MUHAMMAD BASHIR JEHANGIRI, ACTG. C.J.--The two titled appeals by leave of this Court under Article 185 of the Constitution of the Islamic Republic of Pakistan, 1973 are directed against the orders passed by a learned Judge in Chambers of the High Court of Sindh at Karachi in Suit No,1417 of 1998 and C.M.As. Nos. 9751, 9752, 10602, 10603 and 399 of 1998 and 8434 of 1999, decided on 26- 3-1999.
2. The facts forming the background of the two titled appeals as narrated in the leave granting order are that a Power Purchase Agreement was executed on 3-8-1992 between the parties together with an Implementation Agreement of the even date guaranteeing due performance of the aforesaid Agreement. On the same day, a Sovereign Guarantee was also executed on behalf of the President of the Islamic Republic of Pakistan undertaking to pay the amount falling- due under the aforesaid Power Purchase Agreement of the even date. The Power Purchase Agreement was supplemented and amended by the Supplemental Deed to Power Purchase Agreement dated 16- 11-1993. On 24-2-1994, the Agreement was amended vide the First Amendment and again on 17-10- 1994 the Agreement was further amended by the Second Amendment. So, three amendments were statedly made to the Power Purchase Agreement i,e, by Supplemental Deed, the First Amendment and the Second Amendment, as a result whereof the amount payable by WAPDA to the HUBCO was allegedly increased. One Aziz-ul-Haq Qureshi filed on 8-5-1998 Writ Petition No,8755 of 1998 in the Lahore High Court under "public interest litigation", inter alia, asserting that amendment No,2 to the Power Purchase Agreement being without consideration, unauthorised, illegal and fraudulent was ineffective in law.
3. Learned Judge of the Lahore High Court on 11-5-1998 passed an order in aforementioned Petition restraining HUBCO from repatriating the funds. On 13-5-1998 the Constitution Petition was referred to a larger Bench and then on 18-5-1998 an order directing WAPDA to pay Rs,1.50 per K.W. Per hour was passed after noticing the plea that WAPDA is paying Rs,761 million per month more to HUBCO than the amount which is being paid to another concern using similar technology. The HUBCO filed a petition for leave to appeal (C.P. No,703 of 1999) against the afore noted orders dated 11-5-1998 and 18-5-1998. This Court vide order dated 3-7-1998, by consent of the parties, converted this petition into appeal and disposed of the same with the observation that the order dated 5-6-1998 of this Court will hold the field till the time the High Court decides the question of maintainability of the above writ petition including the question of territorial jurisdiction and 'the merits.
4. HUBCO, invoking the arbitration clause contained in the Power Purchase Agreement, requested on 9-7-1998 to International Chamber of Commerce (hereinafter referred to as the ICC) for constituting Arbitration Tribunal for decision of the controversy raised before it. A letter dated 11-10- 1998 of WAPDA was received by HUBCO on 12-10-1998 whereby HUBCO was notified that on examination of the events leading to the execution of Supplemental Deed dated 16-11-1993, amendment No,1 dated 24-9-1994 and amendment No,2 dated 17-10-1994 and the alleged Government's approval, it (WAPDA) has arrived at the conclusion that the said documents were illegal, fraudulent, collusive, without consideration, mala fide and designed to cause wrongful loss to WAPDA and the GOP with consequential wrongful gain to HUBCO as these documents were the result of criminal conspiracy and WAPDA, therefore, notified that said agreements were void ab initio and were of no legal effect with regard to the rights and obligations of the parties under Power Purchase Agreement dated 3-8-1992. Inter alia, on the above premises, a refund of Rs,16 billion, which was statedly overpaid, with 18% interest was demanded. HUBCO also filed a suit on 10- 11-1998 in the High Court' of Sindh for injuncting WAPDA from giving effect to the letter dated 1110- 1998 and also from seeking resolution of the dispute through any other forum except by reference to ICC. In the suit, vide order dated 12-11-1998, ad interim injunction restraining WAPDA from acting in pursuance of the letter dated 11-10-1998 was granted. WAPDA also filed a suit before the Senior Civil Judge, Lahore on 16-1-1999 for the recovery of more than 17 billion rupees on the averments, amongst others, that the three amendments were illegal and void, fraudulent, collusive, without consideration, mala fide and designed to cause wrongful loss to WAPDA and to the GOP and consequential wrongful gain to HUBCO. A permanent injunction restraining HUBCO from pursuing plea of arbitration before ICC was also prayed. The Civil Court on the same day, on injunction application, granted ad interim injunction restraining HUBCO from proceeding with the arbitration.
5. Against orders passed by the learned Senior Civil Judge, two revisions were filed in the Lahore High Court, Lahore. These revision petitions as well as the Constitution Petition filed by Azizul Haq Qureshi, referred to in the earlier part of this order, are pending before the Lahore High Court, Lahore.
6. As against the letter dated 11-10-1998 of the WAPDA, HUBCO on 13-11-1998 issued a notice alleging fundamental breach of the contractual obligations on account of paying Rs,730 million as against Rs,845 millions thus, reducing the payment to the extent of Rs,115 millions per month. HUBCO on 12- 1-1999 also invoked the letters of credit of the value of Rs,4 billion given by Consortium of Banks on behalf of WAPDA in reply dated 15-1-1999 stated that letters of credit were not liable to been cashed as the whole dispute was pending adjudication before the High Court of Sindh at Karachi.
7. Various applications which were moved before the High Court of Sindh may now be noticed.
Those miscellaneous applications were filed in the suit and the learned Single Judge vide order dated 22-1-1999 while adjourning the matter till 4-2-1999 ordered the parties to ignore the injunction granted by the Senior Civil Judge, Lahore vide order dated 16-1-1999 restraining the parties from proceeding with the arbitration. WAPDA filed Appeal (H.C.A. No, 26 of 199V) against the order dated 22-1-1999 and the Division Bench of the High Court of Sindh on 27-1-1999 called for the record of the suit and fixed the hearing on 23-2-1999 with the consent of all the parties. The High Court Appeal No,26 of 1999 was disposed of on 20-2-1999 by consent order with the direction that the parties would not take any step to proceed with the matter i,e, ICC Case No,10045/OLG which is pending before ICC Arbitral Tribunal, Paris up to 28-3-1999. Meanwhile, learned Single Judge was requested to dispose of Civil Miscellaneous Application on merits by 18-3-1999. It may be noted that on a revision filed by HUBCO in the Lahore High Court against the order dated 20-2-1999 passed by the learned Senior Civil Judge, ad interim order dated 12-3-1999 was obtained restraining HUBCO from proceedings with the arbitration case. Learned Judge of the High Court of Sindh dismissed HUBCO's Miscellaneous Applications Nos.9751 and 10602 of 1999 as well as C.M.A.
No,9752 as having become infructuous but at the same time granted the relief in relation to C.M.A.
No,399 of 1999. This led to the filing of H.C.A. No,90 of 1999 in the High Court of Sindh. In appeal against the orders passed in the C.M.As. Were filed and vide order dated 26-3-1999 matter was adjourned to 20-4-1999 for hearing of the appeal as well as C.M.A. No,415 of 1999 and till then impugned order was suspended and respondent HUBCO was restrained from taking any steps in arbitration proceedings before the ICC at London. On 20-4-1999, learned counsel for HUBCO submitted an undertaking to the effect that HUBCO will not seek to have the arbitration fixed for hearing up to a certain date. This undertaking was extended from time to time uptil 7-6-1999 and as HUBCO was not inclined to extend its period further, order dated 26-3-1999 was revived by the Division Bench till next date of hearing vide order dated 3-6-1999. Ultimately, vide order dated 11-8- 1999, learned Judges of the Division Bench observing that after decision of the said C.M.A. i,e, C.M.A.
