of the information furnished by them to the said defendants.
71. ' It is also crucial to note that the plaintiff, in para. 7 of the plaint, has clearly stated that the subject guarantees were furnished by the plaintiff as per the requirements contained in the contract document, whereas, the letter of award dated 19-11-2006 has been enlisted in clause 2.0 of the LIA as a contract document. It is also preposterous to claim that after 28 days of its execution the LIA was terminated as no subsequent contract in the form of LOA was executed, for the reason also that the plaintiffs admittedly continued to perform their obligations even after expiry of 28 days from the date of issuance of the LIA, which was issued on 19-11-2006, and even the performance bond was issued on 12-4-2007 and the advance mobilization guarantees were issued on 30-4- 2007 and 23-7-2007 respectively, which is long after the expiry of 28 days of the LIA. It also does not suit to reason that the plaintiff would have remained under a mistaken impression that LOA has been issued till as long as May, 2008 when the defendant No,1 invoked these guarantees. The plaintiffs have at no point in time since issuance of the subject guarantees till May, 2008, either requested defendant No,2 to withdraw the said guarantees or did they ever notified to the defendant No,1 that the guarantees have been issued under a wrong assumption, on the contrary the plaintiffs received the mobilization advance amounts against the mobilization advance guarantees. Similarly, plaintiff reliance on the provision of section 22 of the Contract Act is wholly misconceived and untenable as contrary to the contention of their counsel, in terms of section 22 of the Contract Act, a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.
72. ' Even if for the sake of arguments it is assumed that the existence of LOA was a mistaken assumption on the part of the plaintiff, the plaintiff cannot now be allowed to take undue advantage of such mistaken assumption, by avoiding the contract on the basis of such mistake as the facts and circumstances in the instant case also meets the criteria, laid down by Brooke, J. In the Bank of Scotland v. Wright and another, supra, as since the time of the issuance of the bank guarantees and for a period of almost one year thereafter and till such time the defendant No,1 tried to encash the guarantees, all the parties proceeded on the basis that the LOA existed. It was on the basis of this assumption, that the guarantees were issued, it was against such guarantees that the defendant No,1 paid the advance amount to the plaintiff, the plaintiff accepted the advance amount and carried out certain works at the site and therefore, it would be unconscionable to allow the plaintiff to resile from the above assumption. Not once did plaintiff claimed that the guarantees were unenforceable and/or that the LOA did not exist. Not until the defendant No, 1 sought encashment of the guarantees.
73. ' Furthermore, there was no chance of fraud because it was not beyond the plaintiff to have discovered whether or not the LOA has been executed. The existence of the LOA depended on the acceptance and the signature of the plaintiff and no matter what the defendant No,1 would have represented, the plaintiff would have known whether the LOA existed or not, and as submitted by counsel for defendant No,1, the plaintiffs' case is hit by the doctrine of Estoppel by Convention, whereby the plaintiff and defendant No,2, HBL are stopped from claiming that the guarantees are void due to a mistake of fact, as in terms of the said doctrine, where the parties to a transaction have acted on the agreed assumption that a state of facts can, for the purpose of that transaction, be regarded as true, the parties are precluded from denying the truth of those assumed facts, in case where it would be unjust to allow them or only one of them to do so. In the present context it would certainly be unjust to prevent defendant No,1 from seeking encashment of the mobilization advance guarantees as it was against such guarantees that the plaintiffs have been paid huge sums, repayment whereof was guaranteed by said two guarantees and therefore, the principle laid down in the Bank of Scotland v. Wright and another (1991 BCLC 244), that where the parties have established by their construction of their agreement or their apprehension of its legal effect a conventional basis and on that basis they have regulated their subsequent dealings and it would be unjust or unconscionable if one of the parties resiled from that convention and further that the party who is sought to be estopped must have contributed in some active way towards the creation or continuance of the mistaken basis on which the parties thereafter conducted their dealings, so that it would be unconscionable to allow him to resile from the stance he had taken, which had to a certain extent influenced the other party to behave as it did applicable with full force.
74. ' Similarly the dictum as laid down in the case of Amalgamated Investment and Property Co. Ltd.
75. (in Liquidazion) v. Texas Commerce International Bank Ltd. (1981) 3 All ER 577), reproduced at pages 29 and 30 of this order fully applies to the facts and circumstances to the present case.
76. ' Furthermore, and as rightly submitted by Mr. Arshad Tayabally, it can be seen from the language employed in the contract of guarantees that the execution of the LOA was not needed for the recital in the guarantees to hold true and that it is sufficient to establish whether or not the construction work of the project was granted to the plaintiff, and such was done through the execution of the LIA and the parties proceeded to perform their obligations in terms as laid down in terms of the LIA. Inasmuch as the defendant No,1 provided the mobilization advance and the plaintiff started the work. Reading of the subject guarantees clearly reveals that the consideration for the guarantees was the work awarded and in respect of the mobilization guarantees the consideration in addition to the work awarded is also the advance payment that was to be. Made against the said security.
