1. SHABBIR AHMED, J.--- The short point for the consideration is whether on the facts and circumstances of the instant case, the defendant is entitled tc an order under Section 34 of the Arbitration Act, staying the proceeding of the suit commenced by the plaintiff.
2. The above point emanates from the facts not in controversy and may be shortly stated as follows:- The plaintiff (in short-the lessor) filed the suit for recovery of US$74225.24 with interest against the defendant No. 1 (in short-the lessee), on account of unpaid lease money of three Aircraft leased to the lessee under Wet Lease agreement dated 1.7.1999 containing Arbitration Clause in 20.10 ibid, which us in these terms:- 20.10 If a negotiated settlement to any dispute between the parties cannot be reached, such disagreement will be irrevocable settled in accordance with the International Arbitration Association Rules and procedures in a hearing before the 'Stockholm or London International Arbitrage, to be scheduled at the earliest time available after the request of either party.'
3. The above agreement was followed by Wet Lease Termination Agreement dated 23.2.2000, wherein the provisions of Clause 20.9 and 20.10 referred to above of Wet Lease agreement were incorporated into the said agreement by reference. The relevant Clause 6.5 reads as follows:- '6.5 This Agreement shall be governed by, and construed in accordance with, the Law of England.
4. The provisions of Clauses 20.9 and 20.10 of the Wet Lease Agreement are hereby incorporated into this Agreement by reference as if set out in full herein except that references in such Clause to 'this Agreement' shall be construed herein as references to this Agreement.
5. The lessee on service of summons without taking any step in the proceedings filed C.M.A. No. 2913 of 2002 under Section 34 of the Arbitration Act with the prayer for stay of the suit and direction to the lessor to refer the dispute to arbitration in accordance with the arbitration clause. The application is supported by the affidavit of Muhammad Farouk, the Chairman of defendant No. 1.
6. The grounds taken in the application are that the lessee has not committed any breach of the agreement. No claim or dues is outstanding. The wet-lease Agreement contained an Arbitration clause which was terminated by virtue of Termination Agreement, clause 6.5 thereof specifically provides that 'clauses 20.9 and 20.10 of the Wet-lease Agreement are hereby incorporated in the Agreement. The instant suit has been filed on the ground of alleged breach of the Wet-lease Agreement and/or the Terminating Agreement since disputes between the parties are to be adjudicated through arbitration as set out in their arbitration agreement, therefore, the proceedings are to be stayed.
7. The above application has been resisted, inter alia, on the ground that the lessee never showed their intention to refer the matter to arbitration when firstly they 'were called upon through letter dated 4.11.2000 to pay the outstanding amount as per Wet-lease Agreement, .Mere existence of Arbitration clause does not bar a suit or other proceedings in the Court. The entire evidence, of the case is to come from lessee side, is available in Karachi and it would be most inconvenient to carry the evidence to foreign country . Alongwith the witnesses. The objection is supported by affidavit of Mahmood Abbas, Advocate. Rejoinder was also filed.
8. I have heard Miss Sana A. Minhas, on behalf of the lessee in support of the application and Mr. Muhammad Masood Khan on behalf of the lessor in opposition to the application.
9. Before proceedings further, I would like to dispose of the objection taken by the learned counsel for the lessee to the affidavit filed by Mr. Mahmood Abbas, the counsel for the lessor in support of the objection to the application under disposal. The objection was that he not being conversant of the facts of the case cannot file affidavit and such affidavit is to be excluded from consideration, To enforce her submission, she referred the view taken in Giorgio Beverly Hills Inc. v. Colgate Palmolive Pakistan Ltd. (1999 M LD 3173), wherein the affidavit filed in the same line by the counsel was excluded with the following observations:- 'In all fairness, in each case the parties, or its agent or attorney should file an affidavit in support of the case and not the counsel. I am, therefore, not inclined to consider the earlier as well as latest affidavit filed by the counsel and dismiss the C.M.A. For substitution of the respondent company being not maintainable at law'. by Mr. Mahmood Abbas is excluded from consideration. The learned counsel for the lessor was not able to Section 34 of the Arbitration Act is in these terms:- Lithuanian Airlines V. Bhoja Airlines (Pvt.) Ltd.
10. (Shabbir Ahmed, J.) 747 '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 person claim under him in respect of any matter agreed to be referred, any party to such legal proceeding may, at any time before filing written statement or taking any step in the proceedings apply to the judicial authority before which the proceedings are pending to stay the proceeding; 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 the arbitration, such authority may makes an order staying the proceedings'.
11. Thus in order that stay may be granted under this section, it is necessary that following conditions should be fulfilled.
(1) That the proceedings must have been commenced by a party to an arbitration agreement against any other party to the agreement . (2) The legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred.
(3) The applicant for stay must be a party to the legal proceeding and he must have taken no step in the proceeding after appearance. It is also necessary that he should satisfy the Court not only that he is but also was at the commencement of the proceedings ready and willing to do everything necessary for the proper conduct of the arbitration.