No,975 of 1999 nothing would be left to be decided in appeal itself directed that the entire arguments on appeal as well as on the said C.M.A. Would be heard together for their disposal and the matter was adjourned to 31-8-1999 for the said purpose. Interim order passed earlier was ordered to continue till then. HUBCO filed C.P.L.A. No,1426 of 1999 against the aforesaid order dated 11-8-1999 of the Division Bench passed in the. Miscellaneous Application. WAPDA, on the other hand, filed C.M.A. No,1425 of 1999 seeking suspension of operation of certain PTNs issued by HUBCO and direction to restrain HUBCO from acting upon the PTNs pending the decision of the application and C.M.A. No,1426 of 1999 for initiating contempt proceedings against HUBCO. These applications were also not heard and were kept pending as it was brought to the notice of the Division Bench of the High Court of Sindh that HUBCO had filed a petition for leave to appeal before this Court against the order dated 11-8-1999 earlier passed on the application of HUBCO. This order was then assailed by WAPDA by filing C.P.L.A. No,1460 of 1999.
8. Before proceeding to consider the contentions of the learned counsel for the parties, it would be worthwhile to give some more facts on the agreement, the arbitration clause and then the core dispute.
9. As indicated earlier the basic project agreements comprise the Implementation Agreement, the Fuel Supply Agreement and the Power Purchase Agreement.
Implementation Agreement: It is not disputed that this agreement was executed by HUBCO with the GOP on 3-8-1992 and governs HUBCO's relationship with the GOP. It is stated that under this agreement, HUBCO is responsible for developing, designing, financing, insuring, constructing, owning, operating and maintaining the Plant and for "appointing an operating and maintenance contractor acceptable to the GOP". This agreement is said to be designed to limit the impact of Pakistan-related risk on the project. The Government has, inter alia, it is further submitted, undertaken to guarantee the obligations of WAPDA and PSO and of the State Bank of Pakistan in relation to the provision of foreign exchange insurance cover for HUBCO's foreign currency financing costs.
Fuel Supply Agreement: This agreement was entered into between HUBCO and PSO on 3-8-1992. Under the Fuel Supply Agreement HUBCO purchases all its requirement for RFO from PSO. PSO's performance of its obligations under the Fuel Supply Agreement are guaranteed by the GOP pursuant to a guarantee furnished under the Implementation Agreement.
Power Purchase Agreement: Electricity generated from the Plant by the HUBCO is sold to WAPDA pursuant to the Power Project Agreement (PPA). This agreement was executed between HUBCO and WAPDA on 3-8-1992 and was subsequently amended by a Supplemental Deed dated 16-11-1993, further amended by an agreement dated 24-2-1994 (the "First Amendment"); further amended by an Agreement dated 17- 9-1994 (the "Second Amendment") and; further amended by a Supplemental Deed dated 5-3-1997.
Under the PPA, WAPDA has the right to instruct HUBCO to generate and deliver electricity into the WAPDA Grid and is obliged to pay HUBCO for the capacity made available and the electric energy delivered in accordance with a tariff formula agreed between WAPDA and HUBCO under the PPA. It is also a common ground between the parties that the proper law of the PPA is the law of England.
According to HUBCO, "the tariff payable by WAPDA under the PPA is not a number but a mathematical formula the result of which is affected by the amount of electricity demanded by WAPDA and the quality and price of the RFO supplied by PSO". It is further the claim of the HUBCO that "the formula is subject to adjustment every six months in order to account for Rupee devaluation and every 12 months in order to account for inflation". It is further averred that "keeping in view the 76% of the project cost which is debt financed, HUBCO's tariff contains two components- -a fixed component ("CPP") and a variable component ("EPP") and that the variable costs include the fuel price, exchange rates, inflation and the plant utilisation. The fixed components and the variable component (CPP) and (EPP) have also been enumerated in the memorandum of appeal.
Arbitration Clause: Clause 15 of the PPA contains the arbitration agreement which reads as under: 15.1 Government Law: The rights and obligations of the parties under or pursuant to this Agreement shall be governed and construed according to the laws of England.
15.2 Disputes Procedure: If any dispute or difference of any kind whatsoever (the "Dispute") shall arise between WAPDA "the respondent's and the Company in connection with or arising out of this Agreement, the parties shall attempt to settle such dispute in the first instances within forty-five (45) days by, discussions between the Company and WAPDA.
15.4 Arbitration:
(a) If the dispute cannot be settled within forty-five (45) days by discussions and referral to an expert is not required by this Agreement, or if referral to an expert was required but the dispute was referred for arbitration in the circumstances set out in section 15.3(g) then the dispute shall be finally settled under the provisions of sections 15.4 to 15.7.
(b) If and when GOP has implemented the convention on the Settlement of Investment Disputes between States and National of other States (the "Convention") any dispute arising out of or in connection with agreement shall (regardless of the nature of the dispute but without prejudice to the provisions of this Agreement requiring any matter to be referred to an expert for final determination) be referred to arbitration and finally settled in accordance with the Convention and the Rules of Procedure for Arbitration Proceedings of the International Centre for Settlement of Investment disputes (the "Centre") established by the Convention (the "ICSID Rules") and the parties hereby consent to arbitration thereunder. The parties are agreed. That Company shall be deemed to be a foreign controlled company for the purposes of Article 25(2)(b) of the Convention so long as not less than thirty per cent. (30%) of the shares of the Company are held by Foreign Investors. Arbitration proceedings conducted pursuant to this section 15.4(b) shall be held in London, England.
(c) Unless and until GOP has implemented the Convention by an Act or an Ordinance confirmed by an Act, or if, for any other reasons the dispute cannot be finally settled pursuant to the terms of the Convention, any dispute shall be finally settled by arbitration in London, England under the rules of Arbitration of the International Chamber of Commerce (the "ICC Rules") by one or more arbitrators assented in accordance with the ICC Rules.
(d) No arbitrator appointed pursuant to section 15.4(b), section 15.4 (c) or section 15.4(d) shall be a national of the jurisdiction of either party to this Agreement or of the jurisdiction of any of the Initial shareholders nor shall any such arbitrator be an employee or agent or former employee or agent of any such person.
(e) The language of any arbitration under section 15.4(b), section 15.4(c) or section 15.4(d) shall be English.
10. It has been urged on behalf of HUBCO that the PPA has been performed for about more than two years and has given rise to vested rights in favour of HUBCO. It is, however, maintained that WAPDA purely on extraneous considerations and in a most malicious manner, launched a campaign calculated to coerce HUBCO to re-write the PPA in such manner as the Government desires in order to revise the tariff payable by WAPDA for the electricity purchased by WAPDA from HUBCO. It is further maintained that WAPDA's campaign continues unabated despite the fact that HUBCO has made every effort to explain to the GOP that its demands are unreasonable. The WAPDA was charged by HUBCO with mala fides and attempts to intimidate, threaten and harass HUBCO, its directors, officers, employees and direct contractors by various means and steps enumerated in para. V.6 at pp.27, 28, 29, 30 and 31 of HUBCO's Memorandum of Appeal which need not be reiterated for the sake of brevity.
