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Petitioner: ALFRED C. TOEPFER INTERNATIONAL GMBH VS Respondent: PAKISTAN MOLASSES COMPANY JUDGMENT
Court Name: Sindh High Court Judge(s): Amir Hani Muslim Title:ALFRED C. TOEPFER INTERNATIONAL GMBH vs PAKISTAN MOLASSES COMPANY
JUDGMENT
Reported As: 2003 CLD 1666 Result: Suit decreed Judgment JUDGMENT ' Plaintiff has filed these proceedings under section 5 of the Arbitration (Protocol and Convention) Act, 1937 (hereinafter referred to as "the Act"), against defendants praying therein that the Appeal Award dated 7-2-1994 given by the Board of Appeal under the Grain and Feed Trade Association (hereinafter referred to as "GAFTA") stationed in London, United Kingdom, be filed in this Court and the judgment be pronounced in terms of the said Award. 2. The facts of the case are that the plaintiff entered into a contract with the defendant No,1 on 2- 10-1991 whereby he agreed to sell to the defendant No,1, 2000 Metric Tons +/- 10% Turkish white soft wheat. 3. The contract entered into between the parties provided that the parties would be governed by the terms of GAFTA contract, not in conflict with the referred contract. 4. Dispute pertains to the claim for demurrage by the plaintiff amounting to U.S. $ 269,687.50. Clause 35 of GAFTA Contract No,61 provides for reference of any dispute between the parties to arbitration in accordance with Rule 125 of GAFTA. The plaintiff, therefore, invoked the arbitration clause under the Rules of GAFTA and defendant No,1 submitted to the jurisdiction of the arbitrators and arbitrators were appointed by the parties in accordance with the GAFTA Rules who gave their award on 14-7-1993 holding therein that defendant No,1 was liable to pay demurrage to the tune of U.S. $ 97,187.50 to the plaintiff: The plaintiff however, preferred appeal before the GAFTA Board of Appeal, which modified the award by increasing the amount of money given in the original award holding therein that the defendant No,1 was liable to pay demurrage to the plaintiff for a sum of U.S. $ 269,687.50 with interest at the rate of 7%.
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5. The defendants made an application before the High Court of Justice (Queen's Bench Division), Commercial Court in London for remanding Award to the GAFTA Board of Appeal to give further reasons. The application was, however, dismissed by the High Court on 10-6-1994. Against the said order of the High Court the defendants have not taken any further steps to impugn the finality of the decision made in the award or otherwise. 6. The plaintiff has sought enforcement of this award under section 7 of the Act being a Foreign award within the meaning of section 2(a) of the Act and had pleaded that the award has not been annulled in the country in which it was made and the notices of arbitration proceedings were given in sufficient time to the defendant No,1, who submitted to the jurisdiction of the arbitrators appointed his arbitrator participated in proceedings and the award is sought to be enforced deals with all the questions referred to by the arbitrators and does not contain decision beyond the scope of the agreement of arbitration. Defendant No,2 was also impleaded as a party for the purpose of adjudicating the proceedings as he was the proprietor of defendant No, 1. On issuance of the notice the defendant No,1 has filed its objection/reply to written statement pleading therein that the award by the GAFTA Board of Appeal in favour of the plaintiff was unenforceable being void, inter alia, on number of grounds mentioned in the written statement/objections. 7. In support of his objections Mr. Rasheed Akhund, Advocate for defendant No,1, has submitted that there is no express clause of arbitration in the contract dated 2-10-1991 entered into between the parties and in the contract, applicability of the provisions of GAFTA Rules contained the clause of arbitration, therefore, the matter was referred to the arbitrators and since the original contract between the parties did not contain the arbitration clause therefore, the appointment of arbitrators and consequently, the findings in the shape of award were illegal, void and hence unenforceable. He submitted that the Act was inapplicable to Pakistan and therefore, any Foreign award under section 2 of the said Act could not be enforced by this Court. According to him, the. Notification dated 20-4-1960 produced by the plaintiff alongwith his reply to the written statement could not extend to cover the controversy decided in Germany as it refers to Federal Republic of Germany and the arbitration proceedings undertaken in London falls outside the scope of the notification. He further submitted that the notification does not even mention the name of the 'territory' as required under section 2(1) of the Act. 8. While addressing on the question of jurisdiction to enforce the Award, Mr. Rasheed Akhund has submitted that section 2 of the Act makes Foreign award enforceable subject to the conditions laid down under section 7 of the Act. He further submitted that section 4(1) of the Act provided that a Foreign Award shall be subject to provision of this Act be enforceable in Pakistan as if it was award made on a matter referred to Arbitration in Pakistan. He, thereafter, referred to section 2(1)(a) by submitting that in order to make an award enforceable in this Court it is incumbent upon a party seeking enforcement to show that there existed an agreement for arbitration to which