77. ' The performance guarantees states "....... Whereas HBL, in consideration of the Works to the Contractor has agreed to stand surety for the Contractor "Whereas in terms of the Mobilization Advance Guarantees, HBL, the defendant No,2, has clearly. Stood surety in consideration for the advance for the execution of the works that the defendant No, 1 had agreed to pay. The said consideration was fulfilled as the advance had been duly given by plaintiff to the defendant No, 1.
78. Even otherwise it is only HBL who is competent, and has locus standi, to contest the validity of the guarantees on the basis of lack of consideration. Whereas HBL has at no point in time pleaded that the subject guarantees are without consideration; and as laid down in Van Oord International B V and 2 others v. Amsterdam-Rotterdam Bank N V and Anor [1992] SGHC 169, the plaintiff have no locus standi to raise the question of lack of consideration which, if at all, is an issue for HBL.
79. ' Although, as noted above, the learned counsel for the plaintiff during his arguments did not refer to any grievance other than those based on the allegation that letter of award was not issued by defendant No,
1. However, since the various other grievances, as noted earlier, have been raised by the plaintiff through their plaint, I would deal with them as follows.
80. ' With regard to the allegation that there were delays in the release of mobilization advance on the part of the defendant No,1, which obstructed smooth and expeditious mobilization of the plaintiff. It may be noted that in terms of clause 7.0 of the LIA, mobilization advance of Pak Rs,835,000,000 for phase I was to be paid by defendant No,1 to the plaintiff within two weeks after 19-11-2006, upon furnishing of various documents as mentioned in the said clause, and only after the plaintiff has furnished the mobilization advance bond for the said amount, meaning thereby that all the pre- requisites, including the furnishing of the relevant bank guarantees were to be fulfilled by the plaintiffs by 2-12-2006. Clause 7.0 of the LIA further provides that in the event the aforesaid documents were not furnished within the above prescribed time, 50% of the aforesaid mobilization advance amount was to be paid upon receipt of the mobilization advance bond, whereas, the balance 50% was to be paid upon receipt and acceptance by the Engineer of all the outstanding documents within one calendar month from 19-11-2006. Whereas, in terms of clause 7.0 of the LOA mobilization advance of PKR 835,000,000 for Phase I was to be paid after fulfilment of the above mentioned prerequisites by the plaintiff within two weeks from 1-2-2007 and upon receipt of the mobilization advance bond, and in the event all the said outstanding documents were not furnished as above, only 50% mobilization advance was to be paid upon furnishing of mobilization advance bond and the balance 50% was to be paid within one calendar month from 1-2-2007 and only after the aforesaid documents were furnished by the plaintiffs. Although, as noted above, clause 7 of the LIA as well as LOA require the plaintiff to furnish mobilization advance bond in the sum of Rs,595,000,000 for Phase-II of the project, however, none of the two letters provide any timeframe for the payment of mobilization advance in respect of Phase -II of the project and/ or for any modalities for such payment. Even in the plaint, it is not mentioned as to when the mobilization advance amount was to be paid in respect of Phase-II of the project.
81. ' However, the mobilization guarantee in respect of Phase I of the project was furnished on 23-7- 2007, that is after a delay of more than seven (7) months from the date as prescribed by the LIA and after more than five months delay, if the date is reckoned from the letter of award. Whereas, the mobilization advance guarantee in respect of Phase II of the project was furnished on 30-4- 2007. In the affidavit filed by the plaintiff in support of their stay application (C.M.A. No, 4357 of 2008) the plaintiffs have alleged that mobilization advance was paid to them, after some delay, without stating the date of such payment, and without disclosing as to how many days; after they furnished the guarantees was the payment made. It is further alleged by the plaintiff that no payment was made in respect of mobilization advance guarantees in respect of phase II of the project.
82. ' Although, the plaintiffs have annexed photocopies of their various letters along with their plaint and affidavits, however, except for their letters, being annexures-F/1 and F/6 to the plaint, which seems to be in response to the defendant No,1's complaints regarding the plaintiffs' performance at the site, the plaintiffs have nowhere made even a slightest reference to non-payment of the mobilization advance. Through annexure F/1, the plaintiffs, whilst attempting to justify delays in the construction work have in addition to referring to local unrest, complained that the advance payment of USD 5 million is not yet made to them, and through their reply dated 4-62007, annexure F/6 to the plaint, the plaintiff in response to defendant No,l's complaint of slow progress in the work have, on the one hand admitted delay in furnishing advance payment guarantee dated 30-4-2007 (in respect of the phase II) and on the other complained that they have not received the payment and requested payment against the said guarantee.
83. ' In their written statement, the defendant No,1 has submitted that the guarantee dated 23-7-2007 in the amount of USD 5,000,000 was in respect of the Phase-II of the project and that no payment has been claimed by defendant No,1 against the said guarantee and the same is not even the subject matter of the suit and as such, the said guarantee is entirely irrelevant.