11. According to the averments made in Civil Appeal No,1399 of 1999 filed by WAPDA, the impugned order passed by the learned Division Bench of the High Court of Sindh, Karachi, in C.M.A. No,1425 of 1999 was not sustainable in law. On the contrary, WAPDA had averred that the underlined dispute between the WAPDA and HUBCO is about the validity of amendments made on 16-11-1993, 27-2- 1994 and 17-10-1994 which have been described as "(Tainted Amendments)" to the PPA dated 3-8- 1992 entered into between WAPDA and HUBCO. WAPDA, according to the memorandum of appeal, disowned the "Tainted Amendments" as being fraudulent, without consideration and void, by its letter dated 11-10-1998. (Termination letter) which, inter alia, stated as follows:-- "1. WAPDA on examination of the events leading to the execution of:
(a) Supplemental Deed dated 16-11-1993:
(b) Amendment No,1 dated 24-2-1994:
(c) Amendment No,2 dated 17-9-1994:
(d) And their alleged Government approvals, their implementation and their effects, have arrived at the conclusion that the said documents are illegal, fraudulent, collusive, without consideration, mala fide and designed to cause wrongful loss to WAPDA and the Government of Pakistan with consequential wrongful gain to HUBCO. These documents are in fact result of a criminal conspiracy as borne out by First Information Report. No,5998 registered on 3-11-1998.
"2. WAPDA, therefore, hereby notifies that the said agreements are void ab initio and are ot.No legal effect with regard to the rights and obligations of the parties under Power Purchase Agreement, dated August 3rd, 1992."
"3. The losses occasioned to WAPDA by such wrongful acts are in excess of Rs,16 billion. HUBCO is hereby called upon to forthwith refund the said sum of Rs,16 billion for the present with interest thereon at 18% per annum."
12. It appears that, as indicated earlier, HUBCO, feeling aggrieved, filed Suit No,1417 of 1998 in the High Court of Sindh (Karachi suit) challenging the termination letter and alleging the "Tainted Amendments" to be valid and binding on WAPDA. Along with the plaint, HUBCO filed two C.M.As.
Bearing Nos.9751 of 1998 and 9752 of 1998 claiming the reliefs therein which are as follows:-- C.M.A. No, 9751 of 1998.
"It is respectfully prayed on behalf of the plaintiff that for reasons amongst others, mentioned in the accompanying affidavit this Hon'ble Court may be pleased to issue a temporary injunction restraining the defendants jointly and/or severally from directly or indirectly through their agents, servants, subordinates, directors or officers from giving effect to WAPDA's letter dated 11-10-1998 or from taking any steps in furtherance of or in connection therewith and to suspend the operation thereof."
"Ad interim orders in the same terms are also prayed for." C.M.A. No, 9752 of 1998.
"It is respectfully prayed on behalf of the plaintiff that for reasons, amongst others, mentioned in the accompanying affidavit this Hon'ble Court may be pleased to issue a temporary injunction restraining the defendants jointly and severally from directly or indirectly through their agents, servants, subordinates, directors or officers from invoking the jurisdiction of any Court or Tribunal or administrative forum or instituting any judicial, quasi-judicial or administrative action in Pakistan in connection with, or in furtherance of or in aid of, WAPDA's letter dated 11-10-1998."
"Ad interim orders in the same terms are also prayed for."
13. It is the case of WAPDA that by challenging Termination Letter, the Karachi Suit made the validity of the Tainted Amendments a question for judicial adjudication by the learned Single Judge.
Similarly an ad interim ex parte injunction dated 12-11-1998 by the learned Single Judge against the enforcement of the Termination Letter in the Karachi Suit was, however, was got vacated by WAPDA after hearing of the parties by the learned Single Judge vide his order dated 17-11-1998. It is further urged that on 16-1-1999 WAPDA had filed a suit before the Senior Civil Judge, Lahore, the details of which have already been referred in para.4 ante. The grievance of WAPDA further is that instead of seeking vacation of the interim order passed by the Senior Civil Judge, in the Lahore. Suit, HUBCO filed C.M.A. No,399 of 1999 in the Karachi Suit praying therein as follows:-- "It is respectfully prayed on behalf of the plaintiff for reasons, amongst others, mentioned in the accompanying affidavit, that this Hon'ble Court may be pleased to issue a temporary injunction restraining the defendant No,1 from proceeding further in the (as yet) unnumbered suit of 1999 instituted on 16-1-1999 by WAPDA in the Court of the Senior Civil Judge, Lahore and, in particular."
"From the prosecuting and or furthering prosecution of the said suit including any and all interlocutory application made therein: and or From seeking any extension to the ad interim ex parte orders obtained and passed on 16-1-1998 on the said interlocutory applications made by WAPDA before the learned Senior Civil Judge, Lahore under Order 39, Rules 1 and 2 read with section 151, C.P.C. And section 33, Arbitration Act, 1940 and under Order 39, Rules 1 and 2 read with section 151, C.P.C. On 23-1-1999 when the above said applications are fixed for hearing in the Court of the Senior Civil Judge, Lahore."
"In the interest of justice, equity and judicial propriety and interim orders in the same terms are also prayed for."
14. It was further submitted that pending hearing of C.M.A. No,399 of 1999, the learned Single Judge of High Court of Sindh at Karachi by the order, dated 22-1-1999 and 16-2-1999 directed WAPDA to ignore the orders passed by the Senior Civil Judge, Lahore and to join the ICC arbitration proceedings in London. On appeal by WAPDA bearing H.C.A. No,26 of 1999, as stated earlier, a learned Division Bench of this Court passed a consent order, dated 20-2-1999 requesting the learned Single Judge to hear afresh four interim applications by HUBCO. In the meantime, however, it is alleged, that HUBCO agreed to take no further step in the ICC Arbitration. By short order, dated 22-3-1999, (Single Judge's Order) the learned Single Judge disposed of the pending interim applications. The detailed reasons for the short order were furnished on 27-3-1999 in The Hub Power Co. v. WAPDA (1999 CLC 1320). WAPDA felt aggrieved of this judgment inasmuch as "in relation to the merits of Tainted Amendments, the learned Single Judge examined the contents of Lahore Suit (attached C.M.A. No,399 of 1999) and concluded that the L/C was not liable to encashment by HUBCO for the alleged short- payment of tariff claimed by HUBCO. "Further in relation to C.M.A. No,399 of 1999" since the controversy between the parties was sub judice in the Karachi suit, the learned Single Judge held the Lahore suit to be vexatious, and therefore, restrained the parties from proceeding further in it. In relation to the foreign arbitration, according to WAPDA, the learned Single Judge of High Court, Sindh directed the parties to join. ICC proceedings in London whose Award was, however, held to be governed by and enforceable under the Arbitration Act, 1940. WAPDA filed an appeal against the learned Single Judge's order which was admitted to regular hearing by a learned Division Bench of the High Court of Sindh on 26-3-1999. By way of interim relief made out on the grievances of WAPDA, the learned Division Bench proceeded to suspend the operation of the impugned order of the learned Single Judge and provisionally restrained HUBCO from taking further steps in the ICC arbitration at London. HUBCO also filed its cross-appeal against the impugned order of the learned Single Judge of the High Court of Sindh.
