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Official Citation: 2024 CLC 2002
Court / Jurisdiction: Islamabad High Court
Year of Decision: 2023
Decision Date: 2023-12-31
Parties: Messrs Pakistan Telecommunication Company limited and others vs JUDGMENT
Ruling Summary: This decision was rendered by the Islamabad High Court on 2023-12-31, officially reported as 2024 CLC 2002. In this matter between Messrs Pakistan Telecommunication Company limited and others and JUDGMENT, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as 2024 CLC 2002
Court Name: Islamabad High Court Judge(s): Aamer Farooq (C.J) Title:Messrs Pakistan Telecommunication Company limited and others vs
JUDGMENT
Reported As: 2024 CLD 1426, 2024 CLC 2002 Result: Appeals dismissed Judgment
JUDGMENT AAMER FAROOQ, C.J. This judgment shall dispose of above appeal as well as F.A.O. Nos.140-2021 and F.A.O. No.141-2021, as common facts and law are involved. 2. The facts, leading to filing of instant appeals, are that Pakistan Telecommunication Company Limited (the appellant) entered into agreements with Universal Service Fund (respondent No.1). As per terms of agreements, the date for completion of the agreements was in 2011, however through various addendums, said dates were extended and lastly, the extension was made in 2019. One of the terms of the agreements, between the parties, was that a performance guarantee/bond shall be executed by the appellant, which accordingly, was done. Clause 4 of the agreement provided that in case of failure to implement schedule provided in the agreements for timely completion of the contracts, performance guarantee shall be encashed unless there is a force majeure certification by respondent No. 1. In this regard, as per said clause, failure to meet final implementation date was at the sole discretion of respondent No. 1. Since the implementation was not as per the schedule in terms of the original agreements, respondent No.1 sought to encash bank guarantee in the form of performance bonds issued by respondent No.2. In order to restrain respondent No.1 from doing so, appellant filed three different suits for permanent injunction and declaration. Along with the suits, applications for interim relief were also filed, which were dismissed by learned trial court vide impugned order dated 15.12.2021, hence the appeals.
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3. Learned counsel for the appellant inter alia contended that it is the stance of respondent No.1 that it has not extended implementation date from 23.08.2021, whereas addendums were legally signed by respondent No.1. It was submitted that all the milestones, as per schedule, have been duly achieved and extension of the date, wherever applicable, was by respondent No.1, hence no justification is made out for encashing guarantee in terms of Clause 4 of the agreement. It was submitted that bank guarantees were submitted pursuant to the agreement(s) and have been renewed from time to time. It was submitted that in the facts and circumstances, since agreements were not completed as agreed between the parties, no ground for encashment of the guarantee is made out as a penal clause. Learned counsel submitted that there is prima facie case in favour of the appellant and against respondent No.1 and in case, the guarantees are encashed, the appellant shall suffer irreparable loss and balance of convenience is in favour of appellant due to the fact that same are not encashed. Reference was made to cases reported as M/s Mehboob Enterprises v. Karachi Development Authority and another (1997 MLD 3085), Messrs Mercury Corporation v. Messrs Pakistan Steel Mills Corporation (Pvt.) Ltd. (2000 YLR 734), Saudi Pak Industrial and Agricultural Investment Company (Pvt.) Ltd. Islamabad v. Messrs Allied Bank of Pakistan and another (PLD 2003 Supreme Court 215), Atlas Cables (Pvt.) Ltd. v. Islamabad Electric Supply Company Limited and another (2016 CLD 1833) Messrs Jamia Industries Limited v. Messrs Pakistan Refinery Ltd. Karachi (PLD 1976 Kar. 644) and Pakistan Engineering Consultants v. Pakistan International Airlines Corporation and another (1989 SCMR 379). 