IN THE HIGH COURT OF SINDH AT KARACHI
BEFORE:
Mr. Justice Mohammad Shafi Siddiqui
Suit No.223 and 224 of 2012
Arif Habib Equity (Pvt.) Limited & others
Versus
Army Welfare Trust
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Date of Hearing: |
21.11.2016 |
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Petitioner: |
Through Mr. Muneer A. Malik Advocate. |
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Respondent: |
Through Mr. Khaliq-uz-Zaman Advocate. |
2. Brief facts are that the defendant represented that it was holding 90 years leasehold rights in respect of plot of land measuring 34,317 sq. meters in Survey No.183/1 situated at Abbasi Shaheed Road, Karachi Cantonment and plot of land measuring 37,652 sq. meters in Survey No.195 situated at Shahrah-e-Faisal, Karachi Cantonment, which is subject matter of connected suit, by virtue of two separate leases dated 19.12.2002. It is contended that the defendant showed its intention to construct a multistoried building on the subject plots and has offered to enter into a joint venture agreement with the plaintiffs for the purpose of development of the land.
3. It is claimed that initially a memorandum of understanding was reached on 12.12.2007 between plaintiffs No.1 and 2 and the predecessor in interest of plaintiff No.3 and the defendant. Subsequently a framework agreement was executed on 09.01.2008 setting out terms as agreed mutually. Eventually the Joint Venture Agreement was executed on 06.05.2008 setting out the obligation of the parties based on agreed terms between them and consequently the incorporation of SPV was undertaken. On account of some dispute as to the transfer of land/clean title, the Joint Venture Agreement terminated on 29.01.2010.
4. It is claimed by counsel for the plaintiffs that unilateral termination of Joint Venture Agreement by the defendant was completely beyond the scope of termination clause of the Joint Venture Agreement and despite this attempt of unilateral termination the plaintiffs have offered to reconcile and resolve the matter in good faith by issuing letter of 09.03.2010 which offer was repeated on 14.05.2010. In pursuance of such attempt it is claimed that the defendant wrote a letter on 10.06.2010 calling upon the plaintiffs to agree to appointment of Sole Arbitrator and named their choice. However, the defendant was informed by the plaintiffs that the provisions of sub-clause (A) of Clause 11.2 of the Joint Venture Agreement is a principal condition before invocation of arbitration provision/clause and a number of letters were exchanged in respect thereto. The correspondence between them is of such nature which led to belief that aforesaid letter dated 10.06.2010 as to appointment of arbitrator had been withdrawn inasmuch as the threat in such letter of 10.06.2010 to make a reference to Institute of Chartered Accountants of Pakistan was not pursued any further. However, they (plaintiffs) soon realized that the defendants have malafidely attempted to have arbitrators of their own choice at the back of the plaintiffs hence they have filed this suit.
5. Respondent’s counsel on the other hand submitted that in pursuance of letter dated 10.06.2010 in relation to the Joint Venture Agreement they were informed of their failure to make payment of liquidated damages in the sum of Rs.1 Billion 74 Million approximately. He contended that in order to facilitate an early outcome of the dispute two respectable names of sole arbitrators in pursuance of clause 11.2(C) were proposed. It was clarified that in case it is agreed they may be contacted for their availability. Counsel further contended that they were further clarified that in case they do not receive any express written agreement of the aforementioned proposal relating to the appointment of Sole Arbitrator within 14 days of this letter, it shall be presumed that an effort for the appointment of Sole Arbitrator has failed and the resort to be made by making a reference to the Institute of Chartered Accountants of Pakistan for appointment of two Arbitrators and ultimately by the Secretary of Pakistan Bar Council, as stipulated in the agreement. Counsel contended that on 18.08.2011 they wrote to the Secretary of Chartered Accountants of Pakistan informing them about Joint Venture Agreement and referred to letter dated 31.01.2012 (Annexure D to the application under order VII rule 11) addressed to the Secretary Institute of Chartered Accountants of Pakistan with a copy claimed to have been forwarded to the plaintiff. It is claimed that a lot of water had crossed under the bridge since the reference to the appointment of Sole Arbitrator was made. It is contended that since the plaintiffs were unable to respond or agreed to appointment of Single Arbitrator the resort was made to the second limb of sub-clause (C) of Clause 11.2 for making a reference to the Institution Chartered Accountants of Pakistan for two arbitrators, therefore, the matter cannot be reverted back to a situation and position which has already been exhausted.
