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Petitioner: THE HUB POWER CO. VS Respondent: WAPDA
Court Name: Sindh High Court Judge(s): Muhammad Shaiq Usmani Title: THE HUB POWER CO. vs WAPDA Case No.:Suit No,1417 of 1998 and Civil Miscellaneous Applications Nos.9751, 9752,
JUDGMENT
Reported As: 1999 CLC 1320 Result: Order accordingly Judgment JUDGMENT Before dealing with the individual applications I feel it will be better if brief facts leading to the dispute between the parties are narrated. Here I might also mention that the list of case-law relied upon by the parties is so large that instead of referring to these in the body of this order, save those which I found to be important, I have listed these in Annexure to this order to avoid inhibiting the flow of discussion herein. ' It seems that in 1985 the Government of Pakistan (hereinafter referred to as G.O.P.), the defendant No,2 in these proceedings formulated a long term energy strategy into the next two decades to introduce the private sector to power generation in Pakistan with the assistance of World Bank in response to this general invitation for participation by the private sector two companies being Xenel Industries Limited of Saudi Arabia and Hawker Siddeley Power Engineering Limited of the United Kingdom submitted proposals for the establishment of two separate 600 M.W. Stations, but later revised their proposals and jointly offered a 1292 M.W. oilfield plant of electricity. It was decided that the plant would be located near the Hub River Estuary in Balochistan. With the cooperation of Government of Balochistan the requisite land was acquired or purchased. The plaintiffs' company was then created and to put the entire scheme into operation following three agreements were signed: (1) Implementation Agreement (1-A), dated 29-11-1994 signed between the plaintiffs and G.O.P. (2) Fuel Supply Agreement (F.S.A.), dated 28-9-1994 signed between the plaintiffs and P.S.O. (3) Power Purchase Agreement (P.P.A.), dated 3-8-1992 signed between the plaintiffs and defendant No, 1 .
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The I.A. was to govern the relationship between the plaintiff and G.O.P. and under this agreement plaintiffs was responsible for developing, designing, financing, insuring, constructing, owning, operating and maintaining the plant and for appointing contractors acceptable to the Government. On the other hand the Government through this agreement had undertaken to guarantee the obligations of defendant No,1 and P.S.O. and also State Bank of Pakistan in relation to the provision of foreign exchange insurance cover for plaintiffs foreign currency financing costs. The F.S.A. was meant to regulate the supply of residual fuel oil (R.F.O.) for use by the plaintiffs for their plant. Under this agreement plaintiffs were bound to purchase all their requirements of R.F.O. from P.S.O. The performance of all obligations of P.S.O. under the F.S.A. were guaranteed by G.O.P. pursuant to a guarantee issued under I.A. P.P.A. was an agreement between the plaintiffs and the defendant No, 1. Under the agreement the plaintiffs were to generate and deliver electricity into the defendant No,1 Grid and in return the defendant No,1 was to pay the plaintiffs for the capacity made available and the electrical energy delivered in accordance with a tariff formula agreed upon. It seems that subsequently certain variations were made in the tariff and such variations were incorporated into the P.P.A. through certain amendments, which were: (a) A Supplemental Deed, dated 16-11-1993; (b) An Agreement, dated 24-2-1994 (hereinafter referred to as the first amendment); (c) Agreement, dated 17-9-1994 (hereinafter referred to as the second amendment); (d) Supplemental Deed, dated 5-3-1997. The parties had agreed that the proper law of the P.P.A. would be the law of England and the agreement also included an arbitration clause whereby the parties were required to resolve their disputes or differences through arbitration in London under the rules of arbitration of the International Chamber of Commerce. The construction of the plant commenced in 1993 and became fully operational on 31-3-1997. The financial close occurred in 1995. This was obviously a very big project and its cost was fixed in September, 1994 at US $ 1520.76 Million in view of the enormity of the project there were numerous interests involved which led to somewhat uneasy relationship between the various parties to- the contract. Nevertheless, the plant. begun to function and the P.P.A. was put into operation. This uneasy relationship between the plaintiffs and defendant No,1 finally came out into the open when a writ petition was filed in the Lahore High Court on 8-5-199$ by one Azizul Haq Qureshi, who joined in the petition amongst others, the plaintiffs, and the defendant No,1 and challenged defendant No,1 's decision to enter into the second amendment which was executed by one Saeed Akhtar Niazi, the Member Power on behalf of defendant No,1 on 17-10-1994. The