(4) The Court must be satisfied that there is no sufficient reason why the matter should not be referred to an arbitration in accordance with the agreement.
12. (Anderson Wright Ltd. v. Moran and Co., AIR 1955 SC 53).
13. The counsel for the lessor has opposed the applications on the two grounds. Firstly, that the lessee has not shown their willingness, therefore, stay cannot be granted. Secondly the arbitral proceedings before International Tribunal is too expenses and inconvenient.
14. First objection has been met by the learned counsel for the lessee with contention that the facts that the lessee did not in their reply mentioned anything about arbitration did not put an end to their right to claim that the matter could be decided by the arbitrators, and to support her contention, she made reference to the pronouncement in India Steel and Wire Products Ltd. v. P.T.
15. Debi Prasad Malaviya (AIR 194 Allahabad 253), wherein similar plea was not found favour by the Bench that it could not be said that by reason of anything not done by the defendants the clause as regards reference to arbitration became nugatory. Such contention was addressed in the following words:- 'To my mind, the fact the defendant did not in their S notice dated 3rd December, 1942, mention anything about arbitration did not put an end to their right to claim that the matter would be decided by the arbitrators as provided for in Clause (5) of the agreement.'
16. The above view was based on the pronouncement of the Division Bench of Madras High Court in Anglo Persian Oil Co. v. Panchapakesa Aiyar (AIR 1924 Madras 336). In the aforesaid case, the stay of the proceeding was refused on the ground that the defendants had been threatened with legal proceedings for a considerable time and had not then called the attention of the plaintiff to the arbitration clause or said that they were willing to refer to arbitration and objected to the litigation.
17. (emphasis under lined).
18. Learned counsel for the lessor while canvassing the second ground, has urged that the arbitration proceedings before the International Arbitration Forum would be too expensive and the Courts do not encourage expensive proceedings at arbitral fora.
19. Conversely, learned counsel for the lessee contented that de lessor is a foreign company and has filed the s in Pakistan. The proceedings either in Pakistan A. In England would have no consequence to the I ,sor so far as the expenses are concerned. Her .Oer submission was that the ground that.
20. The proceedings at the Arbitral Tribunal would be too expensive has no bearing. She referred the following cases:-
(i) Echardt and Co. v. Muhammad Hanif (PLD 1993 SC 42) and (ii) Messrs Manzoor Textile Mills Ltd. v.
21. Nichimen Corporation (2000 M LD 641).
22. The learned counsel for the lesson plea was that the application has been made by the lessee alone and there are other defendants apart from the lessee, i.e. The defendants Nos. 2 and 3, therefore, there was a possibility of conflict of decisions, if the suit was to proceed against the defendants Nos. 2 and 3 in the aforesaid suit.
23. Miss Sane Minhas, on the other hand, contended that the defendants Nos. 2 and 3 are superfluous and lessor has chosen to array the said defendants in the suit only to take a plea against the stay of the suit.
24. I have examined the plaint. It is conceded by the learned counsel for the lessor that the defendants Nos.
25. 2 and 3 are Directors of the lessee, who have signed the agreement on behalf of the lessee.
26. Therefore, this plea is also not available. In similar circumstances, such contention was rejected by A.S. Farooqui, J. (as he then was) in M/s. Haji Muhammad Ibrahim and others v. Karachi, Municipal Corporation and others (PLD 1960 Kar. 916), that 'the claim of the plaintiff being based upon the breach of contract which contains the arbitration clause, it really is directed against Municipal Corporation, and the plaintiff cannot get out of arbitration clause merely by impleading certain officers of the Corporation or the subsequent contractor to whom the work has been awarded. If I was to accept this contention, it would amount to nullifying the arbitration clause to which the parties had bound themselves at the time of contract, and to which they still adhere.
27. A feeble attempt has been made by the learned counsel for the lessor that in foreign arbitration, the provision of Section 34 of the Arbitration Act cannot be applied. In other words, Section 34 is inapplicable to the proceedings connected with Arbitration (Protocol and Convention) Act, 1937.
28. No doubt, the Arbitration (Protocol and Convention) Act, 1937 contains Section 3 which provides for the stay of the proceeding in respect of the matter to be referred to the arbitration. The preconditions of Section 3 thereof are as follows:-
(i) an agreement between citizens of different States;
(ii) such agreement contains a clause agreeing to submit future disputes to arbitration; and
(iii) a submission has been made in pursuance of such agreement of an actual and existing dispute after it has arisen.
29. The provisions of Section 3 are not applicable in absence of actual submission. If any reference is required, the cases of (1) W. Wood and Sons v. Bengal Corporation (AIR 1956 Calcutta 238) and (2)
30. Bajrang Electric Steel Co. v. Commissioner of the Port of Calcutta (AIR 1957 Calcutta 240) can be referred. Therefore, it is inapt to plead that the provision of Section 34 is inapplicable.
