UNIVERSAL TRADING CORPN. (PVT.) LTD. Versus BEECHAM GROUP PLC

ORDER

1. In his suit for declaration and injunction plaintiffs M/s. Universal Trading Corporation (Pvt.) Ltd. have filed this application (C.MA. No. 140/93) for issue of interim injunction in the following terms:

2. "(i) to suspend the operation of the termination of Agency/Distributorship as conveyed by the defendant vide their (impugned) notice of termination, dated 15‑10‑1992 (Annexure `B' hereto) and to direct that the status quo ante be maintained, i.e. the Agency shall continue to be operative and work as before in terms of its working in the Agreement, dated 16‑9‑1987 (Annexure `A' hereto);

(ii) to pass such other further/additional order or orders in aid of the aforesaid so that the plaintiffs, during the interim period till the suit is fully decided, are not in any way or manner prejudiced and the `agency' working is duly and properly maintained by and between the defendants and the plaintiffs in all respects."

3. In their pleadings the parties were agreed that Horlicks internationally well‑known as a drink over the past several decades is being manufactured by defendant No.1 and sold to consumers through agents and distributors in most of the countries and that since 1982 the exclusive agency of distribution has remained with the plaintiffs. It is also admitted position that on 16‑9‑1987 an agreement came into being between the plaintiffs and the defendant No.1, who was appointed exclusive distributor/agent of Horlicks in Pakistan and he was also required to promote and increase sales of Horlicks in terms of the agreement. Subsequently under a letter Annexure `B' dated 15‑10‑1992 the defendant No.1 terminated the agreement dated 16‑9‑1987 in the following words:

4. "In accordance with the provisions of clauses 12 and 14 of the agreement we hereby give formal notice that the Agreement will terminate on 31st January, 1993:"

5. Hence this Suit.

6. Case of the plaintiffs as per the plaint was that for promoting and increasing sale of the Horlicks and for development of market for said goods they had to incur inherent permanent expenditure and that in promoting increasing growing popularity, good will and acceptability of Horlicks, the plaintiffs had to incur huge expenditure and this created plaintiffs' interest and vested rights and as such the defendant No.1 was not competent to unilaterally deal with the vested rights of the plaintiffs. It was contended that the sole agency became and is an asset created by the plaintiffs' expenditures, efforts and investments of a permanent character and the same cannot be denied by any unilateral action including cancellation or termination of the agency. Plaintiffs' claim to have created with over growing potential the name and good will for Horlicks by and through their sole permanent expenditures, investments and efforts. It was added that cancellation of the agency would cause irreparable prejudice and loss to the plaintiffs' vested rights and to efforts of the plaintiffs in popularising Horlicks. Plaintiffs further stated that they made extensive advertisements of Horlicks by distributing key chains, diaries and calendars and by putting up headings of Horlicks at different places in Pakistan by large sizes advertisements in well‑known newspapers and through commercials given on TV and Radio. Plaintiffs also stated that they utilized their commercial category import licences for import of Horlicks.

7. Plaintiffs stated in their application for interim injunction that since 1982‑83 they had developed considerable facilities, sale organization and network for the sale of Horlicks, at the cost of considerable expenditure, investments and finance. They called termination of the agency as black` warrant' on the existing active and lively sales organization of the said product. Plaintiffs also stated that in view of the permanent expenditure incurred on the agency, they had developed vested rights and are liable to be protected till decision of the suit.

8. The application for interim injunction was opposed by the defendant No.2 who filed counter‑affidavit of John Michael Squires, Chief Executive of the defendant No.2. It was stated in the counter‑affidavit that defendant No.2 had been misdescribed as agent of defendant No.1 and that defendant No.2 was subsidiary of the defendant No.1 Defendant No.2 stated that his company was wrongly dragged in the matter because the agreement was 'between the plaintiff and the defendant No.1.

