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Petitioner: AHMED KULI KHAN KHATTAK VS Respondent: CREEK MARINA (SINGAPORE) PVT. LTD. through Chief Executive Officer and 5 others
Court Name: Sindh High Court Judge(s): Munib Akhtar Title:AHMED KULI KHAN KHATTAK vs CREEK MARINA (SINGAPORE) PVT. LTD. through
Chief Executive Officer and 5 others Case No.:Suit No,911 and C.M.A. No,7630 of 2011 C.M.A. No,7630 of 2011 M.A. No,7630 of 2011 Date of Judgment:2012-02-24 Reported As: 2012 CLD 879 Result: Application allowed Judgment ORDER ' MUNIB AKHTAR, J.---By means of the present suit; the plaintiff seeks specific performance (and attendant declaratory and injunctive relief) in respect of a share purchase contract dated 22-2- 2011. The contract was entered into between the plaintiff and two other individuals as buyers, and the defendant Nos.1 and 2 as sellers, whereby the latter agreed to sell the entire shareholding of the defendant No,3, comprising of 885,020 shares, to the former for a total sale consideration of USD 13.5 million. By means of the application presently under consideration, the plaintiff seeks interim injunctive relief. The suit and the application come before the Court in the circumstances herein after stated. 2. The defendant No,4, a Singaporean Company ("Meinhardt") and the defendant No,6 ("DHA") entered into an agreement (amended subsequently) on or about 27-9-2004 for the construction of a massive multi-tower residential complex, to be known as the "Creek Marina" project ("the project"). Essentially, the land was to be provided by DHA; while Meinhardt was to be responsible (as per the recitals of the agreement) for the "design, construction, development, marketing and financing" of the project. As presently relevant, the agreement envisaged the setting up of a special purpose vehicle (SPV), a Pakistani company, to' carry out the project. This SPV is the defendant No,3 ("Creek Marina Pakistan" or "CMP"), a private limited company registered under the Companies Ordinance, 1984. The entire shareholding in Creek Marina Pakistan is held by the defendant No,1 (a Singaporean Company) and (to a minor extent) the defendant No,2 (an individual). These defendants are intimately associated with Meinhardt.
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3. For reasons not necessary to consider in detail, the project ran into certain difficulties, which led to a. Space of ion, with many suits being filed in this Court by not parties. Certain differences also arose between Meniaardt, CMP and others on the one hand and DHA on the other, which led to the filing of Suit 525 of 2011 by the latter (titled Defence Housing Authority u. Creek Marina (Put.) Ltd. And others). An application, for interim relief was made in the suit, and came up for hearing before me, and was disposed of by an order dated 15-7-2011. That order can provide some useful background information, since in certain ways the dispute in that suit serves as the backdrop to the present suit. However, it is not necessary to restate those matters in full detail, which are to the extent required, adverted to in the paras below. 4. On or about 22-2-2011, the defendants Nos.1 and 2 ("the sellers"), as holders of the entire shareholding of CMP entered into the share purchase contract ("the Agreement") described herein above with the plaintiff, Mr. Aftabuddin Qureshi and Mr. Muhammad Maouz Lone. In brief, the plaintiff's case is that although part payment has been made for the shares, the sellers have refused to finalize the transaction in breach of their obligations under the Agreement. On this basis, specific performance of the Agreement is sought along with certain declarations and injunctions, as well as interim injunctive relief. The sellers on the other hand contend that it is the buyers who are in breach of their obligations under the Agreement and are not entitled to any relief, whether final or interim. 5. For ease of reference, the -relevant provisions of the Agreement are set out in para 18 below. 6. Learned counsel for the plaintiff, in support of his case, referred to clause 4 of the Agreement, the payment clause, and stated that of the USD 13:5 million payable for the shares, the clause itself gave credit for USD 750,000 already paid as on the date of the Agreement. A further sum of USD 750,000 was payable on the signing of the Agreement, and that had been paid. A sum of USD 1.5 million was payable by or before 30-4-2011 and that payment had also been made. Thus, the total amount paid was USD 3 million, leaving a balance of USD 10.5 million. This was payable in two instalments, also as set forth in clause 4. A cheque in the sum of USD 2 million and postdated to not later than 30-6-2011 was to be handed over to the sellers by or before 15-4-2011, and likewise a cheque (or cheques) totaling USD 8.5 million and postdated to not later than 30-3-2012 had to be handed over to the sellers by or before 30-4-2011. Admittedly neither of these obligations had been met, but learned counsel contended that that was because of breaches by the sellers of their obligations under the Agreement. 