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Petitioner: LAKHRA POWER GENERATION COMPANY LIMITED (LPGCL) VS Respondent: KARADENIZ POWERSHIP KAYA BEY through Master of the Vessel and 4 others
Court Name: Sindh High Court Judge(s): Munib Akhtar Title:LAKHRA POWER GENERATION COMPANY LIMITED (LPGCL) vs KARADENIZ
POWERSHIP KAYA BEY through Master of the Vessel and 4 others Case No.: Admiralty Suit No,7 of 2013 Date of Judgment:2013-12-23 Reported As: 2014 CLD 337 Result: Order accordingly Judgment ORDER ' MUNIB AKHTAR, J.---The applications that fall for determination raise several important issues relating, inter alia, to the admiralty jurisdiction of this Court under the Admiralty Jurisdiction of High Courts Ordinance 1980 ("J.980 Ordinance"), the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (commonly known as the New York Convention and hereinafter they "NY Convention"), the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965 (commonly known as the "ICSID Convention") and generally, matters relating to international arbitration. C.M.A. 46 of 2013 has been moved by the plaintiff. It was filed along with the suit and seeks the arrest of the defendant-vessel Nos. 1 to 4. The defendant No, 5 is a Turkish company (herein after "Karkey"). On 28-5-2013 an ad interim order of arrest was made in respect of all' four vessels. C.M.A. 68 of 2013 has been filed by Karkey under section 4 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011, and seeks stay of the present proceedings (with the consequence that the plaintiffs claim would be referred to arbitration). The aforementioned Act gives effect to the NY Convention in Pakistan and is hereinafter referred to as the "2011 NYC Act". C.M.A. 69 of 2013 has also been filed by Karkey, seeking rejection of the plaint under Order VII, Rule 11, C.P.C. The last application, C.M.A. 98 of 2013, has been filed by the plaintiff seeking (in circumstances explained below) a variation in the order of arrest in respect of the defendant-vessel No,1, being a temporary suspension th6reof. Finally, I may note that the ICSID Convention has also been given effect in Pakistan by the Arbitration (International Investment Disputes) Act, 2011, to the extent and in terms as stated therein (herein after referred to as the "2011 ICSID Act").
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2. I begin with an overview of the facts. Pakistan is, and has been for the past several years, facing an acute ower crisis. Demand for electricity has far outstripped the power actually being supplied. Sometime in 2008, the FOeral Government initiated a program for increasing the available generation capacity by inviting proposals for the setting up of rental power plants. Karkey responded to this invitatioln and ultimately a contract was executed between it and the plaintiff on or about 23-4-2009. Briefly stated, this contract, termed the Rental Services Contract (and herein after the "Contract"), committed Karkey to make available, for a period of 60 months from the commercial operations date, 231.8 MW of power (in terms as specified) on rental basis. The Contract was subsequently amended on or about 8-12- 2009. The rental power was to be made available by utilizing Karkey's "equipment", and the second recital to the Contract made reference to "Reciprocating Generation Sets and Balance of Plant on barge mounted power ships". According to the Wikipedia: -- "A power ship (or power ship) is a special purpose marine vessel, on which a power plant is installed to serve as a power generation resource. It is an existing ship that has been modified for power generation, a marine vessel, on which a power plant is installed to serve as a power generation resource. Converted from existing ships, power ships are self-propelled, ready to go infrastructure for developing countries that plug into national grids where required. Unmotorised powerships, known as power barges, are simply conventional power plants installed on a deck barge. These are sometimes called "floating power plants" or "barge mounted power plants"." (Emphasis in original; accessed 13-12-2013) ' The Wikipedia article in fact also refers to Karkey, and specifically identifies the defendant-vessel Nos.1 and 2 (respectively, the mu Karadeniz Powership Kaya Bey and the my Karadeniz Power ship All Can Bey) as two power ships that belong to and are operated by Karkey. I may note that there is some ambiguity with regard to the other two defendant-vessels. The plaint identifies them also as power ships. However, from an order made by an ICSID tribunal (as explained below), it seems that the defendant No, 4 may be a tanker intended to service these two defendant-vessels, and the defendant No, 3 a barge. For present purposes, I accept (provisionally) the description given by the plaintiff of the defendant-vessel Nos. 3 and 4. The plaintiff, a power generation company in the public sector with suitable infrastructure and facilities, was the entity through which the power being rented under the Contract was to be supplied to the grid. 3. It is common ground that the defendant-vessel Nos.1 and 2 came to Pakistan (and docked at Karachi, where they are presently berthed) for purposes of the Contract, although as shall be seen, the parties are seriously at odds as to the legal connection or nexus (if any) between these defendants and the Contract. 