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Petitioner: SYSTEM COMPANY through Authorized Attorney VS Respondent: MTU MIDDLE EAST FZE and another
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar Title:SYSTEM COMPANY through Authorized Attorney vs MTU MIDDLE EAST FZE and
another Case No.: C.M.As. Nos.3000, 11263 of 2018 and 17856 of 2017 in Suit No.2685 of 2017 Date of Judgment:2018-11-20 Reported As: PLD 2019 Sindh 382 Result: Order accordingly Judgment ORDER MUHAMMAD JUNAID GHAFF AR, J.---This is a Suit for Declaration and Injuncti on, whereas, through application at Serial No.3, (C.M.A. No. 17856/201 7), the Plaintif f seeks restraining order against the Defendants from discontinuing support and other obligations pursuant to Articles 2.1.2(c) and 5.1.7 of Agreement dated 01.14.2014 for the works and warranty claims with a further restraining order from awarding a service partner contract to any third party during pendency of the Suit. 2. Briefly stated, the facts are that Plaintif f operates in supply of high speed diesel engines, installation and provision of after sales service since last more than 30 years, whereas, Defendants Nos.1 and 2 are manufacturers and distributors of diesel and gas engines in industrial, commercial and maritime use ("MTU" Brand of Rolls-Royce Power Systems AG) and an Agreement was entered into on 01.04.2014 whereby , Plaintif f ("Partner") became a partner in selling the products of Defendants ("Distributor") and so also providing warranty , after-sales repair , maintenance and support services. Admittedly , the Agreement in question was for a period of three years (valid till 31.12.2017). Instant Suit has been filed on 28.12.2017 and being aggrieved vide notice dated 03.07.2017 to the effect that it will not be renewed any further , instant proceedings have been initiated and vide order dated 28.12.2017 ad-interim orders were granted as prayed for in the listed application by a learned Single Judge of this Court. 3. Mr. Haider Waheed, ably assisted by Ms. Uzma Farooq, Counsel for the Plaintif f have contended that pursuant to the Agreement in question the Plaintif f is properly qualified as a partner to conduct specified service operations with further authorization and permit to sell products and spare parts; that the partner shall be fully responsible for all warranty claims made with regard to the sales made pursuant to the supplement to the Service Partner Agreement; that the Agreement further provides that partners orders are not binding, until accepted by the
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distributor , whereas, no order may be modified or cancelled by the partner after its acceptance by the distributor without written consent; that it further provides that the distributor will pay to the partner for replacement of parts, payment of labor and for purpose of warranty services; that the obligations of parties upon termination or expiration shall not release either party from any obligation to pay the other any sum which may be due or owed to the other; that similarly the acceptance of orders after termination of this Agreement shall not be construed as a renewal or a waiver of termination; that the Agreement further provides that the partner has no express or implied right to create responsibilities on behalf of the distributor and lastly , it also provides that partner shall be solely responsible for any and all expenditure made, incurred, or assumed by the partner in preparation for performance of partner's responsibilities and obligations under this Agreement; that pursuant to impugned communication dated 3.7.2017 to the effect that no further renewal of the Agreement would be made there was a suggestion that meeting would take place_ to ensure an amicable separation and a phase-out procedure/of f boarding process, including the availability and methodology in respect of Daisy's Software which is crucial for communication with the engines already sold; that during this period and before the expiry of the Agreement dated 31.12.2017 various purchase orders were either accepted, delivered or request were being received from customers for warra nties and continued support for, including but not limited to, Work Contract of Pakistan Petroleum indicating delivery date of 31.12.2017; Karachi Shipyard and Engineering Works, request for support including warranty dated 07.12.2017; Asia Petroleum Service Order dated 21.11.2017; Pakistan Navy specific warranty requests; China Ship Building Trading Company Ltd., request dated 18.12.2017 stating that it needs services for startup, commissioning, Harbor Acceptance Trial and Sea Acceptance Trial, and Warranty; that these documents clearly reflect that notwithstanding the expiry of the Agreement on 31.12.2017, these services in respect of supply of spare parts and warranty related services are to be provided by the Plaintif f; that through