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Petitioner: SOCIETE GENERALE DE SURVEILLANCE S.A. VS Respondent: PAKISTAN through Secretary, JUDGMENT
Court Name: Supreme Court of Pakistan Judge(s): Qazi Muhammad Farooq, Abdul Hameed Dogar, Munir A. Sheikh Title:SOCIETE GENERALE DE SURVEILLANCE S.A. vs PAKISTAN through Secretary,
JUDGMENT
Reported As: 2002 SCMR 1694 Result: Order accordingly Judgment JUDGMENT MUNIR A. SHEIKH, J.---By this consolidated judgment, we propose to decide Civil Appeals Nos.459 and 460 of 2002, involving identical questions of law and facts. 2. These two appeals by leave of the Court are directed against the judgment dated 14-2-2002 of the Lahore High Court, Rawalpindi Bench, Rawalpindi whereby appeal filed by the appellant (Civil Appeal No,459 of 2002) against the order, dated 7-2-2002 of the trial Court has been dismissed and the request of the appellant Pakistan through Secretary, Ministry of Finance, Islamabad in the connected Appeal No,460 of 2002 to restrain the SGS to pursue the remedy through arbitration of International Centre for Settlement of Investment Disputes (ICSID) has been dismissed. 3. The facts of the case are that SGS, hereinafter called the "appellant" entered into an agreement on 29-9-1994 with the Federation of Pakistan, hereinafter called the "respondent", by which the services of the appellant were huried for pre-shipment inspection of all consignments to be imported into Pakistan on the basis of which the custom duty, etc., and other Government dues as prescribed under the relevant Statutes were to be charged and recovered from the importers. This contract was terminated by the respondent on 12-12-1996 which was accepted by the appellant on 23-12-1997 with the reservation of its legal right. This agreement contained an arbitration clause which is Clause 11.1. It reads as under:-- "11.1 Arbitration.---Any dispute, controversy or claim arising out of, or relating to this Agreement, or breach, termination of invalidity thereof, shall as far as it is possible, be settled amicably. Failing such amicable settlement, any such dispute shall be settled by arbitration in accordance with the
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Arbitration Act of the Territory as presently in force. The place of arbitration shall be Islamabad, Pakistan and the language to be used in the arbitration proceedings shall be the English language." 4. The appellant, however, filed a case against the respondent in the Court of first instance in Geneva for the recovery of an amount of U.S.$ 8,368,430.49 with interest thereon and the balance due on SGS invoices. In the petition filed before the said Court, it was alleged that the appellant did not except fair trial from the Courts in Pakistan to justify its act of not invoking the arbitration clause, for settlement of dispute by Courts in Pakistan. The said Court decided the case against the appellant on the ground that arbitration clause was reasonable, fair trial was possible in Pakistan. The claim of sovereign immunity of Pakistan was also upheld. The appeal filed by the appellant before the Swiss Court of Justice against the said judgment was dismissed through judgment dated 23-6-2000. 5. The respondent on 7-9-2000 filed an application under section 20 of the Arbitration Act, 1940 for filing of the agreement in the Court and appointment of an arbitrator as per Arbitration Clause No,11.1 of the said Agreement. The appellant filed an appeal before the. Swiss Supreme Court which too was dismissed on 23-11-2000. 6. The appellant contested the said application by filing detailed reply on 7-4-2001. After filing this reply, on 10-10-2001, the appellant filed consent to ICSID Arbitration which was followed by a formal request for arbitration dated 12-10-2001 which was registered on 12-11-2001. Apart from preliminary and other legal objections, the appellant also raised counter-claim of more or less the amounts which were claimed in the case filed before the Swiss Court of first instance, No plea was raised that the dispute between the parties by force of Bilateral Investment Treaty dated 11-7-1995 or the Convention of Washington dated 18-3-1965 could exclusively or at the option of the appellant be resolved through arbitration of ICSID. It was long after the dismissal of the appeal of the appellant by the Swiss Supreme Court on 23-11-2000 that the appellant made an application under section 41 of the Arbitration Act before the trial Court on 4-1-2002 seeking stay of proceedings under section 20 of the Arbitration Act, 1940 contending that ICSID arbitration proceedings had been instituted, therefore, these proceedings should be stayed. The trial Court through order dated 7-1-2002 dismissed this application and on the same date, by a separate order, it directed the parties to file panel of proposed Arbitrators. The appellant filed Appeal (F.A.O. No,9 of 2002) before the Lahore High Court, Rawalpindi Bench through which it assailed both the orders i.e,, the order by which its application for stay of proceedings was dismissed and the order of acceptance of application under section 20 of the Arbitration Act made by the respondent. 7. In the said appeal, the respondent moved C.M. No,339-C of 2002 praying that the appellant be restrained from taking any step, action or measure to pursue or participate or to continue to pursue or participate in the ICSID Arbitration. The appeal filed by the appellant and the said civil miscellaneous application made by the respondent have been dismissed through the impugned judgment dated 14-2-2002 by the High Court against which these two appeals by leave are directed. 