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Petitioner: GUANGDONG OVERSEAS CONSTRUCTIONGROUP COMPANY LTD. through GeneralManager VS Respondent: CREEK MARINA PRIVATE LIMITED and 2 others
Court Name: Sindh High Court Judge(s): Maqbool Baqar Title:GUANGDONG OVERSEAS CONSTRUCTIONGROUP COMPANY LTD. through
GeneralManager vs CREEK MARINA PRIVATE LIMITED and 2 others Case No.: Suit No,701 and C.M.As.4358, 4359 of 2008 Date of Judgment:2011-03-12 Reported As: 2011 CLD 648 Result: Order accordingly Judgment ORDER ' MAQBOOL BAQAR, J.---Through this order, I propose to dispose of C.M.A. No, 4358 of 2008, filed by the plaintiff, under section 41 of the Arbitration Act 1941. ' The relevant facts of the plaintiff case, in brief, are that the plaintiff, a construction company, on or about 9-11-2006, made an offer for the construction, completion and maintenance of the main buildings works contract for the residential development of Creek Marinas, Karachi, at a price of Rs,10.568 billion. In response, defendant No, 1, the Employer, conveyed, its acceptance of the offer, vide letter of intent to award dated 19-11-2006, annexure-A to the plaint, page 45 (L.I.A). In terms of the aforesaid letter, the plaintiff was required to submit a performance bond in the sum of Rs,528,400,000 and insurance for the works and also mobilization advance bonds in the sum of PKR 835,000,000 for Phase 1, and PKR 595,000,000 for Phase 2 respectively. It is stated that as per the requirements contained in the contract documents, the plaintiff requested defendants Nos. 2 and 3 to furnish the following performance guarantee and mobilization guarantees in favour of defendant No,1:-- (1) Performance Guarantee Bank Guarantee dated April 12, 2007 for USD 5,125,250. (2) Mobilization Advance Guarantee (i) Bank guarantee dated April 20, 2007 for USD5,000,000. (ii) Bank Guarantee dated July 23, 2007 for USD3,780,432. ' It is claimed that the plaintiff duly mobilized to the site of work and established its camp for its workforce near the site. It also mobilized its plant and equipment for the effective execution of the work. There were delays in the release of Mobilization Advance on the part of the defendant No,1
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which obstructed smooth and expeditious mobilization by the plaintiff and this was duly notified by the plaintiff at the relevant time. According .To the plaintiff, the procedure for the payment of contract price by the defendant No,1 to the plaintiff was stipulated in clause 14 of the General Conditions. However, such agreed procedure was never followed. Instead a procedure alien to the understanding between the parties was adopted which generated lot of confusion and controversy between the parties. This, in turn, impacted the progress of work adversely, and caused delays in the execution of work at site. The defendant No,1 was obliged to enter into a contract agreement with the plaintiff in terms of sub-clause 1.6 of the General Conditions, whereas, clause 3 of the General Conditions provided for the appointment of an Engineer to carryout duties assigned to him in the contract. These duties included all duties of verifications, determination, certification and contract administration. Although the name of the Engineer was mentioned in the appendix of Tender viz. Meinhardt (Pakistan) Limited, however, the said Engineer never took up the assigned role and all powers/ duties of the Engineer were taken over by defendant No, 1, which was contrary to the contract. Despite repeated requests of the plaintiff, defendant No,1, in disregard and defiance of the aforesaid requirement of the General Conditions, ignored/refused to comply with the same and no contract agreement was executed between the parties. It is further contended that defendant No,1 approached defendant No, 2 in the first week of May, 2008, with a request for the encashment of the aforesaid performance guarantee and the mobilization advance guarantees, absolutely without any intimation. It is contended that the aforesaid attempted encashment of the guarantees against the above background of utter disregard for the obligations, voluntarily undertaken by the defendant No, 1 under the arrangement contained in the letter of intent to award dated 19-11-2006 (L.I.A) was a clear and indefensible case of repudiation of contract on the part of the defendant No, 1 and the plaintiff was left with no option but to accept the same. This was done by the plaintiff vide its letter dated 10-5-2008. It is further contended that the General Conditions contained a requirement of obtaining the decision from the Dispute Adjudication Board comprising of the Engineer. Defendant No, 1, however, failed to appoint the Engineer who alone, under the contract, was competent to administer the contract between the Employer and the Contractor. In the absence of such appointment the administration of the contract was throughout in suspension. It is further alleged that all the functions and powers vesting in the Engineer under clause 3 of the General