2004 PLP 544 (CLC)

"In all fairness, in each case the party or its agent or attorney should file an affidavit in support of the case and not the counsel. I am, therefore, not inclined to consider the earlier as well as latest affidavit filed by the counsel and dismiss the C.M.A. for substitution of the respondent company being not maintainable at law." The learned counsel for the lessor was not able to controvert the above plea, therefore, the affidavit filed by Mr. Mahmood Abbas is excluded from consideration. Section 34 of the Arbitration Act is in these terms:‑‑ "Whether any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming wader him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any step in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of arbitration such authority may make an order staying the proceedings." Thus, in order that stay may be granted under this section, it is necessary that these conditions should be fulfilled:‑‑ (1) The proceedings must have been commenced by a party to an arbitration agreement against any other party to the agreement. (2) The legal proceedings, which are sought to be stayed must be in respect of a matter agreed to he referred. (3) The applicant for stay must be a party to the legal proceedings and he must have taken no step in the proceedings after appearance. It is also necessary that he should‑satisfy the Court not only that he is, but also was, at the commencement of the proceedings, ready and willing to do everything necessary for of the arbitration. (4) The Court must be satisfied that there is no sufficient reason, why the matter should not be referred to an arbitration in accordance with the agreement. (Anderson Wright Ltd. v. Moran & Co. AIR 1955 SC 53). The counsel for the lessor has opposed the applications on the two grounds. Firstly, that the lessee, has not shown their willingness, therefore, stay cannot be granted. Secondly the arbitral proceedings before International Tribunal is too expensive and inconvenient. First objection has been met by the learned counsel for the lessee with contention that the facts that the lessee did not in their reply mention anything about arbitration did not put an end to their right to claim that the matter could be decided by the arbitrators, and to support her contention, she made reference to the pronouncement in India Steel & Wire Products Ltd. v. P. T. Debi Prasad Malaviya AIR (sic) All. 253, wherein similar plea was not found favour by the Bench that it could not be said that by reason of anything not done by the defendants the clause as regards reference to arbitration became nugatory. Such contention was addressed in the following words:‑‑ "To my mind, the fact the defendant did not in their notice dated 3rd December, 1942, mention anything about arbitration did not put an end to their right to claim that the matter would be decided by the arbitrators as provided for in Clause (5) of the agreement." The above view was based on the pronouncement of the Division Bench of Madras High Court in Anglo Persian Oil Co. v. Panchapakesa Aiyar AIR 1924 Mad.

336. In the aforesaid case, the stay of the proceeding was refused on the ground that the defendants had been threatened with legal proceedings for a considerable time and had not then called the attention of the plaintiff to the arbitration clause or said that they were willing to refer to arbitration and objected to the litigation. (emphasis underlined). In appeal, the learned Members of the Division Bench concluded that the law provides that if there is a submission for a reference to arbitration and a party chooses to bring his suit, the other party can then decide whether or not he will remain before the Court, which he indicates by taking some step in the action, or whether he will avail himself of his contractual rights to have the dispute referred to arbitration. If he had misled the plaintiff in some way into bringing the suit, it might be a good ground for punishing him in costs and if the misleading had been definite enough to amount to a particular statement that he would not apply to have the matter referred to arbitration and would submit to the jurisdiction of the Court, it might even amount to an estoppel, so as to prevent him from making an application thereafter but can see nothing of the kind in this case. Therefore, this plea is not tenable. Learned counsel for the lessor while canvassing the second ground, has urged that the arbitration proceedings before the International Arbitration Forum would be too expensive and the Courts do not encourage expensive proceedings at arbitral fora. Conversely, learned counsel for the lessee contented that the lessor is a foreign company and has filed the suit in Pakistan. The proceedings either in Pakistan or in England would have no consequence to the lessor so far as the expenses are concerned. Her further submission was that the ground that the proceedings at the Arbitral Tribunal would be too expensive has no bearing. She referred the following cases:‑‑ (i) Echardt & Co. v. Muhammad Hanif PLD 1993 SC 42 and (ii) Messrs Manzoor Textile Mills Ltd. v. Nichimen Corporation 2000 MLD