the protocol set forth in First Schedule applied. Mr. Rasheed Akhund referred to Articles 5 and 6 of the First Schedule by submitting that law required ratification which was required to be deposited with the Secretary-General of League of Nations who was to notify such deposit to all the signatory States. He submitted that Article 6 of the First Schedule of the Act provided that in order to bring protocol into force there should have been two ratifications deposited in terms of Article 5 of First Schedule and the Secretary-General of League of Nations and who further was required to notify the Contracting States about such ratification. He then referred to Articles 6, 7 and 8 of Second Schedule of the Act, which according to him came into existence on 24-9-1923. He submitted that the words "British India" used in it would not cover "Pakistan". 9. Mr. Rasheed Akhund while making his submissions has referred to section 2(1)(b)(c) of the Act and argued that there was no contract which provided agreement for arbitration between the parties and even otherwise, there was no ratification/notification by the Government to cover the
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proceedings in London (United Kingdom). However, he conceded that the Act does not provide a bar in holding arbitration proceedings to a third place. He has relied upon the case of Yangtze (London) Ltd. v. Barlas Bros. (Karachi) reported in PLD 1961 SC 573 wherein their Lordships while interpreting section 2 of the Act had observed that "the system of law which prevailed in British India and now prevails in this country, international arrangements affecting private rights and obligations do not become operative of their own force but require some legislative or other sanction. Such international arrangements are recognized and enforced in our national Courts only to the extent they are incorporated into the municipal or domestic laws of our country and subject to the conditions, if any, therein specified. Thus the Protocol on Arbitration Clauses and the Convention on the Execution of Foreign Arbitral Awards had to be incorporated in the Arbitration (Protocol and Convention) Act, 1937 and the conditions therein prescribed had to be complied with, by issuing the notification of the 8th June, 1938, before they could become operative even in British India". Their Lordship in the last had held that foreign awards under section 2 are not enforceable for want of legislative instrument on creation of Pakistan in 1947. 10. Subsequent to the judgment of the Honourable Supreme Court by an Ordinance LIII of 1962 dated 6-6-1962 whereby, inter alia, section 2 of the Act was amended with retrospective effect from 15-8-1947 and, inter alia, it was provided that for removal of doubt, it was declared that any notification issued under section 2 by the late Government of India before 15th August, 1947 and notified on that day for the purposes of enforcement of Foreign awards in British India, declaring any party to the said Convention or any territory to which the Convention applied shall be deemed to be a notification by the Central Government for the purposes of enforcing Foreign awards in Pakistan. Mr. Rasheed Akhund argued that even this amendment does not cure the defects pointed out by the Honourable Supreme Court in the referred case to allow Pakistan Courts to enforce Foreign awards. He submitted that the amendment does not spell out the territories and since this is an amendment by introducing deeming clause, therefore, it was ineffective. He submitted that in law deeming provision cannot be applied without limits and without specified purpose. According to him, the deeming amendment requires us to assume that something which is not in existence should be deemed to be assumed in past. He relied upon the case of Begum B. H. Syed v. Afzal Jahan Begum reported in PLD 1970 SC 29 at 35. Their Lordships in the said judgment has held that "when a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purpose and between what persons the statutory fiction is to be resorted to". This view was endorsed in another judgment of the Honourable Supreme Court in the case of Mehreen Zaibun Nisa v. Land Commissioner reported in PLD 1975 SC 397 at 433. Mr. Rasheed Akhund further relied upon the judgment reported in the case of Molasses Trading and Export (Pvt.) Ltd. v. Federation of Pakistan reported in 1993 SCMR 1905 at 1920 wherein their Lordships had held that by introducing non obstante clause the effect of the judgment of the superior Courts cannot be, nullified. Mr. Rasheed Akhund submitted that provisions of section 2 of the Act required the Government to issue a separate notification for each and every country and subsection (2) of section 2 which is introduced by the amending Ordinance would not cover such grounds. 11. Mr. Rasheed Akhund further referred to sections 7 and 8 of the Act read with Articles 1, 2 and,4 of the Second Schedule and submitted that under Rule 4:7 of the GAFTA Rules the counsel is debarred from appearing and assisting the arbitratoRs, According to Mr. Akhund the rule defies the norms of natural justice. He, however, submits that the parties did submit their written replies. He submitted that the award given by the arbitrators under the GAFTA Rules was unenforceable, as the proceedings, before the arbitrators under GAFTA Rules were violative of sections 7 and 8 of the Act read with Articles 1 and 2 of the Second Schedule being against the norms of natural justice.
