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Petitioner: Jamshoro Joint Venture Limited VS Respondent: Sui Southern Gas Company Limited
Court Name: Sindh High Court Judge(s): Arshad Hussain Khan, Syed Hassan Azhar Rizvi Title: Jamshoro Joint Venture Limited vs Sui Southern Gas Company Limited Case No.: HCA. No. 395 OF 2016 Date of Judgment:2018-06-29 Reported As: 2018 SHC 785 Result: accordingly dismissed
Judgment ARSHAD HUSSAIN KHAN, J. Through instant High Court Appeal, the appellant has challenged the order dated 05.12.2016 passed by the Learned Singl e Judge of this Court in Suit No.1216 of 2016, on the application under Order XXXIX Rule 1 & 2 CPC, whereby the said application was dismissed. 2. Facts give arise to the filing of instant appeal is that appellant- Jamshoro Joint Venture Limited [JJVL] filed suit bearing No.1216 of 2016 for declaration and injunction under Section 56 of the Specific Relief Act read with Section 41 of Arbitration Act, on the original civil jurisdiction of this Court, inter alia, seeking perpetual injunction against the respondent-Sui Southern Gas Company Limited [SSGC] from cancelling the four (4) MoUs entered into between the appellant and respondent in respect of extraction of LPG and NGL from four Gas fields namely; (i) Kunnar & Pasakhi Deep [KPD], (ii) Sinjhoro, (iii) Naimat Basal and (iv) Bobi, till the event contemplated in Article-1 of the contracts have occurred. Along with above said suit, CMA No.7995/2016 was also filed seeking an interim injunction for the suspension of the notices dated 04.05.2016 issued for the termination of MoUs till the final decision of the case/suit. The learned single judge after hearing the counsel for the parties dismissed the said CMA, decision whereof has been challenged in the instant HCA. 3. The stance of the appellant/plaintif f in the case is that the appellant is a public limited company engaged in business of the extraction of LPG and NGL from various gas fields against the processing fee during the interim period of installation of OGDCL plant. For the aforesaid purposes of extraction Liquefied Petroleum Gas (LPG) from natural gas from five gas fields namely; (i) Kunnar & Pasakhi Deep [KPD], (ii) Sinjhoro Gas field, (iii) Naimat Basal Gas field, (iv) Badin Gas field and (v) Bobi Gas field and supplied to SSGCL, various agreements and MoUs were entered into between JJVL and OGDCL and SSGCL. In relation to (i) Kunnar & Pasakhi Deep [KPD], (ii) Sinjhoro, (iii) Naimat Basal (iv) Bobi, gas fields four MoUs were entered into between the appellant and respondent. Whereas for Badin gas fields interim arrangement continued in view of the observation of the Hon'ble Supreme Court. The above MoUs were entered into in the light of the judgment of Hon'ble Supreme
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Court of Pakistan, reported as Khawaja Muhammad Asif vs. Federation of Pakistan [PLD 2014 SC 206]. The dispute arose between the appellant and the respondent on various issues, and it is for the resolution of such disputes/issues the appellant and the respondent had agreed that instead of going further to severe relationships, the same should be settled through a dispute resolution mechanism, pursuant whereof it was agreed to refer the matter to arbitration. Thereafter, various correspondences were exchanged relating to the topics/issues and finally by letter dated April 2, 2016 JJVL conveyed to SSGCL their agreement as to the topics of dispute which would be the subject matter of Arbitration. Thereafter, JJVL nominated Mr. Justice R. Tariq Shamim, former judge of the Hon'ble Lahore High Court as Arbitrator whereas SSGCL nominated Mr. Justice (R) Munib Ahmed Khan, a former Judge of the Hon'ble High Court of Sindh as their Arbitrator in the proposed arbitration under Arbitration Act, 1940, and it was decided that the two Arbitrators will jointly appoint an Umpire. The plea of the appellant is that in presence of the agreement that the disputes needed to be settled by arbitration and that it was the dispute resolution manner that was agreed to between the parties, the respondent, malafidely instead of proceeding with the arbitration, the CFO, the General Manager and the Managing Director of SSGCL, with ulterior motives, recommended to the Board of Directors, on the same issues which were in dispute, that instead of entering arbitration, the board should terminate all the MoUs and float another tender for the same five gas fields. The Board meeting was held on 18.04.2016 and a decision thereof was taken by the Board on miss-represented facts that they were suffering losses in relation to the rates quoted by the JJVL. In addition, the said Board of Directors was not made aware of the judgment rendered by the Supreme Court of Pakistan in above referred Khawaja Muhammad Asif case. That as a consequence of the illegal passing of the resolution of the Board of Directors of the Respondent, the respondent, issued five letters all dated 04.05.2016, cancelling/terminating the Memorandums of Understanding [MoUs] of all the five gas fields. It is alleged that said notices have been issued in contravention of the judgment of the Supreme Court, without authority, unlawfully, especially when the said arbitration proceeding had commenced upon the appointment of the arbitrators, and amounts to taking away vested rights of the appellant. The appellant challenged the said notices of termination in suit bearing No.1216 of 2016, inter alia, on the grounds that the agreement could not have been terminated as the terms of the MoU categorically provide for their acts that it would remain in force until either of the two events occur, mentioned in the agreement itself. Reference to the provision of termination being Article 6 would also be subject to Article 1 and, therefore, the action of termination under Article 6 only by giving a notice of termination is malafide and is an excessive use of lawful authority as the said respondent wants to wiggle out of the arbitration where they agreed to settle the disputes through arbitration. The appellant challenged the order dated 05.12.2016 passed by the learned Single Judge in the present High Court Appeal, whereby the injunction application filed by the appellant in the suit was dismissed. 4. Upon notice of the present appeal the respondent filed reply to the appeal and counter affidavit wherein while taking preliminary legal objections regarding maintainability of the appeal refuted the allegations levelled in the memo of appeal. It is also stated that impugned order dated 5.12.2016 is a detailed and reasoned order which was passed after several hearings, in the course of which the Court considered each and every submission of the parties and finding no merit in the appellant's case dismissed the appellant's injunction application. 5. The stance of the respondent in the case is that the appellant and the respondent had entered into an Implementation Agreement' dated 12.08.2003 for the extraction of LPG/NGL from Badin Gas field. However, the Supreme Court in the above referred case of Khawaja Muhammad Asif had declared the implementation Agreement between the parties for LPG extraction from Badin Gas Field as null and void and set aside the same. Furthermore, the MoUs and the Badin Arrangement, which the Parties had entered into for the extraction of LPG/NGL only on an interim basis. The MoUs allow either party to terminate the MoUs without assigning any reason by giving fifteen days advance written notice to the other party, which effectively was done pertaining to KPD, Sinjhoro and Naimat Basal Gas Fields. For Badin and Bobi Gas Fields, the respondent exercised its inherent right to terminate the said MoU/Badin Arrangement respectively. It is also stated that at the inception of LPG/NGL processing business, the margin of profit was high mainly due to high local producer prices of LPG.
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However, at the end of 2014 and onward, there was a downward trend in the prices of LPG because of which the respondent's margins in LPG/NGL business had drastically gone down, thus making the production of LPG/NGL uneconomical for the respondent. Moreover, the continuation of such arrangements would have compelled the respondent to increase the price of LPG (due to a higher processing charges), which would ultimately burden the end consumers. Since March 2016, the respondent had negative margins, which were also presented to the respondent's Board, where a decision was taken to terminate the MoUs and the Badin Arrangements as per their terms, in view of the respondent being subjected to negative margins in this business. Keeping in view the situation, the respondent had asked the Appellant to reduce the processing charges of LPG/NGL but the appellant refused to do so, leaving the respondent with no alternative but to exercise its right to terminate the MoUs and the Badin Arrangement. It is also stated that the appellant's reference to the Supreme Court Judgment (Khawaja Muhammad Asif case) is totally misconce ived as the Honorable Supreme Court or for that matter any Court could never direct a party to continue supplying a product at a loss to itself, more specifically , if it is a public-sector company managing public funds. All the more, the Honorable Supreme Cour t set aside the implementation agreement entered into between the appellant and the respondent with respect to the Badin gas field in the year 2003. The other gas fields were governed by MoUs signed between the parties in the year 2014 and have nothing to do with the Honorable Supreme Court's judgment reported as PLD 2014 SC 206 . 