listed application the Plaintif f is neither seeking a new Agreement or the extension of the expired Agreement; but only support for those engines which have been serviced/installed during subsistence of the Agreement in question ; that if any new Agreement is signed with third party , this would result in reputation damage as well as loss of goodwill which is unquantifiable; that as per the Agreement, Plaintif f is not an agent and it logically follows that contracts entered into with third parties, are that contracts of the Plaintif f and therefore, further services cannot be entrusted to a third party; that the only suppo rt which the Plaintif f requires is access to the Daisy's Software and supply of parts for which appropriate compensation is being paid; hence, the balance of convenience lies in favour of the Plaintif f; that pursuant to the Agreem ent in question, the Plaintif f has entered into independent obligations on the assurance of the Defendants. and if no further support is provided the Plaintif f will be forced to withdraw from providing such services which will have a very negative impact on the goodwill and reputation of the Plaintif f besides legal actions by the contracting parties; that the loss the Plaintif f will suffer in this regard cannot possibly be compensated in monetary terms/damages; that the Defendants on the other hand, do not risk any loss on account of having to continue support only for those projects which were contracted by the Plaintif f within the validity of the Agreement in question; that in the alternativ e the Plaintif f's argument is that this is a case of Agency coupled with interest inasmuch as the Plaintif f has investe d heavily in setting up a service and support workshop and if the injunction is refused, the Plaintif f's investment for providing and running such services would not be compensated and therefore, under Section 202 of the Contract Act, 1872, the Plaintif f is entitled for the relief prayed for. In suppor t of his, contention he has relied upon Muhammad Areef Effendi v. Egypt Air (1980 SCMR 588), Zubair Ahmed v. Pakistan State Oil Ltd. and another (PLD 1987 Karachi 112), Ansys Inc v. Khee and another (1999 Mr. Justice Parke 19 May), Evans Marshall and C. Ltd v. Bertola SA and another [1973] 1 All ER 992, Digital World Pakistan (Pvt.) Ltd through Chief Executive v. Samsung Gulf Electronics FZE and another (PLD 2010 Karachi 274), SDI Retail Services Limited v. David King, Paul Murray , The Rangers Football Limited, Rangers Retail Limited [2018] EWHC 1697 (Comm), Molasses Export Co. Ltd. v. Consolidated Sugar Mills Ltd. (1990 CLC 609), Jamil Ahmed v. Provincial Government of West Pakistan and 4 others (PLD 1982 Lahore 49), Umar Farooq v. Attock Petroleum Ltd. and 3 others (2015 MLD 1494 ) and Messrs Business Computing International (Pvt.) Ltd. v . IBM World T rade Corporation (1997 CLC 1903). 4. On the other hand, Mr. Umar Akram Choudhry , learned Counsel for the Defendants has contended that Plaintif f was never appointed as an agent; but was only a partner for a specified term which already stands expired on
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31.12.2017; whereas, under the garb of an interim order , which was obtained just three days prior to the expiry of such period, is still continuing and pretending to be the partner of the Defendants which is impermissible in law; that when the Agreement was executed, the Plaintif f was well aware of the terms and conditions and so also the expiry and its consequences, and therefo re, the plea now taken on behalf of the Plaintif f is nothing but an attempt to keep continuing with the Agreement for an unspecified period; that even otherwise, the Agreement in question has not been signed by Defendant No. 2; that there is no exclusivity given or granted to the Plaintif f, whereas, the arrangement which is supposed to continue after termination and or expiry is only in respect of the payments to be made or received by the parties for the concluded contracts, and this, in no manner can be termed or used to continue with all obligations arising, out of the Agreement; that Defendants are manufacturers of a renowned brand of engines, whereas, the goods have and are being sold by them, and not by the Plaintif f, whereas, the responsibility in respect of warranties, wherever applicable, is the look-out of the Defendants and not of the Plaintif f; that the Defendants were and will be honoring such warranties in accordance with the Agreement with the parties; that the Plaintif f was never supposed to offer any warranty or parts guarantee on its own, but was only on behalf of and through the Defendants; that insofar as the contracts entered into after serving of Notice dated 3.7.2017 are concerned, no protection can be sought on this ground at least in favour of the Plaintif f as contended in the listed application; that the Agreement in