6. On the basis of these contentions, learned counsel for defendant argued that the plaintiffs have exhausted the remedy without a cause and hence the plaint is liable to be rejected. It is claimed that since the jurisdiction has been invoked by the Chartered Accountants of Pakistan in pursuance of a mandate provided under clause 11.2(C) of the Joint Venture Agreement, therefore, the cause which led to file this suit is misconceived.
7. I have heard the learned counsel and perused the material available on record.
8. For the convenience relevant clause 11.2(A) and (C) are reproduced as under:-
“(A) In the event of any dispute arising out of the performance or the interpretation of this Agreement or the Framework Agreement (other than a dispute which is a Management Deadlock pursuant to sub-clause 1 above), the parties agree to undertake to make every reasonable effort to reach amicable settlement within thirty (30) days of notification by one party to the other that such dispute exists. For the avoidance of doubt, the determination of whether or not a dispute is a “Management Deadlock” for the purposes of sub-clause 1 above is a dispute subject to arbitration under this sub-clause 2 above; however, the resolution of any dispute which is so determined to constitute a Management Deadlock under sub-clause above, shall not be subject to arbitration under this sub-clause above.
(C) Unless the parties agree upon a single arbitrator, the reference shall be made to two (2) arbitrators appointed by the Institute of Chartered Accountants of Pakistan and if the Institute of Chartered Accountants of Pakistan fails and refuses to appoint one or more arbitrators within twenty one (21) days of a written request then by the Secretary of the Pakistan Bar Council. The two (2) arbitrators appointed as aforementioned shall appoint a third who shall be the umpire. The language of arbitration shall be in English, and the place of arbitration shall be in Karachi unless the parties agree to hold the arbitration in another location. In rendering a decision, the arbitrator(s) shall be bound by the provisions of this Agreement, the Framework Agreement and legal principles under the applicable Laws of Pakistan. The arbitration award shall be in writing, and shall be final and binding upon the parties, and shall not be subject to appeal. Judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a judicial recognition of the award and an order for enforcement, as the case may be. Decision of the arbitrators shall be majority vote.”
9. The contention of the learned counsel for the parties is to be gauged and measured on the basis of the language used in sub clause (C) of clause 11.2. The factors subsequent to the issuance of letter dated 10.06.2010 are very relevant to understand the intention of parties as to the appointment of Single Arbitrator or the subsequent engagement of the parties in relation to the cause which was initiated in pursuance of the first limb of sub-clause (C) of Clause 11.2 is relaxed or has reached dormant state.
10. On 21.06.2010 plaintiffs addressed a letter in response to the letter dated 10.06.2010, in terms whereof defendants were informed that procedure of appointment of arbitrators cannot be invoked unless a notice for amicable resolution has been issued as envisaged in clause 11.2(A) of the Joint Venture Agreement and every reasonable efforts has been made to reach an amicable settlement and hence a suggestion in compliance of 11.2(A) was made that before issuance of such notice, a meeting under clause 11.2(A) be convened. This letter of 21.06.2010 was replied on 01.07.2010 that they would consider any new proposal in these changed circumstances. It was again responded on 22.07.2010 with a suggestion for convening a meeting in this regard. The correspondence as available on record continued until September 9, 2011. On September 9, 2011 defendant, with reference to the earlier letters of the plaintiff, informed that they would welcome the efforts to discuss and resolve outstanding matters between them.
11. However, all of a sudden while this negotiation was on they (plaintiffs) received a letter dated 31.01.2012 in relation to the appointment of arbitrator under second limb of sub-clause (C) of Clause 11.2. This letter was issued by defendant to the Secretary, Institute of Chartered Accountants of Pakistan which was responded to by the counsel for the plaintiff.
12. These efforts in the shape of above correspondence could only demonstrate an attempt of an amicable settlement in terms of Sub-clause A of Clause 11.2 is still in progress as there was no letter on record regarding failure of such attempt by any party till then. Meaning thereby that if any attempt was made to the appointment of Single Arbitrator it was nullified when the defendant in response to letter of the plaintiff dated 21.06.2010 admitted to have an amicable settlement. Clause (C) would trigger only once the reconciliation and resort to 11.2 A failed which is perhaps intention of defendant developed subsequent to the letter of 09.09.2011 and/or 19.09.2011 until when the parties were dear to each other and were responding positively for an amicable settlement. If at all sub-clause (C) of clause 11.2 was triggered it is subsequent to the last two letters referred above hence making a reference to the second limb of sub-clause (C) was a premature act. The earlier letter of 10.06.2010 in relation to the appointment of sole arbitrator is of no consequence since the parties never exhausted 11.2(A) by that time. This exercise is to be carried out De Novo.