main contention of the petitioner in this petition was that the defendant No,1 had in collusion with plaintiffs fixed exorbitant tariffs through the second amendment and that it was not valid and hence not binding on the defendant No, 1. For some reasons the Ehtesab Bureau was also impleaded as a respondent in this petition. The Honourable Lahore High Court granted interim relief to the petitions whereupon the plaintiffs appeared from those orders to the Honourable Supreme Court. In response to the directions of the Honourable Supreme Court, the defendant No,1 made a statement, dated 27-6-1998 to the effect that the second amendment, dated 17-9-1994, allegedly signed on 17-10-1994 was illegal and fraudulent document and, thus, not binding on the defendant No,l. Consequently, defendant No,1, was not obliged to make any payment based on the second amendment and also reserved its rights to claim refund of the payments made so far pursuant to this amendment. It is significant to note that in spite of such statement having been made the defendant No,1 continued to act on the P.P.A. and also continued to make payments as per terms thereof to the plaintiffs. The proceedings before the Honourable Supreme Court concluded in Civil Petition No,703 of 1998 by order, dated 3- 7-1998, which was a consent order where under the defendant No,1 was directed not to pay in excess of Rs,845 Million per month to the plaintiffs on the basis of the present quantum of energy
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supplied to WAPDA which amount would be in addition to the energy charges. This order was to hold the field till the time the Lahore High Court decides the question of maintainability of the writ petition and also the merits. The Lahore High Court was also directed by this order to dispose of the said writ petition within three months from the date of reopening of the Court after summer vacation, but this did not happen. The petition is still pending in Lahore High Court. Following the said order of Honourable Supreme Court the defendant No,1 continued to pay Rs,845 million per month to the plaintiffs on account of capacity purchase price (C.P.P.). It seems that the Honourable Supreme Court during the hearing emphasised upon the parties to resolve their disputes through negotiation. Following the desire of the Honourable Supreme Court a process of negotiation was initiated through meetings between the parties. However, later it appears that the Attorney-General of Pakistan made a statement on or about 24-6-1998 in the Honourable Supreme Court and closed the door for any further negotiation. This led the plaintiffs to invoke the arbitration clause in accordance with clause 15 of the P.P.A. and to file a request for arbitration to the International Chambers of Commerce (hereinafter referred to as I.C.C.) for resolution of the dispute between the parties. The relief sought by the plaintiffs in the arbitration proceedings was for a declaration to the effect that the Second Amendment is valid and in accordance with the terms of the P.P.A. and the defendant No,1 was bound by the obligations thereunder. Upon receiving this request for arbitration the I.C.C. Secretariat sent a notice to the defendant No,1, which notice was replied by defendant No,1 vide their letter, dated 4-8-1998 with remarks that they were still seeking a negotiated settlement between the parties and hence there was no need to respond to the request for the arbitration. Upon subsequent correspondence between the I.C.C. Secretariat and the defendant No,1, the defendant No,1 initially appointed Mr. Justice (Retd.) Muhammad Gul as an arbitrator on their behalf but upon objections being raised on his appointment as being contrary to the rules, on 31-10-1998 the defendant No,1 nominated Dr. Kamal Hussain of Bangladesh as its arbitrator. Subsequently, the defendant No,1, also paid their share of the initial arbitration cost being US $ 60,000 through after much ado. While the arbitration panel was being set up the plaintiffs received a letter, dated 11-10-1998 signed by Akhtar Parwez Akhtar, Chief. Engineer (W.P.P.O.) on behalf of WAPDA (hereinafter referred to as Termination Letter) which read as follows:-- "WAPDA on examination of the events leading to the execution of: (i) Supplemental Deed, dated 16-11-1993. (ii) Amendment No,1, dated 24-2-1994. (ii) Amendment No,2, dated 17-9-1994. and their alleged Government approvals, their implementation and their effects have arrived at the conclusion that the said documents are illegal, fraudulent, collusive, without consideration, mala fide and designed to cause wrongful loss to WAPDA and the Government of Pakistan with consequential wrongful gain to HUBCO. These documents are in fact result of a criminal conspiracy as borne out by Fist Information Report F.I.R. No,59 of 1998 registered on 3-11-1998. (2) WAPDA, therefore, hereby notifies that the said, agreements are void ab initio and are of ho legal effect with regard to the rights and obligations of the parties under Power Purchase Agreement, dated August 3rd, 1992. (3) The losses occasional to WAPDA by such wrongful acts are in excess of Rs,16 billion. HUBCO is hereby called upon to forthwith refund the said sum of Rs,6 billion for the present with interest thereon at 18% per annum. (4)This notice is without prejudice to WAPDA claiming additional amounts then due to WAPDA on account of HUBCO's acts of omission and commission in violation of Power Purchase Agreement which are presently under examination and scrutiny. (5)Additionally, this notice does not in any manner whatsoever limit or otherwise affect the rights of WAPDA to initiate, continue and prosecute the concerned individuals and parties for criminal or