Both the appeals one by WAPDA and another by HUBCO were directed to be heard together.
15. It is the case of WAPDA that the core issue that emerged is whether the Tainted Amendments are valid or not. The claim of WAPDA that ultimately emerged is that having renounced the Tainted Amendments which form the basis of the claim of HUBCO, highly inflated demand for payment are void and ineffective on the ground of fraud and corruption which are against the concept of public policy under the provisions of the Contract Act (No, IX of 1872).
16. Both the learned counsel formulated as many as ten questions which according to them arise for determination in the two titled Appeals filed by each one of the parties. At the time of commencement of hearing of the appeals, the learned counsel appearing on behalf of the parties, however, abandoned all other propositions raised except the following:--
(3) Whether the nature of the dispute and the questions of mala fide, fraud illegalities and the legal incompetence raised preclude resolution of the matter through arbitration as a matter of public policy and as such the dispute between the parties is not arbitrable and cannot legitimately be subject-matter of the ICC arbitration? What is the effect of joining a stranger to the Agreement in making reference to the Arbitration.
17. Mr. Umar Ata Bandial, learned Advocate Supreme Court for WAPDA also raised the following factual issues in response to the HUBCO's reply:--
(i) HUBCO has wrongly argued that the original Schedule 6 to the PPA, dated 3-8-1992 was not an agreed document. The original Schedule 6 was a binding document and integral part of the PPA (section 17.5 of the PPA). To calculate the tariff payable to HUBCO, a Reference Financial Model
(RFM) was, however, to be agreed within 3 months of the PPA under paragraph 10.1 of original Schedule 6 to the PPA.
(ii) Side letter, dated 3-8-1992 repeats the provisions of Schedule 6 to the original PPA. The letter attempts to set a timetable for agreeing to the RFM within the agreed time limit of 90 days.
Nowhere does the letter indicate and agreement to delete the original Schedule 6 or to replace it with a new/revised Schedule 6.
(iii) WAPDA letter, dated 16-6-1993 complains that the simplified version of proposed RFM forwarded by WAPDA should be used as an agreed starting point for negotiation, whereas HUBCO had sent yet another version of the computer model of over 8 MB size, which could not even be loaded on WAPDA computers. The subject-matter of the letter is only the provision of the RFM and not 'replacement' or 'deletion' of the original contemplated in the original. Schedule 6 of the PPA, dated 3-8-1992 and not to delete or replace original Schedule 6.
(iv) HUBCO letter, dated 28-6-1993 proposes to amend the original Schedule 6 to exclude indexation provisions from the RFM. There is nowhere any suggestion to replace the original Schedule 6 or the RFM as a means for developing a Reference Tariff contemplated by the opening paragraph. Of Part 1 of Section A of the original Schedule 6 to the PPA. In response to this letter, the Private Power Cell of the Ministry of Water and Power, Government of Pakistan asks for a computer model to operate original Schedule 6 over the life of the project. There is no mention that RFM is to be contemplated in the original Schedule 6 of the PPA, dated 3-8-1992 and not to delete or replace original Schedule 6.
(v) HUBCO letter, dated 28-6-1993 proposes to amend the original Schedule 6 to exclude in indexation provisions from the RFM. There is nowhere any suggestion to replace the original Schedule 6 or the RFM as a means for developing a Reference Tariff contemplated by the opening paragraph of Part 1 Of Section A of the original Schedule 6 to the PPA. In response to this letter, at p.78, Private Power Cell of the Ministry of Water and Power Government of Pakistan asks for a computer model to operate original Schedule 6 over the life of the project. There is no mention that RFM is to be abandoned for developing Reference Tariff or to replace the original Schedule 6.
(vi) HUBCO letter, dated 7-3-1993 explains that Lenders require new Indexation formulae to be built into the original Schedule 6. The RFM as contemplated in the original Schedule 6 was to perform two functions firstly, to develop the Reference Tariff and secondly to ' cater for .Indexation. In the letter, there is no intention that Reference Tariff will be developed without the RFM, as the subject- matter presently in controversy.
(vii) WAPDA letter, dated 19-8-1993 complains that HUBCO has not provided the RFM and Schedule
6. Clearly, the RFM is still needed to develop the Reference Tariff.
(viii)HUBCO letter, dated 24-8-1993 spells out clearly that changes to original Schedule 6 are confined to Indexation provisions. Nowhere the RFM is being done away for developing the Reference Tariff. WAPDA's grievance is the fraudulent establishment of Reference Tariff without the RFM as expressly required by the original Schedule 6.
(ix) HUBCO letter, dated 12-10-1993 to Mr. Salman Farooqi under the heading PPA Indexation, states proposed changes are mainly editorial and remaining are mathematical. Nowhere the deletion of RFM for the purposes of developing the Reference Tariff is mentioned.
(x) In the HUBCO's letter, dated 14-10-1993 forwarding the principle papers on Revised Schedule 6 speaks of Indexation mechanism under the Schedule 6, there is no mention that RFM, Expert provisions, or Original Schedule 6 is to be deleted.
(xi) World Bank letter, dated 18-10-1993 specifically discusses Schedule 6. It states that only indices have to be negotiated by WAPDA and HUBCO. The letter does not indicate that parties will abandon RFM to develop the Reference Tariff or replace Original Schedule 6.
(xii) World Bank letter, dated 30-10-1993 to Mr. Salman Farooqi, is crucial because the position about Original Schedule 6 is made transparent. The letter clearly states that the concern of the Lenders is only with the Indexation provisions of Schedule 6, which have yet to be agreed. That means the rest or original Schedule 6 is acceptable to the lenders and not liable to change. This includes the RFM meant for establishing the Reference Tariff (Please note that copy of letter is marked to Mr. Shahid Hassan Khan who was then Adviser to Prime Minister).
(xiii)MD (WPPO) letter, dated 3-11-1993 issued from Islamabad on International Resource Group (IRG Consultants) format expressly notes that "the financial Model has not yet been negotiated and agreed". This clearly shows that the only issue before the GOP. WAPDA, Lenders, World Bank and HUBCO is the Indexation mechanism applicable to Reference Tariff after it is determined through the RFM under paragraph 10.1 of Original Schedule 6. WAPDA's genuine grievance is, therefore, amendments without the agreed mechanism i,e, RFM.
(xiv)HUBCO's letters, dated 3-11-1993 and 5-11-1993 asking MD (WPPO) Malik Muhammad Ashraf (an accused in the F.I.R. No,59 of 1998) to put his initial on New Schedule 6 although it is noted in HUBCO's own letter that Mr. Ashraf was incompetent to do so.
18. It would, however, be noticed that the above points raised for our consideration squarely cover the factual controversy surrounding the Amendments brought about in Schedule VIE by virtue of Amendment No,2 and if the proposition on which the leave had been granted is decided in favour of HUBCO, then WAPDA would have a chance to raise these questions before the Arbitral Tribunal.
We are, therefore, of the considered view that the adjudication thereof at this juncture would prejudice the case of either party before us and is, therefore, deferred for determination after these appeals are decided.
