Saudi Arabian Airlines Corporation vs. Saudi Bangladesh Services Company Limited

Mar 1, 2010 Appellate DivisionAwardChallenging the award

Citation: 7ADC(2010)361, 2010 30 BLD (AD) 269

IN THE SUPREME COURT OF BANGLADESH (APPELLATE DIVISION)

Civil Petition for Leave to Appeal No. 1839 of 2009

Decided On: 01.03.2010

Appellants: Saudi Arabian Airlines Corporation represented
Vs.
Respondent: M/s. Saudi Bangladesh Services Company Limited

**Hon’ble Judges:**Mohammad Fazlul Karim, C.J., Md. Abdul Matin, A.B.M. Khairul Haque, Md. Muzammel Hossain and Surendra Kumar Sinha, JJ.

Counsels:
For Appellant/Petitioner/Plaintiff: Nazmul Huda, Senior Advocate, Mrs. Sigma Huda, Advocate with him instructed by Taufique Hossain, Advocate-on-Record

For Respondents/Defendant: Ajmalul Hossain, QC, Senior Advocate instructed by Mvi. Md. Wahidullah, Advocate-on-Record

Head Note:
The High Court Division was right in holding that the 3rd arbitrator was neither consulted nor given an opportunity by the Chairman to deliberate and express his views on the issues before making and signing the award in question. It is a well settled principle of law that no allowance can be made for damages, which are remotely connected with the wrongful act complained of. Law makes allowance only for the direct consequences and refuses to consider any damage remotely resulting from the wrongful act. It was incumbent upon the arbitrators to make it manifest that there was discussion between the arbitrators before the award was made but from the plain reading of the proceedings it appears that one of the arbitrators was excluded totally from the process of deliberation before the award was made.

JUDGMENT

Md. Abdul Matin, J.

  1. This petition for leave to appeal is directed against the judgment and order dated 05.01.2009 passed by the High Court Division in Arbitration Case No. 02 of 2006 setting aside the award dated 08.04.2006 passed by the Arbitration Tribunal in an arbitration proceeding held between the Saudi Arabian Airlines Corporation and N/s. Saudi Bangladesh Service Company Limited by allowing the application filed by the respondent under Section 42 read with Section 43 of the Arbitration Act, 2001. The facts, in short, are that the arbitration related to the alleged dispute which arose between the parties in the matter of the alleged failure of the respondent to deposit the sale proceeds for those tickets sold from the month of July till the 2nd of September 2002. It also dealt with the counter claim of the respondent, Saudi Bangladesh Services Company Limited, inter-alia, for 7% incentive commission on the sale of tickets from the inception of the said agreement. This counter claim was first made at the arbitration proceedings as an after thought. Under Article V(B) of the agreement, the respondent was under an obligation to transfer each month’s sale of tickets' proceeds to the petitioner by the end of the next calendar month. In other words, the proceeds of the sale of tickets for the month of July 2002 became payable by August 31st 2002. The respondent however, in total violation of the terms and conditions of the agreement, defaulted in paying the said sale proceeds which caused the present petitioner to lose substantial money. The instant petitioner, then formally requested in writing to the respondent to pay the said amount of BDT 32,21,50,666.51/-. The respondent denied the claim of the petitioner.

  2. The present respondent, M/s. Saudi Bangladesh Service Company Limited had entered into the General Sales Agency Agreement (hereinafter to be referred to as the agreement) on 01.03.1995 for selling tickets initially for the territory of Sylhet and Chittagong. The parties (instant petitioner and respondent) subsequently extended the area of operation by the instant respondent, as GSA, to the territory of Dhaka by effecting an amendment agreement dated 27.01.2001. The said amended agreement contained specific terms, conditions and obligations which created the relationship of principal and agent whereby the respondent as general sales agent will sell the tickets of the principal/claimant against which the agent/respondent will receive commission at the agreed rate as per international practice. It was agreed between the parties that the rate of commission that the agent will be allowed to receive as normal commission will be 9% and that the overriding commission will be 3% over the normal commission i.e. the agent will receive 12% commission on the tickets' sale proceeds.

