1. ' By this application under section 34 of the Arbitration Act, 1940 defendant No,1 seeks stay of the proceedings and an order to refer the matter to arbitration.
2. ' Brief facts of the case are that on 27-6-1998 the plaintiff entered into a contract with defendant No,1 for sale of 10,000 M.T. Of Raw Milled long Grain Pak. 7 Pakistani Basmati rice. Double polished crop 1998-99, hereinafter referred to as the goods, at an agreed sale price of U.S. Dollars 416.00 per metric ton C & F Port Qaboos, Muttrah. The total value of goods was agreed at U.S. Dollars 4,160,000.
3. In pursuance of Clause 8 of the Agreement the plaintiff furnished a Performance Bond equivalent to 5 per cent. Of a total contract value at U.S. Dollar 2,08,000 issued by defendant No,2 through its corresponding bank in Oman defendant No,3. Under the terms of the contract defendant No,1 appointed Messrs Reliance Inspection (Pvt.) Ltd. As their representative to carry on pre-shipment inspection of the goods. A part shipment of 3000 M.T. Of the goods was exported on M.V. Global Pioneer. The second consignment of 3000 M.T. Was duly inspected at Karachi by Messrs Reliance Inspection (Pvt.) Ltd. The duly appointed inspectors of defendant No,1, who inspected, tested and approved the consignment for shipment. A copy of the report is filed as Annexure P.6 to the plaint.
4. Vide their letter, dated 27-2-1999 defendant No,1 alleged that the goods shipped by the plaintiff were not in accordance with the contract and threatened to invoke Article 2D of the Agreement between the parties, dated 27-10-1998, hereinafter referred to as the contract, providing for penalty.
5. The plaintiff claims breach of the condition of the said contract committed by defendant No,1 on account of failure of defendant No,1 to amend the Letter of Credit to bring it in conformity with the specification of goods as specified in the contract. That demand of defendant No,1 to re-inspection of the consignment by Messrs Bhombal & Company vide their letters, dated 4-4-1999 and 5-4- 1999 was contrary to the inspection as after issuance of inspection certificate the matter was a closed transaction. That the shifting stands of defendant No,1 that Messrs Bhombal & Co. Who were representative of defendant No,1 to supervise the shipment constituted resulted in shifting stands taken by the plaintiff. Plaintiff claims that these demands coupled with threats of encashment of performance bond was in breach of the terms of the said contract and also resulted in damages which the plaintiff is entitled to recover from defendant No,
1. The plaintiff instituted this suit with the following prayer:
(a) An injunction to issue to the defendants restraining each of them and all those claiming through and under them from encashing or allowing the encashment of the performance bond furnished by the defendants Nos.2 and 3 in respect of suit contract between the plaintiff and defendant No,1, dated 27-10-1998 and from, taking any steps in that direction.
(b) Damages at Rs, Fifty million tentatively.
(c) Any other order as be deemed fit and proper in the circumstances of the case alongwith costs.
6. ' Mr. Habibur Rehman, learned advocate for defendant No,1, in support of the application contended that an ex parte ad interim order was obtained on 12-4-1999. Subsequently the stay was confirmed vide order, dated 14-7-1999. After affording an opportunity of hearing to defendant No,1 on an application moved by him during the period when the matter was reserved for orders after an initial hearing. In view of the order he does not press his application regarding the prayer for stay. The only prayer now made is for a reference to arbitration of the dispute between the parties. In support of his contention learned counsel relied upon the facts that the contract was executed at Muscat the delivery in pursuance of the agreement is to be made at Muscat as the payment remitted from Muscat. The clause relied upon by the applicants appear as clause 11 of the aforesaid Agreement which is reproduced as follows:--- ARBITRATION: "Both parties to this Agreement will attempt to resolve any question or disputes or difference arising from the Agreement, amicably by mututal negotiation. In case of no settlement, the matter will be referred to the Commercial Court, Sultnate of Oman, whose award shall be binding on both parties. Any charges or costs levied or imposed by the Court for hearing the case will be paid in accordance with the Court's ruling."
7. ' During his arguments specific question was put to Mr. Habibur Rehman, learned counsel for the plaintiff, if any code or coded law of arbitration is to be followed for the settlement of dispute and regarding existence of the same in Oman learned counsel candidly conceded that there is no coded law of arbitration. The arbitration clause is also silent as to the law of the country or institution that it to apply to the proceedings.
