1. ' The defendants have moved an application under section 34 of the Arbitration Act for staying the proceedings so that the matter may be referred by the parties for the arbitration in accordance with the arbitration agreement.
2. ' The facts, relevant for the purpose of disposal of the present application, are that the plaintiff No,1 and defendant No,1 entered into an agreement, dated 16-6-1996 whereby defendant No,1 appointed plaintiff No,1 as its exclusive agent for sale of its textile chemicals, which are used in the processing of various textile fabrics and was subject to the renewal. The plaintiff on the basis of the agreement and for bona fide promotion of the market of the contracted products in order to implement its obligation incurred huge expenses, the benefit of which was to go exclusive to defendant No,
1. Under the agreement, the plaintiff No,1 has exclusive right of marketing the product and the agreement was irrevocable in nature involving huge investment. The plaintiff imported in Pakistan huge quantity of the product under orders placed by various customers. In order to enhance the business of defendant No,1 in Pakistan and to reduce freight costs and customs duties, an agreement was struck between the defendant No,1 and the plaintiffs NQS.1 and .3 that a chemical processing plant be established in Pakistan, and the defendant agreed to sell its plant namely Sando, which had ceased production in December, 1995 to the plaintiff No,3 for a price in US $ but the plant has not been delivered till the date despite several requests. As consequences whereof the plaintiffs Nos.1 and 3 have suffered loss to the tune of US $ 750,000 and on account of dispute with Customs Authorities on account of different classifications by the defendant, the plaintiffs reputation with the customs authorities was ruined which led to loss of the business to the plaintiff and indebtedness to its bankers and it was agreed between the plaintiffs that all sales of the subject products would now be routed to Pakistan through plaintiff No,4, who entered into a binding contract with customers with a view to protect the defendant No,1 from direct liability and privity of contract. The plaintiff No,4 directly contracted with the customers to supply textiles chemicals processing ingredients at the agreed prices. These orders were communicated to the defendant No,1, whose representative affirmed to supply the goods at the agreed price. The defendant with mala fide motives called upon the plaintiffs to enhance the price of the contracted goods. This was made without notice and without considering that the plaintiffs Nos.1, 3 and 4 had contracted for supply of these chemicals to their customers including the plaintiff No,2. They refused to supply the goods despite enormous sum spent by the plaintiffs in promoting its products. Meetings were also held in this regard.
3. ' The defendant without any lawful authority through fax, dated 1st April, 1998, unilaterally, malafidely and unlawfully informed the plaintiff that it has terminated the contract with immediate effect, which was received by the plaintiff on 4-4-1998, which has been termed by the plaintiff as mala fide, arbitrary, unilaterally and unlawful.
4. ' The suit was filed with the following prayer: -- "(a) For declaration that the Agreement, dated 14-6-1996 is valid, subsisting and binding upon the parties and cannot be terminated unilaterally by the defendants and the plaintiff No,1 continued to be the sole agent of the defendant No,1 in Pakistan.
(b) Permanently restrain the defendants and/or anyone else claiming or acting through or under them from appointing any other agent except the plaintiff No,1 for the sale of their (defendants) textile chemicals in Pakistan and/or conducting any business in subject of a contract/ agreement, dated 14-6-1996 entered between the plaintiff No,1 and the defendant No, 1 .
(c) Grant to the plaintiffs a sum of US $ 5.8 million less the accounting value of the goods that the defendants consigned to the plaintiffs keeping into consideration the effect of devaluation of Pak rupee.
(d) Grant to the plaintiff No,2 all consequential damages which shall be proved at the trial of the suit?
