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‑‑S. 21‑Pakistani Company not prohibited to qoute prices of goods in foreign currency.

‑‑ S. 21‑Contract‑Anything agreed to be done by any term of contract which is prohibited to be done by or under any of provisions of Foreign Exchange Regulation Act, 1947 except with permission of Federal Government or State Bank shall not be done without such permission ‑ Payment of commission in foreign currency‑Clause regarding payment of commission not saying as to whom this commission to be paid ‑ Held: Clause having been left quite ambiguous cannot be interpreted to mean that mention of commission in foreign currency in agreement is a proof of fact that buyers were acting as agent of their foreign principals from whom they were entitled to commission.

‑‑‑ S. 33‑Foreign Exchange Regulations Act (VII of 1947), S. 21 Contract‑Appellant not a party to agreement which contained an arbitration clause‑Contention that buyers of goods in contract bad throughout been acting as an agent of their foreign principals and as such principal fully entitled to get benefit of arbitration clause and that consignment meant for exporting to foreign purchasers that is why respondent issued invoice direct to foreign purchasers who was none else than principal of buyers‑Contention. held, has no force‑Foreign purchaser not establishing letter of credit in favour of respondent sellers but in favour of buyers, which on contrary a proof of fact that buyers were real purchasers and principals vis‑a‑vis sellers‑Letter of credit endorsed by buyers to respondent who had naturally to issue invoice in favour of party who established letter of credit ‑ Having this been done on buyers' advice which was endorsed on letter of credit‑Nothing was wrong in issuing invoice by respondent direct in favour of appellant‑Goods having been purchased by foreign purchaser i.e. appellant, then they would not have used words agreed to purchase for export', and on contrary they would have used words agreed to purchase'‑Fact that buyers had agreed to purchase fuel oil for purpose of export, held, proves beyond any doubt that according to agreement buyers were themselves principal purchasers who after purchasing fuel oil from appellant had to export it to their foreign customers ‑ Appellant, held, not party to agreement and as such not entitled to invoke arbitration clause in agreement.

Abdul Rauf for Appellant.

Sajid Zahid for Respondent.

Date of hearing : 14th September, 1982.

This is an intra‑Court appeal from the order dated 15th October, 1980, of learned Judge of this Court in J. Miscellaneous Application No. 39/ 1979 filed by the respondent against the appellant and Mr. A. R. .Qasurt Advocate. By the impugned order the learned Judge had allowed the application filed by the respondent under section 33 of the Arbitration Act, 1940, against the appellant and Mr. A. R. Qasuri and held that the appellant was not party to the agreement which contained an arbitration clause and as such the appellant was not entitled to invoke the said clause for initiating arbitration proceedings.

2. The facts giving rise to this appeal are as under :‑

The appellant Tran world Oil Limited (T. O. Ltd.) is a foreign company having its head office at Hamilton, Bermuda, while the res pondent is an exporter of fuel oil, M/s. Jamia Industries Limited, claiming to be an agent of the T. O. Ltd., entered into an agreement with the ‑respondent for export of 30,000 Metric Tons fuel oil plus 10 per cent at Buyers option. The negotiations started between M/s. Jamia Industries Limited (hereinafter referred to as the Buyers) and the respondent on 14th July, 1979 with a letter addressed the Buyers to the appellant. By this letter the Buyers agreed purchase for export 30,000 Metric Tons of fuel oil plus 10/0 act buyers option on behalf of T. O. Ltd. The appellant was not satisfied with the language in which the offer was made by the letter dated 14th July. 1979. Hence a fresh letter was addressed by the Buyers on 20th July, 1979, whereby the Buyers offered to purchase the said quantity of fuel oil on behalf of itself and the T. O. Ltd. as joint buyers. Other terms and conditions incorporated in this letter are not very relevant. The significant difference in the two letters referred to above is that whereas in the first letter Buyers had offered to purchase the fuel oil on behalf of T. O. Ltd.. in the subsequent letter the Buyers and the T. O. Ltd. were collectively described

" If any question of difference whatsoever shall arise between the parties hereto touching this agreement or any clause or thing herein contained or the construction thereof, or as to any matter in any way connected therewith or arising therefrom, then and in all such cases, the matters in dispute shall be referred m Pakistan to two arbitrators (one to be appointed by the SELLERS and the other by the BUYERS) for decision and on their failure to agree, to an Umpire, appointed by the arbitrators before entering upon the reference. The provisions of the Arbitration Act, 1940, shall apply to arbitration proceedings under this Agreement. The venue of arbitration proceedings shall be Karachi."