4. On the other hand, learned counsel for respondent No.1 submitted that in case, whether there is default in completing the implementation date, the sole judge of the same is respondent No.1 and where such is the case, other party to the contract namely the appellant, has no say in the matter. It was submitted that appellant has not produced any force majeure certification as required in the agreements and in the said facts and circumstances, cannot request for restraining of the encashment of the bank guarantee. It was further submitted that the elements required for seeking injunction are not fulfilled in the facts and circumstances, hence equitable remedy of injunction from encashment, cannot be allowed. It was also submitted that performance guarantee is an independent contract i.e. independent of the transactions between the parties and no reference can be made to the principal agreement for encashment of the guarantee. Reference was made to Pakistan Real Estate Investment and Management Company (Pvt.) Ltd. v. Messrs Sky Blue Builders and another (2021 CLC 488), Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 Supreme Court 311), Hyundai Corporation v. Sui Northern Gas Pipelines Limited and 3 others (2015 CLC 1216), Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. (PLD 2003 Supreme Court 191), Braganza v. BP Shipping Limited and another (2015 SCMR 742), Atif Mehmood Kayani and another v. Messrs Sukh Chayn Private Limited, Royal Plaza, Blue Area. Islamabad and another (2021 SCMR 1446) and Oasis Travels (Pvt.) Limited v. Donvand Limited and others (2020 CLC 1128). 5. Submissions by the parties have been heard and the documents, placed on record, examined with their able assistance. 6. The relevant facts, essential for deciding instant appeals, have already been mentioned hereinabove. 7. As noted earlier, parties entered into agreement (s) and the original date of the work was not achieved, however, it is the stance of the appellant that implementation date was extended time and again, whereas respondent No, 1's stance is different. 8. The relevant clause, for the purposes of adjudication of instant appeals, is clause 4.01 of the agreement between the parties which is termed as 'Services and Subsidy Agreement for Broadband'. For ease of convenience, relevant clause is reproduced below:-
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"Article Four-Implementation and Service Failures" 4.01 Failure to Meet Project Implementation Milestone Schedule (a) Unless a Force Majeure Certification has been issued to certify that a Force Majeure Event has caused the failure, failure to meet the Final Implementation Date identified in the Schedule D may, at the sole discretion of USFCo, result in the imposition of one or more of the penalties set out below: (i) loss of eligibility for all or part of the USF Subsidy; (ii) forfeiture of all or part of the Performance Bond; (iii) payment of liquidated damages equal to one-half of one percent (0.5%) of the USF Subsidy amount payable for the work that is delayed, and such half percent shall be payable per every week the failure continues; (iv) repayment of any USF Subsidy amount previously paid to the USF Service Provider; (v) payment of liquidated damages equal to all or part of USFCo.'s estimate of the costs of providing the USF Broadband Services in the USF Areas left unserved due to the failure, provided that the total amount of such liquidated damages shall not exceed the amount of the USE Subsidy payable to the USE Service Provider for the provision of the USE Broadband Services in the USF Areas. (b) Such penalty or penalties shall be specified in a written notice delivered by USFCo to the USF Service Provider in accordance with section 16.11. The penalty or penalties shall become effective 'in the manner specified in such notice". The reading of the above clause shows that unless there is force majeure certification, whereby respondent No.1 certifies that a force majeure event has caused failure or failures to meet the final implementation date, identified in the schedule, respondent No.1, at its sole discretion, can impose penalties in the one or more forms as are set out in the referred clause; one of the modes of penalties is payment of liquidated damages equal to one-half of one percent (0.5%) of the USF Subsidy amount payable for the work that is delayed, and such half percent shall be payable per every week of the failure. Moreover, under clause 16.02 of the agreement, time was the essence of the agreement. 9. The nature of a bank guarantee, in the form of performance bonds, was considered by the Supreme, Court of Pakistan in case reported as Atif Mehmood Kayani and another v. Messrs Sukh Chayn Private Limited, Royal Plaza, Blue Area, Islamabad and another (2021 SCMR 1446). In the referred judgment, at paragraph 5, the Supreme Court discussed nature of the bank guarantee and concluded that it is a contract, which is independent of the main agreement and the guarantor has to discharge its obligation under the contract of guarantee as per terms thereof; the relevant portion of the judgment is reproduced below:- "5. A bank or insurance guarantee that contains a categorical undertaking and impose absolute obligation on the guarantor i.e., the bank or the insurance company, to pay the guaranteed amount, irrespective of any dispute which may arise between the parties regarding breach of the contract for which performance that one party furnishes the guarantee to the other, is an independent contract; therefore, the guarantor must discharge its