TRADING CORPORATION OF PAKISTAN (PVT.) LIMITED Versus NIDERA HANDELSCOMPAGNIE B.V.
ORDER
C.M.A. No. 2563 of 1991
In this suit for injunction and in the alternative for declaration brought by the Trading Corporation of Pakistan (hereinafter referred to as T.C.P.), by way of aforesaid application, plaintiff seeks an order to restrain the defendants ‑from seeking remedy for and proceeding with arbitration before Federation of Oil Seeds and Fats Association (hereinafter referred to as FOSFA) as there exists no binding contract between the parties.
2. Facts in brief leading to this suit are that by way of tender notice dated 19‑2‑1991 published in daily 'Dawn' dated 21‑2‑1991, T.C.P. invited tenders for the supply of soyabeen oil on C & F, Karachi free out basis from eligible world‑wise sources, for import of one cargo of 26,000 metric tons plus / minus 5 % at seller's option. According to the notice, suppliers were required to furnish alongwith their offers a bid bond in the form of Bank Guarantee on T.C.P.'s prescribed pro forma. As is usual in such cases, T.C.P. reserved the right to accept or reject any or all the tenders, partly or wholly without assigning or intimating any reason.
3. Defendant No. 1 carrying on business in Netherlands through their agent defendant No.2 offered to sell soyabean oil at the rate of US $ 65 per metric ton plus interest at the rate of US $ 23.90 for credit of 180 days and local agents commission of US $ 0.50 per metric ton. According to the plaintiffs, they communicated a conditional acceptance by telex dated 10‑3‑1991 which stipulated:
"(1) that a signed formal contract would be executed;
(ii) that defendant No. l would submit an acceptable performance bond for the due performance of the contract strictly in accordance with the prescribed pro forma. Under clause 6 (b) of the enquiry, Letter of 'Credit was to be opened by the plaintiffs within fourteen days from the date of signing of contract which was subject to the receipt of the bank guarantee for the purpose."
4. On 16‑3‑1991 defendant No.2 submitted a signed contract form for itself on a performance bond which according to the plaintiffs was not in accordance with the tender enquiry. It is asserted that between 16th March and 31st March, 1991, the plaintiffs received several communications one of them requesting certain changes in the Letter of Credit and others requesting early acceptance by opening of Letter of Credit as they expected the ship for carrying the commodity to berth for loading on or about 30/31st March, 1991. According to the plaintiffs performance bond was subject to compliance with the condition:‑‑ "to keep this guarantee valid and in force for 90 days after completion of discharge of the contracted goods in Karachi."
Whereas the performance bond furnished by the defendants contained the additional words "Or 15th August, 1991, whichever date is earlier". On account of this addition T.C.P. regretted that due to their non‑compliance strictly with the pro forma of the performance bond supplied by them they had committed breach of the contract which stood cancelled now.
5. It is further the case of the plaintiffs that notwithstanding aforesaid telex, the defendants in defiance of their obligation to mitigate damages by not loading the ship loaded the commodity on ship and after informing the plaintiffs that defendants were holding the plaintiffs in breach offered to sell commodity to the plaintiffs: Later defendant No.l communicated to the plaintiffs that it had purchased some consignment through M/s. Pasternak and claimed damages in the sum of US $ 18,31,250. Defendant No.l finally communicated to the plaintiffs a notice of arbitration by FOSFA London. Referring to arbitration in London in order to recover some amount of money, from them which would be costly, without jurisdiction and lead to multiplicity of legal proceedings in the absence of a binding contract, they filed this suit.
6. The T.C.P, have prayed for an injunction in order to restrain the defendants from seeking remedy by arbitration before Federation of Oil Seeds and Fats Association London and in the alternative a declaration that no binding contract having been concluded between the parties, the defendants cannot seek and proceed with the arbitration proceedings before FOSFA London.
7. The defendants filed separate written statements wherein they denied the case of the plaintiffs in the plaint and explained the circumstances and the steps taken by the parties in furtherance of the contract which in fact made contract complete and concluded for all intents and purposes. It was denied that the performance guarantee submitted by them did not fulfil the requirements of law.