In pursuance of the said agreement the respondent supplied the agreed quantity. of fuel oil which was life by the Buyers. According to the respondent all the terms and conditions of the agreement dated 20th July, 1977, were performed to the entire satisfaction of the par ties concerned. The Buyers did not raise any objection was made any claim against the respondent in respect of the quantity supplied.:.

3. On 5th September, 1979 M/s. Abdul Rauf & Co. Advocates address ed a letter to the respondent on' behalf of the appellant saying that the escalation clause in the agreement was not incorporated as agreed between the parties as a result of which the appellant had to pay an additional sum of U. S. 10 per Metric Ton to the respondent through the Buyers. The appellant, therefore, claimed refund of this amount vide the above letter of the Advocate. It was further stated in the said letter that if the amount is not refunded then the appel lant shall invoke the Arbitration clause.

4. The respondents vide their letter dated 12th September, 1979 denied the allegations and stated that the appellant was not a party to the contract which was entered into between the respondent and the Buyers and as such the appellant was .not entitled to take benefit of the arbitration clause. On receiving this reply, the appellant appointed Mr. A.R. Qasuri as their arbitrator and requested the respondent to appoint theirs. As the respondent did not appoint any arbit rator, hence Mr. A. R. Qasurj started arbitration proceedings as the ;ole arbitrator. This action on the part of the said arbitrator completed the appellant to file J. Miscellanous Application No. 39/1979 out of which this appeal has arisen. In the said application which was under section 33 of the Arbitration Act, the respondent had prayed that "the Court may be pleased to order with cost that there is no arbitration agreement between the applicants (Pakistan Refinery Limited) and respondent No. 1 (T. O. Limited) and that all proceed ings under such purported arbitration are a nullity and without any legal effect." In support of this application the respondent filed his affidavit giving the facts as stated above. In this application the T. O. Limited and Mr. A. R. Qasuri Advocate were implicated as respondents Nos. I and 2 respectively. The case was contested by the appellant only.

5. Alongwith the said application the respondent had also filed an application for injunction praying that the said arbitrator temporary may be restrained from proceeding with the arbitration proceedings. This application was granted. However, it appears that in spite of the interim order restraining the arbitrator from proceeding' with the arbitration proceedings, the said arbitrator .proceeded with the arbitration proceedings as the sole arbitrator and gave an ex parse award. The award was also filed in the Court, whereupon an application for contempt of the Court was moved against the arbitrator and the T. O. Limited. Mr. Abdul Rauf, the learned counsel for the T. O. Ltd., did not press for a decree in terms of the award. Hence the award was set aside and the contempt proceedings were also dropped upon unconditional apology having been tendered by Mr. A. R. Qasuri.

6. The application had filed affidavit of Rafiq Ahmad Mian, a Director of the Buyers, in reply to the main application of the respondent under section 33 of the Arbitration Act. In this affidavit Rafiq Ahmad Mtan stated that he is Director of the Bavers had submitted offers on behalf of their principal i.e. T. O. Limited on 14th July, 1979 on the terms and conditions which were quoted by their principal. He referred to the letter dated 14th July, 1975, whereby :he offer was for the first time made to the respondent Refinery. It is further stated that the respondent was not satisfied with the terms and conditions of the offer and the language in which the letter was couched, hence a fresh offer was made on behalf of the Buyers vide their letter dated 20th July, 1979, which has already been referred to zbove. The significant words with which this letter opens need to be reproduced here and the same are as under :‑

" We have pleasure in confirming our offer on behalf of M/s. Transworld Limited Hamilton, Bermuda and ourselves (hereinafter collectively referred to as Buyers)."

It was, therefore, pleaded in the affidavit that the Buyers had acted as agents of their foreign principals i. e. T. O. Limited for which :hey were to receive 50 per Metric Ton as commission.. It was further averred that the Buyers were made to 'make the offer in U S. . and that the consignment was meant for export only. It was also stated in the offer that the escalation clause shall be as per telex message of the Bnyers (here meaning T. O. Ltd.). This telex message was annexed with the letter of the Buyers dated 20th July, 1979. It is further stated in the affidavit of Mr. Rafiq Ahmad Mian that in the final agreement between the Buyers and the respondent dated 20th July, 1970, the escalation clause was changed against which M/s. T. O. Limited and the Buyers had protested.