Conditions were usurped/taken over by defendant No,1 in breach of the said provision. It is further contended that since the Engineer never took up the performance of the role assigned to him under clause 3 of the General Conditions the provisions in clause 20 of the General Conditions which could only be operated in the presence of a duly notified Engineer became redundant and unenforceable. The plaintiff was thus not obliged to seek recourse to sub-clauses 20.4 and 20.5 of the General Conditions and the disputes between the plaintiff and defendant No,1 thus become referable to arbitration under sub-clause 20.6 without recourse to the earlier sub-clauses 20.4 and/or 20.5 of the General Conditions. It was on the alleged facts and ground that the plaintiffs has sought a direction to the defendant to file the arbitration agreement in this Court, so that, the various disputes between the parties may be referred to arbitration as provided therein. ' Whereas, through the afore-noted C.M.A., the plaintiff has prayed for an order, restraining defendants Nos. 2 and 3 from entertaining or dealing with any request for encashment of the afore-noted three guarantees. ' Through their written statement, the defendant No, 1 submitted that the plaintiff has failed to identify as to what the alleged dispute in which the plaintiff is seeking to refer to arbitration. It is contended that since the plaintiff has himself accepted the repudiation of the contract by defendant No,1, there is no dispute between the plaintiff and defendant No, 1. As regards the bank guarantees, it is submitted that the same are independent contracts between the defendants Nos.1
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and 2 in respect of which the plaintiff is neither a party nor do the bank guarantees provide for arbitration. It is contended that in the circumstances, the plaintiff has no locus standi to bring any action in respect of the bank guarantees and that even otherwise any dispute regarding the same is not under the arbitration agreement, the suit is thus liable to be dismissed on this ground alone. It is submitted that clause 20.4 of the FIDIC Conditions of contract for construction, (annexure-B to the plaint), which constitute a part of the contract between the plaintiff and defendant No, 1 requires any dispute between the plaintiff and defendant No, 1 to be first referred to be Dispute Adjudication Board ("DAB") and that the DAB is required to render its decision within a period of 84 days. In the event of its failure to do so or in case either of the parties is dissatisfied by the decision of the DAB, either party in case of the former and the party dissatisfied in case of the latter may send a notice of dissatisfaction to the other party within 28 days after either the expiry of the 84 days period, or of receipt of the decision of the DAB. Whereas, clause 20.5 of the said Conditions requires the parties to attempt to settle the dispute amicably before commencement of arbitration and in case the parties agree not to attempt an amicable settlement then the dispute may be referred to arbitration on or after the fifty sixth day on which the notice of dissatisfaction was issued. It is submitted that the plaintiff has violated the said conditions by filing the instant suit without fulfilling the prerequisites as agreed upon by way of the said conditions and the suit is liable to be dismissed on this ground also. It is submitted that defendant No, 1 issued a letter of award dated November 19; 2006, which was duly accepted by the plaintiff by way of its acknowledgement at a formal contract signing ceremony thereby, forming a binding contract between the plaintiff and defendant No, 1. It is alleged that the plaintiff has maliciously withheld the production of the said contract with mala fide intentions. It is contended that the plaintiff is intentionally trying to mislead the Court by attempting to create a false impression that the said contract was merely an intention to enter into a contract agreement. Whereas, the last paragraph of the said contract/letter reads as follows:-- "Until a formal Contract is executed, your confirmation of acceptance hereof shall be a binding contract between you and the Employer." ' It is submitted that subsequent to the execution of the said contract, the parties mutually agreed to waive the requirement of executing any further contract, agreement, and/or any other documentation and that such mutual agreement of the parties is evident from the fact that the plaintiff never raised any such issue while the entire period of eighteen months the contract was in subsistence. However, the plaintiff has filed the instant suit only in an attempt to evade its legal obligations under the contract and to deprive defendant No, 1 of its lawful dues. It is submitted that the terms of the guarantees require payment to be made by defendant No, 2 to defendant No, 1, unconditionally, without reference to the plaintiff, on the first written demand, as may be seen from the relevant portions of the said guarantees. It