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penal responsibility under the laws of country in addition to the F.I.R. already lodged." Along with this letter was attached a letter, dated 4-9-1998 by G.O.P. through which G.O.P. consented to the termination by defendant No,1 of the supplemental deed, dated 16-11-1993, first amendment, dated 24-2-1994 and second amendment, dated 17-9-1994 to the P.P.A. At the same time it appears that number of other measures were taken by the defendants in keeping with the lender of this letter such as the registration of F.I.R. No,59 of 1998 against the officials of the plaintiffs putting some of item on Exit Control List and apparently some notices under Income Tax Ordinance. The plaintiffs denied the allegations contained in the termination letter and followed it up by writing to the I.C.C. Secretariat vide letter, dated 20-10-1998 to enlarge the scope of arbitration by including the matters arisen out of the termination letter. It was at this stage that this suit was filed on 10-11-1998 with an avowed purpose of preserving status quo as between the parties pending the resolution of their dispute in arbitration and the enforcement of the arbitral award in Pakistan and to prevent defendants from committing a repudiatory breach of the agreement. According to the plaintiffs the suit was in fact a conservatory suit in aid of arbitration. The plaintiffs specially pleaded that since the arbitration being resorted to was not governed by the Arbitration Act, 1940, consequently, they did not initiate proceedings under sections 20 and 41 of the Arbitration Act, 1940, which would have been the correct course to adopt by the plaintiffs if the arbitration to be held was under the Arbitration Act, 1940. It seems that the defendant No,1 did pay the required Rs,845 million to the plaintiffs on the 1st of November, 1998 even after having issued the termination letter, dated 11-10-1998 but subsequently, on 1-12-1998, the defendant No,1 paid Rs,730,18.7,954 and thereafter, have been continuing to pay the said sum, which incidentally is the sum agreed upon as per the original P.P.A. Alongwith this suit C.M.As. Nos.9751 of 1998 and 9752 of 1998 were filed. Through C.M.A. No,9751 of 1998, the plaintiffs seek to restrain the defendants from giving effect to the termination letter, dated 11-10-1998, whereas through C.M.A. No,9752 of 1998 the plaintiffs seek to restrain the defendant from invoking the jurisdiction of any Court or Tribunal or administrative forum or instituting any judicial, quasi- judicial or administrative action in Pakistan in the furtherance of the termination letter, dated 11-10- 1998. When these applications came up before learned Single Judge of this Court on 12-11-1998 he passed an ad interim order whereby he restrained the defendant No,1 from implementing their letter, dated 11-10-1998. Later when these applications came up for hearing again on 17-11-1998 apparently a statement was made by the learned counsel for the defendant No,1 that they would continue to comply with the orders of the Supreme Court, dated 3-7-1998, whereupon the learned Single Judge felt that continuing of the status quo as granted by him earlier may bring this Court into conflict with the orders of the Supreme Court and, consequently, he declined to extend the ad interim status quo order. Thereafter, when the payments were to be made by defendant No,1 to the plaintiffs on 1-12-1998 the amount was reduced to the figure stated above. This was followed by yet another application by the plaintiff being C.M.A. 10602 of 1998. The contents whereof were substantially the same as in C.M.A. No,9751 of 1998. This application was obviously necessitated because of the change in status quo brought about by the defendant No,1 subsequent to the ad interim orders not being confirmed by the learned Single Judge because of which the defendant No,1 had reduced the amount of C.P.P. that they were paying to the plaintiffs consequent upon the consent orders of the Supreme Court. After a short gap of about a month, while the aforesaid applications were still pending in this suit before this Court, it appears that the defendant No,1 filed a suit before the Senior Civil Judge, at Lahore on 16-1-1999, praying for a decree for the amounts allegedly paid in excess being Rs,173,117,380.81 and for injunction to restrain. the plaintiffs from proceedings further with the arbitration before the I.C.C. Court and from encashing the stand by letter of credits. Alongwith this
