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Petitioner: ATLAS CABLES (PVT.) LIMITED VS Respondent: ISLAMABAD ELECTRIC SUPPLY COMPANY JUDGMENT
Court Name: Islamabad High Court Judge(s): Miangul Hassan Aurangzeb Title:ATLAS CABLES (PVT.) LIMITED vs ISLAMABAD ELECTRIC SUPPLY COMPANY
JUDGMENT
Reported As: 2016 CLD 1833 Result: Appeal allowed Judgment JUDGMENT ' MIANGUL HASSAN AURANGZEB, J.---Through the instant Regular Second Appeal under Section 100 of the Code of Civil Procedure, 1908, ("C.P.C."), the appellant, M/s. Atlas Cables (Pvt.) Limited, assails the judgment dated 04.01.2016, passed by the Court of the learned Additional District Judge, Islamabad, whereby the appellant's first appeal against the judgment and decree dated 15.04.2015, passed by the Court of the learned Civil Judge, Islamabad (West), was dismissed. Vide the said judgment and decree dated 15.04.2015, the learned Civil Court dismissed the appellant's suit for declaration and permanent injunction. 2. The facts essential for the disposal of the instant appeal are that after a tender bidding process conducted by the Islamabad Electric Supply Company ("respondent"), for the supply of ACSR RABBIT ("Cable"), the following three purchase orders were issued to the appellant:-- 1.Purchase order No,1188, 1,300 date 07.01.2006,for the supply of 1300 Km of Cable for a total contract price of Rs,38,047,750/-. 2.Purchase order No,1255, date 13.05.2006, for the supply of 1,000 Km. of Cable for a total contract price of Rs.36,800,000/-. 3. Purchase order No. 1811 dated 20.02.2009, for the supply of 1800 Km. of Cable for total contract price of Rs.77,290,200/-. 3. These three purchase orders shall hereinafter collectively be referred to as "the POs". The terms and conditions of the POs are more or less the same. Under the terms of the POs, the appellant was required to furnish performance bonds for an amount equal to 5% value of the POs in favour of the Chief Executive Officer of the respondent. These performance bonds were required to be issued by
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a scheduled bank of Pakistan and were to be valid for one year from the date of the completion of the supply of material. 4. The appellant had furnished the following three performance bonds issued by Habib Metropolitan Bank Limited in favour of the respondent:- Performance Bond No,Date Amount Expiry 1.HBZK/LG15818/0616.01.2006Rs,1,903,000/-30.03.2014 2.HBZK/L016816/0824.12.2008Rs,4,444,000/-30.03.2014 3.HBZK/LG16848/0913.02.2009Rs,1,840,000/-29.03.2014 Total 8,187,000/- 5. The purchase orders stipulated the dates within which the contracted material was to be supplied. Under Purchase Order No,1188, dated 07.01.2006, the appellant was required to deliver 700 KMs of Cable at Rawalpindi, 300 KMs of Cable at Islamabad, and 300 KMs of Cable at Rajjar. 50% of the material was to be supplied within three months of the establishment of the letter of credit, and balance 50% within six months. Under Purchase Order 1255, dated 13.05.2006, the appellant was required to deliver 500 KMs of Cable at Rawalpindi, 250 KMs of Cable at Islamabad, and 250 KMs of Cable at Rajjar. 50% of the material was to be supplied within two months of the establishment of the letter of credit, and balance 50% within four months. Purchase Order No,1811, dated 20.02.2009 required 300 KMs of the Cable to be supplied within 45 days, and the balance in lots of 300 KMs in each subsequent month from the date of the issuance of the letter of credit. 6. As can be seen from the above the delivery period under Purchase Order No,1188 was six months, and that under Purchase Order No,1255 was four months. The delivery period under Purchase Order No,1811 extended over a period of six and half months. Under the POs, the delivery period was agreed to be of the essence of the contract. In this regard, Clause 4 of the POs is reproduced herein below:- "Delivery period is the essence of the Contract and delivery must be completed not later than the dates specified. "1st day of inspection or 15th day of inspection call whichever, shall be reckoned as date of delivery of Store to IESCO Consignee provided the goods accepted for supply have been delivered within 20-days of issue of inspection certificate subject to the condition that the supplier/manufacturer offers the material for inspection at least 15-days prior to the due date and the offer is not rejected due to being a fake call or material not conforming to the specification". (Enzphasis added) 7. The appellant made partial supplies under the POs. The appellant vide letter dated 31.01.2008 (Ex.D-9), informed the respondent that the delay occasioned in the delivery of the Cable under Purchase Order No,1188 dated 07.01.2006 was on account of the bifurcation of the group of companies to which the appellant belonged; that such bifurcation had resulted in financial and banking disputes for the appellant; and that the resolution of these disputes caused the appellant to go behind schedule in most of its business dealings including the deliveries which it had to make under the said Purchase Order. Furthermore, the appellant stated that its problems had been compounded by an unprecedented fluctuation and rise in the London Metal Exchange ("LME") rates which had rendered the contracts financially unviable. The appellant requested the respondent to waive the imposition of liquidated damages under the said Purchase Order, and to consider their case patiently and favorably to alleviate them from their financial difficulties and to bail them out from crises. 