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Petitioner: NAN FLING TEXTILES LTD., HONG KONG-.Petitioner VS Respondent: H. PIR MUHAMMAD JUDGMENT
Court Name: Sindh High Court Judge(s): Ajmal Mian Title:NAN FLING TEXTILES LTD., HONG KONG-.Petitioner vs H. PIR MUHAMMAD
JUDGMENT
Reported As: PLD 1979 Karachi 762 Result: Appeal allowed Judgment JUDGMENT This is a petition under section 5 of the Arbitration (Protocol and Convention) Act, 1937 (hereinafter referred to as the Act), filed by the petitioners, who have their registered office at Hong Kong, for the enforce--ment of a foreign award. In the above petition the petitioners have prayed for the following reliefs :- "Wherefore, it is respectfully prayed that this honourable Court may be pleased to : - (a) order that the said award be filed in this honourable Court ; (b) pronounce the judgment in terms of the said award ;- (c) award the cost of the application to the petitioner ; and (d) order any other/further relief as this honourable Court may deem fit.- The facts leading to the filing of the above petition are that by consent No. 2102 dated 26-9-1972 and No. 2106 dated 28-9-1972 the respondents sold to the petitioners 500 and 1000 bales of cotton respectively. It has been averred that the aforesaid contracts were entered into between the parties as per rules and regulations of the Liverpool Cotton Association Ltd. (hereinafter referred to as Association), which inter alia included arbitration. It has been further averred that certain differences arose between the petitioners and the respondents due to the respondents' breaches of the contracts. Consequently, the petitioners referred the dispute in respect of the aforesaid two contracts to arbitration to the aforesaid Association. It has been averred that the said Association made an award on 22-7-1975 in respect of the above two contracts, wherein a sum of U. S. $ 224584 with 10 interest per annum calculating from 5-8-1975 until the date of payment thereof, plus -- 500 towards the fee and expenses of the arbitration have been awarded. It has also been
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averred that the petitioners have duly complied with the terms of the award but the respondents have failed. To fulfil the obligation under the said award despite of repeated requests It has also been averred that the award was made by an agreed tribunal in pursuance of an agreement for arbitration and is clearly a foreign award in terms of section 2 of the Act. On the basis of the above assertion the petitioners have prayed for the reliefs already quoted hereinabove. 2. The respondents have filed written objections wherein inter alia it has been averred that there was no concluded contract between the parties for the sale of the cotton or that the same were subject to the rules and regulations of the Association. It has bean averred that the question of sale of cotton was at the stage of negotiation which was subject to laws in Pakistan under which the respondents were required to obtain permission from the State Bank of Pakistan. It has been further averred that the State Bank of Pakistan through its letter dated 19-2-1973 declined to accord the necessary permission. It has also been averred that on the alleged dates of contracts, namely, 26- 9-1972 and 28----1972 the respondents' agent Messrs Wang Fu Long Hong Ltd. (hereinafter referred to as the agent) bad no authority to enter into the above contracts. It has also been averred that if it is to be held that there were contracts, the same were subject to laws/ regulations restrictions and, therefore, on refusal of the permission by the State Bank the contracts stood frustrated. It has further been averred that the Association bad no jurisdiction to adjudicate upon the alleged dispute. It has also been averred that the arbitration tribunal failed to decide the material points in issue. It has also been averred that the award in question is not a foreign award within the meaning of the Act. It has further been averred that the alleged award is not enforceable in Pakistan as both the countries, I.e. United Kingdom and Pakistan are not the signatories to the Convention and that the reciprocal arrangements are not provided in United Kingdom. The respondents have also raised some other legal pleas in the above objections. 