4. Although it appears that Karkey was the only company that agreed to supply rental power through power ships, there were in fact a number of other companies that also executed contracts for rental power with the Federal Government or federally controlled entities. A common feature was that these companies were made advance payments for the rental power. This was initially 7% of the total rental payments and was later increased to 14%. 'The Contract provided that the total rental payments for the 60 months were to be USD 564,640,043.76. Fourteen per cent of this came to USD 79,049,606.12 and this amount (or thereabouts) was disbursed to Karkey. 5. Soon after the Federal. Government launched the rental power program, the Supreme Court, in exercise of its jurisdiction under Article 184(3) of the Constitution, started proceedings (in 2009) to examine the program and the contracts entered into pursuant thereto. In particular, the advance payments made to the rental power suppliers came under close scrutiny. The Supreme Court sought to satisfy itself with regard to the lawfulness, transparency and regularity of the contracts, since grave allegations of corruption and corrupt practices had been levelled in the approval, sanctioning and awarding thereof. The Supreme Court held extensive hearings and eventually
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gave judgment on 30-3-2012. The decision is reported as in re: Alleged Corruption in Rental Power Plants 2012 SCM R 773 (hereinafter the "Rental Power case"). Karkey was one of the power suppliers whose Contract was scrutinized by the Supreme Court, and it was represented by counsel at some (at least) of the hearings. In conclusion, the Supreme Court (see pp. 851-4) declared all the contracts-including the Contract-to have been awarded "in contravention of law/PPRA Rules, which, besides suffering from other irregularities, violated the principle of transparency and fair and open competition". It declared the contracts to be "non-transparent, illegal and void ab initio" and ordered them to be rescinded forthwith. It also held that the public functionaries as well as the "sponsors (successful bidders)" who had "derived financial benefits" from the contracts were "prima facie, involved in corruption and corrupt practices". Civil and criminal action was ordered to be taken against those concerned. The Chairman of the National Accountability Bureau ("NAB", the principal federal anticorruption authority in Pakistan) was directed to initiate proceedings in light of .The judgment and submit fortnightly progress reports for the Supreme Court's consideration. 6. It will be convenient to pause here and before proceeding further, to take a look at the ICSID Convention. This is a multilateral treaty that was opened for signature in 1965 and entered into force on 14-10-1966. Pakistan was one of the earliest signatories, ratifying the treaty on 15-9-1966. The Convention created the International Centre for Settlement of Investment Disputes (hence ICSID; herein referred to as the "Centre") and by Article 18 gave it "full international legal personality". The Centre was also granted certain immunities and privileges. These provisions have been given the force of law in Pakistan: see section 8 of the 2011 ICSID Act. The Centre has an Administrative Council and a Secretariat. Article 6 empowers the Administrative Council to, inter alia, adopt rules with regard to the arbitration and conciliation proceedings, for which purpose the Centre was established and the ICSID Convention agreed upon. The Administrative Council has framed certain rules with respect to arbitrations under the Convention (herein after the "Arbitration Rules"). The Secretariat is charged with the duty of maintaining panels of arbitrators and conciliators. 7. The two parts of the ICSID Convention most relevant for present purposes are Chapter II (Articles 25-27), which deals with the jurisdiction of the Centre, and Chapter IV (Articles 36-55), which deals with arbitration. Article 25, as relevant, provides as follows:-- "The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State.... And a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally." ' Article 26, as relevant, provides as follows: "Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy". 8. The ICSID Convention itself does not define the term "investment" nor does it specify the manner in which the "parties" (i,e,, the host State in which the investment is made, which is invariably the respondent and the national of the other State, who is the investor and is invariably the claimant) are to consent to arbitration. Article 36 simply provides, in material part, as follows: "Any Contracting State or any national of a Contracting State wishing to institute arbitration proceedings shall address a request to that effect in writing to the Secretary-General who shall send a copy of the request to the other party". The manner in which recourse is usually had to ICSID arbitration has developed as a result of international practice and this also needs to be considered. 9. Almost all States have entered into bilateral investment treaties (known as "BITs"). As its name implies, a BIT is a bilateral treaty concerned with investments made in each State by nationals of the other.. It is estimated that there are several thousand BITs in force all over the world. Pakistan is also a party to several BITs and has had long familiarity with this type of international agreement.