is stated that the plaintiff was required to commence work on Phase I(a), I(b), and Phase II of the Project on February 1, 2007, April 1, 2007 and August 1, 2007 respectively, however to date the plaintiff has not even fully mobilized the materials, equipment, and the manpower adequate for the construction of Phase I of the project. It is denied that there was any delay on the part of defendant No, 1 in releasing the mobilization advance. It is pointed out that the plaintiff has not produced a single letter wherein it has requested payment of mobilization advance as has been alleged by them. It is further pointed out that the letters filed as annexure 'F-1 to F-6' to the plaint are of the year 2008, whereas, advance payment guarantees had already been issued in April and July of 2007 respectively, against payment of mobilization advance. Moreover, the letters filed as annexure F-2 to F-6 to the plaint do not contain any mention of payment of mobilization advance having been delayed as has been falsely alleged by the plaintiff. It is alleged that it was the plaintiff who delayed providing the advance payment guarantees, which under clause 7.0 of the said contract was required to be submitted by the
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plaintiff prior to any payment of mobilization advance by defendant No, 1 and that defendant No, 1 recorded its complaint with regard to the plaintiffs failure to submit the advance payment guarantees within the time period prescribed by the said contract, as early as February 9, 2007 and subsequently on a number of occasions and annexed letter dated February 9, 2007, as annexure-B to the written statement. It is claimed that defendant No, 1 has followed and strictly adhered to all the provisions of the contract and all the documents constituting part thereof including but not limited to the said Conditions. In fact, it is the plaintiff who has breached the terms of the contract. It is submitted that the plaintiff has failed to identify in what way defendant No,1 failed to follow the procedure laid down for making interim payments and what alternative procedure was adopted as alleged. It is contended that in view of the termination of the contract by defendant No,1 and the plaintiffs acceptance of the repudiation thereof in terms of its letter dated May 10, 2008 (annexure- H to the plaint), whether or not a formal contract was required to be executed after the execution of the said contract is irrelevant. The defendant No,1 denied that the designated Engineer did not take up its assigned role or that defendant No, 1 performed the same. It is stated that no such allegation has been made by the plaintiff hitherto during the entire period of eighteen months of the contract, which shows that the allegation is merely an afterthought. It is alleged that despite full payment of the mobilization advance as required under the contract and the additional amounts made available to the plaintiff by defendant No,1, the plaintiff failed to perform its obligations under the said contract and that the plaintiff continuously failed to meet the various milestones stipulated in the programs submitted by them to defendant No,1, and kept revising the schedules with undertakings to meet the targets each time. However, the plaintiffs performance remained poor and they persistently failed to comply even with the revised dates. It is further alleged that the plaintiff has in effect caused 15 months delay in respect of the project under the said contract which required 36 months for completion. It is further submitted that based on the plaintiffs own master program dated 13-4-2007, the construction status of the project, as of May 12, 2008, should have been as follows:-- Tower Block 1Level 14 Tower Block 7Level 16 Tower Block 8Level 16 Tower Block 2Level 11 Tower Block 3Level 12 Tower Block 4Level 15 Tower Block 5Level 5 Tower Block 6Level 5 ' However, the actual situation at site as of May 10, 2008 was that the plaintiff was still working on Pile Caps and basement slabs for Tower Blocks 1, 7 and 8, whilst for the remaining Tower blocks the plaintiff was still at the excavation stage. It is submitted that based on the plaintiffs original manpower mobilization schedule, the plaintiff should have had manpower of approximately 1000 workers on site. In effect, as of May 10, 2008 the plaintiff had only 59 workers at the site of the project. The defendant No,1, in order to depict the above annexed photocopies of certain photographs, to the written statement. It is submitted that the mobilization advance made by defendant No,1 to the plaintiff under clause 14.2 of the said Conditions, as an interest-free loan for mobilization against the advance payment guarantees, was to be recovered by defendant No,1 by deductions on the basis of interim progress claims to be submitted by the plaintiff on monthly basis, showing details of work done by the plaintiff. However, since the plaintiff failed to perform its obligations under the contract defendant No, 1 was unable to recover the mobilization advance which is a ground for encashment under the advance payment guarantee. It is further alleged that
