ORDER SHEET

Suit No. 305 of 2010

Suit No.200 of 2010

Date Order with signature(s) of the Judge(s)

For hearing of Main Application.

31 August, 2010.

Mr. Mansoorul Arfin, advocate for the plaintiff.

Mr. Bilal A. Khawaja, advocate for the defendant.

This is an application under section 20 of the Arbitration Act, 1940 for the purpose of appointment of an arbitrator by this Court. The brief facts of the case are that the defendants herein were awarded contract by Karachi Port Trust for the construction of Berths No.10 to 14, East Wharves, Karachi Port Trust, Karachi (“the Project”). The defendants appointed the plaintiff as their consultant, under consultancy agreement dated 17.6.2008, for obtaining Duty and Tax Remissions from the Federal Board of Revenue. It was agreed between the parties that the plaintiff shall be entitled to 50% share of the monetary benefits obtained by concession over and above the prevalent rates of sales tax, customs duty, Federal Excise Duty and Special Excise Duty. The plaintiff was to receive his above described share of 50% till completion of the Project. The dispute between the parties arose when the defendant vide their letter dated 10.2.2010, terminated the consultancy agreement with immediate effect and also cancelled the power of attorney executed in favour of the plaintiff. Since, according to the plaintiff, there was an arbitration clause in the consultancy agreement, therefore, the plaintiff has filed the present application under section 20 of the Arbitration Act, 1940 for appointment of an arbitrator.

2. Mr. Bilal A. Khawaja, learned counsel for the defendants, has filed objections to this application under section 20 of the Arbitration Act mainly on two grounds: (i) that the plaintiff is guilty of fraudulent conduct and in view of settled position of law, a case which involves determination of question of fraud shall not be referred to arbitration, and (ii) the Arbitration Clause is patently ambiguous and vague as such there is no agreement between the parties to refer the disputes to arbitration under the Arbitration Act, 1940 and that the term “failure of Arbitration” is, in any case, alien to the said Act. Although the reply on behalf of the defendant it was also stated that the suit, as framed, is not maintainable, but no arguments were advanced on this point.

3. During the course of arguments, Mr. Bilal A. Khawaja, learned counsel for the defendants, pointed out the alleged fraudulent conduct of the plaintiff by relying on the contents of plaint in Suit No.200/2010 filed by the defendant against the plaintiff for damages but when it was pointed out to the learned counsel that these are matters of facts, the learned counsel did not press this ground any further and only confined his arguments on the point that the arbitration clause is ambiguous and vague and that the term “failure of Arbitration” is alien to the Arbitration Act, 1940 and, therefore, the matter cannot be referred to arbitration. He also submitted that there is no agreement between the parties to refer their disputes to arbitration under the Arbitration Act, 1940. The learned counsel submitted that recourse has been given that both the parties will be free to file their claims in a court of law in Pakistan as per the prevalent law. As per the learned counsel, it is no where provided that the matter will be referred to the arbitrator. As per the learned counsel, Clause 17 has been very badly drafted as the term “failure of Arbitration” has no where been mentioned in the Arbitration Act, 1940 and no provision of the said Act caters to the situation of this ambiguous term “failure of arbitration”. Hence, as this Clause 17 has been mentioned in unspecific, ambiguous and vague manner, therefore, in his opinion, the matter cannot be referred to arbitration. In support of his contentions the learned counsel has relied upon the following cases:

1. 2003 YLR 1109,

2. 1997 CLC 1177, and

3. 1989 MLD 1144

4. Mr. Mansoor-ul-Arfin, learned counsel for the plaintiff, while giving his rebuttal, submitted that the only Act in vogue in Pakistan with regard to the arbitration matters is the Arbitration Act, 1940,hence, even if it is assumed that the terms “in case of failure of Arbitration” is ambiguous and vague, the matter has to be resolved under the said Act. The learned counsel, then, invited my attention to Sections 8(1)(b), 12(2), 16(3), and section 19 of the Act to show that the term “failure of arbitration” is not altogether alien to the Act and that there are instances where it could be said that the arbitration has failed. He also referred to section 30 of the Act and stated that the arbitration is a condition precedent for filing the suit.