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12. The third leg of argument of Mr. Rasheed Akhund was that the, award was absurd, capricious, arbitrary and unreasonable. He submitted that no evidence was recorded and the award was given on the basis of the documents. He referred to section 8(1)(b) of the Act which provided that the parties were required to lead evidence. He submitted that section 7(1) of the Act clearly provided that a Foreign award cannot be enforced by this Court if it was contrary to the public policy or the law of Pakistan. He submitted that the procedure provided under the GAFTA Rules was violative of the natural justice, therefore, the award was unenforceable. According to learned counsel the procedure of GAFTA Rules is violative of Article 4 and Article 1(c) of the Second Schedule being against the public policy and laws of Pakistan as the defendant was not properly represented. The award, therefore, is unenforceable under section 7(2)(b) read with Article '2 of the Second Schedule of the Act. He further submitted that the issues between the parties were not dealt with by the arbitrators nor the arbitrators had discussed the material on the basis of which they have reached the conclusion awarding demurrages against the defendants. 13. Mr. Rasheed Akhund relied upon the case of Chief Commissioner, Karachi v. Dina Sohrab Katrak reported PLD 1959 SC (Pak.) 45 on the principle that natural justice is applicable not only to the judicial but also to the administrative bodies. He relied upon the case of Abdul Haq v. Province of Sindh reported in PLD 2000 Karachi 224 at 234 wherein a Division Bench of this Court has held that the principle of natural justice has to be read in all the statutes unless excluded. He submitted that the defendants were legally incapacitated and under the provisions of section 7(2)(b) of the Act this Court would infuse enforcement of the Award as the defendants were not permitted to represent their case through a lawyer in view of the bar contained under Rule 4:7 of the GAFTA Rules. He submitted that the defendants were to be governed under the Arbitration Act, 1940, in view of the judgment by a Single Bench of the Lahore High Court in the case of Rupali Polyester Ltd. v. Dr. Nael G. Bunni reported in PLD 1994 Lahore 525 at 544. According to him the Award sought to be filed was unenforeeable as the Award was given on the basis of the law which was in conflict with the provisions of the Arbitration Act, 1940. He submits that there was no agreement between the parties to pay interest, which was granted by the arbitrators against the defendant while awarding demurrage. 14. Mr. Rasheed Akhund further submitted that the objections which he has filed in these proceedings be treated as objections under section 30 read with section 33 of the Arbitration Act, 1940. He submitted that this Court can examine the validity or otherwise of the Foreign awards on the grounds mentioned in sections 30 and 33 of the Arbitration Act, 1940, in the present proceedings. 15. According to Mr. Rasheed Akhund under the terms of the contract entered into between the parties the "parity" was cost and trade free out of Karachi. He submitted that the word "out Karachi" would include both ports i,e, Karachi Port and Bin Qasim Port. He submitted that under the Rules of GAFTA the cargo was to be discharged according to the custom of the Port and for that purpose Bin Qasim Port was the only place where the ship was to discharge cargo. The Arbitrators and the Appellate Board overlooked this fact and conclusion drawn by both the forums was erroneous. He submitted that it was the charter party, which was to arrange the cargo and defendant could not be made liable to pay demurrage if the berth is not arranged for the ship to discharge cargo neither could the defendant be made liable to pay demurrage on account of delay in discharge of cargo. He submitted that Rules of GAFTA were applicable subject to the terms of contract and the contract entered into between the parties did not mention arbitration clause. He heavily relied upon Condition 19 of the GAFTA Rules which provided that a ship was to discharge cargo according to the custom of the port. 16. As against these arguments, Mr. Arshad Tayebally, learned counsel for the plaintiff, has argued that after the judgment of the Honourable Supreme Court in the case of Yangtze reported in PLD
