PROVINCE OF PUNJAB Versus VARAN TOURS
CH. SULTAN MAHMOOD, J.--- This single judgment shall decide the captioned appeals arising out of consolidated judgment and decrees dated 21.03.2014 passed by the learned trial court.
2. Succinctly, the respondent, M/s Varan Tours instituted a civil suit on 11.04.2005 against the appellants, seeking compensation to the tune of Rs. 4,30,13,25,700/- along with a markup of 20%. The claim was based on the assertion that the respondent entered into an interim transport agreement with the appellants on 28.05.1999, granting exclusive franchise rights to operate Urban Bus Services in Rawalpindi. Thereafter, a formal franchise agreement was executed on 23.02.2000 ( Franchise Agreement ) for a period of ten years, whereby the respondent was obligated to operate 150 buses on six specified routes. The agreement, inter alia, envisaged amendment of Section 69-A of the Punjab Motor Vehicles Ordinance, 1965 and provided for the constitution of an Operations Review Committee for resolution of disputes within a stipulated period of thirty days. It was further pleaded that the appellants failed to provide the requisite facilities, operational space and timely approvals and that such omissions, coupled with interference in route operations, resulted in delays and disruption of the bus service. The respondent asserted that owing to the defaults on the part of the appellants, the Urban Bus Service was compelled to be closed on 22.02.2005. As a consequence thereof, the respondent claimed to have suffered substantial financial losses, including shortfall in revenue for the period from 2000 to 2004, losses arising from premature discontinuance of operations for the years 2005 to 2009, damage to buses, depreciation and loss of goodwill. It was further averred that despite repeated requests and representations seeking compliance with the contractual obligations, no remedial action was taken by the appellants, thereby compelling the respondent to institute the suit.
3. The appellants instituted a suit for declaration, permanent injunction and mandatory injunction on 29.07.2006, asserting that in the year 1998 the Provincial Cabinet took a policy decision to introduce an efficient urban transport system in the major cities of Punjab, in furtherance whereof amendments were carried out in the Motor Vehicles Ordinance, 1965, including the insertion of Section 69-A, to provide a statutory framework for the grant of franchises for urban transport services. Pursuant thereto, a franchise scheme was framed, in response to which the respondent, Messrs Varan Tours, submitted a bid on 30.12.1998. The bid was approved, initially permitting the operation of 50 buses in Rawalpindi, with phased induction to enhance the fleet strength to 150 buses by 31.12.2001. In furtherance thereof, the Franchise Agreement, obligating the operator to maintain a modern fleet of buses, establish workshops and ensure a prescribed standard of service reliability. It is the appellants case that the Government extended various facilities and concessions, including allotment of land for bus depots, exemption from customs duties and provision of financial subsidies. According to the appellants, the defendants failed to comply with the conditions of route permits, misused depot facilities, violated reporting obligations and unilaterally terminated the bus service on 22.02.2005, thereby causing inconvenience to the commuting public as well as financial loss. It is further asserted that license fees amounting to Rs. 1,80,90,967/- remained unpaid and that buses were disposed of without obtaining approval from SMEDA. On these assertions, the appellants sought a declaration that the termination of the franchise was illegal, recovery of an amount of Rs.5,02,57,64,752/- including subsidies, outstanding license fees, and damages, along with consequential injunctive relief restraining the defendants from disposing of the assets.
4. Both the suits were contested by the respective parties through the filing of written statements. The learned trial court, after consolidating the suits, framed consolidated issues. The witnesses produced by the respondent/plaintiff, Messrs Varan Tours, were recorded as PWs and witnesses of defendants/appellants were recorded as DWs. The parties led their respective oral as well as documentary evidence in support of their pleadings. The learned trial Court, on conclusion of trial, vide impugned consolidated judgment and decrees dated 21.03.2014 partially decreed the suit by the respondent for recovery of damages with costs of suit, subject to deduction on account of rent of two (02) depots for ten (10) years, in the following terms:- i. Rs.97,52,60,573/- with 5% mark up w.e.f. 21.2.2005 till the realization of the amount; ii. Rs.3,60,63,9000 with 5% interest since 22.2.2010. till the realization of the amount; and iii. Rs.50,00,000/- on account of mental torture, along with the costs of the suits.