obligations under the contract of guarantee as per the terms thereof, independent of the dispute as to performance of the primary contract between the parties. In a similar case of National Construction Ltd. v. Awan-e- Iqbal Authority (PLD 1994 SC 311), this Court, while maintaining the orders of the High Court and the trial court refusing to grant temporary injunction for restraining the respondent therein from encashing the bank guarantee, observed: The contents of para. 3 of mobilization advance guarantee, clearly visualized that the respondent can get encashed guarantee without any question or without any reference of any nature, whatsoever to the contractor (appellants) and irrespective of any dispute between the parties or before any arbitrator or any Court of law in the instant case, therefore, the bank guarantees
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furnished by the appellants contain categorical undertaking and impose absolute obligations on the banks to pay the amount, irrespective of any dispute which may arise between the parties regarding the breach of contract. In our view the Courts must give effect to the convenants of the bank guarantees, the performance guarantees, for the smooth performance of the contracts. Those guarantees are independent contracts and the bank authorities must construe them, independent of the primary contracts. They should encash them notwithstanding any dispute arising out of the original contract between the parties. In the instant case, therefore, the encashment of the bank guarantees cannot be postponed pending decision of the arbitration proceedings, which may take years to conclude. Likewise, in the case of 'Shipyard K. Damen v. Karachi Shipyard' (PLD 2003 SC 191) this Court maintained the orders passed by the High Court refusing the prayer for interim orders to restrain the respondents from encashment of Performance Bank Guarantees, and observed: 23. The law is thus settled that extraneous claims and counter-claims do not bar the enforcement of the bank guarantee. The enforcement depends upon its terms and conditions. If bank guarantees are unconditional, there is no other option for the bank and moreso, the bank would have no defence, when its guarantee is sought to be enforced 24 ....... encashment of bank guarantee has no nexus with the spirit of the contract executed between the parties being an independent contract containing its own terms and condition to be performed by the concerned parties. The encashment of the bank guarantee had nothing to do with the alleged dispute between the petitioners and the respondent, which must be decided independently on the basis of terms of that contract without involving the contract of bank guarantee. It must be noted that bank guarantee in an autonomous contract and imposes an absolute obligation on the bank to fulfil the terms and the payment on the bank guarantee becomes due on the happening of a contingency on the occurrence of which the guarantee becomes enforceable. In view of this legal position, we find. that the judgment of the High Court setting aside the order of the trial court and dismissing the application of the petitioners for temporary injunction to restrain the respondent No.1 from encashment of the insurance guarantee till decision of the suit is in accordance with the law declared by this Court in the above cases, and thus do not call for any interference. CPLA No. 3209 of 2020 is, therefore, dismissed and leave refused". Similar observations were made by Supreme Court of Pakistan in case reported as Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. (PLD 2003 Supreme Court 191). The said opinion was also confirmed for the performance guarantee and it was observed that performance guarantee stands on the footing similar to an irrevocable letter of credit of Bank, which must be honoured according to its terms irrespective-of the fact whether the supplier is in default or not. It was observed that the Bank must pay according to its guarantee at demand if so stipulated without proof or conditions. The Supreme Court of Pakistan, after discussing the relevant case law, concluded as follows:- "7. After having gone through the precedented law as mentioned hereinabove the judicial consensus seems robe as follows:-- (i) The performance of guarantee stands on the footing similar to an irrevocable letter of credit of Bank, which gives performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier has performed his contracted obligation or not, nor with the question whether the supplier is in default or not. The Bank must pay according to its guarantee all demand if so stipulated without proof or conditions. Only exception is when there is a clear fraud of which Bank has notice. (ii) There is an absolute obligation upon the banker to comply with the terms and conditions as enumerated in the guarantee and to pay the amount stipulated therein irrespective of any
