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Petitioner: DADA STEEL MILLS VS Respondent: METALEXPORT and 5 others
Court Name: Sindh High Court Judge(s): Nasir Aslam Zahid Title: DADA STEEL MILLS vs METALEXPORT and 5 others Case No.: Suit No.92 of 1973 Date of Judgment:1985-01-12 Reported As: 1985 CLC 1814 Result: Suit partly decreed
JUDGMENT
JUDGMENT ' This suit was filed on 7-3-1973 by the plaintiff, Dada Steel Mills, a partnership firm, against defendants No.1 to 6 for specific performance and permanent injunction in respect of a ship, S.S. "MARBELLA". Defendant No.1 is Metalexport, a firm carrying on business at Beirut; defendant No.2 is Paul A. Ardhaldjian; and defendant No.3 is Hagop Ardhaldjian. Defendant No.4 is Ali Abdul Aziz Al- Homaidi. According to the plaint, the business of defendant No.1 firm is carried on by defendant No.2 as sole proprietor or by defendants No.2, 3 and 4 as partners. Defendant No.5 is Toyomenka (Pakistan) Limited, local agents of defendant No.1. Defendant No.6 is Gulf Shipping Corporation Ltd., who is described as the local agents of the ship in question. The negotiations had taken place between the plaintiff and defendant firm for the purchase of the ship S.S. MARBELLA. According to the plaintiff, defendant No.5, acting as the agents for the defendant firm, owners of the ship, by their letter dated 16-10-1972 (Exh.6/4) made the final offer for the sale of the ship to the plaintiff. By this letter dated 16-10-1972, defendant No.5 informed the plaintiff that they had received the final firm offer from their principals i.e. the defendant firm, through telex No.663 (Exh.6/1) for the vessel in question, which telex was enclosed with the letter. The price of the vessel to be delivered at Karachi Port was mentioned in the letter as US $55 per light displacement ton (LDT) and the total price according to the tonnage came to US $3,05,800. Various terms and conditions of the final offer were also specified in Exh. 6/4. By cable dated the same day i.e. 16-10-1972 (Exh.6/5), the plaintiff confirmed their acceptance of the offer made by the defendant firm through defendant No. 5. In this cable addressed to defendant No.5 (Toyomenka), the plaintiff confirmed acceptance of all terms and informed that they were submitting the 5 per cent bank guarantee as required and requested for forwarding the contract and 5 per cent performance bond and builders' plan to
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enable the plaintiff to open the letter of credit. By letter dated 17-10-1972 (Exh. 6/6) addressed to the plaintiff, Toyomenka asked the plaintiff to submit the bank guarantee for Rs.1,68,200 being 5 per cent of the purchase value of the ship and informed that on receipt of such bank guarantee, Toyomenka shall confirm to their principals to issue their guarantee to the defendant firm on behalf of the plaintiff and that the bank guarantee to be given by the plaintiff will be released on receipt of in-order letter of credit opened by the plaintiff. The requisite bank guarantee in the sum of Rs.1,68,907 was furnished on behalf of the plaintiff by Muslim Commercial Bank Limited in favour of Toyomenka. This bank guarantee is, dated 18-10-1972 and is exhibited as Exh. 6/7. Through letter dated 19-10-1972 (Exh. 6/9) Toyomenka acknowledged receipt of the bank guarantee dated 18-10- 1972 and informed the plaintiff that they had asked their principals to forward the necessary documents namely 5 per cent performance Bond, builders' plan or certificate certifying 5560 LDT of the vessel in question and proper contract memorandum of agreement. It was further informed that the defendant firm, principals of Toyomenka, may request the plaintiff to open L/C for the vessel in favour of their Kuwaiti associate namely defendant No.4. A formal memorandum of agreement dated 24-10-1972 (Exh. 6/11) was signed on behalf of the plaintiff firm, as