The suit instituted by the appellants for declaration, permanent injunction and mandatory injunction was dismissed. Hence, the instant appeal as well as the connected appeals bearing R.F.As. Nos. 162 and 167 of 2014.
5. Heard. Record perused.
6. The respondent has been awarded damages by the learned trial court under the following heads:
(i)
Loss due to delay in signing of the Franchise agreement
Rs. 44,000,000
(ii)
Loss due to forced pre-mature discontinuance of agreement for the years 2005, 2006, 2007, 2008 and 2009 at the rate of Rs.3.500 Rs.3850, Rs.1235, Rs.4658 and Rs. 5.125 per bus per day amounting to Rs.191,625,000/-, Rs.210,787,500/- Rs.231,866,250, Rs.255,025,500/- and Rs.280,593,750/- respectively in respect of 150 buses for each year
Rs. 1,169,898,000
(iii)
Operational Revenue loss for the years 2000 to 2004, alongwith mark-up to 31.03.2005
Fin year
No of buses
Expected Revenue
Actual Revenue
2000
50
20,716,593
2,333,410
2001
73
219,423,488
109,834,857
2002
105
332,044,076
153,418,215
2003
115
474,137,570
207,631,585
2004
150
534,666,241
161,882,125
Revenue Difference
Amount due with 20% Mark-Up
18,386,183
79,755,397
Rs.1,511,713,850
109,588,631
205,318,588
178,625,861
274,093,234
266,505,985
342,062,136
372,784,116
405,473,020
(iv)
Loss due to depreciation by the insurer due to damage to buses
Rs.20,000,000
(v)
Loss of goodwill, infliction of insults and humiliation, mental torture, agony and sufferings on account of hostile attitude, lapses of defendants and violations of agreements referred to in the plaint, other than those mentioned at serial numbers (i) to (iv) above.
Rs. 1,555,713,850/-
Total
Rs. 4,30,13,25,700/-
7. The first head of damages pertains to the alleged loss suffered on account of delay in execution of the Franchise Agreement. This claim does not merit acceptance. PW-1-Uzma Gull, in her deposition, categorically stated that a notice of termination on account of the alleged delay was issued on 22.05.2001; however, the said notice was subsequently withdrawn. The withdrawal of the notice clearly amounts to acquiescence and once the respondent elected to condone the alleged delay, it was no longer open to reagitate the same issue at a later stage.
Moreover, the claim is barred by limitation, as it was not raised within the prescribed period. Consequently, the award of damages under this head is legally untenable.
8. The claim of alleged premature and forced discontinuation of the Franchise Agreement on account of supervening illegality is misconceived and has no application to the present appellants. Clause-28 of the Franchise Agreement provides a complete contractual mechanism for determination of damages in the event of termination; however, the respondent-operator neither invoked nor complied with the procedure prescribed thereunder. Consequently, the claim raised on this count is legally not sustainable.
9. The next claim of the respondent related to loss allegedly suffered on account of forced premature discontinuance of the Franchise Agreement. It is not disputed that the respondent was duly pre-qualified under the scheme and that an interim agreement was executed on 28.05.1999. Thereafter, upon completion of codal formalities, submission of requisite annexures and consultations at various administrative levels, the formal Franchise Agreement was executed. The Franchise Agreement comprehensively defines the respective rights and obligations of the parties and Clause-28 specifically governs the question of compensation and damages.
