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Petitioner: UZIN EXPORT IMPORT ENTERPRISES VS Respondent: M. IfTIKHAR & COMPANY LTD
Court Name: Sindh High Court Judge(s): Naimuddin Ahmed, Ibadat Yar Khan Title: UZIN EXPORT IMPORT ENTERPRISES vs M. IfTIKHAR & COMPANY LTD. Case No.: High Court Appeal No, 5 of 1985 Date of Judgment:1985-10-23 Reported As: PLD 1986 Karachi 1 Result: Appeal dismissed
JUDGMENT
JUDGMENT ' IBADAT YAR KHAN, J.-This High Court Appeal under section 39 of Arbitration Act has been filed against an order of a learned Single Judge of this Court dismissing appellant's application under section 34 of the Arbitration Act which was filed in Suit No, 383 of 1984 praying for stay of the proceedings of the suit to enable the parties to go to arbitration. 2. The order under appeal has been passed on a short and preliminary point namely that the appellant had taken steps in the proceedings and had thus disentitled himself from seeking stay of the suit proceedings under section 34 of the Arbitration Act. The learned Judge did not deem it necessary to examine other contentions raised before him by the parties. In the memo. Of appeal the appellant has confined his grievance to this aspect of the case only and has not adverted to the other contentions which were advanced before the learned Judge and had been left out undetermined. Para. 9 of the grounds in the memo, of appeal states :- "9. That since the learned Single Judge has not given any finding against the appellant on the other two contentions raised by the respondent namely, the fact of filing Suit No, 559 of 1983 and the question of the inconvenience, the Appellant in this memo. Of Appeal are not adverting to these two grounds taken by the respondent but not decided by the Court." 3. At the hearing of the appeal the range of argument extended to encompass the points which were left undetermined. The anxiety on the part of the respondent to argue other grounds was understandable. If the appellant succeeds on this preliminary point, the respondent's case could have suffered a prejudice. 4. We have allowed full opportunity to the parties to argue their respective cases, but feel that in the situation of the case, it would be of academic interest to examine the contentions in depth
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because the appeal can be disposed of on preliminary point. 5. The broad facts of the case are that Attock Cement Company of Pakistan Ltd. (hereinafter called the 'Owners') awarded a work contract to the appellants who for brevity sake would hereafter be referred to as 'UZINS' for construction and completion in all respects of a cement factory at Lasbella. The total cost of this 'turn key' contract was sixty six million U. S. Dollars and the date of completion was 10-2-1984. The 'UZINS' were empowered under the contract to point, subject to approval of the 'Owners' sub-contractors for execution of any part of the contract. In pursuance of this clause of the contract 'UZINS' awarded to the respondent who would hereafter be called `Iftekhars' a sub-contract for "actually carrying out the civil engineering erection works and clearance and inland transport of the Romanian supplies of the cement plant". This subcontract between 'UZINS' and Iftekhars provided reciprocal obligations to be performed by each party. The cost of this contract was $ 64.5 million dollars. The 'UZINS' paid to Iftekhars $ 64.5 in advance as Mobilisation Charges for purchase of constructional plant and other machinery and vehicles to ensure expeditious and satisfactory performance. The Iftekhars utilised this advance for the purchase of machinery and equipments which they brought to the site and proceeded to execute and complete the work according to schedule. At this stage it is necessary to refer to some clauses in the sub-contract because disputes between the parties have partly originated from interpretation of these clauses in the sub-contract. Clause 20 of the sub-contract provides that :- "All constructional plant, temporary works and materials provided by the sub-contractor shall when brought on the site be deemed to be exclusively intended for the construction and completion of the works and the sub-contractor shall not remove the same or any part thereof (save for the purpose of moving it from one part of the site to another) without the consent in writing of the contractor which shall not be unreasonably withheld. The sub-contractor shall at all times keep the constructional plant and equipment exempt from claims of third parties and from legal attachment and shall not alienate/change or assign the same or any part thereof or allow any lien to arise thereon. The sub-contractor may remove any constructional plant, temporary works and surplus materials brought at site and belonging to the subcontractor only if the same are no longer required for the works." 