3. (a) Mr. A. Rauf learned counsel for the respondents in opposition to the above petition has urged the following points (i) That there was no contract between the petitioners and the respondents, (ii) that on the alleged dates of the conclusion of the contracts, the respondents' agent had no authority to enter into the contract, (iii) that for the purpose of entering into a final contract the respondents were required to be equiped with the State Bank's permission which was declined and, therefore, the contracts had become impossible to be performed, (iv) that the award is not a foreign award within the meaning of section 2 of the Act. Mr. A. Rauf has also assailed the award on the following additional grounds :- (v) That as the arbitrators failed to appoint an umpire before entering upon the reference, the arbitration proceedings were illegal and consequently the award stands vitiated, (iv) that the arbitration tribunal never communicated any claim to the respondents, and, therefore, the respondents were not given fair opportunity to meet the petitioners' case, (vii) that the arbitration tribunal had committed misconduct by not deciding the real issue in the dispute and not taking into consideration the respondents' contentions, (viii) that as the award does not disclose the basis upon which the amount of damages has been calculated for the alleged breach of the contracts, it stands vitiated, (ix) The award is illegal as the arbitrators have awarded interest though there was no agreement to that effect between the parties. (6) Mr. Hasnain, the learned counsel for the petitioners has refuted the above contentions of the learned counsel for the respondents, which I will deal while discussing the various contentions. 4. (a) Before taking up the above contentions of the learned counsel for the respondents, it will be appropriate to know the scope of the jurisdiction of this Court in relation to a foreign award. In this
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regard, it may be advantageous to reproduce hereinbelow section 7 of the Act which reads as follows :- "Section 7.--(1) In order that a foreign award may be enforceable under this Act it must have :- (a) been made in pursuance of an agreement for arbitration which was valid under the law by which it was governed, (b) been made by the tribunal provided for in the agreement or constituted in manner agreed upon by the parties, (c) been made in conformity with the law governing the arbitration procedure, (d) become final in the country in which it was made, (e) been in respect of a matter which may lawfully be referred to arbitra--tion under the law of Pakistan, and the enforcement thereof must 'not be contrary to the public policy or the law of Pakistan, (2) A foreign award shall not be enforceable under this Act if the Court dealing with the case is satisfied that- (a) that award has been annulled in the country in which it was made, or (b) the party against whom it is sought to enforce the award was not given notice of the arbitration proceedings in sufficient time to enable him to present his case, or was under, some legal incapacity and was not properly represented, or (c) the award does not deal with all the questions referred or contains decisions on matter beyond the scope of the agreement for arbitration; Provided that if the award does not deal with all questions referred to the Court may, if it thinks fit, either postpone the enforcement of the award or order its enforcement subject to the giving of such security by the person seeking to enforce it as the Court may think fit. (3) If a party seeking to resist the enforcement of a foreign award proves that there is any ground other than the non-existence of the conditions specified in clauses (a), (b) and (c) of subsection (1), or the existence of the conditions specified in clauses (b) and (c) of subsection (2), entitling him to contest the validity of the award, the Court may, if it thinks fit, either refuse to enforce the award or adjourn the hearing until after the expiration of such period as appears to the Court to be reasonably sufficient to enable that party to take the necessary steps to have the award annulled by competent tribunal." (b) It may be noticed that subsection (1) of the above quoted section 7 provides that a foreign award may be enforceable if made in pursuance of an agreement for arbitration which was valid under the law by which it was governed and has been made by a tribunal provided in the agreement or constituted in the manner agreed upon by the parties, in conformity with the law governing the arbitration procedure in respect of a matter which may lawfully be referred to arbitration under the law of Pakistan and that the award had become final in the-country in which it was made. Whereas subsection (2) of section 7 provides the following three grounds rendering a foreign award unenforceable, (a) that the award has been annulled in the country in which it was made, (b) the party against whom it is sought to be enforced was not given notice of the arbitration proceedings in sufficient time or was under some legal incapacitry, (c) the award does not deal with all the questions referred to or contains decisions on matters beyond the scope of the agreement for arbitration. (c) It may be pertinent to refer to section 30 of the Arbitration Act, 1940 which provides the grounds upon which an award given in Pakistan can be set aside. The aforesaid section 30 reads as follows;--- "Section 30. An award shall not be set aside except on one or more of the following grounds, namely :--