8. Vide letter dated 18.08.2008 (Ex.D-1), the appellant proposed a new delivery schedule for the balance quantities of the Cable under Purchase Orders Nos.1188 and 1255. The appellant asked for a period of 60 days to make the balance supplies of 206 KMs of Cable under Purchase Order
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Nos.1188, and 328 KMs of Cable under Purchase Order No,1255. The excuse put up by the appellant for not supplying the material within the period stipulated in the said Purchase Orders was the "rapid increase in prices and other inputs". 9. The respondent acceded to the said request of the appellant. The Board of Directors of the respondent, in its 66th meeting held on 21.07.2008, decided to amend the delivery schedule in the said Purchase Orders. With respect to Purchase Order No,1188, the appellant was required to deliver 100 KMs of Cable within 30 days of the amendment, and 106 KMs within 60 days. Similarly, as regards Purchase Order No,1255, the appellant was required to deliver 150 KMs of Cable within 30 days, and 178 KMs within 60 days. This was conveyed by the respondent to the appellant, vide letter dated 26.08.2008 (Ex.D-2). Furthermore, the appellant was warned that in case it did not comply with the amended delivery schedule action would be taken under the provisions of the said Purchase Orders. 10. After the expiry of the amended delivery schedule, the appellant vide letter dated 12.12.2008 (Ex.D-3) informed the respondent that the shipment of the basic raw material required for all the conductors had been delayed due to "unavoidable circumstances". The appellant assured the respondent that the balance supplies would be made immediately. 11. As the appellant did not make the supplies within the period stipulated in the amended delivery schedule, the respondent, on 16.12.2008 (Ex.D-12), issued a notice of default in the delivery of goods against Purchase Orders Nos.1188 and 1255 to the appellant. As per the said notice, the appellant had not supplied 205.6 KM of Cable under Purchase Order Nos. 1188, and 328 KM of Cable under Purchase Order No,1255. The appellant was called upon to explain within ten days as to why the following 'penalties' in terms of the said Purchase Orders may not be imposed on the appellant:- 1. Blacklisting of the appellant; 2. Forfeiture of the Peiformance Bonds furnished by the appellant and; 3. Cancellation of the Purchase Orders and purchase of material from any other manufacturer / supplier at the appellant's risk and cost. 12. Furthermore, in the said notice, the appellant was requested to deliver the balance material by 26.12.2008. The appellant, vide letter dated 19.12.2008 (Ex.D-4), informed the respondent that it was facing difficulties due to unprecedented power and gas load-shedding. The respondent was again assured that supplies would be made under the contracts. 13. As no supplies were made by the appellant, the respondent, vide notice 14.03.2009 (Ex.D-5) reiterated its position taken its earlier notice dated 16.12.2008. 14. The appellant vide letter dated 28.07.2010 (Ex.D-6) proposed yet another revised delivery schedule for the supplies to be made under the POs. The appellant requested the respondent to re-schedule the deliveries without imposing liquidated damages. In response, the respondent, vide letter dated 13.08.2010 (Ex.D-7) extended the delivery period without imposing liquidated damages. The appellant was required to make the balance deliveries between 30.08.2010 to 30.12.2010. 15. As the appellant did not deliver the Cable in accordance with the revised delivery schedule, the respondent vide letter dated 29.07.2011 (Mark-F) cancelled Purchase Order No,1811. The respondent is also said to have imposed the 'penalty' of forfeiting the performance bond furnished by the appellant. The other two Purchase Orders were also said to have been cancelled by the respondent. The respondent then took steps to encash the three performance bonds. 16. Vide letter dated 29.08.2012 (Ex.P-1), the appellant inter alia informed the respondent that the "main reason for the stoppage of supplies is due to the unprecedented increase in the cost of input materials in the local and international market. " It is pertinent to I reproduce the third paragraph of the said letter dated 29.08.201211 hereinbelow:- "Sir, you are well aware that since the start of above P.O. There has been massive increase in the prices of LME and it had become difficult for us to supply the conductor on the rates quoted by us.
