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Petitioner: Messrs TRAVEL AUTOMATION (PVT.) LTD. through Managing Director VS Respondent: ABACUS INTERNATIONAL (PVT.) LTD. through President and Chief Executive and 2 others
Court Name: Sindh High Court Judge(s): Khilji Arif Hussain Title:Messrs TRAVEL AUTOMATION (PVT.) LTD. through Managing Director vs
ABACUS INTERNATIONAL (PVT.) LTD. through President and Chief Executive and 2 others Case No.: Suit No,1318 of 2004 Date of Judgment:2006-02-14 Reported As: 2006 CLD 497 Result: Order accordingly Judgment ORDER KHILJI ARIF HUSSAIN, J.---The plaintiff filed suit for declaration, permanent and mandatory injunction and damages against the defendants. After service of the notice without taking any step in the proceeding, defendant No,1 filed application for stay of the proceeding. Brief facts for the purpose of deciding the application under section 34 of the Arbitration Act, 1940, read with section 3 of the Arbitration (Protocol and Convention) Act, 1937 filed by defendant No,1, are that the plaintiff entered into a Memorandum of Understanding with defendant. No,1 on 28-2- 1997 and thereafter plaintiff was appointed as exclusive general sales distributor of the defendant No,1 to market and distribute the defendant's "Abacus System" and "Abacus Service" in the territory of Pakistan on the terms and conditions mentioned in the Distributor Agreement dated 16- 5-1997. The "Abacus Service" was defined as computerized reservations services, which perform flight, hotel, car rental and other travel related prodncts or services, reservations and ticket issuance functions and such other services as may from time to time be offered by Abacus through the Abacus System. In terms of the agreement, plaintiff was required to provide all necessary services and supporting infrastructure to perform the business. It is alleged that in consideration of the appointment as distributor by the defendant No,1, plaintiff from their own funds and resources and at the instance of defendant No,1 constructed RCC sales/after sales, offices of appropriate standard, equipped with modern equipments, furniture, etc., maintenance rooms, workshop so as to effectively carry out its operation in its sale territory and to enhance reputation of defendant No,1 Abacus System and Services and appointed trustworthy and competent
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employees for entire territory. The plaintiff incurred huge expenses in this regard. The plaintiff claimed that the plaintiff have acquired vested rights in the distributorship. The initial agreement after expiry of three years was renewed by a Supplementary Distributor Agreement, whereby the period of distributorship of the plaintiff was extended for another three years. Vide letter dated 26- 10-2004, defendant No,1, unilaterally without disclosing of reasons terminated distributorship of the plaintiff from the territory covered by the agreement. The plaintiff alleged that the plaintiff have acquired interest in the distributorship and their interest stand legally protected and cannot be assailed in such unilateral, arbitrary ignoring their services. Plaintiff also alleged that defendant No,1 coaxed and persuaded the plaintiff to do away with the business of distributorship with renowned German Company known as Star Holding GMBH Marketing. The plaintiff also claimed that due to illegal, unilateral act of the defendant No,1 the plaintiff has suffered heavy financial losses on account of loss of business as well as their goodwill and reputation in market, mental torture, for which defendants are liable in law and claimed following amounts "S.No, Description Details of expenditure in Pak Rupees 1. Construction and purchase of Rs,50 Million Offices/buildings in various LocalitiesRs.50 Million
2. Maintenance and repairs Rs,3 Million 3. Furniture and Fixtures Rs,10 Million 4. Tools/equipments Rs,15 Million 5. Advertisements Rs,5 Million 6. Transport/vehicles Rs,3 Million 7. Loss of reputation of CompanyRs,10 Million 8. Loss of distributorship at the rate of $ 25000 per month for three years Rs, 54 Million" 9. Loss of maintaining various officesRs, 5 Million" 10. Damage for mental torture 11. Loss of commission, income with AmadeusRs,345 Million" The plaintiff filed the suit seeking declaration that the Distributor Agreement dated 16-5-1997 between the plaintiff and defendant No,1 is valid, binding and fully operative and enforceable against the defendant No,1 and are in the circumstances irrevocable, coupled with interest, duly acted upon by conduct of the parties over the years since they are executed in relation to the business of "Abacus System and Services" and that the said agreements and rights thereunder cannot be revoked or assigned or given or granted by defendant No,1 to any person/corporation including defendant No,2, adverse to the rights of the plaintiff and the plaintiff is entitled to enjoy all rights of distributorship and benefits thereunder. The plaintiff also prayed for permanent and mandatory injunction directing the defendants that the Distributor Agreements are distributorship coupled with interest in the subject-matter of distributorship and the same cannot be revoked and
