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Petitioner: GENESIS AVIATION SERVICES (PVT.) LTD. VS Respondent: GULF AIR COMPANY G.S.C.
Court Name: Sindh High Court Judge(s): Munib Akhtar Title: GENESIS AVIATION SERVICES (PVT.) LTD. vs GULF AIR COMPANY G.S.C. Case No.: Suit No,721 of 2014 Date of Judgment:2015-01-29 Reported As: PLD 2015 Sindh 341 Result: Application dismissed
Judgment ORDER ' MUNIB AKHTAR, J.--This suit is by way of an application under section 20 of the Arbitration Act, 1940. The plaintiff has also sought interim injunctive relief in terms of the two applications that fall for determination. These are C.M.As. Nos. 5877/2014 and 9310/2014. On each of the applications ad interim orders were made, on 3-4-2014 and 24-7-2014 respectively. The defendant is a well known foreign airline headquartered in Bahrain. The plaintiff was appointed its general sales agent in Pakistan in circumstances shortly to be stated. The agreement between the parties, according to the defendant, came to an end on the expiry of the three year period stipulated therein, the last date being 4-5-2014. The plaintiff contends that that date stood extended so that the agreement remains in force. The plaintiff further contends that the defendant is illegally seeking to terminate the agreement and while this is the dispute that anchors the application under section 20, the plaintiff is entitled to interim injunctive relief that would, in effect, keep the agreement operative while the dispute goes to arbitration. The defendant denies that the agreement continues to be in force or was extended, and opposes the grant of any interim relief. 2. Learned counsel for the plaintiff submitted that on 30-12-2008 the parties executed a letter of intent (LOI) that subsequently materialized in the general sales agent (GSA) relationship and set out, in broad terms, the nature of the respective rights and obligations of the parties. In particular, the defendant sought to increase its flights and passengers from Pakistan and the LOI set out the plaintiff's obligation in this regard, an obligation that, learned counsel contended, was more than fulfilled by the latter. The first GSA agreement between the parties was executed on 23-2-2009 and took effect from 5-5-2009. It was for two years and thus expired on 4-5-2011. Learned counsel referred in particular to Article 1.2.1, which specified that the plaintiff was the exclusive GSA for
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passenger travel from Pakistan. When the agreement expired the parties continued to act in terms thereof for a period of about three months, when the successor agreement was executed on or about 8-8-2011. This is the agreement ("Agreement") which, according to the defendant has expired but is claimed by the plaintiff to still be in existence. Article 3.1 provided that the Agreement was deemed to have come into effect from 5-5-2011 and provided for a fixed term of three years. I may note that the Agreement is governed by English law (Article 34.1) and Article 34.2 is the arbitration clause. This provides for arbitration, before a sole arbitrator, under the rules of the London Court of International Arbitration (LCIA). The seat of arbitration is Karachi. Two other articles also need to be referred. Article 39.1 is an "entire agreement" clause in the usual form. Article 38 provides for how the Agreement can be modified and provides: "Modifications and amendments of, or additions to, this Agreement shall only be effective and binding if approved in writing and signed by an authorized representative of each party". 3. Learned counsel submitted that notwithstanding the terminus of 5-5-2014 (which, according to the plaintiff is the date on which the three year period expired), the Agreement continues to remain in force by reason of an agreement arrived at between the parties. It was, according to learned counsel (as per my notes) "the intent that [the Agreement] would continue on an implied basis even after the date" of expiry. By that, I take learned counsel to mean (and indeed, the case was argued by him on such basis) that the parties had by a subsequent oral agreement agreed to continue with the Agreement. Thus, according to learned counsel, although the Agreement appeared formally to have come to an end on 5-5-2014, it was nonetheless in reality continued beyond that date by agreement of the parties. In support of this contention, which obviously forms the basis of the plaintiff's case, learned counsel relied on various emails exchanged between the parties prior to 5-5-2014. In particular, learned counsel referred to an email of 28-4-2014, sent by the defendant, which referred to matters relating to Hajj 2014 in respect of carrying passengers. Since the Hajj fell on a date after 5-5-2014 learned counsel contended that this indicated that the parties intended to carry on with the relationship. Learned counsel also referred to an email of 1-4- 2014, again sent by the defendant, that discussed in detail