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Petitioner: Ovex Technologies (Private) Limited VS Respondent: PCM PK (Private) Limited and others
Court Name: Islamabad High Court Judge(s): Miangul Hassan Aurangzeb Title: Ovex Technologies (Private) Limited vs PCM PK (Private) Limited and others Case No.: F.A.O.No.140/2017 Date of Judgment:2019-09-27 Reported As: 2019 IHC 150 Result: appeal allowed
Judgment MIANGUL HASSAN AURANGZEB, J:- Through the instant appeal, the appellant/Ovex Technologies (Pvt.) Ltd. ("Ovex") impugns the order dated 10.10.2017 passed by the Court of the learned Civil Judge, Islamabad, whereby the plaint in Ovex' s suit for declaration and permanent injunction etc. was returned under the provisions of Order VII, Rule 10 of the Code of Civil Procedure, 1908 ("C.P .C."). 2. The record shows that on 02.04.2014, Ovex and En Pointe Technologies Sales, Inc., ("En Pointe Inc.") entered into an agreement for "Services & Statement of Work" ("the Agreement"). The Agreement was to become effective on 01.07.2014 and was to continue in effect for a period of three years, i.e. up to 30.06.2017. The services that were to be performed by Ovex under the Agreement were set out in Section 3 thereof. It is not disputed that En Pointe Inc.'s rights and obligations under the Agreement were assigned to respondent No.2 /En Pointe Technologies Sales LLC ("En Pointe"). 3. Ovex and En Pointe had agreed that the Agreement would be governed by and construed in accordance with the laws of the State of California. The said parties had also consented to the jurisdiction and venue in the State of California. 4. Section 8.07 of the Agreement is an arbitration clause providing for the disputes between Ovex and En Pointe arising from and related to the Agreement to be referred to arbitration by a retired United States judge. Matters pertaining to injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions were agreed not to be arbitrable. For the purposes of clarity , Section 8.07 of the Agreement is reproduced herein below:- "Section 8.07. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, other than matters pertaining to injunctive relief including, without limitation, temporary restraining orders, preliminary injunctions and permanent injunctions shall be determined by a retired United States judge who is deemed mutually acceptable to the parties involved in the claim. If the parties are unable to agree on a judge, the Judicial Arbitration
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and Mediation Services of the United States of America shall select a judge. The parties hereby waive the right to trial by jury. The parties agree to be bound by the decision of said judge. Judgment upon the award rendered by the judge shall be and may be entered in any United States court having jurisdiction thereof, provided that no awards for punitive damages may be rendered or entered as judgments. It is hereby agreed that the parties shall be permitted to conduct discovery as the judge shall deem appropriate. Such resolution shall take place in Los Angeles, California unless otherwise agreed to by the parties in writing."(Emphasis added) 5. Section 1.01 of the Agreement provided inter alia that it would continue in effect for a period of three years, i.e. up to 30.06.2017 unless terminated earlier in accordance with its provisions. Section 1.01 also provided that the Agreement would be renewed annually for successive one year terms by En Pointe, giving Ovex written notice of its intention to renew the Agreement, which notice was to be given at least 90 days prior to the scheduled expiration of the term of the Agreement. 6. The three-year term of the Agreement was to expire on 30.06.2017. Vide letter dated 20.03.2017, En Pointe informed Ovex that the former intended to renew the Agreement for a period of one year. Ovex's response through its letter dated 27.03.2017 was that it wanted to re-negotiate certain terms of the Agreement. This request of Ovex was rejected by En Pointe vide letter dated 18.04.2017. Between 18.04.2017 and 31.05.2017, the relationship between Ovex and En Pointe deteriorated. Ovex alleged that En Pointe was taking steps to set up a similar base of operations to serve its customers whereas En Pointe took the position that Ovex was encouraging its employees servicing En Pointe's customers to resign and join a different service provider to compete with En Pointe. This deterioration in their relationship is reflected in Ovex's letters dated 27.03.2017, 11.05.2017 and 24.05.2017 and En Pointe' s letters dated 18.04.2017 and 26.05.2017. 7. Section 7.02 of the Agreement provided inter alia that should Ovex default in the performance of the Agreement or materially breach any of its provisions, En Pointe may terminate the Agreement by giving written notice to Ovex. Furthermore, Section 7.02 provided that material breach of the Agreement shall include failure to meet terms of the Agreement and/or its Statement of Work; failure to meet initial or revised mutually agreed-to deadlines; destruction of En Pointe's property dishonestly; and theft. 