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suit an application was filed for temporary injunction to restrain plaintiffs from encashing letter of credit established by the defendant No,1 in respect of alleged payments on tariff and to restrain the A.N.Z. Grindlays Bank from making any such payment and also to restrain the plaintiffs from proceedings with arbitration before the I.C.C. Arbitration Tribunal. The learned Senior Civil Judge, Lahore allowed these applications by an ad interim order, dated 16-1-1999. Following this order the plaintiffs filed C.M.A. 399 of 1999, under Order 39, Rule 2, read with section 151, C.P.C. whereby they sought to restrain the defendant No,1 from prosecuting the Lahore suit including the interlocutory applications and also seeking any extension of the ad interim ex parte order passed by the learned Senior Civil Judge, Lahore. When this application came up before me for hearing on 22-1-1999, I directed the parties to ignore the Lahore Senior Civil Judge order, dated 16-1-1999 in so far as it restrained the parties from proceedings with the arbitration. Subsequently, when this matter came up before me again on 16-2-1999, the plaintiffs had filed C.M.A. 843 of 1999, under Order 39, Rule 2(3), C.P.C. seeking to initiate contempt of Court proceedings against the defendant No,1 for writing a letter to the I.C.C. Tribunal, which according to them brought the Court into contempt. I, therefore, felt it necessary at the time to clarify my earlier order to the extent that my order was to hold the field till the disposal of C.M.A. 399 of 1999. Subsequent, to my order, dated 22-1-1999 the defendant No,1 appealed from the order before a Division Bench of this Court. Upon hearing the parties the Division Bench then passed a consent order whereby the parties agreed not to proceed with the arbitration till 28-3-1999 and the matter was sent to me to dispose of all pending applications in this suit. It seems subsequently, the plaintiffs filed an application under section 10, C.P.C. in the Lahore proceedings whereby they sought that the suit be stayed. As a result the Lahore Senior Civil Judge declined to pass any order to avoid any conflict between the orders of this Court and that of Lahore District Court. It is significant to note that while there was a consent order of the Division Bench of the Sindh High Court, dated 20-2-1999 holding the field whereby the parties had agreed not to proceed with the arbitration till 28-3-1999 the defendant No,1 filed a Revision Petition No,343 of 1999 against the Lahore Senior Civil Judge's order, dated 20-2-1998 on plaintiffs' application in which they obtained an ad interim order, dated 12-3-1999 to the effect that the parties will not proceed to arbitration till 24-3-1999. The above description of events would show that the verbose pleadings as well as myriad applications and the Lahore suit have been filed only for one objective in so far as the plaintiffs are concerned this objective is to ensure that the dispute is placed before the I.C.C. Arbitration Tribunal for resolution in accordance with the terms of P.P.A. while the objective of the defendants is to somehow prevent it from being so placed. The filing of the suit in Lahore has complicated the situation further- inasmuch as after acceptance of the jurisdiction of this Court the defendant No,1 have chosen to open a new front and thereby have brought two Courts into an unfortunate conflict. Since all these applications before me are inter-connected and are directed towards the objective that I have mentioned above, whether one looks at it from the point of view of the plaintiffs or the defendants, I would decide all these applications by a common order. The main contention of the plaintiffs is that the initial problems with regard to the second amendment constituted a dispute under clause (15) of the P.P.A. consequently, their attempt to refer the matter to arbitration was in accordance with the terms of the agreement and that the parties are bound to proceed to arbitration. They further contend that upon issuance of the termination letter, dated 11-10-1998 more issues/disputes were created in relation to the supplemental deed and the first amendment and consequently, the plaintiffs were justified in expanding the scope of arbitration by including these in it as well. They further contend that the I.C.C. Rules of arbitration permit them to take conservatory measures in aid to arbitration as per Rule No,23 which read as follows:--
