Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Messrs RUPALI POLYESTER LTD VS Respondent: Dr. NAEL G: BUNNI And Other
Court Name: Lahore High Court Judge(s): Malik Muhammad Qayyum Title: Messrs RUPALI POLYESTER LTD vs Dr. NAEL G: BUNNI And Other Case No.: Civil Revisions Nos.34 and 83 of 1994 Date of Judgment:1994-06-29 Reported As: PLD 1994 Lahore 525 Result: Petitions allowed
JUDGMENT
JUDGMENT This judgment shall dispose of CA_ No.34/94 and CA. No.83/94 in which an important question of law as to the jurisdiction of the Courts in Pakistan to entertain proceedings in respect of arbitration conducted d awards rendered lay the Arbitrators in foreign country, falls for decision. 2. The circumstances which this question arises as gathered from the pleadings of the parties, the documents filed by them and the respective contentions of their learned counsel briefly stated are that Messrs Rupali Poltster Ltd.(the petitioner) is a company incorporated Companies Ordinance, 184 in Pakistan, having its registered office at 1.1. Chundrigar Road, Karachi. Respondent No-1,r. Nael G. Bunni, is the Chairman of the Arbital Tribunal having been appointed as such by the International Court of Arbitration of International Chamber of Commerce at its Session head in November, 1991. Respondent N0.2, Rt. Hon. Sir Michael Kerr is a Member of the Tribunal appointed by the petitioner and respondent No. 3 Professor John Uff, Q.C. Is the Arbitrator nominated by respondents Nos. 4 and 5. Respondent No. 4, Mitsui & Company is a Corporation incorporated under 'the Laws of Germany while respondent No,5, Hitachi Ltd. Is a Company incorporated and registered in Japan. 3.On 20-5-1985, an agreement/contract vas entered into between the petitioner and respondents Nos. 4 and 5 who rounder these respondents undertook to supply to the petitioner plant, equipment, material, engineering know-how and supervisory services for erection, construction, installation and commissioning of a lint for production of ordinary chips of Polyester for filament yarn for apparel use with a daily production capacity of 80 metric tons against the pries Japanese Yen 2,2,62500000. It is a common ground between the parties that this agreement was executed in Pakistan and also that all the works thereunder were to be performed in District Sheikhupura.
---
## Page 2
4. Two clauses of the said contract which are relevant for the purpose of the present dispute are contained in Articles 16.7 and 13 which read as under:--- CONTRACT shall be governed and construed by the Pakistan Law." Article 13. 13.1In case any dispute, controversy or difference arises out of or in connection with contract, the parties shall firstly endeavour to settle such dispute, controversy or different amicably. 13.2 If both parties fail to reach such amicable settlement, all disputes, controversies or differences shall be finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three Arbitrators appointed in, accordance with the Rules. The arbitration shall be conducted in English language. If the defendant in such dispute is Buyer, the arbitration shall take place in Karachi and in case that the defendant is Seller, the arbitration shall take place in London. 13.3.The awards thereof shall be final and binding upon both par-ties hereto." 5. Unfortunately disputes and differences arose between the parties. It was claimed by the petitioner that the plant and equipment supplied by respondents Nos.4 and 5 was defective, not of the requisite `standard and not in conformity with the specifications. It was further alleged that due to 'the wrongful and willful acts and neglect of the respondents, the petitioner had suffered huge losses which were continuing. After having made efforts to settle these disputes amicably as required by the Contract, the petitioner invoked clause 13 of the Contract and asked for arbitration. Dr. Nael G. Bunni, respondent No.1, herein was appointed as Chairman, while respondent No.2, Rt. Hon. Sir, Michael Kerr and respondent No.3, Professor John Uff were nominated as Arbitrators by the petitioner and respondents Nos.4 and 5 respectively. The Arbitrators commenced proceedings at London and drew up Terms of Reference on 10-5-1991. Two partial awards, one on 28-5-1993 and the other on 13-7-1993 were delivered by the Arbitrators holding that the petitioner was not entitled to consequential damages arising out of breaches of the contract. ' 6.On 2nd August, 1993, the petitioner filed an application under sections 14 and 17 of the Arbitration Act, 1940 in the Court of Senior Civil Judge, Sheikhupura impleading the three Arbitrators and contractors as parties. In this application, it was prayed that Arbitrators be directed to file the two partial awards in Court so as to enable the petitioner to challenge their validity under the Arbitration Act, 1940. On 6th December, 1993, another. Application under sections 5, 11 and 12 of the Arbitration Act, 1940 was moved by the petitioner seeking removal of the Arbitrators on the ground of their misconduct. ' 7. These applications were resisted by respondents Nos.4 and 5 who in their reply raised a preliminary, objection as to the jurisdiction of the Courts in Pakistan to entertain the applications in respect of the arbitration proceedings conducted at London and awards rendered there. Respondents Nos.1 to 3 did not appear before the Court but placed their point of view in writing. 