the business operations and it was contended that this email also supported the plaintiff's case of a continuation of the relationship. Learned counsel also referred to a letter dated 30-4-2014 ("Letter') sent by the defendant to the plaintiff. In this letter, the subject of which is the "non-renewal" of the. Agreement the defendant, inter alia, stated as follows: "As a matter of courtesy and record, we hereby inform you that Gulf Air shall not be considering a renewal and/or extension of the Pax GSA Agreement and, therefore, the term of the said agreement shall, without prejudice to any rights that have accrued, automatically expire, cease and determine absolutely on the Expiry Date", which was defined in the Letter as being "4th May 2014". Learned counsel submitted that the Letter in law amounted to an unlawful breach of the Agreement inasmuch as it purported to terminate the same although it had been extended by the parties in terms as stated above. This termination (and breach) was never accepted by the plaintiff and the Agreement therefore continued to remain in force and effect. 4. Learned counsel also referred to that provision of the Agreement whereby the plaintiff was entitled to appoint sub-agents. Learned counsel submitted that this power was exercised several times by the plaintiff with the defendant's full knowledge and acceptance, and referred to various documents placed on record in relation to the sub-agents. These sub-agencies had terms of a year each, which were renewed from time to time and the last renewals took the terms beyond 5- 5-2014. Learned counsel also referred to other emails that, according io him, established that the parties had agreed to extend the term of the Agreement beyond that stipulated in the written document. These emails showed that the defendant desired to have additional and extended landing rights in Pakistan and sought the plaintiff's assistance and efforts in this regard. That, learned counsel submitted, only made sense in the context of the Agreement having been
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extended. With reference to Articles 38 (modifications) and 39.1 ("entire agreement" clause), learned counsel submitted that these provisions did not constitute any bar to the parties extending the Agreement by an oral agreement. The oral agreement was perfectly lawful, had been entered into and the parties were bound thereby. Learned counsel also submitted that on least two prior occasions, the Agreement had been likewise amended by the parties, i,e,, by an oral agreement. This was where one of the schedules to the Agreement, which gave a list of the places where the plaintiff had to maintain offices was modified (orally) twice, by the successive addition of further locations, one at Multan and the other at Sukkur. Learned counsel also submitted that the defendant was estopped from relying on the "entire agreement" clause, i,e,, Article 39.1. In support of his contention that there could be an oral variation of a written agreement learned counsel referred to a number of decisions, including English case law and also to the fourth proviso to Article 103 of the Qanun-eShahadat Order 1984 ("QSO"). I will refer to these decisions later. Learned counsel contended that all the ingredients for interim relief were in favour of the plaintiff and prayed accordingly. 5. Learned counsel for the defendant opposed the grant of any relief. Referring to the Letter, learned counsel submitted that this was not a notice of termination. The Agreement expired on 4-5-2014 on its own footing in terms of Article 3.1. Rather, the Letter was merely to confirm a position that was set to arise within a few days thereof. The Agreement had a fixed term, which ended and that was all that the Letter referred to and sought to convey. Thus, all references to any alleged "termination" were incorrect and any relief sought on such basis, whether in the main application (under section 20) or that on an interim basis, was wholly misconceived. Furthermore, there was never any breach of the Agreement by the defendant and no such claim had been made in the plaint. Insofar as the oral agreement sought to be relied upon, learned counsel submitted that that stood ruled out by reason of Articles 38 and 39.1. Any amendment to, or modification of, the Agreement, the learned counsel contended that there was none, could only be in writing signed by the parties and admittedly there was no such document. Even on the basis sought to be made out by the plaintiff, i,e,, an oral agreement, the record showed no such thing and all submissions to the contrary were emphatically denied. As regards the efforts to be made by the plaintiff for additional landing rights in Pakistan, learned counsel submitted that no such efforts were made nor had the defendant asked the plaintiff for such aid. Landing rights was a matter between the states of Pakistan and Bahrain and the plaintiff could give, and had given, no input or assistance in this regard. Learned