7. In support of their plea that the Buyers were working only as agent of their foreign principal, that is, M/s. T. O. Limited, it is averred in the said affidavit that the letter of credit was opened by M/s. T. O. Ltd., in favour of the Buyers which was endorsed to the respondent and that the latter had issued invoice direct in favour of M/s. T. O. Ltd. He has produced photostat copies of the L. C. and the invoice alongwith the counter‑affidavit. It is further alleged that a Pakistani party as the Buyers cannot maintain foreign account in foreign currency and that the Buyers were to receive only . ‑50 per Metric Tons as commission. This fact pleaded as a further proof of the fact that the Buyers had entered into an agreement with the respondent not as principal to principal but as agent of the foreign principal on the one side and the principal i. e. respondent on the other side. It was lastly averred that the arbitration clause was invo ked by M/s. T. O. Ltd. as well as by Buyers jointly and as such the arbitrator was duly competent to proceed with the arbitration proceedings.

8. A rejoinder was filed on behalf of the respondent in which they reiterated that M/s. T. O. Ltd. had no concern whatsoever with the agreement in question, which was entered into between the appellant and the Buyers as principal to principal. So far as the version regar ding L. C. and the invoice were concerned, the representative of the respondent Company stated as under the rejoinder :‑

"9. As to the contents of paragraph 7 of the Counter‑Affidavit, the applicant Company issued the invoice in the name of the respondent No. 1 in order to comply with the Letter of Credit which was endorsed in favour of the Applicant Company by Jamia. In other words, the Letter of Credit, was duly opened in favour of Jamia by the respondent No. I and Jamia, in discharge of its obligations under the Contract, endorsed it in favour of the applicant Company. In terms of the said Letter of Credit, the cargo was to be consigned to the respondent No. 1 and hence the invoice had to be given in their name."

In the above quotation by "applicant Company" is meant, 'the Respondent Refinery' and by "respondent No. 1" is meant *M/s. T. O. Limited'.

9. It has been contended by Mr. Abdul Rauf, the learned counsel for the appellant, that the Buyers bad throughout been acting as agent of their foreign principal. In support of this argument he has relied upon the following circumstances :‑

(1) The letter of the Buyers dated 20th July, 1979 clearly shows that the offer was made jointly on behalf of the Buyers and its foreign principal M/s. T. O. Ltd.

(2) The price of the fuel oil was quoted in U. S. , which could not have been done unless the consignment was meant to be sold to a foreign purchaser and that a Pakistani Company as the Buyers are, could not have dealt in foreign currency in violation of Foreign Exchange Regulation Act.

(3) The mention of . 50 commission is a clear indication of the fact that this commission was intended to be paid by the foreign purchaser to the Buyers as agent.

(4) The Letter of Credit issued by M/s. T, O. Ltd. was endorsed to the respondent who had issued invoice for the consignment direct to M/s. T. O. Limited.

On the above grounds it is argued that the Buyers acted only as agent of their foreign principal and as such the principal was fully entitled to get benefit of the arbitration clause in the agreement in question. He has further argued that the agreement in question is to be read in the context of the letter dated 20th July, 1979, addressed by the Buyers to the respondent and that this letter is to be deemed as part and parcel of the main agreement. This argument is miscon ceived. The argument dated 20th July, 1979 between the Buyers and the respondent was executed on the same day when the said letter was addressed by the Buyers to the respondent. In spite of this fact, reference to the foreign buyers was deliberately avoided in the main agreement in the preamble of which only the Jamia Industries Ltd. have been described as the Buyers'. If the intention of the parties had been to include M/s. T. O. Ltd. as 'co‑buyers' then nothing prevented the parties to the said agreement to draft the preamble of the agree ment in the same words in which the letter dated 20th July, 1979, was drafted. The fact that the mention of M/s. T. O. Ltd., was delibe rately omitted from the main agreement proves that the respondent had. refused to accept M/s. T. O. Ltd. as co‑purchaser with the Buyers i. e. M/s. Jamia Industries Limited. Hence the letter dated 20th July, 1979, cannot be treated as part of the main agreement.