641. In the above cases inconvenience of the party pleaded for rejection of the prayer for stay of the suit was declined. The view taken was that the approach of the Court in this regard should be dynamic and Court should not lightly release the parties from the bargain on the ground of inconvenience or hardship. Be that as it may, the question which requires consideration is as to whether the lessee can be deprived of their right to enforce arbitration clause on the ground that entire evidence is at Karachi. It was known to the lessor arbitration would be through International Arbitrage London or Stockholm in accordance with International Arbitration Rules and Procedures. It was also known to the lessor that evidence would be in Karachi. In my view, a party having entered into an agreement after having the knowledge of the above facts cannot defeat the arbitration clause on the above ground. The learned counsel for the lessor's plea was that the application has been made by the lessee alone and there are other defendants apart, from the lessee, i.e. the defendants Nos.2 and 3, therefore, there was a possibility of conflict of decisions, if the suit was to proceed against the defendants Nos.2 and 3 in the aforesaid suit. Miss Sana Minhas, on the other hand, contended that the defendants Nos.2 and 3 are superfluous and lessor has chosen to array the said defendants in the suit only to take a plea against the stay of the suit. I have examined the plaint. It is conceded by the learned counsel for the lessor that the defendants Nos.2 and 3 are Directors of the lessee, who have signed the agreement on behalf of the lessee. Therefore, the plea is also not available. In similar circumstances, such contention was rejected by A.S. Farooqui, J. (as he then was) in Messrs Haji Muhammad Ibrahim and others v. Karachi, Municipal Corporation and others PLD 1960 Kar. 916, that "the claim of the plaintiff being based upon the breach of contract which contains the arbitration clause, it really is directed against Municipal Corporation, and the plaintiff cannot get out of arbitration clause merely by impleading certain officers of the Corporation or the subsequent contractor to whom the work has been awarded. If I was to accept this contention, it would amount to nullifying the arbitration clause to which the parties had bound themselves at the time of contract, and to which they still adhere". A feeble attempt has been made by the learned counsel for the lessor that in foreign arbitration, the provision of section 34 of the Arbitration Act cannot be applied. In other words, section 34 is inapplicable to the proceedings connected with Arbitration (Protocol and Convention) Act, 1937. No doubt, the Arbitration (Protocol and Convention) Act, 1937 contains section 3 which provides for the stay of the proceeding in respect of the matter to be referred to the arbitration. The preconditions of section 3 thereof are as follows:‑‑ (i) an agreement between citizens of different States; (ii) such agreement contains a clause agreeing to submit future disputes to arbitration; and (iii) a submission has been made in pursuance of such agreement or, an actual and existing dispute after it has arisen. The provisions of section 3 are not applicable in absence or actual submission. If any reference is required, the cases of W. Wood & Sons v. Bengal Corporation AIR 1956 Cal. 238 and Bajrang Electric Steel Co. v. Commissioner of the Port of Calcutta AIR 1957 Cal. 240 can be referred. Therefore, it is inapt to plead that the provision of i section 34 is inapplicable. Learned counsel for the lessor maintained that the precondition for the arbitration is the existence of a dispute and maintained that the lessee has denied the claim, therefore, in absence of any dispute, the suit cannot be stayed nor a reference to arbitration and to contend this plea, he referred the stay application wherein the lessee has pleaded that `neither any breach of the agreement nor any claim or dues/sums is outstanding against the lessee. To support his contention, he has referred the case of Nandram Hanutram v. Raghunath & Sons Ltd. AIR 1954 Cal. 245, wherein section 2(a) of the Arbitration Act was interpreted and the existence of dispute of differences contemplated by an arbitration clause was taken an essential condition, a pre‑requisite to the exercise of jurisdiction by the Arbitrator. The apex Court, in Lahore Stock Exchange v. Fredrick, J. Whyte Group (Pakistan) Ltd. and others PLD 1990 SC 48 has recorded the passage on the scope of Arbitration agreement from Chittay on Contracts, 24th Edition p.873 as follows:‑‑ "Scone of the arbitration agreement.‑‑‑ An unqualified arbitration clause referring difference arising in respect of or `with regard to' or 'under' a contract covers a dispute as to whether a breach of contract by one party has operated to discharge the other. For a repudiation by one party even when accepted by the other, does not entirely abrogate the contract. It survives for the purpose of measuring the claims arising out of the breach. Accordingly, a party declining to perform may still rely, on an arbitration clause in the contract. So can a party who has committed a fundamental breach of the contract. The question whether a contract has been frustrated is also within the scope of such a clause, no matter whether the contract is purely executory or has been partly executed . But disputes as to whether the contract was ever entered into at all, or whether it is void, or illegal, are not within the scope of an arbitration clause contained therein, for if the contract is not binding on the parties, neither is the arbitration clause. If the question is whether the making of the contract was induced by fraudulent misrepresentation, the issue of whether or not the dispute is within the scope of the arbitration clause depends on the construction of the clause .... " A dispute implies an assertion of a right by one party and a repudiation thereof by another party. Chandmull Ganeshmull v. Nippon Munkwa Kabushiki Kaisha AIR 1921 Cal.