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After losing huge amounts we were able to supply major quantity under their P.O. In this connection we have approached to MD PEPCO, Lahore to allow us for Price Escalation, after that PEPCO, Lahore issued directive No,1657- 71/GM/(C&M) P/CE(P&D)/DPE dated 01.07.2008 (copy attaehed) addressed to all DISCOS regarding provision of Price adjustment/escalation in Contracts for supply of goods due to increase in prices of metal and other input materials. We have immediately requested to your goodself to allow us price escalation as per PEPCO directive." 17. The appellant requested the respondent either to allow price escalation due to the increase in the prices of metals and other input materials, or to cancel the balance quantities in the POs. In its letter dated 19.12.2012 (Ex.P-2), the appellant reiterated its position taken in the above referred letter dated 29.08.2012. The respondent was unmoved by such protestations by the appellant on whose request the deliveries were rescheduled on two occasions. 18. The respondent wrote several letters, including letter dated 24.02.2014 (Mark-G) to Habib Metropolitan Bank for the encashment of the three performance bonds for a cumulative amount of Rs,8,187,000/-. 19. As the respondent had taken steps to encash the performance bonds furnished by the appellant, the appellant vide legal notice dated 20.03.2014 (Ex.P-3) called upon the respondent to desist from taking such steps until a court of competent jurisdiction resolved the disputes between the parties. 20. As the respondent was firm in its resolve to encash the performance bonds, the appellant on 22.03.2014 instituted a suit for permanent injunction against the respondent and Habib Metropolitan Bank Limited before the Court of learned Civil Judge, Islamabad, praying for inter alia a decree for permanent injunction restraining the respondent from encashing the performance bonds. This suit was subsequently amended to make the same for declaration and permanent injunction, and to challenge the letters sent by the respondent to Habib Metropolitan Bank for the encashment of the performance bonds. The respondent contested the suit by filing a written statement. The respondent's main defence was that as the appellant had committed breach of contract by not supplying the balance material under the POs in the extended delivery period, the respondent had the right to encash the performance bonds. 21. On 27.06.2014, the learned Civil Court framed the following issues:-- "1. Whether the plaintiff is entitled for a decree for declaration to the effect that the letters dated 29.07.2011 and 24.02.2014 issued by defendant No,.I are null and void and of no legal effect or consequences whatsoever? OPP 2 Whether the plaintiff is entitled for a decree for permanent injunction restraining the defendants from encashment of the bank guarantees in any manner whatsoever? OPP 3. Whether an unexpected price hike in the world market of Aluminum base metal falls within the ambit of force majeure as defined in the purchase order? OPP 4. Whether the plaintiff has not cone to the court with clean hands? OPD 5. Whether the suit of the plaintiff is not maintainable in its present form? OPD 6. Relief " 22. The contesting parties produced one witness each. Vide judgment and decree dated 15.04.2015, the learned Civil Court dismissed the suit. The appellant challenged the said judgment and decree before the Court of the learned Additional District Judge, Islamabad through Civil Appeal No,62/2014. This appeal was also dismissed, vide judgment and decree dated 04.01.2016. The said concurrent judgments of the learned Courts below have been assailed by the appellant in the instant regular second appeal filed under section 100 of the C.P.C. 23. Learned counsel for the appellant submitted that the appellant was not able to make the balance supplies under the POs, for reasons beyond its control. He tried to take refuge behind the force majeure cause in the POs. Learned counsel further submitted that as the appellant was going