5. ' The application under section 34 of the Arbitration Act referred to above was moved on the ground that under the agreement there is an arbitration clause' and the suit is incompetent, as such the parties having agreed to a forum provided under Article 23 under the Rules of Conciliation and Arbitration and the proceedings be stayed. It was further stated that the defendants are ready and willing to do all the things necessary -to proper conduct of the arbitration and the defendant after service of Court process on them have sent letter, dated 21st April, 1998 to the plaintiff intimating that defendants are ready and willing to refer the matter to the arbitration under the rules of Conciliation and Arbitration of the International Chambers. Commerce in view of Article 23 of the International Agency Contract. The plaintiff was asked to communicate their concurrence so that the matter be referred to the International Agency Contract under the said rules.
6. ' No counter-affidavit has been filed by the plaintiff. Learned counsel for the plaintiff has opposed the application mainly that once the agreement containing the arbitration clause has been cancelled, the defendant cannot invoke the arbitration clause.
7. ' Before considering the contention raised by the respective counsel and in order to appreciate the same, it would be advantageous to reproduce section 34 of the Act, which reads as under:-- "34. Power to stay legal proceedings where there is an arbitration agreement.--- Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any.
8. Matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, -ready and willing to do all things necessary to the proper conduct of arbitration such authority may make an order staying the proceedings."
9. On bare reading of the above provisions, it spell out the following conditions for stay of the proceedings:--
(i) The proceedings must have been commenced by a party to an arbitration against any other party;
(ii) the legal proceedings which are sought to be stayed must be in respect of a matter agreed to be referred;
(iii) the applicant for stay must be a party to legal proceedings;
(iv) the request must be before filing the written statement;
(v) the applicant must have taken no steps in the proceedings, after appearance;
(vi) the applicant is and also was at the commencement of the proceedings ready and willing to do all things necessary to the proper conduct of the arbitration.
10. In the present case, there is no denial of the fact that there exists an agreement containing the arbitration clause, particularly clause 23, of the Agreement, which reads as under:-- "23.1 Any dispute arising out of or in connection with the present contract shall be finally settled in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators designated in accordance to said Rules.
11. 23.2 The arbitrators shall apply the provisions contained in this contract and the principles of law generally recognized in International Trade as applicable to International Agency contracts with the exclusion of national laws."
12. ' The subject-matter of the suit is the matter agreed to be referred to the arbitration. Written statement has not been filed. The defendant has served notice invoking arbitration clause by letter, dated 21st April, 1998 and in the affidavit filed in support of the application it is asserted that they are willing to do all the things necessary to the proper conduct of the arbitration and in fact the defendants, after service of Court process, have sent a letter, dated 21st April, 1998 to the plaintiff intimating that the defendants are ready and willing to refer the matter under the rules of Conciliation and Arbitration of International Chambers of Commerce in view of Article 23 of the International Agency Contract. They also requested the plaintiff for communicating their concurrence so that the matter be referred to the arbitration under the said rules.
13. ' The application has been resisted on the ground that the agreement has been terminated, as such the arbitration clause is not available. Perhaps this is contrary to the law. The plaintiffs have not taken any step in the proceedings and they have resisted the injunction application and were successful in vacation of the injunction order. In case of Island Textile Mills Ltd. v. V/O Technoexpert and another 1979 CLC 307, Mr. Justice Ajmal Mian (as he then was, now Chief Justice of Pakistan), after referring a number of decisions has given his conclusion as follows:- "In my view the question as to whether a defendant has taken steps in proceedings will depend on the facts of each case and it will vary from case to case. If from the conduct of the defendant it appears that he has acquiesced to the suit and intended to contest the suit on merits before the Court, he cannot thereafter file or press application under section 34 of the Arbitration Act.
14. However, if a defendant makes his stand clear at the earliest opportunity that he wishes that the dispute/differences be referred to arbitration as per arbitration agreement, in such a case the mere fact that the defendant has contested an application for injunction or for the appointment of a receiver will not constitute ' a step in the proceedings."
