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Petitioner: PAKISTAN INSULATIONS (PVT.) LTD. VS Respondent: Messrs RANHILL ENGINEERS AND CONSTRUCTORS DDFC GROUP OF COMPANIES through General Pakistan Operations Manager and 2 others
Court Name: Sindh High Court Judge(s): Salman Talibuddin Title:PAKISTAN INSULATIONS (PVT.) LTD. vs Messrs RANHILL ENGINEERS AND
CONSTRUCTORS DDFC GROUP OF COMPANIES through General Pakistan Operations Manager and 2 others Case No.: Suit No,403 and C.M. A. No,2230 of 2008 Date of Judgment:2009-04-29 Reported As: 2009 MLD 892 Result: Order accordingly Judgment ORDER ' SALMAN TALIBUDDIN, J.---This suit was fixed on 25-3-2009 for a hearing of C.M.A.No,2230 of 2008 (which is an application filed by the plaintiff under section 151 of the Code of Civil Procedure ("Code") seeking a garnishee order in respect of payments due to the defendants Nos.1 and 2 from the defendant No,3) as well as the plaintiff's main application under section 20 of the Arbitration Act, 1940. On 25-3-2009 learned counsel for the parties concluded their submissions and orders on the main application as well as C.M.A. No,2230 of 2008 were reserved. ' This order disposes of both the section 20 application as well as C.M.A.2230 of 2008. The section 20 application: The prayer clause reads as follows:-- (a) Make an order that the disputes and differences between the parties be referred to and resolved through arbitration; (b) Appoint Arbitrator and direct him to proceed with the reference for the settlement of the disputes and differences between the parties and to make an Award within the statutory period; (c) Pass a final decree in accordance with the Award as may be delivered by the Arbitrator in the matter; (d) Pass garnishee order, directing the defendant No,3 to deposit entire outstanding amount of defendants Nos.1 and 2 for the same projects with the Nazir of this Honourable Court and the plaintiff to be paid its all outstanding dues in accordance with the, submitted, verified invoices;
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(e) Any other relief as may be deemed fit and appropriate by this Honourable Court. ' The plaintiff in this case is a Karachi based company, Pakistan Insulations (Private) Limited carrying on business at Office No,107, Business Avenue, P.E.C.H.S., Block, 6 Shahrah-e-Faisal, Karachi. ' In the title of the suit the defendant No,1 has been described as "Ranhill Engineers & Constructors, DDFC Group of Companies", and the defendant No,2 as "DDFC-Group of Companies Consortium of Ranhill and DDFC." ' While defendants Nos.1 and 2 have not been properly identified in the plaint, from the written statement filed on their behalf it becomes clear that the defendants Nos.1 and 2 actually are the following four companies: DDFC (Private) Limited; Engineering Kinetics (Private) Limited; Flowtronics (Private) Limited; and Ranhill Berhad. ' The first three companies are incorporated under the provisions of the Companies Ordinance, 1984 and all of them have their registered office at 73-G-11, Model Town Lahore. The three Lahore based companies are commonly known as the DDFC Group of Companies. The fourth company, Ranhill Berhad, is incorporated under the laws of Malaysia with its registered office at 36th floor, Empire Tower, 182 Jalan Tun Razak, 50,400, Kuala Lumpur, Malaysia. ' Despite their incorrect description in the plaint, all four companies have filed their written statements and are represented by counsel. ' The defendant No,3 is Pakistan Petroleum Limited. Despite being served, this company has not entered any appearance. ' From the plaint and its Annexures it appears that the Malaysian company and the three Lahore based companies formed a consortium (known as the Ranhill-DDFC Consortium and hereinafter referred to as the "Consortium") which was awarded a Works Contract No,HO/MAP/ CN-01/2004) by Pakistan Petroleum Limited for the engineering, procurement, construction, and commissioning of its Adhi LPG/NLG Plant II Project (hereinafter referred to as the "Project"). ' On 10-9-2005 the Consortium entered into a subcontract with the plaintiff hereinafter referred to as the "Subcontract" pursuant to which the plaintiff undertook to carry out certain insulation works for the project. A copy of the subcontract is attached as Annexure "C" to the plaint. ' According to the plaintiff, on or about 25-5-2006 an order for the supply and installation of polyurethane insulation at the project was placed on it by another company, Steiner- Prematechnic-Gastee GumbH (hereinafter referred to as "SPG"). The documents filed by the plaintiff in respect of this order are copies of SPG's letter of 26-5-2006 and SPG's purchase order of 6-4-2006 addressed to the plaintiff (Annexures "E-1" and "E-2" to the plaint). ' While the plaint itself does not make it clear, during the hearing learned counsel for the plaintiff confirmed that SPG had been awarded a contract for certain works at the project by the defendant No,3 and the