PLJ 2007 Karachi
207
Present: Maqbool Baqar, J
Messrs TIME N VISIONS INTERNATIONAL (PVT.)
LTD.--Plaintiff
versus
Suit No. 862 of 2006, decided on 30.8.2006.
Arbitration Act, 1940 (IX of 1940)--
----S. 20--Contract Act, (IX of 1872)--S. 202--Agency
Agreement--Application to file in Court arbitration
agreement--Power--Scope--Question of--Whether in terms of Clause 3 of agreement
agency could be terminated by serving two months advance
notice--Determination--Agency could be terminated by serving two months
`advance notice' only after initial two years of creation of the agency--In
view of Clause (17) which provides for a dispute resolution mechanism through
arbitration in respect of agreement can only be decided by arbitration. [P. 218] C
Arbitration Act, 1940 (IX of 1940)--
----S. 20--Contract Act, (IX of 1882)--S. 202--Specific
Relief Act, (I of 1877)--Ss. 12, 42 & 55--Agency agreement--Termination of
agency--Premature--Arbitration clauses--Scope of--Agency in-question was not an
agency coupled with interest--Agency did not attract exceptional status of
irrevocability--Provisions of--Principle--Agency in-question is not an agency
coupled with interest and therefore does not attract exceptional status of
irrevocability as provided by Ss. 201 & 202 of Contract Act, which provides
for termination of any agency by principal revoking his authority, an order
restraining the defendant from revoking agency and forcing them to continue
with relationship would not be justified, as even if arbitrators come to
conclusion that termination of the agency would in terms of agreement be
premature for want of requisite notice--Held: Plaintiffs may be duly
compensated by awarding damages. [P.
219] D
Arbitration Act, 1940 (X of 1940)--
----S. 20--Contract Act, (IX of 1872), S. 202--Agency of
Agreement--Termination of agency--Premature termination--Compensated in money
terms--Financial liabilities--Multifarious litigation--Misconception of
agreement--Validity--Agent can tie down his principal into an eternal bond by
making investments when partner contributing a major part of capital of a firm
and tying down his assets cannot do so--Held: Even if there has been premature
or illegal termination of contract of agency, it can be compensated in money
term--If such notice was not given, at the most plaintiff firm could claim
damages from defendants and that by seeking declaration and permanent
injunction, the plaintiff was in fact seeking specific performance of
dealership which agreement was not an agreement which could be got specifically
enforced through the Court and that if at all there was unlawful termination of
sales/dealership agreement, the plaintiff firm could have only asked for
damages--Termination of the agency at this stage would lend them into
multifarious litigation is wholly un-founded and based on misconception--In
event of termination of the agency the contract already made by plaintiff with
third parties on behalf of plaintiff and in respect of all contracts that are
on the books on the date of such termination of an agreement parties shall
perform the duties and observe the covenant to be performed and absolved by
them--Termination of the agency would be bound to perform their obligations in
terms of agreement provided the same have been entered into with consent of the
defendant and in conformity with various provisions of agreement
in-question--Petition allowed. [P.
33-] F, G & H
Contract Act, 1872 (IX of 1872)--
----S. 202--Advertise Agency Agreement--Concept of an
agency coupled with interest--Concept can be comprehended through
illustration--Pre-existing interest of the agency in subject matter of agency
which is sought to be protected through creation of the agency and not an
interest arising therefrom--Concept can be comprehended through following
illustration given in S. 202 of Contract Act. [P.
215] A
Contract Act, 1872 (IX of 1872)--
----S. 202--Arbitration Act, (X of 1940)--S.
20--Advertising Agency Agreement--Appointment as exclusive advertising agent
for brands and advertising work--Scope of--Question of--Be terminated to
prejudice of interest--Validity--Such contracts can be considered irrevocable,
the most common examples of such contracts are when the owner of certain goods
appoints his creditor as agent to sell the goods and recover the amount
advanced or where the owner of immovable property, having agreed to transfer
such property appoints, before formal title is passed the vendee as his agent
to manage the property or effect the final transfer of title. [P. 217] B
Contract Act, 1882 (IX of 1882)--
----Ss. 201 & 202--Arbitration Act, (X of 1940)--S.