8. ' Mr. Muhammad Ali Sayeed, learned advocate for the plaintiff, has opposed this application his contentions are that the plaintiffs have made strict compliance of the contract the report of Inspectors duly appointed by defendant No,1 confirms the quality and specifications. The specific dispute arose when defendant No,1 expressed dissatisfaction with the report of their duly appointed Inspectors and Messrs Bhombal & Co. Were appointed new Inspectors. His contention is that the principles governing the question of jurisdiction are to be decided in the light of the law of the country where the transaction is executed and where the parties are located. The transaction is being executed at Karachi. In the instant case the suit involves three defendants. The relief pertaining to defendants Nos.2 and 3 is not covered by the arbitration agreement. Under these circumstances the plaintiff has option to invoke the jurisdiction of the Courts either at Karachi or at Oman and the present suit is maintainable. That the encashment of performance bond is dependent upon determination of factum of default and the parties responsible for such default.
9. The performance bond stands on different footing than the bank guarantee which is liable to encashment on any specified contingency is not involved in the present case and before any encashment of the performance bond the requisite determination of the relevant facts is essential.
10. In support of his contentions he placed reliance on MD. Esack v. Raja Mian and another (PLD 1969 Dacca 719), Pakistan International Airlines Corporation v. Messrs Pak Saaf Dry Cleaners (PLD 1981 SC 553), Island Textile Mills Ltd., Karachi v. Technoexpert and another (1979 CLC 307), Danish Brothers Imited and others v. Cotton Export Corporation of Pakistan (Pvt.) Imited (1994 MLD 2227), Messrs.
11. Ghulam Qadir & Co. v. Government of Pakistan (PLD 1962 (W.P.) Lahore 948), M.A. Chowdhury v.
12. Messrs Mitsui O.S.K. Ines Ltd. And 3 others (PLD 1970 SC 373), Akbar Cotton Mills Ltd. v. Messrs.
13. Ves/Ojuanojo Objedinenije Tech/Amesh Export and another (1984 CLC 1605), G.M. Pfaff A.G. v. Sartaj Engineering Co. Ltd., Lahore and 3 others (PLD 1970 Lahore 184), The Hub Power Co. v. WAPDA (1999 CLC 1320), Hyderabad Municipal Corporation v. Messrs Columbia Enterprises (1990 CLC 47), Hitachi Imited v. Rupali Polyester (1998 SCMR 1628), Messrs Eckhardt & Co. v. Muhammad Hanif (PLD 1993 SC 42).
14. ' His next contention is that in the absence of any defined law applicable to the proceedings in arbitration, the arbitration clause cannot be acted upon due to vagueness as there is ambiguity whether the law of Pakistan, England, or the Statutes of the International Court of Arbitration framed by the International Chambers of Commerce are to govern the proceedings. In the case M.A.
15. Chowdhory v. Mitsui O.S.K. Ines Ltd. And 3 others (PLD 1970 SC 373) the Hon'ble Supreme Court, on appeal from the decision of the Dacca High Court after considering the question based on the principle whether two Courts are equally competent to try a cause or matter then it is open to the plaintiff to choose the forum or for the parties to the dispute to agree to a particular forum in advance, the Court was pleased to hold: ' The contention of the learned counsel supporting the decisions of the Dacca High Court that such foreign jurisdiction clauses are not hit by the main provisions of section 28 of the Contract Act, as, they are neither opposed to the public policy nor amount to an absolute ouster of jurisdiction of 'ordinary tribunals' within the meaning of the section, is a little difficult to accept. I cannot persuade myself that 'ordinary legal proceedings' and 'ordinary tribunals' referred to in that section embrace the proceedings under different systems that may be prevalent in the foreign Court as also such foreign Courts themselves, merely because a foreign judgment may be enforced by a suit in our own country. This can be done even where the foreign judgment has been delivered in a case where there is no contract containing such a clause. The legal proceedings and tribunals referred to in section 28 of the Contract Act can only mean legal proceedings and tribunals known to the Legislature as 'ordinary tribunals' in the country and the usual proceedings available in these Courts. In the case of Setrucherla Rambaha Drasaju v. Maharaja of Jeypur 46 IA 151, the Privy Council held that 'Courts' in section 17 of the Code of Civil Procedure means Court to which the Code applies. Following the same principles I see no reason why the 'ordinary tribunals' referred to in section 28 of the Contract Act should not mean ordinary tribunals within the country and not any and every kind of tribunal.