order placed by SPG on the plaintiff was in connection with SPG's contract with the defendant No,3. ' Accordingly, work to be performed by the plaintiff for the project pursuant to its agreement with SPG was separate and distinct from the work to be performed by the plaintiff for the project under the subcontract. ' The disputes sought to be referred to arbitration by the plaintiff are the plaintiff's claim for the sum of Rupees 9,476,578.16 said to be due and payable under the subcontract and Rupees 2,581,646M5 said to be due and payable under its agreement with SPG. ' SPG has not been joined as a defendant but the amount said to be due and payable under the agreement with SPG is claimed from the Consortium. The basis for this is the plaintiff's assertion that by its letter dated 8-11-2006 the Consortium informed the plaintiff that it (the Consortium) had "decided to take over the work of SPG." ' The Consortium's letter dated 8-11-2006 is attached as Annexure "F" to the plaint and reads as follows:--
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' Refer to our tele-conversation on 7-11-2006 regarding the remaining work on Gastec Skid. We decide to "take over" and complete that work. ' After discussion with your site supervisor and the attached work sheet provided by your team at site. ' Please provide us the firm quotation and delivery time to finish the works. ' An examination of the pleadings on file discloses that the Consortium has denied any liability and that the denial predates the institution of the suit. ' As far as the dispute regarding the amount claimed under the subcontract is concerned, the parties' arbitration agreement in respect of disputes and differences arising out of the subcontract is set out in its clause 22 which reads as follows:-- 22.0 Disputes and Arbitration 22.1 In the event that there is a dispute or difference concerning the formation, existence, validity, performance, interpretation or termination of this subcontract or otherwise arising out of or in connection with this subcontract in any manner whatsoever, either party may give written notice to the other party specifying in detail the subject matter thereof and requiring that it be considered a dispute or difference within this clause 17[sic]. 22.2 After service of such notice, the parties shall have thirty (30) days to endeavor to settle the dispute or difference by mutual negotiation and agreement. If the parties failed to settle the same within that period, the dispute of [sic] difference shall be submitted to arbitration in Karachi, Pakistan before a penal of two (2) arbitrators, one to be appointed by each party of such difference/dispute, and to an umpire to be appointed by the arbitrators. The umpire must be a retired judge of a High Court or the Supreme Court of Pakistan. The arbitrators and umpire shall together proceed to adjudicate the dispute in accordance with the Pakistan Arbitration Act or [sic] 1940, as amended from time to time. The award shall be final and binding on the parties. ' As opposed to the foregoing, there is no arbitration agreement between the plaintiff and the Consortium relating to the amount claimed under the plaintiff's agreement with SPG. ' During the course of the hearing on 25-3-2009 learned counsel for the plaintiff conceded that this was the case but asserted that the words "take over and complete" the works that were to have been performed by SPG meant that the Consortium had agreed to take over all of SPG's obligations including SPG's obligation to pay amounts due from it to the plaintiff. ' Learned counsel submitted further that the effect of doing so was that the dispute regarding the amount claimed from SPG was also capable of being referred to arbitration pursuant to the arbitration agreement contained in the subcontract. ' I am afraid I am unable to agree with learned counsel's submission as to the effect of the 'take over' by the Consortium of the words that were to have been done by SPG. ' How and why the Consortium took over the works that were to have been performed by SPG has not been disclosed. ' The only documents of the record relating to SPG and the plaintiff are SPG's letter of 26-5-2006 and purchase order of 6-4-2006. Neither contains any agreement to arbitrate disputes between SPG and the plaintiff. ' Thus, even if it were correct that the take over by the Consortium had the effect of making the Consortium liable for payments due from SPG to the plaintiff, any dispute between the plaintiff and the Consortium in respect of such payments cannot be referred to arbitration under the arbitration agreement contained in the subcontract. ' The only dispute or difference that can be brought to arbitration pursuant to the arbitration agreement in the subcontract is a "dispute or difference concerning the formation, existence, validity, performance, interpretation or termination of this subcontract or otherwise arising out of or in connection with this subcontract in any manner whatsoever".