6. It so happened that. Iftekhars after completing certain items of their contract assumed that certain machinery and equipment was no more needed on the site of work and decided to move it away perhaps for putting it to use on some other work site, but the 'UZINS' having a different view of the matter resisted this action and as they did not succeed in persuading their sub-contractors to abandon their plans for removal of the machinery etc. They hastened to seek the aid of the Court. Relying on para. 1 of Clause 20 quoted above, they filed a suit against Iftekhars praying for a permanent injunction against Iftekhars restraining them from removing the machinery and equipment from the site. In other words the injunction was desired to compel Iftekhars to abide by the terms of the contract. For a temporary relief, an application under Order XXXIX, rules 1 and 2, C.P.C. Was also filed and an ad interim order was also prayed for. The suit was registered as Suit No, 559 of 1983. A temporary injunction was issued by the Court on 15-9-1983 with notice to the defendants. The defendants entered appearance before the Registrar (0. S.) on 30-10-1983. They filed a counter-affidavit to the injunction application, and also filed their written statement in reply to the plaint in suit. They denied all the adverse allegations against them and raised a counter claim, against the UZINS. The diary sheet of the Registrar (0. S.), dated 3-10-1983 records the following proceedings :- "Notice of under Order XXXIX, rules 1 and 2, C. P. C. Served on defendant. ' Hearing in Court on 9-10-1983 CIA to application filed and copy supplied ; (2) Case is adjourned to 26-10-1983 when fixed for service of summons.
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' Summons served on defendant on 15-9-1983. Today power filed by M-S Orr : Dignem Advocates on behalf of defendant. Also written statement filed with counter-claim, and copy supplied. Replay to C/claim, within one month. Adjourned 2-11-1983." 7. The case came up for hearing in Court on 2-11-1983 but was adjourned to 3-11-1983. When the case came up for hearing on 3.11-1983, it was again adjourned to 7-11-1983. The adjournment was granted at the joint request of both the parties. An application under Order VI, rule 17, C. P. C. Praying for amendment of the counter-claim was also filed on that date by the defendants. It is significant that the learned counsel for UZINS waived notice of this application. The reason for seeking adjournment given by both the sides was to explore possibilities of a compromise between the parties. The order sheet of the Court for 3-11-1983 records the following :- "Mr. Sharif for the Plaintiff. Mr. Kamal Azfar for the Defendant. ' The parties state that they are discussing some proposal for striking a compromise agreement and want time to explore the possibilities. By consent of the two counsel case adjourned to 7-11- 1983. Mr. Kamal Azfar is filing an application under Order VI, rule 17. Mr. Sharif waives notice. This matter may also be fixed by 7-11-1983. (Sd.). 3-11-1983. Judge." 8. These two applications again came up for hearing on 10-11-1983. The application under Order VI, rule 17, C. P. C. Filed by Iftekhars for amendment of their counter-claim was granted by consent. UZINS application for temporary injunction under Order XXXIX, rules 1 and 2, C. P. C. Was disposed of in terms of a compromise between the parties. This order was passed on an application filed by the parties under section 151, C. P. C. On 8-11-1983. This application may be reproduced here. Paras. 2 and 3 of the application deserved special attention because the thinking of UZINS even upto this stage is reflected in these paras. And is capable of being interpreted as steps in the proceedings. The application is as follows :- "It is respectfully submitted that the plaintiff and the defendant have reached a settlement as follows :- (1) That defendant agrees not to remove any constructional plant, or machinery and equipment etc. (subject-matter of injunction application) from the site for such period as it is required for the works. It is further agreed that E.M.M. 30 batching plant may be removed after four months/120 working days is the slip forming of the remaining sites has been completed. (2) The defendant undertakes to abide by clauses 20, 30, 32 and other provisions of the contract, dated 29-12-1980. In the event the defendant fails to fulfil its contract obligations towards the plaintiff, the plaintiff will apply this Hon'ble Court for appropriate orders. (3) The defendant will file an amended counter-claim, if any, as soon as possible. The plaintiff, however, reserves all its rights and defences in respect of the counter-claim as it has not joined issue/proceedings on this point nor adverted to it during the hearing of the injunction application. ' It is, therefore, respectfully prayed that this Honourable Court may be pleased to dispose of the application under Order XXXIX filed by the plaintiff and the application under Order VI, rule 17 filed by the defendant on the above mentioned terms." 9. It is significant to note that in para. 2 of this application UZINS/ plaintiff categorically assert ; "in the event the defendant fails to fulfil its contract obligations towards the plaintiff, the plaintiff will apply this Hon'ble Court for appropriate order." It clearly indicates that the defendants failure to abide by clause 20, 30, 32 and his failure to fulfil his contractual obligations towards plaintiff would result in another action by the plaintiff and they would again approach "the Hon'ble Court for appropriate orders."
