1. ' By this order I propose to dispose of the two pending applications namely C. M. As. Nos. 2481/84 and 3088/84. The first noted application is filed by the plaintiff under, Order XXXIX, rules 1 and 2 read with section 151, C. P. C. For a temporary injunction against the defendant in the following, terms "In the above matter, it is prayed on behalf of the plaintiffs that for reasons disclosed in the accompanying affidavit, this Hon'ble Court may be pleased to restrain the defendants; their servants, agents or' representatives and assigns and all those claiming through or under them, from :
(i) interferring or inter-meddling with the plaintiffs' management and control of Hotel Hilton International, Lahore, directly or indirectly,
(ii) operation of Bank Accounts,
(iii) remitting of any funds, and issue direction enabling plaintiffs to operate all accounts and give such other directions that the Court may deem fit and expedient in the circumstances of the case.
2. ' It is further prayed that interim orders in terms of the prayer may be passed pending disposal of the application."
3. The second application is filed by the defendant under section 34 of the Arbitration Act for stay of the proceedings in the suit.
4. ' I will first deal with the application under section 34 of the Arbitration Act, 1940, filed by the defendant for stay of the suit. It is alleged by the defendant that in the Management Agreement executed between the parties , which, is the basis of present suit, Article XV thereof, provides for reference of all disputes in connection with the agreement to the Arbitration. The execution of the above agreement and the existence of arbitration clause therein is not disputed by the learned counsel for the plaintiff. The plaintiffs are however opposing the application under section 34 of the Act and their learned counsel has urged the following grounds in support of their opposition :-
(I) That the application under section 34 of the Arbitration Act filed by the defendant does not sufficiently make out the dispute which is to be referred to the arbitrator and as such the application is vague and liable to be dismissed;
(ii) That there being allegations of fraud and misrepresentation against the defendant the application for stay of the suit is liable to be dismissed ; and
(iii) That the Management Agreement executed between the parties is void ab laid under the provisions' of the Companies (Managing Agency) Order, 1975 and, therefore, the arbitration clause does not exist in law and as such the proceedings of the present suit cannot be stayed under section 34 of the Arbitration Act.
5. ' Before considering the above contentions raised by the learned counsel for the plaintiff it will be of advantage to reproduce here the arbitration clause contained in the Management Agreement which reads as under :- "All disputes arising in connection with this Agreement shall be finally settled under the Rules of Arbitration of the international Chamber of Commerce by one or more arbitrators appointed in accordance with said rules."
6. ' The above arbitration clause, it is admitted by the learned counsel for the parties, was amended by virtue of clause 12- of the Supplementing Management Agreement which reads as follows :- "12. In supplementation of Article XV of the Management Agreement, the parties agree that any arbitration in accordance with the provision of the said article shall be held in Pakistan."
7. A reading Of the arbitral clause amended as aforesaid, will show that the parties have agreed to refer all disputes arising in connection with the -Management Agreement for settlement under the Rules of Arbitration of the International Chamber of Commerce by one or more. Arbitrators appointed in accordance with the said rules and the venue for such arbitration is Pakistan. The above arbitration clause is apparently very wide in its scope and embraces reference of all kinds of disputes arising in connection with the Management Agreement to arbitration. I need not emphasise her that it is settled principle of 1st that ordinarily, party which has enter into a contract of which an arbitral clause forms an integral part should no receive the assistance of the Court when it seeks to resale from it. Keeping in view this grinding principle I will now examine the contentions raised -b the learned counsel for the plaintiff.
8. ' The first objection of the plaintiff is that the application under section 34 of the Arbitration Act has failed to maim out sufficiently the dispute between the parties and as such it is vague and liable to be dismissed. The plaintiff in its plaint has alleged rescision of Management Agreement which was executed between the parties. The defendant in their application under section 34 of the Arbitration Act have clearly spelt out the dispute by challenging the right of plaintiff to terminate the Management Agreement. Paragraphs 4 to 6 of the application under section 34 of the Arbitration Act sufficienly set out the dispute which has arisen between the parties. I therefore, see no substance in the submission of the learned counsel that the dispute which is required to be referred to arbitration is not set out in sufficient details in the application under section 34 of the Arbitration Act. This objection of plaintiff accordingly fails.
9. ' The next objection taken by the plaintiff is that the Management Agreement between the plaintiff and the defendant was allegedly brought as a result of fraud and misrepresentation by the defendant and, therefore, it is a fit case in which the Court should refuse to stay the proceedings.
