2002 PLP 790 (CLD)

2. That the wrongful repudiation of contract by the Government of Pakistan and its subsequent, false, malicious and politically motivated accusations have caused colossal loss and damages to the respondent. Consequently the respondent claims the following amounts as being payable to the respondent by the applicant:‑‑ (a) Outstanding invoices dated account of services rendered: US $ 8,368,430.48. (b) Interest. on the unpaid invoices with effect from 1st January, 1998 to 31st March, 2001: US $ 2,299,953.38. (c) Damages on account of premature termination of contract: US $ 31,500,000. (d) Demobilization costs: US $ 2,400,000. (e) Damage to reputation of the respondent as a direct result of the defamatory statements/ publications of the Government of Pakistan: US $ 213,000,000. (f) Damages on account of loss of opportunity US $70,000,000. (g) Legal fees and expenses: US $ 1,500,000 (h) Interest at the rate specified in the contract from the date of termination till actual payment to the respondent of all amounts get out hereinabove." After dismissal of the appeal of the appellant by the Swiss Federal Tribunal, the appellant (SGS) instituted an application before the trial Court on 4‑1‑2002 under section 41 of the Arbitration Act, 1940 for stay of the proceedings under section 20 of the Arbitration Act, 1940 pending the decision of the International Center for Settlement of Investment Disputes (ICSID) in Arbitration proceedings instituted by appellant SGS on the ground that by virtue of Bilateral Investment Treaty (BIT), dated July 11, 1995 between Swiss Confederation and Islamic Republic of Pakistan, the respondent was bound to submit to ICSID arbitration. The learned trial Court dismissed the application of the appellant under section 41 of the Arbitration Act, 1940 on January 7, 2002. On the same date the learned trial Court directed the parties to file the names of the proposed `arbitrators'. The appellant has assailed the orders, dated 7th January, 2002. The learned Attorney‑General for Pakistan has filed a C. M. No.339‑C of 2002 praying that the appellant be restrained from taking any step, action or measure to pursue or participate or to continue to pursue or participate in the ICSID Arbitration.

3. The learned counsel for the appellant contended GOP (Government of Pakistan) entered into a bilateral Treaty with the Swiss Confederation on 11th July, 1995 and under Article 9 of the same if the dispute between a contracting party and an `Investor' is not resolved through consultation within 12 months and if the investor gives a written consent, the dispute shall be submitted to the arbitration of ICSID constituted by the Convention of Washington on March 18, 1965. He submitted that the `investor' was defined in Article 1(1) and `Investment' in Article 1(2) of the Treaty. The purpose of the Treaty was to encourage investment. Under Article 2(1) all disputes relating to `investment', made later than 1st September, 1954 will fall within the jurisdiction of ICSID. By accepting the offer contained in this bilateral Treaty, the consent as required by ICSID is complete and the respondent GOP cannot back out from it. Reliance was placed,, upon Aziz Khan, Commissioner (E) Pakistan Navy v. The Director‑General, Ports and Shipping; (1991 CLC 362) and Messrs Najib Zarab Ltd. v. Government of Pakistan (PLD 1993 Karachi 93). Conversely the learned Attorney‑General for Pakistan argued that the appellant approached the Court of first instance in Geneva but his claim was dismissed on 24th June, 1999 holding:‑‑ (a) That the respondent could not be sued in the Court of Switzerland; (b) that the agreement containing the arbitration clause was valid and the Courts at Switzerland had no jurisdiction; (c) that the fair trial was possible in Pakistan and that the appeal by the appellant before the Swiss Appellate Tribunal was dismissed on 23‑11‑2000. It was urged that in reply to the application under section 20 of the Arbitration Act, 1940 no where it was stated that ICSID was attracted. The appellant did not invoke ICSID and waived/ abandoned its right, if it was at all available to them. A counter‑claim had been made thus accepting the jurisdiction of the trial Court in Pakistan. It was submitted that the respondent had been constrained to defend proceedings before ICSID and had made it clear that the same are being defended under protest. Lastly it was submitted that under Article 69 of the ICSID Convention each contracting State was to take such legislative measures as may be necessary for making the provisions of the convention effective in its territories. In the absence of Municipal Law, International Convention could not be enforced. Reliance was placed upon Mst. Salma Jawaid and 3 others v. S.M. Arshad and 7 others (PLD 1983 Karachi 303) and Ms. Shela Zia and others v. WAPDA (PLD 1994 SC 693). Corpus Juris Secundum Volume 6, para. 54, page 260 and American Jurisprudence, IInd Edition, Volume 5, para. 51, page 556 and Messrs Uzin Export and Import Enterprises for Foreign Trade v. Messrs M. Iftikhar & Company Limited (1993 SCMR 866) and Uzin Export Import Enterprises v. M. Iftikhar & Company (PLD 1986 Karachi 1).