8. A counter‑affidlivit was also filed to the aforesaid CMA disputing and denying various averments made by the T. C. P. and more particularly pointing out that clause "13" of the contract expressly provided that the bid bond of successful tenderers will be returned on their furnishing performance bond acceptable to‑ the T.C.P. and thus the scrutiny of the performance bond had to take place before the return of the bid bond which was returned to them. They further pointed out that the guarantee furnished by them contained a clause by which the Bank expressly agreed to extend it for such further period or periods as may be required by the buyers in their sole discretion five days before the expiration of the validity date. It was urged that there was no limitation on the validity of the guarantee and even if it be assumed that the guarantee was not fully complied with the requirements of the tender, it was not open to the plaintiffs to unilaterally cancel the contract as they had accepted the guarantee. T.C.P. also returned the bid bond to the defendants which was decisive by itself to conclude that the contract was concluded one. In fact the plaintiffs acted upon the contract by appointing M/s. Thionvilla Surveying Company ISA, as Pre shipment Inspectors. They had requested the defendants to supply the relevant information pertaining to the shipment which was conveyed to the T.C.P. by means of a telex dated 14‑3‑1991 stating that the vessel had been chartered by them by means of a chartered party dated 12‑3‑1991 and particulars asked for were actually supplied. T.C.P. was further intimated that it was planned to start loading on or about 1st/2nd April, 1991.
9. I have heard learned counsel for the parties and with their assistance gone through the material on record.
10. Mr. Khalid M. Ishaque, learned counsel for the plaintiffs raised the following contentions:
(i) That there was no formal concluded contract between the parties binding the plaintiffs to agree to arbitration before the Federation of Oil Seeds & Fats London;
(ii) that the defendants having not submitted performance bond as required on the standard terms and conditions their bid was never accepted;
(iii) that in the absence of arbitration agreement reference 'to arbitration before FOSFA is totally illegal, unauthorised and not warranted by the circumstances.
11. On .the other hand, Mr. Khalid Anwar, learned counsel for the defendant No. l submitted that the offer of the defendants being accepted by the plaintiffs, contract duly signed by defendant No. l was duly sent to them which was complete in all respects including the performance bond. Learned counsel contended that acceptance of offer by the plaintiffs is evident from the return of bid bond amount. Besides acting on the contract T.C.P. had appointed their Pre shipment Inspectors for inspection of soyabean oil at Netherlands and they are estopped from stating that the bid bond was not accepted. On legal plane, learned counsel submitted that section 32 of the Arbitration Act bars the maintainability of a suit, except under the provisions of Arbitration Act. .
12. Adverting to the contentions raised by learned counsel for the plaintiffs, it may suffice to say that pursuant to the tender notice issued by them, defendants were declared to be successful tenderers and their tender was accepted through plaintiffs' telex dated 10‑3‑1991 Annexure ' D' to the plaint whereby the defendants were informed that their offer was accepted. They were called upon to submit performance bond for 3 % of total C & F value within 10 working days of acceptance of their offer and to formalise the contract immediately. By this telex,plaintiffs promises that L/C will be opened on receipt of formal contract and acceptable performance bond. On receipt of this telex defendant No. l advised defendant No.2 to convey to the plaintiffs that performance bond favouring Banquse Indosezs, Karachi was delivered to T.C.P. and to revert with L/C details urgently. Defendant No. l also informed defendant No.2 to request T.C.P. to open L/C with Habib Bank Limited and advise through Banque Indosez, Head Office. Acting upon this advice defendant No.2 sent a telex mpssage dated 13‑3‑1991 Annexure ' E' to the plaintiffs conveying the message received from their principals with a request to kindly advise L/C details. receiving no response from the plaintiffs defendant No.2 sent another telex dated 25‑3‑1991 Annexure ' F' to the plaintiffs intimating that defendant No .l was still awaiting L/C details and apprising T.C.P. that the shipment period had already started and they had also nominated a vessel to lift the consignment with a request to advise L/C details urgently. As the plaintiffs paid no attention to the telex sent by the defendants, defendant No.2 addressed Director (Import) T.C.P. vide telex dated 27‑3‑1991 expressing regrets that despite various telexes requesting T.C.P. to advise L/C opening details, they had not received necessary details with regard to opening of L/C. This defendant reiterated that they had already submitted performance bond in time and sent them contract for above shipment and the T.C.P. had also appointed Pre shipment Surveyors M/s. Thionville who were in liaison with their principles. They further informed the plaintiffs that the shipment period had already commenced and their vessel was coming on 1st load port on or about 30th/31 st March, 1991 to load their consignment and reminding the