8. Vide letter dated 31.05.2017, En Pointe issued a notice to Ovex that the Agreement was being terminated pursuant to Section 7.02 thereof, and that the said termination will be effective 30 days from the date of the issuance of the said notice. In the said letter, Ovex was alleged to have committed serious breaches of the said Agreement. Furthermore, Ovex was required to permit En Pointe to hire any of Ovex's employees and to provide En Pointe reasonable access to such employees for interviews and recruitment. Ovex was also informed that En Pointe had invoked the dispute resolution procedure under Section 8.06 of the Agreement. 9. On 03.06.2017, Ovex instituted a suit for declaration, temporary and perma nent injunction against the respondents before the Court of the learned Civil Judge, Islamabad. In the said suit, Ovex prayed for inter alia a declaration to the effect that the Agreement dated 02.04.2014 subsisted and was valid up to 30.06.2018, and that the termination notice dated 31.05.2017 was ill-conceived, malafide and void-ab-initio . More importantly , Ovex, in its suit, had prayed for a declaration that the arbitration agreement embedded in Section 8.07 of the said Agreement stood repudiated by En Pointe. 10. Along with the said suit, Ovex had also filed an application for interim injunction. Vide ad interim order dated 03.06.2017, the learned Civil Court suspended the operation of En Pointe' s letter dated 31.05.2017. On 18.07.2017, respondents No.1 to 5 (includ ing En Pointe) filed an application under Order XXXIX, Rule 4 C.P.C. for the vacation of the said order . On the very same day, the said respondents also filed an application under Section 4 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 ("the 2011 Act") praying for the proceedings in Ovex' s suit to be stayed and Ovex be directed to refer its disputes to arbitration in the State of California, U.S.A. On 26.07 .2017, Ovex filed its replies to the said applications for the vacation of the ad interim injunctive order and stay of proceedings in the suit. 11. Vide order dated 10.10.2017, the learned Civil Court returned the plaint in Ovex's suit by invoking the provisions of Order VII, Rule 10 C.P.C. It was held that due to the dispute resolution clause in the Agreement, the learned Civil Court
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had no jurisdiction to adjudicate upon the matter. Ovex has assailed the said order dated 10.10.2017 in the instant appeal. 12. It may be mentioned that on 22.02.2017, En Pointe had filed an action before the Superior Court of the State of California, Orange County , against one Imran Yunus, a former employee of PCM, said to be an affiliate of En Pointe. On 31.05.2017, the said action was amended to include Ovex in the array of the respondents/defendants in the said action. En Pointe had sought injunctive relief in the form of a temporary restraining order to prohibit Ovex from (i) assisting a third party that was allegedly seeking to hire Ovex' s employees who had worked on En Pointe' s matters, and (ii) using or disclosing En Pointe' s confidential information. Vide order dated 13.07.2017, the said Court denied En Pointe' s request for preliminary injunction and an earlier temporary restraining order dated 06.06.2017 was dissolved. Perusal of the order dated 13.07.2017 passed by Judge Peter J. Wilson shows that En Pointe had alleged breach of contract against Ovex, but had failed to submit any competent evidence of Ovex' s alleged misappropriation of its confidential information or competition with En Pointe or that Ovex had usurped En Pointe' s business opportunity . Subsequently , the said action was withdrawn by En Pointe. 13. On 06.06.2017, En Pointe commenced arbitration proceedings against Ovex before the Judicial Administration and Mediation Services of the United States ("J.A.M.S.") by filing a request for arbitration pursuant to Section 8.07 of the Agreement. Along with the said request, En Pointe also filed its statement of claim. Vide letter dated 19.06.2017, En Pointe applied to J.A.M.S. for the appointment of an emergency arbitrator and for the award of emergency relief. J.A.M.S. appointed Mr. Frank Maas as the emergency arbitrator who issued notices to the parties. Despite notice, Ovex failed to participate in the hearing. On 07.07.2017, the emergency arbitrator declared that any dispute or claim arising out of the performance or breach of the Agreement, other than matters involving injunctive relief, must be resolved through an arbitration before J.A.M.S. in Los Angeles, California which is the sole forum with jurisdiction to entertain such disputes/claims. It was also declared that the Agreement between Ovex and En Pointe will terminate, at the latest, on 18.08.2017. The emergency arbitrator refrained from expressing an opinion on whether En Pointe had terminated the Agreement due to Ovex's material breach of the Agreement or the non-renewal of the Agreement. These matters, according to the emergency arbitrator, were to be decided during an arbitration by a retired United States judge in California. 