7. Learned counsel referred to clause 2 of the Agreement, which provided that in order to improve the marketability of the project, the buyers proposed certain changes therein, subject to the approval of DHA. The changes envisaged were the construction of an additional tower, and two additional levels in each tower as already proposed for the project. Clause 2 specifically provided that it was the sellers' responsibility to obtain DHA's approval, but if they were unable to do so, clause 7 was to apply. The latter clause stated that if the sellers were unable to obtain the necessary approval, then upon notice by them to the buyers, the latter could try and obtain approval from DHA. If they failed to obtain the approval within 10 days of the notice, the Agreement was to be "deemed" cancelled and any sum payable by the buyers thereunder was to be returned by the sellers "free of interest, save any sums paid prior to this Agreement" 8. Learned counsel referred to a letter dated 1-4-2011 received by Mr. Aftabuddin Qureshi, one of the buyers, from the defendant No, 1. This letter made specific reference to the Agreement, and asked that USD 250,000 be "advanced" to one Mr. Ashgar Ali Shah "to assist in defraying his costs and expenses in respect of the Project". The letter stated that in case the share purchase transaction was not completed, the sum would be returned by the defendant No, 1. The letter itself was copied to Mr. Shah. Learned counsel submitted that this letter came as a complete surprise to the buyers. There was no reference to Mr. Shah in the Agreement nor was there any obligation therein to make
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any such payment to any person. Thereafter, another letter dated 9-4-2011, this time addressed to all three buyers and copied as before to Mr. Shah, was also received from the defendant No, 1. Again, the letter was with specific reference to the Agreement. Both letters were signed on behalf of the defendant No,1 by the defendant No,2. The second letter expressed concern over certain meetings held between the buyers and DHA, and in paragraphs 2 to 5 stated as follows:--- "(2) We note with concern that despite various meetings between the Buyers and the DHA, the Buyers have not been able to satisfy the DHA of the Buyers' credibility to takeover and complete the Creek Marina Project. The DHA has informed the Vendors of their assessment of the Buyers. (3) There is now much doubt as to whether the Buyers are in position to complete the SPA in accordance with the milestones pursuant to clause 4 of the SPA. It is implicit under the SPA that unless DHA sanctions the Buyers to take control and run the Project, the milestones under the SPA cannot be achieved. (4) The Vendors would therefore urge you to use your best endeavors to re-engage the DHA further and provide all necessary co-operation and information to the DHA in order for them to make an evaluation in your favour if the Buyers are unable to convince the DHA of their suitability, it is inevitable that the SPA cannot be completed. (5) Please let us know what steps the Buyers are taking to allay the Vendors reservations on the matter." 9. Learned counsel contended that while the buyers did have meetings with DHA, at no stage where they given any indication that they were in any manner unsuitable for any purpose connected with the project. In any case, this ground was wholly extraneous to the Agreement. The Agreement did not require the buyers to have themselves "approved" by DHA, nor were the sellers' obligations thereunder contingent upon any such approval. Even the agreements between Meinhardt and DHA relating to the project and/or between DHA and CMP did not require any approval from DHA regarding a transfer of the shareholding of CMP. Learned counsel contended that the ground taken in the letter of 9-4-2011 was simply an excuse being developed by the sellers to somehow wriggle out of their obligations under the Agreement. Learned counsel also submitted that the buyers refused to make any payment to Mr. Shah. 10. The next letter referred to by learned counsel was that dated 9-5-2011 from the 'defendant No,1 addressed to all three buyers. The letter referred to the earlier letter dated 9-4-2011, and then stated as follows:-- "(2) As you are aware the DHA have on 2 April, 2011 rejected the Buyers consortium. They stated as follows:-- "Our detailed meeting with the above three individual has concluded with the DHA finding them to be unsuitable for taking over the development of the Creek Marina Project. They neither have the required financial' resources to restart the project, nor the technical and managerial capability to deliver the Project." (3) The Buyers have also:-- (i) failed to make payment of the sum of US$1,500,000 or its equivalent in Pakistan Rupees on or before 30 April 2011 pursuant to Clause 4.A.(ii) of the SPA; (ii) failed to deliver a post-dated cheque in the sum of US$ 2,000,000 its equivalent in Pakistan Rupees to the Vendors on or before 15 April, 2011 as stated in clause 4.A.(ili) of the SPA. (4) Kindly take notice that the Buyers are required to obtain approval of the DHA pursuant to clause 7 of the SPA. Kindly treat this letter as the Notice. However, in view of the rejection of the Buyers by the DHA, it is unlikely that the DHA will give the approval envisaged under clause 7 of the SPA (5) All of the Vendors rights and remedies are hereby reserved." (Emphasis in original). 11. Learned counsel submitted that this letter, read in the light of the earlier correspondence clearly established the sellers' breach. He contended that the alleged non-payment of USD L5 million as