plaintiffs to see that they get L/C details promptly. This telex was followed by telex messages Annexures ' H' and ' I' both dated 28‑3‑1991 addressed to the Acting Chairman and Director, T.C.P. calling upon the plaintiffs to furnish L/C details as on 21‑3‑1991 they were assured by T.C.P. that they will revert with L/C details soonest possible as action for opening of L/C was already in hand. By the subsequent telex Annexure ' I' defendants emphasised the plaintiffs that the vessel chartered by them was expected to come on berth in 2‑4 days time with a request for opening L/C promptly as they may face demurrage on vessel and storage charges which will be on plaintiffs' account apart from other consequences. Although the plaintiffs received these telex messages well in time but they did not pay any heed to defendants' reasonable request. Finally defendant No.2 on receipt of telex from defendant No. l informed the plaintiffs vide telex dated 30‑3‑1991 Annexure 'J' to plaint that the vessel chartered for the consignment was expected to come on berth in 2‑3 days time. It was only after such hectic pursuations and repeated requests that the plaintiffs were good enough to inform the defendants through telex dated 31‑3‑1991 that in the performance bond submitted by them it was required that guarantee shall remain in force for 90 days after completion of discharge of the contracted goods in Karachi mention of the words "or 15th August, 1991 whichever date is the earlier" being unauthorised addition in the standard pro forma they had committed breach of contract and the same stood cancelled. Defendants took a strong and serious exception to this telex and replied by their telex dated 1st April, 1991 as under:
"Without prejudice to our rights which we reserve. We totally disagree with regard to your contentions about .the performance bond. Your contentions run counter to what the T.C.P. has been accepting and acting upon since last many years. Without prejudice to our rights to deal with each of your baseless contentions we hereby make it clear that you have no right to cancel the contract. We refer to our various telexes in which we have asked you to establish Letter of Credit which you have failed to do obviously because the market has gone against you. We draw your attention to our telex dated 28‑3‑1991 in which we have already shown how both the parties namely you as the buyers and we as the sellers have actually acted upon the contract. We, therefore, give you this notice that if by tomorrow noon Rotterdam time you have not advised us that L/C has been opened, unfortunately we shall have to declare you in default and shall claim for arbitration as per Arbitration and Appeal rules of FOSFA International Londen holding you fully liable for all costs and consequences arising out your default. "
There are subsequent telexes by defendant addressed to the plaintiffs on record reiterating their point of view and holding the plaintiffs in breach of contract unilaterally and without any lawful authority emphasising that in past T.C.P. had been acting upon and accepting performance bond without any reservation and emphasising that there was no concept of a guarantee without a fixed date for its expiry. It was on 1st of May, 1991 that the defendant No. l by a telex intimated the plaintiffs' Acting Chairman and Directors about the nomination of their arbitrator and called upon them to appoint their arbitrator within 14 days failing which they shall make appropriate demand to. FOSFA International London to appoint an arbitrator for them.
13. A glance at the exchange of telexes between the parties, analysis and assessment of their respective pleadings affidavits, counter‑affidavits and rejoinder affidavits, leads me to a prima facie conclusion that in fact the contract was concluded notwithstanding the circumstance that the plaintiff corporation did not formally sign the contract submitted by the defendants and did not open a letter of credit as promised. Ex facie acceptance of tender as well as bid bond, return of bid bond amount, receipt of performance guarantee, assuring the defendants that opening of L/C was in hand, that the details of L/C shall be made known sooner, appointment of Preshipment Inspectors at Netherlands and their silence for unduly long time on the part of the plaintiffs are strong A circumstances to prima facie hold that the contract with regard to purchase of 26000 m tric tons of soyabean oil was entered into between the parties. This opinion is being expressed tentatively on scrutiny of material on record supported by conduct of the parties, attending events and circumstances of the case and at any rate may not be construed as ,final conclusion for the determination of controversy.
14. There is no dispute with regard to the contract between the parties in which arbitration clause is to the following effect: "Any dispute arising out of the contract to be settled in accordance with rules of FOSFA Contract No.54 including the clause of the domicile and arbitration."
"Russell" on the Law of Arbitration, Nineteenth Edition at page 72 observed that the parties to a contract may properly agree that no action shall be brought upon it until an award has been made or (what amounts to the same thing) may agree that the only obligation arising out of a particular term of the contract shall be to pay whatever sum an arbitrator may award. This observation has a reference to Scott v. Avery (1856) L.J. Ex. 308.