10. To support his contention the learned counsel referred to the following cases :- ' Firm Jawahir Singh v. Flemming Shaw & Co. Ltd. AIR 1937 Lah. 851 ; ' Johurmull Parasram v. Louis Dreyfus & Co. Ltd. AIR 1949 Cal. 179 ; ' Abdul Kader v. Madhav Parabhdir AIR 1962 SC 406 ; ' Narain Parshad Boobna v. Dhanji Mills A 1 R 1943 Pat. 53 ; ' Planta Parashed v. Sagar Mal AIR 1952.Pat. 352 and ' Bengal Jute Mills Co. Ltd. v. Lakhand AIR 1963 Cal.
11. 405.
12. ' It is however not necessary to examine here in detail all the above cases which in turn are based on an English decision teported as Russell v. Russell (1). Russell v. Russell has been considered by our Supreme Court In the case of Haji Soomar v. Muhammad Amin Muhammad Bashir Ltd. (2) and 1 can do no better than to reproduce here the following observations in the above, case which appears at page 130 of the report :- "(6) We have carefully considered this contention and gone through the above-noted judgments all of which involved the same question as in the case in hand. We noticed that the basic principle has been laid down by the Chancery Division of the High Court of England in Russell v. Russell (which has been summarised as follows in the judgment as reported in 42 L T R 112 : ' Where a partnership deed contains an arbitration clause, and disputes occur between the partners, the mere fact that one partner makes a charge, of actual fraud against his co-partner is not sufficient to prevent the co-partner from insisting on a reference to arbitration and the Court, having regard to the discretion given by the Common Law Procedure Act, 1854. Section I , ought in the exercise of that discretion to allow the matters which have been expressly agreed to be referred to arbitration to be so referred, but not, if the partner charged with fraud desires a public examination into the truth of the stigma endeavoured to be cast upon him.
(7) According to the above-noted rule, in a case covered by an arbitration clause Courts would ordinarily be inclined to stay a suit on the application of the party against whom fraud is alleged and allow the dispute to be settled through arbitration, unless that party itself wants the matter to be decided through a public inquiry by a Court of law. If, however, that party does not wish the dirty linen to be washed in the {{FOOT NOTE}}
(1) 14 Ch. D 471 (2) 1981 SCM R 129 {{FOOT NOTE}} ' public, the proceedings in the trial should be stayed. But even in such cases where a prima facie case of fraud is made out, the case may be allowed to proceed in a civil Court."
13. (The underlining* is my own)
14. ' Mr. A. A. Fazeel, the learned counsel for the plaintiff relied on the above underlined portion in paragraph 7 of the judgment to contend that since the plaintiff has alleged fraud and misrepresentation in the plaint which has not been denied specifically by the defendant, therefore, a prima facie case of fraud is made out against defendant and the Court in these circumstances should reject the application under section 34 of the Arbitration Act filed by the defendant for stay of the suit. The contention of the learned -counsel does not appear to be correct. Firstly the defendant who have pleaded existence of arbitration clause and applied for stay of the proceedings of the suit under section 34 of the Arbitration Act have yet no opportunity to file the written statement to meet the allegations made in the plaint specifically as their application for stay of the suit is yet to be decided. Secondly, the ratio decidendi in Haji Soomar's case in my humble opinion clearly is that where a party against whom allegation of fraud is made applies for stay of suit under section 34 of the Arbitration Act the Court will ordinarily stay the suit and allow the dispute to be settled through arbitration. The underlined* observations of the Supreme Court relied by the learned counsel for the plaintiff which is apparently based on another passage from Russell v. Russell appearing at page 481 of the report of that case has to be understood in the light of the further observations of the Supreme Court in Haji Soomar's case which reads as under :- "We feel that wherever the parties to an Agreement expressly chose, through an arbitration clause, a forum other than a Court of law, for the settlement of their dispute, neither of them should normally be allowed to avoid that forum. The sole purpose of the Arbitration Act is to curtail litigation in Courts and to promote the settlement of the dispute amicably through persons in whom both the parties repose their trust. Therefore, the course that the Courts should generally follow is to encourage the settlement of disputes by this method wherever the parties have themselves agreed to do so. That this was also the intention of the Legislature is evident from the manner in which section 34 of the Arbitration Act is worded. To allow one side to evade and wriggle out from the agreement merely by making allegations of fraud, even though the same may not ultimately be proved or even pressed, would amount to giving a handle to that party to circumvent the arbitration clause. This apprehension was also expressed by the Chancery Division in Russell's case in the following words : ................. If the mere making of a charge of fraud would entitle the person making it to call upon the Court, in the exorcise of its discretion, to refuse to refer to arbitration, there would be a very easy Way of getting rid of all these clauses of arbitration. I am satisfied that the mere making of a charge will not do that, even in a case where the Court ought to exercise its discretion by refusing , to refer the case to arbitration........