16. ' The argument that because a foreign judgment can be enforced by a suit in our country, therefore, a foreign tribunal which passed that judgment is also an 'ordinary tribunal' within the meaning of section 28, is clearly untenable. A foreign judgment is not conclusive even under section 13, C.P.C. When it is pronounced by a Court which is not a Court of competent jurisdiction, where it is on the face it founded on an incorrect view of an international law or appears to be based on a refusal to recognize the law of Pakistan in cases to which it is applicable, or where the judgment has been obtained in contravention of the principles of natural justice or sustains a claim founded on a breach of a law in force in Pakistan. Section 34-A, C.P.C. Applied only to judgments of superior Court of the United Kingdom or in a reciprocating country. It is patent, therefore, that every foreign judgment is not enforceable in Pakistan."
17. ' Nothing has been placed on record to show that Sultanate of Oman is reciprocating country within the meaning of Arbitration (Protocol and Convention) Act, 1937 in the country for the purpose of further proceedings and implementation of the award.
18. ' In the case of Akbar Cotton Mills Ltd. v. Messrs Ves/Ojuanojo Objedinenije Tech/Amesh Export and another (supra) as the Court was pleased to hold as under: ' It must be clearly understood that a party applying under section 34 of the Arbitration Act does not have absolute right to obtain stay of legal proceedings in the Court. Such an order is purely discretionary and in appropriate cases the Court may refuse to stay the proceedings in spite of arbitral clause in the agreement between the parties which provided for reference or dispute to arbitration. No doubt the Court has to exercise this discretion in a judicious manner but the discretion conferred on Court can earlier be curtailed nor circumvented by means of agreement between the parties. It is true that ordinarily when a party has entered into an agreement of which the arbitral clause is an integral part, he should not receive assistance from the Court if he resiles from it but it does not mean that even in a case where the Court is satisfied that the very purpose and object of arbitration would be frustrated or it is not likely to be achieved it will still stay the legal proceedings and direct the parties to have recourse to arbitral clause. No doubt one of the commonly understood object of inserting an arbitral clause in commercial agreement is to be avoid expenses and conventional delays experienced in Court of law but the paramount and most avowed object of arbitration still remains the same, namely, the resolution of the dispute between the parties in a fair, just and impartial manner. This latter stated objective cannot be sacrificed in the name of less expensive and speedy mode of settlement of dispute between the parties.
19. Therefore, where the Court finds that a party to the dispute is not likely to go a fair just or impartial of his cause in arbitration proceedings it may refuse to stay the legal proceedings in Court brought in contravention of the arbitral clause in the agreement under section 34 of the Arbitration Act. The instances in this regard are lacking and there are strings of decided cases in which the Courts in spite of existence of foreign arbitration clause in an agreement refused to stay proceedings in Court on the ground that conduct of arbitration proceedings may result in injustice to one of the parties. In the case of Messrs M.M. Yasin v. Irving R. Body & Co. PLD 1967 Kar.756, a Division Bench of the then High Court of West Pakistan, Karachi Bench, refused to give effect to an arbitration clause which provided for arbitration in New York on the ground that the plaintiff was resident at Karachi whereas the venue of arbitration proceedings was at New York, where the plaintiff may not be able to find any representation. In a recently decided case reported as Muhammad Hanif v. Eckhard & Co. Marine G.M.B.H. And 2 others PLD 1983 Kar. 613 a learned Single Judge of this Court refused to stay the proceedings of a suit pending in Court under section 34 of the Arbitration Act on the ground that the entire evidence of both the parties is at Karachi and therefore, to carry the entire burden to London before the arbitrator would be most inconvenient and expensive."
