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CMA No. 3161/02 in SUIT NO.

149/02

Client: CARGIL/WORLDCOT

MEMO: BY SH

CMA 3161/02 was filed in suit no. 149/02 on 23-04-2002 by one Cargil PLc, a company
incorporated in England. The application was filed u/s 32 of the Arbitration Act, 1940,
read with:

i. Section 4 of the Arbitration (Protocol & Convention) Act, 1937


ii. Section 10 and 151 of the Civil Procedure Code, 1908

We hereinbelow reproduce the peculiar prayer made in the CMA 3161/02:

It is therefore prayed that this honorable court may be pleased to


stay the proceedings in the above suit and to dismiss the claim of
the plaintiff as being barred by the abovementioned provisions of
law and the Award.

SUIT NO. 149/02

Suit No. 149/02 was filed on the OS of the SHC on 02-02-2002. Suit was filed by M/s
Fateh Textile Mills, a company incorporated under Companies Ordinance, 1984, having
its registered office at Hyderabad, Sindh.

Suit no. 149/02 was filed against the applicant in CMA no. 3161/02 (defendant no. 1) and
M/s Hakimuddin Hormusji & Sons, Karachi (defendant no. 2) who act on behalf of and
for defendant no. 1. Defendant no. 1 through defendant no. 2 entered into an agreement at
Karachi namely UZB/10502/S dated 06-01-99 for delivery by defendant no. 1 to the
plaintiff in suit no. 149/02 of 4200 MT central asian raw cotton CFR Karachi.

In the suit no. 149/02, plaintiff contends that under the contract 3500 MT raw cotton was
received by the plaintiff, while L/cs for remaining 700 MT central asian raw cotton and
another 5700 MT Uzbekistan raw cotton (under a subsequent contract namely
UZB/10768/S dated 15-06-1999 which, alongwith award dated 9-2-2000 made by
Liverpool Cotton Association Limited, is subject matter of JM no. 1559/01 filed by

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CMA No. 3161/02 in SUIT NO. 149/02

Client: CARGIL/WORLDCOT

MEMO: BY SH

Cargil against Fateh Textile Mills) were not opened as cotton was short delivered and was
of different/inferior quality from that envisaged by the contract UZB/10502/S dated 06-
01-99.

DISPUTE IN SUIT NO. 149/02

Dispute was raised about quality and short-delivery vide communication dated 20-5-99
by plaintiff addressed to defendant no. 2. Thereafter communications dated 19-06-99, 8-
7-99, 7-10-99 and 23-10-99 were also sent to defendant no. 2. Defendant no. 1 (worldcot)
vide its fax dated 14-12-99 refused to honor the “statement of claim” regarding
“outstanding contract balances” and suggested that if there was any quality dispute,
matter should be referred to arbitration as per terms of the contract no. 1. Instead of going
to arbitration, however, plaintiff filed suit no. 149/02 on 2-2-02 in the HC of Sindh on its
original side claiming damages against defendants to the tune of US 24,61,502.45 with
mark up above 2% of the bank rate. The cause of action is shown to be short delivery,
inferior quality. Plaintiff asserts that products made by plaintiff from the cotton supplied
by defendant no. 1 gave rise to serious complaints by the customers of plaintiff. To pacify
such customers, plaintiff allegedly had to pay heavy sums to them as
compensation/damages which now defendants are liable to reimburse to the plaintiff.

ARBITRATION CLAUSE IN THE CONTRACT UZB/10502/S dated 06-01-99

Contract UZB/10502/S dated 06-01-99 provides for arbitration in case of disputes as


under:
If this Contract is stated on its face to be subject to the rules and
regulations of an association concerned with the conduct of trade
in raw cotton then this Contract incorporates the bye-laws, rules
or other regulations of that association in force at that date
bearing at the head of this Contract save as amended or modified

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CMA No. 3161/02 in SUIT NO. 149/02

Client: CARGIL/WORLDCOT

MEMO: BY SH

by other specific provision of this Contract and accordingly, in


addition to other matters covered thereby and failing amicable
settlement, all quality disputes as defined in such bye-laws, rules,
regulations and all other disputes touching or arising out of this
Contract shall be referred to arbitration in accordance therewith
and the choice of law (if any) made by those bye-laws rules or
regulations shall apply