counsel also submitted, relying on the record, that the plaintiff had in fact put in a bid for extension of the GSA beyond the stipulated period as early as January, 2014. That put paid to any claim that the Agreement had been extended by oral agreement between the parties. And, insofar as that putative agreement was concerned, nothing had been shown as would substantiate the same or in any manner indicate (let alone establish) that the term of the Agreement was extended beyond three years as expressly given in Article 3.1. Learned counsel further submitted, without conceding, that even if the plaintiff were correct, there was nothing to show whether the claimed extension was for an unlimited duration or for a further fixed time. If the former, that would be contrary to both the GSA agreements that had been entered into between the parties. If the latter, no such further fixed time or date had been shown. Thus, on any basis, there was no substance to the claimed extension and continuation of the relationship. In support of his submissions, learned counsel also relied on certain case-law. It was prayed that the applications be dismissed. 6. Exercising his right of reply, learned counsel for the plaintiff submitted that the main question was whether the Agreement had been terminated on the expiry of the stipulated period or that the period had been extended. It was emphasized that there was an oral agreement between the parties and that this was evidenced by the various correspondence already referred to. Learned counsel submitted that the oral agreement had amended Article 3.1, which gave the period of the
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Agreement and hence the date of its expiry. However, that left intact Article 3.2, which provided that the Agreement could be terminated at any stage by either party, by giving six months' notice and without declaring any reason. It was conceded that even on the basis of the plaintiff's case, Article 3.2 could be invoked at any time. This, it was submitted, was a complete answer to the objection taken by learned counsel for the defendant that the oral agreement did not specify any fixed period for the extension. 7. I have heard learned counsel as above, examined the record and considered the case-law. It is of course not in dispute that the Agreement had a fixed term of three years and therefore a fixed terminus, ending on 5-5-2014 (to adopt the date preferred by the plaintiff). Learned counsel for the plaintiff contends that this was modified subsequently by an oral agreement with the result that the Agreement continues to be in force. This of course is the crucial aspect of the case and the plaintiff's claim, in essence, stands or falls with it. Learned counsel for the defendant denies any such agreement, but submits that in any case it would founder on Articles 38 and 39.1. These have already been referred to above. Of these Article 38 (reproduced in extenso in para 2) is the more important, providing as it does that any modification to or amendment of the Agreement must be in writing signed by the parties. Learned counsel for the plaintiff contends that notwithstanding this clause, the parties could (as, it is submitted, they in fact did) amend the Agreement by a subsequent oral agreement. Therefore, the point presently under consideration can be divided into two: firstly, whether in the face of Article 38 it was nonetheless open to the parties to modify or amend the Agreement by a subsequent oral agreement and if so, then, secondly, how and what extent can any such agreement be proved. Now, as noted above the Agreement is governed by English law. The remedy is sought in this Court, i,e,, under the laws of. Pakistan. It is well settled that the proper interpretation and construction of a contract is governed by its applicable law, whereas the manner in which the contract can be proved depends on the lex fori. As to the former, reference may be made to Rule 227 and the commentary thereon, as given in Dicey, Morris & Collins on The Conflict of Laws (15th Ed., 2012, "Dicey"), Vol. II, pg. 1853. As to the latter, reference can be made to the following passage from Dicey (Vol. I, pg. 213; internal citations omitted): "A distinction has been drawn between extrinsic evidence adducted to interpret a written documents, e.g., a contract, and extrinsic evidence adduced to add or vary or contradict. Its terms. The admissibility of the former is a question of interpretation, governed in the case of a contract by its applicable law. The admissibility of the latter is a question of evidence, governed ... By the lex fori." ' Therefore, the question whether the parties could modify or alter any term of the Agreement by a subsequent oral agreement in the face of Article 38 is governed by English law and must be so determined. If the answer is in the affirmative, then the question of how and to what extent any such agreement can be proved will be governed by the law of Pakistan and must be so determined. I turn to a consideration of these points. 