4. The parties entered into a contract on 29th September, 1994. Clause 11. 1 reads as under:‑‑ "11.1 Arbitration. Any dispute, controversy or claim arising out of, or relating to this agreement, or breach, termination or invalidity thereof, shall as far as it is possible, be settled amicably. Failing such amicable settlement, any such dispute shall be settled by arbitration in accordance with the Arbitration Act of the Territory as presently in force. The place of arbitration shall be Islamabad, Pakistan and the language to be used in the arbitration proceedings shall be the English language." It is thus clear that the case of any dispute, controversy or claim arising out of, or relating to this agreement, the parties decided to settle the same by arbitration in accordance with the Arbitration Act. The place of arbitration shall be Islamabad, Pakistan and the language to be used in the arbitration proceedings shall be the English language.

5. The Bilateral Investment Treaty (BIT) between the Swiss Confederation and Islamic Republic of Pakistan (respondent) was signed on 11th of July, 1995. This Treaty was ratified by Ministry of Foreign Affairs, Government of Pakistan on April 4, 1996. Similarly, the Embassy of Switzerland informed the Islamic Republic of Pakistan that the effective date of the aforesaid agreement was May 6, 1996. The aims and object of the Treaty was "to create and maintain favourable conditions for investments by Investors of one `Contracting Party' in the territory of other `Contracting Party', and for Reciprocal Protection of Investments. Under Article 2 of the Treaty the agreement between the two Governments was to apply to any investment made later than 1st September, 1954. Under Article 1(1) and (2) the terms `Investor' and `Investments' were defined respectively. Article 9 states that in case of disputes between a `Contracting Party' and an `Investor' of the other `Contracting Party', the same shall be submitted to the arbitration of International Center for Settlement of Investment Disputes (ICSID) instituted by the Convention of Washington of March 18, 1965. The pivotal issue between the parties is whether the dispute between them is to be resolved in accordance with Article 11.1 of the agreement dated 29th September, 1994 i.e. under Arbitration Act, 1940 at Islamabad, Pakistan or by ICSID arbitration as claimed by the appellant. In 1965 a convention on the settlement of investment disputes between States and nationals of other States was concluded in Washington. Pakistan is a signatory of the said Convention having signed the Convention on July 6, 1965, ratified the same on September 15, 1996. Switzerland became signatory to the Convention on 22nd September, 1967 and ratified the same on May 15, 1968 and the Convention entered into force on 14th Tune, 1968. This Convention was not given effect to through national legislation. About 20 of the countries gave effect to the Convention through legislation, for example the United Kingdom gave effect to by the Arbitration (International Investment Disputes) Act, 1966, Newzealand (International Investment Disputes) Act, 1979, Australia ISCID Implementation Act, 1990, but no such effect was given in Pakistan. The earlier Convention on the Privileges and Immunities of the United Nations, 1946 was given effect to by Pakistan by National legislation i.e. the United Nations (Privileges and Immunities) Act, 1948. Similarly, Diplomatic and Consular Privileges Act, 1972 was enacted to give effect in Pakistan to the Vienna Convention on Diplomatic Relations, 1961 and the Vienna Convention on Consular Relations, 1963. But no legislation has been made to give effect to this Convention in Pakistan. In the case of Ms. Shehla Zia and others v. WAPDA (supra) our Supreme Court observed as under:‑‑ "An international agreement between the nations if signed by any country is always subject to ratifications, but it can be enforced as a law only when legislation is made by the country through its Legislature. Without framing a law in terms of the international agreement the covenants of such agreement cannot be implemented as a law nor do they bind down any party." In Attorney‑General for Canada v. Attorney‑General for Ontario (1937 A.C. 326) Lord Atkin observed:‑‑ "Within the British Empire, there is a well‑established rule that the making of a Treaty is an executive Act, while the performance of obligations if they entail alteration of , the existing domestic law, requires legislative action. The stipulations of a Treaty do not by virtue of Treaty alone, have the