SUBJECT: INTERPRETATION OF STATUTES

ASSIGNMENT-02

PROFESSOR: MRS. FAIQA IBRAHIM

Group Assignment-

1. Bisma Awan (F2017117107)

Background and Facts of the case:

The brief facts of the case are that respondent No. 1, which was a company incorporated
under the Companies Ordinance, 1984, in Pakistan, had its registered office in Karachi, under an
agreement dated 30-5-1985 (hereinafter referred to as the agreement), agreed to purchase from
appellant No. l Hitachi Limited (which was a company incorporated and registered in Japan) and
the appellant No.2, Mitsui & Company Deutschland (which was a company incorporated under
the laws of Germany and having its offices in Germany), dealing with plant, equipment,
material, engineering know-how and supervisory services for erection, construction, installation
and commissioning of a plant for production of ordinary chips of Polyester.

As per the Article 16.7 and Article 13 of the agreement; the contract shall be governed and
construed by the Pakistan law. Moreover, In case of any dispute; controversy or difference arises
out of or in connection with Contract, the parties shall firstly endeavour to settle such dispute,
controversy or difference amicably. However, if both parties fail to reach such amicable
settlement, all disputes, controversies or differences shall be finally settled by arbitration under
the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with the Rules. The arbitration shall be conducted in English
language. If the defendant in such dispute is buyer, the arbitration shall take place in Karachi and
in case that the defendant is seller, the arbitration shall take place in London. Also The awards
thereof shall be final and binding upon both parties hereto."

However, a dispute did arise between respondent No.1 and the appellants, where respondent no.1
alleged that the plant and equipment supplied by the appellants were defective, not of the
requisite standard, and not in conformity with the specification. It was further alleged that on
account of the appellants’ wrongful and wilful acts and negligence respondent No. l suffered
huge losses. Thereupon, on 8-3-1990 respondent No. l invoked Article 13 of the agreement under
the Rules of Conciliation and Arbitration of the International Chamber of Commerce, and so
they appointed respondent No.3, Rt. Hon, Sir Michael Kerr and the appellants appointed
respondent No.4, Prof. John Uff, Q.C. as their arbitrators; whereas respondent No.2, Dr. Nael G.
Bunni was appointed as the Chairman by the International Court of Arbitration under I.C.C.
Rules.
On 10-5-1991 the Terms of Reference of arbitration were settled by the Arbitral Tribunal and the
parties. After that hearing started, the appellants raised a preliminary point as to the limit of their
liability under Article 8.4.1 of the agreement. The arbitral tribunal gave its interim award on 28-
5-1993 holding that the appellants’ liability was limited in terms of the above Article of the
agreement. It was followed by a supplementary award dated 13-7-1993. Thereupon, respondent
No. l filed an application on 2-8-1993 under sections 14 to 17 of the Act in the Court of learned
Senior Civil Judge, Sheikhupura, which was registered as Suit No. 61 of1993. The application
was resisted by the appellants as they filed objections to the following effect:--

i. That the Court had no jurisdiction under the Act;

Then the respondent No. l filed another application on 31-8-1993 under sections 5, 11 and 12 of
the Act for the removal of Arbitral Tribunal and for declaration that the arbitration agreement in
respect of the differences referred to in the application ceased to have effect. The learned Senior
Civil Judge by his judgment dated 22-12-1993 disposed of the above application. Against this
judgment respondent No.1 filed aforesaid two Civil Revisions in the Lahore High Court, which
were allowed by the learned Judge in Chambers through the judgment under appeal and the case
was remanded for hearing of respondent No.1’s aforesaid applications.

Issue:

Against the above judgment, the appellants filed two petitions for leave to appeal in this
Court, which were granted to consider the following two points:--

 What is the effect of the factum that the petitioners and respondents No.2 to 4 do not
reside
and are not located within Pakistan?
 Whether procedural law/curial law is deemed to be lex arbitri or lex fori i.e. the law of
England, under which the English Courts alone have jurisdiction in respect of
proceedings for arbitration conducted in that country?
It is pertinent to note that it was conceded by the appellants before the learned Judge in
Chambers that the proper law applicable to the agreement was Pakistani law. Since the
arbitration agreement is embedded in the main agreement, in the absence of any contrary express
agreement, the proper law of arbitration agreement will be the same, which is applicable to the
main agreement, namely, Pakistani law, which was not disputed by the learned counsel for the
appellants. As pointed out hereinabove, the only controversy between the parties is whether the
Pakistani Courts can entertain above applications under the Act though the curial law/procedural
law applicable is English law because of the fact that the arbitration proceedings are conducted
in London and there is no express provision contrary to the above.