8. The learned Judge in Chamber of the High Court after surveying the facts and relevant laws on the subject came to the conclusion that no domestic law was enacted to give effect to the Washington Convention of 1965 or bilateral treaty for which reasons the legal efficacy of both of them was nothing but an instrument of administrative nature as such could not be enforced as law. 9. As to the effect of Bilateral Investment Treaty dated 11-7-1995 in which a provision was made for ICSID arbitration of the disputes between investor of one contracting State and the other relating to or arising from investment made after 1-9-1954, it was held that though the appellant was not party to the said treaty but it could invoke the same on the basis of generally accepted principles
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that a contract can be enforced also by a person who is beneficiary thereunder but this principle was not attracted in this case for no law had been enacted to give provisions of the treaty the status of Municipal Law which could be enforced as such. It was also held that the same did not have the effect of taking away the rights accrued to the parties under a particular agreement entered into by them of their free volition. It was also declared that since the respondent had earlier approached the trial Court under section 20 of the Arbitration Act and the appellant had also raised counterclaims and was contesting the said application on merits of the claims, therefore, the said process which had already commenced could not be reversed even under the Bilateral Investment Treaty, the same having been initiated earlier in time would exclude any of the parties to seek ICSID arbitration which according to learned Judge of the High Court was applicable to those cases which had not yet been commenced before a judicial forum. It was held that there was no conflict between the treaty and the agreement in question between the parties, therefore, the jurisdiction of the trial Court to entertain the said application was held to have not been adversely affected by the treaty. The learned Judge in Chamber further held that under Article 26 of the ICSID Convention, the assertion of supremacy of ICSID Convention and the Bilateral Investment Treaty as major piece of primary law over the agreement as subordinate instrument was not tenable. According to him, the non-ICSID forum already seized of the same matter could not be asked to take its hands off the dispute. 10. As to the arbitration proceedings initiated by the appellant before the ICSID, it was held that the same were not maintainable on account of lack of consent by one of the parties i.e, the Federation of Pakistan under the relevant Convention, BIT, etc. On the question whether the agreement between the parties related to investment as contemplated by Article 1(2) of the Bilateral Treaty dated 11-7-1995, it has been held that the disputed claim of either of the parties did not fall within the ambit of the meanings assigned to the expression "investment" in this Article.. It has also been held that the act of the appellant of approaching the Swiss Courts of general jurisdiction for the recovery of specific amounts under the agreement and of its prosecution up to the Swiss Supreme Court, coupled with the act of filing reply to application under section 20 of Arbitration Act made by the respondent and raising counterclaim without indicating expressly or impliedly that the dispute was referable to ICSID arbitration amounted to waiver by it of the right, if any, under bilateral treaty or otherwise to approach ICSID in the matter. In support of the propositions of law, the learned Judge of the High Court made reliance on the statement of law made in the American Jurisprudence, para.51 at page 260 which need not be reproduced here. 11. The learned Judge in Chamber went on to hold that the arbitration clause in the agreement had a separate entity meaning thereby that the same was severable, as such, survived the termination of the contract of which it was a part. According to his findings, the arbitration clause embodied in the agreement subject-matter of this litigation clearly spelt out the intention of the parties that they had decided to have recourse through arbitration thereunder in order to settle their contractual disputes at Islamabad, Pakistan. It was held that this clause could not be deemed to be either varied or superseded by the Bilateral Investment Treaty, therefore, the parties were bound to abide by it. Keeping in view the fact that the agreement in dispute was executed in Islamabad, the part performance of which was also to be made at Islamabad coupled with the fact that seat of arbitration as argued was Islamabad, as such, it has been held that the parties shall be deemed to have agreed that governing law shall be the law of Pakistan. 12. The learned Judge of the High Court, however, dismissed C.M. No,339-C of 2002 made by the respondent to restrain the appellant from taking any step, action or measure to pursue or participate or to continue to pursue or participate in the ICSID Arbitration on the assumption as if an order of injunction of the nature could only be made in a regular civil suit and not in the present proceedings.