31. Learned counsel for the lessor maintained that the precondition for the arbitration is the existence of a dispute and maintained that the lessee has denied the claim, therefore, in absence of any dispute, the suit cannot be stayed nor a reference to arbitration and to contend this plea, he referred the stay application wherein 'the lessee has pleaded that neither any breach of the agreement nor any claim or dues/sums is outstanding against the lessee'. To support his contention, he has referred the case of Nandram Hanutram v. Raghunath and Sons Ltd. (AIR 1954 Calcutta 245), wherein Section 2(a) of the Arbitration Act was interpreted and the existence of disputes of differences contemplated by an arbitration clause was taken an essential condition, a pre-requisite to the exercise of jurisdiction by the Arbitrator.
32. The apex Court, in Lahore Stock Exchange v. Fredrick J. Whyte Group (Pakistan) Ltd. And others (PLD 1990 SC 48) has recorded the passage on the scope of Arbitration agreement from Chittay on Contracts, 24th Edition Page 873 as follows:- "Scope of the arbitration agreement.-- An unqualified arbitration clause rei'arring to difference arising 'in respect of or 'with regard to' or 'under' a contract covers a dispute as to whether a breach of contract by one party has operated to discharge the other. For a repudiation by one party, even when accepted by the other, does not entirely abrogate the contract. It survives for the purpose of measuring the claims arising out of the breach. Accordingly, a party declining to perform may still rely on an arbitration clause in the contract. So can a party who has committed a fundamental breach of the contract. The question .Whether a contract has been frustrated is also within the scope of such ,a clause, no matter whether the contract is purely executory or has been partly executed ................................... But disputes as to whether the contract was ever entered into at all, or whether it is void, or illegal, are not within the scope of an arbitration clause contained therein, for if the contract is not binding on the parties, neither is the arbitration clause. If the question is whether the making of the contract was included by fraudulent mispresentation, the issue of whether or not the dispute is within the scope of the arbitration clause depends on the construction of the clause ................. A dispute implies an assertion of a right by one party and a repudiation thereof by another party. (Chandmull Ganeshmull ?. Nippon Munk wa Kabushiki Kaisha, AIR 1921 Calcutta 342).
33. A failure to pay a claim constitutes a matter in difference between the parties to a submission, (Messrs Beith Stevenson and Co. Ltd. v. Firm of Naroomal Khemchand (AIR 9124 Sindh. 117).
34. It was also argued with vehemence by the learned counsel for the lessor that under Section 34 of the Arbitration Act, the Court has the discretion to grant and not grant the stay of the proceedings and such discretion has to be exercised with due regard to the facts and circumstances of each case and on judicial considerations and not arbitrarily or capriciously. To enforce his submission he refereed the case of Messrs Aslo Marines Ltd. v. M. T. Magda and another (PLD 1985 Kar. 745), Mr. Justice Naimuddin (as he then was) refused to stay the proceedings, In that case, the conditions Nos. 1 and 2 were available, whereas, the condition Nos. 3 and 4 were not fulfilled and it was found to be prejudicial to the interest of the plaintiff i.e. The loss of security, a relevant consideration in an application for stay of the action.
35. 2002 CLD 671), the learned Single Judge of this Court has declined the stay of the proceedings on the ground of balance of inconvenience to the parties causing denial of justice to them, conflicting of claim between the parties and against the defendant other than defendant No. 2 who were not party to the arbitration agreement. The case is inapt to the instant case.
36. 1981 SCMR 129), the apex Court highlighted the purpose and intent of the Arbitration Act in the following terms:- The sole purpose of the Arbitration Act is to curtail litigation in Courts and to promote the settlement of the dispute amicably through persons in whom both the parties repose their trust.
37. Therefore the course that the Courts should generally follow is to encourage the settlement of disputes by this method wherever the parties have themselves agreed to do so. That this was also the intention of the Legislature is evident from the manner in which Section 34 of the Arbitration Act is worded . To allow one side to evade and wriggle out from the agreement merely by making allegations of fraud, even though the same may not ultimately be proved or even though the same may not ultimately be proved or even pressed, would amount to giving a handle to that party to circumvent the arbitration clause'.
38. The apprehension expressed by the Chancery Division in Russell's case was also noticed: ............ If the mere making of a charge of fraud would entitle the person making it to call upon the Court, in the exercise of its discretion, to refuse to refer to arbitration, thereof would be very easy way of getting rid of all these clauses of arbitration. I am satisfied that the mere making of a charge will not do that, even in a case where the Court ought to exercise its discretion by refusing to refer the case to arbitration .... '
39. As a consequence of above discussions, the application is to be granted. I, therefore, stay the suit and direct that the dispute may be referred to the arbitration in accordance with the arbitration clause.
40. These are the reasons of short order announced on 20.10.2003. . revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.