buyers, by their partner Ghulam Hussain and on behalf of Metalexport (defendant No.1), as sellers, by Paul A. Ardhaldjian (defendant No.2). Clause 16 of this agreement is the crucial clause, which relates to the opening of the irrevocable confirmed letter of credit. The entire defence of defendants Nos.1 to 4 is based on clause 16. According to them, the letter of credit opened by the plaintiff was not in conformity with clause 16 and as such there was a breach of contract on the part of the plaintiff and, therefore, the defendants Nos.1 to 4 were not liable to perform the contract. It may be observed here that the ship had come to Karachi Port apparently for the purposes of being delivered to the plaintiff under the contract dated 24-10-1972 but at the last minute the defendant firm refused to honour the contract on the ground that the letter of credit had not been opened by the plaintiff in accordance with clause 16 of the contract dated 24-10-1972. It may also be observed that apart from this defence taken on behalf of the defendants Nos.1 to 4 in the present suit for specific performance and injunction, the other main plea taken on behalf of the defendants No.1 to 4 is that a suit for specific performance of the contract for the purchase of the ship in question was not maintainable in law. ' In paragraph 6 of the plaint it is stated that the price was agreed to be paid by means of irrevocable confirmed letter of credit in favour of defendant No.4, lodged with the National Bank of Kuwait Account No.379-4/B payable against complete transfer documents and that the amount was to be realized in favour of the said beneficiary only after delivery of the ship to the plaintiff. In paragraph 7 of the plaint it is mentioned that the plaintiff had entered into the agreement in question for the purposes of dismantling the ship and using the scrap, to the knowledge of the defendants. It was further stated that the plaintiff entered into the said agreement with the defendants with the permission of the Government of Pakistan and after obtaining import licence, the plaintiff on 6-11-1972, through Muslim Commercial Bank Limited opened an irrevocable letter of credit in favour of defendant No.4, as stipulated, in the sum of US $3,05,800 being the total agreed price for the ship at the rate of US $55 per LDT. ' By letter, dated 9-1-1973 (Exhibit 6/43) addressed to the plaintiff, Toyomenka reproduced the text of a telex message received from their principals. This letter dated 9-1-1973 of Toyomenka is reproduced here:- "Subject: Memorandum of Agreement dated 24th Oct., 1972 for sale of s.s. "MARBELLA" ' We are pleased to refer the telephonic conversation the undersigned had with your Partner Mr.Ghulam Hussain and reproduce hereunder the text of a telex message received from our principals for your kind perusal:-
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"MARBELLA LEFT JEDDAH ON 1ST JANUARY AT 0800 HOURS FOR KARACHI WITH SCRAP CARGO HOPE VSL REACHING KARACHI AROUND 15TH JANUARY THANKING YOU, WE ARE, YOURS FAITHFULLY" ' Exh. 6/44 is a copy of the letter, dated 12-1-1973 of Gulf Shipping Corporation Limited (defendant No.6) addressed to the Traffic Manager, Karachi Port Trust informing that the ship s.s. "MARBELLA" was calling at Karachi Port under their agency and was expected to arrive off--port on 13-1-1973 with about 6,000 tons of steel and aluminium scrap to discharge. It was further informed that the vessel had been purchased by the plaintiff firm for scrapping and that the ship will be delivered to the plaintiff by Gulf Shipping Corporation Limited after completion of the discharge of scrap cargo. Copies of this letter were also endorsed to Toyomenka and the plaintiff. Exh. 6/45 is a letter of Toyomenka addressed to the plaintiff and the same is reproduced here:- "With reference to the memorandum of agreement dated 24th October, 1972, we are