Arguments of both Parties:

Appellants argued that since curial law is lex arbitri or lex fori and as the Arbitration's
venue is London, the English Courts alone have jurisdiction in respect of proceedings for
arbitration conducted in that country under I.C.C. Rules and the resultant awards therefrom. Mr.
Umar Ata Bandial, learned counsel appearing for the appellants, submitted that in the instant
case there were three stages, namely:-- (i) Before the commencement of the arbitration
proceedings in terms of the I.C.C. Rules; (ii) after the commencement of the arbitration
proceedings; and (iii) after rendering of the award and its enforcement. According to him,
respondent No.1 could file an application under section 33 of the Act challenging the existence
or validity of the arbitration agreement in the Court of learned Senior Civil Judge, Sheikhupra,
before the commencement of the aforementioned arbitration proceedings, but they could not
have filed any application under the Act in the above Court in Pakistan after the commencement
of the arbitration proceedings. His first submission was that the provisions of the Act cannot be
invoked in the present case and, therefore, the awards cannot be challenged in a Pakistani Court.
For that he placed reliance on a number of cases.

According to Mr. Bandial the impugned awards have attained finality for the reason that under
Article 24 of the International Chamber of Commerce Rules, respondent No.1 agreed not to
challenge the award given by the Arbitral Tribunal. Then it was urged by Mr. Bandial that
neither the appellants are the residents of Pakistan nor they have been carrying on business to
Pakistan nor have submitted to the jurisdiction of Pakistani Courts, hence they being foreigners,
the Pakistani Courts have no jurisdiction to grant any decree against them in personam. Reliance
was placed by him on the case of Sirdar Gurdyal Singh v. The Rajah of Faridkote (1894), “In a
personal action, to which none of these causes of jurisdiction apply, a decree pronounced by a
foreign Court, to the jurisdiction of which, the defendant has not in any way submitted himself,
is by international law an absolute nullity. He is under no obligation of any kind to obey it; and it
must be regarded as a mere nullity by the Courts of every nation except (when authorized by
special local legislation) in the country of the forum by which it was pronounced.” However, the
court pointed out that with the passage of time, the concept of action in personam has undergone
material change as service of the process/summons on a foreigner is considered sufficient if
cause of action arises within the limits of a municipal Court concerned. Reliance was placed on
Annamalai Chetty v. Murugass Chetty (ILR (1903) Madras, where the Court proceeded on the
assumption that an action can be entertained against a defendant even if he is not a resident and
does not submit to the jurisdiction provided the cause of action arises in terms of section 20,
C.P.C.

The further question which required consideration was, as to whether the awards in question
could be treated as Pakistani awards, in order to apply the provisions of the Act. According to
Mr. Bandial the awards are foreign awards as they arise out of an international arbitration
agreement, the arbitrators were foreigners and the venue of the arbitration was also a foreign
country.

Whereas respondent No. l argued that English and Pakistani Courts have concurrent
jurisdiction and, therefore, respondent No. 1’s above applications under the Act are competent.
In support of the above appeals, s Mr. S.M. Zafar, learned counsel for respondent No.1, urged
that the respondent No.1’s above applications are competent as there is concurrent jurisdiction
vested in English and Pakistani Courts. He also stated that the application of the International
Chambers of Commerce (I.C.C.) Rules would not oust the jurisdiction of the Pakistani Courts.
According to him, as under the agreement the contract is to be governed and construed by
Pakistani law, Pakistani Courts have jurisdiction. He also submitted that since Act VI of 1937
which covers foreign awards is not applicable in view of section 9(b) thereof, which provides
that nothing in this Act shall be applied to any award made of an arbitration agreement governed
by the law of Pakistan. According to him, as a corollary it must follow that the provisions of the
Act (i.e. Arbitration Act, 1940) would be applicable to the arbitration proceedings and to the
resultant awards. He pointed out that Mr. Bandial has not relied upon any Pakistan law on the
subject as, according to him, Act VI of 1937 as well as the Act are not applicable, and hence
common law would be attracted. To reinforce his above submission, he has relied upon various
case laws.

Analysis and Decision of the Court:

As regards the finality of the impugned awards in terms of Article 24 of the I.C.C. Rules,
it may be observed that in the above reports of the foreign jurisdiction relied upon by Mr.
Bandial. referred to hereinabove in para. 4, it has been held so. However, the court pointed out
that the awards in question are to be filed in Pakistani Court, the question as to whether they
have attained the finality either on account of Article 24 of the I.C.C. Rules or for any other
reason, is to be determined by the Court concerned. In court’s view, it is not necessary at this
stage to record any finding on the question, whether factually the awards have attained the
finality or not as the same is not germane to the controversy at issue.

Moreover, the court observed that in view of section 9(b) of Act VI of 1937, which provides that
an award arising out of the contract which is subject to Pakistant law, is not a foreign award for
the purpose of the above Act. In this view of the matter, the awards in question cannot be treated
as the foreign awards because of the fact that under Article 16.7 of the agreement, it has been
provided that the contract shall be governed and construed by the Pakistani law. The court
observed that even though according to Mr. Bandial the Act (i.e. The Arbitration Act, 1940) and
Act VI of 1937 are not applicable, the principles of common law or principles of equity and good
conscience can be invoked and the cases he relied upon do state that it was not permissible for
Courts in Pakistan to apply and import any Rules of English law relating to equity, justice and
good conscience but the Courts could invoke the Rules of equity, justice, good conscience and
public policy as contained in the Muslim Jurisprudence. In another case too the above view was
reiterated that for filling gap where law is not available, the principles of justice, equity and good
conscience as given in Islamic Jurisprudence and as enunciated in the fundamental principles and
judicial norms of Islam are to be pressed into service and not English common law or principles
of equity and good conscience. However the court stated that the principles of common law or
equity and good conscience cannot confer jurisdiction on the Courts in Pakistan which has not
been vested in them by law.

