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Petitioner: POSCO International Corporation through Authorised Officer VS Respondent: Rikans JUDGMENT
Court Name: Lahore High Court Judge(s): Shahid Karim Title:POSCO International Corporation through Authorised Officer vs Rikans
JUDGMENT
Reported As: 2023 CLD 189 Result: Application allowed Judgment JUDGMENT SHAHID KARIM, J. This is an application (the "Application") pursuant to sections 3 and 6 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (the "2011 Act") for recognition and enforcement of a foreign arbitral award dated 26.02.2020 (the "Foreign Award"). 2. The Application is made by POSCO International Corporation Limited ("POSCO") through Mr. Jeongki Ham (Passport No.M77544665), who is authorized by virtue of a Letter of Authority and Letter of Confirmation executed on 12.06.2020. The Applicant's Articles of Incorporation are also annexed to this Application. 3. Pursuant to section 5 read with Article IV of the Schedule to the 2011 Act ("NY Convention"), the Application is accompanied by: i. A certified copy of the duly authenticated original Foreign Award dated 26.02.2020; and ii. A certified copy of the sales contract dated 16.10.2015 ("Sales Contract") containing the arbitration agreement in clauses 18/19 of the Sales Contract. 4. POSCO is a company established in the Republic of Korea engaged in trade, resources development, project organization and steel processing services with its principal place of business at 165 Convensia-Dae-Ro, Yeonsu-gu, Incheon. 5. The respondent to this Application is Rikans International (the "Rikans"), a partnership firm acting through its Managing Partner/ Director, Chaudhry Muhammad lmran, with its principal place of business at 453, 2nd Floor Main Boulevard DHA, Lahore 54000 Pakistan: and additional place of
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business 61-B Main Boulevard, Bankers Town, Near Ring Road DHA Phase-4 Interchange, Lahore 54600, Pakistan. Facts: 6. A brief narration of facts giving rise to the Application are stated as follows: Agreements between the Parties: a. On 26.08.2015, the Applicant and Respondent entered into an agreement (The "August 2015 Agreement") whereby the Applicant would sell to the Respondent, and the Respondent would buy 17 units of heavy machinery comprised of wheel type excavators, crawler type excavators, wheel loaders and parts manufactured by Doosan Infracore, Co. Ltd. (the "Goods"). b. The parties negotiated and modified certain terms of the August 2015 agreement and subsequently executed the Sate Contract dated 16.10.2015 (Sales Contract"), replacing the August 2015 Agreement for the sale and purchase of the same 17 units of the Goods (clause 1 of the Sales Contract). c. The total price of the Goods was set as USD 1,583,834.00 (the "Contract Price"), full payment of which was due "90 days from receipt of Original Shipping Documents" (clause 8 of the Sales Contract). d. The Applicant shipped the Goods on or around 30.08.2015 and the shipment arrived at the destination port of Karachi on 20.09.2015. The Respondent took possession of the Goods on or about 14.10.2015. On 30.10.2015 the Respondent signed a confirmation of the receipt of the original shipping documents and promised to make payment on 14.1.2016 in accordance with the Sales Contract. Despite the promise, the Respondent failed to make payment. e. On 5.1.2016, Respondent sent a letter to the Applicant purporting to cancel the Sales Contract for alleged failure by the Applicant to fulfill its obligations. Arbitration Agreement: f. The Sales Contract contained an arbitration clause whereby the parties agreed to refer all disputes under the Contract to arbitration. Clauses 18/19 (the "Arbitration Clause") of the Sales Contract provides as follows: "All disputes in connection with this Contract or the execution or breach thereof shall be settled through friendly negotiations. In case no settlement is reached through negotiation within 30 days after notice, then such disputes shall be finally settled by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore Arbitration Centre for the time being in force, which rules are deemed to incorporated by reference in this clause. The arbitration award shall be final and binding upon the parties concerned. Arbitration Proceedings and Arbitrator's Award: g. The Applicant, exercising its contractual rights under the Arbitration Clause issued a notice of commencement of arbitration to Singapore International Arbitration Centre (SIAC) on 18.09.2018. The Respondents issued a reply t j this notice on 19.09.2018 raising jurisdictional objections on several grounds. h. On 19.10.2018, the SIAC wrote to the parties, determining that the Respondent's jurisdictional objection would be referred to the Court of Arbitration. On that basis SIAC proceeded to constitute the Tribunal. i. On 13.12.2918, the SIAC constituted the arbitral tribunal and appointed Mr. Kelvin Poon as the sole arbitrator (the "Arbitrator"). j. Between 04.06.2019 till 22.2.2020 the arbitration proceedings was conducted, and the Respondent was given multiple opportunities to put up a defence to the claim of the Applicant. However, as the Foreign Award, paragraphs 33 to 49 demonstrate, the Respondent had no real defence and failed to dispute liability.