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' While these words are indeed expansive, they do not in my opinion cover any dispute or difference arising out of the plaintiff's contract with SPG notwithstanding that the Consortium may have taken over the remaining work on the Gastec Skid. ' Accordingly, and provided that the conditions that have to be met before a section 20 application may be granted have been met in this case, the only dispute that can be referred to arbitration is the dispute regarding the claim of Rupees 9,476,578.16 said to be due and payable to the plaintiff under the subcontract. ' The conditions that have to be met before a section 20 application may be granted are as follows:-- (a) that there should be a pre-existing arbitration agreement between the parties; (b) that the parties should not have taken any steps under sections 3 to 19 of the Arbitration Act prior to the institution of the section 20 application; (c) that differences or disputes have arisen between the parties to which the arbitration agreement applies; (d) that the section 20 application is not barred by limitation, and (e) that the Court to which the section 20 application has been made has jurisdiction in the matter to which the agreement relates. ' As noted above, the parties' arbitration agreement is set out in clause 22 of the subcontract. In so far as is pertinent for the purposes of this case, sub-clause (22.1) provides that if there is a dispute or difference arising out of or in connection with the subcontract, either party may give written notice to the other party specifying in detail the subject matter thereof and requiring that it be considered a dispute or difference within clause 22. ' During the course of the hearing learned counsel for the Consortium argued that the notice provided for in sub-clause (22.1) as well as the requirement that the parties attempt to settle the dispute or difference in accordance with sub-clause (22.2) were conditions precedent to arbitration and the section 20 application was premature since the sub-clause (22.1) notice had, been served by the plaintiff and no settlement negotiations were held by the parties either. ' This was one of the preliminary legal objections taken by the Consortium in their written statement. The others were that the suit was not maintainable for joinder of different and distinct causes of action and is liable to be dismissed unless the plaint is amended; the suit is not maintainable as the defendants are carrying on business and the cause of action, if any, arose outside the territorial jurisdiction of this Court; the suit is not maintainable for non-joinder of SPG; and the suit is not maintainable since each of the companies constituting the Consortium has not been made a party to the suit. ' I shall deal first with the preliminary objections set out in the written statement since they relate to the maintainability of this suit and the jurisdiction of this Court to entertain the same. ' As far as the objection that the suit is liable to be dismissed for joinder of different and distinct causes of action is concerned, it is to be noted that within the context of an application under section 20 of the Arbitration Act all that the plaintiff needs to establish is the existence of an arbitration agreement between the parties and prima facie existence of a dispute between them that is capable of being referred to arbitration in accordance with their agreement. If this burden has been discharged, and provided the other conditions set out above have been met, an order granting the application will follow. ' As already noted above, the plaintiff's dispute regarding the amount claimed under its agreement with SPG cannot be referred to arbitration under its arbitration agreement with the Consortium. Since the plaintiff's prayer that this dispute also be referred to arbitration with the Consortium cannot be granted, the fact that this relief was sought is immaterial since the mis-joinder, if any, is not fatal and cannot be said to have occasioned any material prejudice to the Consortium.