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shall be kept in force and operation in the entire territory of the plaintiff as per agreement with the direction to the defendant No,1 to restore the same in favour of the plaintiff. The plaintiff also prayed for preliminary decree for accounts, for recovery of such sums as are found to be due and payable to the plaintiff by the defendant No,1 and final decree be passed thereafter. The plaintiff further claimed without prejudice to the relief of declaration, etc. To grant a decree for damages in the sum of Rs,350,000,000 with additional US $ 25,000 per month until the restoration of Distributor Agreement. After service of notice, defendant No,1 filed application under section 34 of the Arbitration Act, 1940 read with section 3 of the Arbitration (Protocol and Convention) Act, 1937 and prayed to stay the proceedings of suit so that the matter may be referred by the parties for arbitration in terms of Arbitration clause 18 of the Distributor Agreement. Heard Mr. Sajid Zahid, learned counsel for defendant No,1 and Mr. Jawed Ahmed Siddiqui, learned counsel for the plaintiff. Mr. Sajid Zahid, learned counsel for defendant No,1 orally requested that the application may be read as an application under section 34 of the Arbitration Act read with sections 3 and 4 of the Ordinance, 2005 and argued that Distributor Agreement dated 16-5-1997 was executed between the plaintiff and defendant No,1 for a fixed period of time. Clause 18 of the said agreement provided that all disputes arising out of or in connection with the agreement including any question regarding its existence, validity or termination has to be referred to and finally resolved by arbitration in Singapore in accordance with the arbitration rules of Singapore International Arbitration Centre. The learned counsel contended that disputes in the matter are fully covered by the arbitration clause and the suit ought to have been stayed and parties be directed to refer the matter for arbitration at the venue agreed between them. The learned counsel drew my attention to clause 12.1 of the Agreement, and argued that the plaintiff have right to terminate the agreement without assigning any reason. The learned counsel took me to various correspondence exchanged between the parties after the termination notices and argued that the plaintiff himself has admitted termination and the present suit has been filed malafidely. The learned counsel heavily relied upon the opinion given by a Singapore based Advocate that the dispute between the parties can be resolved by arbitration at Singapore and argued that Pakistan is one of the signatories to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 and by Ordinance XX of 2005, i,e, The Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance. Pakistan has accepted to enforce agreements in which parties agreed to refer their disputes for arbitration at a venue other than Pakistan. Learned Advocate in support of his argument relied upon the case of Svenska Handelsbanken and others v. Messrs Indian Charge Chrome and others AIR (1994) 2 Supreme Court Cases 155 and Messrs Srivenkateswa ra Construction and others v. The Union of India AIR 1974 Andhra Pradesh 278. Mr. Jawed Ahmed Siddiqui, learned counsel for the plaintiff, in reply argued that defendant No,1 unilaterally without any default or breach of Agreement between the parties illegally, unlawfully and malafidely terminated agreements of distributorship in which plaintiff acquired interest and said agreement cannot be revoked unilaterally by the defendants. The defendants' act of cancellation is without lawful authority and he entered into an agreement with the defendant No,2 much prior to cancellation of agreement in question. The learned counsel argued that the agreement in question was executed in Pakistan, entire evidence is available in Pakistan and it would not be in the interest of any party that the matter be referred for arbitration at Singapore. It is contended that on 16-5-1997, there was no coded law of arbitration in Singapore and further that the arbitration clause is also silent as to the law of the country of institution, i,e, to apply to the present proceedings. The learned counsel argued that in the circumstances of the case the foreign arbitration will not be safe or convenient forum for the decision and the cost of arbitration, to be
