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Petitioner: HITACHI LIMITED and anothers VS Respondent: RUPALI POLYESTER and others
Court Name: Supreme Court of Pakistan Judge(s): Muhammad Arif, Ajmal Mian, Sh. Riaz Ahmad Title: HITACHI LIMITED and anothers vs RUPALI POLYESTER and others Case No.:Civil Revisions Nos. 34 of 1994 and 83 of 1994 Appeals Nos. 958 and 959 of
JUDGMENT
Reported As: 1998 SCMR 1618 Result: order remand Judgment JUDGMENT ' AJMAL MIAN, CJ.---By this common judgment, we intend to dispose of the above appeals, which were filed with the leave of this Court against a common judgment dated 29-6-1994 passed by a learned Single Judge of the Lahore High Court in Civil Revisions Nos.34 and 83 of 1994 filed by respondent No,1 against the order dated 22-12-1993 of the learned Senior Civil Judge, Sheikhupura, dismissing above respondent No,1 's application under sections 14 to 17 of the Arbitration Act, 1940 (hereinafter referred to as the Act), challenging the first award dated 28-5-1993 and the supplementary award dated 13-7-1993 rendered by Arbitral Tribunal at London, comprising respondents Nos.2 to 4 and for a direction to file the above awards or signed' copies thereof with all depositions and documents in the aforesaid Court and application under sections 5 to 12 of the Act for removal of Arbitral Tribunal, allowing the same by setting aside the above order and remanding the case to the learned Civil Judge for proceeding with the above application in the following terms:-- "103. In conclusion, therefore, it is held that as in the present case, the cause of action had arisen in Sheikhupura; the proceedings under the Arbitration Act could validly be commenced before that Court in view of section 2(c) sections 30,33,41 and 47 of the Arbitration Act read with section 20 of the Code of Civil Procedure; that the jurisdiction of the Courts in Pakistan could only be taken away by another Statute of that country and not by any principles of any other law; that the awards were domestic awards made on arbitration agreement governed by Pakistani law and, therefore, the Arbitration (Protocol and Convention) Act, 1937 was not applicable, that the awards were domestic in nature for the same reason that even under the principles of Private International Law the
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jurisdiction of the Courts in Pakistan do not stand excluded, the trial Court was, therefore, not correct in holding that it has no jurisdiction to proceed with the two applications filed by the petitioner." ' The brief facts are that respondent No,1, which is a company incorporated under the Companies Ordinance, 1984, in Pakistan, having its registered office at LI, Chundrigar Road, Karachi, under an agreement dated 30-5-1985 (hereinafter referred to as the agreement), agreed to purchase from appellant No,1 Hitachi Limited (which is a company incorporated and registered in Japan) and the appellant No,2, Mitsui & Company Deutschland (which is a company incorporated under the laws of Germany and having its offices at 40215 Dusseldorf-1, Konigsallee 63-65, Germany), plant, equipment, material, engineering know-how and supervisory services for erection, construction, installation and commissioning of a plant for production of ordinary chips of Polyester for filament yarn for apparel use with a daily production capacity of 80 metric tons against the price of Japanese Yen 2,262,500,000. Article 16.7 and Article 13 of the agreement read as follows:-- "16.7 CONTRACT shall be governed and construed by the Pakistan law. 13.1 In 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 difference 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 parties hereto." 2. It seems that a dispute arose between respondent No,1 and the appellants inasmuch as the former alleged that the plant and equipment supplied by the latter were defective, not of the requisite standard and not in conformity with the specification. It was further alleged that on account of the appellants' wrongful and wilful acts and negligence respondent No,1 suffered huge losses. Thereupon, on 8-3-1990 respondent No,1 invoked Article 13 of the agreement inasmuch as under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, they appointed respondent No,3, Rt. Hon, Sir Michael Kerr and the appellants appointed respondent No,4, Prof.John Uff, Q.C. As their arbitrators; whereas respondent No,2, Dr. Nael G. Bunni was appointed as the Chairman by the International Court of Arbitration under I.C.C. Rules. It appears that on 10-5- 1991 the Terms of Reference of arbitration were settled by the Arbitral Tribunal and the parties. After that hearing started. It seems that the appellants raised preliminary point as to the limit of their liability under Article 8.4.1 of the agreement. The Arbitral Tribunal rendered its interim award on 28- 5-1993 holding