14. On 03.08.2017, J.A.M.S. appointed retired U.S. Magistrate Judge Stephen E. Haberfeld as the sole arbitrator for resolving the disputes between Ovex and En Pointe. Ovex did not participate in the hearings before the sole arbitrator . On 09.03.2018, Judge Haberfeld issued a "partial final award." In the said award, it was declared inter alia that Ovex had materially breached the Agreement before 31.05.2017, and that En Pointe was thus justified in terminating the Agreement. The award ordered Ovex to pay damages amounting to $990,586.00. 15. On 17.08.2018, the United States District Court, Central District of California , Western Division, allowed En Pointe' s petition to confirm, recognize and enforce the arbitral award dated 09.03.2018 against Ovex. 16. Apparently , En Pointe had filed an application before the United States District Court, Central District of California, Western Division, against Ovex to compel arbitration and for anti-s uit injunction. Vide order dated 15.09.2017, the said relief was granted to En Pointe. Thereafter, on 03.04.2018, Sheikh Khawar Latif, the sole beneficial shareholder of Ovex, filed a suit for damages and permanent injunction before the Court of the learned Civil Judge, Lahore against inter alia En Pointe's employees. Vide ad interim order 03.04.2018, the learned Civil Court restrained the defendants in the said suit from interfering in Sheikh Khawar Latif's business. This caused En Pointe to file an application before the United States District Court, Central District of California, Western Division, for an order to show cause why Ovex and its shareholder Sheikh Khawar Latif should not be held in contempt of the order granting En Pointe's application to compel arbitration and for an anti-suit injunction. Vide order dated 05.07.2018, the United States District Court, Central District of California, Western Division, held that the suit instituted by Sheikh Khawar Latif at Lahore against the officers and directors of En Pointe and their affiliates was barred by the anti-suit injunction as well as the arbitration provisions contained in the Agreement. Furthermore, it was ordered that Sheikh Khawar Latif must immediately take steps to dismiss his suit. On 17.08.2018, the United States District Court, Central District of California, Western Division, ordered that Ovex and Sheikh Khawar Latif were each found in contempt of Court for violating the anti-suit injunction order dated 15.09.2017 and the subsequent order dated 05.07.2018. They were also ordered to pay
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a non-penal coercive fine of US $1,000 per day for each day that they failed to comply with the anti-suit injunction order and the subsequent order dated 05.07.2018. Ovex and Sheikh Khawar Latif were once again directed to immediately discontinue "any litigation proceedings in Pakistan" against En Pointe or its officers, directors, employees or agents. CONTENTIONS OF THE LEARNED COUNSEL FOR THE APPELLANT:- 17. Syed Ahmed Hassan Shah, Advocate, learned counsel for the appellant/Ovex, after narrating the facts leading to the filing of the instant appeal, submitted that the learned Civil Court erred by returning the plaint under Order VII, Rule 10 C.P.C. when respondents No.1 to 5 had not even sought such a relief in their application under Section 4 of the 2011 Act; that at best, the learned Civil Court could have stayed the proceedings in Ovex's suit, but could not have suo moto returned the plaint; that although Section 8.08 of the Agreement provided that the Agreement was to be governed in accordance with laws of the State of California, and that the parties to the said Agreement had agreed to the jurisdiction and venue in the State of California this did not oust the jurisdiction of the Courts in Pakistan to adjudicate upon Ovex's suit which was not just against En Pointe but also other defendants who were not parties to the Agreement; that Ovex had independent grievances against the other defendants; that the learned Civil Court erred by not appreciating that the Agreement was executed at Islamabad as well as at Los Angeles; that the Agreement was fully performed at Islamabad; that the requirements of Section 20 C.P.C. were fully satisfied for the suit to have been instituted by Ovex before the learned Civil Court at Islamabad; that by filing an action before the Superior Court of the State of California, En Pointe had impliedly repudiated the arbitration clause in the Agreement; that by filing the said action, En Pointe 'tested the waters before taking the swim' and that after En Pointe was unable to have an injunction confirmed against Ovex, it decided to abandon the said action and initiate arbitration proceedings against Ovex; that the learned Civil Court ought to have decided whether after the filing of the said action by En Pointe, there existed any valid arbitration agreement between the parties to the Agreement; and that even though the said action had been withdrawn against Ovex, such withdrawal did not place En Pointe on a better footing in seeking to stay the proceedings in the suit before the learned Civil Court at Islamabad. 