pleased to bring to your kind notice that vessel s.s. "MARBELLA" had already arrived at Karachi off--port on 17th January, 1973." We regret that due to congestion in Karachi Port the vessel s.s. "MARBELLA" is awaiting her turn for berthing to discharge 7,900 tons cargo before she becomes ready to be delivered to you and you will please then take delivery of the vessel. We regret the delay in delivery of the vessel which is due to the above circumstances. Thanking you, we are, ' Yours faithfully, Sd/- ' P.S. In view of the above circumstances kindly, extend the date of delivery till 28th February, 1973." ' In response to the above request for extending the period of delivery the plaintiff asked Muslim Commercial Bank Limited to do the needful, which was done and Muslim Commercial Bank Limited informed defendant No.4 through letter dated 1-2-1973 that they had amended the L/C by extending the date till period upto 28-2-1973. This letter is Exh. 6/51. Exh. 6/54 is a letter dated 16-2- 1973 of the plaintiff addressed to Toyomenka, in which reference is made about the extension of the delivery date upto 28-2-1973 and also about the extension of the date of expiry of the letter of credit upto the same date. The plaintiff further informed that they were ready to take delivery of the vessel and desired Toyomenka to inform them about the date, on which they would give delivery of the vessel to the plaintiff as per terms of the contract. Exh. 6/56 is a cable sent by plaintiff to Toyomenka referring to their letter dated 16-2-1973 and asking for the date, on which possession of the ship would be given to the plaintiff. ' The trouble started between the parties by cable dated 24-2-1973 (Exh. 6/59) of defendant No.4 addressed to the plaintiff, which is reproduced here:- "REFERENCE MEMORANDUM OF AGREEMENT DATED 24TH OCTOBER, 1972 BETWEEN YOURSELVES AND OURSELVES WHEREIN WE AGREED TO SELL AND YOU AGREED TO PURCHASE THE VESSEL MARBELLA SUBJECT TO TERMS MUTUALLY AGREED WE NOW ADVISE YOU THAT AS A RESULT OF YOUR FAILURE TO OPEN L/C IN ACCORDANCE WITH THE MEMORANDUM OF AGREEMENT WE NO LONGER REGARD THE SAID MEMORANDUM OF AGREEMENT AS BINDING ON US." ' Exh. 6/60 is a cable dated 24-2-1973 of Toyomenka addressed to the plaintiff and it reads as follows:- "YOUR LETTER DTD 16 STOP YOUR TELEGRAM LETTER DTD 20TH RECD AFTER DEPARTURE OF PRINCIPAL WITH WHOM YOU HAD SEVERAL MEETINGS DURING HIS STAY AT KARACHI STOP HAVE PASSED ON TO PRINCIPAL FOR THEIR NECESSARY ACTION STOP MEANTIME UNDERSTAND YOU HAVE ALREADY AMENDED L/C AS PER MEMORANDUM OF AGREEMENT (50) AND ALSO INCREASED AMOUNT AS AGREED: WATATYO" ' This cable of Toyomenka was replied on behalf of the plaintiff by their advocate through cable (Exh. 6/62) which reads as follows:- "YOUR TELEGRAM DATED 24TH FEBRUARY 1973 ADDRESSED TO DADA STEEL KARACHI READING AS UNDER QUOTE YOUR LETTER DTD 16TH STOP YOUR TELEGRAM LETTER DTD 20TH RECD AFTER DEPARTURE OF
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PRINCIPAL WITH WHOM YOU HAD SEVERAL MEETINGS DURING HIS STAY AT KARACHI STOP HAVE PASSED ON TO PRINCIPAL FOR THEIR NECESSARY ACTION STOP MEANTIME UNDERSTAND YOU HAVE ALREADY AMENDED L/C AS PER MEMORANDUM OF AGREEMENT (50) AND ALSO INCREASED AMOUNT AS AGREED: WATATYO. UNQU OTE HAS BEEN PASSED ON TO US BY OUR CLIENTS MESSRS DADA STEEL MILLS TO REPLY YOU ON THEIR BEHALF THAT YOU AND YOUR PRINCIPALS ARE LIABLE TO MAKE DELIVERY OF THE VESSEL "MARBELLA" AS PER MEMORANDUM OF AGREEMENT DATED 24TH OCTOBER 1972 AND YOUR VARIOUS LETTERS AND FURTHER TO DENY SPECIFICALLY THAT ANY INCREASE IN THE AMOUNT REPRESENTING PURCHASE PRICE OF THE SAID VESSEL HAD BEEN AGREED UPON BY THEM AS ALLEGED BY YOU AND ALSO DENY THAT OUR CLIENTS AGREED TO ANY MODIFICATION OF THE MEMORANDUM OF AGREEMENT OBVIOUSLY DUE TO DEVALUATION OF US DOLLAR YOU WISH TO CLAIM WITHOUT ANY LEGAL JUSTIFICATION WHATSOEVER SOME EXTRA AMOUNT FORWARD A FALSE PLEA THAT OUR CLIENTS