  3. It was agreed between the parties that before the expiry of each month, the respondent would have remitted all the sale proceeds of the transportation of the previous month to the instant petitioner. Before remitting the entire sale proceeds, the respondent and its sub agents, if any, will deduct, at source, their commission at the agreed rate. In the instant case, the sale proceeds for the month of July 2002 fell due towards the end of August 2002, i.e. by the 31st day of August 2002, which was the ultimate day for the remittance of sale proceeds of July 2002 to the petitioner.

  4. But most unfortunately, the respondents defaulted in making its commitment and did not remit the sale proceeds to the petitioner. The claimant then issued a letter on 03.09.2002 demanding payment of the outstanding amount accrued during the month of July 2002 totalling BDT 20,4,096,135.50 (Taka twenty crore four lac ninety six thousand one hundred thirty five and paisa fifty) only tentatively by 5th of September, 2002. However till the 7th of September, as no payment was effected and the outstanding sum was becoming bigger with each month’s delay, the claimant could not wait any longer.

  5. It forwarded to the respondent on 07.09.2002, three debit memos containing the total sale proceeds of tickets during the month of July 2002. The said amount became due in three districts namely Dhaka, Sylhet and Chittagong respectively. In response, the respondent wrote a letter dated 16.09.2002 stating, inter-alia, that they have invested a huge amount of money in order to expand the claimant’s business which they have estimated to be BDT 750 million. They admitted that there is a dispute with regard to the agreement and again proposed for amicable settlement by mutual discussion. It is to be noted that nowhere in this letter the respondent denied the claim of the claimant. They also did not deny the petitioner’s claim of the outstanding sale proceeds for the months of July and August, 2002 in the meeting held in the chambers of the petitioner in the presence of both parties' lawyers on 21.09.2002. Instead, at the meeting and thereafter, the respondent proposed various modes for settling the outstanding amount for the months of July and August 2002, especially by instalments. Even at that stage, the respondent did not claim his alleged 750 million Taka. On 26.09.2002 the claimant again demanded payment of the entire outstanding amount i.e. the total sale proceeds for the whole months of July, August 2002 and two days of the month of September 2002. The respondents failed to pay the sale proceeds amounting to Tk. 20,4,096,135.50 (Taka twenty crore four lac ninety six thousand one hundred thirty five and paisa fifty) for the month of July 2002 only. BDT 200,71,2091.40 (Taka twenty crore seventy one lac two thousand ninety one and paisa forty) only due for the month of August 2002 and two days for the month of September 2002 amounting to BDT 1,43,73,795.92 (Taka one crore forty three lacs seventy three thousand seven hundred ninety five and paisa seventy two) only. The total sum thus due from the respondent stood at BDT 41,91,82,022.61 (Taka forty one crore ninety one lacs eighty two thousand twenty two and paisa sixty one) only.

  6. The claimant, after adjusting the performance guarantee furnished by the respondent to the amount of USD 1.50 million and the sale proceeds received from two subagents (which step the claimant had to undertake to mitigate further loss as per section 73 of the Contract Act) terminated the GSA Agreement on the ground of default under Article XI of the agreement by claiming the balance outstanding sum of Tk. 32,27,50,566.51 (Taka thirty two crore twenty seven lacs fifty thousand five hundred sixty six and paisa fifty one).

  7. It was stated here that the respondent submitted its counter claim at the arbitration proceedings only to avoid the payment as claimed by the petitioner. It is a well settled principle of law that no allowance can be made for damages, which are remotely connected with the wrongful act complained of. Law makes allowance only for the direct consequences and refuses to consider any damage remotely resulting from the wrongful act. The respondents are themselves responsible for loss of their goodwill by defaulting in making the payment of the sale proceeds due to the claimant within the stipulated time. In fact the claimant’s good will was at jeopardy because of the unlawful action of the respondent. It was submitted that the respondents had failed to prove the two criteria essential for claiming loss of goodwill or reputation: the first one is the actual occurrence of pecuniary loss-the respondent failed to produce any documents supporting such loss and secondly such loss was within the contemplation of the defaulting party at the time the contract was made. Therefore the counterclaim of the respondent is baseless and has no basis in the eye of law.