15. ' It was further observed that:-- "In my view since the defendant No,1 contested the above application without prejudice to their present application, it cannot be urged that the aforesaid defendant has taken any steps in proceedings within the meaning of section 34 of the Arbitration Act so as to disentitle them to press their present application. "
16. ' In the light of principles and looking to the substance of application under section 34, one cannot form an opinion that the defendants have abandoned their right to have the suit stayed by taking steps in the proceedings. The plain reading of the above Article 23 indicates that any dispute arising out of or in connection with the present contract shall be finally settled in accordance with the rule of Conciliation and Arbitration of International Chamber of Commerce by one or more arbitrators designated according to the said rules.
17. ' There might be objection though it has not been raised that there are other plaintiffs particularly plaintiff No,2 is not a party to the arbitration agreement. This contention would not be well-founded as the suit is for declaration that the agreement, dated 14-6-1996 is valid and subsisting binding upon the parties and cannot be unilaterally terminated and the plaintiff No,1 continue to be sole agent of the defendant No,1 in respect of the agreement between the plaintiff No,1 and defendant No,2 and damages on account of cancellation of the agreement.
18. ' In my view plaintiff No,2 and defendant No,2 are not concerned with the' n1rit of the plaintiff's claim and the real dispute is between plaintiff No,1 and fenslant No,1. This gets support .From case of Associated Agencies Ltd. V. Tnclusirija Masina/Tractora PLD 1993 Kar.
459. It would be advantageous to reproduce the observations of Mr. Justice Ajmal Mian on the sanctity of Foreign Arbitration clauses in contracts in the case ,of Eckhardt & Co. Marine GMBH v.
19. Muhammad Hanif, PLD 1993 Sc' 42 at page 52, which are as follows : "I may observe that while dealing with an application under section 34 of the Arbitration Act in relation to a foreign arbitration clause like the one in issue,, the Court's approach should be dynamic and it should bear in mind that unless there are some compelling reasons, such an arbitration clause should be honoured as generally the other party to such an arbitration clause is a foreign party. With the development and growth of International Trade and Commerce and due to modernization of communication/transport system in the world, the contracts containing such an arbitration clause are very common nowadays. The rule that the Court should not lightly release the parties from their bargain, that follows from the sanctity which the Court attaches to contracts must be applied with more vigour to a contract containing a foreign arbitration clause. We should not overlook the fact that any breach of a term of such a contract to which a foreign company or person is a party will tarnish the image, of Pakistan in the comity of nations: A ground which could be in contemplation of party at the time of entering into the contract as a prudent man of business cannot furnish basis for refusal to stay the suit under section 34 of the Act. So, the ground like, that it would be difficult to carry the voluminous evidence or numerou witnesses to a foreign country', Tor arbitration proceedings or that it would be too expensive or that the subject-matter of the contract is in Pakistan or that the breach of the contract has taken place in Pakistan in my view, cannot be a sound ground for refusal to stay a suit filed in Pakistan in breach of a foreign arbitration clause contained in contract of the nature referred to hereinabove. In order to deprive a foreign party to have arbitration in a foreign country in the manner provided for in the contract the Court should come to the conclusion that the enforcement of such an arbitration clause would be unconscionable or would amount to forcing the plaintiff to honour a different contract, which was not in contemplation of the parties and which could not have been in their contemplation as a prudent man of business."
20. There is an agreement between the plaintiff No,1 and defendant No,1 containing the arbitration clause. The defendant at earliest opportunity has moved the application for stay of the proceedings under section 34 of the Arbitration Act. The subject-matter of the suit sought to be stayed is in respect of the matter agreed to be referred to the arbitration. The step taken by the defendants for vacation of the injunction against them will not be termed to be any step in the proceedings disentitling them from invoking the provisions of section 34 of the Arbitration of.
21. Therefore, the application is allowed. e proceedings of the suit are stayed. The parties are directed to refer their matter of bit ration in accordance with the Rule of Conciliation and Arbitration of International Chamber of Commerce, as agreed by them in terms of Article 23.
22. ' These are the reasons of my short order, dated 12-11-1998.