20--Agency agreement--Termination of agency--Notice--Damages--Validity-Where
termination notice is not given as provided in the agreement, the plaintiff
could only ask for damages and not for declaration and permanent injunction as
such an agreement cannot be specifically enforced. [P. 219] E
1985 CLC 1522; 1973 SCMR 555 and 1997 CLC 1903 ref.
Mr. Abdul Hafeez Pirzada, Hasaamuddin and Abdul Sattar
Pirzada, Advocates for Plaintiff.
Mr. Rasheed A. Razvi and Mahmood Mandviwala, Advocates
for Defendant.
Dates of hearing: 24 & 30.8.2006.
Judgment
Through this order I propose to dispose of the main
petition under Section 20 of the Arbitration Act, as well as the injunction
application, being C.M.A. No. 4941 of 2006 filed by the plaintiff.
The relevant facts of the case in brief are that under
and in terms of an `Advertising Agency Agreement' executed between the parties
on 15-10-2005, (`The agreement') the plaintiff company, who are engaged in the
business of advertising, and according to them, are providing a range of
advertising services to several entities, were appointed by the defendant bank,
as their exclusive advertising agent in Pakistan, for their brands and other
advertising work for the period from 15-10-2005 up to 14-10-2006, and agreed to
pay to the plaintiff a monthly retainership fees of Rs.6,75,000 (Rupees Six
hundred and Seventy Five Thousand only). In terms of Clause 3 of the agreement,
the relationship was to be renewed automatically after the initial period
ending on 14.10.2006, for one more year i.e. up to 14-10-2007. It was further
agreed that the agreement will continue to be renewed by the parties for
subsequent years and the relationship will remain in force till such time as
the agreement is revoked or terminated, as envisaged by Clause 4 of the
agreement, which provides that the agreement can be terminated by either party
only after serving two (2) months prior/advance notice. In addition to the
retainer fee, the plaintiff, in terms of the agreement, is also entitled to
commissions for the various services that the plaintiff was required to provide
under the agreement and as enumerated under Clauses 5 and 6 thereof. Clause 17
of the agreement, by way of dispute, resolution, mechanism, provides that every
dispute, difference or question, which may anytime arise between the parties
thereto, or any person claiming under them, touching or arising out of or in
respect of the agreement shall be referred to the arbitrators named therein.
Such arbitration to be conducted in accordance with the Arbitration Act, 1940.
It is claimed by the plaintiff that under Clause 3 of the
Agency Agreement, the Agreement is valid up to 14-10-2007 (i.e. two years from
the date of its execution) and that after such period of two years, the Agreement
would continue to remain in force unless the same is terminated by one of the
parties by serving on the other party a two months prior notice. It is further
claimed that in view of the various Clauses of the Agreement, particularly,
Clauses 2, 6 and 8.1, the agency is of the nature of an agency coupled with
interest and cannot, therefore, in view of the bar as contemplated by Section
202 of the Contract Act, be terminated to the prejudice of such interest. It is
then alleged that despite the above and without any cause or reason, the
representative of the defendant has informed the plaintiff that the defendant
is taking steps to terminate the Agency Agreement. It is further stated that
the compensation offered by the defendant for such un-lawful breach of the
Agreement, `to say the least being paltry' is, not acceptable to the plaintiff,
as the proposed termination shall cause a tremendous and irreparable loss to
the plaintiff. It is claimed that the plaintiff has incurred substantial
expenditure and put in labour in fulfillment of its obligations under the
Agreement, and in establishing a good-will for the defendant among its
potential customers in Pakistan, and was allured to commit its capital on the
assurances and guarantees of remuneration and fees embodied in the Agency
Agreement, the defendant cannot therefore terminate the relationship at this
stage. It is claimed that the plaintiff has been performing his obligations as
an agent to the complete satisfaction of the defendant. Neither has the plaintiff
defaulted in fulfilling any of its obligations under the Agreement, nor has
there been any allegation of default on the part of the plaintiff. On the
contrary, the defendant on several occasions commended the plaintiff
performance. However, the defendant realizing its position of advantage, has in
the most unscrupulous manner decided to engage the services of another entity
and unlawfully discontinued its contractual relationship with the plaintiff.