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' The Consortium's contention that the suit is not maintainable since each of the companies constituting the Consortium has not been made a party to the suit is, to my mind, also immaterial in the circumstances of this case since all of the companies constituting the Consortium have entered appearance and have contested these proceedings. Their incorrect description in the plaint has not resulted in any prejudice and cannot be ,tie basis of forming the view that the suit is not maintainable. A similar objection is also taken on the ground that SPG is not a party to these proceedings. In view of the finding above regarding the amount claimed from SPG, this objection too has no merit. ' Of the preliminary objections raised by the Consortium, only two require serious consideration. The first is that the notice requirement of sub-clause (22.1) of the arbitration agreement has not been complied with. The second is that this Court has not jurisdiction to entertain this application since the defendants carry on business and the cause of action, if any, arose outside the territorial jurisdiction of this Court. ' Sub-clause (22.1) provides that if there is a difference or dispute within the meaning of that clause, either party may give written notice to the other specifying in detail the subject matter thereof and requiring that it be considered a dispute or difference within "this clause 17". To my mind the reference to clause 17 is clearly a typographical error in view of the fact that the reference is to "this clause 17" and the fact that clause 17 of the subcontract deals with warranties. ' The Consortium's submission that the sub-clause (22.1) notice and the sub-clause (22.2) attempt to settle are conditions precedent to arbitration appears to have merit when one considers the first two sentences of Sub-clause 22.2 which provide that after the notice has been issued the parties shall have 30 days to endeavor to settle the dispute or difference by mutual negotiations and it is only if the parties fail to settle the same within the 30 day period than the dispute or difference shall be submitted to arbitration. ' Sub-clause (22.1) does not specify the form in which the notice must be sent. All that it requires is that the party issuing the notice must specify the subject matter thereof in detail and that the notice should require that the dispute or difference be considered a dispute or difference within sub-clause (22.1). ' During the course of the hearing learned counsel for the plaintiff referred to Annexure "J" to the plaint and submitted that the plaintiff's emails of 5-3-2007 and 6-3-2007 are the sub-clause (22.1) notices issued to the Consortium. ' Both emails are addressed to the Consortium. The email of 5-3-2007 reads as follows:-- ' The situation is getting desperate for us. Please release our payment immediately or else we shall have to seek legal means of recovering our dues. ' The email that was sent out on 6-3-2007 is even clearer. This reads as follows:-- ' We would like to inform you that if we do not receive full payment from you by the 15th March, 2007 we shall commence legal proceedings against you. This is an unfortunate situation and we are forced to adopt this path. ' To my mind the email of 6-3-2007 is in full compliance with the requirements of sub-clause (22.1). Reading it would have left the Consortium in no doubt as to the dispute or difference to which it related and also the legal proceedings that would be commenced if payment was not made by the specified time. ' Following this notice there are copies of emails dated 7-3-2007, 12-9-2007, and 19-10-2007 which clearly establish the parties attempted to settle this dispute as required by sub-clause (22.2). ' Having found as above, the only thing left for consideration with respect to the Consortium's first objection is whether the subcontract requires notices issued under it to be sent in a particular manner. The relevant provision in regard is Sub-clause 20.1. This provides that every notice or correspondence required for the performance of the Works shall be delivered either by personal
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delivery or prepared courier addressed to the party for whom it is intended at the address set out in sub-clause (20.1). The addresses set out in sub-clause (20.1) are only those of the Consortium. ' From a plain reading of this provision it is clear that the requirement is only in respect of notices or correspondence issued by the plaintiff to the Consortium for the performance of the works. ' The terms "Works" is defined in the subcontract as "the scope of the insulation works to be performed by the subcontractor in relation to the project and the supply of manpower, equipment and materials or goods. " ' Given the foregoing, there is clearly no requirement that the sub-clause (22.1) notice should also comply with the requirements of sub-clause (20.1). ' The second objection raised by the Consortium is that this Court does not have jurisdiction to entertain this application. This objection is based on two grounds: (1) That the Consortium members carry on business and the cause of action, if any, arose' outside the territorial jurisdiction of this Court; and (2) that the parties had agreed Karachi as the venue of arbitration proceedings and a Court which does not have jurisdiction cannot be conferred with jurisdiction by agreement of the parties. ' In support of the first leg of this submission learned counsel for the Consortium relied upon the fact that the address given for them in the 'plaint is a Lahore