84. ' In their counter-affidavit to the plaintiffs' stay application (C.M.A. No,4357 of 2008), the defendant No, 1 have stated that the plaintiff was required to commence work on Phase-I (a), I(b), and Phase- II of the Project on February 1, 2007, April 1, 2007 and August 1, 2007 respectively, however the plaintiff has not even fully mobilized the materials, equipment, and the manpower, adequate for the construction of Phase-I of the project. It is further claimed that the plaintiff continuously failed to meet the various milestones stipulated in the programs submitted by them to defendant No,1, and kept revising the schedules with an undertakings to meet the targets each time. However, the plaintiffs' performance remained poor and they persistently failed to comply even with the revised dates. It is further alleged that the plaintiff is in fact 15 months behind the schedule in respect of the project under the contract which required 36 months for completion.
85. ' It is further submitted that since the plaintiff has not even fully mobilized the materials, equipment, and the manpower in respect of the Phase-I, there was no question of payment of the mobilization advance against the Phase-II guarantee and that in any event non-payment of the mobilization advance in respect of the phase-II has no bearing on the progress of the Phase-I and as such non- payment could not and in fact did not effect the plaintiffs' ability to perform its obligation in respect of the Phase-I of the project. It is further claimed that in terms of the contract defendant No,1 was only required to pay to the plaintiffs the mobilization advance for the performance of its obligations towards the project, however, in spite of full payment of the requisite mobilization advance an amount of USD 8,638,207, excluding withholding tax, for Phase-1 of the project by the defendant No,1, the plaintiff sought assistance and requested the defendant No,1 for an additional payment which were not required to be paid in terms of the contract, however, the defendant No, 1 by way of accommodation and without having any obligation to make any further payment, so as not to hinder the progress of the project, has paid an additional amount of PKR 224,570,343 in respect of which amount defendant No,1 reserves its right to adopt proper legal proceedings against the plaintiffs.
86. ' It is further alleged that the plaintiffs have not even fully mobilized the material, equipment and menpower in respect of the Phase-I, there is no question of payment of the mobilization advance against the phase-II guarantee yet, and that in any event non-payment of the mobilization advance in respect of the Phase-II has no bearing on the progress of Phase-I as such did not and could not effect plaintiffs' ability to perform its obligation in respect of the Phase-I of the project. It is alleged that the plaintiffs have miserably failed to fulfil its obligation towards defendant No,1 in respect of the project in spite of full satisfaction by defendant No,1 of its obligation under the said contract but solely on account of its own breaches and not on account of any action of defendant No,
1. Although, the plaintiffs have filed affidavit-in-rejoinder to the aforesaid counter affidavit they have, however, not denied any of the above allegations as contained in the counter affidavit.
87. ' Keeping in view the fact that the plaintiff has delayed submissions of advance payment guarantees and also the fact that though time was prescribed for mobilization advance in respect of the phase I, however, neither any time was prescribed for payment of mobilization advance in respect of the Phase-II nor were any modalities for such payment, and more so for the reason that undisputedly the plaintiffs has not even fully mobilized the material, equipment and manpower adequate for the construction of Phase-I of the project and has remained far behind the agreed schedule despite repeated requests and has in fact, as mentioned in the defendant No,l's letter addressed to the counsel for the plaintiffs on 12-5-2008 and also in the engineer letter dated 2-5- 2008, annexures-G/1 and G to the above counter affidavit, contents of which letters have not been denied by the plaintiff, continuously failed to meet the various milestones stipulated in the programs submitted to the defendant No,1 by the plaintiff themselves, which were revised by the plaintiff on more than one occasion vide revised catch-up programmes with an undertaking to meet the targets each time. However, the plaintiffs performance remained poor and the plaintiffs persistently failed to comply even with the revised dates and according to the latest revised/ catch-up program dated 13-8-2007 the plaintiff undertook and was required to complete the excavation, lean concrete and construction of the basements for Blocks 1 to 8 by November 12, 2007. However the basement works for Blocks 1 to 8 have not been completed and based on the plaintiffs' own master plan approved by defendant No,1, dated 13-4-2007. The construction status should have been as follows:-- Tower Block 1Level 14 Tower Block 7Level 16 Tower Block 8Level 16 Tower Block 2Level 11 Tower Block 3Level 12 Tower Block 4Level 15 Tower Block 5Level 5 Tower Block 6Level 5 ' But the actual situation at site as of May 10, 2008 was that the plaintiff was still working on Pile Caps and basement slabs for Tower Blocks 1, 7 and 8, whilst for the remaining Tower Blocks the plaintiff was still at the excavation stage and further that as per the plaintiffs original manpower mobilization schedule, they should have had manpower of approximately 1000 workers on site, whereas, as of May 10, 2008 the plaintiff had only 59 workers at the site of the project, which could not be construed even as partial mobilization. The plaintiff is not justified in alleging and/ or complaining that the mobilization advance in respect of the phase II of the project was not paid to them.