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13. These two appeals by leave of the Court are directed against the judgment dated 14-2-2002 of the High Court. Leave was granted, inter alia, to consider the following points:-- (a) Whether the arbitration agreement between the parties was binding upon them notwithstanding the coming into force of the Bilateral Investment Treaty? (b) Whether the trial Court was right in holding that the petitioner was not an investor within the meaning of the said word as defined in Bilateral Investment Treaty? (c) Whether it has been rightly held keeping in view the circumstances of the case that the petitioner had waived its right to seek remedy before ICSID?" 14. Mr. K.M.A. Samdani, learned counsel for the appellant before making submissions on these points raised an argument that the application of the respondent made under section 20 of the Act for making a reference of the dispute between the parties to arbitrator was not maintainable, for in the application itself, allegations had been made that the same was obtained by payment of bribe, kick-backs and commission as such void in view of law laid down by this Court, in HUBCO case reported as The Hub Power Company Limited (HUBCO) through Chief Executive and another v. Pakistan WAPDA through Chairman and others (PLD 2000 SC 841) in which this Court held that the points were not arbitrable. 15. In order to determine whether principles of law laid down in HUBCO case (supra) are attracted to the facts of this case, it would be advantageous to reproduce in extenso the relevant paragraph of the said application:-- "(3) Investigations have revealed that out of the fee that was being received by the respondent- company from the applicant (being 78% of the dutiable value of the goods inspected by the respondent) an amount equivalent to 6% of the fee was paid to Bomer Finance Inc., an offshore company operated by Jens Schlegelmilch, beneficial owner of which is Asif Ali Zardari, husband of Ms. Benazir Bhutto. This amount was paid as kickback and commission for procuring the contract. Similarly, 3% was paid to another off-shore company Nassam Associates which is also operated by Jens Schlegelmilch, beneficial owner of which was Nasir Hussain, then husband of Sanam Bhutto, while another amount of 1% was paid to Jens Schlegelmilch for the same contract. The bank accounts of these companies were also being handled by Jens Schlegelmilch. (4) The above facts show that the respondent paid bribes and commissions to the beneficiaries out of the fee being recovered from the Government of Pakistan.- This amount of bribes and commission, during the course of operation of the contract, came to USD 4.3 Million. Furthermore the respondent also charged the applicant as its agreed fee a total sum of USD 65.7 Million (out of which the above amounts was paid)." 16. The law declared in HUBCO case (supra) is as under:-- "S. 23---Illegal objects and considerations of an agreement---Agreement was alleged to have been obtained through fraud or bribe---Allegations of corruption were supported by circumstances which provided basis for further probe into the matter judicially, and, if proved would render the agreement as void---Dispute between the parties was not commercial dispute arising from an undisputed legally valid contract, or relatable to such a contract, for, on account of such criminal acts disputed documents did not bring into existence any legally binding contract between the parties, therefore, dispute primarily related to the very existence of valid contract and not a dispute under such a contract---Such matter, according to the public policy, held, required finding about alleged criminality and was not referable to arbitration". From a bare reading of this part of the application, it is manifest that though allegation of receipt of kickbacks and bribe have been made to explain the factual background as to how allegedly the contract was obtained but there is nothing in the application that the respondent claimed arbitration on these points also, therefore, HUBCO case is not applicable to the facts of the case in hand. It has further been clarified by the learned Attorney-General that the respondent would
