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Petitioner: GLOBAL QUALITY FOODS PVT. LTD. through Company Secretary-- VS Respondent: HARDEE'S FOOD SYSTEMS, INC.---Defendant
Court Name: Sindh High Court Judge(s): Muhammad Ali Mazhar Title:GLOBAL QUALITY FOODS PVT. LTD. through Company Secretary-- vs
HARDEE'S FOOD SYSTEMS, INC.---Defendant Case No.: Suit No.838 of 2012 Date of Judgment:2015-11-19 Reported As: PLD 2016 Sindh 169 Result: Order accordingly Judgment ORDER ' MUHAMMAD ALI MAZHAR, J.--This order will dispose of following interlocutory applications:- ' CMA No.7103/2012. This application has been moved by the plaintiff under Order XXXIX Rules 1 and 2 read with Section 151, C.P.C. With the prayer that pending disposal of the suit the defendant may be restrained from awarding/granting the license to operate/develop Hardee's Restaurants for the Province of Sindh to any other person except the plaintiff. ' CMA No.7280/2012. The defendant's counsel has moved this application under Order VII, Rule 11, C.P.C. That plaint does not disclose any cause of action, therefore, it is liable to be rejected. ' CMA No.7281/2012. This application has also been moved by counsel for the defendant under Section 34 of the Arbitration Act read with Section 4 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards), Act, 2011 that under section 29 of International Multi-Unit License Agreement, the dispute if any is to be resolved through arbitration rather than this suit which is liable to be stayed. 2. The brief facts as alleged in this suit for permanent injunction are that the plaintiff is a private limited company incorporated under the Companies Ordinance, 1984 in Pakistan, which is licensee of the defendant for development of multiple restaurants within the Province of Sindh. The defendant is a limited liability company incorporated under the laws of USA. In the year 2008 Global Food Connections LLC, predecessor in interest of the plaintiff was permitted to enter into International Development Agreement but till the middle of 2011 the said company was unable to develop any Hardee's Restaurant, however, on 10.6.2011 the aforesaid LLC assigned all its rights and liabilities to the plaintiff and this assignment was also accepted and endorsed by the defendant.
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The plaintiff developed one Hardee's Restaurant by 15.9.2011 and there was some oral understanding for development of 09 more restaurants on mutually agreed terms. The timeline to .Open up 10 restaurants as specified in the agreement attached as annexure "A" could not have been applicable to the plaintiff as vide agreement attached as annexure "D" a fresh timeline was given by the defendant to open up one restaurant which necessarily meant that the said defendant from time to time would prescribe the timeline for remaining 09 restaurants and despite making requests by the plaintiff to prescribe the timeline for 09 remaining restaurants, the defendants kept it under the false hopes. The defendant intends to issue license to third parties to develop and manage Hardee's Restaurants. The plaintiff has also prayed for the directions against the defendant to accord necessary license and or approval to the plaintiff to develop the rest of the Hardee's Restaurants and also provide development schedule. 3. To upkeep the injunctive order and its sustenance, the learned counsel for the plaintiff referred to International Development Agreement (IDA), Multi-Unit License Agreement (MULA), New Development Rider (NDR), which were executed between the predecessor in interests of the plaintiff (Global Food Connections LLC) and the defendant and argued that IDA is parent all- encompassing agreements which provided a development schedule and authorized the predecessor in interest of the plaintiff to develop Hardee's Restaurants by 31,12.2011. The Global Food Connections LLC vide assignment agreement dated 10.6.2011, assigned all its rights and liabilities to the plaintiff. He also referred to annexure "C" which is a document showing consent to transfer of ownership interests executed between the defendant and Global Food Connections LLC. Both the documents i.e. Consent to transfer of ownership interests and assignment agreement were signed on 10.6.2011. It was further contended that in view of the aforesaid documents all the rights and liabilities of Global Food Connections LLC under the IDA and MULA both dated 13.6.2008 stood transferred to the plaintiff on 10.6.2011 and it implies that the time limit prescribed in the development schedule by the defendant to Global Food Connections LLC through IDA dated 13.6.2008 was not applicable to the plaintiff. Since the timeline provided in the agreement except for 06 months had already lapsed, therefore, it was not possible to establish 10 restaurants in such a short period unless the time is extended through a revised development schedule. However, for the proper commencement and implementation of IDA and MULA the parties entered into New Development Rider dated 23.9.2011 and in pursuance thereof the plaintiff developed Hardee's Restaurant at Haideri Karachi, which is operational without any complaint. Learned counsel further argued that the plaintiff was engaged in the correspondence with the defendant to approve the development schedule for remaining 09 restaurants but no proper response, assurance and or acceptance was conveyed by the defendant. He contended that precise dispute between the parties is roaming around three agreements i.e. IDA, MULA and NDR, which are to be read together. 