13. The other alarming factor in the appointment of two arbitrators in response to the second limb of sub-clause (C) by referring the matter to the Chartered Accountants of Pakistan is the correspondence with the Secretary for the appointment of Arbitrators at the choice and desire of defendant. Mr. Malik claimed to have serious reservations as far as the manner and mechanism which was adopted between the defendant and the Secretary of Institute of Chartered Accountants of Pakistan. The letter of 31.01.2012 has made a reference of letter dated 16.01.2012 as well, meaning thereby that they were already in consultation as to the appointment of arbitrators despite the fact that an attempt of an amicable settlement in pursuance of sub-clause (A) of Clause 11.2 has not reached to its logical end. The defendant has shown their desire to the appointment of one Mr. Shaukat Amin Shah as one of the two arbitrators and as far as other arbitrator is concerned i.e. Mr. Shibli I. Rehan the concurrence has already been conveyed to the Secretary. It is not only that this correspondence should not have been made, at least to the extent of appointment of Arbitrator, but it is also beyond the mandate and domain of the Secretary and the defendant. The reference is to be made to the Institute of Chartered Accountants of Pakistan and not to an individual such as Secretary to whom the letters were addressed.
14. In pursuance of Section 9 of Chapter 3 of Chartered Accountants Ordinance 1961 it is the Council of the Institute who manages the affairs of the Institute and for discharging the functions assigned to it under this Ordinance or otherwise. It is the Council who was entrusted with such powers and authority is deemed to be vested with it. If at all the appointment of Arbitrator is not the function to be decided by the Council, by an agreement between then such powers are deemed to be vested within the functions of the Council. If this function of appointment of two arbitrators is not deemed to be vested then the very purpose of making a reference to the Institute of Chartered Accountants of Pakistan would fail and the attempt of the defendant to resort to such limb of making reference to the Institute of Chartered Accountants of Pakistan would also be nullified.
15. The letter of 18.08.2011 which was addressed by the defendants to the Secretary of Institute of Chartered Accountants of Pakistan is also quite alarming and surprising. By this date i.e. 18.08.2011 they (parties) were making attempt in terms of sub-clause (A) of Clause 11.2. Last two letters between them available as Annexure H/7 and H/8 are dated 09.09.2011 and 19.09.2011. It seems that they were keeping the plaintiffs in dark while making an attempt to resort to sub-clause (A) they were also mischievously proceeding under second limb of 11.2(C) by virtue of a reference to Institute of Chartered Accountants of Pakistan for appointment of two arbitrators and that too of their choice. This mandate is given to the Council as far as appointment is concerned. Council was never required to communicate defendant as to the appointment of two arbitrators and the appointment made was also to the desire and choice of the defendant. The contention of learned counsel for defendant that presumption as to the legality in appointment of two arbitrators shall be deemed to be attached is not confidence inspiring since the Secretary to whom no mandate was assigned either in terms of the Statute or in terms of the agreement, has given the choice of the appointment of arbitrator to the defendant.
16. It is the Council who has to perform and not the Secretary. In none of the concluding letters, either addressed to the Secretary or addressed by the Secretary any reference was made that the Council was pleased to appoint and nominate the two arbitrators or that the secretary was addressing on behalf of counsel. The presumption could only be deemed to be attached if such reference was made by the Council. The Secretary could only act on behalf of Council and hence he alone cannot said to be clothed with the authority of the council unless reference is made. The Secretary himself by way of adopting the procedure has polluted the presumption that could have been attached to the appointment of two arbitrators, had it been routed through the Council.
17. In view of the above the main applications under section 20 of the Arbitration Act, 1940 are allowed. Plaintiff is directed to file the original arbitration agreement in Court. Parties are directed to suggest name of Arbitrator so that out of those Sole Arbitrator may be appointed. Since the order on the main suits has been passed therefore and applications under section 41 of Arbitration Act seeking interim orders in both the suits (CMA Nos.1980 and 1982 of 2012 respectively) are allowed till the arbitrator is appointed in the matter, however, with no order as to cots.
18. In view of the above, the applications under order VII Rule 11 CPC filed by the defendant in both the suits (CMA Nos.3440 and 3439 of 2012 respectively) were also dismissed, by a short order dated 21.11.2016 in respect which above are the reasons.
Dated: Judge