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held at Singapore, will be so disproportionately high and in forcing the plaintiff to go for the arbitration will be amount to denial of justice. It is contended that the plaintiff has sought decree jointly and severally against defendants Nos.2 and 3, who are not party to Arbitration Agreement and relief claimed by the plaintiff against defendants Nos.2 and 3 does not cover by the said Agreement. The Court even in presence of the arbitration agreement is equally competent to try the case and decide the same. Mr. Jawed Ahmed Siddiqui, learned counsel for the plaintiff argued that subsection (2) of section 4 of the Ordinance, 2005 provided that in case if arbitration clause is inoperative or is incapable of being performed, Court can refuse the stay of proceedings. Learned counsel for the plaintiff argued that arbitration clause in the agreement between the parties is inoperative because there is no dispute so far as to the contents of agreement are concerned and further argued that Arbitration Agreement "is incapable of being performed" because defendants Nos.2 and 3 are not parties to the arbitration agreement' and they are necessary party in the suit and accordingly proceedings of the suit cannot be stayed. He further contended that if there is any smell of "fraud" in the matter then application under section 34 of the Arbitration Act has to be dismissed. It is further contended by the learned counsel that the agreement in question was executed in Pakistan, entire evidence is available in Pakistan and it would be inconvenient for the parties to appear before the Arbitrator at Singapore. The learned counsel in support of his contention relied upon the case of (1) Muhammad Hanif v. Eckhard & Co. PLD 1983 Karachi 613; (2) Eckhardt & Co. v. Muhammad Hanif PLD 1986 Karachi 1398; (3) Eckhardt & Co. v. Muhammad Hanif PLD 1993 SC 42 and Muhammad Amin and Muhammad Bashir v. PAS+R and others 2002 CLD 671. Mr. Muhammad Tasneem learned counsel for the defendant No,2 argued that except some allegations have been made in para.3 of the plaint against the defendant No,2 the plaintiff has not claimed any relief against defendant No,2 and defendant No,2 has been joined in the proceedings just to avoid arbitration proceedings in terms of the agreement executed between plaintiff and defendant No, 1. I have taken into consideration respective arguments advanced by the learned counsel for the parties and perused the record. In order to appreciate the respective contentions of the learned counsel for the parties, it would be useful to reproduce some relevant clauses of the Distributor Agreement dated 16-5-1997, which read as follows:-- "Clause 2.1:---Abacus hereby appoints Distributors during the continuance of this Agreement as the exclusive distributor of the Business in the Territory only, and Distributor accepts such appointment and hereby undertake to act as such in accordance with the terms and conditions set forth herein. 12. Term and condition 12.1:- This agreement shall be for a fixed term of three (3) years and shall continue thereafter, for a fixed period of three (3) years unless earlier terminated as provided in this Agreement. Notwithstanding this, either party to this Agreement may terminate the Agreement upon three (3) years calendar months written notice given to the other party, such notice not be given earlier than twelve (12) months from the date of execution of this Agreement. 13. Consequence of events of default 13.1 Without prejudice to any other rights and remedies which any party may have, if Distributor commits a breach of any of its undertakings under section 3, then Distributor shall be liable to pay Abacus forthwith, as liquidated damages and not as penalty, a sum to be calculated at the rate of:-- Total amount received in previous year or projected to be received in current year (if this Agreement has been in force for less than one year at the date of breach) by Distributor under section 9 of this Agreement times three.