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(a) that an arbitrator or umpire has misconducted himself or the proceeding ; (b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35 ; (c) that an award has been improperly procured or is otherwise invalid." It may be observed that the grounds upon which a Pakistani award can be set aside are mostly different from the grounds of attack to a foreign award mentioned in section 7 of the Act inasmuch as under section 30 of the Arbitration Act a Pakistani award can be set aside on the grounds that an arbitrator or an umpire has misconducted himself or that on award has been improperly procured or is otherwise invalid. Whereas these grounds do not find place in section 7 of the Act. Similarly another ground for setting aside an award mentioned section 30 namely, that an award has been made after the issue of an order by the Court superseding the arbitration or after the arbitration proceedings have become invalid under section 35 of the Arbitration Act, does not find place in section 7 of the Act. 5. Reverting to the first contention that there was no concluded agreement between the parties, it may be observed that Mr. A Rauf has drawn my attention to documents Nos, 14 and 15 on the record which are to the two contracts mentioned by me earlier. The above contracts have been signed by the petitioners as buyers and Messrs Wang Fu Long Cotton Hong Kong Ltd. (i.e. The agents). On the basis of the above signatures it has been urged that the above two contracts were not between petitioners and the respondents. It may be observed that para, 1 of the above contract (which is on a printed form) reads as follows "We beg to confirm having sold you on this date the under-mentioned goods on behalf of Messrs Pir Muhammad Shamsuddin Third Floor Cotton Exchange Bldg., I. I. Chundrigar Road, Karachi, Pakistan." 6. (a) The basic question which requires consideration is as to whether the agents had the authority on the above dates to execute the contracts in question which point is covered under the second contention mentioned hereinabove, which I intend to deal with. Mr. A. Rauf in support of his contention that the agents had no authority on the two dates mentioned in the contracts to make any commitment or to sign the contracts has referred to a telex dated 6-10-1972 which inter alia provides as follows :---- "Trans. T. 951 ; 2500 bales : with reference to conversation (Hong--Kong) : In order to accommodate you ; as promised ; we confirm sale of 2500 bales ; without commission ; please confirm ; acceptance ; formally; The next document which Mr. A. Rauf hasreferred to is the respondents' letter dated 9-10-1972 addressed to Mr. Benjamin of the agent Company. Sub-para. 3 of the above letter is pertinent and it reads as follows;--- "You would recall that during my stay in Osaka you sold 2500 bales L.Ss-R-T-951 shipment during November to April at 22.60 C & F Hong Kong which was below limit. The sale could not be confirmed. However, in order to accommodate you I have conveyed acceptance of these 2500 bales without commission. Please convey your acceptance immediately." On the basis of the above two documents, it was urged by Mr. A. Rauf that merely an offer was made by the respondents on the above two dates which was subsequent to the execution of the contracts and, therefore, on the dates when the two contracts were executed by the agents they were not authorised to make any firm commitment. In furtherance of his above contention, he has also referred to the copy of form E. P. C. Filed by the respondents in the State Bank of Pakistan (document No. 3) in which the date of contract given in para. 5, is 6-10-1972. (b) On the other hand, Mr. Hasnain the learned counsel for the petitioners has drawn my attention to para. 2 of the respondents' letter dated 19-4-1975 addressed to their arbitrator, in which it has been stated that the respondents' director was in Japan/Hong-Kong during September 1972, where
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the agents made an offer for a total of 2500 bales T/951 at 20.60 cent per Lb. On the basis of the above statement it was urged by him that when the two contracts were executed, I e. On 26th and 28th September, 1972. The respondents' director was in Japan/Hong-Kong and that if the above statement is to be read with the respondents' telex dated 6-10-1972 and the letter dated 9-10-1972 referred to hereinabove, it will be clear that the respondents made firm commitment in September, 1972. It was also urged by him that the aforesaid telex had confirmed the sale of 2500 bales which had already taken place. It was also urged that the words "please confirm acceptance formally" were redundant and of no significance. Mr. Hasnain has also invited my attention to another telex dated 10-4-1974 whereby the respondents informed the petitioners that the paper for export was not approved by the State Bank on the ground that the price was low. It was also stated in the aforesaid telex that the shipment was not effected and that the agents were intimated accordingly and were requested to advice them. He has also referred to para. 6 of the