8. The learned Senior Civil Judge, Sheikhupura, who was seized of the matter, treated, the issue as to jurisdiction as a preliminary issue and after hearing the parties upheld the objection of respondents Nos.4 and 5 and decided that he had no jurisdiction to entertain the application under sections 14 and 17 and sections 5, 11 and 12 of Arbitration Act, 1940 filed by the petitioner. Resultantly, both the applications were ,dismissed on 22-12-1993. The reasons which prevailed with the trial Court for coming to this-conclusion were; firstly that in the contract dated 20-5-1985, the venue of arbitration was chosen by the parties to be London and as such they are deemed to have accepted the jurisdiction of English Courts over the arbitration proceedings; secondly that the provisions of Arbitration Act, 1940 and the Code of Civil Procedure were not applicable and lastly; that the awards were foreign awards within the meaning of Arbitration (Protocol and Convention) Act, 1937.
---
## Page 3
9. Mr. S.M. War, the learned counsel for the petitioner at the very outset contended that even though the arbitration 'proceedings were held in London and the awards were also made there but the awards in question were in law domestic awards and could be challenged before the Civil Courts in Pakistan. It was explained by the learned counsel that the classification of the awards as `foreign' or `domestic' does not depend upon the place at which the same were delivered but, on the other hand, the determining factor would be the law applicable. He pointed out that in the contract itself the parties had expressly chosen the law applicable ,to be the law of Pakistan vide Article 16.7 and as Arbitration Agreement was governed by Pakistani Law and, therefore, notwithstanding any other consideration, the awards were domestic awards even though made in London. On these premises it was argued that the awards and the arbitration in question would fall outside the purview of the Arbitration ,(Protocol and Convention) Act, 1937 and would have to be dealt with under the Arbitration Act; 1940. The learned counsel referred to the definition .Of "Foreign Award" as given in Act VI of 1937 and also to the exclusion clause contained in section 9(b) thereof, which provides that nothing in that Act shall apply to the arbitration governed by the law of Pakistan. 10. Referring to Arbitration Act, 1940, the learned counsel submitted that as per section 47 of the Act itself, it applies to all arbitrations and not necessarily only to those held in Pakistan. He explained that an application for filing or setting aside the, awards can be made in the Court as defined by section 2(c) of the Arbitration Act, 1940 which would be the Court within the local limits , of which subject-matter to which, award relates is situated or located. Learned counsel relied upon various precedents in support of this contention to which reference will be presently made. 11. Mr. .Khalid Anwar, learned counsel appearing for respondents Nos.4 and 5 pointed out that there was nothing unusual in the contract in question as in all international contracts involving persons/parties of different nationalities in modern times two clauses are always of essence; firstly that the claim for damages is limited by the contract to provide that incidental, remote or indirect damages cannot be awarded and secondly that the place of arbitration is also generally fixed. 12. The learned counsel for the respondent submitted that there can be three eventualities in case of a dispute arising under a contract; firstly where the proceedings commence in a Court of country before any recourse is made to the arbitration; secondly when award has been obtained from the arbitrators and; thirdly when proceedings are pending before the Arbitrators. According to the learned counsel in the first case a party to the agreement can commence legal proceedings in a Court having jurisdiction over the subject-matter which may or may not stay the proceedings in view of the arbitration clause. In the second case, namely, where the award has already been obtained, the proper place for the enforcement of it would be where the assets of the defendants are located. He, however, emphasized that in the third event, namely, when recourse to legal proceedings is made during the pendency of arbitration, only the Courts of the situs (Seat) of the arbitration have the jurisdiction as the matter essentially relates to procedural/curial law and it is only the Courts within the jurisdiction of which the arbitration was being conducted which can supervise the same or interfere at an intermediately stage. 