AGREED TO PAY INCREASED AMOUNT STOP THE MEETINGS YOU HAVE REFERRED TO IN YOUR TELEGRAM WERE NECESSITATED DUE TO YOU AND YOUR PRINCIPAL'S ATTITUDE WHICH SHOWED CLEAR INTENTION TO BACK OUT OF THE CONTRACT DUE TO RISE IN WORLD PRICE OF SHIPS FOR SCRAPPING STOP OUR CLIENTS HOWEVER DENY THAT ANY SUCH INNOVATION OF THE CONTRACT AS REFERRED TO BY YOU IN YOUR TELEGRAM WAS AGREED UPON STOP AS ALREADY EXPLAINED TO YOU AND YOUR PRINCIPA'L'S REPRESENTATIVE THAT OUR CLIENTS HAVE ENTERED INTO FORWARD CONTRACTS FOR SALE OF SCRAP OF THE SAID VESSEL MARBELLA AND THE NON-AVAILABILITY OF SHIP OF THE DESCRIPTION OF S.S.MARBELLA WOULD PLACE THEM IN AN EMBARRASSING POSITION AND THEY WOULD LOSE THEIR CREDIT IN THE MARKET IN CASE YOU AND YOUR PRINCIPALS COMMIT BREACH OF THE AGREEMENT STOP PLEASE NOTE THAT UNLESS WITHIN THREE DAYS FROM RECEIPT OF THIS NOTICE YOU DO NOT INTIMATE WILLINGNESS TO GIVE DELIVERY OF THE SAID VESSEL MARBELLA AS PER AGREEMENT WE HAVE INSTRUCTIONS TO TAKE SUITABLE ACTION IN COURT OF LAW." ' The ship was not delivered to the plaintiff and as such they filed the present suit on 7-3-1973 for specific performance and permanent injunction. According to the plaint, the plaintiff had performed their part of the agreement and had been and were still ready and willing to perform all their obligations under the contract and had also extended the time limit of L/C upto 31-3-1973 but the defendants had refused to carry out their part of the agreement and were negotiating for the sale of the ship with other parties and the plaintiff was entitled to the specific performance of the agreement. Paragraph 15 of the plaint is reproduced hereunder:- "That monetary compensation in a case such as the present one would not be sufficient or adequate relief as the ships suitable for demolition are not available and the plaintiff has already entered into agreements with several parties for sale of scrap and in case relief by way of specific performance is not granted, plaintiff will be totally ruined. Further as defendants 1 to 4 are all foreigners and have no other assets in Pakistan except the vessel in the suit in case they take away the ship out of the jurisdiction of this Honourable Court it will not be possible to recover the decretal amount from the defendants. However in case for any reason the relief for specific performance cannot be granted to the plaintiff, the plaintiff in the alternative seeks the relief of recovery of Rs.20,36,628 as compensation being the difference between the contractual rate and the prevailing world market rate of US $92 per L.T.D." ' However, in the prayer clause there is no relief for compensation. The plaintiff claimed a decree for specific performance of the agreement dated 24-10-1972 ordering the defendants to give physical possession of the vessel and to execute the documents of transfer and a permanent injunction restraining the defendants from giving delivery of the vessel or transferring the same to any other person or from removing the ship from the jurisdiction of this Court. ' Defendants Nos. 1 to 4 in their written statement resisted the suit. It was pleaded that the plaintiff had one Feroze Master and another person as partners in the transaction in question and unless the said persons were shown as partners in the plaintiff firm and it is duly registered as such, the