Along with the main petition, the plaintiff have filed an
application for restraining the defendant from acting in contravention of the
Agency Agreement and from entering into an Agency Agreement with any other
party. (C.M.A. No. 4941/2006).
Through their counter affidavit, the defendants have
opposed the grant of interim relief as prayed for by the plaintiff. They have
denied that the agency in question is coupled with interest. It is contended
that by its very nature the relationship between the parties as created through
the present agreement, does not create an agency coupled with interest. It is
averred that the application is barred by Section 21 of the Specific Relief
Act, as an agreement of the nature as in question is incapable of specific
performance as monetary compensation is an adequate relief and also for the
reason that the agreement is inherently revocable. It is pointed out that the
agreement provides for termination through Clause 4, which envisages its
termination by either party by serving two months prior notice. It is submitted
that Section 202 of the Contract Act applies only where an agent has a
pre-existing interest in the subject-matter of the agency, which is sought to
be protected through the creation of the agency. It is further submitted that
nature of an advertising agency and specially with the rights and obligations
as created under the agreement in question can never create a proprietary
interest sufficient enough to attract the provisions of Section 202 of the
Contract Act. It is further submitted that admittedly the plaintiff is
providing advertising services to various entities which is violative of Clause
5(iii) of the Agreement. It is claimed that the defendant is a subsidiary of
the first Islamic Bank of the world, and has been recently established in
Pakistan for providing and facilitating Islamic mode of financing and the
interim injunction granted in this case on 26-6-2006 is effecting the entire
marketing and business development of the defendant as a newly established
Islamic Bank. It is claimed that the defendant has neither intended nor entered
into any relationship of a permanent nature with the plaintiff. It is further
claimed that in the event the interim injunction is allowed to continue the
future operations and development of the defendant as a newly established
Islamic Bank will suffer immensely and the defendant marketing and advertising
will cease completely as marketing and advertising plays a crucial role in the
development of the banking products. It is alleged that, owing to the
unprofessional attitude of the plaintiff and by its attempt to forcibly
continue the relationship, the defendant is suffering huge financial losses.
In their rejoinder to the defendant's counter affidavit,
the plaintiff have claimed to have incurred huge expenditures, towards fulfillment
of its obligations under the Agreement. It is also claimed that the plaintiff,
for the benefit of the defendant, has engaged the services of several
professionals with expertise in concept and creative development and client
servicing for a period of two years. The plaintiff has further claimed to have
executed several contracts with various parties for propagating the business of
the plaintiff. It is submitted that unless the interim injunction is confirmed,
the plaintiff shall be faced with multiplicity of proceedings and shall suffer
irreparable losses. It is denied that the plaintiff committed any breach of any
of its obligations under the Agreement. It is alleged that all the resources of
the plaintiff have been diverted towards the furtherance of its contractual
obligations and for the development of the defendant's business to their
satisfaction.
Mr. Abdul Hafeez Pirzada, the learned counsel for the
plaintiff in support of the plaintiff's plea for referring the matter to the
arbitrators, submitted that in terms of Section 20 of the Arbitration Act, all
that is required for such referral is that there should be an arbitration
agreement between the parties and that a dispute has arisen between the parties
and the Court to which application was made has jurisdiction in the matter. He
submitted that the agency created under the agreement is in the nature of an
agency coupled with interest, as the plaintiff in pursuance of the agreement,
has incurred heavy expenditure by employing professionals to carry out their
obligations in terms thereof. The learned counsel referred to Clauses 2, 6, 7
and 8.1, to show that the plaintiff is not only entitled to a monthly
retainership fee but is also entitled to commissions for the various services
that the plaintiff has rendered, and is obliged to render to the defendant, and
submitted that in view of such financial interest also, the relationship cannot
be denied its attribute of an agency coupled with interest and thus in view of
the bar, as envisaged by Section 202 of the Contract Act, the agency cannot be
terminated at the whims of the defendants. He submitted that in addition to the
fact that the agency is coupled with interest and without prejudice to his
contention that the agreement cannot be terminated to the prejudice of such
interest, even in terms of the agreement itself, it cannot be terminated during
the period up to 14-10-2007. He referred to Clause 3 of the agreement and
submitted that after the initial one year period, ending on 14-10-2006, the agreement
will automatically stand renewed for another term of one year up to 14-10-2007,
and the parties may thereafter continue the relationship for subsequent years.