15. After reading the relevant passage from Russell v. Russell and the above quoted observation of Supreme Court I am of the bumble opinion that the above-underlined observations of Supreme Court did not lay down an *[Hers in italics) ' imperative rule for the Court to reject the application for stay of suit under section 34 of Arbitration Act in all cases, where a party who alleges fraud is able to show a prima facie case to the Court.
16. Such an interpretation will completely negate the discretion vested in the Court under the law in ordering stay of proceedings under section 34 of the Arbitration Act. I will now make a tentative examination of the allegations made by the plaintiff against the defendant to find out if they have succeeded in making out a prima facie case of fraud and misrepresentation against the defendant. It is an admitted position on record that prior to the execution of Management Agreement the parties entered into a lease. The lease agreement executed between the parties was later on substituted by the present Management Agreement at the request of the plaintiff who represented to the defendant that because of some interview given by the President of defendant the Government of Pakistan was pressing the plaintiff to renegotiate the lease agreement with the defendant. A recital in the Supplementing Agreement dated the nd December, 1976 executed between the parties clearly bears out this position. It reads as under "Whereas, Avari Hotels Ltd. (First Party and Hilton International Co. (Hilton) are parties to a certain Agreement and Lease for the Lahore Hilton Hotel, dated January 19, 1968 as amended on October 9, 1968 and supplemented on July 29, 1970 (hereinafter called the Lease Agreement) ; and ' Whereas, First Party his requested Hilton to substitute for the Lease Agreement and all prior amendments or other agreements relating thereto, a Management together with the provision of this Agreement supplementing this said Management Agreement and Hilton has agreed to such substitution."
17. ' The main grievance of the plaintiff appears to be that the defendant at the time of entering into the present Management Agreement allegedly represented to plaintiff that the agreement executed by them is the same, under which the defendant is operating in other parts of the world.
18. This representation of defendant according to plaintiff later on turned out to be untrue, and therefore, it amounted to a fraud on the part of the defendant. The learned counsel for the plaintiff specifically relied on the following statement made in the letter, dated 15th February, 1977 addressed by the President of the defendant to the Chairman of the plaintiff :- "There is certainly no reason for us to operate in Pakistan under a Management Agreement which is not the same as that under which we operate in all other parts of the world."
19. ' The documents so far produced by the parties do not support the contention of learned counsel for the plaintiff. In so far the above-quoted statement made by the defendant in their letter, dated 15-2-1977 is concerned that does not amount to any representation on the part of defendant as is alleged by the plaintiff. The above-quoted statement cannot be read in isolation after divorcing it from its text. The letter is to be read as a whole in order to understand the context in which the above statement was made by the defendant. Secondly, by merely descriling the agreement as a standard management it does not follow necessarily, that it was represented to be exactly the same agreement under which the defendant were operating in other countries of the world. It is to be noted that the above letter was written by the defendant to the plaintiff after about two months of the execution of Management Agreement between the parties and, therefore, it could not form the basis of representation of the defendant. It will, therefore, be more appropriate to refer here to the events and correspondence, which ensued before the execution of Management Agreement between the parties. It is an admitted position that after entering into the lease agreement the plaintiff on 22nd November, 1976 wrote to the President of the defendant that he was instructed by the Government of Pakistan to renegotiate the terms of contract with the defendant. It will be advantageous to reproduce here the aforesaid letter of the plaintiff addressed to the President of defendant which reads as under :- "Mr. Curt R, Strand 22nd November, 1976.
20. President Hilton International, New York.
21. Dear Curt, ' Government of Pakistan has specially instructed me to renegotiate the terms Qf the contract with Hilton International. They have stressed that Lease Agreement is extremely harmful to a developing country, like Pakistan in general and Avari- Hotels Ltd. In particular. They have given me photo copy of an Aarticle published in the New York Times, dated July 23, 076 on the subject 'Management- Hilton International : Enforcing Standards'. It says very clearly as under : ' Of the 65 hotels bearing the Hilton name outside the United States, only a few are owned or leased by Hilton International. Most are managed by Hilton International for local investors on a fee basis that generally runs at 5 per cent of gross revenues plus 10 per cent of operating profits.
22. ' I honestly admitted that you had offered me both the contracts, namely, Lease Agreement and Management Agreement but my Feasibility Consultant, Mr. C. W. Robinson, then advised me to accept the Lease Agreement. However, in view of Government of Pakistan, Ministry of Finance, insisting upon me to re-negotiate the terms I shall deem it a great personal favour if you would kindly change the terms of the Agreement with Avari Hotels Ltd. On the basis of Management for us and not on Lease basis at , a fee of 5% of gross revenue plus 10% of operating profits instead of Lease Agreement allowing you 331 % of gross operating profits.