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to import the Cable from abroad and then supply it to the respondent, and as the international prices of copper during 2008 wen very high, the appellant was not able to purchase and import the same. He further submitted that import at such high rates would have rendered the transaction with the respondent financially unviable for the appellant. 24. Learned counsel for the appellant further submitted that even though there was no escalation clause in the POs, the respondent ought to have, on account of the sharp increase in the international prices Of copper, given the benefit of price escalation to the appellant. He submitted that the Managing Director of Pakistan Electric Power Company (Pvt.) Limited ("PEPCO") had constituted a committee to devise a formula for price adjustment in contracts for the supply of goods; that the constitution of this committee was necessitated on account of increase in the prices of some of the input materials; and that reasonable escalation should have been granted to the appellant. In the prices of the material to be supplied. 25. Learned counsel for the respondent submitted that as the appellant had clearly breached the provisions of the POs, no restrain could have been placed on the respondent from encashing the performance bonds. He submitted that the performance bonds were furnished to ensure that the appellant faithfully performed its obligations under the POs, and that as the breach of contract on the part of the appellant had been proved, the performance bonds were liable to be encashed to cover the loses suffered by the respondent on account of such breach. In order to combat the contention of the learned counsel for the appellant that on account of force majeure, the appellant was relieved of his obligations under the POs, learned counsel for the respondent submitted that the respondent did not commit any illegality in invoking the performance bonds because Clause 11 of the POs entitled the respondent to recover liquated damages to the extent of 10% of the contract price, and that under the Note to the said Clause 11, force majeure could not be taken into consideration; in determining liquidated damages. He further submitted that through the encashment of the performance bonds, the respondent would recover the liquidated damages due and payable under. Clause 11 of the POs. 26. Learned counsel for the respondent further submitted that the decision of Pakistan Electric Power Company ("PEPCO") Limited to allow escalation to suppliers, was not binding on the respondent, which was not a subsidiary of PEPCO; and that the prices mentioned in the P.Os. Were fixed and there was no provision for escalation in the POs. 27. I have heard the arguments of the learned counsel for the contesting parties and perused the record with their able assistance. 28. The facts of this case have been set out in sufficient detail in paragraphs 2 to 20 above and need not be recapitulated here. 29. Now, there is no escape for the appellant from the fact that by not supplying 205.6 KMs of Cable under Purchase Order No, 1188; 328 KMs of Cable under Purchase Orders Nos.1255; and 1800 KMs of Cable under Purchase Order No,1811, the appellant had committed breach of contract. These supplies were not even made in the extended period, which was granted on the request of the appellant. The respondent had shown enough magnanimity to the appellant by rescheduling, on two occasions, the dates within which the balance supplies were to be made by the appellant. 30. The delivery period in the POs was agreed to be the essence of the contracts. By accepting the terms of the POs, the appellant had committed that the deliveries would be made not later than the dates specified in Clause 4 of the POs. -As the appellant did not supply the material even by the rescheduled/extended dates, it can be clearly held to have committed breach of all the three purchase orders. 31. As regards the assertion of the learned counsel for the appellant that the appellant was entitled to escalation, the same is untenable because there is no provision or escalation in the POs, and the respondent has, at no material stage, allowed escalation in the contract price fixed in the POs.