88. ' Although, the plaintiffs have complained that the defendant No,1 has deviated from the procedure prescribed for the payment of the contract price, however, except for the said bare allegation they have said nothing in that regard. The plaintiffs have not given any details or a single instance of any single deviation in that regard.
89. ' With regard to the plaintiffs' allegation that the project engineers never took up the role assigned to them and all powers and duties of engineer were taken up by defendant No,1 in violation of the contract, which allegation also is denied by defendant No,1, it may be noted that at no pint in time before filing of the suit did the plaintiff made any such complaint. The above also is bold allegation and the plaintiff has not given any details and has also not quoted any instance of the alleged violation. Even otherwise, the said allegation is belied by the record of the case as the very first letter annexed to the plaint being annexure F/1, which seems to be in response to the comments/letter from the project engineer, whereby seemingly the project engineer has also requested the plaintiff to improve their work progress is itself addressed to the project engineer.
90. Whereas, the annexures-D, D-2 and G, which are letters dated 10-3-2007, 28-12-2007 and 2-5- 2008, are all letters sent by the project engineer, containing various instructions and making complaints about the plaintiffs' performance at site, contents of which letter clearly shows that the involvement of the project engineer in the project and that they have throughout remained fully involved in the relevant matters pertaining to the project. In any case, the plaintiffs have also not stated as to how and in what manner non-involvement of the project engineer could have and have adversely affected their performance and interest in relation to the subject contract.
91. Therefore, the above objection also is baseless, misconceived and untenable and is not sustainable.
92. ' In view of the foregoing, it can well be seen that the plaintiffs have failed to substantiate any of these allegations contained in the plaint.
93. ' Coming to the question of encashment of the subject guarantees, it may be noted that the mobilization advance guarantees were furnished by the plaintiffs in terms of the LIA and Letter of Award dated 19-11-2006. Against guarantee dated 23-7-2007, the defendant No,1 paid to the plaintiff a sum of USD 3,870,432.00 towards mobilization advance. The said amount was to be recovered by defendant No,1 through deductions on the basis of interim progress claims, to be submitted by the plaintiffs .On a monthly basis, showing detail of work done by the plaintiff.
94. However, since the plaintiff failed to perform its obligation under the said contract defendant No,1 was unable to recover the mobilization advance.
95. ' In terms of the contracts as contained in the two mobilization advance bank guarantees, HBL, the defendant No,2, guaranteed, payment to the defendant No,1, unconditionally, without reference to the plaintiffs, on the first written demand, the amounts guaranteed, if the contractor fails or neglects to repay such amount to the employer upon demand. It is also provided that the obligation of the surety, thereunder, shall be that of a principal debtor and shall be unconditional.
96. Undisputedly, the plaintiff despite repeated requests has lass far behind the agreed schedule. It is not denied by the plaintiff that despite lapse of 15 months the plaintiffs failed even to mobilize itself fully.
97. ' The plaintiffs in their plaint have not even claimed that the defendant No,1, owes any amount to them towards any construction work in respect of the project. The defendant No,1, has claimed, that in addition to the mobilization advance amount of USD 3,870,432.00, they have, at the request of the plaintiffs, and without having any legal obligation, and merely by way of accommodation, paid an additional amount of Pak. Rs,224,570,343 to the plaintiffs, so that, the work on the project may not be delayed, which fact also has not been denied by the plaintiffs. The defendant No,1 as well as the project engineer, as evident from their various letters, annexed to the counter-affidavit, have from time to time complained to the plaintiffs regarding their poor performance and about the various defaults and delays committed by them, and through letter dated 15-3-2008, annexure-F to the counter affidavit, the plaintiffs have stated that they shall solve workers' salaries problems and shall ensure that the work restart as soon as possible. The letter dated 28-12-2007, annexure D-2 to the defendant No, l's counter-affidavit, is reflective of the plaintiffs performance at site, whereby the project engineers have expressed to the plaintiff their utmost dismay and dissatisfaction in the manner the plaintiffs handled the project.