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1961 SC 573 an amendment was' brought in section 2 of the Act, by an Ordinance LIII of 1962 which has cured the defect. He submitted that similar arguments were advanced in the case of Nan Fung Textile Ltd. v. H. Pir Muhammad Shamasuddin, reported in PLD 1979 Karachi 762 and the Honourable Mr. Justice Ajmal Mian, as he then was, has held that the amendment in section 2 of the Act has cured the defects. The Honourable Judge further observed that the Ordinance LIII of 1962 by which the amendment in section 2 of the Act has been made did not violate any Constitutional provision and was enacted by the competent authority. He also observed that it was the privilege or prerogative of Government of Pakistan to decide as to whether the award given in a particular foreign country should be enforceable in Pakistan or not, notwithstanding that the country in which the award has been given has not made any reciprocal arrangement for the enforcement of Pakistani award as contemplated in section 2 of the Act. The Government of Pakistan has expressed its intention through an amendment and, therefore, the Court would not decline to enforce such foreign Awards and principles laid down by the Honourable Supreme Court in the case of Yangtze would not come in the way of the parties seeking enforcement of Foreign award. This view was endorsed by another Honourable Judge of this Court in the case of R.B. & C. Ltd. v. Muhammad Amin Muhammad Bashir Ltd. Reported in 1987 CLC 83. Mr. Arshad Tayebally submitted that the arguments in regard to the application of the principles laid down by the Honourable Supreme Court in the case of Yangtze were fully answered by the two judgments of this Court referred to hereinabove. 17. Mr. Arshad Tayebally submitted that the word "territory" used in the section 2(1)(c) of the Act would have no bearing once the amendment has been made in subsection (2) of section 2 of the Act as the word "territory" used in the said subsection (c) means the country and is being covered by the amendment brought in by Ordinance LIII of 1962. He submitted that the validity of an award could only be questioned on the ground referred to under section 7 subsection (2) of the Act and not otherwise. According to Mr. Arshad Tayebally, the scope to examine the award under section 7(2) of the Act is limited and questions of fact could not be looked into as this Court would not sit in appeal against Foreign award sought to be filed/enforced. 18. Mr. Arshad Tayebally further submitted that the defendants have entered into the contract which provided that the parties would be governed by GAFTA Rules and under the GAFTA Rules arbitration is provided. The defendants cannot after exhausting all the remedies provided under the Rules challenge these rules under which the award has been made once they have invoked the arbitration clause, participated in the proceedings before the arbitrators and in appeal before the GAFTA Board and these awards were challenged by them in the High Court of London. 19. Mr. Arshad Tayebally also submitted that the dispute between the parties is commercial dispute and does not fall to cover the laws against public policy. He submitted that the case reported in PLD 1994 Lahore 525 relied upon by the learned counsel for the defendant is distinguishable on facts as both the parties had agreed to refer their dispute to the arbitrators outside the country but the arbitrator was required to conduct the proceedings in terms of Arbitration Act, 1940 and gave award under the said statute. He submitted that since the parties consented to application of Pakistani law, therefore, the said judgment would not come in his way as in the instant case the parties have consented by a contract that they would be governed by GAFTA Rules. 20. I have heard the learned counsel and perused the record. 21. For the sake of convenience the provisions of section 2 of the Act is reproduced hereinbelow:-- "2. (1) In this Act " Foreign award" means an award on differences relating to matters considered as commercial under the law in force in Pakistan, made after the 28th day of July, 1924,- (a) in pursuance of an agreement for arbitration to which the Protocol set forth in the First Schedule applies, and