15. On page 308 of the Treatise, the learned author writes "while there may be circumstances where the Court might not, on the authorities, be able to grant an injunction restraining either a party or the arbitrator from proceedings with a reference, there is no restriction on the Court's power to grant a declaration that a reference is outside the jurisdiction of the arbitrator. The report (Government of Gibraltor v. Kenny (1956) 2 Q.B. 410 at p. 421) seems to suggest that it may be advisable for a party seeking such a declaration not to seek also for an injunction, as the obtaining of a declaration might thereby be prejudiced". At page 209 in the same treatise learned author writes "while parties cannot by contract oust the jurisdiction of the Courts they can agree that no right of action shall accrue in respect of any differences which may arise between them until such differences have been adjudicated upon by an arbitrator. Such a provision is often termed as "Scott v. Avery Clause" from the case cited above."
16. 1 have referred to the above citations from Russell for the reason that on receipt of ad interim injunction order dated 19‑5‑1991 passed on plaintiffs' application for interim injunction, defendant No. l by their telex dated 22‑5‑1991 expressed strong protest and referred to the following clause in FOSFA Contract referred to in the arbitration clause:
"Neither party hereto nor any persons claiming under either of them, shall bring any action or other legal proceedings ,against the other of them in respect of any such dispute until such dispute shall first have been heard and determined by the arbitrators, umpire or board of appeal (as the case may be), in accordance with the rules of Arbitration and appeal of the Federation, and it is hereby expressly agreed and declared that the obtaining of an award from the arbitrators, umpire, or board of appeal (as the case may be), shall be a condition precedent to the right of either party hereto or of any person claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute. "
17. As to the "condition precedent" clause contained in the aforesaid arbitration clause Viscount Simmon Lord Chancellor in Heyman v. Darwins Ltd. (All England Law Reports (1942) page 337) expressed the view that where there has been a total breach of contract by one party so as to relieve the other of all his obligations under it, an arbitration clause, if its terms are Wide enough, still remains effective. This is so even where the injured party has accepted the repudiation, and, in such circumstances, either party may rely on the clause.
18. In National Insurance Company Ltd. v. qalcutta Dock Labour (AIR 1977 Calcutta 492), a Division Bench took the view that it is well settled that if the making of an award is a condition precedent for the accrual of a cause of action then the condition has to be satisfied before the plaintiff can institute a suit. In the face of a condition in the contract of insurance providing that difference between the parties arising out of policy were to be referred to arbitration laid down, it was held that such a condition was not hit by section 28 of the Contract Act.
19. In J.B. & Oil Mills v. Commercial Union Assurance Company (AIR 1979 Calcutta 56), it was held that an arbitration clause in a contract of insurance making arbitration award a condition precedent to the right of action in a Court for recovery on the contract is valid. It does oust the Courts of their jurisdiction because they have no jurisdiction whatsoever and no cause of action accrues until the arbitrator has made the award.
20. In view of the aforesaid condition precedent clause in the arbitration agreement between the parties it is difficult to subscribe to the view that the plaintiffs have raised an arguable case or a debatable issue for the grant of temporary injunction to restrain the proceedings before the arbitrators. I am fortified, in my view by the Supreme Court judgment in Awan Industries 8 Limited v. Executive Engineer (1992 SCMR 65) expressing the view that after coming into force of Arbitration Act, 1940, the remedy of enforcing the award by a suit is taken away by section 32 of the Act. The first part of section 32 precludes filing of suit for a decision upon the existence, effect or validity of an arbitration agreement or award. Its second part prevents the setting aside of the arbitration agreement or the award or modifying the same except as provided under the Arbitration Act.
21. In Province of Sindh v. Muhammad Sabir Khan (1987 CLC 668) Saiduzzaman Siddiqui, J. (as he then was) took the view that the validity of an award can only be challenged in accordance with the provisions of the Arbitration Act. His Lordship held the filing of a declaratory suit challenging validity of award, before the same was made rule of Court, as not only premature but also misconceived in law. To my mind, ratio is directly applicable to the present suit in which the plaintiffs are challenging the existence and validity of arbitration agreement.
22. ‑ In an identical case relating to a foreign award, Saleem Akhtar, J. expressed the same view in Marines Limited v. Aegus Shipping Company Ltd. (1987 CLC 1299).
23. In Jugal Kishore v. Gool Bai (AIR 1955 SC 812), it was held that it is settled law that to constitute an arbitration agreement in writing it is not necessary that it should be signed by the parties and it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established.
