ISLAMABAD, May 15: The Supreme Court was informed by the Swiss company SGS that Pakistan, by alleging that pre-shipment inspection contract was acquired fraudulently, had forfeited its right to initiate arbitration proceeding for recovering damages.

“A contract procured by fraud was void and even the arbitration clause in such an agreement does not survive,” KMA Samdani, SGS counsel argued before a three judges-bench of Supreme Court.

The SGS has approached the Supreme Court against the civil court order of appointment of arbitrator to settle the dispute arisen after the termination of the contract. The civil judge has appointed Justice (Retd) Khalilur Rehman Khan as arbitrator.

The government of Pakistan had filed a suit for the recovery of huge amount, which according to its estimates were lost after the award of contract to the Swiss company.

The Swiss company is of the view that all the proceedings should be stayed in Pakistan as its request before International Centre for Settlement of Investment Disputes (ICSID), a forum set up under UN Convention, had been registered.

The SGS was represented by KMA Samdani and Barrister Farrukh Karim Qureshi. The Swiss company had approached the ICSID for getting compensation from Pakistan government for termination of pre-shipment inspection contract.

The Swiss company is of the view that Pakistan and Switzerland signed an agreement on May 6, 1996 for the promotion of reciprocal protection of investment.

The Federation was represented by Makhdoom Ali Khan, Attorney General for Pakistan, Uzair Bhandari Advocate, Khuram M. Hashmi Advocate and Raja Mohammad Irshad Advocate.

The SGS is claiming damages of more than US$120 million against Pakistan. It has filed a claim before the ICSID at Washington. Pakistan has challenged the jurisdiction of ICSID.

The counsel for SGS KMA Samdani stated that the arbitrator in Pakistan be restrained from proceeding any further with the matter and the proceeding before ICSID may be allowed to continue.

He stated Pakistan, after alleging that the SGS had acquired PSI contract fraudulently, had forfeited its right to initiate arbitration proceeding for recovering damages. “A contract procured by fraud was void and even the arbitration clause in such an agreement does not survive,:” the counsel argued.

The counsel said ICSID arbitration was based on a treaty between Pakistan and Switzerland could proceed.

Attorney General Makhdoom Ali Khan stated the issue of whether the Government of Pakistan made allegations of fraud and corruption would only arise when Pakistan filed a statement for claim before the arbitrator.

He said that the SGS had approached the Swiss court after their contract was terminated and went up to the level of Supreme Court of Switzerland.

The AG stated that Pakistan had claimed sovereign immunity in the courts in Switzerland. This plea was accepted. They had also invoked the arbitration clause in the SGS agreement. In view of this objection the Swiss courts had accepted that arbitration should proceed and had not decided the case on merits.

The AG stated that it was a settled law that a party which was victim of fraud or corruption could pursue its claims in arbitration.

Justice Munir A. Sheikh, heading three judges bench asked SGS whether it was his case that the entire PSI agreement was nullity. He answered in the affirmative. He was then asked whether in view of this fact, ICSID arbitrator could proceed.

The counsel submitted that ICSID could proceed because it was not based on the PSI agreement but on the Pak-Swiss treaty. The counsel said his case was that a contract procured by fraud was not a contract and the entire PSI agreement including the arbitration clause therefore did not survive.

The SGS counsel said that by approaching the courts in Switzerland and by filing counter claim before the civil judge, Islamabad, it had not waived its right to ICSID arbitration.

Justice Munir A. Sheikh asked SGS counsel if his client was aware of the existence of the availability of ICSID arbitration at the time when they approached the courts in Switzerland.

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