HC allows Capital Maharja’s appeal against Keangnam

Cover behind arbitration is “heads I win, tails you lose”

By S.S. Selvanayagam

The Civil Appellate High Court of Colombo in its land mark judgment held that the arbitration clause in an agreement is not a bar for District Court to hear and determine the case wherein there is a novation (substitution of a new contract for an old one) of contract.

Civil Appellate High Court allows the appeal filed by The Capital Maharaja Organisation against Keangnam Lanka and Keangnam Enterprises.The Bench comprising Judges Mahinda Samayawardane and D.N. Samarakoon in their judgment stated that the plaintiff Capital Maharaja came to District Court and asked to set aside first agreement, the Defendant Keangnam Lanka try to take cover behind the arbitration clause in the first agreement which is no more. Court opined that if this is allowed it is clearly a case of ‘heads I win, tails you lose.’

The Capital Maharaja Organisation Ltd filed an appeal against Keangnam Lanka Ltd. and Keangnam Enterprises Ltd. against a judgment delivered by the District Court of Colombo. The High Court Judges of the Civil Appellate High Court in their judgment allowed the appeal with cost and set aside the order made by the District Judge dismissing the case filed by The Capital Maharaja Organisation Ltd. against Keangnam Lanka Ltd. and Keangnam Enterprises Ltd. and directed the District Judge to proceed with the action according to law. When the appeal came up for hearing, Counsel S. A. Parathalingam PC instructed by G.G. Arulpragasam appearing for The Capital Maharaja Organisation Ltd. and brought to the notice of Court that the Capital Maharaja Organisation Ltd. entered into an Agreement with Keangnam Lanka Ltd. and Keangnam Enterprises Ltd. to construct the ‘Dawson Grand’ apartment complex, however the Defendant could not complete the construction by 27 July 2011 as per the said Agreement and caused loss and damages to the Capital Maharaja Organisation Ltd., an action was instituted in the District Court of Colombo claiming a sum of $ 40 million damages.

Having heard submissions made by both parties and having perused the written submissions, High Court held that the District Judge has jurisdiction to hear and determine the action filed by The Capital Maharaja Organisation Ltd. against Keangnam Lanka Ltd. and Keangnam Enterprises Ltd. and that the arbitration clause in the Agreement is not a bar for District Court to hear and determine this case as there is a novation of the contract signed by The Capital Maharaja Organisation Ltd. against Keangnam Lanka Ltd. and Keangnam Enterprises Ltd.

S. A. Parathalingam PC with Nishkan Parathalingam and Niranjan Arulpragasam instructed by G. G. Arulpragasam appeared for the Appellant The Capital Maharaja Organisation Ltd.

K. Kanag-Iswaran PC with N. R. Sivendran, Luxman Jeyakumar and Ms. Renuka Udumulla instructed by Neelakandan & Neelakandan appeared for Keangnam Lanka Ltd. and Keangnam Enterprises Ltd.