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Indeed, it appears that the very first BIT ever signed was that between Pakistan and Germany in 1959. Although each BIT is, in, the end, a treaty between two States and must be interpreted and applied as such, BITs tend to follow a certain common format and share many features. For present purposes, two may be noted. Firstly, a BIT invariably contains a definition of "investment", and this tends to be stated quite broadly. Secondly, a BIT provides for a mechanism for resolving disputes between an investor from one State and the other State, in which the investment has been made. Although the dispute resolution clauses vary greatly, they do tend to provide (usually as part of a menu of options) for arbitration under the ICSID Convention. 10. On the basis of the foregoing two features, the settled international practice appears to be that if a State is a member of the ICSID Convention and is party to a BIT that provides for arbitration in terms thereof, that constitutes an open or standing "offer" by the State, and consent to ICSID arbitration. In such circumstances, an investor from the other State (which State must also, of course, be party to the Convention) can "accept" such "offer" and take any dispute relating to investment under the BIT to arbitration under the ICSID Convention by making an appropriate request in terms of Article 36. This fulfils the requirement of "consent in writing" by the investor in terms of Article 25, and sets the ICSID arbitration in motion. The question of whether the dispute relates to "investment" is to be determined by considering the ICSID Convention along with the definition contained in the BIT. It is to be emphasized that the foregoing is only a general description and much depends on a number of factors, including (but certainly not limited to) the exact terms of the BIT as well as any objections by way of maintainability or jurisdiction as may be available to the respondent State. However, for present purposes it suffices to state matters in broad outline. The international practice just described has been reiterated by tribunals in ICSID arbitration proceedings. Thus, in El Paso v. Argentina, the tribunal observed as follows:-- "It is now established beyond doubt that a general reference to ICSID arbitration in a BIT can be considered as being the written consent of the State, required by Article 25 to give jurisdiction to the Centre, and that the filing of a request by the investor is considered to be the latter's consent." (ICSID Case No, ARB/03/15, Decision on Jurisdiction, 27-4-2006, para 35. Quoted in Christoph H. Schreuer, et. Al., The ICSID Convention: A Commentaru, 2nd ed., 2009, pp. 212-3 (herein after "Schreuer"). The decision is available at www.Italaw.Com (accessed 14-12-2013).) 11. It appears that Pakistan and Turkey have entered into at least two BITs, the first of which was signed on 16-3-1995 (and took effect sometime in 1997), and the second of which was signed on 22-5-2012. For present purposes, I will refer to the earlier treaty. This contained, in Article VII, a dispute resolution mechanism, which as presently relevant provided as follows:-- "(1) Disputes between one of the Parties and an investor of the other Party, in connection with his investment, shall be notified in writing, including a detailed information, by the investor to the recipient Party of the investment. As far as possible, the investor and the concerned Party shall endeavour to settle these disputes by consultations and negotiations in good faith. (2) If these disputes cannot be settled in this way within six months following the date of the written notification mentioned in paragraph 1, the dispute can be submitted, as the investor may choose, to: (a) the International Center for Settlement of Investment Disputes (ICSID) set up by the "Convention on Settlement of Investment Disputes Between States and Nationals of other States", (in case both Parties become signatories of this Convention.) ... (3) The arbitration awards shall be final and binding for all parties in dispute. Each Party commits itself to execute the award according to its national law." ' The BIT contained a (broadly stated) definition of "investment" in Article I. Turkey has been a member State of the ICSID Convention since 1989. (Hereinafter, unless clear from the context or otherwise specified, "BIT" means the Pakistan-Turkey BIT of 1995.)