  8. The petitioner having failed to settle the matter amicably in respect of its lawful claim referred the matter to the arbitration by invoking arbitration clause as provided in the GSA Agreement. The said arbitration tribunal was initially constituted with late Justice B.B. Roy Chowdhury, Mr. Justice Sultan Hossain Khan and Mr. Amir-Ul Islam, Barrister-at-Law. With the death of Mr. Justice B.B. Roy Chowdhury and the appointment of Mr. Justice Sultan Hossain Khan as Chairman, Anti Corruption Commission, the tribunal was re-constituted with Mr. Justice M. Habibur Rahman (Chairman), Dr. M. Zahir and M. Amir-Ul Islam. The arbitration tribunal after being reconstituted decided to hear the matter afresh as two of its members being subsequently appointed, they were not aware of the contents of the earlier proceedings and felt that the entire matter be heard afresh to do justice.

  9. The arbitration tribunal framed as many as 18 issues to decide the claim and the counter claim made by both the parties. The tribunal, on 08.04.2006, after considering the evidence on record, the relevant exhibits filed by both the parties the written statements of the parties and their replies and upon hearing the submissions of both the parties, awarded in favour of this petitioner (claimant), by their majority decision, the claimed amount of BDT 31,27,50,566.00/- and dismissed the counter claim of the respondent (GSA).

  10. A dissenting opinion was given by Mr. M. Amir-Ul Islam who allowed the claim of the claimant for the amount of Tk. 4,88,72,217.43/- and also allowed the counter claim of the respondent for Tk. 57,26,92,897.67/- against the petitioner.

  11. The present respondent, as petitioner, challenged the legality and propriety of the award given by the majority of the arbitrators and filed an Arbitration Case No. 02 of 2006 before the High Court Division under Section 42 read with Section 43 of the Arbitration Act, 2001. The present petitioner appeared and filed an affidavit-in-opposition denying all the material allegations made in the said petition and sought for dismissal of the case stating that the petitioner, Saudi Airlines Corporation vide its letter dated 26.10.2002 terminated the sales agency agreement due to the failure on the part of the respondent to perform their obligations as stipulated in the GSA agreement. The settlement of the outstanding dues of the sale proceeds of the sold tickets by the respondent (ex-GSA) could not be amicably settled, though the parties did indeed try to settle the matter through their respective lawyers in goods gesture. Subsequently, the claimant became constrained to invoke the Arbitration Clause in the agreement to recover its legal and just outstanding payments from the respondent. The tribunal as stated earlier, after hearing both the parties and considering the materials on record was pleased to dispose of the said arbitration proceeding by the decision of the majority. It made an award on 08.06.2006, of BDT 31,27,50,556/- in favour of the petitioner and dismissed the counter claim of the respondent having found no justification in respect of the counter claim.

  12. Upon hearing the learned Counsels of both the parties, the High Court Division was pleased to set aside the award dated 08.06.2006 made by the majority decision of the Arbitration Tribunal on the ground that the award is opposed to public policy.

  13. Being aggrieved by the judgment and order of the High Court Division the petitioner has filed this petition for leave to appeal.

  14. Heard Mr. Nazmul Huda, the learned Counsel (Mrs. Sigma Huda, Advocate with him) appearing for the petitioner and Mr. Ajmalul Hossain, the learned Counsel appearing for the respondent and perused the petition and the impugned judgment and order of the High Court Division and other papers on record.