Indeed the above case supports Mr. Bandial's contention to the extent that section 34 of the
Arbitration Act, 1934, had no extra-territorial operation and cannot have any application where
proposed arbitration was a foreign arbitration and was to take place in foreign land in which
under the contract the parties provided for any difference arising out of the agreement being
referred to arbitration. However, the above Calcutta view runs counter to inter alia some of the
cases of foreign jurisdiction. In Bergesen v. Muller (701 F. 2d 928 (1983), the US Court of
Appeals (2d Circuit) held that although the arbitration had taken place in New York and was
governed by law of New York the award given in New York was still a foreign award because
the parties were foreigners even though the goods were transported from USA to Europe under
the charter party which contained the arbitration clause.

It is, therefore, evident that the nationality of the award does not solely depend on the venue of
the arbitration proceedings. An award given in a foreign country which is generally treated as a
foreign award in another country may be treated as a domestic award. In the case of Oil and
Natural Gas Commission v. Western Company of North America (AIR 1987 SC 674), the award
given at London was treated by the Indian Supreme Court as a domestic award for the reason
that the parties had agreed under the contract that the arbitration proceedings were to be
governed under the Indian Arbitration Act read with relevant rules.

The above case clearly indicates that the factum that an arbitration takes place under the I.C.C.
Rules is a foreign country under a foreign arbitrator does not necessarily lead to an inference that
an award pursuant to such an arbitration is a foreign award. If the governing law of the contract
and arbitration agreement is the municipal law of the country where the award is filed either for
enforcing it or for assailing it, it is to be treated as a domestic award.

The court observe that it is evident from the above various treatises of the authors of standing
and of international repute and the above-discussed case law that if there is no express agreement
between the parties as to the law governing arbitration agreement, the law which governs the
main agreement will also govern arbitration agreement if the arbitration clause is embedded as a
part of the main agreement. In the present case Article 13 of the agreement, which contains the
arbitration clause, is a part of the main agreement and, therefore, in the absence of any contrary
express agreement between the parties, Pakistani law will also govern the arbitration agreement
in view of Article 16.7 of the agreement which provides that “contract shall be governed and
construed by the Pakistan Law.”

As per the court’s view the cases relied upon by Mr. S.M. Zafar had direct relevancy, Indian
Supreme Court in the case of National Thermal Power Corporation v. Singer Company and
others (1992) where it was held that the overriding principle is that the Courts of the country,
whose substantial laws govern the arbitration agreement, are the competent Courts in respect of
all matters arising under the arbitration agreement, and the jurisdiction exercised by the Courts of
the seat of arbitration is merely concurrent and not exclusive and strictly limited to matters of
procedure and that all other matters in respect of the arbitration agreement fall within the
exclusive competence of the country whose laws govern the arbitration agreement. The court
observed that no doubt that the above view is seemingly somewhat contrary to the earlier view of
the Indian superior Courts as highlighted, but the Courts are not slaves of the doctrine of stare
decisis. A Court may change or modify its view with the passage of time. The development of
jurisprudence is an ongoing process

The court also observed that in the present case since the arbitration is subject to the I.C.C. Rules
and as the seat of the arbitration is London, the procedural matters would be governed by the
I.C.C. Rules and curial law of England and that English Courts will have jurisdiction as indicated
above. However, the court is not inclined to subscribe to the view that this jurisdiction of the
English Courts in respect of curial law will be concurrent with the Pakistani Courts for the reason
that the Pakistani substantive law governs the arbitration agreement. Theoretically, the above
view of the Indian Supreme Court may be correct but it is not practicable. Since the Courts of the
seat of the arbitration can deal with, procedural matters more effectively and conveniently.

Additionally the parties by agreeing to the application of the I.C.C. Rules and London as a seat
of arbitration in fact expressly /impliedly agreed that the English curial law would govern the
arbitration. This view is also in line with the preponderance of view reflected in the above
various treatises. But we are in agreement with the view of the Indian Supreme Court expressed
in the case of National Thermal Power Corporation v. Singer Company and others (supra) that
the Courts of the seat of the arbitration have limited jurisdiction to procedural matters covered by
the curial law. The same will include, the manner in which reference is to be conducted, the
procedural powers and duties of the arbitrator, questions of evidence, the determination of the
proper law of the contract if it is not expressly agreed by the parties

The court held that even it if is to be assumed that in procedural matters the Pakistani and
English Courts have concurrent jurisdiction in respect of the arbitration in question it will be
reluctant to press into service the above concurrent discretionary jurisdiction. Therefore the
question whether the arbitrators should be removed or should not be removed is to be determined
under the I.C.C. Rules or by the English Courts which have jurisdiction to apply English curial
law. However, Pakistan Courts will be competent to go into the question of whether the
arbitrators and/or the Chairman have misconducted themselves or the proceedings, while
considering the grounds for setting aside the awards under section 30 of the Act.