1. ' SYED RAIDER ALI PIRZADA, J.---This appeal is directed against an order dated 22-5-1985 passed by a learned Single Judge of this Court in Suit No,248 of 1988 whereby he declined the appellant's Civil Misc. No,7780/88. Under section 34 of the Arbitration Act (hereinafter referred to as the Act). To appreciate the controversy few facts may be necessary.
2. ' The respondents are doing the business of manufacturing and selling cookies and semi-hard biscuits. The respondents have a cookies/semi-hard biscuits manufacturing plant situated at Nooriabad, District Dadu. The respondents approached Messrs Industrial Development Bank of Pakistan (IDBP) for the foreign exchange loan and the financial assistance. The IDBP approved the feasibility report, sanctioned the loan for the project and issued a tender notice dated 4-11-1985 No,G-7/1985 inviting sealed tenders from well-known manufacturers suppliers abroad for supply of complete soft Butter Cookies and Semi-Hard Cookies manufacturing plant as per specifications which were notified. In response to the tender notice issued by IDBP the appellants submitted their sealed tender as per pro forma invoice dated 16-12-1985. The appellants also supplied a certificate of guarantee and general terms and conditions of sales. All the relevant details in respect of the plant for manufacturing and selling cookies and semi-hard biscuits in Pakistan were negotiated with the appellants and all the relevant details for supply, delivery, installation and commissioning of the production plant including Silo Installation were firmed up and on the basis of certain representations made by the appellants to the respondents, the respondents, in consultation with IDBP, decided to buy from the appellants the said plant. The plant was guarantee to be free from defect resulting from faulty design, material and workmanship. The terms and conditions of the said contract were further confirmed by a memorandum of understanding dated 26--3-1986 entered into between the parties. In terms of the contract between the parties, necessary. Letters of credit were established and the period of delivery of the plant was fixed to be eight months. It is alleged in the plaint that on 23-6-1986 the appellants assured a representative of the respondents at Copen Hagen that shipment of the entire plant would be completed by 15-9-1986. In variation of earlier commitment, the appellants confirmed that they would ship the main equipment by third week of October 1986 and the balance by the end of November, 1986.
3. ' Under a telex received by the respondents on 13-10-1986 the defendants/appellants informed them that the ship carrying the main plant would leave Hamburg on 25-10-1986 and that balance of the Packing Conveyor System would be shipped in parts later on. Respondents objected to part shipments under a telex dated 14-10-1986. Respondents were assured under a telex dated 15-10- 1986 that late arrival of the parts will not delay the "final test production". Under a telex dated 27-11- 1986 the appellants/defendants explained that they had some technical problems in shipping "Special Packing Conveyor System" and that they were working to see that the same was airlifted by 15-12-1986. However, the appellants sought extension of letter of credit and shipment date till 15- 1-1987. Again they sought extension till 15-2-1987 under a telex dated 15-12-1986 on the ground that certain technical problems had arisen. Ultimately the Packing Conveyor System was airlifted on 10- 2-1987.
4. ' In the plaint, the respondents alleged that the appellants neglected and failed to deliver the plant and the equipment within the agreed period and hence the respondents had suffered substantial losses in terms of money. It was alleged that after commissioning of the plant into operation, it was found that there were many serious defects resulting from faulty design, material and workmanship, due to negligence of the defendants/appellants whose Engineers and Technicians reached Karachi (Pakistan) on 16-2-1987. The Die Roller supplied by the defendants/appellants in the Rotary Moulding Machine had basic design defect. Hence new Die Roller was fitted in the Rotary Moulding Machine on 10-6-1987 after it was airlifted to Pakistan on 14-5-1987. This, delay caused to the plaintiffs/respondents sufficient amount of harm, damages and loss of market. The three parts in the Packing Conveyor System were not getting synchronized properly with the result that the entire Packing System became defective. In these circumstances, the respondents claimed from the appellants damages to the tune of Rs,16,802,313 for the losses, damages and harms to the respondents due to supply of defective machinery. Appellants also claimed interest at 14% per annum above the Bank rate with a minimum of 14% per annum on the suit amount till the date of recovery. On 28th November 1988, the appellants who are defendants in the suit filed an application under section 34 of the Arbitration Act, 1940 for stay of the said suit. The respondents contested the said application. The learned Single Judge, after referring to the facts and the relevant decisions observed that the arbitration clause is not contained by any agreement between the parties. In that view of the matter, he held that the first condition about existence of an agreement to refer the dispute between the parties is lacking. He further held that the arbitration contemplated by the parties, to be governed by the Rules of Arbitration of the International Chamber of Commerce, was not the one under the Act and hence section 34 would not apply to the case. He also held that the subject-matter of the dealings between the parties was in Pakistan and it would be both inconvenient as well as expensive for the plaintiffs/respondents to produce evidence before the arbitrator outside Pakistan when the plant for manufacturing cookies and semi-hard biscuits was to be installed in Pakistan. In that view of the matter, he declined to exercise his jurisdiction to stay the said suit under section 34 of the Act. The appellants being aggrieved by the above order have filed the above appeal.
5. ' In support of the above appeal, Mr. Ghulam Ali Khokhar, learned counsel for the appellants has urged as follows:-
(1) There is an agreement to refer disputes arising out of the contract to one or more of the arbitrator designated in conformity with the rules of Conciliation and Arbitration of the International Chamber of Commerce.