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suit is liable to be dismissed. It was, however, admitted that the defendant No.1 was a firm in Beirut and its business was being carried out by defendant No.2. It was denied that defendant No.3 or 4 were partners of defendant No.1. It was admitted that defendant No.3 is the brother of defendant No.2 and had acted as a representative of defendants Nos.1 and 2. It was also admitted that according to the agreement dated 24-10-1972, the plaintiff was required to open a letter of credit in the name of defendant No.4. It was, however, denied that the plaintiff opened the letter of credit in accordance with the terms of the memorandum of agreement. It was admitted that defendant No.5 acted as local agents for defendants Nos.1 and 2 and that defendant No.6 was the local agents of the ship but it was denied that defendant No.6 had either the authority or that they had undertaken to give delivery of the ship to the plaintiff. The offer dated 16-10-1972 is not denied in the written statement but it was denied that the agreement of sale of the ship was finalized between the parties as per the terms contained in the letter dated 16-10-1972. According to the defendants Nos.1 to 4, the agreement was finalized on 24-10-1972 and the parties were governed by the terms and conditions stated in the said memorandum of agreement. It was denied that the amount was to be realized in favour of the beneficiary only after the delivery of the ship to the plaintiff. According to these defendants, payment was to be made against the presentation of documents as contained in clause 16 of the agreement dated 24-10-1972. These defendants denied knowledge of any agreements entered into by the plaintiff with third parties. It was denied that the ships were not available at the price of US $92 per LDT by end of February, 1973. It was denied that these defendants wanted to back out of the contract and were making efforts to sell the ship to any other party or that defendant No.3 had come to Karachi for the purposes of selling the ship to any other party. In paragraph 12 of their written statement it is mentioned that subsequent to the execution of the agreement dated 24-10-1972, the plaintiff was required to open a letter of credit in favour of defendant No.4 strictly in accordance with clause 16 of the said agreement but instead of opening the letter of credit strictly in accordance with the said clause, the plaintiff with ulterior motives opened a letter of credit containing various discrepancies. Some of the said discrepancies have been specified in paragraph 12 of their written statement. According to these defendants, it is the plaintiff who had committed breach of contract. It is also pleaded that in any case specific performance cannot be granted in view of the provisions contained in the Sale of Goods Act and Specific Relief Act. It was denied that the difference in the contract price and market price was Rs.20,50,628. ' Defendant No.6 also filed a written statement, in which they pleaded that they had acted as local shipping agents of the owners of the vessel in question and the suit against them was not maintainable and liable to be dismissed. It was further averred that the suit was barred by section 69 of the Partnership Act. According to defendant No.6, they had acted as local shipping agents of the said vessel on behalf of the owners and the said vessel had carried cargo which was to be discharged at Karachi Port and that they had incurred huge amount on account of port charges, etc., which amount had not been reimbursed by defendants Nos.1 to 5. According to defendant No.6, defendants Nos. I to 5 were liable to pay Rs.6,57,034.69 to defendant No.6. ' On pleadings of the parties the following issues were settled by this Court on 16-11-1972:-- (1) Whether Feroze Master was the partner of the plaintiff in respect of the transaction in suit? (2) Whether the plaintiff firm is registered under the Partnership Act? (3) Whether the plaintiff was ready and willing to perform his obligations under agreement dated 24-10-1972? If not, to what effect? (4) Whether the defendants committed breach of agreement dated 24-10-1972? If so, to what amount of compensation, if any, is the plaintiff entitled to? (5) Whether the plaintiff committed breach of agreement dated 24-10-1972? If so, to what effect? (5A) Whether the plaintiff had agreed to increase the amount of letter of credit by 10$?