He contended that from the language employed in Clause 3 of the agreement, it
is clear that even in terms thereof the relationship is not terminable before
14-10-2007, and the termination through a two months advance notice as
envisaged therein is only in respect of any further renewal of the agreement
that the parties may agree to. However, the defendant in clear breach of the
terms and even without any notice and/or justification, is admittedly
contemplating termination of the agency. The learned counsel submitted that the
plaintiff has not only employed several professionals in order to do the
various jobs and provide various services to the plaintiff in terms of the
agreement, but have, in pursuance of the agreement, entered into several
agreements with various parties. He referred to sub-Clause (iv) of Clause 5 of
the Agency Agreement which envisages outsourcing development of advertisement
for the defendants, and submitted that in the event the agency is terminated
prematurely, the plaintiff shall face multiple litigation and shall suffer
irreparable loss. The learned counsel submitted that substantial amounts
towards the various services provided by the plaintiff to the defendant are
still outstanding and in the event of termination of the agency, the plaintiff
shall also suffer loss of future retainership fee and commissions and requested
that the matter may be referred to the arbitrators and the defendants may be
restrained from terminating the agency till the making of the award. In support
of his argument, Mr. Pirzada referred to the following cases:--
(1) Ghulam Ishaq
Khan Institute of Engineering, Science and Technology and another v. M/s.
Hassan Construction Co. (Pvt.) Ltd. Engineer and Consultants 1998 CLC 485.
(2) Manzoor
Construction Co. Ltd. v. University of Engineering and Technology, Taxila 1984
CLC, 3342.
(3) Muhammad
Younus and 2 others v. Abdul Ghaffar and others 1998 MLD 1622.
(4) M/s. Jamia
Industries Ltd. v. M/s. Pakistan Refinary Ltd., Karachi PLD 1976 Kar. 644.
(5) Mst. Neelam
Nosheen and others v. Raja Muhammad Khaqaan and others 2002 MLD 784.
On the other hand, Mr. Rasheed A. Razvi, the learned
counsel for the defendant submitted that no cause of action has accrued to the
plaintiff for filing the present suit as the defendant have not terminated the
Agency Agreement as yet. He further submitted that even otherwise the
plaintiff, in the facts and circumstances of the case is not entitled to a
declaration as they propose to seek through arbitration, as no perpetual
relationship has been created between the parties under or in terms of the
Agreement and the relationship between the parties does not attract the
provisions of Section 202 of the Contract Act, so as to make it irrevocable. He
submitted that Section 202 of the Contract Act only applies where an agent has
a pre-existing interest in the subject-matter of the agency, and the agency, of
the nature in question cannot, by any stretch of imagination, be deemed to be
an agency coupled with interest. He submitted that the two elements as claimed
by the plaintiff, namely expenses incurred by the plaintiff and the prospects
of earning commissions and retainership fee are not of such nature so as to
create interest as envisaged by Section 202 of the Contract Act. He submitted
that the Agency Agreement itself provides for termination by serving two months
advance notice as provided under Clause 4 of the agreement. Mr. Razvi relied on
the following judgments:--
(i) Unreported
judgment passed in Suit No. 388 of 2002 between ACB (Pvt.) Ltd. v. UPS
Worldwide;
(ii) Pak National
Construction Co. v. State Bank of Pakistan (PLD 1977 Karachi 838);
(iii) Jamia
Industries v. M/s. Pak Refinery Ltd. Karachi (PLD 1967 Karachi 644);
(iv) Progressive
Engineering Associates v. Pakistan Steel Mills Corporation Limited (1997 CLC
236);
(v) Roomi Ent.
(Pvt.) Ltd. v. Stafford Miller Ltd. (2005 CLD 1805);
(vi) Huma
Enterprises v. S. Pir Ali Shah & others (1985 CLC 1522);
(vii) World Wide
Trading v. Sanyo Electric Trading Co. Ltd. & another (PLD 1986 Karachi
234);
(viii) Farooq
& Co. v. Federation of Pakistan and others (1996 CLC 2030);
(ix) Business
Computing Int. v. IBM World Trade Corporation (1997 CLC 1903);
(x) Philippine
Airlines v. Paramout Aviation (Pvt.) Ltd. & others (PLD 1999 Karachi 227);
(xi) Muhammad
Yousuf v. M/s. Urooj (Pvt.) Limited & another (PLD 2003 Karachi 16).