force of law, if the Government of the day decides to incur the obligations of a Treaty which involves alteration of law they have to run the risk of obtaining the asset of Parliament to the necessary statute or statutes." In Black Burn v. Attorney‑General Lord Denning Master of Rolls stated:‑‑ "Even if a Treaty is signed, it is elementary that these Courts take no notice of Treaties as such. We take no notice of Treaties until they are embodied in Law enacted by Parliament and then only to the extent that Parliament tells us." Administrative Law, Second Edition while discussing the concepts of Monism and Dualism states:‑‑ "At a conceptual level, the manner in which international law, of which Community law may be regarded as sui generis (that is to say, unique) example, is dependent upon whether a particular State adopts a monist or dualist approach to international law. Monism is the doctrine whereby international law and national law form a single whole, or part of the same conceptual, structure, in which international law takes precedence. Under this doctrine, adhered to by, inter alia, France anti Italy, the obligations of international law, once assumed. entered automatically into the legal system, needing no domestic legislative acts. Once entered, the obligation take precedence over national law. Dualism, on the other hand, regards the systems of international law and national law as separate in order for international law to enter into national law, some domestic legislative action must be enacted by the national Parliament. This is the view adopted by the United Kingdom and is one consistent with the sovereignty of Parliament. Treaties are part of international law, and can have no effect in domestic law unless and until a statute of the sovereign United Kingdom Parliament is enacted to give them effect." In this country dualism is the accepted norms. No domestic laws was enacted to give effect to the above said Washington Convention of 1965. It remains merely, an executive Act and no more. The authorities relied upon by the learned counsel for the appellant are distinguishable and do not help him.

6. Under the Bilateral Investment Treaty (BIT) of 11th of July, 1995 all investment disputes between Investor of home State and the host States after 1st September, 1954 were to be decided by submitting to arbitration by ICSID. In the first place the appellant is not a party to the Treaty, however, applying the general principles of interpretation a person for whose benefit the contract has been made may sue to enforce any obligation, Habsbury's Laws of England, Volume 11, para. 1357. By applying the Treaty to `investment' made after 1st September, 1954, it remains to be seen whether it has taken away all the rights accrued to the parties under a contract entered into by the parties of their free volition. In my opinion not so, the parties who have already instituted their claims before the Courts or who have obtained the decisions in their favour and their appeal is pending before the higher forum cannot be deprived of their right to obtain a decision from the Court which has been approached by it. The process already stated cannot be reversed. In my view this Article applies to only those cases in which the parties have not yet resorted to the remedy provided under the agreement. In the instant case the respondent has already made an application for the appointment of the arbitrators, the appellant has been obtaining adjournments on different grounds. All these proceedings, time and expenditure incurred by the parties cannot be said to have been washed away by Article 2 of the Treaty. The Geneva Convention, 1969 on the law of Treaties is to be applied for interpretation of the same. The, general rules of interpretation of statutes are applicable to Treaties unless stated otherwise. It has been said "The Rules commonly applied by the Courts for the interpretation and construction of Municipal Law are only applicable to the interpretation and construction of Treaties and in particular of law‑making Treaties, insofar as they constitute general rules of Jurisprudence. If their rules are sanctioned by the Municipal Law or by the practice of Courts, of a particular country, they may not be applied". See International Law by Oppen Heim, 8th Edition. As stated above the said Article 2 of the Treaty applied to those causes which have not yet been commenced. Even otherwise I do not find any conflict between the Treaty and the agreement between the appellant and the respondent. There seems to be harmony between the two.