Such association is Liverpool Cotton Association Limited as the Contract UZB/10502/S


dated 06-01-99 contains follow clause:

BYELAWS save as modified or extended by any conditions set out herein


RULES Liverpool Cotton Association Limited
Arbitration-Liverpool

From the above terms, it is clear that choice of law regarding Contract UZB/10502/S
dated 06-01-99 and arbitration agreement contained in the clause abovequoted is not
made by the parties. The provision is however made that “all quality disputes as defined
in such bye-laws, rules, regulations and all other disputes touching or arising out of this
Contract shall be referred to arbitration in accordance therewith and the choice of law (if
any) made by those bye-laws rules or regulations shall apply”. It appears therefore that
proper law applicable to reference of dispute and arbitration proceedings is that of
byelaws, rules and regulations of the Liverpool Cotton Association Limited. But the law
proper of the Contract and arbitration agreement would be that of Pakistan as is more
evident from reading Byelaw no. 300 & 359 of the LCA Rules.

BYE LAW 300

1. The law of England and Wales, especially the Arbitration Act


1996 and any amendments to it govern our arbitration. The
Courts in England and Wales exercise jurisdiction over our
arbitral process; no other court has any jurisdiction over any
part of the process.

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CMA No. 3161/02 in SUIT NO. 149/02

Client: CARGIL/WORLDCOT

MEMO: BY SH

BYELAW 359

1 If we had jurisdiction to make an award, the terms of our


awards can be enforced in the same manner as a
judgment or order of the court.

ISSUES IN CMA NO.3161/02

In para 9 of the “Objections on behalf of defendant in the above suit” filed in JM 1559/01
by Fateh Textiles, it is stated

That without prejudice to the above, it is submitted that the


Arbitration cannot be enforced in Pakistan particularly as per
law of England and Arbitration Act 1996 itself only the Courts of
England and Wales exercise jurisdiction and no other court has
jurisdiction in the matter

Another problem is that CMA no. 3161/02 has not been filed under section 34 of the
Arbitration Act. But if the Court has jurisdiction, and application is made under wrong
provision of law, it does not affect the substantive rights of the parties as Court has power
to apply correct provision irrespective of the provision relied upon by the parties.

LAW & ADVICE

The proper law that applies to a Contract and Arbitration Agreement if not expressly
agreed to by parties is the law of country or place with which the contract and parties
have closest connection. The Agreement subject matter of suit no. 149/02 was entered
into at Karachi between defendant no. 1 through defendant no. 2 which is resident at

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CMA No. 3161/02 in SUIT NO. 149/02

Client: CARGIL/WORLDCOT

MEMO: BY SH

Karachi with plaintiff which is resident at Hyderabad. Delivery was to be made at


Karachi. Cause of action arose at Karachi where agents of plaintiff at Karachi (M/s
Bhomal & Company private limited) determined that delivery was short and quality was
not in accordance with “type sample”. Correspondence between the parties substantially
took place between Hyderabad and Karachi. Evidence regarding dispute is also available
in Pakistan. Majority of parties also reside in Pakistan. It is therefore maintainable that
country or place with which the contract and parties have closest connection is Pakistan.
In this view Courts in Pakistan have jurisdiction and provisions of Arbitration Act, 1940
apply.

The Court has jurisdiction to stay suit no. 149/02 u/s 34 of the Arbitration Act. Present
application made u/s 32 of the same Act read with other provisions relied upon may be
buttressed with invoking section 34 of the Arbitration Act. In our view, the suit may be
stayed under section 34 of the Arbitration Act but it is not liable to be dismissed as prayed
for since subject matter of the Award dated 9-2-2000 in JM no. 1559/01 and subject
matter of suit no. 149/02 are distinct; they are separate disputes regarding separate parts
of contracts and they do not overlap or have anything in common.

In this view an application u/s 34 of the Arbitration Act was competent for stay of suit
no.149/02. Reliance is placed for the analysis made above and the conclusion reached,
upon two judgments of SHC reported as

i. 2004 CLC 544


ii. 2000 MLD 641
And judgment of Lahore High Court reported as PLD 1994 Lahore 525 & 1998 SCMR 1618

CASELAW
I. 2004 CLC 544
II. 2000 MLD 641
III. PLD 1994 Lahore 525
IV. 1998 SCMR 1618