9. No counter‑affidavit has been filed by the defendant No.1.

10. Mr. Mansoor Ahmed Khan, learned counsel for the plaintiffs argued that present case was covered by Section 202 of Contract Act because the plaintiffs as agents had an interest in the property which was subject‑matter of the agency and as such the agency cannot in the absence of an express contract be terminated to the prejudice of such interest. Learned counsel relied on the case of Muhammad Aref Effendi v. Egypt Air (1980 SCMR 588), where in somewhat similar situation an agency in favour of Muhammad Aref Effendi was terminated and he filed a civil suit in which he claimed temporary injunction for maintenance of status quo. In said case the interim injunction as prayed was granted on the ground that the case involved substantial questions of law and fact: Learned counsel for the plaintiffs also relied on the case of Sohrabji v. Oriental Government Security Life Assurance Co. (AIR (33) 1946 Privy Council 6). It was also a case in which agreement of agency was terminated. This was, however, termination of agency of an Insurance agent by a Insurance Company. Such relationship is governed by the Insurance Act 1938. Reliance has also been placed on the case of L Schular A G v. Wickman Machine Tool Sales Limited (1973) 2 All E.R. 39 page 7 where Wickman was given the sole right to sell Schuler products including panel presses, in United Kingdom subject to a condition inter alia that Wickman shall send its representatives to visit the six firms named in the schedule to the agreement, at least once in every week for the purpose of soliciting orders for panel presses. Breach of said condition did not entitle Schuler to repudiate the agreement, as held by majority of the Judges in the said case. The majority view in the said case was expressed in the following words:

11. "A breach of clause 7 (b) did not entitle Schuler to repudiate the agreement. Although there was a presumption that, if the word `condition' was used in a formal contract, it indicated a term of the contract breach of which, however small, gave rise to a right to repudiate, the word would not be given that meaning if such a construction produced a result as unreasonable that the parties could not Have intended it, and if there was some other possible and reasonable construction. Although the word `condition' indicated that clause 7 (b) was a term of special importance, to read it as meaning that once one of Wickman's representatives had failed to make one visit out of the thousands contracted for, Schuler thereby acquired an immediate right to repudiate the agreement, was so unreasonable that the parties could not have intended it; the word `condition' in that context was to be construed (per Lord Reid and Lords Simen of Glaisdale) as meaning that breach of clause 7 (b), however, excusable, was a `material breach' within clause II (a) (i) or (per Lord Morris of Borth‑y‑Gest) as denoting that the stipulation in clause 7 (b) had a special significance in considering whether Wickman had committed a `material breach':"

12. Learned counsel for the plaintiffs also referred to the case of Balagamwala Oil Mills (Pvt) Limited v. Shakarchi Trading AG and others (PLD 1990 Kar. 1) where a. D. B. of this Court (of which I was a member) held that in a lit case the Court may grant interim injunction even if the case does not fall within the four corners of the well‑settled principles under Order 39, Rules 1 and 2 of C.P.C. if the facts of the case so demand, in order to foster the cause of justice. For taking such view, reliance was placed on the case of Mst. Salma Jawaid and others v. S.M. Arshad and others (PLD 1983 Kar. 303) where reference was made to the case of Mohiuddin Molla y. Province of East Pakistan and others reported in PLD 1962 SC 199. In the latter case it was observed that generally speaking the Code of Civil Procedure does not create new powers but regulates the exercise of power already possessed by the Court and even before the Civil Procedure Code was enacted, the Civil Court possessed powers of the kind mentioned in the Code and the Civil Court possessed these powers because it has jurisdiction to determine and protect civil rights and for the protection of those rights the exercise of such powers is essential. In the case of Mst. Salma Jawaid reliance was also placed on the case of H.M. Saya & Co. v. Wazir Ali Industries Ltd. (PLD 1969 SC 65) where it was held that a Court should proceed on the principle 'that every procedure which furthers administration of justice is permissible even if there is no express provision permitting the same. Learned counsel for the plaintiff further argued that para. 12 of the agreement in question, was subject to the provisions contained in para. 13 of the said agreement and this indicated that para 12 was dependant upon para. 13 and that the words "subject to" appearing in para 12 mean "conditional upon" as per Bindra's Interpretation of Statutes page 870. It was also argued that as the conditions mentioned in para. 13 of the agreement were not fulfilled hence the power of cancellation provided in para. 12 remained ineffective.

13. Mr. EA. Noomani, learned counsel for the defendants 1 and 2 argued that had para. 12 of the agreement been controlled by para. 13 of the agreement, then the former para. was redundant. He was of the view that para. 12 of the agreement gave to the defendant No.1 an independent right to cancel the agreement and this right was in addition 'to the similar right given under para. 13 of the agreement. It was further argued that if any money was spent by the plaintiffs on publicity in 1985 or before 16‑9‑1987 that would not affect rights of the parties to the agreement dated 16‑9‑1987. It was further argued that even if plaintiffs had spent any amount in pursuance of the agreement dated 19‑9‑1987, the case would not be covered by Section 202 of the Contract Act. It was also argued that the agency agreement was terminable under Section 201 of the Contract Act. Learned counsel referred to para. 12 of the agreement. In respect of the amount spent on publicity, it was contended that the plaintiffs had not obtained approval in respect of the publicity and that the plaintiffs have not acquired interest in subject‑matter of the agreement in terms of Section 202 of Contract Act. In support learned counsel cited the case of M/s. World Wide Trading Co. v..Sanyo Electric Trading Co. Ltd. and another (PLD 1986 Karachi 234) where it was held as follows:‑