that the appellants' liability was limited in terms of above Article of the agreement. It was followed by a supplementary award dated 13-7-1993. Thereupon, respondent No,1 filed on 2- 8-1993 aforementioned application under sections 14 to 17 of the Act in the Court of learned Senior Civil Judge, Sheikhupura, which was registered as Suit No, 61 of 1993. The above application was resisted by the appellants inasmuch as they filed objections to the following effect:-- (i) That the Court had no jurisdiction under the Act; (ii) That since neither the appellants were the residents of Pakistan nor they were carrying on any business, the suit was incompetent; and (iii) That the I.C.C. Rules were applicable. ' It appears that respondent No,1 moved another application on 31-8-1993 under sections 5, 11 and 12 of the Act for the removal of Arbitral Tribunal and for declaration that the arbitration agreement in respect of the differences referred to in the application ceased to have effect. The learned Senior Civil Judge by his aforesaid judgment dated 22-12-1993 disposed of the above application in the
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aforestated terms. Against this judgment respondent No,1 filed aforesaid two Civil Revisions in the Lahore High Court, which were allowed by the learned Judge in Chambers through the judgment under appeal and the case was remanded for hearing of respondent No,1 's aforesaid applications. Against the above judgment, the appellants filed two petitions for leave to appeal in this Court, which were granted to consider the following two points:-- "(i) What is the effect of the factum that the petitioners and respondents Nos.2 to 4 do not reside and are not located within Pakistan? (ii) Whether procedural law/curial law is deemed to be lex arbitri or lex fori i.e, the law of England, under which the English Courts alone have jurisdiction in respect of proceedings for arbitration conducted in that country?" 3. Before proceeding any further, it may be observed that before the learned Judge in Chambers the then learned senior counsel for the appellants, Mr. Khalid Anwar, had candidly conceded that Arbitration (Protocol and Convention) Act, 1937 (hereinafter referred to as Act VI of 1937), would not apply to the two awards in question. He also did not contest the position that because of the abovequoted Article 16.7 of the agreement, the proper law of the contract was the Pakistani law nor he disputed that the proper law of arbitration agreement in the present case would be the law of contract, that is the law of Pakistan (please refer to pages 64, 67 and 73 of the paper book of Civil Appeal No,958 of 1994), ' The learned counsel for the parties have argued that above appeals in detail very ably and dealt with the controversy from different angles. However, in our view, the parties are at variance on a very limited issue. It is the case of the appellants that since curial law (procedural law) is lex arbitri or lex fori and as the Arbitration's venue is London, the English Courts alone have jurisdiction in respect of proceedings for arbitration conducted in that country under I.C.C. Rules and the resultant awards therefrom. Whereas the case of respondent No,1 is that English and Pakistani Courts have concurrent jurisdiction and, therefore, respondent No,1's above applications under the Act are competent. ' In support of the above appeals Mr. Umar Ata Bandial, learned counsel appearing for the appellants, has submitted that in the instant case there were three stages, namely:-- (i) Before the commencement of the arbitration proceedings in terms of the I . C . C . Rules; (ii) after the commencement of the arbitration proceedings; and (iii) after rendering of the award and its enforcement. ' According to him, respondent No,1 could file an application under section 33 of the Act challenging the existence or validity of the arbitration agreement in the Court of learned Senior Civil Judge, Sheikhupra, before the commencement of the aforementioned arbitration proceedings, but they could not have filed any application under the Act in the above Court in Pakistan after the commencement of the arbitration proceedings. Whereas Mr. S.M. Zafar, learned counsel for respondent No,1, urged that the respondent No,1 's above applications are competent as there is concurrent jurisdiction vested in English and Pakistani Courts. 4. Before taking up the main submission, we may now refer to other submissions made by Mr. Bandial, learned...Counsel for the appellants, to reinforce his above main submission. His first submission was that the provisions of the Act cannot be invoked in the present case and, therefore, the awards cannot be challenged in a Pakistani Court. In support of the aforesaid submissions he has drawn our attention to the following cases): (i) Yangtze (London) Ltd. v. Barlas Brothers (Karachi) (PLD 1961 SC 573); (ii) Viswa nathan v. Abdul Wajid (AIR 1963 SC 1 relevant at page 15); (iii) Serajuddin & Co. v. Michael Golodetz and others (AIR 1960 Calcutta 47, paras. 31, 42, 43, 44, 46 and 48); (iv) Badat & Co. v. East India Trading Co. (AIR 1964 SC 538, para. 35);