This judgment was considered by our Supreme Court in Jamal Jute Baling & Company v. M. Sarkies & Sons (PLD 1971 SC 784) in which the view taken was as under: "Even if it be assumed for the sake of argument that the contract was not properly signed even otherwise in my opinion the contract between the parties was quite valid and binding on them. It has been rightly pointed out by the Civil Judge that the appellants/sellers have accepted the contract. There is also evidence that after the conclusion . of the contract the appellant firm had partially acted upon it for supplying 125 bales of jute. " Supreme Court noted that the same view was expressed in the case of Banarsi Dag v. Cane Commissioner, U.P. (AIR 1963 SC 1417).
24. Mr. Khalid Anwar, learned advocate for the defendants also referred to Abdur Rehman v. Hamid Khan (1988 SCMR 1146) and Badri Narayan Agarwala v. Pak Jute Balers Ltd. (PLD 1970 SC 43) which have a material bearing on the issue involved.
25. On the question whether there was a concluded, contract between the parties, learned counsel for the plaintiffs referred to M/s. Zodiac Electrical (Pvt) Ltd. v. Union of India (AIR 1986 SC 1918), Orient Transport Company v. M/s. Jaya Bharat C & I Company Ltd. (AIR 1987 SC 2289), Mehran Sugar Mills Ltd. v. Sindh Sugar Co. Ltd. (1995 CLC 707,) and Meraj Din v. 1Voor Muhammad (1970 SCMR 542).
26. In Zodiac Electricals' case Supreme Court of India while dealing with an appeal held that the correspondence between the parties disclosed that there is no concluded contract therefore, obviously the arbitration clause alleged to be. in the contract could have no existence. Suffice it to say the case is distinguishable on facts.
27. ‑ In Orient Transport Company's case Supreme Court of India laid down as under:‑‑
"Section 32 of the Act does not contemplate the case of a suit challenging the validity of a contract merely .because it contains an arbitration clause. If the intention of the Legislature were that all documents containing an arbitration clause should come within the purview of Ss.32 and 33, the Legislature would have said so in appropriate works. These sections have a very limited application, namely, where the existence or validity of an arbitration agreement and not the contract containing the arbitration agreement is challenged. Every person, it has to be borne in mind, has a right to bring a suit which is of a civil nature and the Court has jurisdiction to try all suits of civil nature under section 9 of the Civil Procedure Code. That right has not been taken away by section 32. Such right can only be taken away by express terms or by necessary implication. Section 32 does not have that effect. Sections 32 and 33 of the Act on the true construction do not purport to deal with suits for declaration that there was never any contract or that contract is void."
No doubt Indian Supreme Court laid down. that section 32 of the Arbitration Act does not take away the right to protect a right of civil nature and a suit for declaration that there was never any contract or that contract is void is maintainable, the view taken by our own Supreme Court in 1992 SCMR 65 to the contrary must prevail.'
28. In Mehran Sugar Mills' case my learned brother Deedar Hussain Shah, J. was dealing with an injunction application in a suit for specific performance of agreement to sell in respect of a Sugar Mills which is entirely distinguishable from the facts of instant case.
29. In Merajuddin's case the Supreme Court was dealing with civil petition for special leave to appeal from the judgment of Lahore High Court passed in Letters Patent appeal whereby decision of Learned Single Judge in writ petition was confirmed. It was a case of absence of confirmation of highest bid at a public auction by settlement authorities which has no bearing on the facts of the case in hand.
30. In view of the aforesaid facts and circumstances I am of the considered view that the plaintiffs have miserably failed to make out a strong prima facie case for the grant of discretionary and equitable relief of injunction. It may further be observed that in the given circumstances they have not been able to convince this Court that the balance of convenience would lie in their favour. Indeed defendants shall be put to great inconvenience and hardship in the events C of restraint on arbitration proceedings before the agreed arbitrators. It may likewise be said with a greater justification that by recourse to arbitration proceedings, the plaintiffs are unlikely to suffer an irreparable injury. Should the plaintiffs think that the proceedings before the Arbitrator are without) jurisdiction, they may take this ground before the Arbitrator or before the Court after making of the award.
31. For these reasons, there is no merit in this injunction application which) is hereby rejected and interim order recalled.
32. Before parting with this order, I would direct the issuance of notice to the plaintiffs to appear and to address this Court with regard to the maintainability of the suit in the present form.
A. A. /T‑17/K Interim order recalled,