14. "The interest of the agent, forming subject‑matter of the agency, is to be some sort of an adverse nature qua the principal. So, according to the true construction and scope of section 202 the agency can be said to be coupled with interest where the authority of an agent is given for the purpose of effectuating a security or of securing an interest of the agent. This can be inferred from the documents forming the basis of agency or from the course of dealings between the parties and from the other surrounding circumstances. '

15. The mere investment does ring no bell unless the interest which is allegedly involved fulfils the condition that it forms part of the subject matter of the contract as provided in section 202 of the Contract Act. After all, the plaintiff had to make certain investments in the business, for example, on hiring the shops/offices at several places, setting up of a service centre, employing staff etc. if it is to acquire sole‑selling rights of the products of defendant No.1 to the exclusion of ‑ all others, but such investment does not necessarily fall within the scope of `interest' as mentioned in the said section."

16. Learned counsel for the defendants further argued that the plaintiffs have claimed damages in their suit and as such they were not entitled to issue of interim injunction. It was also argued ‑ that an agency agreement can be. terminated under Section 201 of the Contract Act.

17. The agreement dated 16‑9‑1987 between the parties was in writing and its copy has been filed as Annexure `A'. Para. 12 of the said agreement says that subject to the provisions of para. 13 appointment of the plaintiffs by the defendant No.1 shall commence on 1st September, 1987 and shall continue until terminated by three months' notice from either party to the other. The works "subject to the provisions of paragrph 13" appearing in para 12 show that action under para. 12 can be taken. only subject to fulfillment of the conditions of paragraph 13. In other words para. 13 controls para. 12. If the intention was otherwise then there was no purpose for using the words "subject to the provisions of paragraph 13". Para. 13 of the said agreement reads as below:

18. "(a) (i) If one party to this APPOINTMENT shall commit any breach of this Appointment and not remedy the breach within thirty (30) days of notice from the other party so to do (if capable of remedy) or offer adequate compensation therefore, the other party may terminate this Appointment immediately by notice.

(ii) If one party to this APPOINTMENT shall compound or make arrangements with its creditors or go into liquidation (whether voluntarily or otherwise) or be adjudicated bankrupt or have a Receiver appointed overall or any part of its assets otherwise than as part of a bona fide amalgamation and reconstruction without insolvency then the other party may terminate this APPOINTMENT immediately by notice.

(b) We may terminate this APPOINTMENT immediately by notice if your legal or beneficial ownership or control changes in such a manner as we shall in our sole discretion consider significant. Any change in your legal or beneficial ownership or control shall by immediately notified in writing to us by you. For the purpose of this sub‑paragraph `control' shall mean ownership of a majority of your shares having the right to appoint Directors and vote at general meetings of shareholders.

(c) If during a continuous period of twelve (12) months commencing on the date of this APPOINTMENT or of the last invoice issue by us hereunder no order or further order (as appropriate) shall have been received from you this APPOINTMENT shall terminate automatically at the end of such period without notices."

19. The impugned letter copy Annexure `B' does not refer at all to para. 13 of the agreement. There is no allegation if the plaintiffs have committed any breach of the appointment/agreement and such breach has not been remedie within 30 days of notice from the other party. There is no allegation if any party to said agreement had compounded or made arrangements with its creditors or had gone into liquidation. All this shows that action has been taken under para 12 without caring to see applicability of paia. 13 and on that account alone the cancellation appears tentatively to be not according to law.

20. There is force in the contentions of learned counsel for the plaintiffs that huge amounts have been spent on publicity of. the product in question. Admittedly the plaintiffs were the sole agents of the defendant No.1 in Pakistan for distributing and selling and popularising their products. The plaintiffs have brought on record newspaper cuttings and other documents showing that they have a prima facie case. If the agreement in question is treated to have been cancelled the plaintiffs would suffer irreprarable loss. Mere fact that in their suit they have put forth an alternative claim for damages does not frustrate their prayer for interim injunction.

21. For the foregoing reasons in following the case of Muhammad Aref Effendi (1980 SCMR 588) 1 order issue of interim injunction as prayed to continue till decision of the suit. Needless to add that none of my observations would be considered when the suit is being finally decided.

22. AA./U‑146/K Order accordingly,