19. Mr. Abdul Hafeez Pirzada, learned Senior Advocate Supreme Court, submitted that at the heart of WAPDA's objections lies a key misconception that the dispute between the WAPDA and HUBCO raises issues of criminal law and public policy. For instance (1) questions of the grave public and national importance; (2) issues of corruption in high public offices in procuring Amendment No,2 particularly the Amendment of Schedule VI, .(3) matter of public law and public policy; (4) a purely legal issue involving a very special criminal law of Pakistan; and (5) criminal matters. A curious aspect of WAPDA's criminal proceedings was also referred to by the learned counsel for HUBCO that WAPDA's criminal proceedings have been filed in the Sindh Banking Court particularly when there was no banking aspect to this case and that approaching the Banking Court was with a view to putting maximum pressure on HUBCO for the reasons that conditions for bail in that Court are especially stringent. It was, thus, contended that WAPDA's approach to the criminal proceedings run counter to the rule that criminal proceedings may not be used as a commercial weapon.
Reliance was placed on Ghulam Muhammad and 3 others v. State and another (1972 PCr.LJ 1130).
20. Reverting to the issue of 'Public Policy", it was urged that the public policy in the sense used by WAPDA referred to fundamental issues of morality and legality. Obviously, according to HUBCO, it was completely different from "economic" or "government" policy.
21.. The learned counsel for HUBCO emphasized that if the public policy element was relevant in the case then it favoured arbitration. According to him arbitration is a recognised exception to the rule set out in section 28 of the (Pakistan's) Contract Act (IX of 1872).
22. Mr. Abdul Hafeez Pirzada, learned Senior Advocate Supreme Court, then urged that an essential in international commercial arbitration is the Arbitral Tribunal's power and duty to examine its own jurisdiction that as a matter of law, it is not the case that a jurisdictional protest automatically brings an arbitration to an abrupt halt, inasmuch as it is the duty of an arbitral tribunal to consider its own jurisdiction because any award on jurisdiction is open to review by the Courts of the seat and the Court where enforcement is sought.
23. As to the scope of the agreement, Mr. Abdul Hafeez Pirzada, invoked the provisions of clause 15 of PPA which contained a detailed regime for the resolution of "Disputes" by arbitration. The relevant part of Clause 15.4 provides as follows:-- "Arbitration:
(c) ...Any dispute shall be finally settled by arbitration in London, England under the Rules of Arbitration of the International Chamber of Commerce (the. "ICC Rules") by one or more arbitrators appointed in accordance with the ICC Rules."
24. Further by Clause 15.1 of the PPA, the parties expressly agreed as follows:-- "Governing law: The rights and obligations of the parties under or pursuant to this Agreement shall be governed and construed according to the laws of England."
25. In this context, it was added that WAPDA did not question the validity of this arbitration agreement: on the contrary, it is common ground that it was freely entered into, and is entirely valid as an agreement. The learned counsel for HUBCO repelled the contentions of the learned counsel for the WAPDA that the parties' arbitration clause was of limited scope, inasmuch as that it applied only to "the meaning and interpretation of the agreement between the parties, its effect and its alleged breach by one or other of the parties". According to him, it is the GOP's case that the word "dispute" in clause 15 has to be read as "Business Dispute" although the term is defined in the PPA itself vide Clause 15.2. The interpretation and scope of the arbitration agreement in Clause 15 of the PPA is a matter for the governing law of that agreement (known as the "proper" law of this contract).
26. The learned counsel for HUBCO emphasized that arbitration agreement in PPA was drafted in extremely wide terms and referred to clause 15.2 which defined "disputes" as:-- " ...Any dispute or difference of any kind whatsoever.." Again Clause 15.4(b) refers to:-- " ...Any dispute arising out of or in connection with this Agreement." Again Clause 15.2(c) refers to:-- "...Any dispute."
27. In the opinion of the learned counsel for HUBCO those specific words which are commonly used in arbitration clauses have been the subject of judicial interpretation. According to him, as a matter of English law, this arbitration clause is extremely broad in its cope and covered disputes well beyond the limited range suggested by WAPDA.
28. Ultimately, Mr. Abdul Hafeez Pirzada, learned Senior Advocate Supreme Court, then invoked the provisions of Clause 17.12 of the PPA and urged that other sections of the PPA expressly contemplated that issues of fraud and corruption may be referred to arbitration. It would, therefore, be appropriate to reproduce Clause 17.12 of the P.P.A. Which provide as follows:-- "The Company declares and affirms that it and (so far as the Company is aware) the Initial Shareholders and the Company's director and employees have not paid nor undertaken to pay any unlawful commission, bribe, pay offs, kick-backs and that it has not in any other way or manner paid any sums, whether in Rupees or foreign currency and whether in Pakistan or abroad, or in any other manner given or offered to give any gifts and presents in Pakistan or abroad to any person or to engage in any of the said or similar acts during the term of this Agreement."
29. From this clause, it has been rightly emphasized that there was no doubt that any dispute arising out of or in connection with this clause will be within the ambit of the arbitration provisions in Clause 15. The learned counsel also conceded that ultimately there was nothing in Clause 17.12 to oust the jurisdiction of the Pakistan Courts in respect of the matter with which it deals.
30. We would now revert to WAPDA's contention that provision of Clause 17.12 supports its submission that the parties contemplated that issues of fraud and corruption were referable only to the Pakistani Courts. It has also been contended on behalf of WAPDA that... The affirmation clause ... Expressly provided that (allegations of corrupt practices) would be dealt with by the Courts of Pakistan. This clause in fact excludes the jurisdiction of the arbitrators to examine allegations of corruption, fraud etc.
31. A bare reading of Clause 17.12 would, however, reveal that it does not at all "expressly" provide that the allegation 'of fraud and corruption could be dealt with by the Courts of Pakistan. In fact it makes no mention of the Pakistan Courts whatsoever. In essence Clause 17.12 sets up contractual protection in addition to the usual public and criminal recourse. Under English and Pakistan laws, Arbitration Clauses contained in contracts are treated as separate and self-contained contracts in that if it were not so, arbitration clauses would not at all survive and attack on the main contract which is known as the doctrine of "reparability". It may be noted that since WAPDA accepts the validity of the arbitration agreement and the unamended PPA, no issue of "separability" actually arises in this case. In Harbour Assurance v. Kansa (1993) 1 Lloyd's Rep. 455) the Court of Appeal has held that an arbitration clause will survive where the main contract in which it appears is invalid ab intio on grounds of illegality so that the illegality issues themselves can properly be referred to arbitration. This common law rule has now been enshrined in section 7 of the English Arbitration Act, 1996. Further Article 6(4) of the ICC Rules specifically provides as follows:-- "Unless otherwise agreed, the Arbitral Tribunal shall not cease to have jurisdiction by reason of any claim that the contract is null and void or allegation that it is non-existent provided that the Arbitral Tribunal upholds the validity of the arbitration agreement. The Arbitral Tribunal shall continue to have jurisdiction to determine the respective rights of the parties and to adjudicate their claims and pleas even though the contract itself may be non-existent or null and void".
32. It would thus, be seen that allegations of invalidity even serious allegations of its being ab initio void are perfectly capable of being referred to arbitration. In this respect again the following excerpt from Russell on Arbitration can be quoted:-- "The doctrine of separability greatly increases the scope of all arbitration clauses. The doctrine of separability establishes that an arbitration agreement has a separate life from the contract for which it provides the means of resolving disputes. This enables the arbitration agreement to survive breach of the contract of which it is a clause. The validity of the main contract can then be determined by using the arbitration clause. Earlier case-law showed that the public policy requirement that a contract which is void should not be enforced was superseded by the overriding need to give effect to the parties' wishes to have their disputes resolved by arbitration.