98. ' The letter reveals that during the meeting held between the representative of the project engineers in the plaintiffs' office on 17th and 18th July of 2007, the plaintiffs' General Manager, personally assured that the project shall receive the plaintiffs' top priority and support for achieving timely completion and that full mobilization. Will be accelerated without any further delays, and that no steps were taken by the plaintiffs towards the above assurance despite repeated requests by the project engineers and nothing changed on the project front. The General Manager of the project engineers also expressed its dismay and dissatisfaction over the state of mobilization at the site and stated that the plaintiffs have not taken any steps towards meeting their contractual obligation inasmuch as even the plaintiffs' mobilization, manpower and equipment was less than 20% of what was required to undertake and complete the project, and further that the quality of whatever little work the plaintiff has done is extremely poor, as recorded in the site memos. It is further alleged that the plaintiff even failed to procure the materials and equipments required to complete the project in time and have even failed to place orders for any of the above and further that the plaintiffs have failed to pay their local sub-contractors, suppliers and even workers resulting in the complete stoppage of work at site for the last 15 months. The project engineers through the above letter also required the plaintiff to submit an accelerated mobilization and construction schedule to complete the project within the remaining time available, within two weeks and warned the plaintiff that in case of failure the engineers will have no alternative but to proceed against the plaintiffs. Through letter dated 31-3-2008, annexure E-1 to the counter- affidavit, the plaintiffs conveyed their no objection to hand over the work of three towers block structure works to any other contractor. Through letter dated 15-3-2008, annexure-F to the counter affidavit, the plaintiffs, though promised that they shall solve workers' salaries problems and to ensure that the work start as soon as possible, but asked for immediate payment for the material and at the same time expressed their inability to complete the project at the agreed price and requested for a fresh agreements between the parties and demanded 20% rise. The plaintiffs also proposed, to provide only the workers and not the material for the project and threatened termination of the contract in case a fresh agreement is not executed between the parties, as proposed by them. Consequently, the project engineers served a notice dated 2-5-2008, annexure-G, under clause 15.1 of the Conditions of contract, calling upon the plaintiff to take immediate steps to make good their failure and to remedy the breaches /defaults as enumerated therein, within seven days from the receipt of the notice or else the defendant No,1 shall be entitled to terminate the contract and to take such other actions and proceedings against the plaintiffs, as may be available to them under the Law, including the encashment of the performance bond and the advance payment guarantees. However, the plaintiffs instead of taking any corrective measures caused a letter dated 10-5-2008, annexure-H to the plaint, to be served upon defendant No,1 through its legal counsel, wherein the plaintiffs denied the existence of the contract between the plaintiffs and defendant No,1, and without prejudice to such contention, accepted the defendant No,l's repudiation of the contract. Through legal notice dated 12-5-2008, the plaintiffs confirmed the termination of the contract. Defendant No,1 called upon the said guarantees, vide letter dated 2-5-2008, sent to defendant No,1, and through reminder dated 9-5-2008, which was followed by legal notice dated 12-5-2008, urging defendant No, 2 to encash the subject guarantees.
99. ' As regards the mobilization advance guarantee, it may be noted that the same was to be furnished in terms of clauses 5 of LIA and Letter of Award dated 19-11-2006. Whereas, the plaintiff has claimed that it has called for encashment of the performance guarantee in accordance with the clause 4.2(d) of the General Conditions of the contract, which provides that defendant No,1 is entitled to claim under the performance guarantee in the circumstances, which entitled defendant No,1 to terminate the contract under clause 15.2 of the said conditions irrespective of whether notice of termination has been given. The relevant portion of clause 15.2 reads as follows: - "15.2 The Employer shall be entitled to terminate the Contract if the Contractor:
(a) ...................
(b) Abadons the Works or otherwise plainly demonstrates the intention not to continue performance of his obligations under the Contract.
(c) Without reasonable excuse fails: (i) to proceed with the Works in accordance with Clause 8 [Commencement, ' Delays and Suspension], or ' In terms of the subject performance guarantee dated 12-4-2007, annexure-C to the plaint, HBL, the defendant No,1 has stood surety for the plaintiff for due performance by them to the satisfaction of the plaintiff of its obligation in accordance with the letter of award/contract and has guaranteed payment of USD 5,125,250.00, in the event, the plaintiff, in the opinion of the defendant No,1, fails to perform or commits breaches of any of its obligations in terms of the contract. The said contract of guarantee further provides that the plaintiff and defendant No,2, upon demand in writing by the plaintiff, shall jointly and severally make unconditional payment of the said sum on the first demand of the plaintiff, without reference to the contractor and further that any demand made by the plaintiff under the guarantee shall be conclusive evidence of the plaintiffs' default and in the facts and circumstances of the case, as discussed above, I am of a prima fade view that the plaintiff has committed defaults in performance of its obligation under and in terms of the contract between the parties.
100. ' As observed by a Division Bench of this Court in Pakistan Engineering Consultants v. P.I.A.C. (1993 CLC 1929), supra there is preponderance of judicial view that in case of a letter of credit and an unconditional Bank guarantee, the Court would generally be reluctant to grant an ad interim injunction, restraining a Bank from honouring its contractual obligation. However, in exceptional cases, where refusal to grant an ad interim injunction, will perpetuate fraud or injustice, which should be apparent from the material on record, the Court may grant an ad interim injunction. In the above cited case, one of the main controversies was as to whether or not upon the death of the Managing partner of the plaintiff firm during the pendency of the contract, the contract between the parties came to an end and as to whether the employer was justified in repudiating the contract on that ground or not. The Division Bench held that although in para. 3 of the contract between the parties, it was stated that the documents for the purpose of identification have been signed by the deceased Managing partner on behalf of the appellant but there seems to be no clause providing that the work was to be executed personally by the deceased, and taken note of the fact that the reason for repudiation of the contract as mentioned in the repudiation letter was default committed by the appellant, held that in their view, the said case does not fall under the category of exceptional cases. It was observed that the Bank guarantee was given against the cash amount paid by the respondent towards the mobilization advance, which amount was to be adjusted against the running bills and the final bill at the rate of 10% which has not been fully adjusted, and, therefore the balance amount of the Bank guarantee in fact belonged to the respondents and that under the terms of the Bank guarantee, the Bank has given undertaking to pay the amount on demand by the respondents without questioning it and without making a reference to the consultants and, therefore, it will not be just and proper to grant an ad interim injunction.