23. ' In this connection they have drawn my particular attention to the fact that Sheratons and Hyatts are both charging only 3% of total revenues instead of a% that you charge and they both have agreed to 10% of gross operating profits which the Hiltons are charging.
24. ' It is also expressly understood and agreed by Sheratons and Hyatts and they want us to agree equally well that the foreign exchange earnings of our Hotel must necessarily amount to at least 50% of the annual sales of the hotel and not less.
25. ' I shall be grateful if you would kindly incorporate this clause also in our Management Agreement showing 5% of total revenues payable , to Hiltons and 10 % of gross operating profits instead of 331% of gross operating profits.
26. ' Thanking you in advance for your co-operation and help and with respectful regards."
27. ' As a result of above request of plaintiff the present Management Agreement was substituted in place of original lease agreement. It further appears that after execution of present Management Agreement, the plaintiff again by his letter, dated 9th February, 1977 forwarded a copy of letter, dated 1st February, 1977 received from the Department Promotion. And Supplies, Government of Pakistan, and requested for re-negotiation of the terms of the standard Management Agreement.
28. The defendant replied the above letter of plaintiff on 15th February, 1977 which is as follows :- "Mr. D.
13. Avari February 15, 1977.
29. ' Chairman, ' Avari Hotels Limited, ' Beach Luxury Hotel, ' Moulvi Tamizuddin Khan Road, ' Karachi 2, Pakistan.
30. ' Dear Dinshaw ' This is in reply to your letter of February 9, 1977, enclosing the letter, dared February 1, 1977 from the Department of Investment Promotion and Supplies of the Government of Pakistan which frankly astonished me.
31. ' As you will recall, you requested us to substitute our Standard Management, Agreement for the.
32. Lease Agreement which had been previously approved by the Government of Pakistan on the grounds that the Government had itself requested this substitution on the basis of its examination of the interview with me in the New York Times describing our Standard Management.
33. ' Under these circumstances the request that we should undertake a re-negotiation of the terms of the standard Management Agreement, including provisions which are subsequently incorporated in our Lease Agreement, appears to be completely inappropriate. There is certainly no reason for us to operate in Pakistan under a management which is not the same as that under which we operate in all other parts of the world.
34. ' Under these circumstances I assume that we will merely allow our previously approved Lease Agreement to continue in effect.
35. ' Warmest personal regards. Sincerely yours, (Sd.)
36. Curt R. Strand, President."
37. ' It is in this letter that the paragraph relied by the learned counsel for the plaintiff appears. It is quite clear from reading of-the above letter that the defendant were not willing to re-negotiate their Standard Management Agreement entered into with the plaintiff and had taken up the position that if it was not acceptable they will allow the lease agreement to continue in effect. It further appears that on 2nd June, 1977 in reply to another letter of the plaintiff, dated 12th May, 1977 the defendant expressed their surprise on the request of plaintiff to produce documentary evidence to the effect that the proposed Management Agreement executed between them is the same under which the defendant operates in other parts of the world without any exceptions. This letter prima facie shows that the defendant never accepted the position that the Standard Management Agreement executed by them was the same under which they operated in other parts of the world. The letter reads as under :- "Avari Hotels Limited, June 2, 1977.
38. ' Moulvi Tamizuddin Khan Road, Beach Luxury Hotel, Karachi.
39. ' Re : Management Agreements for Lahore and Karachi Hilton Hotel Projects.
40. ' Gentlemen ' I am writing this letter in reference to the third paragraph of the letter addressed to you and dated May 12, 1977 by the Director-General of the Department of Investment Promotion and Supplies of the Government of Pakistan, a copy of which you have kindly furnished to us. That paragraph reads as follows : ' You are also requested to produce documentary evidence to the effect that the proposed Management Agreement is the same under which Messrs Hilton international operate in other parts of world without any exception.
41. ' I must confess that I am somewhat surprised and puzzled by the above request since it was my understanding that you requested the conversion of our Agreement and Lease to our Standard Management Agreement pursuant to a request to that effect by the Governmental Authorities of Pakistan whose request was the result of their reading the interview with me which was published in the New York Times which described our Standard Management Agreement. In that interview I described the management agreement in exactly the same terms as are contained in the agreement entered into with you except for the modifications in the substituted agreement which carried over special provisions responding to previous specific requests of the Governmental Authorities of Pakistan. In short having obtained our agreement to what you and they requested they appear now to question their own request. None, the less I am happy to respond.