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(v) M.A. Choudhury v. Mitsui C.S.K. Lines Ltd. And others (PLD 1970 SC 373); (vi) Builders Association Ltd. v. The Federation of Pakistan and others (PLD 1986 Lahore 171); (vii) Avari Hotel Ltd. v. Hilton International Company (PLD 1985 Karachi 425, relevant at page 460); (viii)Meincke Food Processing Equipment v. Danish Butter Cookies (Pvt.) (1992 CLC 1132); (ix) Eckhardt & Co. v. Muhammad Hanif (PLD 1993 SC 42); (x) Swindells & Son v. Muhammad Abdullah (PLD 1957 (W.P.) Karachi 933); (xi) Ghulam Ahmad v. Dr. Sarosh Rattanji Wadia (PLD 1959 (W.P.) Karachi 624); (xii) Petrocon (Pvt.) Ltd. v. Hyderabad Development Authority, Hyderabad (1990 MLD 1675); (xiii)Imperial Tobacco Co. Of India Ltd. v. Commissioner of Income-tax (PLD 1958 SC (Pak.) 125); (xiv) The Hanover Fire Insurance Company v Muralidhar Banechand (PLD 1958 SC (Pak.) 138); (xv) Nan Fung Textiles Ltd. v. Sadiq Traders Ltd. (PLD 1982 Karachi 619); (xvi) G.M. Pfaff A.G. v. Sartaj Engineering Co. Ltd. (PLD 1970 Lahore 184); (xvii) Hassanali & Co. Cotton (Private) Limited v. Poly Cotton S.A., 2 RUE, Andrian Vallin 1201 Geneva, Switzerland and others (PLD 1996 Karachi 416). ' According to Mr. Bandial the impugned awards have attained finality for the reason that under Article 24 of the International Chamber of Commerce Rules, respondent No,1 agreed not to challenge the award given by the Arbitral Tribunal. To reinforce the above submission, he has referred the cases of Arab African Energy Corpn. Ltd. v. Qlieprodukten Nederland B.V. (1983) 2 Lloyd's Law Reports 419), Marine Contractors Inc.- v. Shell Petroleum Development Co. Of Nigeria Ltd. (1984) 2 Lloyd's Law Reports 77, and Union National Des Cooperatives Agricoles De Cereales v. Robert Catterall & Co. Ltd. (1959) 2 Queen's Bench 44. ' On the other hand, Mr. S.M. Zafar, learned counsel for respondent No,1, has urged that the application of the international Chambers of Commerce (I.C.C.) Rules would not oust the jurisdiction of the Pakistani Courts. According to him, as under the agreement the contract is to be governed and construed by Pakistani law, Pakistani Courts have jurisdiction. He also submitted that since Act VI of 1937 which covers foreign awards is not applicable in view of section 9(b) thereof, which provides that nothing in this Act shall be applied to any award made of an arbitration agreement governed by the law of Pakistan. According to him, as a corollary it must follow that the provisions of the Act (i.e, Arbitration Act, 1940) would be applicable to the arbitration proceedings and to the resultant awards. He pointed out that Mr. Bandial has not relied upon any Pakistan law on the subject as, according to him, Act VI of 1937 as well as the Act are not applicable, and hence common law would be attracted. To reinforce his above submission, he has relied upon the cases of A.M. Qureshi v. Union of Soviet Socialist Republics (PLD 1981 SC 377), Eckhardi & Co. v. Muhammad Hanif (PLD 1993 SC 42) (supra) and Uzin Export & Import Enterprises for Foreign Trade v. M. Iftikhar & Company Limited (1993 SCMR 866, relevant at page 876). ' In the above first case the facts were that M/s. Uzin Export & Import Enterprises were awarded contract for construction/completion and successful operation of a cement plant. It seems that under clauses 2, 4 and 26 of the contract, the contractor was authorised to employ sub- contractors to carry out work subject to approval of Attock Cement Company. M/s. Uzin Export & Import Enterprises, who were the appellants in that case, appointed respondents M/s. M. Iftikhar & Company as the sub-contractor. The dispute arose as the respondents wanted to remove the constructional plant/machinery/vehicles to some other place/work. The appellants filed Suit No,559 of 1983 against the respondents claiming relief of injunction. The respondents filed their written statement and also made counterclaim. The appellants filed an application under section 34 of the Act (i.e, Arbitration Act, 1940), on the ground that there was a clause in the agreement for international arbitration under the auspices of International Chambers of Commerce in Paris. However, the above application was declined by the learned Single Judge of the High Court of Sindh, on the ground that the appellants by filing the aforesaid suit had abandoned their right of