101. ' With regard to the performance bond, it was held that the same stands entirely on different footing than the Bank guarantee and unless and until the Court prima facie finds that the default was on the part of the consultants, it would not be just and proper to allow its encashment as the encashment depends on the commission of default and since we have already observed hereinabove that on the basis of material available on record, it cannot be said who has committed the default, allowed the respondents to encash the bank guarantee to the extent of the balance unadjusted amount minus the amount of outstanding bills but restrained the respondents to encash the performance bond.
102. ' The above view was upheld by the Hon'ble Supreme Court in an appeal filed against the said order, which judgment is reported as Pakistan Engineering Consultants v. P.I.A.C. (1989 SCMR 379).
103. ' The judgment in the case of MacDonald Layton and Co. Ltd. v. Pakistan Services Ltd. And 2 others (1983 CLC 2252), has been rendered in entirely different facts and circumstances. It was not denied by the employer in that case that they had reduced the quantity of the work resulting in consequential reduction in the value of the work from Rs,380 million to Rs,149 million. The employer also did not deny the fact that the termination of the contract by the employer was in contravention of clause 17.6 of the General Conditions of the Contract, which required certification of the fact that the contractor has abandoned the contract and /or failed to achieve due progress etc., and also required written consent of the consultant, for the employer to determine the contract. There was some dispute between the parties over the revised rates of quantities submitted by the contractor in respect of the reduced work and it was pleaded by the plaintiffs that the impugned termination of the contract was calculated to pressurize the plaintiff to accept the rates dictated by them in respect of the reduced work.
104. ' In the case of Messrs Jamia Industries Ltd. v. Pakistan Refinery Ltd. Karachi (PLD 1976 Karachi 644), where a contract for sale/purchase of oil was involved. Injunction was granted, as there was a dispute regarding sufficiency of the notices required under the contract, to receive the consignment and it was held that it is clear from the pleadings and the respective contentions on behalf of the parties that the true interpretation of the clause of the contract is required for holding whether the notices in question were sufficient and it was, in the circumstances, that the learned single Judge held that the question as to what rights the creditor has against the principal debtor, the plaintiff, is yet to be adjudicated and determined. The said case being entirely on the different footing, is not applicable to the facts and circumstances of the present case.
105. ' In the case of Shipyard K. Damen International v. Karachi Shipyard and Engineering Work Ltd. (PLD 2003 SC 191), (supra) the Hon'ble Supreme Court held that the performance guarantee stands on footing similar to an irrevocable letter of credit, the bank which gives performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the parties to the main contract and as to whether the contractor has performed his contracted obligation or not, nor with the question whether the contractor is in default or not. The bank must pay according to the terms of the guarantee all demands, and if so stipulated, without proof or condition and that the only exception is a case of clear fraud of which the bank has notice.
106. There is an absolute obligation upon the banker to comply with the terms and conditions, as enumerated in the guarantee and to pay the amount stipulated therein irrespective of any dispute between the parties to the main contract, as to whether the goods supplied are up to the specification or not. It is further held that the bank guarantee should be enforceable on its own terms and that realization against the bank guarantee would not affect or prejudice the case of the contractor, if ultimately the dispute is referred to arbitration and further that the contract of bank guarantee is an independent contract between the bank and party concerned and is to be worked out independently of the dispute arising out of the work agreement between the parties to the work agreement and, therefore, the extent of the dispute and claim or counter-claims were matters extraneous to the consideration of the question of enforcement of the bank guarantee and were to be investigated by the arbitrator. It is further held that where the bank had undertaken to pay the stipulated sum to the respondent, at any time, without demur, reservation, recourse, contest or protest, and without any reference to the contractor, no interim injunction, restraining payment under the guarantee could be granted and further that the bank guarantee is an autonomous contract and imposes an absolute obligation on the bank to fulfil the terms and the payment on the bank guarantee becomes due on the happening of a contingency on the occurrence of which the guarantee becomes enforceable. The Court further held that in the absence of special equities and the absence of any clear fraud the bank must pay on demand, if so stipulated and whether the terms are such must be find out from the performance guarantee, as such. It was also held that unqualified terms of guarantee could not be interfered with by the Courts irrespective of the existence of dispute. The Hon'ble Supreme Court, in support of the above, referred to and relied upon a number of Indian cases, as follows:-- ' In the case of U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (IT 1987
(4) SC 406), where the nature of the performance guarantee and the obligations arising out of the same, in the light of the claim for irretrievable injustice or damage was examined. After giving a detailed and micro analysis of the entire English and Indian Law governing the grant of injunctions against the enforcement of the Bank Guarantees, the Supreme Court of India held that the net effect of injunction is to restrain the bank from performing the bank guarantee. That cannot be done. One cannot do indirectly what one is not free to do directly. But a maltreated man in such circumstances is not remediless. The respondent was not to suffer any injustice which was irretrievable. The respondent can sue the appellant for damages. It was further held that an irrevocable commitment either in the form of confirmed Bank guarantee or irrevocable letter of credit cannot be interfered with except in case of fraud or in case of question of apprehension of irretrievable injustice has been made out. The commitments of banks must be honoured free from interference by Courts otherwise trust in commerce, internal and international would be irreparably damaged. It is only in exceptional cases, that is to say in case of fraud or in case of irretrievable injustice be done, the Court should interfere.