20. ' In the case of G.M. Pfaff A.G. (supra) was examined the merits of the case was pleaded to uphold the agreement providing for the specific set of law applicable to while holding: "one of the agencies existing in realm of International Commerce for settling disputes arising out of international transactions by arbitration is the International Chamber of Commerce. Its headquarters are in Paris. If two parties residing in two different High Contracting Countries enter into an agreement to refer their disputes to arbitration and in this connection agree to abide by the rules of the International Chamber of Commerce the award would then be a foreign award as defined by section 2 of Act VI of 1937 and would be enforceable in this country under that Act. This is highly consistent with the provisions of section 47 of the Arbitration Act of 1940."
21. ' In the case of the Hitachi Limited (supra) the question was considered and it was observed that the seat of arbitration have limited jurisdiction to procedural matters covered by the crucial law. It will include the manner in which reference is to be conducted, the procedural powers and duties of the arbitrator, question of evidence where for the determination of the proper law of the contract it is not expressly agreed by the parties. And if an application under section 33 of the Arbitration Act was competent prior to the commencing of the arbitration proceedings in England, there cannot be any legal basis to urge that the Courts in Pakistan had ceased to have jurisdiction upon commencing of arbitration proceedings in England in respect of the matters which were within their jurisdiction.
22. ' In Messrs Eckhardt & Co. (supra), Supreme Court was pleased to observe: "Reference to arbitration and substantial miscarriage of justice would take place or inconvenience would be caused to the parties if stay is granted. No hard and fast rule can be laid down or line of demarcation can be drawn to say in what cases refusal can be made. Each case has different facts and grant or refusal of stay is dependent upon peculiar facts and circumstances of each case. The Court can make objective assessment and come to the conclusion whether stay of legal proceedings can be granted or refused."
23. ' The question of jurisdiction of the Court also came under examination in the case of Uzin Export Import Trade Co. (supra) and considered by apex Court as follows:--- "By entering into an agreement and referring the dispute to an arbitration the jurisdiction of the Court is not ousted. The Court has the jurisdiction to entertain suits for adjudication of claims of parties containing arbitration clause, but subject to the provision of law that the Court in its discretion may stay such suits. Therefore, the Court has to consider whether discretion should be exercised in a particular case or not. Such discretion is to be exercised judicially, reasonably and taking into consideration all the facts and circumstances of the case. There has been great emphasis on the argument that once party has knowingly entered into an agreement to refer the matter to arbitration, the stay should be granted to maintain the sanctity of the contract. However, such contracts are always subject to the law which controls the dealing and contracts between the parties. In Bristol Corporation v. Aird (John) & Co. (1913 AC 214 (260) while dealing with such argument it was observed that 'it must be remembered that these arbitration clauses must be taken to have been inserted with due regard to the existing law of the land, and the law of the land, applicable to them is, as I have said, that it does not prevent the parties coming to the Court, but only gives to the Court the power to refuse its assistance in proper cases. Therefore, to say that when we refuse to stay action we are not carrying out the bargain between the parties does not fairly describe the position, we are carrying out the bargain between the parties because that bargain to substitute for the Courts of the land a domestic tribunal was a bargain into which was written, by reason of the existing legislation, the condition that it should only be enforced if the Court thought it a proper case for its being so enforced." In Muhammad Hanif v. Eckhardt & Co.
24. Marine GMBH (PLD 1983 Karachi 613) one of us (Mr. Justice Saleem Akhtar), refused to stay the proceedings as the entire evidence was at Karachi and it would be inconvenient to carry it to Paris.
25. This order was upheld in Eckhardt & Co. Marine GMBH, West Germany v. Muhammad Hanif (PLD 1986 Karachi 138) and petition for leave to appeal against it was dismissed. Naimuddin, J. (as he then was) after review of judgments from various jurisdictions in a very illuminating and exhaustive judgment laid down the principles for granting or refusing to grant stay of proceedings of a suit with which we agree and approve. Appeal against it was dismissed by this Court. (See PLD 1993 SC 42). In exercise of discretion the Court has to take into consideration various factors for deciding whether stay should be granted or refused. It is now judicially recognized as can be seen from M.A.
26. Chowdhry v. Mistusi S.K. Ine Ltd. And 3 others (PLD 1970 SC 373), Eckhardt & Co. (PLD 1986 Karachi 138) and Russel on the Law of Arbitration, 19th Edition at page 194 (quoted with approval in M.A.