5. Mr. Bilal A. Khawaja, in his counter , submitted that failure of procedure for appointment of arbitrator cannot be mixed up with the concept of “failure of arbitration.”

6. I have heard both the learned counsel at considerable length and have gone through the record of the case and the case law relied upon by the parties.

7. The dispute in this case is with regard to clause 17 of the consultancy agreement between the parties. As per the learned counsel for the plaintiff, this is a valid and binding clause for referring the disputes between the parties to arbitration first and only then recourse could be had to filing of the suit. On the other hand, learned counsel for the defendant contends that the arbitration clause is patently ambiguous and vague and that the term “failure of arbitration” is alien to the Arbitration Law. In order to resolve this dispute, it would be advantageous to reproduce clause 17 of the agreement, which reads as under:

“17. Both the parties agree to resolve their dispute/disputes, if any mutually, failing which the first recourse shall be arbitration without any litigation and the Arbitrator shall be appointed with mutual agreement of both the parties. In case of failure of Arbitration, both the parties (JV Company and the consultant) will be free to file their claim in court of law in Islamic Republic of Pakistan as per prevalent law. No suit of any nature will be filed outside Pakistan.”

8. A plain reading of this clause reveals that the parties agreed to resolve their dispute/disputes in the following three manners:

a) Mutually,

b) Through arbitration, and

c) By filing suit in court of law in Pakistan.

9. It may be worth mentioning that there is a negative covenant that “No suit of any nature will be filed outside Pakistan.”

10. The fact that a dispute exists between the parties is proved by the act of both the parties as the plaintiff has filed the present application under Section 20 of the Arbitration Act, 1940 for appointment of arbitrator for resolving the disputes between the parties while the defendant has also filed a suit, bearing Suit No.200/2010, against the plaintiff for damages and permanent injunction.

11. The above acts of the parties also show that the parties failed to resolve their disputes mutually and, therefore, the plaintiff filed an application for appointment of arbitrator while the defendant filed a suit for damages. However, while filing of suit in a court of law in Pakistan is not barred by the said clause 17 of the agreement, and even otherwise such bar cannot be filed, it is to be seen whether such recourse is in accordance with the agreement between the parties or not.

12. As per clause 17 of the agreement, in case a dispute could not be settled amicably and mutually by the parties, then “the first recourse shall be arbitration without any litigation”. However, learned counsel for the defendant has submitted that since this clause is ambiguous and vague, therefore, it cannot be implemented.

13. In the case reported as 1989 MLD 1144 a dispute arose between a contractor and his employer and the agreement between the parties carried clause 68 titled “Settlement of Disputes” and it provided that any dispute between the Employer or the Engineer and the Contractor in connection with the contract shall be referred to and settled by the Engineer within 90 days and such decision shall be final and binding upon the Employer and the Contractor “until completion of the work”. A learned Division Bench of this Court observed that the above clause contemplates that the decision of the Engineer shall be binding upon the parties until completion of work and held that “This portion of the above clause makes the clause vague on the question whether factually it is an arbitration clause or it was intended only to provide for a decision which may remain binding till the completion of the work in order to avert the delay in completion of the work’’.

14. In the case reported as 2003 YLR 1109, there was an arbitration clause which, incidentally, was also clause 17. It reads as under:

"All disputes between the builders and the allottees relating to the shop shall at first be mutually settled. If they fail to do so it shall be referred to the authority for arbitration and the decision of the authority shall be final and binding on both the parties."

15. It was argued that arbitration clause is vague and uncertain as the term "authority" has not been defined in the contract between the parties and as such matter cannot be referred for arbitration.

“A learned single Judge of this court held that “A corporate body is a legal person and cannot act as arbitrator as its constitution can be changed at any time and only a natural person/ persons can act as an arbitrator so as to hear the parties and give decision/award after applying mind to it.”

16. It may be stated that there is no such ambiguity involved in this case as the parties are in agreement that the dispute/disputes are to be resolved, in case these could not be resolved mutually, by arbitration.