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referred to therein was completely incorrect; that amount had been paid. The repeated references to approval by DHA were also entirely beyond the scope of the Agreement. In any case, he submitted that the buyers were willing to take the shareholding at their own risk and peril even without any DHA approval. As regards the non-delivery of the cheque for USD 2 million, learned counsel contended that the cheque had not been sent since the sellers were in breach of their obligations under the Agreement. In this regard he referred to clause 8.5 of the Agreement. This required the sellers to ensure that the proceeds of certain bank guarantees that had been given by contractors engaged for the project, and which were the subject matter of litigation, would be "released" to CMP upon resolution of the dispute He submitted that the encashment of the guarantees had been permitted by the Court by an order dated 22-3-2011 (and reported as Guandong Overseas Construction Group Company Ltd. v. Creek Marina (Pvt.) Ltd. PLD 2011 Karachi 304; 2011 CLC 648). However, instead of the money being placed in CMP's bank account, an attempt had been made to spirit it away, and place it elsewhere. This attempt had triggered the suit (the aforementioned Suit 525 of 2011) filed by DHA (on 14-4-2011). This was in clear breach of the Agreement. He submitted, relying on Seth Essabhoy v. Saboor Ahmed PLD 1972 SC 39, that in a suit for specific performance, if the defendant was in breach of his obligations under an agreement, then it was not necessary for the plaintiff to show that he was ready and willing to fulfil his part of the bargain as on the date of the filing of the suit. 12. Learned counsel further submitted that the letter of 9-5-2011 also stated that it was the notice required to be given by the sellers to the buyers pursuant to clause 7 of the Agreement. It will be recalled that that clause related to clause 2, and to the sellers' obligation to obtain approval from DHA with regard to certain modifications in the project. Learned counsel submitted that clause 7 had in fact been inserted in the Agreement for the buyers' benefit, and it was for them to waive or forgo the same. The buyers were content to take the shares of CMP even without any modification in the project as envisaged in clause 2. Learned counsel submitted that instead of fulfilling their obligations under the Agreement, the sellers had, after the letter of 9-5-2011, sent a letter dated 24- 5-2011 to all three buyers, again copied to the aforementioned Mr. Shah, stating that the Agreement stood cancelled "With immediate effect" by reason of the buyers not having complied with clauses 4 and 7 thereof. As regards Mr. Shah, learned counsel submitted that no explanation 'had at all been given by the sellers in the counter affidavit as to why or how any payment was to be made to him. 13. Learned counsel also submitted that the transaction came within the purview of the Sale of Goods Act, 1930 ("1930 Act") since shares were expressly included in the definition of "goods" given in section 2(7) thereof. Learned counsel contended that section 20 of the 1930 Act was applicable to the facts and circumstances of the present case, and as therein provided, the property in the shares had passed to the buyers as on the date of the Agreement. He contended that all the ingredients for interim injunctive relief were in place in favour of the plaintiff, and prayed that the application be allowed. It may be noted that the interim relief sought by the plaintiff is for an order against the defendants Nos.1 to 5:-- ... Restraining them from selling or transferring the 885,020 shares of defendant No,3 and/or creating third party right and interest in the said 885,020 shares and further from creating lien, charge, pledge on the same in any manner whatsoever". 14. Learned counsel for the defendants Nos.1 to 5 strongly opposed the application and prayed that it be dismissed. (It may be noted that DHA, the defendant No, 6, though represented in the matter, did not file any counter affidavit.) Learned counsel, relying on section 45 of the Contract Act, 1872, took a preliminary objection to the maintainability of the suit. He submitted that of the three buyers party to the Agreement, only one had filed the instant suit and the other two had not been joined as parties,. Even as defendants. All three were however jointly interested in and party to the