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invoking the arbitration clause. The appeal filed against the above judgment was also dismissed by a learned Division Bench of the said Court. Against the above judgment an appeal with the leave of this Court was filed, which was allowed and inter alia it was held that the provision for arbitration of the International Chambers of Commerce in Paris did not oust the jurisdiction of the Courts of this country. The suit was stayed but it was ordered that the venue of the arbitration proceedings for the reasons recorded in the order shall be Karachi and not Paris. It will be advantageous to reproduce para. 18 of the above judgment which reads as under:-- "18. In this case on account of peculiar facts and circumstances as stated above, we are of the view that stay should have been granted to allow the parties to have their dispute as mentioned in the counterclaim decided by the forum of arbitration. It appears that appellants filed suit for injunction which was dire need for the reason that they did not want the machinery to be removed and execution of work to be hampered. Such relief could not be granted in arbitration proceedings. After filing of counterclaim appellants made efforts for compromise and withdrew their suit and asked for stay of suit proceedings in the counterclaim on the ground that dispute was covered by arbitration clause. For facts and reasons mentioned above we stay suit proceedings. 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. In this case the main contract is between Attock Cement Company of Pakistan and appellants for construction and completion and successful operation of cement plant which provides for appointment of sub-contractors. Resultantly, respondents entered into contract as sub-contractors with appellants. Contract from which present proceedings arise was executed in this country and the works had also to be executed here. In the circumstances arbitration proceedings cannot be allowed to be taken to Paris which would be inconvenient to the parties and also would prove to be expensive. We, therefore, allow stay of suit proceedings and leave the parties to take steps for having their dispute decided through arbitration proceedings with venue at Karachi. With regard to the mode and other incidental matters, steps can be taken as contemplated under the Arbitration Act. There will be no order as to costs." ' In the above report reliance was placed on the above two cases. In the first case a suit was filed by a Pakistani national against the Trade Commissioner of the USSR. In defence, he claimed diplomatic immunity. It was held by this Court that none of the statutes, conventions, doctrines treaty or diplomatic certificate bestowed immunity from jurisdiction of the municipal Courts in a commercial and trade transaction entered into between a Pakistani citizen and the USSR and its trade representative. Whereas in the above second case the question for consideration before this Court was, whether a suit could be stayed under section 34 of the Act in presence of a foreign arbitration clause in the contract. Agreement was executed between a foreign company (with the registered office in Hamburg) through an agent situated at Karachi and a Pakistani buyer. The above agreement contained a foreign arbitration clause. It was held that the above application was competent. ' It appears that some of the cases cited by Mr. Bandial referred to hereinabove in para. 4 support to certain extent his above submission. We intend to deal with some of them hereinafter. However, it may be pointed out that in view of the above clear pronouncement by this Court in the case of M/s. Echardi & Company, Marine GmbH v. Muhammad Hanif (supra) and M/s. Uzin Export and Import Enterprises (supra), it cannot be urged that simpliciter the fact that the agreement is subject to arbitration under the I.C.C. Rules will divest the jurisdiction of the Pakistani Courts if otherwise it is vested in them. It may again be pointed out that it was conceded by the appellants before the learned Judge in Chambers that the proper law applicable to the agreement was the Pakistani law. Since the arbitration agreement is embedded in the main agreement, in the absence
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of any contrary express agreement, the proper law of arbitration agreement will be the same, which is applicable to the main agreement, namely, Pakistani law, which was not disputed by the learned counsel for the appellants. As pointed out hereinabove, the only controversy between the parties is, whether the Pakistani Courts can entertain above applications under the Act though the curial law/procedural law applicable is English law because of the fact that the arbitration proceedings are conducted in London and there is no express provision contrary to the above. 5.