6. During the course of arguments, learned counsel for the appellant has contended that the order impugned in the present proceedings is not sustainable in law and as such the same is liable to be set aside. It is further contended that Learned Single Judge while passing the impugned order has failed to consider the fact of termination of the subject MoUs was unlawful as the arbitration had already commenced and the abrupt termination was done for ulterior motives. The MoUs do not stipulate a termination until the happening of the events stated under Article-I, have taken place which is the essence of the contract, and that only on the happening of two events, provided in the said Article I (1) and (2), the MoUs could not be terminated. It is also contended that Learned Single Judge while passing the impugned order has erred in holding that the MoUs entered into between the respondent and the appellant were revocable in nature under the law even though the MoUs stipulated a conditional revocation based upon the happening of certain events. The learned Judge while passing the impugned order has also failed to consider that the subject MoUs were entered into between the parties in the light of Honorable Supreme Court's judgment reported as PLD 2014 SC 206, wherein it was observed that "the supply of LPG to a very large number of users, including those living in far-flung areas is a matter of public importance impacting their life' as defined by this Court. Such supply, therefore, needs to continue unabated." It is also argued that the Honorable Supreme Court in the said judgment also observed that "...avoidance of wastage through flaring is an important consideration for the purposes of passing an order to ensure that precious and scarce mineral resources of the nation are not frittered away ...." Hence wastage of mineral resources was also to be safeguarded, which would have resulted, if the extraction plant of the appellant was shut. In the light of this back ground the subject MoUs were entered into between the parties. It is also contended that the learned Judge while passing the impugned order has failed to consider the malafide on the part of the respondent wherein they appointed an Arbitrator on 02.05.2016 and terminated the MoU on 04.05.2016 even though there is a specific provision in the MoU which provides that during a resolution of any dispute the contractual obligation will be performed by both the parties. Further contended that the learned Judge failed to appreciate that the essence of subject MoUs was the interim arrangement which could persist until the respondent installed the LPG Extraction Plant and in the light of the same, it would not fall under Section 21 and Section 56 of the Specific Relief Act, 1877. Further contended that learned Single Judge, through the impugned order while deciding the injunction [being CMA No.7995 of 2016], in fact, dismissed the entire suit, which is untenable in law. It is also argued that in the impugned order , the interpretation adhered to by the learned Single Judge for interpreting the MoUs is in defiance of the principle of coherent and harmonious interpretation. Further argued that the Learned Single Judge has failed to notice the fact that the Board of Directors of the respondent had categorically stated that the MoU/Agreements be cancelled on account of the fact that the OGDCL Plant would commence operation as such, the intention of the Board to invok e Article-1 instead of Article 6(c). The management thus, acted beyond
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authority of the Board and could not have cancelled the same without assigning any reason. It is also argued that the subject MoUs were terminated with malafide intention and could not have been terminated when arbitration had already commenced under a dispute resolution mechanism. Even though, the arbitration was without intervention of the Court, nevertheless, under Section 41 of the Arbitration Act, the Honorable Supreme Court has powers to intervene and make orders in respect of any of the matters provided in the Second Schedule, which includes granting an injunction. Further argued that it is a settled law that the entire agreement has to be read as a whole and if there are contradictory provisions then the same should be reconciled with rational meaning/interpretation. Lastly , argued that money is not an adequate remedy in the circumstances of the case and the stay application of the appellant was liable to be allowed. The learned counsel in support of his arguments has relied upon the following case law: (1) 1979 CLC 625 Messrs ASADULLAH KHAN & Co. LTD., KARACHI v. KARACHI SHIPY ARD & ENGINEERING WORKS LTD. and another , (2) 2001 CLC 664 Ch. ABDUR RAUF v. Mrs. ZUBEDA KALEEM and others (3) 1979 CLC 307 ISLAND TEXTILE MILLS LTD., v. V/O TECHNOEXPER T and another , (4) NLR 1992 CLJ 693 ORIX LEASING PAK LTD. v. ZAHID INDU STRIES, ETC., (5) 2002 SCMR 1694 SOCIETE GENERAL DE SUR VEILLANCE S.A v. PAKIST AN through Secretary Finance Revenue Division, Islamabad, (6) 2002 SCMR 1903 Messrs TRIBAL FRIENDS CO. v. PROVINCE OF BALOCHIST AN, (7) 2003 CLD 596 SAUDI-P AK INDUSTRIAL AND AGRICUL TURAL INVESTMENT COMP ANY (PVT .) LTD v. Messrs ALLIED BANK OF PAKIST AN and another , (8) PLD 1977 Karachi 21 MUHAMMAD AZAM MUHAMMAD FAZIL & Co., KARACHI v. Messrs N.A INDUSTRIES, KARACHI. (9) 1982 CLC 2369 SWITZERLAND v. BANK OF CREDIT AND COMMERCE INTERNA TIONAL LONDON AND OTHERS, And (10) 1995 CLC 1003 MUZAMMILULLAH v. PAKIST AN STEEL MILLS (PVT .) LTD and another . 