question was for a specific term and provided for automatic termination, hence, no rights are created in favour of the Plaintif f; that it was never the intention of the Defendants to have any exclusive relationship with the Plaintif f, and it clearly provided a non-exclusive right within the Agreement; that insofar as the purchase orders are concerned, the Defendant No.1 expressly reserves right under the Agreement to reject any, or all of the Plaintif f's orders for purchase of products or parts; that the Agreement in question never created any agency relationship; therefore, question of invoking Section 202 of the Contract Act, 1872, or the doctrine of Agency coupled with interest does not arise; that Article 6.5.2 of the additional provisions further provides that any sale of products or parts after the termination by Defendant No.1 would not be construed as a renewal of the Agreement in questio n; that it was never agreed that after termination of the Agreement, the Plaintif f would have any right to engage itself or acknowledge any warranty services for the engines sold by Defendant No.1 in Pakistan; that all sales in Pakistan, including the sales to Pakistan Navy and Pakistan Maritime Security Agency were direct sales of Defendants Nos.1 and 2 and were not sales of Plaintif f in any manner , whereas, the role assigned to the Plaintif f was for a limited purpose, and could only be performed or rendered during validity of the Agreement, and not thereafter; that all engines have been purchased by the customers of the Defendants and not of the Plaintif f; that the Defendants are a well-renowned company and has always been very serious about its warranty services to its customers in Pakistan as well as worldw ide, and for that the Defendants are well equipped to provide any such warranty service and supply of parts without engaging the Plaintif f; that there is no clause in the Agreement to grant any first right of refusal to the Plaintif f after expiry of the same and at the time of engaging some other service partner; that insofar as fresh transactions entered into by the Plaintif f after letter dated 3.7.2017, whereby , the Plaintiff was informed that the Agreement is expiring on 31.12.2017, are concerned, they were done while holding discussions with the Defendants in respect of the phase out process, hence, the Defendants are not bound by such action of the Plaintif f, and cannot be made basis to continue with an Agreement which already stands expired; that insofar as the signing of Agreement with any third party is concerned, the Plaintif f has no right to seek any injunction to this effect after expiry of the Agreement in question, whereas, despite this, interim orders have been obtained as prayed and also includes restraining order against the Defendants from entering into any such Agreement; that no vested right has accrued to the Plaintif f in the given facts; that it is apparent that the relief(s) being sought by the Plaintif f are beyon d the scope of the Agreement, therefore, this Court cannot grant the same. In support he has relied upon FOSP AK (Pvt.) Ltd. v. FOSROC International Ltd. (PLD 2011 Karachi 362), Bank of America v. Miraj Sons Ltd. (1989 CLC 2106) and Syed Ali Asghar Shah v . Pakistan International Airlines Corporation (2016 CLC 189 ). 5. I have heard all the learned Counsel and perused the record. The precise case of the Plaintif f as reflected from the pleadings as well as arguments raised before this Court is to the effect that Defendants are obligated to provide necessary support as well as access to a software enabling the Plaintif f to perform its job in respect of sales made
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by it during the validity of the Agreement dated 01.04.2014. The Agreement in ques tion is not in dispute, whereas, it is the outcome of a distributor Agreement between Defendants Nos.1 and 2 which is effective from 01.02.2014 and is valid till 31.12.2017 and through this Agreement Defendant No.1 has been authorized to conduct complete distributorship operations in connection with specified products marketed by Defendant No. 2 in a specified area of responsibility . This Agreement between Defendants Nos.1 and 2 authorizes Defe ndant No.1 in order to fulfill its responsibility to engage partners for conducting specified service operations. Pursuant to this arrangement the Plaintif f and Defendant No.1 executed an Agreement dated 01.04.2014 which is called as "Service Partner Agreement' and pursuant to Article 6 of this Agreement, it has incorporated the terms of the additional provisions applicable to "Service Partner Agreement". There is also a supplement to the "Service Partner Agreement" dated 23.6.2014, which incorporates certain other terms and conditions. It is also pertinent to note that Defendant No. 2 is not a signatory either to the "Service Partn er Agreement" or the Supplement