27. Chowdhry) that inter alia the facts that in what country the evidence is situated or readily available, the balance of inconvenience to the party causing denial of justice or that it would be unfair to stay the proceeding have always been considered for exercise of discretion. Same view has been taken in certain English cases referred in the above judgment and also by the Indian Supreme Court in Michel Golodetz and others v. Serajuddin & Co. (AIR 1963 SC 1044). Applying the above principles on the present case, we find that the dispute between the petitioner and respondent No,1 is in respect of constructing cement factory in Pakistan. The entire evidence, which may be of voluminous nature relating to the building contract would be readily available in Pakistan and it would be most inconvenient to carry it to Paris alongwith the witnesses and may be Arbitrators nominated by the parties. Taking into consideration the facts and circumstances of the case, in our view, the High Court in exercise of its original as well as appellate jurisdiction, has properly exercised discretion and we find no valid ground to interfere with it."
28. From the above case-law the principles which emerge are that the Hon'ble Supreme Court, while considering the arbitration agreement has held that subject to provision of law, the Court in its discretion can stay such suits and can exercise its jurisdiction to entertain suits for adjudication of claims of parties containing arbitration clause and can also consider whether to exercise such discretion in any particular case or not which exercise of discretion should be judicious, reasonable and after taking into consideration all the facts and circumstances of the case. It has been further held that while exercising discretion in relation to agreement containing foreign arbitration clause, facts to be taken into consideration would be as to and in what country evidence was situated or readily available, balance of inconvenience to the party causing denial of justice to him or that it would be unfair to stay proceedings. Contract work was to be carried out in Pakistan, entire evidence would be readily available in Pakistan, therefore, it would be most inconvenient to carry the same to foreign country alongwith witnesses etc. Suit cannot be allowed to be stayed in respect of one defendant and to proceed in respect of other defendant who was not party to arbitration agreement, in case all the parties to suit were not parties to such agreement Court would be reluctant to substitute any term in agreement without consent of parties.
29. ' The question as to the encashment of performance bond submitted by the plaintiff is to be determined in the light of the details set forth by the parties. The plaintiffs have pleaded breach of contract by defendant No,1 for not establishing a Letter of credit in conformity with the conditions of the aforesaid agreement, and duly pointed out, failure on their part to amend the L.C. So as to bring in conformity with the terms of contract. The appointment of Messrs Bhombol & Co. To inspect the consignment after the matter was settled, likewise defendant No,1 claims breach of contract by the plaintiff and shipment of the consignment not conforming to the specification. Under such circumstances the question of encashment of performance bond can be determined after liability is prima facie fixed on the defaulting party on the basis of evidence. The purpose and object of the performance bond cannot be equated with bank guarantee.
30. ' An encashment of performance bond is threatened by defendant No,1; it has been stated above that a performance bond is distinct from a Bank Guarantee. A Bank Guarantee is usually provided in cases where certain amount or benefit is received against cash payment due on the happening of any specific event. An example of such transaction is the payment of mobilization advance to contractors against their furnishing of Bank Guarantee. However, performance bond is different from the Bank Guarantee and is covered by the conditions governing the contract coupled with the facts of each particular case. The matter has been examined by the Court for a prima facie finding as to the default and till such time as such prima facie determination is made it would not be just and proper to allow its encashment as the encashment depends upon the determination of default. On the basis of the correspondence available on file and the documents and facts already discussed above it is yet to be prima facie determined as to who has committed the default.
31. Reliance is placed on Pakistan Engineering Consultants v. Pakistan International Airlines Corporation (1993 CLC 1926) and Province of West Pakistan v. Messrs Mistri Patel & Co. And another (PLD 1969 SC 80).
32. ' On examining the present case in the light of principles laid down in the above-referred authorities and on consideration of the ground of specific facts attributed to the respective parties already stated above, the role of the inspectors, the country where the evidence is readily available, the balance of inconvenience to the parties causing denial of justice to them coupled with the fact that the shipment was to be made from Pakistan, the conflicting claims between the parties and the fact that the suit involves as well as prayers against the defendants other than defendant No,2 i,e, defendants Nos.2 and 3 who are not party to the arbitration agreement contained in the contract, it would only lead to the conclusion that the suit may be proceeded with at Karachi. In view of the above C.M.A. 6211 of 1999 is dismissed.
33. ' Matter to come up for framing of issues.