18. Learned counsel for Ovex further submitted that Section 2(5) C.P.C. defines a "foreign Court" as a Court situated beyond the limits of Pakistan which has no authority in Pakistan and is not established or continued by the Federal Government; that Section 3 C.P.C. provides that for the purposes of the C.P.C., the District Court is subordinate to the High Court, and every Civil Court of a grade inferior to that of a District Court and every Court of small causes is subordinate to the High Court and District Court; that Order VII, Rule 10(1) C.P.C. provides that the plaint shall at any stage of the suit be returned to be presented to the Court in which the suit should have been instituted; that since the term "foreign Court" has been separately defined in the C.P.C., the term "the Court" mentioned in Order VII, Rule 10(1) C.P.C. is with reference to a Court in Pakistan and not a foreign Court; and that the mere fact that the Agreement contained an arbitration clause providing for the venue of arbitration to be in a foreign jurisdiction and for the governing law of the Agreement to be a foreign law could not have caused the learned Civil Court at Islamabad to have returned the plaint in Ovex' s suit. 19. Furthermore, learned counsel for Ovex, after going through several Sections of the Agreement, in particular Sections 1.01, 3.04, 3.06, 4.01, 4.02, 7.02, 7.07 and 8.08 thereof, submitted that the defendants in the suit had breached the terms of the Agreement; that prior to the expiry of the Agreement' s three- year term, En Pointe had given the appellant on 20.03.2017 notice for its renewal; that on 27.03.2017, Ovex accepted the said notice, but wanted to re negotiate certain terms of the Agreement; that on 18.04.2017, En Pointe re-confirmed its intention to renew the Agreement but was in fact taking steps to terminate the same; that En Pointe started poaching Ovex' s employees; that Ovex does not want to enslave any of its employees, but the Agreement provides a process for Ovex' s employees to be taken over by En Pointe; that it was En Pointe' s desire to take over Ovex' s employees which prompted it to terminate the Agreement on 31.05.2017; that on 31.05.2017, En Pointe also impleaded Ovex as a party in an action before the Court in California; and that on 03.06.2017, when Ovex filed the suit before the learned Civil Court at Islamabad, the arbitration clause in the Agreement had been repudiated by En Pointe by instituting an action against Ovex before the Court in California. 20. Learned counsel for Ovex also submitted that the instant case was a fit one for a remand to the learned Civil Court; that although an appeal is a continuation of proceedings before the original forum, but a right of appeal cannot be taken
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away in any adversarial set-up; that a remand is always considered appropriate in order to avoid a party from being deprived of a right of appeal; that in the instant case the learned Civil Court, while returning the plaint, had also vacated the ad interim injunction granted to Ovex on 03.06.2017; that an ad interim injunction could not be vacated in exercise of jurisdiction under Order XXXIX, Rule 4 C.P.C.; that the ad interim injunction could not be termed as ex parte after the defendants in the suit entered appearance; that before vacating the ad interim injunction, the learned Civil Court ought to have heard inter parte arguments on Ovex' s application under Order XXXIX, Rules 1 and 2 C.P.C.; that in the impugned order dated 10.10.2017, the learned Civil Court did not decide whether Ovex had a prima facie arguable case for the grant of an injunction or whether the balance of convenience was in Ovex' s favour or whether Ovex would suffer irreparably if the injunction was to be denied; and that this is yet another reason why the matter ought to be remanded to the learned Civil Court. Learned counsel for Ovex prayed for the impugned order dated 10.10.2017 to be set-aside and for the matter to be remanded to the learned Civil Court with the direction to decide the pending applications in accordance with the law . CONTENTIONS OF THE LEARNED COUNSEL FOR RESPONDENTS NO.1 TO 5:- 21. On the other hand, learned counsel for respondents No.1 to 5 submitted that the impugned order dated 10.10.2017 does not suffer from any legal infirmity; that Section 8.07 of the Agreement contains an arbitration clause between Ovex and En Pointe; that the said Section 8.07 makes matters other than those "pertaining to injunctive relief including, without limitation temporary restraining orders, preliminary injunctions and permanent injunctions" arbitrable by a retired United States judge; that the action started by En