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disputes there may be between buyer and seller as to whether goods are up to contract or not. (iii) The bank guarantee should be enforced on its own terms and realization against the bank guarantee would not affect or, prejudice the case of contractor, if ultimately the dispute is referred to arbitration for the reason, once the terms and conditions of the guarantee were fulfilled, the bank's liability under the guarantee was absolute and it was wholly independent of the dispute proposed to be raised. (iv) The contract of bank guarantee is an independent contract between the bank and the party concerned and is to be worked out independently of the dispute arising out of the work agreement between the parties concerned to such work agreement and, therefore, the extent of the dispute and claims or counter-claims were matters extraneous to the consideration of the question of enforcement of the bank and were to be investigated by the arbitrator. (v) Where the bank had undertaken to pay the stipulated sum to respondent, at anytime, wit horn demur, reservation, recourse, contest or protest, and without any reference to the contractor, no interim injunction restraining payment under the guarantee could be granted. (vi) The Bank guarantee is an autonomous contract and imposes an absolute obligation on the bank to fulfil the terms and the payment on the bank guarantee becomes due on the happening of a contingency on the occurrence of which the guarantee becomes enforceable. (vii) When once bank guarantee is discharged, the obligation of the bank ends and there is no question of going behind such discharge bank guarantee. Courts should refrain from probing into the nature of the transactions between the bank and customer, which led to the furnishing of the bank guarantee. (viii) In the absence of any special equities and the absence of any clear fraud, the bank must pay on demand, if so stipulated and whether the terms are such must behave to found out from the performance of guarantee as such. (ix) The unqualified terms of guarantee could not be interfered with by Courts irrespective of the existence of dispute". In case reported as Oasis Travels (Pvt.) Limited v. Donvand Limited and others (2020 CLC 1128), Sindh High Court, while discussing the nature of guarantee as a 'document/contract', observed as follows:- "6. The guarantee has been defined in Halsbury's Laws of England. Volume 20. Fourth Edition, page 49, page 101 as 'a guarantee is an accessory contract whereby the promisor undertakes to be answerable to the promiser for the debt, default or miscarriage of another person whose primary liability to the promise must exist or be contemplated'. The 'guarantee' as defined indicates that it contains the ingredients of 'dedicated commitment', 'absolute undertaking', 'an unambiguous assurance', unconditional 'willingness', 'definite certainty', 'compliance without objections'. 'scarred obligation' and 'defined responsibility'. In view of the ingredients as mentioned hereinabove which constitute a guarantee on the basis whereof its binding effect and nature can be well-adjudged, a guarantee once given cannot be avoided, except on the ground of fraud or misrepresentation. It may be added that in the banking system, it is understood that a bank guarantee has a dual aspect. In the case of a bank guarantee, the banker is the promisor. It is a contract between the bank and the beneficiary by a third party. It may not be out of context to mention here that the plaintiff in the instant suit has not raised the plea of fraud; rather admitting, the existence of the agreement and execution of guarantee has filed the suit seeking, declaration with regard to its entitlement to a commission to the value of USD 92,380 while claiming its liability towards defendant No.1 as USD 82,345/-". Similar observations were made in case reported as Messrs National Construction Ltd. v. Aiwan- e-Iqbal Authority (PLD 1994 Supreme Court 311) as well as judgment of this Court reported as Pakistan Real Estate Investment and Management Company (Pvt.) Ltd. v. Messrs Sky Blue