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neither tile any claim based on these allegations in arbitration proceedings nor ask for arbitration qua them or produce any evidence in respect thereof in these proceedings and would follow the law strictly as laid down in HUBCO case (supra). The claims of the respondent would be based on the terms and conditions embodied in the agreement itself. 17. Before, however, proceeding further, it is necessary to examine the facts of HUBCO case to understand correctly the above principles of law laid down in that case. In HUBCO case, there was no dispute about any claim determinable under the terms and conditions of either the original agreement or about the rates of tariff etc., embodied in subsequent disputed amendments made in the original agreement but it was a case of dispute regarding commission of criminal act, therefore, it was held that the same was not arbitrable. 18. Mr. K.M.A. Samdani, learned counsel for the appellant in relation to point-A of the leave granting order submitted that prior to the ratification of Bilateral Investment Treaty by the Federation of Pakistan on 4-4-1996 and the Swiss. Confederation on 6-5-1996, the agreement in dispute between the parties had already been executed on 29-9-1994 but the same was not saved from the mischief of the provisions of the said Treaty and the Convention as they were made applicable to all investments made after 1-9-1954, therefore, the said agreement became subservient to the Convention and the Bilateral Investment Treaty inclusive of the Arbitration Clause 11.1 embodied therein as such arbitration through ICSID could only be adhered to for settlement of disputes. 19. This argument has been raised on the erroneous assumption as if the Washington Convention, 1965 and the Bilateral Investment Treaty had attained legal status of Municipal Law which could be pressed into service and enforced as such. 20. On the other hand, learned Attorney-General maintained that it has consistently been held by the Courts that a Treaty unless was incorporated into the laws of the Country by a Statute, the Courts would have no power to enforce treaty rights and obligations arising therefrom at the behest of an individual or State. To support this contention, he has made reference to the rule laid down in the cases of Maclaine Watson & Co Let V. Department of Trade and Industry and related appeals Maclanine Watson & Co. Ltd. v. International Tin Council (The All England Law Reports 1989 Volume 3 page 523) in which the question which came up for consideration was as to what was the legal status of a Treaty between the two States. It was held as under:-- "A treaty is a contract between the governments of two or more sovereign States. International law regulates the relations between sovereign States and determines the validity, the interpretation and the enforcement of treaties. A treaty to which Her Majesty's government is a party does not alter the laws of the United Kingdom. A treaty may be incorporated into and alter the laws of the United Kingdom by means of legislation. Except to the extent that a treaty becomes incorporated into the laws of the United Kingdom by statute, the Courts of the United Kingdom have no power to enforce treaty rights and obligations at the behest of a sovereign government or at the behest of a private individual." 21. In amplification of the above principles, it was also held as under:- "The second is that, as a matter of the Constitutional law of the United Kingdom, the royal prerogative, whilst it embraces the making of treaties, does not extend to altering the law or conferring rights on individuals or depriving individuals of rights which they enjoy in domestic law without the intervention of Parliament. Treaties, as it is sometimes expressed, are not self- executing. Quite simply, a treaty is not part of English law unless and until it has been incorporated into the law by legislation. So far as individuals are concerned, it is res inter alios acta from which they cannot derive rights and by which they cannot be deprived of rights or subjected to obligations; and it is outside the purview of the Court not only because it is made in the conduct of foreign relations, which are a prerogative of the Crown, but also because, as a source of rights and obligations, it is irrelevant."