7. Conversely , learned counsel for the respondent during the course of his arguments while reiterating the contents of his reply to the memo of appeal has contended that the order impugned in the present proceedings is a detailed and well-reasoned order which was passed after considering each and every submission of the parties, hence, the same does not warrant any interference in the present proceedings. It is also argued that the commencement of the process of arbitration, not envisaged under the MoUs, does not preclude the respondent from terminating the MoUs. Furthermore, the issue of Termin ation of the MoUs and the disputes in the ongoing arbitration, are two separate and independent matters and the appellant is deliberately with malafide intent to combine the two in an attempt to confuse the matters. Further argued that the stance of the appellant regarding the supply of LPG from its LPG extraction plant, continuing unabated in relation to all the gas fields is ex-facie a misinterpretation of the Supreme Court judgment and self-serving. The Supreme Court judgment only related to the Badin gas field and even if the Supreme Court had directed the supply of LPG unabated to the consumers in relation to the Badin Gas field, this did not mean that such supply should only be routed through the appella nt, notwithstanding its charging an exorbitant LPG extraction fee which made the cost of LPG exorbitant and commercially uneconomical for the respondent. It is also argued that Article-1 of the MoUs clearly stipulates that unless terminated earlier in accordance with its terms the MOUs shall remain in force until either of the two events stated therein occurred i.e. (i) any bidder under the Tender Enquiry mentioned therein was selected and commissioned the LPG Extraction Plant to receive Gas for extraction of LPG/NGL or (ii) SSGCL/OGDCL itself installed the LPG Extraction Plant. Whereas condition (i) became academic and not achievable in view of the Tender Enquiry , in the case of Bobi Gas Field having lapsed and in the case of the other three Gas Fields (KPD, Sinjhoro and Naimat Basal) being cancelled, as regards condition (ii) regar ding the establishment of the LPG Extraction Plan, OGDCL has already installed the LPG Extraction plant and is receiving gas from the KPD gas field and is processing the same for extraction of LPG/NGL, after the MoUs were terminated on 4.5.2016. It is also argued that plain reading of Article-1 of subject MoU read with Article-6, is amply clear that the term of the MoU with its two conditions was subject to Article-6, under which the MoU could be terminated earlier . Furthermore, Article-6 is clearly an independent provision of the MoUs, with Article-1 being subject to Article-6. More so, the conditions stipulated in Article-1 of the MoUs for their expiry would not alter the above legal position but, on the contrary , supports the position that the MoUs were revocable falls within the purview of Section 21 read with Section 56(f) of the Specific Relief Act.
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Further argued that it is settled law in terms of Section 21(d) read with Section 56(f) of the Specific Relief Act that where damages is an adequate remedy or where the agreement is revocable, amongst the other grounds listed therein, injunction does not lie. It is also argued that the MoUs and the Badin arrangement were in essence interim in nature?, creating no vested rights in favour of Appellant. Furthermore, respondent lawfully terminated the MoUs and the Badin arrangement, in terms of Article 6(c) without assigning any reason in the case of the three MOUs (KPD), Sinjhoro and Naimat Basal Gas Field) referred to above and under its inherent rights in relation to Bobi Gas Field for cogent reasons and under the terms of the MoUs the appellant is expressly precluded from lodging any claim in respect of same. It is also argued that the MoUs run into minute and numerous details, which depend on the personal qualifications of the parties and the MoUs and the Badin arrangement are revocable, as per the provisions of the MoUs, as such, the same cannot be specifically enforced. Further, in terms of Section 56(f) an injunction cannot be granted to prevent the breach of a contract, the performance of which not be specifically enforced. It is further argued that the Honorable Supreme Court in its judgment in the case of Khawaja Muhammad Asif (supra) ex-facie indicates that it was extremely keen to protect SSGC from losses, bearing in mind that it is a public-sector company managing public funds. Hence, it cannot be said that the Hon'ble Supreme Court would give direction to a public-sector company like SSGC to supply gas, even if it was making losses and was experiencing negative margins. Learned counsel emphasized that the respondent is entitled to terminate the MoUs in accordance with its terms which is clear and categorical and is not dependent on the OGDCL's plant coming into operation