17. All the above cases in my opinion are distinguishable as neither a corporate body has been nominated to conduct the arbitration between the parties nor there is any clause which makes it vague whether it is an arbitration clause or a clause to avert delay in completion of the work leaving the parties at liberty to seek their respective remedy after completion of the said work. In the third case relied upon by the learned counsel for the defendant (1997 CLC 1177) the Court held that ‘the arbitration clause does not mention as to what dispute is to be referred to Arbitrator’. Thus, this case also does not help the defendant in any manner as in the present Clause 17 of the agreement clearly stipulates that “Both the parties agree to resolve their dispute/disputes, if any, mutually failing which the first recourse shall be arbitration”. Thus, there is not an iota of doubt that the parties have expressly agreed to refer their dispute/disputes, if any, to arbitration if they are unable to mutually resolve the same. Even if it is assumed that there is some vagueness in the latter part of the clause it is not with regard to reference to arbitration but is with regard to, if any, filing of claim in a court of law. However, the first part of this clause is concerned, in my view, it is very clear that any dispute/disputes between the parties would be resolved mutually and failure to do so would result in reference of the dispute to arbitration.

18. An Arbitration agreement has been defined under section 2(a) of the Arbitration Act, as a written agreement to submit present or future difference to arbitration, whether an arbitrator is named therein or not. An arbitration agreement or an arbitration clause in an agreement like an agreement between the parties, which required that same should be executed with the free consent of parties competent to contract and section 29 of the Contract Act, provided that "an agreement, the meaning of which is not certain, or capable of being made certain, are void". The contracting parties must be shown to be at ad idem with reference to the ‘essential terms of the contract’ and, therefore, if there is any vagueness or uncertainty incapable of being made certain, the contract fails for vagueness. Reference in this regard may be made to 2003 Y L R 1109.

19. The question, whether there exists any dispute between the parties which could not be resolved mutually and has to be referred to arbitration could be easily answered in affirmative by the mere fact that on the one hand the plaintiff in suit No.305 of 2010 has approached this Court for appointment of arbitrator while on the other hand the defendant in this suit has filed Suit No.200 of 2010 against the plaintiff for damages and permanent injunction. In paragraph 3 of the defendant’s suit mention is made of agreement dated 17 June 2008 and in paragraph 5 of the plaint failure of the plaintiff to provide agreed services.

20. The other objection raised by the learned counsel for the defendant to the present suit (Suit No.305/2010) is that in the arbitration clause no mention is made of Arbitration Act, 1940 and, therefore, there is no agreement between the parties to refer their disputes to arbitration under the Arbitration Act, 1940.

21. There is no dispute with regard to the fact that the agreement dated 17 June 2008 between the parties was executed at Karachi and no where in the agreement it is mentioned that the laws of any other country would be applicable to the said agreement. On the contrary, it is explicitly mentioned in clause 17 of the agreement that “No suit of any nature will be filed outside Pakistan”. In this regard I was able to lay my hands on a decision given by the Hon’ble Supreme Court of Pakistan in the case of Hitachi Limited vs. Rupali Polyester (1998 AC 721) wherein the Hon’ble Apex Court observed as under:

“If the parties fail to choose the law governing the arbitration proceedings, those proceedings will almost certainly be governed by the law of the country in which the arbitration is held.”

22. In the present case there is no agreement between the parties that the arbitration would be held in any foreign country. Therefore, there is no doubt that the arbitration between the parties would be governed by the laws of Pakistan. In such circumstances, as there is only one Arbitration Act in force in Pakistan and that is Arbitration Act, 1940, therefore, there cannot be two opinions on this point that the arbitration between the parties, for all practical purposes, would be carried out under the Arbitration Act, 1940. In this regard reference may be made section 47 of the said Act which provides as under:

47. Act to apply to all arbitrations. Subject to the provisions of Section 46, and save insofar as is otherwise provided by any law for the time being in force, the provisions of this Act shall apply to all arbitrations and to all proceedings thereunder:

23. In view of the above discussion, I am of the view that from perusal of clause 17 of the agreement dated 17.6.2008, it is crystal clear that the parties are ad idem with reference to the essential terms of the contract with regard to referring the dispute/disputes, which may not be resolved mutually, to arbitration.

24. The upshot of the above discussion is that this suit is allowed. The parties are called upon to submit the name of their chosen arbitrator so that the matter may be referred to any one of them.

25. In view of the above order, Suit No.200 of 2010, filed by the defendant herein, shall also stand disposed of as the defendant would be at liberty to file its claim before the arbitrator.

JUDGE