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32. The case of the appellant is predicated on the fundamental plea of the force majeure clause in the POs. Force majeure event absolves a party from liability for the non-performance of a contract due to a supervening impossibility. When a dispute arises, regarding such a force majeure event, the same should be proved in the appropriate forum by a party who wants to be absolved from its contractual obligations. Now, does the force majeure clause in the POs absolve the appellant from all liability for not supplying the balance material under the POs? Clause 10 of the POs reads as follows:- "(10) Force M ajeure The right of the IESCO to terminate the Contract, or to claim penalty or liquidated -damages shall be subject to the follow circumstances, provided as a result of all or any of these events there has been delay in the performance of the contract by the Manufacturer or Supplier, or the contract has become incapable of being performed:- i. Act of God. Act of State, or War or any Act of the Enemy. Lock outs, Riots or Civil Commotion. iv. Injunctions granted by a Court of Competent jurisdiction not resulting from any fault of the Manufacturer or Suppliers. v. Restriction imposed by the government on the Import of any material relating to the manufacturer of goods. Vi. Non-receipt of raw material from abroad for reasons beyond the control of the manufacturer. vii. Port delays due to bunker age or lighter age. Viii. Diversions of supplies by the Carrier without any fault or knowledge of the manufacturer or suppliers. Provided further that the Manufacturer or supplier has given notice to the IESCO within 14-days of the happening of any such event. " 33. If the occurrence of any of the force majeure events listed in Clause 10 of the POs result in a delay in the performance of the contracts or the inability of the appellant to perform the contracts, the respondent cannot terminate the POs or claim liquidated damages. The said Clause 10 of the POs requires the appellant to give a notice to the respondent of the happening of such a force majeure event. The record does not contain any notice from the appellant in terms of Clause 10 of the POs, of the happening of a force majeure event. 34. The Advanced Law Lexicon by P Ramanatha Aiyar, 3rd Edition, explains force majeure as follows:- "Events outside the control of the parties and which prevent one or both of the parties from performing their contractual obligations; ' A contract provision that stipulates that unforeseen events - wars, acts of God, certain strikes - that will excuse a party from its duty to perform the contract; ' Standard clause in a contract that absolves either of the parties of blame for non-fulfillment of obligations caused by events beyond their control, such as earthquakes, floods or acts of war; ' A contractual provision allocating the risk if performance becomes impossible or impracticable as a result of an event or effect that the parties could not have anticipated or controlled. " 35. In the Halsbuty's Laws of England, 4th Edition, Volume 51 force majeure has been explained as follows:-- "2.300: Force majeure.--- In certain contexts and legal relationships, force majeure may justify derogating from the strict requirements of the law, especially from the legal consequences resulting from the non-fulfilment of an obligation. Force majeure presupposes an external cause which has consequences which are inexorable and inevitable to the point of making it objectively impossible for the person concerned to comply with his legal obligations. Where, in relations between an individual and the public administration, to exceed the material date does not involve the non-fulfilment of an obligation binding the individual but merely renders him subject to a system less favourable than that in force before that date, force majeure may not be relied on. "
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36. In the case of Dhanrajamal Gobindram v. Shamji Kalidas, reported as AIR 1961 SC 1285, it has been held at paragraph [19] of the report as follows:-- '19. McCardie J. In Lebeaupin v. Crispin [1920] 2 K.B. 714, has given an account of what is meant by 'force majeure" with reference to its history. The expression "force majeure" is not a mere French version of the Latin expression "vis major". It is undoubtedly a term of wider import. Difficulties have arisen, in the past as to what could legitimately be included in "force majeure". Judges have agreed that strikes, breakdown of machinery, which, though normally not included in "vis major" are included in "force majeure". An analysis of rulings on the subject into which it is not necessary in this case to go, shows that where reference is made to "force majeure", the intention is to save the performing party from the consequences of anything over which he has no control...... 37. In so far as the argument of force majeure was concerned, learned counsel for the appellant submitted that the international hike in the rates of metals rendered the appellant unable to perform its part of the contract. That does not mean that this price hike made it impossible for the appellant to perform the contract. 'Inconvenience' was to be distinguished from 'inability' to perform the contract. If the contention of the learned counsel for the appellant is accepted, any party/supplier could get out of a contract, if it turns out to be uneconomical for him after its execution. Thus this was not a case of 'inability' to perform a contract but 'refusal' to perform it on account of contract being no longer profitable. Even if the appellant had to procure the contracted material at rates higher than the ones at which the appellant had agreed to sell such material to the respondent, and in this way incur a loss in the transaction, that would also not constitute force majeure. 38. In the case of M/s. Alopi Parshad v. Union of India, reported as A/R 1980 SC 588, it has been held by as follows:- "There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of event which they did not at all anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle or execution, or the like. There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on…
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