342. A failure to pay a claim constitutes a matter in difference between the parties to a submission (Messrs Beith Stevenson & Co. Ltd. v. Firm of Naroomal Khemchand AIR 1924 Sindh 117). In the present case, the lessor claims the outstanding amount of lease of Aircraft, whereas, the lessee repudiates, thus, it is a dispute arising out of the contract containing Arbitration clause. It was also argued with 'vehemence by the learned counsel for the lessor that under section 34 of the Arbitration Act, the Court has the discretion to grant and not grant the stay of the proceedings and such direction has to be exercised with due regard to the facts and circumstances of each case and on judicial consideration and not arbitrarily or capriciously. To enforce his submission he referred the case of Messrs Aslo Marines Ltd. v. M.T. Magda and another PLD 1985 Kar.

754. Mr. Justice Naimuddin (as he then was) refused to stay the proceedings. In that case, the conditions Nos.1 and 2 were available, whereas, the conditions Nos.3 and 4 were not fulfilled and it was found to be prejudicial to the interest of the plaintiff i.e. the loss of security, a relevant consideration in an application for stay of the action. In Muhammad Amin and Muhammad Bashir Ltd. v. Pas+R and others 2002 CLD 671, the learned Single Judge of this Court has declined the stay of the proceedings on the ground of balance of inconvenience to the parties causing denial of justice to them, conflicting of claim between the parties and against the defendant other than defendant No.2 who were not party to the arbitration agreement. The case is inapt to the instant case. In Haji Soomar Haji Hajjan v. Muhammad Amin Muhammad Bashir Ltd. 1981 SCMR 129, the apex Court highlighted the purpose and intent of the Arbitration Act in the following terms:‑‑ "The sole purpose of the Arbitration Act is to curtail litigation in Courts and to promote the settlement of the dispute amicably through persons in whom both the parties repose their trust. Therefore, the course that the Courts should generally follow is to encourage the settlement of disputes by this method wherever the parties have themselves agreed to do so. That this was also the intention of the Legislature is evident from the manner in which section 34 of the Arbitration Act is worded. To allow one side to evade and wriggle out from the agreement merely by making allegations of fraud, even though the same may not ultimately be proved or even though the same may not ultimately be proved or even pressed, would amount to giving a handle to that party to circumvent the arbitration clause." The apprehension expressed by the Chancery Division in Russel's case was also noticed:‑‑ ".... If the mere making of a charge of fraud would entitle the person making it to call upon the Court, in the exercise of its discretion, to refuse to refer to arbitration there would be a very easy way of getting rid of all these clauses of arbitration. I am satisfied that the mere making of a charge will not do that, even in a case where the Court ought to exercise its discretion by refusing to refer the case to arbitration." In the instant case, the existence of arbitration agreement is not disputed. The legal proceeding which is sought to be stayed is in respect of the matter agreed to be referred. The lessee has not taken any step in the proceedings after appearance and has moved the application under disposal for stay of the suit, which shows their willingness to arbitration proceedings. It is now well‑established principle that Court should not lightly release the parties from their bargain, that flows from the sanctity, which Court attaches to contract. In the instant case, lessor entered into the contract in the question on the basis that if a negotiated settlement to any dispute cannot be reached, such disagreement shall be irrevocably settled by International Arbitrage as per aforesaid arbitration clause but the lessor wish to defeat the above clause with the aid of this Court. To allow the lessor to evade and wriggle out from the agreement merely on merit-less pleas would amount to giving a handle to them to circumvent the arbitration clause. As a consequence of above discussion, the application is to be granted. I, therefore, stay the suit and direct that the dispute may bell, referred to the arbitration in accordance with the arbitration clause. These are the reasons of short order announced on 20‑10‑2003. S.A.K./L‑1/K Suit stayed.