written objections to the petition, which reads as follows;---- "By their letter dated 20-2-1973, the agents Messrs Wang Fu Long Cotton Hong Kong Ltd. Were informed by respondent that the E. P. C. Forms submitted to State Bank of Pakistan were rejected and returned by the State Bank of Pakistan on the basis of low price. It was also advised to convey this to the relevant buyers." Mr. Hasnain has further contended that the contracts were acted upon by the parties inasmuch as the petitioners opened letters of credit, which fact has been admitted by the respondents in their letter dated 29-5-1975 addressed to their arbitrator Messrs James Platt & Co. Ltd. (document No. 18) and that the respondents filed E. P. C. Form for the permission in the State Bank of Pakistan. (c) In my view from the respondents' telex dated 6-10-1972 and their letter dated 9-10-1972 addressed to their agents, it is clear that in fact the above two documents contained a confirmation of the commitment already made by the respondents while their director Mr. Maqbool Ahmed was in Japan/Hong-Kong in September, 1972. In the E. P. C. Form in para. 3 Messrs Wang Fu Long Cotton, Hong Kong, have been shown as the agents. In the respondents' telegram dated 10-4-1974 referred to hereinabove (document No. 5), it has been inter alia stated that the respondents intimated to their agents about the refusal of the State Bank of Pakistan to accord approval to the contract. It has also been stated that the agents were advised to convey this information to the petitioners. In para. 6 of the respondents objections quoted hereinabove, it has been clearly admitted that Messrs Wang Fu Long Cotton Hong Kong Ltd., were acting as the respondents' agents and that after the rejection of the E. P. C. Form by the State Bank of Pakistan they were advised to convey this to the relevant buyers. There is no doubt that Messrs Fu Long Hong Kong Ltd., were acting as the agents of the respondents. It is also clear that the aforesaid company was a standing agent for the respondents inasmuch as the two contracts executed between the petitioners and the respondents are on the printed form, para. 1 of which mentions that they were confirming and selling cotton on behalf of Messrs Haji Pir Muhammad Shamshuddin, Third Floor, Cotton Exchange Bldg., 1. I. Chundrigar Road, Karachi (Pak.), i.e. The respondents. It may also be observed that the respondents had authorised their agent to make commitment for 2500 bales to the various purchasers and not only 1500 bales which were the subject-matter of the two contracts in question. This fact is borne out from the E. P. C. Form (document No. 5) wherein para. 7 the quantity mentioned is 2500 bales, 2 more or 2 % less. This is corroborated by para. 6 of the respondents, objections to the present petition quoted hereinabove, wherein as mentioned hereinabove, it has been stated that the respondents advised their agents to convey the refusal of the State Bank of Pakistan to concur its approval to the E. P. C. Form to the relevant buyers. In my view the discrepancy in the date of the contracts is not material. In the two contracts in question (documents Nos. 4 and 5) the dates mentioned are 26-9-1972 and 28-9-1972 and whereas in the E. P. C. Form the respondent gave the date of contract as 6-10-1972. The
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respondents had given 6-10-1972 as the date of the contract on the basis of their telex dated 6-10- 1972 (document No. 1) referred to hereinabove. Since the respondents had authorised their agents to make commitment in September, 1972 and as the aforesaid telex dated 6-0-1972 was in fact a confirmation of the above commitment, in my view the agents were competent to enter into the two contracts in question on 26-9-1972 and 28-9-1972. (d) Mr. Hasnain the learned counsel for the petitioners in the alternative has urged that even if the agents did not have the requisite authority on 26-9-1972 and 28-9-1972 to conclude the above two contracts, the respondents by their aforesaid telex dated 6-10-1972 and the letter dated 9-10-1972 had ratified the aforesaid acts of their agents. I am inclined to agree with the above contention of the learned counsel for the petitioners. Even if it is to be conceded that the agents did not have the requisite authority on the aforesaid two dates, in my view, the respondents had ratified the aforesaid telex contracts through their above telex dated 6-10-1972 and the letter dated 9-10-1972. (e) It was urged by Mr. Hasnain that even otherwise, as the agents in question were a standing agent for the respondents, it would be presumed that they had the requisite authority from the respondents to enter into the above two contracts. In support of his above contention he has referred to the case of Sarshar All v. Roberts Cotton Association Ltd. And another (PLD 1972 SC 244), wherein it was held that according to section 237 of the Contract Act, 1872, if an agent has apparent authority to enter into a particular contract on behalf of the principal the contract is valid even though in fact he has no such authority. It was further held that any term in a contract of agency which places restriction on the authority of the agent is unavailing against the parties who are not aware of such term if circumstances are such which conferred an apparent authority on the agent to act on behalf of the principals. In my view the above contention need not be examined in detail as I have held that the two contracts in question were binding for the foregoing other reasons. 