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(b) between persons of whom one is subject to the jurisdiction of some one of such powers as the Central Government, being satisfied that reciprocal provisions have been made, may, by notification in the official Gazette, declare to be parties to the Convention set forth in the Second Schedule, and of whom the other is subject to the jurisdiction of some other of the powers aforesaid, and (c) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by like notification, declare to be territories to which the said Convention applies, and for the purposes of this Act and award shall not be deemed to be final if any proceedings for the purpose of contesting the validity of the award are pending in the country in which it was made. (2) For the removal of doubt it is hereby declared that any notification issued under this section by the late Government of India before the fifteenth day of August, 1947, and in force on that day for the purpose of enforcement of Foreign awards in British India, declaring any Power to be a party to the said Convention or any territory to be the territory to which the Convention applies, shall be deemed to be a notification issued by the Central Government for the purpose of enforcement of Foreign awards in Pakistan." 22. The first argument of Mr. Rasheed Akhund that the Honourable Supreme Court in the case of Yangtze has held that a Foreign award was not enforceable for want of ratification. With profound respect, the referred judgment of the Honourable Supreme Court would be inapplicable as subsequently by Ordinance LIII of 1962 which is reproduced hereinunder, section 2 of the Act was amended which cured the defects pointed out by the Honourable Supreme Court in order to make the Foreign award enforceable by the Courts in Pakistan: "ORDINANCE LIII OF 1962 FOREIGN AWARDS AND MAINTENANCE ORDERS ENFORCEMENT (AMENDMENT) ORDINANCE, 1962 1. Short title and commencement.---(1) This Ordinance may be called the Foreign Awards and Maintenance Order Enforcement (Amendment) Ordinance, 1962. (2) It shall come into force at once and shall be deemed to have taken effect on the fifteenth day of August, 1947. 2. Amendment of section 2, Act VI of 1937.---In the Arbitration (Protocol and Convention) Act, 1937 (VI of 1937), section 2 shall be renumbered as subsection (1) of that section, and after subsection (1) as so renumbered the following shall be added as subsection (2) of that section and shall be deemed to have been so added on the 15th August, 1947, namely:-- (2) For the removal of doubt it is hereby declared that any notification issued under this section by the iate Government of India before the fifteenth day of August, 1947, and in force on that day for the purpose of enforcement of Foreign awards in British India, declaring any power to be a party to the said Convention or any territory to be the territory to which the Convention applies, shall be deemed to be a notification issued by the Central Government for the purpose of enforcement of Foreign awards in Pakistan." 23. It may be observed that after the judgment of the Honourable Supreme Court in the case of Yangtze Ordinance LIII of 1962 was promulgated on 6-6-1962 whereby, inter alia, section 2 of the Act was amended retrospectively with effect from 15-8-1947 which provided that for removal of doubt, it was declared that, any notification issued under section 6 by the late Government of India before 15th August, 1947, and notified on that date for the purpose of enforcement of Foreign awards in British India, declaring any party to the said Convention or any territory to be the territory to which the Convention applied, shall be deemed to be a notification by the Central Government for the purpose of enforcing Foreign awards in Pakistan. In view of the Amending Ordinance the effect of
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the judgment of the Honourable Supreme Court in the case of Yangtze was nullified, inasmuch as the notification which was issued by the late Government of India before partition, was made operative with retrospective effect through legislation. There can be no exceptions to Ordinance LIII of 1962 as it does not. Violate any constitutional provision or enacted by the authority not competent to enact. It is the privileged or prerogative of Government of Pakistan to decide as to whether the Award given in a particular foreign country should be enforced in Pakistan or not notwithstanding that the country in which the Award has been given has not made any reciprocal arrangement for the enforcement of Pakistan Awards as contemplated in section 2 of the Act. The Government of Pakistan has expressed its intention not through a notification but it has been manifested through an enactment and, therefore, this Court would not decline to enforce the present award on the ground urged before me. I A am in respectful agreement with. The observations made by the Honourable Judges in both the cases reported in PLD 1979 Karachi 762 and 1987 CLC 83 and hold that a Foreign Award is enforceable by this Court as there could hardly be an exception to be taken to the Ordinance LIII of 1962 which has been competently enacted by which the Government of Pakistan has cured the defects pin-pointed by the Honourable Supreme Court in the case of…
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