8. As noted above, learned counsel for the plaintiff relied on a number of decisions, including American case-law. I need refer to only two English cases. One is World Online Telecom Ltd. v. I- Way Ltd. [2002] EWCA Civ 413 ("World Online"), a decision of the Court of Appeal. The other is that of the High Court, being Virulite LLC v. Virulite Distribution Ltd. And another [2014] EWHC 366 (QB) ("Virulite"). In the first case, the contract between the parties contained a provision (clause 21.1) to the effect that any modification or amendment would not be effective unless it was in writing and signed by both parties. The claimant sought to plead a subsequent oral agreement and the question was whether, as a matter of construction of the contract, such a plea was maintainable. Sedley, L.J, observed as follows:-
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1110] Mr. Colin Nasir, World Online's solicitor/advocate, to whose skeleton argument and oral submissions I would like for my part to pay tribute, has spelt out grounds of principle for giving literal effect to a clause such as the present clause 21.1.... In a case like the present the parties have made their own law by contracting, and can in principle unmake or remake it. Among other things, far from fettering their freedom of contract, Mr. Nasir can legitimately say that a preclusive clause like clause 2L1 gives effect to that freedom. But as he also recognises in his argument no firm authority in this country closes the door upon fact-based arguments to the contrary. One reason may be that the principle itself is neither simple nor unitary. A consensual oral variation, after all, is also an exercise of freedom of contract." ' I may note that the appeal arose out of an application for summary judgment, which was refused by the trial Judge. 9. In Virulite, which is a judgment given after a full trial, the same issue was involved. Stuart-Smith, J was referred to World Online and three High Court decisions that had been given in the meantime. Referring to clauses providing that a contract could not be amended or modified except in writing signed by the parties the learned Judge observed as follows:- "[57] Support for the proposition that there may be a high evidential burden on a party seeking to displace the effect of such a clause is provided by the judgment of Hill Mackie QC (sitting as a Judge of the High Court) in Global Motors Inc v TERW Lucasvarity Electric Steering Limited [2012] EWHC 3134, a decision on an application for summary judgment. At [53] he said (obiter) that "there could in theory be an oral variation, notwithstanding a clause requiring that to be in writing, but that the court would be likely to require strong evidence before reaching such a finding." [58] In McKay v. Centurion Credit Resources Ltd [2011] EWHC 3198 (QB) and Energy Venture Partners Ltd v Malabu Oil and Gas Ltd. [2013] EWHC 2118 (Comm) it was either conceded or agreed that HHJ Mackie QC's obiter dictum was correct. However, in Energy Venture Partners Gloster, J went further in giving her view of the law at [273-274]: "...As at present advised, I incline to the view that there can be an oral variation in such circumstances, notwithstanding a clause requiring written modifications, where the evidence on the balance of probabilities establishes such variation was indeed concluded. ' In many cases ... The factual matrix of the contract and other circumstances may well preclude the raising of an alleged oral variation to defeat an entire agreement clause. In others, the evidence may establish on the balance of probabilities that the parties by their oral agreement and/or conduct have varied the basis of their contractual dealings, and have effectively overridden a written clause excluding any unwritten modification" [59] I do not understand Gloster J to mean that the existence of a particular form of agreement ... Will preclude the raising of the argument that an alleged oral variation should defeat an entire agreement clause. Rather, I understand here to be contrasting those cases where the facts are sufficient to establish that the parties have subsequently overridden the terms of the original contract and those where they are not. With that minor gloss I would respectfully adopt Gloster J's formulation of the law. [60] Each case will be fact sensitive, depending upon the terms of the original contract and what has happened thereafter. To my mind, the fact that a clause was specifically negotiated or was insisted on by one party or the other (for a particular reason or no reason at all) may be a relevant factor; and the existence of a written clause excluding any unwritten modification will require the court to look closely both at whether the parties subsequently reached an agreement that would, if enforced, vary the effect of the original contract and also at whether in reaching that agreement the parties intended to enter into legal relations so as to vary the terms of their original contractual obligations. But it seems to me that, while all relevant facts should be given their due weight in assessing these questions and the burden of proof rests on the person who alleges that the