7. Under Article 26 of the ICSID Convention, Center does not have the jurisdiction unless there is a valid consent. The Article reads as under:‑‑ "

26. Consent of the parties to arbitration under this Convention shall, unless otherwise stated,, be deemed consent to such arbitration to the exclusion of any other remedy. A contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention." The ICSID Convention: A commentary by Christoph H. Schreuer at page 351 it is stated "The exclusive remedy rule is subject to modification by agreement of the parties. The parties are free to provide for other dispute settlement procedures in addition to ICSID arbitration or to subject certain parts of their relationship to procedures other than ICSID Arbitration". The parties have already provided for other settlement procedures by the agreement dated 29‑9‑1994. The assertion of supremacy of ICSID Convention and the BIT as major piece of primary law and minor piece of subordinate agreement is not tenable. The non‑ICSID forum already seized of the same claim cannot be ‑asked to take its hands off the dispute. Consent is the sine qua non for institution of the ICSID arbitration proceedings. Lack of consent takes the dispute manifestly outside the jurisdiction of the Centre. In the case in hand the Treaty does not talk about the `consent' of the parties. BIT does not make an undertaking to assent to any demand by the Investor to submit the dispute settlement to the Centre. In the above commentary Mr. Christoph H. Schreuer quotes Article 10 of BIT between Netherland and Pakistan 1988 as under:‑‑ "The contracting party in the territory of which a national of the other contracting party makes or intends to make an investment, shall assent to any demand on the part of such national to submit, for arbitration or conciliation, to the Centre, any dispute that may arise in connection with the investment." No such clause exists in the present BIT between Swiss Confederation and Pakistan. It is opined by him that "Clauses of this kind do not give the investor an immediate right to access to the Centre. If the host State refuses to give its consent, it would be in breach of its obligation under the BIT. But the Secretary‑General of ICSID would presumably reject a request for conciliation or arbitration under these circumstances in accordance with his screening powers under Article 28(3) or 36(2). A request must contain information concerning the consent to the parties to conciliation or arbitration, Articles 28(2) and 36(2). It is unlikely that a promise to give consent would be accepted as amounting to consent. Therefore, any remedy must, in the first place, lie with the treaty partner to the BIT. The Investor's home State can demand that the host State give its consent and, if necessary, resort to such procedures as are available between the States parties to the BIT". The respondent is vehemently resisting the ICSID Arbitration, and stressing for the continuation of the proceedings pending before the national forum. The lack of the consent of the respondent is apparent and the same will take the dispute out of the purview of ICSID. I do not agree with the learned counsel for the appellant that the consent in BIT is an offer which has been accepted by the appellant. I have already held that there is no provision on consent in the BIT.

8. Article 1(2) of the agreement, dated July 11, 1995 between Swiss Confederation and Islamic Republic of Pakistan which is a Bilateral Investment Treaty (BIT), defines the expression `investments'. Learned counsel for the appellant was pointed out that there was no `investment' made by the appellant as envisaged by BIT, and the absence of the same would take the dispute beyond the scope of the BIT and consequently ICSID. Learned counsel for the appellant nor the learned Attorney‑General for Pakistan addressed their arguments on this point. In my view at the most the appellant can fall on clause (c) of Article 1(2) which reads as under:‑‑ "Claim to money or to any performance having an economic value." In my view all money claims cannot fall within the domain of `investment' as defined by the BIT. For example if an investor while quitting after the completion of the job sells some office furniture to the host State, obviously the claim for non‑payment H of money cannot be termed as `investment dispute'. The agreement, dated 29th September, 1994 clearly uses the phrase `services' and `professional services' which have been kept out of the purview of the term `investment'.