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10. So far as defendants counter-claim was concerned, the plaintiff agreed to its amendment as was desired by the defendants. This consent was, however, given with reservations. The consent was in other words without prejudice to the rights and defences in respect of the counter-claim, "as the plaintiff had not joined issues/proceedings on this point, nor adverted to it during the hearing of the injunction application." It is abundantly clear that up to this stage there was no mention of any Arbitration agreement at any stage. Indeed paras. 2 and 3 as analysed above clearly spelled out a tendency to choose the Court as forum for redress of breaches to be committed by the defendants. 11. The earliest attempt to indicate that UZINS wanted to keep their options open was an application under section 34 of the Arbitration Act filed by UZINS on 8-11-1983. This application was numbered as C.M.A. 3947/83 in suit No, 559/1983. It is, however, not quite clear how such an application could be filed by a plaintiff in the suit (Suit No, 559/83) which was filed by the plaintiff himself. This section allows a defendant to obstruct the passage of the plaintiff by stopping the progress of a suit in a Court and seek an order from the Court directing the parties to go to arbitration. Here they have themselves preferred the forum of Court over the forum of arbitration and have summoned the defendants to face a charge of breach of contract. The defendants have also concurred in this choice and have turned up with a reply as well as a counter-claim in their written statement. 12. Nothing happened till 27-5-1984 when UZINS moved an application under Order XXIII, rule 1, C. P. C. Seeking permission of the Court to withdraw the suit. The defendants opposed this request. The reason behind their opposition was quite understandable. They were keen to save their counter- claim which had already been blessed by the plaintiffs themselves in according their consent to its amendment, as evidenced from order, dated 10-11-1983. 13. The learned Judge, however, allowed the withdrawal of the suit and saved the counter-claim by ordering that it should be treated as a fresh suit and assigned a new number. In this way the counter-claim in written statement of Suit No, 559/1983 was renumbered and marked as Suit No, 383 of 1984. The UZINS at this stage filed an application being C.M.A. No, 3377/1984 in Suit No, 383/1984 praying that the application filed by them under section 34 of the Arbitration Act in Suit No, 559/1983 may be transferred and be placed in Suit No, 383/1984 This request was opposed by the learned counsel for Iftekars, but the learned Judge overruled the objection and the application under section 34 was taken on file of Suit No, 383/1984. The learned Judge after hearing both the parties disposed of this application by the order under appeal, whereby stay has been refused and application under section 34 has been dismissed. In this order the learned Judge has found "that the actions taken by UZINS in the case after filing of counter-claim by Iftekhars amounted to steps in the proceedings which disentitled UZINS to seek stay of proceedings under section 34 of the Arbitration Act." The UZINS are dissatisfied with this finding and have filed this High Court Appeal against this order. 14. Learned counsel for the appellants has first struggled hard to compartmentalize the legal proceedings in the case in two phases, first from date of filing of Suit No, 559/1983 to the date of its withdrawal and the other commencing from the date of the renumbering of the counter-claim as an independent Suit No, 383/1984. With these premises the learned counsel further proceeds to argue that whatever happened during the first phase is irrelevent, and should be ignored as bygone. That his conduct should be judged in the proceedings of Suit No, 383/1984. The counsel further contends that there is no material to suggest that the appellant either filed any written statement in this suit nor have they done any such act as could be termed "taking any other step in the proceedings" within the meaning of section 34 of the Arbitration Act. 16. We will examine these contentions in due course but before doing so, it is better to lead section 34 itself. The relevant part runs as under :-