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12. To revert to the narration of facts, it appears that after the judgment in the Rental Power case, the NAB Authorities started proceedings in terms as thereby directed. The Supreme Court from time to time made orders, some of which were in relation to Karkey. Eventually, by order dated 26-11- 2012, the Supreme Court directed the NAB authorities to recover USD 120 million (approximately) from Karkey, "subject to all just and legal exceptions". It was observed in the said order that if at any later stage any further amount was found due, "it shall be responsibility of Chairman NAB to effect its recovery, if the Ship has left the territorial waters of Pakistan". A notice dated 3-12-2012 was thereafter served by NAB on Karkey, in which reference was made to the various orders of the Supreme Court, and a sum of USD 128,135,897 was demanded, either by way of payment or the furnishing of an "equivalent bank guarantee ... Where after the NAB will allow the Power Plants/Vessels which are currently secured against the outstanding amount to move out of Pakistan territory". No payment having been made' and no bank guarantee having been furnished, ultimately the present Suit was filed by the plaintiff under the admiralty jurisdiction of this Court on 24-5-2013, making a claim of USD 128,135,897. As noted above, an application (C.M.A. 46/2013) was made for the arrest of the defendant-vessels (the defendants Nos. 1 to 4) and on 28-5-2013, such an order was made, arresting the vessels subject to the condition that the vessels be allowed to sail if a bank guarantee for the aforesaid sum was provided. 13. In the meanwhile Karkey had not been sitting idle and had proceeded to take various steps. It appears to have started setting the stage for ICSID arbitration almost immediately after the decision in the Rental Power case by serving notice of its claims against Pakistan, and eventually made a request to the Centre on 16-1-2013 for arbitration under Article 36 (read, of course, with the BIT) in respect of those claims. At the same time, it also filed a request for provisional measures under Article 47 of the ICSID Convention. (This provision will be considered in some detail later.) A three-member tribunal ("Tribunal") was empanelled and this position was confirmed on 25-7-2013. 14. In the present Suit, on 16-9-2013, Karkey filed two applications, being the aforementioned C.M.As. Nos. 68 and 69 of 2013. The first is under section 4 of the 2011 NYC Act. By this application, Karkey seeks to have the present Suit stayed and the plaintiffs claim (which of course, Karkey strongly contests) referred to arbitration before the London Court of International Arbitration (LCIA) in terms as provided in section 28 of the Contract. This stated in material part as follows:-- "28. Arbitration ' In case a Dispute is not resolved among the PARTIES in conformity with section 27 then it will be exclusively and finally resolved by arbitration in the following manner: (i) The Contract, as well as the rights and obligations of the PARTIES shall remain in full effect and force while said arbitration procedure is pending, and the arbitration award shall be final and binding on the PARTIES; (ii) all arbitration shall follow the rules of arbitration of the London Court of International Arbitration ("LCIA"), in force as of the date of the Contract, and as further amended, except to the extent that such rules conflict with the provisions of this section 28, in which case the provisions of this section 28 shall control; (iii) all arbitration shall be conducted in London, United Kingdom, and the PARTIES agree to exclude, to the extent that it is permitted by applicable law, any right of application or appeal to any court of competent jurisdiction with regard to any issue of fact or issue of law arising from the course of any arbitration. The laws of Pakistan shall govern the procedure, effectiveness, interpretation, construction, performance and application of the arbitration established herein; (viii) the PARTIES hereby expressly waive any right to resolve any Dispute relating to the Contract except in accordance with an arbitration conducted in accordance with this section 28; (ix) the PARTIES reserve the right to refer to a court of competent jurisdiction all preliminary injunction suits, if necessary to obtain legal measures intended to protect their rights prior to or