  15. The learned Counsel submits that that the arbitration application is not maintainable in view of the fact that the present respondent did not deposit the award money in compliance of the provision as laid down in Section 42 of Arbitration Act deposit the award money and security which is precondition of filling an application challenging the award. Sub-section (2) of the said Section 43 of the Act has provided for the deposit of the award money in the Court or otherwise secured pending the determination of the application. The rightful dues as recognized by the Arbitration Tribunal be secured by depositing the same into court. As such the impugned judgment and order is liable to be set aside for non-compliance of the aforesaid section.

  16. The learned Counsel further submits that all the members of the tribunal were in constant touch with each other and that now to claim undue haste of the majority members of the tribunal or that the arbitrator of the respondent was never consulted or given an opportunity to see the award before signing is a fabrication hard to believe. As such the impugned judgment is liable to be set aside.

  17. Sub-section (2) of Section 43 of the Arbitration Act, 2001 runs as under:-

(2) Where an application is made to set aside an award, the court or the High Court Division, as the case may be, may order that any money payable by the award shall be deposited in the Court or the High Court Division, as the case may be, or otherwise secured pending the determination of the application.

  1. From a close reading of the above subsection it appears that it is the discretion of the High Court Division or the Court to order that any money payable shall be deposited in the court. It is neither mandatory nor obligatory on the part of the High Court Division to pass such an order directing the deposit.

  2. It further appears that no such objection was raised by the present petitioner before the High Court Division about such deposit.

  3. In such view of the matter we find no substance in this submission that the arbitration application was not maintainable for want of deposit.

  4. The High Court Division while considering the conduct of the arbitrators and on the question of deliberation held as under:-

Despite having made a request in writing, the 3rd arbitrator was not given any scope or opportunity to deliberate on the issues with Chairman and the other member of the Tribunal before the award was finalized and signed. On the contrary, he was merely required to append his signature on a one hundred page typed award which had already been signed by the Chairman and the 2nd arbitrator. Even if there was any deliberation before the award was made and signed, it took place between the Chairman and the 2nd arbitrator, evidently, without the participation and input of the 3rd arbitrator. In such premises, the award in question cannot be termed as an award by the majority. Consequently, it cannot be said that the tribunal had either acted fairly or in accordance with the terms of the agreement between the parties, as it was required to do under the act.

  1. It further appears that the High Court Division rightly considered lack of deliberations between the arbitrators in this case and correctly followed the principle laid down in the case of Nand Ram Vs. Fakir Chand reported in ILR 7(1885) All 523 which runs as under:-

What the parties to a reference to arbitration intended is that the persons to whom the reference is made should meet and discuss together all the matters referred, and that the award should be the result of their united deliberations. This conference and deliberation in the presence of all the arbitrators is the very essence of the arbitration, and the sole reason why the award is made binding.

  1. It further appears that the High Court Division rightly considered the “public policy” in the matter and correctly appreciated the principle laid down in Hindustan Petroleum Corporation Limited Vs. Environmental Engineers Ltd. and another reported in (2001) 2 Comp 79 (Bom) where it was held as under:-

As the expression is incapable of precise definition, those challenges would be available, if the court finds the award obnoxious to its sense of justice, based on settled principles of law, whether as to the conduct of the arbitrator or arbitral proceedings or the award itself. Justice is the beginning and the end. Law must ultimately reach out to justice. Public policy contemplates that, courts must reflect it.

  1. In the present case the arbitral tribunal was composed of three arbitrators and it was incumbent upon the arbitrators to make it manifest that there was discussion between the arbitrators before the award was made but from the plain reading of the proceedings it appears that one of the arbitrators was excluded totally from the process of deliberation before the award was made.

  2. We further hold that the High Court Division was right in holding that the 3rd arbitrator was neither consulted nor given an opportunity by the Chairman to deliberate and express his views on the issues before making and signing the award in question. In view of the discussions as above, we find nothing to interfere with the judgment of the High Court Division in setting aside the award. Accordingly the leave petition is dismissed.

Saudi-Bangladesh Services Company Ltd vs Saudi Arabian Airlines Corporation
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