Source: http://www.internationalattorney.info/2016/03/termination-of-agency-of-contract.html
Timestamp: 2019-04-24 06:41:39+00:00

Document:
Suit No. 862 of 2006, decided on 30.8.2006.
1985 CLC 1522; 1973 SCMR 555 and 1997 CLC 1903 ref.
Mr. Abdul Hafeez Pirzada, Hasaamuddin and Abdul Sattar Pirzada, Advocates for Plaintiff.
Mr. Rasheed A. Razvi and Mahmood Mandviwala, Advocates for Defendant.
Dates of hearing: 24 & 30.8.2006.
Through this order I propose to dispose of the main petition under Section 20 of the Arbitration Act, as well as the injunction application, being C.M.A. No. 4941 of 2006 filed by the plaintiff.
The relevant facts of the case in brief are that under and in terms of an `Advertising Agency Agreement' executed between the parties on 15-10-2005, (`The agreement') the plaintiff company, who are engaged in the business of advertising, and according to them, are providing a range of advertising services to several entities, were appointed by the defendant bank, as their exclusive advertising agent in Pakistan, for their brands and other advertising work for the period from 15-10-2005 up to 14-10-2006, and agreed to pay to the plaintiff a monthly retainership fees of Rs.6,75,000 (Rupees Six hundred and Seventy Five Thousand only). In terms of Clause 3 of the agreement, the relationship was to be renewed automatically after the initial period ending on 14.10.2006, for one more year i.e. up to 14-10-2007. It was further agreed that the agreement will continue to be renewed by the parties for subsequent years and the relationship will remain in force till such time as the agreement is revoked or terminated, as envisaged by Clause 4 of the agreement, which provides that the agreement can be terminated by either party only after serving two (2) months prior/advance notice. In addition to the retainer fee, the plaintiff, in terms of the agreement, is also entitled to commissions for the various services that the plaintiff was required to provide under the agreement and as enumerated under Clauses 5 and 6 thereof. Clause 17 of the agreement, by way of dispute, resolution, mechanism, provides that every dispute, difference or question, which may anytime arise between the parties thereto, or any person claiming under them, touching or arising out of or in respect of the agreement shall be referred to the arbitrators named therein. Such arbitration to be conducted in accordance with the Arbitration Act, 1940.
It is claimed by the plaintiff that under Clause 3 of the Agency Agreement, the Agreement is valid up to 14-10-2007 (i.e. two years from the date of its execution) and that after such period of two years, the Agreement would continue to remain in force unless the same is terminated by one of the parties by serving on the other party a two months prior notice. It is further claimed that in view of the various Clauses of the Agreement, particularly, Clauses 2, 6 and 8.1, the agency is of the nature of an agency coupled with interest and cannot, therefore, in view of the bar as contemplated by Section 202 of the Contract Act, be terminated to the prejudice of such interest. It is then alleged that despite the above and without any cause or reason, the representative of the defendant has informed the plaintiff that the defendant is taking steps to terminate the Agency Agreement. It is further stated that the compensation offered by the defendant for such un-lawful breach of the Agreement, `to say the least being paltry' is, not acceptable to the plaintiff, as the proposed termination shall cause a tremendous and irreparable loss to the plaintiff. It is claimed that the plaintiff has incurred substantial expenditure and put in labour in fulfillment of its obligations under the Agreement, and in establishing a good-will for the defendant among its potential customers in Pakistan, and was allured to commit its capital on the assurances and guarantees of remuneration and fees embodied in the Agency Agreement, the defendant cannot therefore terminate the relationship at this stage. It is claimed that the plaintiff has been performing his obligations as an agent to the complete satisfaction of the defendant. Neither has the plaintiff defaulted in fulfilling any of its obligations under the Agreement, nor has there been any allegation of default on the part of the plaintiff. On the contrary, the defendant on several occasions commended the plaintiff performance. However, the defendant realizing its position of advantage, has in the most unscrupulous manner decided to engage the services of another entity and unlawfully discontinued its contractual relationship with the plaintiff.