(a) Then it was urged by Mr. Bandial that neither the appellants are the residents of Pakistan nor they have been carrying on business in Pakistan nor have submitted to the jurisdiction of Pakistani Courts, hence they being foreigners, the Pakistani Courts have no jurisdiction to grant any decree against them in personam. Reliance was placed by him on the case of Sirdar Gurdyal Singh v. The Rajah of Faridkote (1894) 21 Indian Appeals 171). In the above case the facts were that the respondent was the Rajah and the ruler of Faridkote Princely State in Punjab. He appointed the appellant as the Treasurer of the State. After the appellant left the service, the respondent filed two suits in Faridkote State Court, though the appellant was not residing at the relevant time in the above State. The aforesaid suits were not contested by the appellant in spite of the service of notice. Consequently. They were decreed ex parte in 1879 and 1880 for a total amount of Rs,76,474 11a and 3p. And costs by the Court in Faridkote. The Rajah filed proceedings for the execution of the above decrees before the Assistant Commissioner, Lahore, but the same were dismissed on the ground that the judgments, which were pronounced by the Faridkote Court were without jurisdiction against the appellant. On appeal to the Additional Commissioner, Lahore, the above orders of the Assistant Commissioner were upheld. Thereupon, the Rajah appealed to the Chief Court of Punjab, which differed with the Courts below and upheld the jurisdiction of the Faridkote Court. The matter was brought before the Privy Council, which reversed the judgment of the Chief Court of Punjab on the ground that the decree pronounced in absentia by a foreign Court was a nullity in law and restored the judgments/orders of the two Courts below. It may be advantageous to reproduce the following extract from the above judgment:-- "In a personal action, to which none of these causes of jurisdiction apply, a decree pronounced by a foreign Court, to the jurisdiction of which, the defendant has not in any way submitted himself, is by international law an absolute nullity. He is under no obligation of any kind to obey it; and it must be regarded as a mere nullity by the Courts of every nation except (when authorised by special local legislation) in the country of the forum by which it was pronounced." ' The above judgment in fact is the basis of some of the reports cited by Mr. Bandial. (b) However, it may be pointed out that with the passage of time, the concept of action in personam has undergone material change inasmuch as service of the process/summons on a foreigner is considered sufficient if cause of action arises within the limits of a municipal Court concerned. In this regard reference may be made to the case of Annamalai Chetty v. Murugass Chetty (ILR (1903) Madras 26, at page 544). In the above case the facts were that a suit was brought to recover the sum of money due on a decree of the French Court at Pondicherry in a British Court in India (i.e, in a District Court in Madras Province). The aforesaid suit was resisted by the defendant. On the basis of pleadings of the parties the following six issues were framed:-- "(1) Is this Court prevented from entertaining the suit by reason of the cause of action not having arisen, and defendant not being resident or carrying on business within its jurisdiction? (2) Did or did not the defendant reside or carry on business within the jurisdiction of this Court on the date when the cause of action arose? (3) Was the French judgment, on which the suit has been brought, according to French law null and void on the date of suit, and is the present claim based on the French judgment, therefore, not sustainable in this Court?
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(4) Is it open to the defendant to raise the contention in this suit that the promissory note, on which the French judgment was passed, was obtained from the defendant by the plaintiff fraudulently? (5) And, if so, was the promissory note obtained by the plaintiff from the defendant fraudulently? (6) What is the relief, if any, that the plaintiff is entitled to?" ' On above Issues Nos.1 and 2 the District Court held that the defendant was carrying on business at Cuddalore within the meaning of section 17 of the Civil Procedure Code, 1882, at the date of the suit and was, therefore, subject to the jurisdiction of the Court in which the suit had been filed. On Issue No,3, he returned the finding to the effect that at the date of the suit the French judgment was not null and void. Whereas on Issues Nos.4 and 5, he held that he was not competent to go behind the French judgment and investigate the questions involved in those issues. Consequently, he decreed the suit. Against the above judgment the defendant filed an appeal, which was upheld by a Division Bench of the Madras High Court. Against the above judgment of the High Court, an appeal was brought before the Privy Council, which in its opinion approved the case of Girdhar Damodar…
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