42. ' I cannot say that our Standard Management Agreement is the same under which our company operates in all parts or the world. A substantial number of our operations are carried out under the terms of an Agreement and Lease similar to that which we had entered into with you for the hotels in Lahore and Karachi and which you and the Government of Pakistan, as previously indicated, requested us to supersede by Management Agreement. Moreover, in a few cities in Western Europe, Canada and Australia, we own hotels or have them on fixed rental terms. We do not have any such arrangement, however, in any of the countries of the rest of the world and in all of such countries we operate on the basis of an Agreement and Lease similar to that previously entered into for Lahore and Karachi or on the basis or our Standard Management Agreement, such as that which you asked us to substitute in the case , of the Lahore and Karachi for the pre-existing Lease Agreements. Such other Management Agreements and Lease Agreements, however, do not contain the many special provisions which we have agreed to in the Agreement substituting Management Agreement for Agreement and Lease and Supplementing Management Agreement which we accepted pursuant to the request of the Government of Pakistan."
43. After reading the above correspondence between the parties it cannot be said at this stage that the defendant held out any assurance to the plaintiff which the defendant believed to be untrue. I am, therefore, of the view that the C plaintiff has failed to establish a prima facie case of fraud against the defendant at this stage. The learned counsel for the plaintiff also urged that the defendants had assured a return of 15% income to plaintiff on the investments by the plaintiff, whereas the returns received by the plaintiff are for less than that. Firstly, this contention of the learned counsel, does not find support from the documents produced by the parties so far.
44. Secondly, mere fact that the assured return is not received by the plaintiff, would not make the representation fraudulent specially when it has been acted by the parties without objection for a substantially long period. It is an admitted position that the Management Agreement has been fully acted upon by the parties for about 8 years and it was only in the month of March, 1984 that the plaintiff for the first time came out with the allegation of fraud and misrepresentation against the defendant. I, therefore, overrule the objection of the plaintiff.
45. ' The last objection of the learned counsel for the plaintiff is that the present Management Agreement is void under the provisions of Companies (Managing Agency) Order, 1975. It is contended by the learned counsel that the effect of the above legislation on the Management Agreement, dated 26-12-.976 between the parties is that it is rendered void. The contention of the learned counsel has not impressed me at all. Presidential Order 2 of 1972 relied by the learned counsel for the plaintiff defines a managing agent as follows :- "(a) 'managing agent' means a person, firm or company entitled to the management of the affairs of a company by virtue of an agreement with the company and includes a secretary,. Manager and any person, firm or company occupying such position by whatever name called : and"................
46. A reading of the above definition of "managing agent" makes it clear that it means a person, firm or company entitled to the management of the affairs of a company by virtue of an agreement with the company. The us E of the expression "the company" in the latter part of definition necessarily contemplates the agreement between two different companies hereunder the latter company by virtue of the agreement is entitled to the management of the affairs of the former company. The Management Agreement in the present case is between Messrs Avari Limited and Messrs Hilton International. It is nobody's case that as a Management Agreement Hilton International Company (defendant) have become entitled to manage the affairs of the Messrs Avari Hotel Limited (plaintiff). Under the agreement Hilton Hotel Lahore is managed by the defendant which is known as Hilton International Company. The provisions of Presidential Order II of 1975 are, therefore, not at all attracted in the present case. There is still another aspect of the case which prima jade negated the contention of the learned counsel for the plaintiff. It is not disputed that the present Management Agreement was executed on the date when the above Presidential Order was in the field. It is also an admitted position that this agreement was brought out as a result of the instructions/directions of the Government of Pakistan and before it was executed it had the clearance and approval of the 'Government of Pakistan. In these circumstances, the effect of the approval by the Government of the present management agreement will need serious consideration at the final trial of this issue. I accordingly reject the objections raised on behalf of the plaintiff. As the dispute raised between the parties is fully covered under the arbitration clause. I stay further proceedings of the suit. The parties are directed to have recourse to the arbitration clause contained in the Management Agreement.
47. ' Before parting with the case I must also dispose of the interim application moved by the plaintiff under Order XXXIX, rules 1 and 2 read with section 151,.C. P. C. This application was placed before me in Chamber for orders on 14th May, 1984 and after hearing the learned counsel I passed the following interim orders :- "14-5-1984.
48. ' Mr. Syed Sharifuddin Pirzada, Advocate with Mr. A. A. Fazeel and Mr. Nam Farooqi, Advocate for the plaintiff.
(I) Granted.