4. It was further averred that IDA still subsists and in case of any conflict between the IDA, MULA or NDR the provisions of IDA will have an overriding effect while MULA and NDR are secondary and subsidiary documents. According to Section 2.2(d) of the IDA the plaintiff claims exclusivity in the development territory. He referred to the definition of development agreement provided in the Appendix "A" that IDA includes each and every term, condition, provision, limitation, attachment, exhibit, appendix, addendum and amendment, and any Ethics Certificate, Guarantee or Site Acceptance, each as amended from time to time. According to learned counsel the forms of MULA and NDR are contained in Exhibits 3 and 4, which means that MULA and NDR are part and parcel of IDA and all three are to be read together. Learned counsel further argued that though in the deed of assignment only MULA is mentioned but it necessarily implies that the preliminary agreement upon which the right to acquire a license is IDA. 5. So far as application under Section 34 of the Arbitration Act read with Section 4 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards), Act, 2011 is
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concerned, the learned counsel referred to Sections 29.1(a) and 29.1(b) of MULA which contains arbitration clause and argued that the case of the plaintiff does not fall within the ambit and premise of arbitration clause as Clause (a) of Section 29 germane to exceptions and at least five such claims are mentioned which are excluded from the ambit and scope of arbitration including the claims involving the propriety of any termination of this license agreement or licensee's right to operate any licensed restaurant. It is clearly manifesting from the exceptional clauses that if the dispute is in the nature of licensee's right to operate any license restaurant then the dispute shall not be covered by the arbitration clause. The bone of contention is the defendant pleads that the plaintiff is not entitled to claim any exclusive right while the plaintiff claims exclusivity in the licensed territory; therefore, the learned counsel is of the view that the dispute is not covered under the arbitration clause. 6. Insofar as the third application filed under Order VII, Rule 11, C.P.C., the learned counsel argued that a meaningful reading of the plaint will substantiate that the plaintiff has sought enforcement of IDA and anything contains in MULA and or NDR in conflict with the terms of IDA then the IDA would be enforceable and prevail. The proceedings are not correlated to section 202 of the Contract Act. No declaration has been sought by the plaintiff for determination of any relationship of principal and agent. It is well settled principle of law that for the purpose of rejection of the plaint the contents of the plaint are presumed to be true. In support of his contention, the learned counsel relied upon the following dictums: (1) 1981 CLC (Karachi) 638 (M/s.Nawab Brothers Ltd., Karachi v. Project Director, Special Projects, Planning and Development Department, Karachi and another). Section 62. Subsequent agrement only relating to some of terms of original agreement. Both agreements to be read together to form a complete subsisting contract. Original agreement not wiped out. (2) 2005 CLC 1377 (Rana Abdul Hafeez v. Muhammad All Khan and 12 others). It is common for commercial transaction to be concluded through a string of agreements; such arrangements are not unknown to legal jurisprudence. Back to back agreements can create effective legal relations between a series of parties provided the essential links of consent by and knowledge of the relevant persons remain present through the transactions. This divergence in treatment is highlighted in an instructive passage given in the judgment of the Indian Supreme Court in the case of Khardah Company Limited v. Raymon & Co. (India) Private Ltd. AIR 1962 SC 1810. (3) 1980 SCMR 588 (Muhammad Aref Effendi v. Egypt Air). Termination of agency: Case involving consideration of circumstances under which a contract of agency of kind involved in case could be revoked, whether Section 202, Contract Act, 1872 applicable to facts of case as well as true construction and scope of such section, whether plaintiff-petitioner entitled to continue agency and/or claim damages from principal on pleadings as made, whether petitioner failed to submit his account to his principal in terms of contract and whether petitioner justified in withholding same on any legal ground and whether termination of contract of agency lawful or not. Held: Such questions substantial questions of law and fact and involve careful study and scrutiny after leading of appropriate evidence. High Court not justified to refuse grant of temporary injunction as prayed for. (4) 1992 CLC Karachi 2540 (Mrs. Naz Shaukat Khan and 3 others v. Mrs. Yasmin R. Minhas and another). Prima facie case would not imply an indefeasible case; but would signify only an arguable case, involving serious or substantial questions of fact and law, which on proceeding to trial was capable of and had a possibility of success. (5) 2005 MLD Karachi 541 (M/s.Tradesmen International (Pvt) Ltd. v. Federation of Pakistan and others.). Following were considered "sufficient reasons" where the Court refused to stay the suit. (a) The dispute falls out of the arbitration agreement (b). That the forum selected to arbitrate or the arbitrator nominated is not likely to decide the dispute fairly and justly (c). There is personal