13. The learned counsel further argued that as the parties had specifically agreed that London shall be the seat of arbitration, it is only the English Courts which have jurisdiction in respect of procedural matters and no other Court including the Courts in Pakistan can claim any jurisdiction .Over it. 14. In reply, Mr. S.M. Zafar, learned counsel for the petitioner submitted that this 'Court is bound to decide the case in ,accordance with the laws of Pakistan and cannot refuse to give effect to it merely on the ground that these laws are not in consonance with the English principles of private international law/conflict of laws. According to the learned counsel, the awards being domestic awards attract the applicability of Arbitration Act, 1940 including sections 5, 11,12, 14, 30, 31 and 33. He has further emphasized that this Court was not called upon to decide as to whether or not English
---
## Page 4
Courts havejurisdiction: in the matter \ but the real question was as to whether the Courts in Pakistan have any jurisdiction in respect of the awards and the arbitration proceedings. The jurisdiction, according to Mr. S.M. War, may as well be concurrent vesting in the Courts of both the countries. 15. Mr. Zafar also maintained that even according to the principles of conflict of laws as applicable to Pakistan and England, the matter would fall within the jurisdiction of the Courts in Pakistan as the parties had expressly chosen the law governing the contract to be the law of Pakistan. 16. The argument raised by Mr. S.M. War, the learned counsel for the' petitioner that the Courts of a particular country are bound to decide a cause in accordance with its municipal laws is, unexceptionable. The Courts in Pakistan .Cannot refuse to give effect to its domestic law merely on the ground that it comes into conflict with the law of another country or the principles of j conflict of laws/private international law. Even Mr. Khalid Anwar was not in a position to dispute the correctness of this argument. 17. While on this subject, it may be stated that each country has its own rules of private international law and such rules are subject to its domestic laws. The principles of conflict of laws cannot claim any. Precedence over the Municipal Law of a country. Therefore, even though the principles of private International Law of England are entitled to great respect but these principles cannot be pressed into service to take away the jurisdiction vesting in a Court of this country by its own laws. This is an age-old principle consistently followed about 100 years ago. In Companhia de Mozambique v. British South Africa Company (LR 1892) 2 QB 358 (394), Lord Esher, M.R. Observed: "The question whether the Courts of a national will or will not entertain jurisdiction of any dispute is to be determined exclusively by its nation itself i.e. by its Municipal Law. If by express legislation the Courts are directed to exercise jurisdiction, the Courts must obey. If there is a proper inference to the same effect, the result is the same. But there are certain rules which have, by universal consent, indicated the circumstances from which the inference may properly be drawn." (Underlining is mine). The same principle was reiterated in Girdhar Damodhar her v. Kassigar Hiragar (17 Bom. 662) in the following words: " ....It would be the duty of the Courts acting in the execution of a statutory enactment to give effect to it, it being immaterial whether the judgment rendered would in the circumstances be recognised by Foreign Tribunal as being consistent with International Law and the general principles of justice." 18. The terms "Private International Law" and "Conflict of Laws" are interchangeable. Unlike Public International Law which regulates the relationship between States inter se and which is invariably the same, the Private International Law of each country differs from country to country, the C reason being that the principles of Private International, Law only apply if these are adopted as a part of its domestic law by a, country. . 19. Dicey anal Morris is their famous treatise "Conflict of Laws" (11th Edn.) have stated (page 4): "In contradistinction to public international law, which seeks primarily to regulate the relations between different sovereign States and is, at any rate in theory, the same everywhere, the rules of the conflict of laws (or private international; law as it is sometimes called) are different from country to country. Even between England and Scotland there are some significant differences, notably in connection with the jurisdiction of Courts in actions; in personam; while between England and Australia, the common law Provinces of Canada. New Zealand and the United States on the one hand and civil law States like those of continental Europe and Latin America on the other, the differences are much more deep-seated." According to Cheshire and North's Private International Law (12th Edition), page 137, there are as many systems of `Private International Law' as there are systems of Municipal Laws. Reference may