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"Where any party to an arbitration agreement or any person claiming under him commnces any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings ; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings." 17. Now a few questions have got to be answered before the relief provided by this section could be claimed : (1) Whether the UZINS are a party to the Arbitration agreement ? ' The answer is 'Yes'. It is admitted position by both sides. (2) Who commenced the legal proceedings ? ' It is also not at all debatable as to which of the two parties commenced the legal proceedings. UZINS filed the suit (S. 559/83) against Iftekhars. ' Whether the proceedings were in respect of any matter agreed to be referred ? ' The answer to this question would need reference to the arbitration clause and then to determine whether the reliefs claimed in the suit are in any way relatable to the arbitration agreement ? In other words whether disputes and differences highlighted in the suit are within the scope of the agreement or are beyond and outside the framework of the various matters which could be referred to arbitration ? 18. The arbitration clause has been quoted by the appellants in para. 10 of their memo. Of appeal and clause (1) of this Article is as follows :- "Any dispute referring to the execution, performance of this contract shall be amicably settled by the parties. In case the parties shall not reach an agreement, the disputes shall be referred to arbitration of the International Chamber of Commerce in Paris." ' Now let us examine what was the dispute between the parties which necessitated filing of Suit No, 559/1983. 19. Iftekhars had brought the equipment's and machinery on site and had a feeling that on a true construction of clause 20 of the contract they were owners of this machinery and could utilise it for their other works as well. On the other hand the UZINS disagreed with this interpretation. UZINS put their own interpretation and sought support for their view from paras. 1 and 2 of clause 20 of the contract while Iftekhars relied on para. 3 of this clause which postulates :- "The sub-contractor may remove any constructional plant, temporary works and surplus-materials brought at site and belonging to the sub-contractor only if the same are no longer required for the works." ' In this way the dispute arose. This dispute could either be resolved through Court or by reference to arbitration. This was the stage when either party could launch an action and this was the time to exercise the option for forum of settlement of the dispute. UZINS took the initiative and exercised their option by choosing the forum of Court and by filing Suit No, 559/1980 in this Court. UZINS's position in the situation may be described as "the die was cast the bell had rung, the toss was won the song was sung." The proceedings had thus commenced, and all subsequent developments would be in continuation of these proceedings. The Iftekhars filed their written statement which contained a relief of counterclaim. The rules of technicalities and trapping of procedure would now continue to regulate the course of these proceedings till the end. The fact that counter-claim which formed a part of written statement in Suit No, 559/1980 came to be called a suit, because procedural law describes it as such has nothing to do with the choice of forum which has already
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been made. After the proceedings have commenced whether this dispute is tried as a counter- claim or a suit is immaterial. 20. The learned counsel attempted to face this situation by saying that Suit No, 559/1980 was a suit for a limited relief namely, and injunction from the Court to compel the defendants/Iftekhars to abide by clause 20 of the contract and abstain from removing the machinery in terms thereof. But the learned counsel over-looks the fact that whatever may be the nature and the extent of the relief, it would not entitle his client to probate and reprobate and change the forum of litigation to suit his own convenience. Nor indeed the argument of the learned counsel that he could not get the relief of injunction from arbitration has any force, because the same relief could be obtained under section 41 of the Arbitration Act. We would, therefore, hold that by filing the Suit No, 559/1980, the UZINS have made a choice of forum and it was for Iftekhars to invoke the arbitration clause if they had so desired. They have filed the written statement and for all intents and purposes the arbitration clause stands B exhausted. Once the written statement has been filed by Iftekhars, any further development in the proceedings would be development in the action which was launched by UZINS in the form of Suit No, 559/1980. 22. The learned Judge on the original side has looked at the case from another angle. The learned Judge has held, and we affirm this finding without hesitation that the conduct of the appellant even after the filing of the counter-claim which was subsequently renumbered as Suit No, 383/1984 C was such as could and should be termed as their taking steps in the proceedings. 