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bias or prejudice against the applicant such bias or prejudice must be demonstrated through tangible material, as a matter of fact and not merely as a matter of opinion, (d). All necessary parties to the suit are not party to the arbitration agreement and it is not possible to segregate the claim or dispute between such parties without fear of conflicting decision, (e). Where difficult and intricate questions of law are likely to arise, such as inevitably necessitate a reference for the opinion of the Court under Section 13(b) of the Act, (0. Where the defendant invoked arbitration agreement after filing a written statement or taking any other steps in the proceedings, (g) Where it is shown that the defendant applying for stay of proceedings at the time when the proceedings were commenced was neither ready and willing nor still willing or ready to do all things necessary to proper conduct of the arbitration, (h) Where all the parties to the arbitration agreement are residing in Pakistan, contract was executed, breach allegedly committed and cause of action accrued in Pakistan, evidence is local but the seat of arbitration is foreign, then plea of forum inconvenience may outweigh foreign arbitration. It may be observed that, grant or refusal to stay a suit is dependent upon peculiar facts and circumstances of each case. Above "sufficient reasons," are merely illustrative and not exhaustive. 7. The learned counsel for the defendant argued that the plaintiff was not party to the IDA under which certain rights were conferred to Global Food Connections LLC for a limited duration. The IDA was terminated by the defendant as Global Food Connections LLC failed to perform its obligations particularly as provided in Clauses 2.1 and 2.4 to develop and open a set of Hardee's Restaurants during the development term in accordance with development schedule. It was further averred that IDA stood terminated on 28.02.2011, therefore, no question could arise to assign the rights of IDA to the plaintiff by Global Food Connections LLC and even the indenture of assignment does not refer to or mention any assignment of rights of IDA but it was confined to the non-exclusive rights granted under MULA dated 13.6.2008 to develop Hardee's Restaurants. He further argued that the plaintiff can neither claim any relationship of a principal and or agent nor any status of agency coupled with interest attracting Section 202 of the Contract Act. He also referred to clause 17.1 of the IDA which provides in clear terms that the agreement does not create or imply between the parties a fiduciary, representative, employment, partnership, joint venture, agency or any other relationship between the parties other than an arm's length commercial relationship. It is further provided that HFS and developer agree that the provisions of Section 202 of the Contract Act, 1872 shall have no application to the relationship created by this .Agreement. In clause 17.2 it is further provided that developer is not and shall not hold itself out to be an agent distributor, legal representative, partner, joiner venture or employee of HFS affiliate or any related person of HFS. 8. So far as the application moved under Section 34 of the Arbitration Act read with Section 4 of the Recognition and Enforcement (Arbitration Agreement and Foreign Arbitral Awards), Act, 2011 is concerned, the learned counsel argued that the plaintiff is claiming exclusive rights bearing in mind IDA and MULA but without recourse to arbitration proceedings, the plaintiff has filed the suit while both the IDA and MULA make available the alleyway of dispute resolution thus the suit is liable to be stayed. In fact the instant dispute is of general nature which does not germane to any specific site or specific restaurant, therefore, it is wrong to comprehend that the issue raised by the plaintiff through this suit is covered under the exceptional clause in which the plaintiff does not need to invoke the arbitration clause. It is clearly mentioned in the agreement that the contract has been concluded under the US Laws and the arbitration will be conducted in the American Arbitration Association Rules therefore the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards), Act, 2011 profusely applies. To add force to application under Order VII, Rule 11, C.P.C., the learned counsel argued that no cause of action accrued to the plaintiff for filing this suit. The plaintiff has claimed the exclusive right to open and operate Hardee's Restaurants in the province of Sindh but this claim is not supported by any document conferring exclusive rights.