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Learned Attorney-General has, also referred to Article VI of the United States Constitution to demonstrate that wherever it was intended to give effect to a Treaty by a State as Municipal Law of the Country for enforcement of rights thereunder as such through Courts, law was made through Statutes to incorporate the provisions of the Treaty in the Municipal Law of the Country. Sub-Article (2) of Article VI of the said Constitution reads as under:-- "(2) This Constitution, and the Laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the Authority of the United States, shall be the supreme law of the Land; and the Judges in every State shall be bound thereby, any thing in the Constitution or Laws of any State to the contrary notwithstanding." 22. The argument raised by the learned Attorney-General has considerable force. Admittedly, in Pakistan, the provisions of the Treaty were not incorporated through legislation into the laws of the Country, therefore, the same did not have the effect of altering the existing laws, as such, rights arising therefrom called treaty rights cannot be enforced through Court as in such a situation, the Court is not vested with the power to do so. It may be significantly mentioned here that according to Article 175 (2) of the Constitution of Islamic Republic of Pakistan, no Court has any jurisdiction unless conferred by or under any law or the Constitution, therefore, treaty unless was incorporated into the law so that it become part of Municipal Laws of the Country, no Court shall have jurisdiction to enforce any right arising therefrom. 25. Faced with this difficulty, Mr. K.M.A. Samdani, learned counsel for the appellant attempted to overcome it by arguing that by reason of unilateral act of the Federation of Pakistan itself of omission or inaction to incorporate into the laws of the country the provisions of the treaty by legislation it should not be allowed to raise such a plea to avoid the enforcement of the provisions of the treaty. He further argued that according to Article 97 of the Constitution of Islamic Republic of Pakistan, 1973, the executive authority of the Federation extends to the matters enumerated in Part I of Fourth Schedule regarding which the Parliament could legislate therefore, its act of ratification of bilateral Investment Treaty amounted to give it status of law. 26. Article 97 of the Constitution only provides that subject to the Constitution, the executive authority of the Federation shall extend only to those matters with respect to which Majlis-e- Shoora (Parliament) has the power to make laws, including exercise of rights, authority and jurisdiction in and in relation to areas outside Pakistan. Fourth Schedule embodies the list of those matters with respect to which Majlis-e-Shoora has the power to make the laws, Item 3 of which is very relevant which reads as under:-- "3. External affairs; the implementing of treaties and agreements, including educational and cultural pacts and agreements, with other countries; extradition, including the surrender of criminals and accused persons to Governments outside Pakistan." Since Majlis-e-Shoora has the power to make laws in respect of these matters, therefore, by virtue of Article 97 of the Constitution, the Federal Government of Pakistan has the power to exercise executive authority in respect thereof which was exercised to ratify the treaty, but it has not conferred power on the executive authority to legislate a Statute. 27. Learned Attorney-General has brought to our notice that legislations were made by a number of countries to incorporate the provisions of the Convention and the Treaties to enforce the same through Courts of law as Municipal Law. Following laws listed below were made by the. Countries shown against them:-- "Contracting State Title of Legislation (Citation) Australia ICSID Implementation Act, 1990. (Act No,107 of 1990) Austria Ratifikationsurkunde fur das Ubereinkommen zur Beilegung von Investitionsstreitigkeiten zwischen Staaten and Angehorigen anderer Staaten.
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(Off.Gaz.357, V ol.99, Sept.10,1971, p.1853) Belgium Loi du 17 juillet 1970 portant approbation de la Convention pour le reglement des differends relatifs aux investissements entre Etats et ressortissants d'autres Etats, faite a W ashington ele 18 mars 1965. (Off. Gaz. 185, Sept.24, 1970, p.9548) Benin Ordonnance No,36/PR/MF AE du 26 aout 1966 portant ratification de la Convention pour le reglement des dif ferends relatifs aux investissements entre Etats et ressortissants d'authres Etats. (Off. Gaz.17, Sept. 1, 1966, p.773) Decret No,445/PR/PR/MF AEP du 28 decembre 1967 portant nomination de concilliateurs et d'arbitres au Centre International pour le Reglement des Differends relatifs aux Investissements. (Off. Gaz.4, February 14, 1968,p.161) Botswana The Settlement of Investment Disputes (Convention) Act, 1970. (Act No,65 of 1970) Burkina Faso Ordonnance No,17/PRES/DE'V .T/AET du 31 mars 1966 portant ratification de la Convention pour le reglement des dif ferends relatifs aux investissements enter Etates et ressortissants d'autres Etats conclue sous les ausnices de la Bannque Internationale pour la Reconstruction et le Development. Cameroon Loi No,66/LF/13 du 30 aout 1966 autorisant le President de la Republiqaue Federale a ratifier la Convention pour le reglement des dif ferends relatifs aux investissements entre Etats et ressortissants d'autres Etats. (Off. Gaz. Sept.!, 1966,p.93) Decret No,66/DF/454 du 30 aout 1966 portant ratification de la Convention pour le reglement des dif ferends…
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