107. ' In the case of National Thermal Power Corporation Limited v. Flowmore Private Ltd. And another (1995) 84 Comp. Cas. 97), the Court while allowing the appeal and vacating the injunction held: "that looking to the obligation assumed by banks under performance guarantees and guarantees to secure advances, bank cannot be prevented by the party at whose instance the guarantee or letter of credit was issued, from honouring the credit guaranteed. The Court should not lightly interfere with a performance bond or guarantee, unless there is fraud of the beneficiary.
108. ' The following passage from the case of Hindustan Steel Works Construction Ltd. v. G.S. Atwal and Co. (Engineers)(Pvt.) Ltd., may also be relevant and beneficial in the present context, it was held that "On appeal to the Supreme Court along with the appeal it was held by honourable Mr. Justice Paripooman, J.; that in case of confirmed bank guarantees/irrevocable letters of credit the Court will not interfere unless there is fraud and irretrievable damages are involved in the ease and the fraud has to be an established fraud. The sums claimed by the appellant were covered by the guarantees. The guarantees furnished by the bank to the appellant were unconditional and the appellant was the sole Judge regarding the question as to whether any breach of contract had 'occurred and if so, the amount of loss to be recovered by the appellant from the respondent. The entire dispute was pending before the arbitrator. Whether and if so, what was the amount due to the appellant had to be adjudicated in the arbitration proceedings. The fact that the bank had issued a guarantee in a standard form, covering a wider spectrum than agreed between the respondent and the bank and the fact that the appellant had not quantified the loss and mentioned it were no grounds to restrain the appellant from invoking the unconditional bank guarantees. The order of injunction was liable to be set aside".
109. ' In case of Larsen and Toubro Ltd. v. Maharashtra State Electricity Board and others (1996) 85 Comp. Cas. After a survey of the earlier decisions of the Indian Supreme Court in United Commercial Bank Ltd. v. Bank of India (1982) 52 Comp. Cas. 186: (1981) 2 SC 766, U.P. Cooperative Federation Ltd. Singh Consultants and Engineers (P) Ltd. (1989) 65 Comp. Cas. 283; (1988)
1. SCC 174, General Electric Technical Services Company Inc. v. Punj. Sons (P) Ltd. (1992) Comp. Cas. 624; (1991)
110. 4 SC 230 and the decision of the Court of Appeal in England in Elian and Rabbath v. Matsas and Matsas, (1966) 2L Lloyd's List Law Reports 495 and a few American decisions, this Court in Svenska Handell3arrken v. Indian Charge Chrome, (1994) 1 SC 502, 523-524,'526-27; (1994) 79 Comp. Cas.
111. 589, 616-617, 620 laid down the law thus: ' The Court cannot interfere in the matter of encashment of confirmed Bank guarantees/irrevocable letters of credit, unless there is fraud and irretrievable injustice involved in the case and fraud has to be an established fraud.
112. 66 irretrievable injustice which was made the basis for grant of injunction really was on the ground that the guarantee was not encashable on its terms." ' there should be prima facie a case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Mere irretrievable injustice without a prima fade case of established fraud is of no consequence in restraining the encashment of bank guarantee."
113. ' In the case of State of Maharashtra and another v. M/s. National Construction Company, Bombay and another, it was observed as follows:-- "A bank issuing a guarantee, is not concerned with the underlying contract between the parties to the contract. Unless there is an allegation of fraud, the Courts will not interfere. A bank guarantee is ordinarily a contract quite distinct from the underlying contract and gives rise to a separate cause of action.