(2) Notice for 20-5-1984. In the meanwhile ad interim injunction to issue in terms of prayers Nos. 1 and 3 of the application subject to the condition that all the existing staff of the Hotel will be retained except General Manager Heins J. Schwander. In so, far the operation of the bank accounts are concerned it may be continued to be operated-upon by the two employees of the Hotel namely Mr. Tariq Masood and Mr. Shirazi until further orders. The defendant shall submit a detailed statement of accounts within 15 days of the service of order. At the request of the learned counsel for the plaintiff service of notices and summons may also be effected through courier service at the cost of plaintiff."
49. ' When the defendant were served with the notice of above application and appeared in Court they first filed an application under section 34 of the Arbitration Act and thereafter filed a reply to the above application alongwith an affidavit in evidence of one Khawaja Dawood Mazhar and S. Qasim Jafari and urged that after passing of the above ad interim order, dated 14th May, 1984, the plaintiff forcibly took over possession and management of the Hotel from defendant on the strength of the above order. The plaintiff on the other band contended that a day before filing of the present suit in this Court, they took over possession and management of Hotel from the defendant, and therefore, they are entitled to continue with the same and the interim order, dated 14th May, 1984 should be confirmed. The plaintiff further contends that the management agreement between the plaintiff and the defendant was in the nature of agency and, therefore after its termination the only remedy available to the defendant against the plaintiff is an action in damages and they cannot claim control and management of the Hotel. Before examining the other contentions I feel it necessary to first determine the status quo which existed on 14-5-1984 when I passed the above ad interim order. The case of the plaintiff is that sometime on 13th May, 1984 the plaintiff took over management and control of Hilton Lahore from defendant and is continuing its management as such. I read the plaint in the suit with the assistance of learned counsel for the parties and I am unable to find any averment in the plaint to that effect. On the contrary a reading of paragraphs 19 to 21 of the plaint shows that on the date of the filing of the present suit the defendant for all practical purposes were in possession and control of the hotel and were managing the same.
50. ' The plaintiff has alleged in para. 19 of the plaint as follows :- "(19) That in spite of recision of Management Agreement the operations of the hotel at Lahore continues to be carried on by staff who are defendants' nominees and the plaintiffs apprehend that the said nominees may prevent the plaintiffs, who are the owners of the hotel at Lahore and have rescinded the Management Agreements, from conducting the operations of the hotel which they are not entitled to do under the law."
51. ' Mr. A. A. Fazeel, the learned counsel for the plaintiff referred to the letter of termination of service served by the plaintiff on Heins J. Schwander, in an attempt to show that another General Manager was appointed in his place. This letter reads as under,:- "Heins J. Schwander, 9th May, 1984.
52. ' General Manager, ' Hilton International Lahore, ' Lahore. Dear Sir, ' Consequent upon rescision on 21-3-1984 of the Management Agreement, dated 2-2-1976 between us and Hilton International and your failure to comply with the instructions contained in our letter, dated 3-4-1984 and give requisite information, and other acts of disobedience and mismanagement, your services are terminated forthwith and you are directed to hand over charge to Col. Hasan Kadir Khan.
53. ' Your dues shall, of course, be paid in due course. Yours faithfully, (Sd.)
54. Byram D. Avari Managing Director"
55. ' It is not disputed that above letter was received at Lahore on 13-5-1984 and it is sufficiently borne out frdm the record that on that date H. .1. Schwander was not in Lahore and he arrived there later on. The following letter was issued by Col. Hassan, the alleged newly-appointed General Manager of Hotel on 18-5-1984 :- "Office of Security, ' Lahore Hilton, ' Col. Hasan Kadir Khan- General Manager Date 18-5-1984 CC : ALL DEPTT. HEADS ' Mr. H. J. Schwander the previous General Manager, whose services have been terminated by Avari Hotels Ltd., and which action has been confirmed by the order of Honourable High Court of Sind ; has arrived In Lahore.
56. ' Kindly note that Mr. H. J. Schwander, Hilton International's Executives, staff or any other representatives, agents, attornies, assignees or any one else active through or on behalf of, are barred from registering in the Hotel and availing any proper services offered and also they are debarred from entry into the Hotel premises, as the Rights of Admission to the hotel are Reserved.
57. (Sd.)"
