RE: LEGAL OPINION REGARDING TAKING STEPS IN ACCORDANCE WITH THE ARBITRATION ACT AGAINST COMPANY 1.
We refer to your letters dated 25.02.2008 and 04.03.2008 on the above subject.
From perusal of your letter, it is appears that, by singing all pages of the Purchase Order dated 8.12.1996, COMPANY 1 (“the Supplier”) entered into a contract with The COMPANY 2 (“COMPANY 2”) to supply 680 reams of 2 Taka and 10,050 reams of 10 Taka Bank note paper pursuant to the terms of International Tender No. ……………….. dated August 1996 (“the Tender”).
Vide an amendment letter dated 16.02.97 to the Purchase Order dated 8.12.1996 (the amendment letter and the purchase order are hereinafter collectively referred to as “the Purchase Order”), the quantity of paper required by COMPANY 2 was subsequently changed in respect of 2 Taka Note paper from 680 reams to 520 reams and in respect of 10 Taka Note paper from 10,050 reams to 8890 reams. This change was agreed to by the Supplier.
Under the terms of the Purchase Order, the Supplier sent samples of both Note paper of the value of Taka 2 and of the value of Taka 10. However, the sample of the Note paper for Taka l0 was not acceptable to COMPANY 2 who cancelled the order for Taka 10 Note papers and forfeited the 10% Performance Guarantee under the terms of the Purchase Order.
In respect of the Note paper of the value of Taka 2, there was a small deviation and assurance was given by the Supplier to COMPANY 2 that the deviation would be corrected at the time of final delivery. Thereafter, an L/C was opened by COMPANY 2 in favour of the Supplier for supply of 520 reams of 2 Taka Bank note paper at a cost of US $ 61,880 arranging payment of 90% upon the presentation of complete shipping documents and the balance 10% of the contract price within 90 days of the receipt of note paper at Gazipur site of COMPANY 2 subject to inspection and laboratory test.
However, upon arrival of the note paper at Gazipur, the same were found totally unacceptable because of major deviations in quality of the supplied note paper from those of the terms of the contract.
The terms of the contract in relation to deviation in specification was provided for under Clause 16 of the Tender and under condition VIII of the Purchase Order, both of which states as follows:
“Replacement of paper for deviation in specification
If the whole quantity or any part of the supplied paper does not conform to our specification (detected within 12 months on receipt of last consignment at Corporation’s Gazipur site) then you will have to replace the said quantity within 3 months from the date of receiving intimation from The COMPANY 2 Corporation (Bangladesh) Ltd., in the following ratios:
a) 1: 1.3 for unprinted (Blank) paper;
h) 1:3 for printed paper, at any stage of printing process;
The supplier may at their option reimburse us of the full value of the above defective sheets in lieu of replacement; In case of minor deviations from the given specifications and basic parameters the Corporation may at its option accept the paper but may impose penalties at rates commensurate with the extent and nature of deviation.”
The Supplier was informed by Security Printers accordingly and requested to replace the said goods or alternatively to reimburse the price of the paper vide their letter dated 9.12.1997, reminder letters dated 31.12.1997 and 05.02.1998 and facsimile dated October 1998. However, the Supplier vide letter dated 05.10.1998 informed that no claim from Security Printers can be accepted by their side and asked Security Printers to pay the remaining 10% of the contract price.
Thereafter, Security Printers encashed the Performance Guarantee amounting to 10% of the total C & F amount equal to US $ 6188 US Dollar.
The Legal Opinion dated 10 April 1999 of Juris Counsel, a penal lawyer of Bangladesh Bank, was taken. In the said opinion suggestion was made that the dispute be resolved by arbitration. Subsequently, Security Printers asked the Supplier to appoint an arbitrator but the Supplier did not reply.
The last correspondence of Security Printers with the Supplier was vide their letter dated 29.12.2002, whereby they were again asked to replace the said goods or alternatively to reimburse the price of the paper but to no avail.
As Bangladesh do not have any embassy or consular in Slovenia, efforts were taken by Security Printers to contact the Supplier through the embassy of Bangladesh situated in Germany. But the said embassy failed to contact the Supplier.
In the meantime, on 28.10.1997, 20 reams of 2 taka note paper was mistakenly printed on. Thereafter, in the meeting of the Board of Director of Security Printers dated 20.08.2003 it was resolved that, in order to limit their loss, the remaining 500 reams of 2 taka note paper be used to print proof sheets after obtaining Bangladesh Banks approval . After obtaining Bangladesh Bank’s approval the same was used for printing proof sheets.
We have been informed that during the audit of Security Printers for the years 1981 – 2003, the Auditor Team of Commercial Audit Directorate objected to the loss in relation to said note paper and suggested that compensation of Tk. 33,22,993/- be claimed against the Suppliers.
The management of Security Printers now wants to claim compensation from the Suppliers by referring the matter to arbitration in Singapore.
In these circumstances, you require our legal opinion as to the cost and procedure of arbitration and the merit of the claim against the Supplier by Security Printers.
Clause 19 of the Tender states as follows:
“19. In the event of any dispute arising under this contract the same shall be referred to a Board of arbitrators to be nominated one each by the supplier and the Corporation within one week of notice from either side. In case the said arbitrators fail to agree to an award within one month, an umpire will be appointed by the two arbitrators in writing. The umpire shall give an award within one month at the latest. The decision of the arbitrators or the umpires as the case may be shall be final and binding on both the parties. The venue of arbitration will be Dhaka.”
From the above clause it can be seen that the venue of arbitration will be Dhaka. Therefore, arbitration can only be held in Dhaka and not in Singapore, unless both parties, i.e. Security Printers and the Supplier agree in writing that the venue of the arbitration shall be Singapore.
MERIT OF THE CLAIM:
According to Clause 9 of the Tender, the contract shall be construed and operated and interpreted in accordance with the Laws of Bangladesh.
According to Article 115 of the First Schedule of the Limitation Act 1908 of Bangladesh, the limitation period for filing a suit for compensation for the breach of any contract is 3 (three) years from the date on which the contract was broken.
And according to Section 55 the Arbitration Act 2001, the provisions of the Limitation Act shall apply to arbitrations as they apply to court proceedings.
From the provided documents it appears that, the breach of the contract by the Supplier was found by the Research & Quality Control Branch of Security Printers in October 1997. As more than 3 (three) years have passed since the breach of the contract by the Supplier the limitation period for commencing arbitration in the present case has passed. If arbitration is commenced now, the same in our opinion is likely to be dismissed in accordance with Section 3 of the Limitation Act 1908 as it is now barred by limitation.
If you have any further inquiries please do not hesitate to contact us.
For: “The Lawyers & Jurists”