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k. On 26.02.2020, after due deliberations the Arbitrator issued the Foreign Award in favour of the Applicant. In. the Foreign Award, the Arbitrator made the following findings, declarations and awards in favour of the applicant: a. The Respondent shall forthwith pay to the Claimant USD 1,583,834.00. b. The Respondent is directed to pay to the Claimant the costs of the arbitration fixed at SGD 92,373.69. c. The Respondent is directed to pay the Claimant its legal costs and expenses in an amount of USD 233,243.84. d. The Respondent shall pay simple interest on USD 1,583,834.00 from 14 January 2016 until full payment of the same, at a rate of 5.33% per annum. e. The Respondent is directed to the Claimant simple interest on the costs of SGD 92,373.69 (awarded at paragraph 141b above) from the date of this award until full payment by the respondent of the sums awarded to the Claimant, at a rate of 5.33 % per annum. f. All other claims and requests are denied." 7. Hence, the Applicant has now filed the present Application seeking recognition and enforcement of the Foreign Award. Request for enforcement of the Foreign Award: i. Both Pakistan and Singapore are signatories to the NY Convention, and the foreign Award has been made in Singapore and is therefore a "foreign arbitral award" within the meaning given in section 2(e) of the 2011 Act. ii. Article III of the NY Convention provides that: "Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the follows articles." iii. According to POSCO the conditions for enforcement have been met. Pursuant to Article IV of the NY Convention, the Applicant has annexed herewith a certified copy of the duly authenticated original Foreign Award, and a certified copy of the original arbitration agreement. iv. POSCO has requested to "recognize and enforce the award in the same manner as a judgment or order of a court in Pakistan" - as required by section 6 of the 2011 Act. 8. Further facts which will exercise a gravitational pull on the present case must be recounted in the following terms (in chronological order): 11.06.2016 Rikans Partnership filed the civil suit against POSCO with Lahore Civil Court. 25.02.2016 POSCO wrote a letter to Rikans Partnership inviting it to negotiate the matter. 02.06.2016 POSCO filed written statement of jurisdictional objections and an application to reject the suit. before Lahore Civil Court on the basis of the arbitration clause in the Main Contract. 17.09.2018 POSCO filed a Stay Application under section 4 of the 2011 Act with Lahore Civil Court. 18.09.2018 POSCO filed a Notice of Arbitration to SIAC and copied Rikans Partnership. 19.09.2018 Rikans Partnership filed a Reply of Notice of Arbitration. 21.09.2018 POSCO responded to objections of Rikans in its Reply to the NoA, and requested SIAC to refer Rikans Partnership's jurisdictional objection to SIAC Court of Arbitration. 28.09.2018 SIAC requested Rikans Partnership to confirm whether it was raising a jurisdictional objection. 01.10.2018 POSCO asked Rikans Partnership whether it would agree to appointment of sole arbitrator. 01.11.2018 SIAC informed by email that Rikans Partnership had not confirmed whether it was raising a jurisdictional objection and that it would proceed with the appointment of a sole arbitrator unless Rikans Partnership respondent by 6 November 2018.