As regards the preliminary objection raised by Mr.
Rasheed A. Razvi that since the defendant agency has not been terminated by the
defendants as yet, no cause of action has accrued to the plaintiff for filing
the present petition. It may be noted that the defendants have not denied the
fact that they are/were in the process of termination of the agency. On the
contrary they have submitted that they are being forced to continue their
relationship with the plaintiff, through interim injunction and thus it can be seen
that the termination of the agency is clearly in the offing. The
dispute/controversy between the parties as has now emerged is regarding (i) the
nature of the agency, as to whether or not the agency is coupled with interest,
so as to attract the bar contained in Section 202 of the Contract Act. (ii) As
to whether, in terms of Clause 3 of the agreement, the agency is terminable by
either party, through a two months advance notice, or as to whether such
termination is permissible only after a period of two years from its
commencement i.e. after 14-10-2007 only.
The plaintiffs have attempted to attribute to the agency
in question, the status of an agency coupled with interest, and thus claimed a
bar to its termination, as contemplated in terms of Section 202 of the Contract
Act, on the grounds that (i) they have made substantial investment in order to
provide to the defendant the various services they were obliged to provide
under and in terms of the agreement and towards fulfilling its obligation
thereunder and (ii) agreement promises to them financial rewards by way of
payments of retainership fee and commissions for the various services that they
are obliged to provide under the agreement. It is contended that by virtue of
the above, the plaintiffs acquired interest in the subject matter of the agency
agreement.
The concept of an `agency coupled with interest' is a
special concept. It envisages a pre-existing interest of the agency in the
subject-matter of the agency which is sought to be protected through creation
of the agency and not an interest arising therefrom. The concept can be clearly
comprehended through the following illustration given in Section 202 of the
Contract Act:--
(a) A gives authority to B to sell A's land, and
to pay himself, out of the proceeds, the debts due to him from A. A cannot
revoke this authority, nor can it be terminated by his insanity or death.
(b) A consigns
1,000 bales of cotton to B, who has made advances to him on such cotton, and
desires B to sell the cotton, and to repay himself, out of the price, the
amount of his own advances, A cannot revoke this authority, nor is it
terminated by his insanity or death.
The concept has been well illustrated at page 2036 of
Halsbury's Laws of England, IVth Edn., Volume-1, in the following words:--
`868. Authority coupled with interest.--Where the agency
is created by deed, or for valuable consideration, and the authority is given
to effectuate a security or to security or to secure the interest of the agent,
the authority cannot be revoked. Thus, if an agreement is entered into on a
sufficient consideration whereby an authority is given for the purpose of
securing some benefit to the donee of the authority, the authority is
irrevocable on the ground that it is coupled with an interest. So, an authority
to sell in consideration of forbearance to sue for previous advances, an
authority to apply for share to be allotted on an underwriting agreement a
commission being paid for the underwriting, and an authority to receive rents
until the principal and interest of a loan have been paid off or to receive
money from a third party in payment of a debt, have been held to be
irrevocable. On the other hand, an authority is not irrevocable merely because
the agent has a special property in or a lien upon goods to which the authority
relates, the authority not being given for the purpose of securing the claims
of the agent'.
In the case of M/s. Business Computing International
(Pvt.) Ltd. v. IBM World Trade Corporation (1997 CLC 1903), Sabihuddin Ahmed,
C.J. has dilated upon the scope and applicability of the concept of an agency
coupled with interest in the context of Section 202 of Contract Act in the
following words:--
`9. In our legal system, this concept has been stated in
Section 202 of the Contract Act which reads as under:--
`Termination of agency where agent has an interest in
subject-matter.--Where the agent has himself an interest in the property which
forms the subject-matter of the agency, the agency cannot in the absence of an
express contract, be terminated to the prejudice of such interest.