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during the arbitration, and such measures shall not be considered a waiver or violation of the arbitration; provided that such judicial relief (i) is limited to that which is required to prevent imminent damage to a PARTY and (ii) does not resolve the merits or substance of such Dispute; ...." I may note that section 27 required the parties to attempt to resolve disputes amicably, failing which it could be referred to a "mutually agreeable third party as an expert". This provision was not however, invoked or relied upon before me. 15. The other application, C.M.A. 69 of 2013, seeks rejection of the plaint under Order VII, Rule 11, C.P.C., on two grounds. Firstly, it is contended that the admiralty jurisdiction has been wrongly invoked and no action is maintainable under the 1980 Ordinance in the facts and circumstances of the case. Secondly, it is contended that the Suit is not maintainable on account of both section 28 of the Contract (i,e,, the arbitration agreement) as well as the ICSID arbitration proceedings (which had already been invoked by Karkey by the time the Suit was instituted). 16. Karkey's request for provisional measures under Article 47 was opposed by Pakistan. Both parties made written and oral representations, and the Tribunal gave its decision on 16-10-2013 ("PM Decision" or "Decision"). By para 187 thereof, the Tribunal decided that the defendant-vessel No, 1 (i,e,, my Karadeniz Powership Kaya Bey) be allowed to depart for the dry dock at Dubai "for inspection and repairs as determined by Bureau Veritas (or other equivalent agency) to maintain the vessel's flag-registry and class certification". In the Decision, a deadline of 1-11-2013 was given for this purpose (which was later extended). In order to meet this deadline, Pakistan was asked, "in particular", to cause the plaintiff to "obtain the temporary suspension of the order of the High Court of Sindh at Karachi dated [281 of May 2013 in the Admiralty Suit No,7 of 2013, which arrested the vessel, as long as the Arbitral Tribunal shall not have informed the State of Pakistan that the suspension is no longer necessary for the purposes of enabling the vessel to obtain the vessel's flag-registry and class certification". I will examine the PM Decision later herein below. However, I may note that in para 34 of the Decision, the defendant-vessel No, 3 is identified as a barge and the defendant-vessel No, 4 as a fuel tanker on the basis of what was stated by Karkey before the Tribunal in its claim. 17. It appears that after the PM Decision, the Federal Government (through the Attorney General's office) prodded the plaintiff to take action in conformity with the same. This led to the filing of C.M.A.98 of 2013 on 26-10-2013. In this application, the plaintiff has prayed for a "modification" of the order of 28-5-2013 in terms substantially along the lines of the PM Decision as noted above. This application came up before me on 29-10-2013. On that date, an order of the Supreme Court dated 25-10-2013, and a no-objection certificate (NOC) from the Chairman, NAB dated 28-10-2013 was also produced. The Supreme Court order was in continuation of the judgment in the Rental Power case. The Court reproduced the relevant portion of its order dated 26-11-2012 (referred to in para 12 herein above) and ordered, with reference to the Chairman NAB, as follows:-- "... He can take measure on his own to allow temporary sailing of the ship outside the territorial jurisdiction of Pakistan. He shall himself under section 23 of the NAO [the National Accountability Ordinance, 1999, as amended, under which NAB is created] or any other provisions shall ensure that the outstanding amount found due against the Ship Kaya Bey will be recovered. (2) As there is no restraint by this Court, and in light of the paragraph reproduced herein above, we allow this C.M.A. As well with the observation that let the Chairman NAB himself take the necessary steps with regard to this issue keeping in view of the national interest...." ' In view of the foregoing position. I considered it appropriate to give notice of the application (i,e,, C.M.A.98 of 2013) to Chairman, NAB. On the next date, which was 5-11-2013, the learned Deputy Prosecutor General NAB appeared and, as recorded in the order made on that date, stated that his instructions from the Chairman were that "the Court may impose such condition as may be deemed appropriate by way of security or otherwise as would ensure the return of the vessel
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.Which is sought to be temporarily released from arrest". I was not fully satisfied with this statement, and directed that on the next date an appropriate statement in writing, signed by the Chairman personally, be placed before the Court. On the next date, which was fixed as 12-11-2013, I was assisted by learned counsel for the respective parties (as also the law officers from NAB) and I decided that the best way forward would be to hear counsel on the four applications…
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