Along with the main petition, the plaintiff have filed an application for restraining the defendant from acting in contravention of the Agency Agreement and from entering into an Agency Agreement with any other party. (C.M.A. No. 4941/2006).
Through their counter affidavit, the defendants have opposed the grant of interim relief as prayed for by the plaintiff. They have denied that the agency in question is coupled with interest. It is contended that by its very nature the relationship between the parties as created through the present agreement, does not create an agency coupled with interest. It is averred that the application is barred by Section 21 of the Specific Relief Act, as an agreement of the nature as in question is incapable of specific performance as monetary compensation is an adequate relief and also for the reason that the agreement is inherently revocable. It is pointed out that the agreement provides for termination through Clause 4, which envisages its termination by either party by serving two months prior notice. It is submitted that Section 202 of the Contract Act applies only where an agent has a pre-existing interest in the subject-matter of the agency, which is sought to be protected through the creation of the agency. It is further submitted that nature of an advertising agency and specially with the rights and obligations as created under the agreement in question can never create a proprietary interest sufficient enough to attract the provisions of Section 202 of the Contract Act. It is further submitted that admittedly the plaintiff is providing advertising services to various entities which is violative of Clause 5(iii) of the Agreement. It is claimed that the defendant is a subsidiary of the first Islamic Bank of the world, and has been recently established in Pakistan for providing and facilitating Islamic mode of financing and the interim injunction granted in this case on 26-6-2006 is effecting the entire marketing and business development of the defendant as a newly established Islamic Bank. It is claimed that the defendant has neither intended nor entered into any relationship of a permanent nature with the plaintiff. It is further claimed that in the event the interim injunction is allowed to continue the future operations and development of the defendant as a newly established Islamic Bank will suffer immensely and the defendant marketing and advertising will cease completely as marketing and advertising plays a crucial role in the development of the banking products. It is alleged that, owing to the unprofessional attitude of the plaintiff and by its attempt to forcibly continue the relationship, the defendant is suffering huge financial losses.
In their rejoinder to the defendant's counter affidavit, the plaintiff have claimed to have incurred huge expenditures, towards fulfillment of its obligations under the Agreement. It is also claimed that the plaintiff, for the benefit of the defendant, has engaged the services of several professionals with expertise in concept and creative development and client servicing for a period of two years. The plaintiff has further claimed to have executed several contracts with various parties for propagating the business of the plaintiff. It is submitted that unless the interim injunction is confirmed, the plaintiff shall be faced with multiplicity of proceedings and shall suffer irreparable losses. It is denied that the plaintiff committed any breach of any of its obligations under the Agreement. It is alleged that all the resources of the plaintiff have been diverted towards the furtherance of its contractual obligations and for the development of the defendant's business to their satisfaction.
(1) Ghulam Ishaq Khan Institute of Engineering, Science and Technology and another v. M/s. Hassan Construction Co. (Pvt.) Ltd. Engineer and Consultants 1998 CLC 485.
(2) Manzoor Construction Co. Ltd. v. University of Engineering and Technology, Taxila 1984 CLC, 3342.
(3) Muhammad Younus and 2 others v. Abdul Ghaffar and others 1998 MLD 1622.
(4) M/s. Jamia Industries Ltd. v. M/s. Pakistan Refinary Ltd., Karachi PLD 1976 Kar. 644.
(5) Mst. Neelam Nosheen and others v. Raja Muhammad Khaqaan and others 2002 MLD 784.
(xi) Muhammad Yousuf v. M/s. Urooj (Pvt.) Limited & another (PLD 2003 Karachi 16).
As regards the preliminary objection raised by Mr. Rasheed A. Razvi that since the defendant agency has not been terminated by the defendants as yet, no cause of action has accrued to the plaintiff for filing the present petition. It may be noted that the defendants have not denied the fact that they are/were in the process of termination of the agency. On the contrary they have submitted that they are being forced to continue their relationship with the plaintiff, through interim injunction and thus it can be seen that the termination of the agency is clearly in the offing. The dispute/controversy between the parties as has now emerged is regarding (i) the nature of the agency, as to whether or not the agency is coupled with interest, so as to attract the bar contained in Section 202 of the Contract Act. (ii) As to whether, in terms of Clause 3 of the agreement, the agency is terminable by either party, through a two months advance notice, or as to whether such termination is permissible only after a period of two years from its commencement i.e. after 14-10-2007 only.