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the defendant No,1 repeatedly raised its concern in respect of the lack of requisite manpower, material and equipment on site and has sent numerous reminders to the plaintiff to expedite the project to meet the various milestones in the contract but each time the plaintiff provided lame excuses for its poor performance and the progress remained dismal. The defendant in that regard relied upon letters dated April 10, 2007, July 16, 2007 and December 28, 2007 (annexure D, D-1 and D-2 to the written statement). It is further alleged that the plaintiffs failure was so acute and the consequent delays were of such a severe nature that defendant No,1 was compelled to engage another contractor for the purposes of completion of certain works, which were the responsibility of the plaintiff under the contract, thereby increasing the losses incurred by defendant No,1 and the plaintiff being cognizant of its defaults, consented to the appointment of such contractor vide letter dated 3-11-2007 and 31-3-2008 (annexures E & E-1 to the written statement). However, the plaintiff still failed to improve its performance and through its letter dated 15-3-2008 expressed his inability to continue performance of the said contract and unilaterally called for amendment to the materials terms of the contract under threats of termination (annexure-F to the written statement). It is further alleged that in view of the plaintiffs persistent breaches of the contract, the Engineer in respect of the project, issued an Engineer's notice dated 2-5-2008 to the plaintiff, directing them to take immediate steps to make good its failure and remedy the breaches/defaults in all including but not limited to completing the earthwork excavation, lean concrete and rebar construction for the basement of Blocks 1 to 8 within seven days from the receipt of such notice failing which defendant No,1 would become entitled forthwith to terminate the contract and take such other action and proceedings against the plaintiff as may be available under the law. However, no steps were taken by the plaintiff toward compliance of the same, and instead the plaintiff caused a letter dated May 10, 2008 (annexure-H to the plaint) to be served upon defendant No, 1 through its legal counsel, whereby the plaintiff denied the existence of a valid contract between the plaintiff and defendant No,1 and without prejudice to such claim accepted, defendant No,l's repudiation of the said contract. Subsequently, defendant No,1 sent a legal notice of termination dated May 12, 2008 to the plaintiff through its legal counsel confirming the termination of the said contract. The plaintiff being aware of its obligation towards defendant No,1 and its failure to perform the same in letter dated 15-5-2008 offered a settlement which clearly shows that the frivolity of the suit (annexure-I to written statement). It is submitted that in view of the constant and persistent breaches committed by the plaintiff and its plain and clear demonstration of its intention not to proceed with the performance of the said contract through its March 15, 2008 letter, defendant No,1 called upon the said guarantees, vide letters dated May 2, 2008 sent to defendant No,2. It is submitted that the said guarantees constitute independent contracts between defendant Nos.1 and 2 with which the plaintiff has no right to interfere with. ' In their written statement, HBL, the defendant No,2, admitted having issued the aforesaid three bank guarantees in favour of defendant No,1, at the request of the plaintiff, and against the counter-guarantee of Messrs Bank of China. They also admitted that the defendant No,1 lodged their claim for payment of USD 5,125,250 in terms of the bank guarantee and that the defendant No,1 also lodged their claim for payment of USD 5,000,000 in terms of advance payment guarantee. It is also stated that letter of intent to award appears to have been countersigned by the plaintiff which seems to be in token of their acceptance. Defendant No, 2 further contended that the dispute with regard to bank guarantees and/or counter guarantees fall within the scope of Banking Ordinance of 2001 and therefore, the suit as framed and filed by the plaintiff is not maintainable under the Law. ' Along with their counter-affidavit to C.M.A. No, 4358 of 2008, the defendant No, 1 annexed a number of photographs of the formal contract signing ceremony as annexure A to A-4. It is submitted that Guarantee No,IGT000700033007 dated July 23, 2007 ("Phase-II Guarantee") in the