The parties were presumed to have wanted their disputes resolved by one tribunal, arbitration, and, in the light of that presumption of 'one-stop adjudication', the Court strove to give effect to the arbitration agreement and to allow the arbitration tribunal to investigate whether the contract ever existed."
33. The Pakistan law in support of this proposition may now be quoted:-- In Hitachi v. Rupali (PLD 1998 SCM R 1618 at 1658) it was held that while the law of an arbitration agreement usually followed the proper law of the main contract, an arbitration agreement was separable from the main contract between the parties and arbitration agreement may have a different law which may be provided within the arbitration agreement. In Sezai Turkes Feyzi Akkaya Construction Company, Lahore v. Crescent Services, Lahore and another (1997 SCM R 1928 at page 1933) cases were relied upon where despite "frustration" or "repudiation" of the contract the arbitration clause was said to survive and apply. An arbitration clause was even held to survive if the parties entered into a new arrangement which in fact modified or novated the terms of the parent contract. Reference was made to Heyman and another v. Dawins Limited (1942) AC 356), Woolf v. Collis Removal Service (1948) 1 KB 11, Firm Karam Narian Daulat Ram and another v. Messrs Volkart Bros. And another (AIR 1946 Lah. 116) and Rungta Sons (Private) Limited v. Judgment Trg. Republike and another (AIR 1959 Cal. 423). In the case of Port Qasim Authority v. Al-Ghurair Ltd., Karachi (PLD 1997 Kar. 636, at pages 643 and 644) (relying on an Indian Supreme Court case Dhadarajamal Govindram v. Shanji Kalidas & Co.
AIR 1961 SC 1285) it was ruled that where the very existence of the legally binding contract had been challenged, the phrase "dispute in respect of or concerning anything herein contained" was broad enough to give jurisdiction to arbitrators to decide the validity of the contract. The issue whether the terms of the agreement were at the relevant time legally enforceable, was held to be an arbitrable issue.
In the precedent of Lahore Stock Exchange Limited v. Fredrick, J. Whyte Group (Group) Pakistan and others (PLD 1990 SC 48) the validity of the contract was questioned. It was alleged that the contract was void ab initio as the person who had signed the contract was not legally authorised to sign the same. It was submitted that this was an issue that had to be decided by the Court and not by the arbitrator. The Court rejected this argument and held that the phrase "any dispute in respect of interpretation of the agreement or concerning anything contained therein" was of the "widest amplitude and content" - wide enough to include the submission of invalidity or contract as well as the incompetence to sign the same and were matters that could be decided by the arbitrator. In a judgment reported as Pakistan Burmah Shell Ltd. v. Tahir Ali (1983 CLC 2745 at page 2752) it was held that once it was established that a contract existed, then even though the contract may have come to an end by reasons of "frustration of rescission or breach of condition or by being avoided for fraud or misrepresentation or coercion" the arbitration clause would survive. Lastly in Karachi Shipyard and Engineering Works Ltd. v. Messrs General Iron and Steel Works Ltd.
(PLD 1971 Kar. 501 at pages 503 and 504) wherein the arbitration clause was worded in wide and broad terms that "in the event of any dispute arising on any matter connected with this Agreement..." it was held that notwithstanding the alleged modification or novation of the contract, the arbitration clause being severable from the main contract, survived.
34. Mr. Umar Ata Bandial, learned Advocate Supreme Court contends that the English Court of Appeal in Soleimany v. Soleimany (1999) 3 All ER 847) has held that the principle of "reparability" is not without limit, and that there was a category of case where the validity of the main contract will also infect the arbitration agreement. On the contrary, the ratio deducible from the case of Soleimany (supra) is as under:-- "(i) The exception to separability that the Court of Appeal identified--which, as the Court acknowledged, is a very narrow exception--concerns contracts for illegal adventures, which are illegal or tainted in their very purpose. The example which the Court gave was of a contract of cooperation between the Highwaymen. Other examples would be a contract for slavery, for drug trafficking or for the sale of alcohol in Pakistan. These are illegal activities, and, therefore, no arbitration of such an activity can be recognized. An arbitration clause contained in such a contract would be taken as one part of an overall illegal arrangement."
35. The instant case is very far from this: the arrangement here is the provision of electricity to WAPDA. This PPA is a valid and entirely legal contract, and the arbitration agreement contained in it is certainly not contrary to public policy. A subsequent amendment which it is alleged was procured by fraud cannot, on any analysis, taint the PPA itself (which WAPDA acknowledges is a valid contract).
36. In short, it is totally unclear how a valid contract can itself become contrary to public policy because of an allegation that a later amendment was the product of an illegal act. Again the following observations in Hitachi's case (supra) at page 1657 (para. 10) were relied upon:-- "...The proper law of the arbitration agreement governs the validity of the arbitration agreement, which will include: whether a dispute is covered by the arbitration agreement..."
"...An issue as to whether a particular dispute falls within the wording of an arbitration clause will, therefore, be governed by the proper law of the arbitration agreement."
37. As to issue of "public policy", the following observations of Sir John Donaldson MR made in the Court of Appeal in DST v. Ras Al Khaimah National Oil Company (1987) 2 All ER 769, at 779 are pertinent:- "Consideration of public policy can never .Be exhaustively defined, but they should be approached with extreme caution. As Burrough Judge remarked in Richardson v. Mellish (1824) 2 Bing 229 at 252: 'It is never argued at all but when other points fail'. "
38. To substantiate it further CBI NZ Ltd. v. Badger Chiyoda (1989) 2 NZLR 669, at 676, was relied upon wherein it was held:-- "The law reports contain ample warnings to Judges to be cautious before striking down contracts.In the name of public policy."
39. In the same vein, reference may be made to Pakistan's case-law;--
(1) Manzoor Hussain v. Wali Muhammad (1965 SC 425 at pp. 427, 433 and 434),
(2) Official Assignee of the High Court of West Pakistan and others v. Lloyds Bank Ltd. And others (PLD 1969 SC 301),
(3) Dawood Corporation Ltd. v. Jasian Jasimina and others (1988 M LD 987, at pp. 994 and 995),
(4) Sultan Textile Mills (Karachi) Ltd. v. Muhammad Yousuf Shamsi (PLD 1972 Kar. 226 at pp. 235 and 236). The submissions of the learned counsel for HUBCO get strengthened with reference to dictum in M.A. Chaudhry v. Mitsui (PLD 1970 SC 373) and Hitachi v. Rupali (1998 SCM R 1618). In support of this statement of law reference was made to: Eg Redfern and Unter's "The Law and Practice of International Commercial Arbitration" (3rd Edn., 1999) at pp. 5-33 to 5-36), wherein it was also pointed out that if doctrine of separability or severability did not exit, any recalcitrant party could instantly bring arbitration proceedings to a firm stop by simply raising an allegation of corruption, bribery and fraud. Apart from reference to Article 6(2) of the ICC Rules; section 30 of the English Arbitration Act, 1996, our attention was drawn to the case of Hitachi v. Rupali (1998 SCM R 1618) and Port Qasim Authority v. Al-Ghurair Ltd., Karachi (PLD 1997 Kar. 636) and in this context Russel on Arbitration 21st Edn. (1997) at pp.2-095 was referred which reads as under:- "The law of the arbitration agreement regulates substantive matters relating to that agreement, including in particular the interpretation, validity, voidability and discharge of the agreement to arbitrate, and similar issues relating to the reference and enforcement of the award. An issue as to whether a particular dispute falls within the wording of an arbitration clause will, therefore, be governed by the proper law of the arbitration agreement." In support of this proposition reliance is placed on the following case-law:-- (i) Harbour Assurance v. Kansa (1992) 1 Lloyd's Rep. 81 (Steyn, J.); (1993 1 Lloyd's Rep. 455 (Court of Appeal): the phrase 'all disputes or differences' covered an allegation that there was no underlying agreement at all, the contract being void ab initio on grounds of illegality. Steyn Judge, at first instance, also stated that supervening illegality would also be within the clause.