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"(1) Unless the parties have otherwise agreed as soon as the file has been transmitted to it, the Arbitral Tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate. The Arbitral Tribunal may make the granting of any such measure subject to appropriate security being furnished by the requesting party. Any such measure shall take the form of an order, giving reasons or of an Award, as the Arbitral Tribunal considers appropriate. (2) Before the file is transmitted to the Arbitral Tribunal, and in appropriate circumstances even thereafter, the parties may apply to any competent judicial authority for interim or conservatory measures. The application of a party to a judicial authority for such measures or for the implementation of any such measures ordered by an Arbitral Tribunal shall not be deemed to be an infringement or a waiver of the arbitration agreement and shall not affect the relevant powers reserved to the Arbitral Tribunal. Any such application and any measures taken by the judicial authority must be notified without delay to the Secretariat. The Secretariat shall inform the Arbitral Tribunal thereof." Consequently, the plaintiffs say that they are justified in filing this suit in aid of arbitration and to prevent repudiatory breach of the agreement in fact they claim that since the ad interim status quo order passed in C.M.A. 9751 of 1998 was not extended the defendant No,1 got their opportunity to issue their termination letter on 11-10-1998. The learned counsel for the plaintiffs look pains to explain that the aim of this suit is not to have this Court determine the validity or otherwise of the amendments of the P.P.A.because that according to him would be decided by the Arbitral Tribunal. On the other hand the defendant No,1 maintains that the fact that the plaintiffs have chosen to have the dispute decided by this Court means that they have chosen the forum and they cannot now claim to have the dispute resolved through Arbitral Tribunal. According to the counter- affidavit that they have filed, the defendant No,1 clearly state that since now this Court is seized of the matter, the plaintiffs have no right to proceed to arbitration. Besides, the defendant No,1 maintains that they were fully justified in issuing the termination letter because the amendments to tariff that were incorporated in the amendments to P.P.A. had been obtained through exercising undue influence over the officials of the defendant No,1 by the plaintiffs and by indulging in fraud with the intention to defraud the defendant No,1 and cause great loss to the national economy. It is significant to note that the defendant No,1 have never challenged the arbitration clause itself and indeed they have admitted that the P.P.A. without the amendments is valid and subsisting it would seem that since the arbitration clause forms a part of the P.P.A. It too, is valid and subsisting indeed in their counter-affidavit they have asserted that the defendants are not obstructing the process of arbitration. Besides the fact remains that the plaintiffs have nominated their arbitrator for the I.C.C. Tribunal and have also paid initial costs amounting to US $ 60,000. It is contended by the learned counsel for the defendant No,1 that the incorporation of the disputed amendments to P.P.A. were obtained by plaintiffs through the machination of various officials of defendant No,1, who were under the influence of the plaintiffs. The amendments, thus, being fraudulent and contrary to public policy a dispute regarding these issues can only be determined by a Court of law and not by an Arbitral Tribunal. The filing of suit before the Senior Civil Judge by defendant No,1, therefore, has to be seen in this light. The plaintiffs on the other hand have contended at great length that they would be in great quandary. If the C.P.P. is not paid to them as per the terms of the agreement including the amendments, and that their plant would certainly close down resulting in their equity being wiped out and the Lenders taking control of the project. According to them arbitration is the only mode available to the parties as per their agreement to resolve their dispute. Now it is an admitted position that there is a valid arbitration agreement between the parties to resolve disputes. It may be appropriate to reproduce clause (15.4) of P.P.A. which is as follows:-- "15.4. Arbitration.--- (a) If the dispute cannot be settled within forty-five (45) days by discussions
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and referral to an expert is not required by this Agreement or, if referral to an expert was required but the dispute was referred for arbitration in the circumstances set out in section 15.3(g), then the dispute shall be finally settled under the provisions of sections 15.4 to 15.7. (b) If and when G.O.P. has implemented the convention on the settlement of Investment Disputes between States and nationals of other States (the 'Convention'), any dispute arising out of or in connection with this agreement shall (regardless of the nature of the dispute but without prejudice to the provisions of this agreement requiring any matter to be referred to an expert for final determination) be referred to arbitration and finally settled in accordance with the…
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