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17. Governing Law and non-English Version 17.1 This agreement and any dispute arising under or in connection with this Agreement shall be governed by the law of the Republic of Singapore and subject to the nonexclusive jurisdiction of the Courts of Singapore. 17.2 If any non-English interpretative versions 4 this Agreement are created then, in the event of a conflict between this English version and any non-English version, this English version will prevail. 18. Arbitration 17.3 All disputes arising out of or in connection v .h this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Center ("SIAC Rules") for the time being in force which rules are deemed to be incorporated by reference into this clause. The law of arbitration shall be the international Arbitration Act Cap, 143A. 17.4 The tribunal shall consist of 2 arbitrator s to be appointed by the Chairman of SIAC. 17.5 Awards shall be expressed in Singapore Dollars and the Arbitrator may award that simple or compound interest shall be paid by any party concerned on any sum which is the subject matter of the reference at such rates as the arbitrators determine to be appropriate, without being bound by legal rates of interest, in respect of any period which the award is complied with. The parties may agree to comply with an award. 17.6 The arbitrators shall have the power to rule on objections that they have no jurisdiction, including any objections with respect to the existence of validity of this arbitration clause, or this Agreement. The arbitrators may make final awards on different issues at different times, each of which award shall be enforceable 17.7 The award rendered by the arbitration shall be fig 1 and binding on the parties and may include costs, inc1uding a reasonable allowance for attorney's fees and judgment thereon may be entered in any Court having competent jurisdiction." Before I proceed further and discuss the contentions of parties, I would like to discuss the case of Muhammad Hanif v. Messrs Eckhardt & Co. Marine GmbH and two others PLD 1983 Karachi 613, wherein learned Single Judge dismissed the application under section 34 of the Arbitration Act. The order was upheld by the Division Bench, and reported in PLD 1986 Kar. 138. The defendant filed the appeal before the Honourable Supreme Court against the said order of Division Bench which too was dismissed and reported in PLD 1993 SC 42. Brief facts of the case are that Messrs Eckhardt & Co. Marine GmbH (supra) a foreign company with registered office in Hamburg, West German, through their agent namely Ecomar (Pakistan) Limited entered into an agreement dated 12-4-1983 with respondent Muhammad Hanif for sale of the motor-vessel to be delivered at Karachi, which time was extended up to 7-6-1983. Vessel could not be delivered within the extended time for reason that there was congestion and strike in Karachi Port, hence buyer cancelled contract as contemplated by clause 4 of the agreement but he claimed that seller was intentionally delaying in discharging of cargo so that vessel could not be delivered within the stipulated time. Claiming damages on the basis of difference in the market price and the contract price of the vessel and further sum expenses to be incurred for purchase of similar vessel for the purpose of scrap, buyer filed Suit No,347 of 1983 in the High Court of Sindh on original side for decree jointly and severally against seller and their agents at Karachi. Similarly defendants Nos.1 and 2 filed application under section 34 of the Arbitration Act, 1940 for stay of the suit proceedings on the ground that there is an arbitration clause in the contract executed between the parties providing for arbitration to be taken place at London in the manner as prescribed in clause 8. The application was resisted by the buyer on the ground that reference to a foreign Tribunal was opposed to public policy and laws relating to the contract and arbitration in
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Pakistan and further the whole evidence to be required would be available at Karachi, hence it would be convenient to proceed with the suit at Karachi. Application under section 34 of Arbitration Act was dismissed by the learned Single Judge vide order dated 10-7-1983. Concluding para. Thereof with assessm ent of material and reasons is reproduced hereunder:- "As stated above in the present case the contract was entered into at Karachi where defendant's agents reside and carry on their business permanently. The delivery of the vessel was to be made at Karachi, letter of credit was opened at Karachi and all other formalities Were to be completed at Karachi. The reasons given for rescinding the contract are the circumstances beyond the control of the defendants which include congestion and strike at Port of Karachi and other local conditions due to which the goods could not be discharged from the vessel. It is therefore, clear that the entire evidence of both the parties is at Karachi. In these circumstances to carry the entire burden of this litigation to London before the arbitrators will be most inconvenient and expensive for both the parties. One of the factors which has impressed is that the defendant No,1 has its agent at Karachi, who is permanently stationed here and looks after its business and further it has been joined as defendant No,2 against whom the plaintiff has sought decree jointly and severally. This defendant No,2 is rut a party to the arbitration agreement. In