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The provision of Order VII, Rule 11, C.P.C. May be invoked if on meaningful reading of the plaint and the material brought on record by the plaintiff, the court finds the suit as merit less and vexatious. The trial of such suit would prolong the litigation without any just cause. The learned counsel in support of his arguments referred to following case law: (1) 2005 CLD 1805 (Roomi Enterprises (Pvt.) Ltd. v. Stafford Miller Ltd. And others). Section 202, Contract Act, 1872 is split up in two parts, first portion of the section is clearly indicative of the fact that either the agent must have an interest pre-existing in the property or creation of such interest should be the direct result of the agreement itself. Only that agency is irrevocable' which is created with adequate consideration and is designed to serve as security for some interest of the agent. Any expenditure in setting up office and necessary infrastructure for carrying on business of agency does not tantamount to the creation of interest of agent in the subject matter. (2) PLD 2004 SC 860 (Bolan Beverages (Pvt.) Limited v. Pepsi-co INC. And others). Franchise is defined as a privilege granted or sold, such as to use a name or to sell products or service. In this simplest terms a franchise is a license from owner of trademark or trade name permitting another to sell a product or to serve under that name or mark. Precisely this definition is more akin to a license rather than an agency. (3) 2009 CLD 153 (Far Eastern Impex (Pvt.) Ltd. v. Quest International Nederland BV and others). The discretion available to the court under Section 34 of the Arbitration Act shall not be available under Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2007 being mandatory in nature, the foreign elements could not be considered nor the discretion vests with the court to stay or not to stay the proceedings in terms of the arbitration agreement. 9. Heard the arguments. The stumbling block and or impasse between the parties is whether IDA, MULA and NDR should be read together and whether the plaintiff is entitled to claim exclusive rights in the defined territory in terms of IDA or not'?. Indeed the matter set in train from International Development Agreement dated 13.6.2008, executed between the predecessor in interest of the plaintiff and the defendant in which sub-clauses (a) and (b) of Clause 2.2 have much significance which are reproduced as under:- " (a). Development Rights Only. This Agreement is not a license or a franchise agreement and does not grant Developer any right to open or operate, or license any Third Party to open or operate any business, including, without limitation, a Licensed Restaurant. In addition, this Agreement does not grant Developer any right to use, or license any Third Party to use, any or all of the Hardee's System in connection with the opening or operation of any business, including, without limitation, a Licensed Restaurant. This Agreement only gives Developer the opportunity to enter into the Multi- Unit License Agreement and individual New Development Riders with IIFS for the development and operation of Licensed Restaurants at Authorized Sites in the Development Territory. Each Licensed Restaurant developed pursuant to this Agreement shall be opened and operated only in Full Compliance with the Multi-Unit License Agreement and a New Development Rider.
(d). Limitation on HFS. Subject to Section 2.2.(c), so long as Developer is in Full Compliance, HFS shall not develop, open or operate, or license any Third Party to develop, open or operate, any Hardee's Restaurant in the Development Territory during the Development Term. The limited
exclusivity granted to Developer under this Section 2.2(d) shall lapse and be of no effect upon the first occurrence of any Default that is not cured within the applicable cure period, if any, and shall thereafter be restored only if HFS approves such restoration. Any exclusive rights restored under this Section 2.2(d) shall be subject to any rights to develop Hardee's Restaurants in the Development Territory that HFS has granted to any third party during the lapse period.
