1999 PLP 1738 (CLC)

"Any dispute arising out of this Agreement shall be mutually resolved through good faith negotiations between the Licensor and the Licensee. If the dispute is not resolved to the mutual satisfaction of both parties within thirty (30) days or such longer time as is mutually agreed, the parties agree to submit any such dispute or claim arising out of or relating to this agreement or breach thereof, to arbitration by two arbitrators, one to be appointed by the Licensor and one to be Appointed by Licensee and the Arbitrators so appointed shall, before entering upon the reference, appoint an Umpire. The arbitration proceedings shall be conducted in all respects in accordance with the Arbitration Act, 1940. The venue of arbitration shall be Karachi and all proceedings shall be conducted in the English Language. Reference of any for arbitration shall not absolve the arties from their obligations or effect their rights or duties under this agreement. Mr. Sajid Zahid, the learned counsel for A.R.I. contends that in spite of breaches of contract committed by C.A.A. as indicated above and huge losses resulting therefrom they are paying the percentage of the Annual Gross Turn Over according to the agreement but the fixed License Fee is being paid at the reduced amount of US $ 3,00,000 per annum as communicated by their letter, dated 31‑3‑1997 to C.A.A. and submits that the dispute in relation to the claim of A.R.I. against C.A.A. and the arrears allegedly owed by A.R.I. to C.A.A. should be decided in arbitration. According to him the question of payment itself constitutes the dispute between the parties and, therefore, A.R.I. should not be forced to pay the whole amount of the fixed License Fee until the dispute is resolved in arbitration in accordance with the agreement between the parties. In reply to the aforesaid arguments, Mr. Fazle Ghani Khan, learned counsel for C.A.A. has referred to Clauses (15) and (31) of the License Agreement to contend that A.R.I. must fulfil their obligations during the arbitration proceedings by making payment according to the terms of the License Agreement. Clause (31) of the License Agreement reproduced above refers to settlement of disputes by arbitration while clause (15) of the Agreement relates to Interruption of Business and provides that, "the licensor is under no obligation to provide any compensation whatsoever if the business is interrupted or affected on account of natural calamities or force majeure. The Licensor is also under no obligation to provide any compensation or alternate place or replacement of the damaged premises for any period or any such part of License Agreement which the Licensee has not occupied the premises due to the damage caused by fire, accident, or any other incident or on account of natural calamities or force majeure". It is apparent that the said clause (15) does not relate to the grounds taken by A.R.I. in defence of its contentions as there has not been any natural calamity or a force majeure. Clause (3) of the License Agreement provides that the License Fee of one million shall be payable in US dollars which will be increased at the rate of 5 % per annum after completion of the initial period of three years. The clause also provides that the fee shall be paid on quarterly basis in advance before the 10th of the month in which it falls due. However, according to the documents filed by A.R.I. they are paying from 1‑1‑1997 and will pay a fixed amount of US $ 300,000 per annum over the remaining Contract Term in 12 equal monthly instalments in the first week of each month. The reason advanced for the reduction in the amount of the fixed fee is the losses suffered by A.R.I. but no mathematical or any other logical basis for reduction of the amount from US $ one million to US $ 300,000 per annum has been given. According to the Audit Report submitted by A.R.I. they appear to have suffered substantial losses in business carried on by them at the licensed premises. If A.R.I. proves that C.A.A. has committed breach of contract as alleged, the former would be entitled to relief in accordance with law; however, if they do not succeed in proving the allegations or the defences taken by them for reduction in payment to C.A.A. they would be liable to pay the fixed fee as stated in the License Agreement. The question whether or not there has been a breach of the contract as alleged by A.R.I. is one of the questions in issue between the parties. Both learned counsel cited PLD 1990 SC 48 in support of their arguments relating to the obligation of the parties while arbitration proceedings are in progress. However, on reading the same, I have not been able to find any observation of the Honourable Supreme Court in support of the contention of either party. No other precedent has been cited by either counsel. Both parties want to refer the dispute to arbitration under clause (31) of the Licence Agreement but are at variance in respect of the performance of the obligations during the arbitration proceedings. Clause 31 of the Licence Agreement clearly states that reference of any matter to arbitration shall not absolve the parties from their obligations or effect their duties under the Agreement. The clause also provides that the rights of the parties under the Agreement shall not be affected by reference of any dispute to arbitration. This part of clause 31 relating to rights and obligations of the parties during arbitration is as sacrosanct as the first part which relates to resolution of dispute by arbitration. Therefore, clause (31) must be enforced fully and completely in letter and spirit. Consequently, while the arbitration is taking place both parties must perform their obligations under the provisions of the Licence Agreement which includes payment of Fixed Fee of US $ one million per annum by A.R.I. to C.A.A. In view of the above discussion, I am of the opinion that it would be in the interest of justice, equity and good conscience if the application for arbitration and the payment of License Fee is resolved as follows:‑‑ (1) The dispute between the parties be referred to Arbitration in accordance with clause (31) of the License Agreement as agreed by them. (2) A.R.I. should pay to C.A.A. the agreed Fixed License Fee of US $ one million only per annum. (3) The payment must be made on quarterly basis in advance before 10th of the month in which it falls due as provided in the agreement, whether the Licensee/A.R.I. receives any bill or not. (4) The sum of US $ one million per annum shall be calculated and be payable from the date A.R.I. unilaterally reduced the amount from US dollar one million to US $ 300,000 per annum. (5) A.R.I. shall pay US $ 75,000 per quarter directly to C.A.A. as is being done and shall pay the balance of US $ 150,000 per quarter to the Nazir of this Court by Bank Draft drawn in favour of the Nazir of High Court of Sindh as specified in paragraph 3 above. This arrangement shall continue as provided in the Licence Agreement until the dispute is settled by arbitration. The amount lying with the Nazir shall be paid to the successful party after the Arbitration Award is made Rule of the Court. (6) A.R.I. shall deposit the arrears of the Fixed License Fee calculated on the basis of US $ one million per annum with the Nazir of this Court within 15 days hereof. (7) The Nazir shall open a Foreign Currency Account with a Schedule Bank and with the permission of the Court invest the deposited amount so that it earns the maximum possible profit. (2 and 3) The two remaining C.M.As. shall be disposed of after hearing the parties. (4 and 5) The statements filed by the parties are placed on the file. Q.M.H./C‑22/K Order accordingly.