114. ' At this juncture it seems necessary to analyse the laws relating to bank guarantees. The rule is well-established that a Bank issuing a guarantee is not concerned with the underlying contract between the parties to the contract. The duty of Bank under a performance guarantee is created by the document itself. Once the documents are in order, the bank giving the guarantees must honour the same the make payment. Ordinarily, unless there is an allegation of fraud or the like, the Courts will not interfere directly or indirectly to withhold payment, otherwise trust in commerce, internal and international, would be irreparably damaged. But that does not mean that the parties to the underlying contract cannot settle their dispute with respect to allegations of breach by resorting to litigation or arbitration as stipulated in the contract. The remedy arising ex contractu is not barred and the cause of action for the same is independent of enforcement of the guaranteed.
115. See UCO Bank v. Bank of India 1901 (3) SCR 300 at 325; Contax (India) Ltd. v. Vinmar Impex Inc. JT 1986 SC 174; 1986 (4) SC 136 and U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., JT 1987 (4) SC 405; 1988 (1) SC 174."
116. ' Another important case on the subject is Hindustan Steel Works Construction Ltd. v. Tarapore and Co. And another, wherein it was concluded as follows:-- On the facts, that the special circumstances and/or special equities which had been pleaded were that there was a serious dispute on the question who had committed breach of the contract, that the contractor had a counter-claim against the appellant, that the disputes between the parties had been referred to the arbitrators and that no amount could be said to be due and payable by the contractor to the appellant till the arbitrators declared their award. These factors were not sufficient to make this an exceptional case justifying interference by restraining the appellant from enforcing the bank guarantees. The High Court was, therefore, not right in restraining the appellant from enforcing the bank guarantees."
117. ' In the case of National Grid Company PLC v. Government of Pakistan, Private Power and Infrastructure Board, Minister of Water and Power (1999 SCMR 2367), the Hon'ble Supreme Court has in view of the fact that the guarantee, as per terms of guarantee, was independent and encashable without reference to the petitioner company and it was also provided that the beneficiary, at its own discretion and decision, could demand amount from the guarantor/bank the amount of bank guarantee without reference to the petitioner-company and that the decision of beneficiary as to the petitioner-company default, delay or failure in performance of its obligation would be final and unquestionable, upheld the findings of the High Court to the effect that the guarantor had bounded itself to pay the amount of guarantee upon service of notice without recourse or reference to the petitioner company or any other person and that neither prima facie case was made out nor was balance of convenience in favour of the petitioner and dismissed the petition for leave to appeal.
118. ' In the case of Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 SC 311), the Hon'ble Supreme Court held that in their view the Courts must give effect to the covenants of the bank guarantees, the performance guarantees, for the smooth performance of the contracts. The guarantees are independent contracts and the bank authority must construe them, independent of the primary contracts. They should encash them notwithstanding any dispute arising out of the original contract between the parties and dismissed the appeal against the judgment of the Lahore High Court, refusing to restrain encashment of the bank guarantees.
119. ' In the case of Heavy Mechanical Complex Pvt. Ltd. Texilla v. Attock Industrial Products, Rawalpindi (PLD 2003 SC 295), it was held that the rights and liabilities of the parties in case of contract of guarantee are strictly determined with reference to the terms and conditions of the guarantee without recourse to any other instrument or document executed by the parties for any other different purpose and that bank guarantee being a distinct contract not controlled by the primary contract between the parties, contention that in view of various terms of the primary contract it would be more appropriate if the Court ordered to maintain status quo till the dispute was finally decided in terms of arbitration clause to which the parties had agreed, was repelled for such order would all practical purposes nullify the contract of guarantee which was an independent contract.
120. ' Indeed as rightly submitted by Mr. Bilal A. Khawaja, the judgment in the case of Shipyard K. Damen International v. Karachi Shipyard and Engineering Work Ltd. (PLD 2003 SC 191) supra, being a judgment rendered by three Hon'ble Judges of the Supreme Court, in view of the five members Bench Judgment in Ardeshir Covasjee v. Karachi Building Control Authority (1999 SCMR 2883) cannot overrule, the earlier judgment of the same number of Judges in the case of Pakistan Engineering Consultants v. P.I.A.C. (1989 SCMR 379), and the distinction drawn in said earlier judgment between the mobilization advance guarantee and a performance guarantee to the effect that unless and until the Court prima fade finds that the default was on the part of the contractor, it would not be just and proper to allow encashment of the performance guarantee/bond, is binding unless overturned by a Larger Bench. However, since in the facts and circumstances of the case, as discussed earlier, I am of the prima facie view that the plaintiffs have committed defaults in performance in terms of their obligations towards defendant No,1 so much so that they have even failed to mobilize themselves adequately to undertake and carry out the project works as required of them and 'neither are there any special equities nor any fraud committed by the defendants, it will not be just and proper to restrain the defendants from encashing the subject guarantees. However, since no payment has been made under mobilization advance guarantee dated 30-4-2007 and the defendant No,1 has submitted that they are not seeking encashment of said guarantee the same shall not be encashed and therefore, the injunction application to the extent of the remaining two guarantees is dismissed. It hardly needs any mention that the findings and observations contained herein before are merely of a prima facie nature and shall have no bearing on the outcome of the arbitration proceedings between the parties.