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amount of USD 5,000,000 was in respect of Phase-II of the project. No payment has been claimed by defendant No, 1 against the Phase-II guarantee and the same is not even the subject-matter of the said application. As such, the Phase-II guarantee is entirely irrelevant. On the contrary, it has been mentioned by the plaintiff to confuse the issue at hand in an effort to mislead the Court. It is further submitted that since the plaintiff has not even fully mobilized the materials, equipment and manpower in respect of Phase I there was no question of payment of the mobilization advance against the Phase-II guarantee. In any event non-payment of the mobilization advance in respect of Phase-II has no bearing on the progress of Phase-I and as such did not and could not have affected plaintiffs ability to perform its obligations in respect of Phase-I of the project. It is further submitted that under the terms of the said contract, defendant No,1 was only required to pay to the plaintiff the mobilization advance for the performance of its obligations toward the project. However, in spite of full payment of the requisite mobilization advance in the amount of USD 8,638,207 (excluding withholding tax) for Phase-I of the project by defendant No,1, the plaintiff sought assistance and requested defendant No,1 for additional payments which were not otherwise required to be made by defendant No,1 under the terms of the said contract. However, the defendant No,1 accommodated the plaintiffs request without having any legal obligation to do the same so as not to hinder the progress of the project and to date has paid an additional amount of PKR 224,570,343, in respect of which defendant No, 1 reserves it right to institute appropriate legal proceedings against the plaintiff. It is submitted that the defendant No,1's claim under the performance guarantee is in accordance with clause 4.2(d) of the said Conditions, which provides that defendant No, 1 is entitled to claim under the performance guarantee in the circumstances which entitle defendant No,1 to termination clause 15.2 of the Conditions irrespective of whether notice of termination has been given. ' It is further submitted that while the contractual scheme for furnishing the performance guarantee and its encashment is provided in clause 4.2 of the said Conditions the contractual scheme for furnishing and encashing the advance payment guarantees is stipulated in clause 14.2 of the said Conditions as follows:-- "If the advance payment has not been repaid prior to ... Or prior to termination under clause 15 [Termination by Employer] ... The whole of the balance then outstanding shall immediately become due and payable by the Contractor to the Employer." ' It is submitted that the plaintiff has never before disputed the validity or commencement of operation of the said guarantees before. In case, there was any truth in the plaintiffs assertion, the plaintiff would have sought cancellation of the advance payment guarantees and the performance guarantee, which they have not done. ' Mr. Bilal A. Khawaja, learned counsel for the plaintiff submitted that although the clause 12 of the letter of intent to award (LIA), dated 19-11-2006 (annexure-A to the plaint), specifically provides that "until formal contract is executed, your confirmation of acceptance hereof shall be a binding contract between you and the employer." However the above stipulation is to be read together with sub-clause 1.6 of the conditions of contract, which provides that "the parties shall enter into a contract agreement within 28 days after the contractor receive the letter of acceptance, unless they agree otherwise." The learned counsel contended that if the above two conditions/stipulations are read together there remains no doubt that the agreed arrangement between the parties was that within 28 days of the date of LIA, which document is dated 19-11-2006, a formal contract agreement was to be signed between the parties, however, during the intervening period, the LIA and its acceptance shall form a binding contract between the parties and that the document, namely, "Conditions of Contract", which is enlisted in the LIA as a contract document, contained an arbitration clause being clause- 20.6, which clause/provision remained effective during the said period of 28 days, which expired
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on/or about 20-12-2006. Mr. Khawaja further submitted that before signing of the formal agreement, the parties agreed to commence the execution of work and in this regard the plaintiff furnished a performance bank guarantee dated 12-4-2007, a mobilization advance guarantee dated 30-4-2007 and another mobilization advance guarantee dated 23-7-2004 (annexures C, D and E to the plaint) and that the above guarantees were issued on the basis, that defendant No, 1 had placed with the plaintiff. The "letter of award/contract". However, no such "letter of award/contract" was ever placed with the plaintiff and thus, these guarantees were issued while the plaintiff and the defendant No, 2, bank were under the impression, albit mistaken, that a "letter of award/ contract" had been placed by defendant No,1 with the plaintiff. Mr. Khawaja contended that, in the circumstances, the contract of guarantee became voidable in terms of section 22 of the…
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