(ii) Astro Vencedor Compania Naviera SA of Panama v. Mabanaft GmbH (1971) 2 All ER 1301 (Mocatta, J.)--affirmed by Court of Appeal, ibid at 1307: an "any dispute" arbitration clause in a charter party covered a tortuous claim for wrongful arrest of the vessel by the chatterers-even though the tort claim was unlike any contractual claim.
(iii) Ashville Investments Ltd. v. Elmer Construction Ltd. (1988) 2 All ER 577 (Court of Appeal): A claim for misrepresentation fell within an arbitration clause providing for arbitration disputes arising "thereunder or in connection with" the contract. The words "in connection with" plainly pointed to matters arising during the formation of the contract.
(iv) Fazghirzadeh v. Rudolf Woolf SA (Pty) Ltd. (1977) 1 Lloyd's Rep. 630: The words "arising out of" were held to cover a dispute as to the possible substitution of a fresh contract.
(v) A & B v. C & D (1982) 1 Lloyd's Rep. 166 (Mustill, Judge): An arbitration clause with similar words as Clause 15 was held wide enough to encompass claim arising out of a separate (but related) contract which contained no arbitration clause.
(vi) The Ermoupolis (1990) 1 Lloyd's Rep. 160 (Steyn, Judge): An arbitration clause in a bill of lading referring to "any dispute arising in any way whatsoever out of this bill of lading" covered a claim in tort for conversion.
(vii) Paczy v. Haendler and Natermann GmbH (1979) FSR 420: An equitable obligation on an employee not to misuse confidential information was the subject of a dispute "arising out of or in connection with" the contract of employment.
(viii) Re Vocam Europe Ltd. (1997) - unreported (Rimer, Judge): An arbitration clause in an agreement between the shareholders of a company was wide enough to encompass statutory claims by minority shareholders for relief against unfair prejudice that would ordinarily be made in Court under section 459 of the English Companies Act, 1985."
40. Reverting to the allegation of fraud in procuring the Second Amendment, we may again quote Russell on Arbitration at page 2-070:-- " 'Fraud can be within the scope of an arbitration agreement'. There is no doubt at all that fraud falls squarely within the formulation in Clause 15 of the PPA, and there are many examples where cases have been stayed in favour of arbitration notwithstanding that fraud and corruption have been alleged."
41. In this respect, the following case-law substantiates the plea of the learned counsel for HUBCO:- - Westacre Investments v. Jugoimport ((1988) 4 All ER 570, at . 594-596 (Cloman Judge - affirmed by Court of Appeal): Allegations of bribery of Kuwaiti Government officials held to be within the scope of a standard ICC arbitration clause:-- "There can be no doubt that as a matter of language the arbitration clause in the consultancy agreement was expressed in terms wide enough to cover the issue whether the agreement was illegal and valid by reason of a common or unilateral intention to bribe Kuwaiti officials." Camilla Cotton Oil Co. v. Granadex S.A. (1976) 2 Lloyd's Rep. 10 (House of Lords).
(Ashville Investment Ltd. v. Elmer Construction Ltd. (1988) 2 All ER 577 (Court of Appeal). See in particular: Mar-Len of Louisiana v. Parsons-Gilbane 773 F.2d 633 (1985 - US Court of Appeals, 5th Cir): Amendments to a contract alleged to have induced by fraud; Held: within the scope of the arbitration agreement."
42. We are cognizant of the legal proposition that although English Law governs the arbitration agreement, Pakistan cases are exactly the same e.g.:-- "Island Textile Mills Ltd., Karachi v. V/O Techno expert and another 1979 CLC 307 at pages 309-A, 310-B and C and 315-L. An arbitration clause provided that the 'parties shall take all measures to settle amicably all disputes and differences which may arise out of this contract or in connection with it...' made it clear that the intention was to exclude the jurisdiction of the Court. It was held that there was no legal prohibition or embargo to the effect that an arbitration tribunal cannot try the question of fraud and/or misrepresentation."
43. We are, therefore, clear in our mind that as held in the case of Hitachi Limited (supra) that while law of an arbitration agreement usually follows to proper law of the main contract, an arbitration agreement is separable from the main contract between the parties and arbitration agreement may have a different law which is provided within the arbitration agreement. In the instant case, the English Law has been provided in the arbitration agreement itself. Again the validity, effect, and interpretation of an agreement to arbitrate are matters of substantive law, governed by the proper law of agreement and not as matter of procedure to be determined by the lex fori of the Court called upon to enforce the trial. Since the parties in the instant case could and did choose the law which is to govern their agreement to arbitrate and they have also opted the law which is to govern the arbitration proceedings. In this context, we can do no better than reproduce the following statement of law made again in the case of Hitachi Limited (supra) at page 1623:-- "There are three laws which may be relevant in an international arbitration, namely (i) proper law of the arbitration agreement; (ii) curial law; and (iii) proper law of reference. The proper law of the arbitration agreement governs "the validity of the arbitration agreement; the question whether a dispute lies within the scope of the arbitration agreement; the validity of the notice of arbitration; the constitution of the Tribunal; the question whether an award lies within the jurisdiction of the arbitrator; the formal validity of the award, the question whether the parties have been discharged from any obligation to arbitrate future disputes. Whereas the curial law governs the manner in which the reference is to be conducted; the procedural powers and duties of the arbitrator; question of evidence; the determination of the proper law of the contract. The proper law of the reference governs the question whether the parties have been discharged from their obligation to continue with the reference of the individual dispute."
"However, the validity of the arbitration agreement; the question whether a dispute lies within the scope of the arbitration agreement; the validity of the notice of arbitration; the constitution of the Tribunal; the question whether the award lies within the jurisdiction of the arbitrator; the formal validity of the award; the question whether the parties have been discharged from any obligation to arbitrate future disputes, are not the matters covered by curial law, but are governed by the proper law of the arbitration agreements."
44. The ultimate analysis, therefore, is that Civil Appeal No,1399 of 1999 filed by WAPDA against HUBCO is declared to have been rendered infructuous at the moment.
45. Civil Appeal No,1398 of 1999 filed by Hub Power Company Limited against WAPDA is accepted and the impugned order, dated 11-8-1999 of the learned Division Bench of the High Court of Sindh, Karachi, in C.M.A. No,975 of 1999 arising from H.C.A. No,90 of 1999 and lift and recall the injunction preventing from proceeding with arbitration in ICC Arbitration Case No,10045/OLG.
46. Before parting with this judgment, let us make it clear that notwithstanding the fact that proper law of arbitration agreement governs the validity of the arbitration agreement in this case, the award favourable to one party or another shall obviously be brought to Pakistan for execution and it would be then challengeable if any one of the parties, So, chooses as to its validity on any ground whatsoever permissible under any Pakistani Law.