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Agreement. The plaintiff alone was not entitled to the grant of specific performance (which was in any case denied on the merits) and thus to any injunctive relief, whether final or interim. The suit was liable to be dismissed. Learned counsel also contended that section 20 of the 1930 Act had no application at all in the facts and circumstances of the case, and property in the shares had not passed to the buyers. 15. Learned counsel submitted that the buyers were in breach of their obligations under the Agreement, since admittedly payment of the sale consideration had not made in the manner as envisaged. He submitted that while credit for USD 750,000, and payment of another such sum on the signing of the Agreement was admitted by the sellers, no other payment had been made at all. In particular, the payment of USD 1.5 million, due by 30-4-2011, which the plaintiff claimed had been made, was denied. Learned counsel' submitted that no material showing any such payment had been produced before the Court. This was the main reason and ground why notice had been given to the buyers on 24-5-2011 that the Agreement stood cancelled with immediate effect. Learned counsel submitted that although the approval of DHA was not expressly provided for in the Agreement, it was understood that the transaction could not move forward without DHA's approval, and if necessary, such a term ought to be implied in the Agreement. Furthermore, the buyers were not at all interested in acquiring the shareholding without the project being modified in terms as stated in clause 2, and it was only an afterthought that they were now willing to abandon any such claim. No approval however was forthcoming from DHA. With regard to the defendant No,1 's letter dated 9-4-2011 learned counsel submitted that no denial as such was ever made that the share transaction was not subject to DHA approval. With regard to the letter dated 9-5-2011 learned counsel submitted that again, there was no denial as such with regard to the matter relating to DHA approval. As regards clause 2, learned counsel submitted that the sellers did attempt to fulfil their obligations thereunder (regarding modifications to the project), but the DHA approval was not forthcoming. However, he emphasized that the payment obligations under clause 4 were not conditional upon the fulfillment or outcome of the sellers' obligations under clause 2. The payment obligations were to be fulfilled in the manner as envisaged and according to the timeline as provided in clause 4 and the buyers had manifestly failed in this regard. 16. Learned counsel also submitted that clause 7 of the Agreement was not for the benefit of the buyers alone. It enabled either or both sides to walk away from the Agreement if the project was not modified as envisaged in clause 2. Learned counsel contended that the buyers never wrote back to the letter of 9-5-2011 claiming that the sellers had failed to fulfill their obligations under clause 2 or that the buyers' payment obligations under clause 4 were linked to that clause and had been stopped on account of the sellers' alleged failure thereunder or that the buyers were waiving their rights under clause 7. All of these contentions were now being advanced for the first time to somehow get around and justify the buyers' failure to make payment, which was their fundamental and basic obligation under the Agreement, Learned counsel emphasized that the sellers were never in breach of their obligations under the Agreement. Finally, as regards Mr. Shah, learned counsel submitted that nothing turned on the request made by the defendant No,1 for payment of USD 250,000 to him by way of a (refundable or adjustable) advance. A request was made by the sellers that was turned down by the buyers and that was all there was to it. Learned counsel submitted that the plaintiff was not entitled to any specific relief with regard to the Agreement, had come to Court with unclean hands and had failed to make out any case for interim relief. The application therefore merited dismissal. 17. Exercising his right of reply, learned counsel for the plaintiff referred to an order, dated 16-8-2011 that had earlier been made by me in the suit. On that date, it had appeared to me on the basis of submissions by learned counsel for the parties that it was possible that there could be a negotiated settlement of the dispute. I had accordingly directed the contesting defendants to