Agreement. Article 7 of this Agreement provides that it will expire without any action by either the partner (Plaintif f) or Distributor (Defendant No.1) on 31.12.2017. Similarly , the supplement Agreement also has the same date of expiry . Now the precise issue for consideration of the Court is, that whether even after expiry of the Agreement in question on 31.12.2017, Defendant No.1 or for that matter even Defendant No.2, can be compelled through any restraining order not to enter into further Agreement with a third party , or a mandatory order to provide the requisite support services to the Plaintif f as is being prayed for through listed application. Time and again, learned Counsel for the Plaintif f made reference to various correspondence, emails, and so also placement of orders in respect of engines as well as its maintenance and providing of warranty services to make an impression on the Court that if such services are not continued after the expiry of the Agreement. then Plaintif fs' goodwill and reputation would be seriously prejudiced and will cause irreparable loss, which ultimately , if the Suit is decreed would not be compensated. On the other hand, the stance on behalf of the Defend ants is that firstly it was not an Agreement which could give any vested right: or for that matter , any interest in the goodwill and reputation of the Defendants products. Their contention is that it was a time bound Agreement of which the Plaintif f had enough notice. wher eas, at least six months prior to the agreed date of expiry the Plaintif f was approached to go through a phase out procedure. Though extensive arguments have been made by the learned Counsel for the Plaintif f, however , in my view, it is only in this context that the listed application has to be decided. The Agreement itself does not specifically deals with the present situation; however , at various places the Agreement stipulates that the Plaintif f has no exclusive rights; rather it only confers a non-exclusive right to buy products from Defendant No.1 and offer other services to its customers. Reference in this regard may be made to Article 1(A) (2). Similar provision exists in Article 1(3) and reads that subject to the terms and conditions and for the term of this Agreement, distributor hereby grants partner a non- exclusive right of displaying at its approved location(s) the various trademarks, service marks and the several other word and design marks which the distributor uses in connection with such products, parts and rendering of services thereof. On an overall perusal of the Agreement in question it appears that it does not entitle the Plaintif f in any manner to seek any such relief as is being sought through listed application after expiry of the Agreement in question. Therefore, how could this Cour t go any further and grant a relief which is beyond the agreed terms and conditions as settled by the parties themselves. The question that the Plaintif f has invested heavily and has developed a huge customer base, and if the relief as prayed for is not granted, will seriously prejudice and cause irreparable loss to the Plaintif f, does not appear to be a convincing argument. Firstly , it is to be appreciated that the product in question is well known as a product of Defendants. It has got nothing to do with the Plaintif f at least as to the reputation and good will of the produ ct itself. The Plaintif f was engaged as a service partner for sale and to render services of repairs for the products of Defendant No. 1. There may be a case that Plaintif f It was performing its job satisfactorily vis-a-vis the Defenda nts as well as the customers; but this in no manner creates any vested right to seek such relief as prayed for. The Defendants have come before the Court and have candidly undertaken and admitted that insofar as the warranties of their products are concerned, they are there to honor them, and hence, to this effect it is not a case for the Plaintif f to worry about. No document has been shown to the Court firstly , so as to draw an inference that any warranty was on their account; secondly , even if so, whether that was given by the Plaintif f with the concurrence of the Defendants. Therefore, if there could be a concern in this respect, it should