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06.11.2018 Rikans Partnership through Respondent No.2 informed SIAC by email that its former counsel has "not been able to pursue the matter due to certain exigencies" and was replaced with new counsel. 07.11.2018 By email SIAC' asked Rikans Partnership to confirm whether it was raising jurisdictional objection by 09.11.2018. 08.11.2018 Rikans Partnership confirmed and submitted to SIAC its jurisdictional objection. 19.11.2018 SIAC Registrar informed the Parties that the jurisdictional objection will not be determined by the SIAC Court of Arbitration and that a sole arbitrator would be appointed. This power was exercised under Rule 28 of the SIAC Arbitration Rules. 13.12.2018 Constitution of the Tribunal Mr. Kelvin Poon was appointed as sole arbitrator. 19.12.2018 Rikans Partnership filed an anti-arbitration injunction in the Lahore Civil Court and the Civil Court without notice to POSCO order it not "to take the matter to the Singapore International Arbitration Centre (SIAC) unilaterally", whereas the arbitration had already been initiated in September 2018. 21.12.2018 Rikans Partnership made a request to stay the arbitration on the basis of the Lahore Civil Court's anti-arbitration injunction. 03.01.2019 POSCO filed FAO against anti-arbitration injunction which Honourable Lahore High Court suspended. 12.01.2019 Tribunal dismissed Rikans Partnership request for stay. 23.01.2019 Rikans Partnership did not provide its availability for the procedural conference, the tribunal postponed the procedural conference to after POSCO has submitted its Statement of Claim. 04.02.2019 Rikans Partnership filed a reply to POSCO's Stay Application under section 4 of the 2011 Act before the Civil Court. 11.02.2019 Lahore High Court's Order to set aside the 19.12.2018 anti-arbitration injunction by consent of the parties. 28.02.2019 POSCO's Statement of Claim was filed in the arbitration. 01.03.2019 The Tribunal directed Rikans Partnership by email to submit Statement of Defence by 28.03.2019. 30.03.2019 Rikans Partnership filed a second stay request to the Tribunal pending the Lahore Civil Court's determination of POSCO's Stay Application under section 4 of the 2011 Act. 04.04.2019 POSCO's response by email to Rikans Partnership's Second Request for Stay of Arbitration. 25.04.2019 First Procedural Conference, wherein counsel for Rikans Partnership participated along with counsel for POSCO and made submission before the Tribunal. 25.04.2019 Procedural Order 1 wherein the Tribunal dismissed the Second Stay Request of Rikans Partnership and directed it to submit a Statement of Defence on jurisdictional objections and merits by 09.05.2019. 09.05.2019 Rikans Partnership's submitted a Statement of Defence on jurisdictional issues only and chose not to submit on the merits and requested bifurcation of proceedings. 15.05.2019 Procedural Order No.2 issued by the Tribunal dismissed Rikans Partnership's bifurcation request and directed Rikans Partnership to submit a Statement of Defence on merits by 31.05.2019. 31.05.2019 Rikans Partnership's counsel withdraw and Rikans Partnership's Managing Partner, Muhammad Imran Chaudhry informed Tribunal that it would not participate in the arbitration proceedings, 03.06.2019 Tribunal informed the Parties that it would proceed in the absence of Rikans Partnership. 10.06.2019 Lahore Civil Court ordered stay of the court proceedings under section 4 of the 2011 Act in favour of POSCO.