It may be seen that the above Section lays down an
exception to the general rules. A contract of agency by its very nature is
personal to the parties and revocable at their volition subject to agreed
terms. It does not create eternal legal relations. Under this section in
certain exceptional circumstances, such
contracts can be considered irrevocable,
the most common examples of such contracts are when the
owner of certain goods appoints his creditor as agent to sell the goods and
recover the amount advanced or where the owner of immovable property, having
agreed to transfer such property appoints, before formal title is passed, the
vendee as his agent to manage the property or effect the final transfer of
title. In such cases interest in the property has already been created in
favour of another who is appointed agent primarily to secure such interest. The
principal is precluded from revoking the authority of such agent unless
otherwise agreed, because the main interest in the property is not retained by
him but passed on to the agent. This concept has been lucidly explained by
Tanzil-ur-Rehman, J., in the case of World Wide Trading Company v. Sanio
Trading Company PLD 1986 Kar. 234 cited above to the following effect:--
`The interest of the agent, forming subject-matter of the
agency, is to be some sort of an adverse nature qua the principal. So,
according to the true construction and scope of Section 202 the agency can be
said to be coupled with interest where the authority of an agent is given for
the purpose of effectuating a security or of securing an interest of the agent.
This can be inferred from documents forming the basis of agency or from the
course of dealings between the parties and from the other surrounding
circumstances.'
And further that:--
`I am unable to subscribe to the view that Section 202
gets attracted merely because the agent has acquired substantial interest in
the returns arising from the agency. Apart from the observations in the cases
of World Wide Trading Co. (PLD 1986 Kar. 234) and Farooq and Co. (1996 CLC
2030) cited above, a comparison between Sections 202 and 206 may clarify the
legal position. Under Section 206 when the contract of agency does not contain a
specific stipulation as to termination, it may be terminated upon reasonable
notice. In the absence of such notice the damage resulting to one party must be
made good by the other. If the principal terminates the agency without notice,
he must compensate the agent. It obviously follows that the agent must be
having an interest which must be compensated for. Therefore it is not possible
to say that whenever an agent has an interest in the continuance of an agency
Section 202 gets attracted. I am, therefore, clearly of the opinion that
Section 202 applies only where an agent has a special kind of interest i.e.
pre-existing interest in the subject-matter of the agency which is sought to be
protected through creation of the agency and not an interest arising therefrom.'
His Lordship further held that substantial investment in
the business of agency would not make the agency irrevocable.
The contention that since the agent had invested colossal
amount of funds in setting up of office and necessary infrastructure, the
agency was irrevocable, was rejected by Mian Allah Nawaz, J in the case of M/s.
Farooq and Co. v. Federation of Pakistan and 3 others (1996 CLC 2030) in the
following words:--
`As regards the contention that the petitioner had
invested colossal amount of funds in setting up of office and necessary
infrastructure and so the agency was irrevocable, suffice it to say that
setting up of office and employment of necessary staff was essential for
carrying on the business of the agency. These acts were not anterior to the
contract. These were not consideration to any right of petitioner. Under no
circumstances they can be considered as security for any interest of the agent
under the agreement of agency. On this state of affairs, it is quite clear to
me that the conditions postulated in Section 202 of the Act are not attracted
to the facts and circumstances of the case in hand. Reference be profitably
made to Palani Vannan v. Krishnaswami Konar AIR 1946 Madras 2036.'
In view of the foregoing it is now abundantly clear that
the plaintiff cannot seek perpetuity of relationship on the ground that they
have made huge investment or have incurred heavy expenditure or that continuity
of the agency would earn them retainer fee and commission, and moreso for the
reasons that the Agreement itself provides for its termination as envisaged
therein. However, the question as to whether in terms of Clause (3) of the
agreement, the agency could be terminated by serving two months' advance
notice, only after the initial two years of the creation of the agency i.e.
after 14-10-2007, would certainly require interpretation of the agreement
itself, and which question, in view of Clause (17), which provides for a
dispute resolution mechanism through arbitration in respect of every dispute,
difference of question which may at any time arise between the parties,
touching or arising out of or in respect of the agreement, can only be decided
by the arbitrations, as in the words of Zaffar Hussain Mirza, J (as he then
was), the scope of the powers conferred on the Court under Section 20 of the
Arbitration Act is merely limited to determination of the factum of real
dispute and no more. It is not for the Court to go into the question pertaining
to the dispute raised or suggest the manner of decision thereof for that would
amount to usurping the jurisdiction of the domestic tribunal constituted under
the arbitration agreement [Jamia Industries Limited v. Pakistan Refinery Ltd.