9. The parties have been litigating since long. The appellant instituted the proceeding in the Swiss Courts on 12‑1‑1998. Their case was rejected by the Court of first instance on 23‑6‑2000 and the appeal was rejected by the Swiss Federal Tribunal on November 23, 2000. In the said proceedings before the Swiss Courts the Provision for ICSID arbitration was not pressed into service by the appellant. Similarly, in reply to application under section 20 of the Arbitration Act, 1940 the appellant did not plead the defence under ICSID Arbitration, in fact a counter‑claim for a colossal amount was made expressing its intention to continue proceedings before the trial Court in Pakistan. Since 1998 this point was never raised by the appellant. He cannot have a volte face and take entirely a different stand. I agree with the learned Attorney‑General that the appellant has waived his right to ICSID Arbitration. The statement of law stated in American Jurisprudence, para, 51 is cited with approval:‑‑ "The right to arbitrate given by a contract may be waived, even in those jurisdictions where a contract for arbitration is irrevocable. Such a waiver of arbitration may come before as well as after the commencement of litigation. The waiver may be either by express words or by necessary implication. Thus, where one party brings suit, he waives his right to arbitration; his conduct is clearly inconsistent with a claim that the parties were obligated to settle their differences by arbitration." Corpus Juris Secundum, Volume 6, para. 54, page 260 states to the same effect, which reads as under:‑‑ "The institution of a suit, before award by one of the parties, the cause of action being the same subject- matter as that submitted to arbitration, revokes. by implication of law the agreement to arbitrate." The above stated facts leave not a scintilla of doubt that the appellant has waived its right, to submit the dispute to ICSID Arbitral Tribunal. The authorities 1993 SCMR 866 and PLD 1986 Karachi 1, in my view, do not help the case of learned Attorney‑General.

10. The parties to an international contract are at liberty to choose the law which they intend to apply to their agreement. It' is known as `proper law' of parent transaction according to which it will be interpreted and on which the parties' substantive rights will depend. Secondly there will be the law governing the arbitration clause. Thirdly there will be curial (procedural) law governing the procedures to be followed. See Russell on Arbitration, Chapter 6, page 63 and Hitachi Limited and another v. Rupali Polyester and others (1998 SCMR 1618) and The Export Trade by Clive M. Schmitthoff. The arbitration clause has a separate life in relation to the contract to which it refers. This must be considered a fundamental principle in arbitration, otherwise the arbitration clause would loose its content and its legal effect. A localization of arbitral proceedings is perhaps preferable insofar as it corresponds to the real intention of the parties when they decide to have recourse through arbitration in order to settle their contractual dispute. Very serious reasons point to the application of law of the seat of arbitration when this has been choosen by the parties. In the present case the parties choose the Arbitration Act, 1940 of the Territory and the venue at Islamabad, Pakistan. This clause cannot be deemed to have been varied/ superseded by the Bilateral Investment Treaty. The parties are bound by the same.

11. The prayer made in Civil Miscellaneous No.339‑C of 2002 by the respondent to restrain the appellant from taking any step, action or measure to pursue or participate or to continue to pursue or participate in the ICSID Arbitration cannot be granted for the reason that no suit has been filed by the respondent Pakistan to this effect. This appeal is arising out of an order refusing to stay the arbitral proceedings by the trial Court.

12. The upshot of the above discussion is that this appeal IM has no merit and is dismissed with costs, Q. M. H. / M.A. K. / S‑781 / L Appeal dismissed.