10. The next plea of Mr. Abdul Rauf that since the price of the consignment was quoted in dollars, it must be presumed that the Buyers were only working as agent, for the foreign purchaser, because the Buyer was not entitled to deal in foreign currency. This agreement is equally misconceived. The law does not prohibit a Pakistani Company in quoting the prices of goods in foreign currency. It was' argued that according to section' 21 of the Foreign Exchange Regu lations Act, 1947, the Buyers would not‑ have quoted the price in foreign currency unless the agreement was with a foreign party. The' learned Judge, while dealing with this point, has referred to section 21 (2) and has rightly held that it shall be an implied term of every contract that anything agreed to be done by any term of that contract which is prohibited to be done by or under any of the provisions of the Act of 1947 except with the permission of the Central Govern ment or the State Bank, shall not be done unless such permission is granted. The ‑next contention is that the mention of commission a the rate of 50 per Metric Ton in the agreement is a proof of the fact that the Buyers were acting as agent of their foreign principal from whom they were entitled to this commission. The clause does not say as to whom this commission is to be paid. The clause regar ding the commission has been left quite ambiguous and cannot be interpreted as argued by Mr. Abdul Rauf. This clause which is No. III. I reads as under :‑

"III. I BUYERS shall pay or arrange for payment to SELLERS in manner hereinafter provided for Cargo purchased for export hereunder, at . U. S. . 174.46 per Metric Ton F. O. B. Karachi, with commission of U. S. . 0.50 per Metric Ton payable by "BUYERS in addition to the above price."

From a plain reading of the above clause it would not be clear as to whom the commission shall be payable. By the term 'Buyers' used in this clause, reference is to M/s. Jamia Industries Limited according to the preamble of the agreement. Hence it is not conceivable that the Buyers would pay the commission to themselves. This clause does not in any way advance the case of the appellant.

11. The last contention of Mr. Abdul Rauf is that the L. C. was established by M/s. T. O. Ltd. in the name of the Buyers who had endorsed it to the respondent and that the latter had issued invoice direct to M/s. T. O. Ltd. for the consignment. It is, therefore, argued' that the consignment was meant for exporting to the foreign purchaser that is why the respondent had issued invoice direct to the foreign purchaser, who was none else than the principal of the Buyers. There is no force in this argument. The L. C. was established by M/s. T. O. Ltd. not in the name of the respondent but it was in favour of the Buyers i.e. Jamia Industries Ltd., and the latter had endorsed it in favour of the respondent/ Refinery. Had the foreign purchaser been a direct party to the agreement with the respondent then he would have established the L. C. direct in favour of the respondent. The fact is that L. C. was established not in favour of the respondent but in favour of the Buyers. It is on the contrary a proof of the fact that the Buyers were the real purchasers as Principal vis‑a‑vis the sellers, that is the respondent. This L. C. was endorsed by the Buyers to the respondent, therefore, the latter had naturally to issue invoice in favour of the party who had established the L. C. This was done on the Buyer's advice which was endorsed on the L. C. Hence there was nothing wrong in issuing invoice by the respondent direct in favour.of the appellant. This fact also does not advance the case of the appellant. On the contrary, it fortifies the plea of the respondent that their agreement was with the Buyers as principal to principal. Mr. Abdul Rauf, the learned counsel for the appellant has referred to clause II. 1 of the agreement, in which it is stipulated that the Buyers have "agreed to purchase for export" 30,000 Metric Tons of fuel oil. The learned counsel has argued that the fact that the consignment was meant for export to a foreign party proves that the Buyers were not the principals. The learned Judge who decided the case, has given very cogent reasons for repelling this argument. If the goods had been purchased by the foreign purchaser i.e. the appellant, then they would not have used the words agreed to pur chase for export'. On the contrary, they would have used the words agreed to purchaser'. Hence the fact that the Buyers had agreed to purchase the fuel oil for the purpose of export, proves beyond any doubt that according to the agreement the Buyers were themselves the principal purchaser who, after purchasing fuel oil from the appellant had to export it to their foreign customers.

For the above reasons we do not see any force in this appeal, which is dismissed with costs.

M Y.H. Appeal dismissed.

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