(PLD 1976 Kar. 644)]. Similar view has been expressed in Manzoor Construction
Co. Ltd. v. University of Engineering and Technology, Taxila 1984 CLC 3347. I
would therefore refrain myself from dealing into the controversy as to at what
point in time the parties can exercise their option to terminate the agency,
which forms, a real dispute amenable to arbitration only.
However, having come to the conclusion that the agency in
question is not an agency coupled with interest and therefore does not attract
exceptional status of irrevocability as provided by Section 202 of the Contract
Act and in view of Section 201 of the Contract Act which provides for
termination of an agency by the principal revoking his authority, an order
restraining the defendant from revoking the agency and forcing them to continue
with the relationship would not be justified, as even if the arbitrators come
to the conclusion that the termination of the agency would, in terms of the
agreement, be premature for want of the requisite notice, the plaintiffs may be
duly compensated by awarding damages.
I am fortified in my view by the judgments in the cases
of Huma Enterprises and 3 others v. S. Pir Ali Shah and others (1985 CLC 1522),
wherein it was observed that even where termination notice is not given as
provided in the agreement, the plaintiff could only ask for damages and not for
declaration and permanent injunction, as such an agreement cannot be
specifically enforced.
A reference to the case of West Pakistan Industrial
Development Corporation, Karachi v. Aziz Qureshi (1973 SCMR 555) may also be
beneficial in the present context, where the Hon'ble Supreme Court held as
follows:--
`Reading the three Sections (203, 205 and 206 of the
Contract Act) together it seems to me evident that if the principal without
sufficient cause revokes the agency before the expiration of the period
mentioned in, the contract, he must make compensation to the agent.
Furthermore, that unless reasonable notice is given of such revocation, the
principal must make good the damage resulting to the agent.'
In the case of M/s. Business Computing International
(Pvt.) Ltd. (supra), Sabihuddin Ahmed, C.J., whilst holding that making of
substantial investments in the business of agency would not make the agency
irrevocable, observed that, `It is difficult to see how an agent can tie down
his principal into an eternal bond by making some investments when a partner
contributing a major part of the capital of a firm and tying down his assets
cannot do so. His Lordship further Held that even if there has been a premature
or illegal termination of the contract of agency, it can be compensated in
money terms. It would not be just and equitable to force a relationship upon
the defendant who might have to incur further financial liabilities on account
of the same, and dismissed the injunction application.
In Huma Enterprises and 3 others v. S. Pir Ali Shah and
others (1985 CLC 1522), where the dealership/sales agreement was terminated by
the principal purportedly acting in terms of the agreement, under which at the
most three months' notice was required to be given. It was held that even if
such notice was not given, at the most the plaintiff firm could claim damages
from the defendants and that by seeking declaration and permanent injunction,
the plaintiff was in fact seeking specific performance of the dealership/sales
agreement which agreement was not an agreement which could be got specifically
enforced through the Court and that if at all there was unlawful termination of
the sales/dealership agreement, the plaintiff firm could have only asked for
damages.
The plaintiff's apprehension that since in pursuance of
the agreement they have entered into several contracts with third parties, the
termination of the agency, at this stage, would lend them into multifarious
litigation is wholly un-founded and based on misconception as Clause 4 of the
agreement clearly stipulates that in the event of termination of the agency the
contracts already made by the plaintiff with third parties on behalf of the
plaintiff and in respect of all contracts that are on the books on the date of
such termination of the agreement, the parties shall perform the duties and
observe the covenant to be performed and absolved by them respectively, and
therefore, the defendants even in the case of termination of the agency would
be bound to perform their obligations in terms of such agreement provided the
same have been entered into with the consent of the defendant and in conformity
with the various provisions of the agreement in question.
In view of the foregoing, I allow the petition and direct
the defendants to file the original arbitration agreement in Court within three
days from today. The case will be put up for further orders in this behalf on
10-11-2006. The injunction application is dismissed.
(R.A.) Order accordingly
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