---
## Page 5
also be made to Conflict D of Laws by Eugene F. Scoles and Peter Hay, (2nd Edn.) at page .1, wherein the following statement of law appears:-- " ....Rules of conflicts law, or of private international law, however; relate to legal issues between private persons and do not emanate from an international consensus, such as `customary (public) international law'. Instead they are part of each state or nation's domestic law and therefore often differ from one jurisdiction to another." 20. Again at page 2, it has been stated that "however, since conflicts rules are domestic law in the United States, state law subject only to federal constraints a foreign rule will influence the result only if so viewed by the forums. 21. This, question also came, up for consideration before the Indian ; Supreme Court in the case of Vishwanathan and others v. Rukn ul Mulk Syed Abdul Wajid (AIR 1963 SC 1 at page 14 and 15) in which it was held that:-- "It is necessary to emphasize that what is called private international law is not law governing relations between independent States: private international law, or as it is sometimes called `Conflict of Laws', is simply a branch of the civil law of the State evolved to do justice between litigating parties in respect of transactions or personal status involving a foreign element. The rules of private international law of each State must, therefore, in the very nature of things differed, but by the comity of nations certain rules are recognised as common to civilised jurisdictions. Through part of the judicial system of each State these common rules have been adopted to adjudicate upon disputes involving a foreign ;element . And to effectuate judgments of foreign Courts in certain matters or as a result of international conventions." 22. From the above discussion, it follows that the principles of "Private International Law, are applied by the Courts of ' a country as a part of its domestic law and, therefore, differ from country to country. These principles cannot claim primacy or ascendancy over the domestic law of a particular country but have to be applied subject to its Municipal Laws. Consequently, if the Courts in Pakistan have jurisdiction to entertain a cause, they cannot refuse to do so, merely ,on the ground that under the. Principles of Private International 'Law such a matter was triable by another Court. In somewhat simile circumstances, it was observed by the Patna ,High Court in Suresh Narain Sinha v. Akhuari Balbhadra. Prasad (AIR 1957 patna 256) that: "It was true that according to 'the principles of International Law a Court has no jurisdiction to entertain a suit against a foreigner who did not permanently or temporarily reside within its jurisdiction and who had riot submitted to its jurisdiction. But if the legislature confirms Jurisdiction upon the Court situated in a particular territory to entertain suits against foreigner, where cause of action, wholly or partly arises within its jurisdiction, thus suchCourt undoubtedly has jurisdiction, if the condition provided by the law to which it is subject exist." ' 23. At this stage, it may also be noticed that it is an acceptable principle that if the jurisdiction vests in Pakistani Courts, cannot even be taken away by the consent of the parties and if such an agreement would be void being against public policy under section 28 of the Contract Act. The leading. Judgment on this point is tat of, the Supreme Court of 'Pakistan in N.A. Chowdhury v. M/s. Mitsui O.S.K. Lines Ltd, and 3 others PLD 1970 SC 373. 24. This principle was followed by the Supreme Court itself in M/s. Uzin Export and Import Enterprises for Foreign Trade w. M/s. M. Iftikhar & Company Limited (1993 SCM R 866). Reference may also be made to the judgment of this Court, in Abdul Majid v. Ch. Bahawal Bakhsli: and another (AIR 1950 Lah. 174) and that of Patna High Court in Rambilas Matho and others, v. Babe Durga Bijal Prasad Singh and others (AIR 1965 Patna 239). 25., . There is an instructive article in the Journal of International Arbitration, Vol. 7, No. 1, March, 1990 by V.S. Deshpande, a former Chief Justice of Delhi High Court, in which after considering various Textbooks on the question of exclusion of Indian .Procedural law, pointed out that:--
---