(2) The appellants being a foreign firm had no evidence available at Karachi and it had no local agent at Karachi.
6. On the other hand, Mr. Noorullah A. Manji learned counsel for the respondents has contended as under:-
(1) There is no agreement to refer disputes to arbitrator as urged by the learned counsel for the appellants.
(2) The arbitration agreement envisaged arbitration of disputes between the parties outside Pakistan and this could not take place without permission of the State Bank of Pakistan because foreign exchange is involved.
(3) The entire evidence of the respondents was available at Karachi and it would be inconvenient for them to adduce evidence before an Arbitrator in a foreign country and as such the discretion be exercisec, against reference of the dispute to the Arbitrators of the International Chamber of Commerce.
(4) The Arbitration Act and section 34 did not apply to this case, where one of the parties was of foreign origin and the reference of the dispute for arbitration to International Chamber of Commerce was not permissible.
7. ' Adverting to the first submission of the learned counsel for the parties, it may be observed that the general conditions of the supply and erection of the plant and machinery for import and export No, ISA were not part of the contract. The terms and conditions of the contract were confirmed by the memorandum of undertaking dated 26-3-1988 entered into between the parties. The very foundation for the jurisdiction of the Court to stay the trial of a suit under section 34 is the existence of an arbitration agreement.
8. A party which wants a suit to be stayed has to establish affirmatively that there exists an arbitration agreement between the parties and the subject-matter of the suit is covered by the same. The learned Single Judge was not satisfied on the material brought before him that there existed any agreement between the parties.
9. ' In the instant case, there is no material on record to suggest that the general conditions were made part of the undertaking. The respondents would not be bound by those conditions. Thus it cannot be said that the parties to the contract of installation of the plant were ad idem or intended to make submission to any arbitration. It was, therefore, open to the plaintiffs/respondents to file suit as per recovery of damages. Section 34 of the Act, therefore, is not applicable and the suit is not liable to be stayed.
10. Mr. Noorullah has submitted that the application made by the appellants under section 34 of the Act was misconceived and the Act did not apply in the circumstances of the case. His contention is that since the arbitration contemplated by the agreement was to be under the rules of Arbitration of the International Chamber of Commerce, and in accordance with the said rules, the provisions of the Act would not apply.
11. ' This contention has been considered by a learned Division Bench of this Court comprising of Chief Justice Abdul Hayee Kureshi and Abdul Razzak Thahim in Avari Hotel Ltd. v. Hilton International Company PLD 1985 Kar. 425 who came to the conclusion, after giving cogent reasons which are fully supported by the various authorities discussed by it in the said judgment, that "It would now appear that the parties on their own volition had chosen a different forum for arbitration in relation to their disputes, such forum was situated outside Pakistan, the body that was designated for the purpose of arbitration was also from a foreign country, such body has its own rules, concerning arbitrations before it, and even such rules in several matters make striking departures from the Arbitration Act and the body of rules framed thereunder. For the above reasons, it would seem that section 47 of the Arbitration Act would exclude such an arbitration, because the arbitration contemplated by the parties was not an arbitration under the Arbitration Act of 1940. Since the Arbitration Act itself did not apply, section 34 of the Arbitration Act would also not apply.
12. We are in respectful agreement with this decision and as such we are of the opinion that section 34 of the Act would not apply to such an arbitration.
13. ' The other reason which weighed with the learned Single Judge for refusing to stay the proceedings in the suit, is that the subject-matter of the dealings between the parties was in Pakistan and it would be both inconvenient as well as expensive for the plaintiffs/respondents to produce evidence before the arbitrator or arbitrator outside Pakistan, when the plant for manufacturing cookies and' semi-hard biscuits was to be installed in Pakistan. In support of this reason, reliance is placed on the discussion reported in cases reported as PLD 1970 SC 373 and PLD 1988 Kar.
138. We have carefully gone through the above decisions. The principle of law laid down in the above cases is applicable to the facts of the instant case. It seems that learned Single Judge has rightly come to the conclusion that it would be both inconvenient as well as expensive for the plaintiffs/respondents to produce evidence in a foreign country.
14. ' We have found that the stay was rightly refused by the learned Single Judge as written agreement had not been established. It is true that a Court is bound to determine on the application whether or not there is an arbitration agreement between the parties, however difficult that task may be, and notwithstanding that the proceedings arc interlocutory. In the instant case, on the material brought by defendants/appellants on the record, no other conclusion was possible than what has been arrived at by the learned Single Judge.
15. It is well-settled legal proposition that the power to stay legal proceedings under section 34 is 'discretionary and so a party to an arbitration agreement against whom legal proceedings have been commenced, cannot by relying on the arbitration agreement, claim the stay of legal proceedings instituted in Court as a matter or right. However, the discretion vested in the Court must be properly and judicially exercised.
16. In the present case, we have not found any ground to hold that the learned Single Judge acted illegally, unreasonably or capriciously or has ignored relevant facts and has adopted unjudicial approach. Hence we do not. Find any ground to interfere. For the reasons given above, we dismiss the appeal. However, in the circumstances of the case, the parties are directed to bear their own costs.