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(6) Whether the suit is not maintainable as alleged in para.15 of the W.S.? (6A) Whether the suit is not maintainable against defendant No.6 as alleged in para.1 of W.S. by defendant No.6? (7) To what relief, if any, is the plaintiff entitled? 2. Alongwith the suit, the plaintiff filed an application under Order XXXVIII, rule 5, Order XXXIX,rules 1 and 2,,Order XLI, rule 1 read with section 151, C. P C. seeking an interim order for attachment before judgment of the ship in question or an injunction restraining the defendant from selling the ship or in the alternative for appointment of a receiver of the ship. One of the main arguments on behalf of the defendants Nos.1 to 4, while opposing the application for interim relief, was that the suit for specific performance of the agreement of sale of the ship in question was not maintainable in law. By order dated 16-10-1973, a learned Judge of this Court, who decided the interim application, was tentatively of the view that ships although movables, are such commodities in respect of which specific performance of contract of sale should be granted. It was further observed by order dated 16-10-1973 that the plaintiff had paid the entire price by opening an irrevocable letter of credit in favour of plaintiff and that he had made substantial investment and, therefore, the discretion to decree specific performance can properly be exercised in favour of the plaintiff. By order dated 16- 10-1973, it was observed that the plaintiff had made out a prima facie case of his right to seek specific performance of contract and that the balance of convenience was also in his favour and further that in case interim relief was not granted, the plaintiff might not be able to get the rewards of the suit in case a decree was passed in his favour. The learned Judge was of the view that ad- interim attachment that had been granted was to be confirmed but on reconsidera tion it was thought that an order of attachment might work hardship on both the parties as each day the ship was in port it cost about Rs.10,000 and the suit was not likely to be disposed off at a very early date. Accordingly, after hearing the learned counsel 'appearing for the plaintiff and defendants Nos.1 to 4, by consent, Nazir of this Court was appointed Receiver of the ship with the power of managing and selling the ship as by so doing recurring expenses incurred on the berthing of the ship at Karachi Port could be avoided. It was further agreed by the learned counsel that the Nazir should invite tenders from the parties afresh and that the person making the highest offer be given the delivery of the ship. Further directions were given to the following effects by order dated 16-10- 1973:- "This suit is not likely to be disposed of at a very early date because in any case it is not a short cause matter and for that reason I again asked Mr. S.M.Sadiq and Mr.Mohsin Tayab Ally who were present in Court, to assist me on the point as to what should be the proper order of the Court. The learned Advocates agreed and consented that it would be fit and proper if the Nazir of this Court was appointed the receiver in regard to the ship. Such consent is however without prejudice to contentions which they may raise at the time of hearing of the suit. They stated that the receiver should have the power of managing and selling the ship as by so doing the recurring expenses incurred on the berthing of the ship at the Port could be avoided; because that will be a dead loss to both the parties in any event, whatever be the result of the suit. The learned Advocates have further agreed that the Nazir should invite tenders from parties afresh within a week from today. The plaintiff may make a fresh offer for purchase of the ship and the defendants also may procure fresh offers. The person making the highest offer shall be given the delivery of the ship. I would in such circumstances agree with the learned Advocates but only subject to a condition that as far as the plaintiff is concerned, his offer need not be accompanied by 25 per cent of the earnest money but so far as the other offers that are procured by the defendants, the earnest mony of 25 per cent must accompany such offer. Of the amount that is offered in case the offer of the plaintiff is accepted he shall deposit forthwith in Court the amount that he has offered less an amount of Rs.32 lacs. In case the offer of other party procured by defendants is accepted, the full amount
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shall be deposited in Court. So far as the acceptance of offer of the plaintiff is concerned, the plaintiff shall in the event of his offer being accepted remit the amount stated in the original agreement of sale by irrevocable letter of credit to Kuwait; in fact he has actually opened an irrevocable letter of credit in favour of the defendants, but he will only instruct his bankers to release the amount in favour of the defendants. The balance of the amount if any shall be retained by the Nazir in Court. In case the offer of any other party is accepted the amount shall be deposited in Court at once and of the said amount a sum of Rs.32 lacs shall be paid to the defendants immediately and the balance shall lie as deposit in Court. The amount thus lying in deposit in Court shall continue to lie in deposit until the disposal of the suit." ' Pursuant to order dated 16-10-1973, offers were made by the parties to the Nazir of this Court and the Highest offer of Rs.65,05,299 made by the plaintiff was accepted. In the light of the directions given in the order dated 16-10-1973, the entire foreign exchange covered by the letter of…
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