## Page 6
Secondly, such an agreement by the parties would be opposed to the public policy of the system of law with reference to which the contract was made or which has the closest and most real connection with the contract. Such a choice of law and jurisdiction would therefore, be illegal and void sections 23 and 28 of the Indian Contract Act, 1872 which codifies and revises the rules of English Common Law." 26. It is also to be stated that the arbitration agreement between the parties does not have the effect of depriving a Court of its jurisdiction which it otherwise possesses. In M/s. Uzin Export and Import Enterprises for Foreign Trade v. M/s. M. Iftikhar & Company Ltd. (1993 SCM R 866), it was observed 'that "in this case in the contract there was provision for arbitration of International Chamber of Commerce in Paris. This provision does not oust the jurisdiction of Courts in this country and this clause is to be treated at par with provision for arbitration within the country". 27The principles which emerge from the above discussion are (i) that the principles of Private International Law are subject to the Municipal Laws of Pakistan, (ii) that the -Courts of Pakistan are bound to decide the question of jurisdiction in accordance with the law operating in Pakistan, (iii)that jurisdiction vested in the Courts cannot be taken away even by' express agreement of the parties and, lastly, (iv)that the arbitration agreement even where Rules of International Chamber of Commerce apply do not have the effect of depriving the Courts of their jurisdiction. 28. Keeping in view the above principles, the case may now be examined with reference to the Municipal Laws of Pakistan. On the subject of arbitration, there are two laws which operate in this country, namely, the Arbitration Act, 1940 and .The Arbitration (Protocol and Convention) Act, 1937. The latter Act naively, Arbitration (Protocol and Convention) Act, 1937 was promulgated on 4-3-1937 to give effect to the Geneva Convention on arbitration and provides for enforcement of `Foreign Awards' as defined in section 2 thereof. It makes provisions in section 4 for the effect of foreign awards, in section 5 for filing of foreign awards and section 6 for enforcement of foreign awards: Subsection (1) of section 7 enumerates the conditions for enforcement of foreign award, while subsection (2) of section 7 provides circumstances in which the Court may refuse to enforce the award. Another important provision in this regard is its section 9 which ordains that the Arbitration (Protocol and Convention) Act, 1937 shall not be applicable to an award made on an arbitration agreement governed by the law of Pakistan. This provision reads as under:--- "9.Saving.- -Nothing in this Act shall (a) ---------------------------------------------.. (b) apply to any award made on an arbitration agreement governed by the law of Pakistan." 29. Mr. Khalid Anwar, learned counsel for respondents Nos.4 and 5 frankly conceded that the Act VI of 1937 will not apply to the two awards in the present case. Despite this concession, I have also examined the matter from my own point of view and have reached the same conclusion in view of the exclusion contained in section 9(b), it cannot be said that the awards in the ' present fall within the ambit of Arbitration (Protocol and Convention) Act, 1937 as the arbitration agreement pursuant to which awards have been rendered was governed by the law of Pakistan. 30. It will be remembered that arbitration agreement in the present case is not contained in an independent or separate document but in Article 13 which is a part of and is embedded in main contract executed between the parties. The contract itself specifically provides in Article 16.7 that it shall be governed and construed by the laws of Pakistan. That being so, the arbitration agreement which is a part of the same contract is also governed by the law of K Pakistan. It is a well- established principle and indeed has not been disputed by the learned counsel for respondents Nos.4 and 5 that it is open for the parties to the international agreement to make a choice of law
---
## Page 7
which would apply to the contract and autonomy of the parties in this behalf is respected by the Courts and there is, therefore, no reason to hold that clause 13 would not be governed by Pakistani law. 31. Both the learned counsel are agreed that in a contract having international element, there are for potential laws which may apply. Those are, (a) proper law of contract, (b) proper law of arbitration agreement, (c) , proper law of reference and (d) purial or procedural law. See Mustill and ` Boyd's Commercial Arbitration, 2nd Edn., pages 61 and 62 and. Sumitomo Heavy Industries Ltd. v. Oil and Natural Gas Commission ((1994) 1 Lloyd's Law Rep. 45 at pages 56 and 5'n. 32. Proper law of contract is the law which is expressly chosen by the parties. If, however, the parties have not chosen any law to be the proper law of contract, then proper law would be the law of the country or place with which M the contract has closest and real connection. (See Dicey and Morris on `Conflict of Laws' (11th Edn.) rule 180 at pages 1161 and 1162, Mustill and Boyd on Commercial Arbitration (2nd Edn.) at page 71 and also National Thermal Power Corporation v.. Singer (1992) 2 Comp. LJ 256 (SC)). The proper law of contract determining the substantive rights of the parties under the contract as explained by the Mustill and Boyd at page…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.