7. (a) Reverting to the third contention of Mr. Abdul Rauf that for the purpose of entering into a final contract the respondents were required to be equiped with the State Bank of Pakistan's permission which was declined and, therefore, the contracts had become impossible to be performed, it may be observed that though before the arbitrators this plea was taken by the respondents through their letters, but it appears that no document in A support of the above plea was filed. However, before this Court the respondents while filing other documents have also filed a cyclostyled memorandum dated 15-6-1973 from the Senior Deputy Director, Exchange Control Department, State Bank of Pakistan in which reference to export S. Nos. S-48/3461, 65, 45, 157 and 112 has been made and para. 18 is tick marked which provides as follows :- "The price obtained by you is low, we therefore, regret our inability to register the sale." It was urged by Mr. Hasnain that this document cannot be taken into consideration not only for the reason that it was not filed before the arbitrators but also because that it does not contain any reference to the two contracts in question. I will advert to this aspect a later on, but the basic question which requires consideration is, as to whether even if it is to be conceded that the State Bank of Pakistan had declined to grant permission what would be its effect, i.e. As to whether it would attract the doctrine of frustration as provided for under section 56 of the Contract Act, 1972. It may be pertinent to refer to para. 1 of the respondents' letter dated 19-4-1975 addressed to their arbitrator (document No. 13) on the above point, which reads as follows :- "Para. 1 it is well known fact and must also be in the best knowledge of L. C. A. That, although not repeated at the time of sales and/or not stated in the contracts : yet all sales of Pakistan raw cotton were subject to the approval of State Bank of Pakistan." In the above para. The respondents have impliedly admitted the fact that at the time of entering into the two contracts in question the petitioners were not told nor it was incorporated in the two contracts that the same were subject to the approval of the State Bank of Pakistan.
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Ms. A. Rauf has referred to subsections (5) and (6) of section 12 of the Foreign Exchange Regulation Act, 1947 which read as follows;---- Section 12 (1) .--------------- (2) .---------------------------- (3) . --------------------------. (4) .------------------------- (5) Where in relation to any such goods the value as stated in the invoice is less than the amount which in the opinion of the State Bank represents the full export value of those goods, the State Bank may issue an order requiring the person holding the shipping documents to retain possession thereof until such time as the exporter of the goods has made arrangements for the State Bank or a person authorised by the State Bank to receive on behalf of the exporters payment in the prescribed manner of an amount which represents in the opinion of the State Bank the full export value of the goods. (6) For the purpose of ensuring compliance with the provisions of this section and any orders or directions made thereunder, the State Bank any require any person making any export of goods to which a notification under subsection (1) applies to exhibit contracts with his foreign buyer or other evidence to show that the full amount payable by the said buyer in respect of the goods has been, or will within the prescribed period be, paid in the prescribed manner." (b) On the basis of the above-quoted two subsections it was urged by the learned counsel for the respondents that under subsection (5) the State Bank was competent to order the withholding of export of the goods in respect of which it was of the view that the value stated to the invoice was less than the amount representing the full value of the goods. Under sub-section (6) the State Bank has been authorised through a notification to require any person making any export of goods to make an application with the requisite documents and information in respect of the goods to be exported. Though the respondents have not produced the original or the photostat copy of any notification but they have placed a photostat copy of a notice to the exporters dated 17-11-1950 issued by the Deputy Controller, State Bank of Pakistan which provided that as…
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