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original contractual obligations have changed, the standard of proof is and remains the balance of probabilities throughout. I would prefer not to adopt the use of "strong evidence" or "a very high evidential burden" since there is a danger that they may be treated as affecting the burden or standard of proof. Similarly, I would prefer not to adopt the phrase "evidential presumption", though the intent behind it is clear. Rather, I adopt the approach that the Court should give all relevant evidence its due weight when asked to find on the balance of probabilities that there has been a subsequent variation which has legal affect even though it does not comply with the formalities stipulated by the original contract. The terms of the original contract will always be material to that exercise; the circumstances in which those terms were negotiated and agreed may also be." 10. Having considered the above citations, I accept that as a matter of English law, in appropriate circumstances the court can find and hold that notwithstanding a clause in a contract that only allows amendments and modifications to be in writing, the contract may be amended by a subsequent oral agreement. However, I expressly leave the question open, to be decided in an appropriate case, as to what would be the correct approach and conclusion as a matter of the law of Pakistan since, with respect, I am not sure I agree with the view that has found favour with the English courts. One further point must be made. It will be seen from the passages cited from Virulite that Stuart-Smith, J made observations not merely in relation to the how the contract before him was to be interpreted but also with how the subsequent oral agreement was to be proved. Since both the applicable law and the lex fori was the same, being English law, this is unexceptionable. Here of course the situation is different. I will have something to say later about the observations made regarding evidential matters, especially in para [60], as a matter of Pakistani law. That said, I accept that I have to proceed in relation to the interpretation of the Agreement on the basis of the foregoing observations, since English law is the applicable law. I therefore hold that notwithstanding Article 38, it is open to the plaintiff to show that the Agreement was amended by a subsequent oral agreement. The objection taken in this regard by learned counsel for the defendant cannot therefore, with respect, be accepted. 11. This brings me to the question as to how, and to what extent, the claimed subsequent oral agreement can be proved. This is a matter for the lex fori, and the relevant provision here is the fourth proviso to Article 103 of the QSO. Article 103 is of course linked to Article 102, but the latter need not be considered. As presently relevant Article 103 is as follows: "103. Exclusion of evidence of oral agreement.--When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to the last Article, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives-in-interest, for the purpose of contradicting, varying, adding to or subtracting from, its terms: ... ' Proviso (4): The existence of any distinct subsequent oral agreement to rescind or modify any such contract, grant, or disposition of property, may be proved, except in cases in which such contract, grant or disposition of property is by law required to be in writing, or has been registered according to the law in force for the time being as to the registration of documents." ' It will be seen that the general rule, excluding evidence of any oral agreement, is stated in the main part of Article 103, which is then qualified by six provisos, of which the fourth is relevant for present purposes. When the fourth proviso is considered, it is found to itself have certain exceptions, and any case falling in the latter falls outside the scope of the proviso. These exceptions do not apply in the present case. As presently relevant therefore what the fourth proviso makes permissible is the adducing of evidence of a "distinct subsequent oral agreement" rescinding or modifying the earlier written agreement. It is clear that the word "modify" used in the proviso is broad enough to cover all the contingencies listed in the main part, i,e,, "contradicting,
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varying, adding to or subtracting from ... [the] terms" of the written agreement. What is required therefore is a consideration of what is meant by 'a "distinct subsequent oral agreement". (For convenience, I will hereinafter refer to the agreement covered by the proviso as "the 'proviso' agreement" and the agreement referred to in the main part as "the 'written'…
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