58. ' There is no indication on record to show that consequent upon receipt of letter, dated 9-5-1984 referred to above H. J. Schwander gave up charge to the nominee of plaintiff. There is on the contrary material on record to show. That the defendant neither accepted rescision of management agreement nor termination and services of the General Manager H. J. Schwander. In these circumstances, after reading the above paragraph 19 of the plaint and in the absence of any specific averment in the plaint that the plaintiff took over possession and control of Hilton Lahore, on 13th May, 1984 I am of the view that on 14th May, 1984 when this plaint was presented in, this Court the possession and management of the Hotel Hilton Lahore, was with the defendant. The plaintiff are perhaps under a misconception that by terminating the services of H. J. Schwander and by appointing Col. Hassan ,Kadir Khan in his place they successfully assumed control and took over possession of hotel, but this assumption on their part is wholly untenable. Firstly, according to plaintiff's own case they terminated the services of H. J. Schwander and appointed Col. Hassan in his place on 9th May, 1984 while they allegedly assumed the control and management of hotel on 13-5-1984. The assumption of charge on 13-5-1984 by Col. Hassan is nowhere established. Apart from it Col. Hassan in his affidavit in rejoinder, dated 26th May, 1984 filed in the case, has described himself as the General Manager of Hilton International Lahore since 13-5-1984. The learned counsel for the plaintiff admitted before me that till today the business is run in the name of Hilton, Lahore. If it is so, then, it has to be under the management and-,control of defendant who alone are entitled to run the business under the name and style of Hilton Lahore. It is not the case of plaintiff and it could not possibly be their case in view of the various provisions of the Management Agreement, that after rescision of Management Agreement the plaintiff are entitled to run and manage Hilton Lahore. In fact, the learned counsel for the plaintiff when questioned by me to point out any provision in the Management Agreement which entitled the plaintiff to manage Hilton Lahore, after rescision of the agreement between the parties, he admitted that there was no such term in the Management Agreement. It is not disputed that the Management Agreement contemplated exclusive possession and absolute control of the defendant on the hotel premises. It is not plaintiff's case that they dispossessed the defendant forcibly on 13-5-1984 and taken over focibly possession of the premises from them. In fact such an argument could not be raised in view of the complex nature of possession and control in the present case. It is also not the case of plaintiff that the defendant voluntarily surrendered possession and control of the hotel to them upon termination of the Management Agreement. The documents on record clearly suggest that the termination of Management Agreement was not accepted by the defendant. In these circumstances I fail to see how the plaintiff could claim to have taken over possession and control of the hotel on 13-5-1984.
59. There is nothing on record to show that the defendants were dispossessed by the plaintiff either forcibly or by any other legal process on or, before 14th May, 1984 from the control and possession of the Hilton Lahore. Therefore, there can be no doubt that on 14-5-1984 when I passed the above ad interim orders, the defendant were in the possession, control and management of Hilton Lahore.
60. I may mention here that even if it be assumed that the plaintiff lawfully appointed Col. Hassan as the General Manager of Hilton Lahore on 13th May, 1984, the said Col. Hassan as the General Manager of Hilton was bound to carry out the orders of the defendant in respect of management of hotel in accordance with the Management Agreement between the parties. He could not arrogate himself in that position to say that as an employee of plaintiff he was not bound by the instructions of the defendant. I may also mention here that serious controversy has arisen between the parties as a result of termination of the services of H. J. Schwander by the plaintiff. It is contended by the learned counsel for the plaintiff that by virtue of clause 6 of the Supplementing Management Agreement which modified Articles 3 and 5 of the main Management Agreement, the plaintiff were entitled to terminate the services of H. J. Schwander, while the defendant contends that the General Manager being a key person within the meaning of Article 21 of the agreement, his services could not be terminated by the plaintiff. It is also contended on behalf of defendant that in spite of the provisions in Article 6 of the Supplementing Management Agreement the right to hire and fire remained with the defendant. The disputed Article -6 of the Supplementing Management Agreement is as follows :- `6. With respect to Articles III and V of the Management Agreement the parties agree that_the employees of the Hotel shall be employees of First Party and not of Hilton but this provision shall not be in derogation of the provision of Article III granting Hilton absolute control and discretion in the operation of the Hotel including, without limitation, its exclusive right to give directions and instructions to the employees of the Hotel. Hilton shall have the right but not the obligation to advance to all non-Pakistani .Mployees of the Hotel such portions of their compensation as are payable in foreign currencies and shall be reimbursed for such said advances by First Party in the currencies expended by Hilton, it being understood that the entire compensation of said employees, including the foreign exchange portion, shall be charged as an expense of operation pursuant to Article V, section 2-B.'