and an Islamabad address and the fact that the project was located, and all work was performed, in Chakwal near Rawalpindi. ' In response, learned counsel for the plaintiff drew my attention to sub-clause (20.1) of the subcontract which gives a Karachi address House C-6, Street No,3, Bath Island, Karachi for notices and correspondence to be sent to one of the Consortium members, Ranhill Berhad. This is the same address that appears on the Consortium's letter dated 8-9-2005 awarding the subcontract to the plaintiff which was signed by Mr. C. H. Jones on behalf of the Consortium. ' Learned counsel also drew my attention to the acknowledgement form executed by the plaintiff which is attached to the plaint as Annexure "B". This form is dated 10-9-2005 and is printed on the same stationery as the letter of award bearing the Karachi address. ' Learned counsel further submitted that the subcontract is also dated 10-9-2005; bears the stamp of the plaintiff with the inscription "Pakistan Insulations (Pvt.) Ltd., Karachi" on each page; and was executed on behalf of the Consortium by Mr. Jones; all evidencing that the subcontract was signed by the parties in .Karachi. ' For the second leg of his submission learned counsel for the Consortium relied on four cases in support of his submission that this Court does not have any jurisdiction to entertain this suit since jurisdiction cannot be conferred by agreement. ' The first of these is Ali Muhammad v. Muhammad Shafi PLD 1996 SC 292. The question for determination in this case was what the position in law is when a Court entertains a suit or an appeal over which it had no jurisdiction, and what the effect of section 11 of the Suits Valuation Act, 1887 is on that position. ' This question arises within the context of the Suits Valuation Act when a Court that had no jurisdiction over a suit or an appeal, had exercised it by reason of over or under valuation. In determining this issue the Honourable Supreme Court observed, on page 297 of the judgment, that: "It is a well settled principle of law that if a Court has no jurisdiction to entertain a case or an appeal, the consent of the parties cannot confer such jurisdiction on that Court. However, section 11 of the Suits Valuation Act (hereinafter to be referred as the Act only), is an exception to this well established principle of law." ' The other cases relied upon by the learned counsel for the Consortium, namely, Pir Sabir Shah v. Shad Muhammad Shah, Member Provincial Assembly N.W.F.-P PLD 1995 SC 66; Dr. Salahuddin v. Revenue Commissioner, Balochistan PLD 1978 Quetta 61; and Mian Nawaz Sharif v. Sardar Farooq
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Ahmad Khan Laghari 1996 CLC 1714 also recognize the same proposition: that a Court that does not have jurisdiction cannot be conferred with jurisdiction by consent of the parties. ' In response learned counsel for the plaintiff submitted that this objection is misconceived in the circumstances of this case considering the fact that one of the defendants resides and works for gain at Karachi; a part of the cause of action arose at Karachi since the subcontract was entered into at Karachi; and also that the parties' arbitration agreement provides for the arbitration proceedings to be held at Karachi. In support of his contention on the issue of jurisdiction learned counsel for the plaintiff placed reliance on the judgments in State Life Insurance Corporation of Pakistan v. Rana Muhammad Saleem 1987 SCMR 393; Kadir Motors (Regd.) Rawalpindi v., National Motors Ltd., Karachi 1992 SCMR 1174 and Chaudhry Mehtab Ahmed v. Mir Shakeel-ur-Rehman 2004 MLD 662. ' The judgment in each of these cases is based upon the applicability of sections 9 and 20 of the Code to its facts and considers whether choosing to refer disputes to one of several Courts having jurisdiction violates the provisions of section 28 of the Contract Act. ' In the State Life Insurance Corporation case a suit had been instituted in Faisalabad for the recovery of a certain sum of money payable under a Special Survival Policy issued jointly in the name of the respondent and his wife which provided that it would mature on the death of either. ' The respondent's wife had been medically examined in Faisalabad before the issuance of the policy; premium payments were made by the respondent at the insurance company's office in Faisalabad; and the respondent's wife had expired in Faisalabad. ' Asserting jurisdiction on these facts, the respondent instituted recovery proceedings in the Civil Court at Faisalabad when the insurance company failed to pay. Jurisdiction was contested by the insurance company on the basis of a clause in the policy which recorded the parties' agreement that all disputes arising out of the policy shall be adjudicated only by the Civil Court at Lahore. ' The question of jurisdiction was framed as a preliminary issue by the Civil Court at Faisalabad and decided against the insurance company. This determination was challenged in the Lahore High Court, Lahore by way of a revision petition which was also decided against the insurance company. On appeal the Honourable Supreme Court found in favour of the insurance company and held as follows on page 395 of the judgment:-- ' We have considered the arguments of the learned counsel for the parties. Under section 9 of the Code of Civil Procedure the civil Courts have jurisdiction to try all suits of a civil nature excepting the suit of which their cognizance is either expressly or impliedly barred. Under section 20 of the Code of Civil Procedure every…
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