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17.07.2019 Rikans Partnership filed a Civil Revision against the Stay Order of the Civil Court. 20-24.06.2019 Respondent No.2, Mr. Ch. Muhammad Imran of Rikans Partnership communicated to the Tribunal the suspension of the Civil Court Stay Order in Civil Revision before the Honourable High Court. Discussion: 9. Rikans defence is almost entirely based on Article V(1)(a) and (b) of the Schedule to the Act, 2011, which provides that: Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:- (a) The parties to the agreement referred to in Article II were under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration, can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority if the country in which, or under the law of which, that award was made. 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:- (a) The subject matter of the -difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. 10. But before we plunge into the main issues on this Application, a flanking rather than frontal attack was made on the competence of POSCO to bring this Application. The objection is centered on the evolution of Daewoo International Corporation (party to the agreements) into POSCO. This ground was also agitated in C.O. No.14766 of 2020 an Enforcement Application filed by POSCO (in respect of a different award) and was answered in favour of POSCO in the following terms: "6. The license agreement was executed between Daewoo International Corporation and Daewoo Pakistan Express Bus Service Limited. The learned counsel for Daewoo laid much emphasis on the fact that the initial license agreement was executed by the name of Daewoo International Corporation and the present application which has been filed by POSCO is unauthorized and is liable to be thrown out on this basis. This objection should receive a short shrift. The repayment agreement executed on 8.12.2017 was done by Daewoo with POSCO Daewoo Corporation which was a different company from Daewoo International Corporation. It is pertinent to mention that during this period, Daewoo International Corporation was taken over and owned by different corporate entities and on this account the change of name took place. However, the rights and liabilities remained unaffected and were acquired by the new company each time. Currently they
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are held by POSCO which has brought the present application. This is evident from the various documents attached with this application. It would suffice to refer to the recent history. In this regard, the first document is the minutes of the 16th ordinary general meeting of shareholders held on 14.03.2016 by which name of Daewoo International Corporation was changed to POSCO Daewoo Corporation (on the acquisition of shareholding). Subsequently, as a result of another amalgamation whose documents have also been attached with this application, POSCO Daewoo Corporation evolved into POSCO International Corporation, This change took place in the 19th ordinary general meeting of shareholders held on 18.3.2019. These meetings were presided by the Chairman/representative director Young Sang Kim. Therefore, there is 'no substance in the objection raised by Daewoo in this regard." 11. The arguments in this Court on behalf of Rikans revolved around the words "under some incapacity" contained in Article V(1)(a). This was the first defence broached by Rikans. It will be borne in mind that the defence of Rikans is entirely set out against the backdrop of proceedings which were commenced before the Civil Court by Rikans in which a claim for damages was made. In that context Rikans submits that those proceedings rendered it incapacitated to set up a defence before the Arbitrator and thus Rikans was unable to present its case. 12. A read of Article V (1)(a) will show clearly that the construction sought to be put by Rikans on the words "under some incapacity" is without any lawful basis and such a construction is not culled out of the provision itself. The term "incapacity" used in Article V(1)(a) has a reference to the capacity of the parties to enter into a contract in the first place. The words "parties to the agreement" referred to in Article II are closely tied in with the words "under some incapacity". Article II stipulates that each contracting state shall recognize an agreement in writing under, which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect, of defined legal relationship. Since Article V makes reference to the agreement in Article II, that agreement is one which is entered into by the parties under which they undertake to submit to arbitration all or any of their differences. It is therefore not the incapacity which may be incurred after the agreement has been executed and acted upon and the parties thereafter allege breach of the terms of the agreement and seek to settle their disputes by resort to one or the other forum. Rikans invites this Court to hold that because the proceedings were pending in the Civil Court at Lahore, it was incapacitated in some way to put up a defence before the Arbitrator at SIAC. This is a fantastic interpretation to be put on Article V(1)(a) which has no relevance to the incapacity which is sought to be set up by Rikans. It is based upon a view which could not reasonably be held. A further read of Article V(1)(a) would show that it goes on to state that because of the incapacity as alleged, the agreement is not valid under the law to which the parties have subjected it. Once again the reference is to the primary agreement