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Builders and another (2021 CLC 488). The other relevant case law, for the purposes of present controversy, also reiterates what has been discussed by the Supreme Court. Reference is made to cases reported as M/s Mehboob Enterprises v. Karachi Development Authority and another (1997 MLD 3085), Messrs Mercury Corporation v. Messrs Pakistan Steel Mills Corporation (Pvt.) Ltd. (2000 YLR 734) and Atlas Cables Pvt. Ltd. v. Islamabad Electric Supply Company Limited and another (2016 CLD 1833). 10. In the backdrop of referred case law on the subject as propounded by the Supreme Court in various pronouncements, it is clear that a bank guarantee (which in the instant case is performance guarantee) operates independently of the agreement between the parties. The guarantor/promisor, which in the instant case is respondent No.1, is bound to honour the same as and when the beneficiary wishes to encash the same and it is not to go into the agreement between the parties. 11. The reading of clause 4.01 shows that whether to invoke penalty clause is at the sole discretion of respondent No.1. The nature of such clause was discussed by the Supreme Court of U.K. in case reported as Braganza v. BP Shipping Limited and another (2015 SCMR 742). The Supreme Court, of UK was also confronted with the clause, whereby one party to the agreement, had to judge whether to invoke penalty clause and ask for the same. The principles, with respect to such clauses, were discussed in paragraph 17 onwards, which are as follows:- 17. This case raises two inter-linked questions of principle, one general and one particular. The particular issue is the proper approach of a contractual fact-finder who is considering whether a person may have committed suicide. Does the fact finder have to bear in mind the need for cogent evidence before forming the opinion that a person has committed suicide? The general issue is what it means to say that the decision of a contractual fact-finder must be a reasonable one. There are many statements in the reported cases to the effect that the principles are well- settled and well -understood, but this case illustrates that all is not as clear or as well understood as it might be. 18. Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to re-write the parties bargain for them, still less to substitute themselves for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given. 19. There is an obvious parallel between cases where a contract assigns a decision-making function to one of the parties and cases where a statute (or the royal prerogative) assigns a decision-making function to a public authority. In neither case is the court the primary decision- maker. The primary decision-maker is the contracting party or the public authority. It is right, therefore, that the standard of review generally adopted by the courts to the decisions of a contracting party should be no more demanding than the standard of review adopted in the judicial review of administrative action. The question is whether it should be any less demanding. 20. The decided cases reveal an understandable reluctance to adopt the fully developed rigour of the principles of judicial review of administrative action in a contractual context. But at the same time they have struggled to aciculate precisely what the difference might be. In Abu Dhabi National Tanker Co. v. Product Star Shipping Ltd. (The 'Product Star') (No. 2) (1993) Lloyds Rep 397, 404, after contrasting the position in judicial. review, Leggatt LJ explained that:
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'The essential question is always blether the relevant power has been abused Where A and B contract with each other to confer a discretion upon A, that does not render B subject to A's uninhibited whim. In my judgment, the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provisions of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably: 21. That was in the context of a ship-owner's decision as to whether a port to which a vessel was directed was dangerous. In Paragon Finance plc v Nash [2001] EWCA Civ 1466, [2002] 1 WLR 685, the court had to consider whether there was any implied term limiting the power of a mortgagee to set interest rates under a variable rate mortgage. Dyson had no difficulty in holding (at paras 32 to 36) that it was necessary, in order to give effect to the reasonable expectations of the parties, to imply a term that the power would not be exercised dishonestly, for an improper purpose, capriciously or arbitrarily. He went on to discuss whether there should also be a term that the power would not be exercised unreasonably. He concluded that there had been a 'somewhat reluctant' extension of the implied term to include 'unreasonableness that is analogous to Wednesbury unreasonableness' (paras 37 to 42). 22. These authorities, together with Ludgate Insurance Co Ltd. v. Citibank NA [1998] Lloyd's Rep IR 221, 239-240, and Gan Insurance Co. Ltd. v. Tai Ping Insurance Co Ltd (No. 2) [2001] EWCA Civ 1047, [2001] 2 All ER (Comm) 299, at paras 64, 67, 73, are helpfully summarised by Rix LJ in Socimer International Bank Ltd. v. Standard Bank London Ltd. [2008] EWCA Civ 116, [2008]. Bus LR 1304. In his conclusion, at para 66, he substitutes the more modern term 'irrationality' for unreasonableness: 'It is plain from these authorities that a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury…
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