47. In view of the complicated nature of the case, parties are left to bear their own costs.
(Sd.)
MUHAMMAD BASHIR JEHANGIRI, ACTG. C.J. I agree with the learned Actg. C.J.
(Sd.)
ABDUR REHMAN KHAN, J. SH. RIAZ AHMED, J.---I have gone through the judgment handed down by my learned brother Muhammad Bashir Jehangiri, Actg. C.J. In which the facts have been elaborately given and discussed and, therefore, they need not be repeated. The only question which this Court is required to answer by agreement of both the parties is noted down in the leave granting order which is to the following effect:-- "Whether the nature of the dispute and the question of mala fide, fraud, illegalities and the legal incompetence raised preclude resolution of the matter through arbitration as a matter of public policy and as such the dispute between the parties is not arbitrable and cannot legitimately be subject-matter of ICC arbitration? What is the effect of the joining a stranger to the agreement in making reference to the arbitration." Case of the WAPDA at the very outset was that supplemental deed 16-11-1993, the first amendment, dated 24-2-1994 and the second amendment, dated 17-10-1994 were obtained by HUBCO in collusion with the concerned authorities of WAPDA and the high officials of the Federal Government who were in a position to exert influence on the WAPDA Authorities through the payment of bribe and kick-backs as such it was void under section 23 of the Contract Act and not, voidable simpliciter. The main question falling, for determination according to our view, was that if an agreement prima facie had been obtained through fraud or bribe would it not then be sufficient to take it out of the pale of the arbitrability as distinguished from a commercial dispute raised under a valid agreement, therefore, we have heard learned counsel for the parties as to whether there was prima facie material and circumstance brought on the record in support of these allegations, as mere allegations were not sufficient in order to come to the conclusion, whether the dispute between the parties is arbitrable or not.
Since these circumstances have been dealt with by our learned brother Muhammad Bashir Jehangiri, Actg. C.J. In his proposed' judgment, we need not repeat the same but the following salient features and circumstances noted by us have persuaded us to hold that these prima facie furnish evidence in support of the allegations made in respect of the disputed documents that the dispute is not arbitrable as such should be decided by a Court of law as a matter of public policy:-
(a) In the original agreement cost of Plant was 1275 Million Dollars which HUBCO wanted to raise and was in fact subsequently raised. The documents produced on the record by both the parties show that WAPDA had throughout been contesting the case of HUBCO to raise the said costs of construction but the same was raised to more than 1500 Million Dollar which prima facie gave one- sided benefit to HUBCO as CPP was also raised, as a consequence thereof it was payable on the amount of cost of construction on the Plant.
(b) The debt and equity ratio as fixed in the original agreement was 80% and 20% respectively which was changed and was converted to 75% and 25% respectively which allegedly burdened the WAPDA and gave undue advantage to HUBCO, for, on the amount of equity the rate of interest to be paid by WAPDA is 17% .Called IRP whereas on the part of debt it is for less may be about 6%.
(c) According to the original agreement and its Schedule 6 such matters were to be referred to Experts, in case of difference of opinion, whose decision was to be final and such matters were kept out of the pale of the arbitration clause and through impugned amendments the provisions contained in Schedule 6 for reference of these matters to expert was done away with, as a consequence of which HUBCO allegedly had free hand to get tariff and CPP amount arbitrarily raised, as a consequence of which the WAPDA allegedly would have to pay an amount of 30 Billion Dollar in excess in the entire period of the contract, which prima face seems to be unconscionable and without consideration.
(d) From the documents placed on the record by both the parties and particularly the learned counsel for the appellant/HUBCO it is manifest that there was a prolonged negotiation between HUBCO and WAPDA on these matters and WAPDA had throughout been resisting and opposing the demands of HUBCO about the raise of tariff, CPP etc., but after the installation of new Government after Elections in October, 1993 the disputed documents were executed and it is not clear from the record as to how these hotly contested matters, for such a long time, were brought to an end suddenly and further for what consideration supplementary deed for amendment and second amendment were abruptly executed and so on whose behest and for what consideration. It is pertinent to note that the allegations of corruption as are disclosed in the F.I.Rs, lodged by WAPDA are against specified persons with particularity of the newly installed high officials in the Ministry.
These circumstances prima facie do establish the case of misuse of power by public functionary for extraneous considerations requiring detailed examination and decision by a Court of law after full-fledged trial..
' In arriving at this conclusion we have taken note of the following circumstances:--
(a) Though in supplemental deed reference has been made to newly Schedule 6 but surprising the same was not annexed with the said deed as its , part. The said new Schedule 6 was not got signed by HUBCO from the Chairman, WAPDA, whereas the same was signed by one Muhammad Ashraf, who later on expressly declared that he was not authorised to sign the said document, but no steps were taken to get this Schedule 6 regularized by HUBCO by insisting that the same should be got signed by some authorized person
(b) Likewise Schedule 1(A), 1(B) and 1(C) which were placed in place of the previous Schedule containing rates of tariff etc., were not signed by WAPDA but by Chief Economist of WAPDA.
(c) We have also taken note that officers of WAPDA left the service of WAPDA conveniently, one of whom was paid the huge amount of security which he provided at the time of joining service and joined the service of HUBCO at an exuberant salary, which fact during arguments was not denied by the learned counsel for HUBCO.
(d) The payment of IRP on the equity amount was allowed retrospectively with-effect from 17-11- 1993 by providing that the actual amount shall be deemed to have been injected on the said date though the same was allegedly injected later on burdening the WAPDA with huge amount to be paid to HUBCO.
(e) According to the original arrangement between the parties, at the expiry of the contract period, the ownership of the plant was to vest in the WAPDA whereas subsequently it was decided that the same would vest in HUBCO, prima facie without any consideration or benefit of WAPDA, the amount of CPP and rates of tariff had been allegedly unreasonably raised without any plausible reasons. The allegations of corruption in support of which the above-mentioned circumstances do provide prima facie basis for further probe into matter judicially and, if proved, would render these documents as void, there ore, we are of the considered view that according to the public policy such matters, which require finding about alleged criminality, are not referable to Arbitration. The disputes between the parties are not commercial dispute arising from an undisputed legally valid contract, or relatable to such a contract, for, according to the case of WAPDA on account of these criminal acts disputed documents did not bring into existence any legally binding contract between the parties, therefore, the dispute primarily relates to very existence of a valid contract and not a dispute under such a contract. Additionally we have also noted from the documents on record that WAPDA has throughout been asking HUBCO to furnish documents to ascertain the correctness of their stand in the matter of costs of construction and tariff but a deaf ear was turned. Parties to bear their own costs. I agree.
(Sd.)
SH. IJAZ NISAR, J. I agree.
(Sd.)
MUNIR A. SHEIKH, J. ORDER OF THE COURT We hold by majority of (2 to 3) that Civil Appeal No,1399 of 1999 filed by WAPDA against HUBCO is allowed, and the respondent HUBCO is restrained from invoking the arbitration clause of the agreement and Civil Appeal No,1398 HUBCO v. WAPDA stands dismissed.
(Sd.)
MUHAMMAD BASHIR JEHANGIRI, ACTG. C.J.
(Sd.)
SH. IJAZ NISAR, J.
(Sd.)
ABDUR REHMAN KHAN, J.
(Sd.)
SH. RIAZ AHMED, J.
(Sd.)
MUNIR A. SHEIKH, J