executed by the parties to submit to arbitration and is a reiteration of the basic notion encapsulated, in Article V(1)(a) that the incapacity is the incapacity to contract and not an incapacity to perform the contract or to put up a defence once an Arbitrator is appointed in accordance with the agreement of arbitration. This necessarily alludes to the status at the time of agreement in writing and not any purported incapacity which arises subsequently. It must have a close nexus to the time when the agreement was entered into. In this regard, the Supreme Court of Pakistan in Orient Power Company (Private) Ltd. through Authorized Officer v. Sui Northern Gas Pipelines Ltd. through Managing Director (2021 SCMR 1728), had this to say: "Thus, enforcement of an award under this Article may be refused if the arbitration agreement is invalid or if the parties lacked the capacity to arbitrate, which is not the position in the instant case. 43. Under the Commentary of the New York Convention by Herbert Kronke et al titled 'Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention, it
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has been stated that Article V(1)(a), permits a court to deny recognition and enforcement of an award if no arbitration agreement exists. We must however, be careful in noting that the issue here is not the existence of the arbitration agreement, but rather, whether the existing arbitration clause could have been read into another agreement i.e. the Payment clause." 13. The defence set up on this basis is therefore rejected. 14. The second defence set up by Rikans is based on Article V(1)(b) and in particular the words "unable to present his case". Once again it is contended by Rikans that it was unable to present its case before the Arbitrator because it was constricted by pendency of civil litigation at Civil Court, Lahore. Firstly, that litigation had been brought by Rikans itself and so it cannot be urged that it was precluded to present its case before the Arbitrator. The words "unable to present his case" refer to circumstances beyond control of a party and not where a party elects not to present its case by choice. These are diametrically opposed concepts. Making a deliberate effort to avoid the proceedings before the Arbitrator is distinct from being subjected to detriments due to which a party is "unable to present his case". It could be an anti-suit injunction (arbitration in this case) and from the facts adumbrated it is clear that there was no such injunction against Rikans not to appear before the Arbitrator or present its case. On the contrary, if at all, the Civil Court had issued an injunction against POSCO not to file arbitration claim before the Arbitrator which too was meaningless because POSCO had, by that time, filed its claim before the Arbitrator. Therefore, Rikans cannot be heard to contend that it was unable to present its case because of some circumstances which enjoined Rikans from setting up a defence in response to the notice of Arbitrator. Moreover, these words invoke the concept of fairness and due process. This can be culled out from a holistic reading of Article V(I)(b) which taken as a whole implies that it will be a good defence to set up if party against whom the award is invoked was not given proper notice of appointment of the Arbitrator or of the arbitration proceedings or was otherwise unable to present its case. These are related concepts and must be read in ejusdem generis. There were no circumstances which constrained Rikans from presenting its case before the Arbitrator and sufficient opportunities were given to present its case and to set up a defence to the claim filed by POSCO. The pendency of civil proceedings in the Civil Court, Lahore cannot be taken as a circumstance which presented itself as an insurmountable hurdle in the way of Rikans to present its case before the Arbitrator. The proceedings by Rikans seeking anti-arbitration injunction come to a close on 11.02.2019 and substantial proceedings before the Arbitrator were held between 04.06.2019 and 22.02.2020, that is, afterwards. It was a risky proposition on the part of Rikans to have completely abandoned its defence before Arbitrator and to rely solely on the claim before the Civil Court while it was aware of the fact that POSCO had filed an application seeking to restrain the Civil Court from proceeding with the suit on the ground that the parties had agreed to submit their differences to arbitration at SIAC. Moreover, on 10.06.2019 the Civil Court had ordered stay of the proceedings under section 4 of the Act, 2011 in favour of POSCO. This was a further circumstance which ought to have guided Rikans into making a proper and full defence before the Arbitrator. Since Rikans had every opportunity through a proper notice by the Arbitrator to give a defence on merits of POSCO's claim, it is irrational and unarguable for Rikans to state this as a defence to the enforcement of the award made by the Arbitrator. Such a defence must fall on barren ground and ought to be rejected. 15. Rikans next contended that the award was not enforceable as it is contrary to the public policy of Pakistan. This argument is based on Article V(2)(b) which provides that: "V(2)(b): The recognition or enforcement of the award would be contrary to the public policy of that country." 16. To recapitulate the said provision provides that the recognition and enforcement of an arbitral award may also be refused if the competent authority in the country finds that the award would be
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