ISLAMABAD, July 3: The Supreme Court of Pakistan directed the Swiss Company, Societe Generale de Surveillance (SGS), on Wednesday not to take the dispute of termination of its pre-shipment inspection contract to the International Centre for Settlement of Investment Disputes (ICSID).
Allowing Pakistan to proceed with the arbitration proceedings in Pakistan, the apex court, however, barred the government from filing any claim based on the allegations of bribes, commission and kickbacks.
“The arbitration proceeding shall be confined to the claims based on the terms and conditions of the agreement in question,” the court held.
The court was approached by Swiss Company SGS and Pakistan government for diametrically opposed reasons.
The SGS had sought a direction that arbitration proceeding in Pakistan should be stopped as the company had already approached ICSID for getting compensation from Pakistan government for termination of pre-shipment inspection contract.
The federal government had asked the court to restrain the SGS from pursuing in the ICSID proceedings.
Justice Munir A. Sheikh, writing for three judges bench, held: “The SGS is hereby restrained from taking any step, action, or measure to pursue or participate or to continue to pursue or participate in the ICSID arbitration.”
The Swiss company had stated that Pakistan and Switzerland had signed an agreement on May 6, 1996, for the promotion of reciprocal protection of investment and the termination of the contract fell under the treaty.
The government, however, had contested the contention on the ground that it was an agreement for provision of services and no investment involved in the contract.
The court held that from the bare reading of the clauses of the agreement showed that it was an agreement through which the services of the SGS were hired for carrying out pre-shipment inspection of the goods to determine their value for the purpose of charging customs duty on their import into Pakistan.
The court ruled: “It was an agreement between the two parties of hiring services simplicitor involving no investment, therefore, the arbitration clause 11.1 embodied therein would not in any manner be adversely affected as to its enforcement through court of law.”
The government was represented by Attorney General Makhdoom Ali Khan and SGS was represented by K.M.A Samdani and Barrister Farrukh Karim Qureshi.
The court accepted the government’s view, presented by the attorney general that term “investment” was properly defined in Foreign Private Investment (Promotion and Protection) Act 1976.
The government had also pointed out that the Swiss company had first participated in the arbitration proceedings by filing a counter claim in the Civil Court of Islamabad, demanding $329 million as damages on account of premature termination of pre-shipment inspection (PSI) contract and damages to its reputation.
The court observed that the events established that consent to ICSID arbitration was made after filing reply to the application under section 20 of the Arbitration Act before the trial court in which counter claim under the agreement was also made seeking recovery of the same amounts which were claimed before the Swiss Court.
“On the basis of these established facts, it can safely be held that the appellant had only waived the right to opt, if any, for ICSID arbitration but even principle of estoppel by conduct would also be attracted for institution of the proceedings before the Swiss Court and filing of reply to the Application under section 20 was sufficient to constitute estoppel of conduct of waiver of its right to seek arbitration.”
The court also observed that the conduct of the appellant — SGS — was not above board, as it did not disclose before the ICSID while filing consent and request for arbitration that it previously had approached the Court in Geneva and failed up to the Supreme Court and the decision on the issues regarding applicability of Arbitration Clause 11.1 and fair trial in Pakistan in pursuance thereof had been decided against it.
“We are of the firm opinion that in case those decisions had been brought to the notice of the ICSID Tribunal, it would not have entertained the request for arbitration.
The appellant did not approach ICSID with clean hands and it was guilty of taking a decision by the said Tribunal whether the request should be entertained and notice issued.”
The Supreme Court also set aside the decision of the Civil Court of appointing Justice Khalilur Rehman Khan and warned the judge to be careful in future while making observations about the impartiality of the superior court judges.
The then Civil Judge Islamabad, Muzzafar Ali Shah, had appointed Justice Khalilur Rehman Khan by observing that in its view he was impartial person.
“We would not countenance this act of the trial court which should be very careful while expressing any opinion about impartiality or otherwise of any of the learned retired judges of this court.”
The apex court set aside the order of appointment of Justice Khalilur Rehman as sole arbitrator and directed the trial court to nominate any of Justice Shafiur Rehman and Justice Nasir Aslam Zahid.