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10. The clauses referred to above lay down a right and or opportunity to the developer to enter into MULA and NDR so that it may develop and operate licensed restaurants at different sites in the developed territory. It is further provided that each licensed restaurant developed pursuant to this agreement shall be opened and operated only in full compliance with MULA and NDR. However, in clause (d) it is further provided that as long as developer is in full compliance the defendant shall not develop, open or operate or license any third party to develop or operate any Hardee's Restaurant in the development territory during the development term. On the same date i.e.
13.6.2008 International Multi-Unit License Agreement was also executed between the same parties and in clause 2.1 it is clearly mentioned that the licensee is granted non-exclusive right to open each licensed restaurant in the development territory and in sub-clause (c) of clause 2.3 it is further provided that this agreement does not give licensee any exclusive right to use Hardee's system or in proprietary marks and nothing in the license agreement prohibits HFS from, during or after agreement term, developing, opening or operating or licensing any third party to open or operate, develop any type of restaurant including Hardee's Restaurants at any location.
11. Now I would like to take up the agreement entered into between the defendant and predecessor in interest of the plaintiff on 10.6.2011 for transfer of ownership. The purpose of this agreement was to save, protect and transfer all the rights emerging from MULA that Global Food Connections LLC transacted with the permission of defendant. Though this deal was considered a default under the MULA and give the right to the defendant to terminate, the agreement but the defendant consented to this transaction, thereafter, on the same date assignment deed' was signed between plaintiff's predecessor in interest and the plaintiff itself and in pursuance thereof the Global Food Connections LLC assigned its rights of Multi-Unit License Agreement dated 13.6.2008 to the plaintiff. The record do show that subsequent to the assignment of rights of MULA, New Development Rider was signed between the defendant and the plaintiff on 23.9.2011 in which also it is clearly mentioned that pursuant to an assignment agreement between GFC and licensee dated 10.6.2011, GFC assigned all its rights in the Multi-Unit License Agreement, to the licensee and licensee desires to develop and operate a Hardee's Restaurant (licensed restaurant) at the licensed location identified in the attached Appendix "I" and if I look to Appendix "I" it connotes licensed location "Haideri" near Albaik, Host Country Pakistan.
12. The contention raised by the learned counsel for the plaintiff that in view of the assignment agreement rights of IDA were also assigned to the plaintiff only for the reasons that Form of MULA and NDR are the exhibits of IDA which are more particularly described in the title of contents of IDA but in my view, it is not correct legal position. Though the date of. Execution of IDA and MULA is one and the same but an important aspect cannot be ignored that the plaintiff is claiming the right of exclusivity either rightly or wrongly but in pursuance of assignment agreement, so it is most crucial to see the deed of assignment which only speaks of the assignment of rights emanating from International Multi-Unit License Agreement without mentioning any right of IDA and on the basis of this assignment agreement not only the defendant accepted the terms of assignment but also signed NDR on 23.9.2011 with the plaintiff, which is only related to developing and opening and operating of Hardee's Restaurant at the licensed location identified in the Appendix "I" which
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permits one restaurant at the licensed location which is Haideri, Karachi, Pakistan. Why the rights of IDA were not assigned in the assignment agreement? Simply for the reasons that the defendant had already served notice of termination of IDA to the Global Food Connections LLC on 28.01.2011. The notice of termination is attached with counter affidavit of the defendant. Nothing depicted by the plaintiff's counsel that on service of notice of default or notice of termination any legal action was initiated by the predecessor in interest of the plaintiff against the defendant to protect and safeguard the IDA rights. It is quite rational to comprehend that when the assignment agreement was executed between the parties only the right of MULA were in existence and since the Global Food Connections LLC failed to honor their commitment, their IDA rights were terminated. The rights of MULA are confined to the opening of single restaurant without conferring any exclusive rights. It is clearly manifesting from the intention and the language used in the assignment agreement that parties were, fully cognizant that IDA is no more in force that's why all the covenants of assignment agreement are quarantined to the rights…
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