28. COMPENSATION AND DAMAGES: i. The Authority fully understands and undertakes that subject to the observance of the terms contained in this franchise agreement by the Operator, if this Agreement is revoked, cancelled, terminated, breached, substantially varied or suspended by the Authority due to any extraneous reasons whatsoever, the Operator shall be entitled to compensation commensurate with and to the value of its assets at the relevant time. A firm of valuation experts shall value these assets The Operator shall also be entitled to damages for the loss of trade which shall be assessed by the afore-mentioned valuation experts. The valuation experts will be nominated with the mutual consent and the expenses/fee will be borne by both the parties. ii. In case of operations becoming unviable due to non-enforceability of any of the provisions of this Agreement on the part of the Authority, the Operator shall be entitled for compensation for the loss of operational revenue. The amount of actual revenue loss shall be determined by an independent survey/inquiry to be carried out jointly by the Authority and the Operator. In case the parties fail to make an agreement for the compensation, a recognized mediator shall be nominated with the consent of both the parties and the mediator will make the final decision and the Authority will make the payment within 30 days after the amount has been decided. The expenses of the mediators (if any) will be borne by both the parties.
10. A bare reading of Clause-28 demonstrates that the agreement does not predetermine or liquidate damages; rather, it prescribes a specific mechanism for assessment of compensation through valuation by experts, independent survey or inquiry, or mediation, which mechanism was admittedly never invoked or complied with by the respondent. The respondent could have sought compensation under Clause-28 only in the following manner:- under sub-clause(i);
(a) entitled to compensation commensurate with and the value of its assets at the relevant time;
(b) damages for the loss of trade and
Under Clause (ii):-
(c) the amount of actual loss of revenue.
11. All the aforesaid claims are special damages in nature. It is trite law that special damages had to be specifically pleaded 1 and person claiming special damages had to prove each item of loss with reference to the evidence 2 brought on record. Compensation under sub-clause (i) was required to be assessed by a firm of valuation experts, whereas compensation under sub-clause (ii) could only be determined through an independent survey or inquiry carried out jointly by the Authority and the Operator. However, no such valuation, survey, inquiry, or mediation was either pleaded, undertaken, or produced in evidence. No explanation was offered for the absence thereof. In the absence of compliance with the agreed contractual mechanism, the claim could not have been entertained.
12. Now adverting to the claims with respect to operational loss of revenue, it is to be noted at the outset that, under the covenants of the agreement, any such claim was required to be prepared jointly by both parties and, in terms of Clause-28, was tenable only for the period subsequent to termination. The claim for loss of revenue was thus contingent upon a valid termination under Clause 28. The respondent sought to predicate this claim on alleged supervening illegality; however, no such illegality was proved, nor could it, in any event, constitute the cause of loss of revenue for the years preceding termination, as claimed by the respondent.
The evidence on record further undermines the respondent s claim. PW-6-Tariq Mehboob Kiani and PW-12- Athar Tahir attributed delays and deficiencies to the respondent itself. In this regard, the relevant portion of their statements is reproduced hereunder:
PW-11 Tariq Mahmood Chaudhary
In the same way PW-12 Akhtar Tahir stated
Parties earlier remained in litigation in this regard, as per the statement of PW-1:
At the most it could be argued that the earlier application filed under the Arbitration Act, 1940 was not heard and decided 3 , however, such a contention required proof by placing the relevant proceedings on record. The respondent/plaintiff failed to do so and thereby withheld the best available evidence.
13. On a careful reading of the Franchise Agreement, the Court finds that there is no provision which entitles the respondent to claim loss of revenue except in the event of termination in terms of Clause-28. Any claim for loss of revenue under Clause 28 is expressly contingent upon termination and the invocation of Clause-28 itself is premised upon the occurrence of supervening illegality. Such supervening illegality cannot be treated as the cause of loss of revenue for past years. At best, such illegality may affect future operations; however, it cannot justify claims for operational losses allegedly suffered prior to its occurrence. In the present case, even as per the pleadings of the plaintiff/respondent, Clause-28 was invoked on 31.03.2005 on the ground of supervening illegality; consequently, the said illegality cannot form the basis for claiming loss of revenue for the years 2000 to 2004. The record further reveals that the Franchise Agreement was concluded through due process and that no culpable or unexplained delay attributable to the appellants has been established. It is also evident that all necessary administrative approvals and facilitative measures were extended by the appellants to ensure smooth execution of the Franchise Agreement.