or any other reason whatsoever. Lastly argued that that the impugned order was passed after extended hearings and has addressed all the issues raised by the appellant in a detailed and convincing manner from which it is quite apparent that the appellant has failed to make out a prima facie case and neither the balance of convenience is on the side of the appellant and nor the dismissal of the injunction application would cause any irreparable loss to the appellant. Learned counsel in support of his arguments in the case has relied upon the following case law: (1) 2015 YLR 2141 BANK ALFLAH LTD. v. NEUMUL TIPLEX AND ENTER TAINMENT SQUARE COMP ANY (PVT .) LTD., (2) PLD 2001 Karachi 185 Messrs SHAKIL WAQAS & CO. and others, v. GENERAL MANAGER MARKETING, PAKIST AN RAIL WAYS and others, (3) 1995 MLD 384 Messrs UNIVERSAL BUSINESS EQUIPMENT (PVT .) LTD v. Messrs KOKU SAI COMMERCE INC and others, (4) 2010 MLD 800 LAHORE STOCK EXCHANGE LTD through Managing Director and another v. Messrs HASSAN ASSOCIA TES through Managing Partner , (5) PLD 1965 SC 83 M.A NASER v. CHAIRMAN PAKIST AN EASTRN RAIL WAYS and others, (6) 2013 PLC (CS) 768 GHULAM NABI SHAH v. PAKIST AN INTERNA TIONAL AIRLINES CORPORA TION through Managing Director and 4 others, (7) 1974 SCMR 519 MARGHUB SIDDIQUI v. HAMID AHMAD KHAN and 2 others, (8) 1986 SCMR 820 Messrs ASSOCIA TED CONSTRUCTION LTD. v. ASIF H. KAZI and another (9) PLD 2014 SC 206 Khawaja MUHAMMAD ASIF v. FEDERA TION OF PAKIST AN and other And (10) 2014 SCMR 1858 JAMSHORO JOINT VENTURE L TD v. Khawaja MUHAMMAD ASIF and others. 8. We have heard the learned counsel for the parties and have also perused their submissions in writing, material available on record as well as case law relied upon by the counsel for the parties in support of their stance in the case. 9. From the perusal of record, it appears that the Appellants filed a Suit for declaration, cancellation, permanent injunction, damages and possession, against the respondent. With the following prayers: "a) to declare that the Memorandum of Understanding pertaining to LPG and NLG extraction for Naimat Basal Gas Field, Sinjhoro and Kunnar Pasakhi Deep Field dated 26.05.2014, Bobi Gas Field dated 02.09.2012 and the interim arrangement in relation to Badin Gas Field in relation to the said five gas fields stated in Para-1, hereof are not liable to be terminated unilaterally , when the matter in dispute has already been referred to arbitration; b) to declare that Article 6 of the Memorandums and each of them are subject to Article 1 thereof and therefor , unless the events contained in Article 1, are in any way attracted only then would Article 6 of the said contract to be acted upon; c) to grant perpetual injunction, restrain ing the Defendants from cancelling any of the five Memorandums of Understanding interim arrangement, which have been acted upon by both the parties, till the event contemplated
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by Article-1 of the contracts have occurred; d) to grant cost of the suit; e) any further relief or reliefs that this Hon?ble Court may be pleased to grant in the facts and circumstances of the case." Along with the above said Suit the appellant also filed application bearing CMA No. 7995 of 2016, under Order 39 Rule 1 & 2 CPC for interim relief. 10. Learned Single Judge of this Court, after hearing counsel for the parties, pass ed the order dated 05.12.2016, dismissed the said application of the appellant, which is impugned in the present proceedings. 11. To facilitate understanding of the issues, it is appropriate to summarize briefly and in simple terms, some technical aspects of LPG and background of the case. The natural gas which is received by SSGCL under the GSA is made up of a mix of gases. These include propane, butane and methane. Butane and propane, when extracted from the mix, are liquefied and sold as LPG. As a result of extraction of LPG from natural gas, there is a reduction in the remaining volume and calorific value of natural gas which reduction is known in technical terms, as "gas shrinkage". On 12.08.2003 an Implementation Agreement was executed between respondent-SSGCL and Appellant-JJVL whereby the appellant was to establish a Plant for extraction of LPG from natural gas supplied to it by respondent JJVL was, inter alia, to pay a compensation price to SSGCL for gas shrinkage and also royalty payments on the LPG extracted by it. In the year 2011, one Khawaja Muhammad Asif, who was a member of the opposition in the National Assembly in 2011 approached the Honorable Supreme Court under Article 184(3) of the Constitution and challenged the extraction agreement awarded to Appellant-JJVL on the ground that same was neither lawful nor fair nor was it transparent. According to him, it was meant to extend illegal and undue favour to Appellant JJVL at the cost of the State and the People of Pakistan. The said case (Khawaja Muhammad Asif vs. Federation of Pakistan and others) subsequently decided…
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