23. To recount the events, mention may be made to the appellants' joint request on 3-11-1983 for time to enable the parties to work out a settlement of the dispute, waives of notice of application under Order VI, rule 17, C. P. C. Filed by Iftekhars for amending counter-claim. Further, the appellants consent for an order allowing the amendment of lftekhars application under Order VI, rule 17, C. P. C. UZINS statement in para. 2 of the compromise application clearly stating that "in the event the defendant fails to fulfil its contract obligations towards plaintiff, the plaintiff will apply this Hon'ble Court for appropriate order". These are all steps in the proceedings. 24. Since filing of the counter-claim and during its progress from stage to stage, no anxiety was shown by UZINS to obstruct its passage. On the other hand they remained a willing and consenting party to progress of the proceedings in the Court. The application under section 34 is to say the least an after thought and a sudden change of attitude the appellants had consistently adopted throughout. 25. The facts of two cases can be similar and the same principle holds good even in the present case. Still it would be reassuring to read few cases and have the benefit of the views expressed in these cases. The following cases are nearer to the case on hand. The expressions "steps in proceedings" and defendant's readiness and willingness 'to go to arbitration' have been discussed in these cases : (1) (1973) 2 SC C 96 ; (2) AIR 19 5 SC 53 ; (3) AIR 1975 SC 469; (4) PLD 1961 Kar. 226 ; (5) PLD 1969 Kar. 446 ; (6) PLD 1957 Kar. 757 ; and (7) PLD 1970 Lah. 184. ' The State of Utter Pradesh and others v. Janki Saran Kailash Chandra and others (1973) 2 SC Cases 96.
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' In this case the plaintiff filed a suit against the Government of Utter Pradesh and the Divisional Forest Officer, Bijnor for breach of contract. The District Government Counsel entered appearance on behalf of the Government on 22-9-1966 and applied for adjournment for filing written statement. This prayer was granted. Few days later, i. e. On 1-10-1966 application under section 34 was filed praying for stay of the suit. The learned trial Court stayed the suit. In appeal against this order the High Court reversed the order and stay was refused by the High Court. The Department filed an appeal by special leave under Article 136 of the Constitution before the Supreme Court. The Supreme Court after a survey of the case-law came to the conclusion that in the circumstances of the case, mere request for adjournment of the suit amounted to a step in the proceedings. The Hon'ble Judges framed certain propositions. One of them was :- (1) An application for time to file written statement or any other similar application should not be treated as a matter of law a step in the proceedings. In order to constitute a 'step', it must be of such a nature as to lead the Court to the conclusion that the party E prefers to have his rights and liabilities determined by the civil Court rather than by the domestic forum upon which the parties might have agreed. It must display an unequivocal intention to proceed with the suit and to abandon the right to have the matter disposed of by arbitration. ' In the above passage it is pertinent to note that it is not the written statement alone which would come in the way of the defendants when they request for stay made in application under section 34 is examined, but it is any step in the proceedings and this " 'step' must be of such a nature as to F lead the Court to he conclusion that the party prefers to have his right' and liabilities determined by the civil Court rather than by the domesti forum upon which the party might have agreed. It must display an unequivocal intention to proceed with the suit and to abandon the right to have the matter disposed of by arbitration." ' In our case the appellant's intention can be gathered from the filing of Suit No, 559/83 and their conduct after the counter-claim was filed by the respondents. Para. 7 of this judgment throws further light on the thinking of the Supreme Court and may be quoted :- "7. In our view, there is no serious infirmity in the impugned judgment of the High Court, and we are unable to find any cogent ground for interference under Article 136 of the Constitution. The legal position with respect to the scope and meaning of section 34 of the Arbitration Act admits of little doubt, the language of this section being quite…
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