Critical analyze the Echardt & Co. vs.

Muhammad Hanif [PLD 1993 SC 42 ]

Introduction

Being a developing country Pakistan requires foreign investment for its development and
economic growth. The best way to attract foeriegn investors is to establish foreign investment
protection laws or any policy that can protect their investments. For that reason, Pakistan has
also enforced some of the international laws in order to provide security to the foreign
investors. However, another way to attract foreign investors is the “Arbitration Clause'' in
their commercial contracts. Pakistan has signed Bilateral investment treaties with more than
fifty countries, which directly empowers the foreign investors to refer the matter in case of
dispute to international arbitration tribunals through Arbitration clause. At the domestic level,
there is the Arbitration Act 1940, which deals with matters of arbitration. Section 34 of this
Act states about the Power to stay legal proceedings where there is an arbitration
agreement.

Background and Decision of case:

However, despite all these laws, the Pakistani judiciary is also playing an important role with
respect to the arbitration matters or enforcement of foreign agreements. The reference can be
made to Echardt & Co. vs. Muhammad Hanif [PLD 1993 SC 42 ], the breif facts of the
case are that respondent executed an agreement dated 12.04.1983 with Messrs. Eckhardt &
Co. a foreign company in Germany through their agent, Ecomar (pakistan) limited, who was
stationed at Karachi for the purchase of a motor vessel. This motor vessel was to be delivered
on 30 May, 1983 in Karachi but it wasn't and extension was given up to 7 June, 1983. It was
provided that the vessel couldn’t be delivered because of congestion and strike at Karachi
port, within the specified time and hence under the clause 4 of the agreement the buyer had
right to cancel the contract but he claimed that the seller was intentionally delaying
discharging of cargo so that vessel could not deliver within specified time. However, during
the pendency of suit respondent filed an application under Section 34 of Arbitration Act,
1940 for stay of suit proceedings on the ground that there is ‘arbitration clause’ in their
contract agreement and it should be enforced.
However, in this case the Supreme court refused to enforce foreign arbitration on the grounds
that it would be inconvenient for the parties to go for foreign arbitration. It basically affirmed
the principle of forum non-conveniens, that since all the evidence is in Karachi, it will be
more convenient to try the case here rather than going for arbitration in foreign country.

Analysis of case

The Supreme court in this simply relied on this principle and did not provide any test for the
refusal to enforce foreign arbitration agreements. In addition to this, it also left the question
unanswered that when a Pakistani court can enforce foreign arbitral agreements, it just stated
that, ‘No hard and fast rule can be laid down or fine of demarcation can be drawn to say in
what cases refusal can be made. Each case has different facts and grant or refusal of stay is
dependent upon peculiar facts and circumstances of each case. The Court can make an
objective assessment and come to the conclusion whether a stay of legal proceedings can be
granted or refused.’ However, they should have established a rule so that it can be followed
up in the cases of enforcement of Foreign Arbitral Agreements, but they left it open at the
discretion of the court. Hence, it can be concluded that it focused on the principle of natural
justice rather than any standard for the enforcement of Foreign Arbitral Agreement.

However, the concurring opinion of Justice Ajmal Mian in this case is worth mentioning.
He provided that for application of section 34 of Arbitration Act, 1940 in relation to Foreign
Arbitration clause, courts approach should be ‘Dynamic’ and it should bear in mind that
unless there are some compelling reasons, such an Arbitration clause should be honoured as
generally the other party to such an Arbitration clause is a foreign party. What he meant was
that, for the purpose of commercial business or foreign investments in Pakistan, courts should
provide a sense of security to them because by refusing any foreign agreement on vague
grounds would risk the integrity of Pakistan at International Level. This was provided in
these words, ‘...We should not overlook the fact that any breach of a term of such a contract
to which a foreign company or person is a party, will tarnish the image of Pakistan in the
comity of nations...’ He rightly pointed out that, Pakistan is still lacking behind in commercial
business just because of Pakistani courts intervention in Foreign arbitration matters and
enforcement of foreign awards related cases. The decisions of these courts hold great
importance in International media, so the principle or rule should be justifiable. For this
purpose he provided that, ‘....ground like, that it would be difficult to carry the voluminous
evidence or numerous witnesses to a foreign country for Arbitration proceedings or that it
would be too expensive or that the subject matter of the contract is in Pakistan or that the
breach of the contract has taken place in Pakistan, in my view, cannot be a sound ground for
refusal to stay a suit filed in Pakistan in breach of a foreign Arbitration clause contained in
contract of the nature referred to hereinabove..’ It was well stated that these reasons and
grounds were ambiguous and did not hold a proper justification. For the matter of refusal of
arbitral agreements a proper legal justification should be given such as… ‘that the
enforcement of such an Arbitration clause would be unconscionable or would amount to
forcing the appellant to honour a different contract, which was not in contemplation of the
parties and which could not have been in their contemplation as a prudent man of business’.
Hence, the opinion of justice Ajmal in this case holds a great importance and provides a
better justification for the refusal of enforcement of Foreign Arbitration Agreements.

It can be concluded that to obtain respectability in the commercial world, Pakistan needs to
honour foreign commercial Agreements and intervention of domestic courts should be
limited to some extent, so that it can uphold its image in the world of International Business.
The decision made in this case was ambiguous, however, here the supreme court could have
established a test or some standard for the refusal for enforcement of such agreements but
they simply relied on the natural principle of justice. But the opinion of justice Ajmal
provides a rationale and importance of these Foreign Arbitration Agreements.