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be of the customers and for that they can have recourse to whatever they choose. As to the supply of parts as well as access to the software: again it is the Defendant's headache to cater to the needs of their customers failing which they would be losing their business, besides damaging their reputation, goodwill and brand name. The terms of the Agreement in question do not perm it compelling the Defendants to continue with the Plaintif f as their service partner in respect of the products already sold through the Plaintif f and at the same time not to appoint another service partner for future sales activities. If that had been the case, then firstly the Agreement in question would not have been time bound; and secondly , a specific provision would have been provided to cater to the present situation. There is none to this effect; hence, the Court cannot read anything into the Agreement between the parties which is by way of mutual consen t only. The terms were agreed upon conjo intly which included the validity; hence, no extension can be claimed unilaterally as a matter of right. At the most it could have been by mutual agreement of both the parties as contemplated in clause Seventh ("Term") of the Agreement in question. It is not even a case of any premature termination or cancellation of the Agreement. Rather it is a case of expiry of the Agreement. Both situations are different altogether and this must be kept in mind. Moreover , the Defendants, as an abundant precaution, wrote as back as in July, 2017, to the Plaintif f that the Agree ment is expiring and they must enter into a phase out procedure as provi ded in the Agreement. This clearly reflected on the part of the Defendants that at the end of the Agreement, they had some other ideas and were not interested to continue with the Defendants. And even if they wanted, it could only be with their consent and not otherwise. This Court must not delve into an exercise of reading something in the Agreement, at least at this injunctive stage, when the Agreement already stands expired. It is needless to mention that it is settled law, that where the contracts are freely entered into by the parties, there is no scope of invoking any doctrine or anything which is not provided or agreed upon by the parties. The terms of the contract cannot be altered, varied or added at the desire and intention of any one of the parties or by invoking the doctrine of fairness and reasonableness. At least, it has to be mutually agreed. In these type of cases the mutual rights and obligations are governed by the express terms of the contract, whereas, it is not the case of the Plaintif f that there was any compulsion for agreeing to the terms of the Agreement and its fixed tenure. It was a voluntary act. Moreo ver, in clause 6.5.2 (Effect of Transactions After Termination), it has been provided that the acceptance of orders from Partner or the continuance of sale of Products and Parts to Partner , or any other act of Distributor after termination of this Agreement shall not be construed as a renewal of this Agreement for any further term nor as a waiver of the termination. This hardly leaves any further discussion on this aspect of the matter that what is to happen on such works and orders as well as warranties after termination of the Agreement. Again in clause 6.6.3 there is a complete procedure provided for between the parties for going ahead with post termination issues. There is another aspect of the matter which must also be looked into. If the contention of the Plaintif f is accepted and relationship continues as it is, then it may have an effect on the customers as well. It is but settled that the authority of the agent (partner) goes away with the expiry of the Agreement. And by usage in some trades, which the Courts have recognized as a lawful usage, the authority of a broker to sell expires with the day on which it is given, and as all partie s dealing in that trade are presumed to be cognizant of the usage, the principal is not bound by a contract of broker after that day 6. Insofar as the alternative argument of the Plaintif f's Counsel to the effect that after having invested heavily in establishing workshop as well as a customer base, their interest amounts to an agency coupled with interest is concerned, it would suffice to observe that firstly this is not an agency Agreement but even if it is, again it is not a case whereby , Section 202 of the Contact Act could be made applicable. It is to be appreciated that the Agreement itself does not provide or caters to any such investment by the Plaintif f and in response creating any agency which could be termed as coupled with interest. It is but natural that for providing main tenance services and supply of spare parts as well as products, the Plaintif f was required to invest for providing such services and to that during subsistence of the Agreement the Plaintif f has and must have earned enough money to cater for such investment, expenses and profits. After all no one enters into such kind of business to make losses only. The concept of agency coupled with interest of an agent has been explained in Para No. 868 of Halsbury's Laws of England in Fourth Edition V olume-I, to the following effect (page 2036).1
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"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 done 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…
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