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make, through learned counsel, an offer to the plaintiff for his consideration. That offer was made through learned counsel's letter dated 29-8-2011. Learned counsel for the plaintiff drew attention to this letter, in which the plaintiff was asked to deposit a sum of USD 10.5 million. Learned counsel contended that this figure was understandable only if the plaintiffs case regarding payments were accepted; otherwise, the figure ought to have been USD 12 million. This in itself was sufficient to show that payments had been made as claimed by the plaintiff. 18. I have heard learned counsel as above, examined the record with their assistance and considered the case-law relied upon by them. In the first instance, it will be convenient to gather in one place the relevant provisions of the Agreement. These are as follows:-- "2. PROPOSED CHANGES IN PROJECT: To improve the marketability of the Project, the Buyers propose the following changes to the Project subject to approval from the Pakistan, Defence Housing Authority, Karachi, Pakistan ("DHA"): (1) Construction of an additional tower; and (2) Implementation of 2 additional levels to each tower The Vendors will be responsible to obtain the necessary approvals from the DHA. In the event the Vendors are unable to obtain the approvals from DHA then clause 7 hereunder shall apply. 3. AGREEMENT TO SELL AND PURCHASE SHARES Subject to the terms and conditions or this Agreement, the Vendors shall sell and the Buyers shall purchase the Shares on an as is basis where is basis [sic], with all rights and liabilities attaching thereto on a willing buyer and willing seller basis. 4. CONSIDERATION ' Subject to the terms of this Agreement, the consideration for the purchase. Of the Shares shall be the sum of United States Dollars Thirteen Million Five Hundred Thousand [US$13,500,000] [the "Sales Pricel- for all the Shares. The Vendors are on a without prejudice basis' prepared to give credit for a sum of US $ 750;000 paid earlier by the Buyers. The Sale Price shall be paid in the following manner: (i) The sum of United States Dollars Seven Hundred and Fifty Thousand [US $ 750,000] or its equivalent in Pakistan Rupees, in favour of Creek Marina (Singapore) Pte Ltd. Or its designate, shall be paid by the Buyers upon the signing of this Agreement. (ii) The sum of United States Dollars One Million Five Hundred Thousand (US $ 1,500,000) or its equivalent in Pakistan Rupees, in favour of Creek Marina (Singapore) Pte Ltd. Or its designate shall be paid by the Buyers on or before 30 April 2011. (iii) The Buyers will deliver to the Vendors a post-dated cheque in the sum of United States Dollars Two Million (US $ 2,000,000) or its equivalent in Pakistan Rupees, on or before 15 April 2011 in favour of Creek Marina (Singapore) Pte Ltd.. Or its designate payable on or before 30 June 2011. (iv) The Buyers will also hand over a postdated cheque or cheques on or before 30 April, 2011 to the Vendors in the sum of United States Dollars -Eight Million Five Hundred Thousand Dollars (US $ 8,500,000) or its equivalent in Pakistan Rupees issued by Mr. Ahmed Kuli Khan Khattak in favour of Creek Marina (Singapore) Pte. Ltd. Or its designate payable on or before 30 March, 2012. This post- dated cheque(s) shall' be secured by a joint affidavit (in a form to be approved by the Vendors) from the Buyers that the said postdated cheque(s) will not be cancelled, dishonored, withdrawn and that no stop payment shall be issued for any reason whatsoever in respect of the said cheque(s). ' For the avoidance of doubt the liability of the Buyers shall be joint and several. 5. Share transfer forms will be executed by the Vendors and board resolutions for appointment of new directors by the Buyers will be carried out upon clearance of the said cheque for US $ 2,000,000 in paragraph 4A(iii) above at the business address of CMS. 6. Upon completion and filing and registration of the changes in the Securities and Exchange Commission of Pakistan, of the Shares transfer and appointment of new directors as stated in
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paragraph 5 above, the Buyers will be allowed access to the Project site for purposes of commencing construction on the site. 7. In the event the Vendors are unable to obtain DHA approval pursuant to clause 2 above or any other equivalent changes approved by the DHA, then upon notice by the Vendors that the Buyers obtain approval of the DHA within ten (10) days of the date of the said 'notice and the Buyers are unable to do so, then this Agreement shall be deemed cancelled and any sum paid by the Buyers under this Agreement shall be returned to the Buyers free of interest, save any sums paid prior to this Agreement. 8.5 Copy of the Bank Guaranfees of Guangdong Overseas Construction Group Company Limited within 14 days of receipt of the signed Agreement from the Buyers. The proceeds of the said Bank Guarantees will be released to the Company once the matter has been resolved by the Court. 9. TRANSFER A. Subject as hereinafter provided, the transfer of the Shares shall take place at the business address of CMS upon receipt of the partial Sale Price of United States Dollars Five Million (US$5,000,000) by the Vendors pursuant to clauses 4.A.(i), 4.A.(ii) and 4.A(iii) above. B. On the date of transfer of the Shares the Vendors will deliver and procure to deliver to the Buyers:- (1) Duly executed transfers in favour of the Buyers or as…
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