view of the relationship between defendant No,1 and defendant No,2 this may not by itself be a strong ground for refusing to stay, but the fact remains that in the circumstances of the case the foreign arbitrators would not be a safe or convenient forum for the decision. To compel the plaintiff to seek his remedy at that forum may lead to denial of justice." The Honourable Supreme Court by upholding order passed by the learned Single Judge held that:- - "There is no cavil about the propositions that under section 34 of the Arbitration Act, stay can be refused by the Court if it is satisfied that there is no sufficient reason for making 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 objection assessment and come to the conclusion whether stay of legal proceedings can be granted or refused. Considering legal position stated above, we are of the view that in the instant case no interference is warranted for the reason that discretion is exercised by the Court in refusing stay on cogent grounds and additionally, we are of the view that non-performance of the contract for reason of congestion and strike at Karachi Port was beyond contemplation of the parties at the time of contract. In such circumstances, whole evidence on this point has to come from Karachi composed of documents and oral evidence and taking of such evidence to London would be inconvenient to the parties and also would be expensive. For the facts and reasons so stated above, we find no merit in this appeal, which is hereby dismissed with no order as to cost." While agreeing with the conclusion Mr. Justice Ajmal Mian appended separate note on the ground that two Courts below have exercised jurisdiction under section 34 of the Arbitration Act against the appellant by refusing to stay the suit and since the above exercise of discretion cannot be said to be perverse or arbitrary or capricious, this Court cannot interfere with the same even if it would have taken a different view in the matter, which I would like to reproduce:-- "I may observe while dealing with an application under section 34 of the Arbitration Act in relation to a foreign arbitration clause like the one in issues, the Court's approach should be dynamic and it should bear in mind that unless there are some compelling reasons, such an arbitration clause should be honoured as generally the other party to such an arbitration clause is a foreign party. With the development and growth of International Trade and Commerce and due to
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modernization of Communication/Transport systems in the world, the contracts containing such an arbitration clause are very common nowadays. The rule that the Court should not lightly release the parties from their bargain, that follows from the sanctity which the Court attaches to contracts, must be applied with more vigour to a contract containing a foreign arbitration clause. We should not overlook the fact that any breach of a term of such a contract to which a foreign company or person is a party, will tarnish the image of Pakistan in the comity of nations. A ground which could be in contemplation of the party at the time of entering into the contract as a prudent man of business, cannot furnish basis for refusal to stay the suit under section 34 of the Act. So the ground like, that it would be difficult to carry the voluminous evidence or numerous witnesses to a foreign country for arbitration proceedings or that it would be too expensive or that the subject-matter of the contract is in Pakistan or that the breach of the contract has taken place in Pakistan, in my view, cannot be a sound ground for refusal to stay a suit filed in Pakistan in breach of a foreign arbitration clause contained in contract of the nature referred to hereinabove. In order to deprive a foreign party to have arbitration in a foreign country in the manner provided for in the contract, the Court should come to the conclusion that the enforcement of such an arbitration clause would be unconscionable or would amount to forcing the plaintiff to honour a different contract, which was not in contemplation of the parties and which could not have been in their contemplation as a prudent man of business." From the judgment of the Honourable Supreme Court, it appears that Honourable Supreme Court refused to interfere with the discre tion exercised by the two Courts below as same was not perverse, even if it would have different views. Mr. Jawed Ahmed Siddiqui learned counsel for the plaintiff also relied upon the case of Muhammad Amin and Muhammad Bashir v. PAS+R and others 2002 CLD 671; in support of his contention that defendant is not entitled for stay in the proceedings. I am afraid that the principle laid down in the case of Muhammad Amin and Muhammad Bashir (supra) does not attract to the facts of this case as in the said matter learned Single Judge has not discussed the effects of sections 3 and 4 of Ordinance XX of 2005. Keeping in view the principle laid down in the case of Messrs Eckhardt & Co. Marine GmbH (supra), now I would like to examine present case. Mr. Jawed Ahmed Siddiqui, learned Advocate for the plaintiff, questioned the maintainability of application on the ground (a) inconvenience of parties, as every evidence is in Pakistan, (b) arbitration agreement is inoperative and (c) incapable of performance as, the defendant Nos.2 and 3 are not parties to the arbitration agreement, (d) the agreement between the…
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