61. ' By reading the above provision it prima facie appears that all the employees of the hotel are to be treated as the empolyees of the plaintiff and not of defendant but in matters of operation, management and control of hotel they are to act absolutely under the order of defendant. In these circumstances the right to terminate the services of an employee prima facie rests with the employer which in this case is the plaintiff. In these circumstances I am unable to agree with the submission of the learned counsel for the defendant that the plaintiff could not terminate the services of H. J. Schwander. I may mention here that after I disposed of the two applications by a short order, Dr Pervaz Hassan, one of the learned counsel appearing for the defendant, filed a statement before me which is apparently in response to a query made by me during the course of arguments, stating that they will not debit from 9-5-1984 the salary of H. J. Schwander to Hotel operation. This statement is on record. As a result of above discussion I have reached the conclusion that on 14th May, 1984, when the above application was placed before me for ad interim orders, the status quo then existing was that the defendants were in control, management and possession of the Hilton Hotel, Lahore, but the services of General Manager H. J. Schwander were terminated by the plaintiff.
62. ' I will now deal with the contention of the learned counsel for the plaintiff that since the Management Agreement between the plaintiff and the defendant is in the nature of an agency agreement, the plaintiff could terminate the same at any time and the only remedy after such termination available to the defendant is to sue the plaintiff for damages. I must say that at this interlocutory stage it will be inapt to examine in detail the nature of the document. However, after reading the documents with the assistance of the learned counsel it is difficult to agree at this stage with the contention of plaintiff that the agreement is a bare agency agreement between the parties which could be terminated unilaterally by the plaintiff. Suffice it to say, that prima facie, the defendant had sufficient interest in the agreement which entitled them to unobstructed control and mana_ement of hotel for a considerable long period. The various provisions in the agreement show that the defendant had extended technical assistance and their exclusive expertise in the field of hotel business right from the time the project was conceived by the plaintiff. The defendant were associated with the plaintiff at every stage of the project and in fact the plaintiff could not take even the decision for selection of site, design of the building location of various services and amenities in the hotel premises, furnishing of hotel etc. Without getting approval of defendant.
63. Appendix "A" to the agreement listed the details of teachnical assistance provided by defendant in promoting the project. This fact alone is sufficient to distinguish the present agreement from a bare agency agreement terminable at the will of principal. Again in an agency agreement the agent is bound to carry out the instructions and directions of the principal in discharge of the agency. No such relationship, prima facie, is reflected by the provisions of present Management Agreement between the parties. Under the agreement the defendant enjoys unfettered and absolute discretion in the management running and control of the hotel business and the plaintiff, has no right whatsoever to interfere with it. Such provisions are a negation of the concept of an agency under the law. What is the exact nature of the document is not necessary to determine here, and it must be left to be determined at the final trial. For the present, it is enough to say that the Management Agreement prima facie does not appear to be an agency agreement terminable at the will of plaintiff. Mr A. A. Fazeel, the learned counsel for the plaintiff laid much stress on the fact that as the Management Agreement provided for rendition of account to the plaintiff by the defendant, therefore, it should be held to be agency agreement. Apart from the fact that this solitary provision is an agreement is not sufficient to determine conclusively the nature of a particular document, it is difficult to say that the agreement between the parties is a bare agreement of agency in which defendant had no interest. The Management Agreement in its Article XII provided for the events of default which would entitle a party to give notice of his intention to terminate the agreement. It is not disputed that none of specified events in this article have taken place. The right to rescind that contract, according to learned counsel, has been exercised by the plaintiff under the provisions of Contract Act which is accepted in Article XII of the agreement. I have already tentatively dealt with the allegation of fraud and misrepresentation made against the defendant by the plaintiff while dealing with the application under section 34 of the Arbitration Act, and in view of my above conclusion it is difficult to hold that the Management Agreement has come to an end. This question has to be dealt with by the arbitrator who will finally decide the dispute between the patties. However, as the plaintiff who are the sole owner of the hotel premises have claimed rescision of agreement, some protection is to be provided to them at this stage. I accordingly modify the ad interim order granted by me on 14-5-1984 as follows :- ' The ad interim injunction issued in terms of prayer (i) of the application under Order XXXIX, rules 1 and 2 read with section 151, C. P. C. Is discharged and the parties are directed to maintain the status quo mentioned above which existed on 14-5-1984. The ad interim orders with regard to operation of accounts and submission of accounts are also recalled but the defendant are restrained from making any remittances of income or funds of Hotel outside Pakistan.
64. ' I, may clarify that any observation made by me in this order with regard to merits of case is tentative in its nature and is meant only for the purpose of decision of interim application. The arbitrator/arbitrators or the Umpire, as the case may are, therefore, not be bound by these observations. This interim Order is further subject to final decision of the arbitration proceedings.
65. ' The two applications. Are. Disposed of accordingly but there will be no order as to costs.