14. The evidence on record does not support the claim of loss of revenue. The testimonies of Tariq Mehboob Kiani (PW-6) and Tariq Mehmood Chaudhry (PW-11) show that the respondent failed to establish any contractual or factual basis for such claim. Any loss during the relevant period, if at all suffered, could only be due to operational reasons and not to termination under Clause-28.
15. It is further to be noted that although the Franchise Agreement confers a right to seek compensation, such entitlement is expressly restricted to the three specific heads enumerated therein. Loss alleged to have arisen on account of forced premature discontinuance of the Franchise Agreement does not find mention among those heads. Any claim for damages not expressly provided for under the Franchise Agreement, therefore, stands excluded.
16. The suit for recovery, although instituted by the respondent, is not supported by the contractual framework governing the parties. The claim of plaintiff/respondent is premised on the doctrine of supervening illegality which finds recognition under the Section 56 of the Contract Act, 1872. However, for the said provision to apply, it was incumbent upon the respondent to establish that the appellant had prior knowledge of the subsequent illegality or had withheld a fact which later rendered performance unlawful. No such prior knowledge or concealment has been proved by the respondent.
17. Section 73 of the Contract Act, 1872 deals with the consequences for breach of a contract and prescribes the basis upon which compensation for loss or damage may be awarded. It contemplates entitlement to compensation only where a contract has been broken by the promisor. In the present case, no breach of contract by the promisor has been established, nor has it been shown that the alleged supervening illegality was within the knowledge of the appellant at the relevant time 4 . Moreover, the Court has no mandate to depart from the express terms thereof in order to apply it to the changed circumstances on the ground it seems just and reasonable to do so, because change of circumstance is unforeseen by the parties. 5
18. The third head of claim relates to alleged loss of goodwill, humiliation, mental torture, agony, and suffering, attributed to the purported hostile attitude and lapses of the plaintiff/respondent. However, no evidence has been produced to establish any loss of goodwill or mental or reputational injury. There is no material on record to show any hostile conduct, lapse or violation of the Franchise Agreement by the appellants/defendants, nor is there any evidence to suggest that the respondent was prevented from carrying on its business. On the contrary, as noted hereinabove, the witnesses examined clearly attributed delays and deficiencies to the respondent itself. Moreover, the claim is legally untenable, as it seeks general damages, which are not ordinarily awardable in contractual matters. In such cases, only actual expenses or pecuniary loss, if duly proved, may be compensated. No documentary evidence was produced, no medical evidence was led to establish any impairment of health, and no independent witness was examined to substantiate the alleged loss of goodwill or humiliation. The claim, therefore, cannot be sustained.
19. The claim for loss on account of depreciation and damage to buses is also without merit. PW-1 categorically admitted that all the buses were duly insured and that the insurance company had reimbursed all damages. As such, no loss on this account survives for adjudication. Even otherwise, any claim relating to loss in the value of assets is not maintainable, as Clause-28 of the Franchise Agreement specifically mandates that such claims be assessed through the agreed contractual mechanism and valued by a stipulated or mutually agreed valuer. The plaintiff failed to follow this mandatory procedure. This Court cannot rewrite the contract or bypass the agreed terms 6 .
20. For adjudication of the impracticability claim, it was incumbent upon the respondent to establish that the alleged supervening event so fundamentally altered the circumstances that performance of the contract became impossible and it was unwise to hold them for bargain. The claim that abolition of exclusivity frustrated the contract has also not been proved. No evidence was produced to demonstrate that performance of the Franchise Agreement became impossible after the lifting of exclusivity. Under Section 69-A of the Motor Vehicles Ordinance, 1965 the respondent was not the sole operator and other operators continued to ply their buses. No evidence was led that after declaration of Section 69-A ultra vires the Constitution there were losses and those losses were imperative to prove the fact that the supervening event guillotined the contract 7 .