Pointe against Ovex before the Superior Court of the State of California was only for the grant of an injunction; that vide order dated 13.07.2017, passed by the said Court, the preliminary injunction sought by En Pointe against Ovex was denied; that subsequently the said action filed by En Pointe was withdrawn against Ovex; that the filing of the said action only for the purpose of obtaining an injunction did not, in any manner, prevent En Pointe from commencing arbitration proceedings against Ovex in accordance with Section 8.07 of the Agreement; that En Pointe had not repudiated the arbitration Agreement at any material stage; that the other proceedings instituted by En Pointe before the Courts in the United States were only in aid of arbitration; that since Ovex had explicitly agreed to resolve its contractual disputes with En Pointe through the dispute resolution mechanism enshrined in Section 8.07 of the Agreement, the proceedings in the suit were liable to be stayed by the learned Civil Court; that the learned counsel for Ovex was correct in his submission that the learned Civil Court should not have suo moto returned the plaint in Ovex's suit; and that since an appeal is a continuation of the proceedings, this Court has the jurisdiction to modify the impugned order dated 10.10.2017 by staying the proceedings in Ovex's suit. 22. Learned counsel for respondents No.1 to 5 further submitted that indeed En Pointe was considering renewal of the Agreement but Ovex wanted to re-negotiate its terms; that En Pointe terminated the Agreement pursuant to Section 7.02 thereto; that the civil suit instituted by Ovex on 03.06.2017 was not proceedable due to the arbitration and foreign jurisdiction clauses in the Agreement; that the proceedings before the learned Civil Court were liable to be stayed under Section 4 of the 2011 Act; that while the proceedings were pending before the learned Civil Court, En Pointe commenced arbitration proceedings against Ovex in the United States; that on 07.07.2017, the emergency arbitrator passed an emergency arbitral award declaring that the disputes between the parties to the Agreement must be resolved through arbitration before J.A.M.S. in Los Angeles, California; that on 03.08.2017, J.A.M.S. appointed a sole arbitrator; that on 09.03.2018, the sole arbitrator passed the partial final arbitration award in En Pointe's favour; that the sole arbitrator still retains jurisdiction over the matter; that on 17.08.2018, En Pointe's petition to confirm the award was allowed by the United States District Court, Central District of California; that on 17.08.2018, the said Court passed an order holding Ovex and its officers in contempt of its anti-suit injunction order; and that the arbitration proceedings in the United States were strictly in conformity with Section 8.07 of the Agreement whereas the suit instituted by Ovex is in derogation of the express Agreement between the parties to refer their disputes to arbitration. 23. Learned counsel for respondents No.1 to 5 further submitted that the suit instituted by Ovex is an abuse of the process of the Court; that Ovex has tried to protract the proceedings before the learned Civil Court by filing frivolous applications; that vide order dated 29.07.2017, the learned Civil Court had dismissed Ovex's application
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under Order XVII, Rule 3 C.P.C.; that civil revision petition No.305/2017 filed by Ovex against the said order dated 29.07.2017 was dismissed by this Court vide order dated 31.10.2017; and that Ovex's endeavor is to keep En Pointe embroiled in litigation in Pakistan and to obtain an injunctive order against En Pointe. Learned counsel for respondents No.1 to 5 prayed for the impugned order dated 10.10.2017 to be modified and for the proceedings in Ovex's suit before the learned Civil Court to be stayed. 24. I have heard the contentions of the learned counsel for the contesting parties and have perused the record with their able assistance. The case law relied upon by the learned counsel for the contesting parties has been referred to herein below . 25. The facts leading to the filing of the instant appeal have been set out in sufficient detail in paragraphs 2 to 16 above and need not be recapitulated. WHETHER EN POINTE HAD REPUDIATED THE ARBITRATION AGREEMENT:- 26. I propose, in the first instance, to determine the question whether En Pointe, by initiating an action (Case No.30- 2017 00904563-CU-BT-CJC) against inter alia Ovex before the Superior Court of the State of California, had impliedly repudiated the arbitration agreement contained in Section 8.07 of the Agreement and had waived or abandoned its right to initiate arbitration proceedings against Ovex. As mentioned above, on 13.07.2017, Judge Peter J. Wilson of the Superior Court of the State of California gave a ruling denying En Pointe's request for a preliminary injunction, and had dissolved the temporary restraining order…
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