21. The claim of the appellant for declaration of the amount was not tenable in its present form, as a suit for declaration was not maintainable in such circumstances and there is no reason that it should be converted to its proper form as nothing is left to performed with flux of time. In matters arising out of an alleged breach of a contract, the law recognizes specific remedies available to an aggrieved party. A declaration and a permanent injunction are not ordinarily available for mere breaches of contract, as such remedies are intended to prevent unlawful acts or to protect legal rights, rather than to enforce contractual obligations. The appropriate remedy for enforcing a contract in such circumstances is specific performance, which directs the defaulting party to fulfill their obligations as stipulated in the agreement. Therefore, the suit instituted by the appellants seeking a declaration and permanent injunction on the ground of alleged contractual breach could not be maintained, as the relief claimed did not correspond to the remedies legally available for enforcing contractual obligations. The claim, in essence, was misconceived, since the appellant could have sought only (specific performance or damages, and not equitable relief in the form of a declaration or injunction). Moreover, the learned Law Officer has failed to point out any evidence which has not been appreciated by the court below. However, the claim of recovery made by the respondent is not tenable as no assessment of rent of depots was made in accordance with the provision of the Franchise Agreement. Since claim of recovery of could have been lodged after determination of the claim in accordance with the terms of the Franchise Agreement so the suit of the respondent was not tenable on that score also and appeal is consequently dismissed.
22. It is settled law that a contract may be frustrated by a subsequent event. However, in the present case, the negotiated contract, embodied in the franchise agreement, expressly provided a structured mechanism for the determination of compensation. Since the terms of the agreement were consciously negotiated and finally settled at the time of its execution, both parties were legally bound by those terms 8 . Consequently, neither party can resile from or seek to evade the agreed contractual obligations at any subsequent stage 9 . Now parties are entitled to only those reliefs which they agreed while negotiating the Franchise Agreement and those had to be ascertained as per the negotiated methods and not otherwise, which in this case both parties failed miserably
23. For the foregoing reasons, R.F.As. Nos.161 and 162 of 2014 filed by Province of Punjab, etc. are partly allowed, impugned consolidated judgment and decree dated 21.03.2014 passed in suit instituted by respondent-Messrs Varan Tours for recovery of damages and compensation are set aside, consequent whereof said suit is dismissed, however findings of learned Trial Court to the extent of dismissal of suit instituted by Province of Punjab, etc. for declaration, permanent injunction and recovery are upheld/maintained. Whereas, R.F.A. No.167 of 2014 filed by Messrs Varan Tours is dismissed. The parties shall bear their own costs.
MH/P-2/L Order accordingly.
1 PLD 2013 SC 507 (Malik Gul Muhammad Awan v. Federation of Pakistan).
2 PLD 2005 SC 99 (Mrs. Alia Tareen, Managing Director, Pakistan General Hospital, Quetta and others v. Amanullah Khan, Advocate and 3 others).
3 PLD 1983 SC 344 (titled Ghulam Nabi and others v. Seth Muhammad Yaqub and others).
4 1995 SCMR 1431 (Sandoz Limited and another v. Federation of Pakistan and others).
5 PLD 1978 Karachi 585 (Messrs Jaffer Bros. Ltd. v. Islamic Republic of Pakistan and another).
6 AIR 1996 SC 2508( Bharathi Knitting Co., v. DHL Express). 2021 SCMR 1241 (Muhammad Yousaf v. Allah Ditta).
7 PLD 1980 SC 122 (Messrs Mansukhdas Bodaram v. Hussain Brothers Ltd.), PLD 1997 Karachi 436 (Port Qasim Authority, Karachi v. Al-Ghurair Group of companies and 3 others).
8 2014 SCMR 1728 (Mary v. State of Kerala).
9 2010 SCMR 594 (Khalid Rashid v. Kamran Lashari, Chairman, C.D.A, Islamabad and others.