The plaintiffs have attempted to attribute to the agency in question, the status of an agency coupled with interest, and thus claimed a bar to its termination, as contemplated in terms of Section 202 of the Contract Act, on the grounds that (i) they have made substantial investment in order to provide to the defendant the various services they were obliged to provide under and in terms of the agreement and towards fulfilling its obligation thereunder and (ii) agreement promises to them financial rewards by way of payments of retainership fee and commissions for the various services that they are obliged to provide under the agreement. It is contended that by virtue of the above, the plaintiffs acquired interest in the subject matter of the agency agreement.
(a) A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority, nor can it be terminated by his insanity or death.
(b) A consigns 1,000 bales of cotton to B, who has made advances to him on such cotton, and desires B to sell the cotton, and to repay himself, out of the price, the amount of his own advances, A cannot revoke this authority, nor is it terminated by his insanity or death.
`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 donee 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 paid off or to receive money from a third party in payment of a debt, have been held to be irrevocable. On the other hand, an authority is not irrevocable merely because the agent has a special property in or a lien upon goods to which the authority relates, the authority not being given for the purpose of securing the claims of the agent'.
`Termination of agency where agent has an interest in subject-matter.--Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot in the absence of an express contract, be terminated to the prejudice of such interest.
His Lordship further held that substantial investment in the business of agency would not make the agency irrevocable.
In view of the foregoing it is now abundantly clear that the plaintiff cannot seek perpetuity of relationship on the ground that they have made huge investment or have incurred heavy expenditure or that continuity of the agency would earn them retainer fee and commission, and moreso for the reasons that the Agreement itself provides for its termination as envisaged therein. However, the question as to whether in terms of Clause (3) of the agreement, the agency could be terminated by serving two months' advance notice, only after the initial two years of the creation of the agency i.e. after 14-10-2007, would certainly require interpretation of the agreement itself, and which question, in view of Clause (17), which provides for a dispute resolution mechanism through arbitration in respect of every dispute, difference of question which may at any time arise between the parties, touching or arising out of or in respect of the agreement, can only be decided by the arbitrations, as in the words of Zaffar Hussain Mirza, J (as he then was), the scope of the powers conferred on the Court under Section 20 of the Arbitration Act is merely limited to determination of the factum of real dispute and no more. It is not for the Court to go into the question pertaining to the dispute raised or suggest the manner of decision thereof for that would amount to usurping the jurisdiction of the domestic tribunal constituted under the arbitration agreement [Jamia Industries Limited v. Pakistan Refinery Ltd. (PLD 1976 Kar. 644)]. Similar view has been expressed in Manzoor Construction Co. Ltd. v. University of Engineering and Technology, Taxila 1984 CLC 3347. I would therefore refrain myself from dealing into the controversy as to at what point in time the parties can exercise their option to terminate the agency, which forms, a real dispute amenable to arbitration only.
However, having come to the conclusion that the agency in question is not an agency coupled with interest and therefore does not attract exceptional status of irrevocability as provided by Section 202 of the Contract Act and in view of Section 201 of the Contract Act which provides for termination of an agency by the principal revoking his authority, an order restraining the defendant from revoking the agency and forcing them to continue with the relationship would not be justified, as even if the arbitrators come to the conclusion that the termination of the agency would, in terms of the agreement, be premature for want of the requisite notice, the plaintiffs may be duly compensated by awarding damages.
I am fortified in my view by the judgments in the cases of Huma Enterprises and 3 others v. S. Pir Ali Shah and others (1985 CLC 1522), wherein it was observed that even where termination notice is not given as provided in the agreement, the plaintiff could only ask for damages and not for declaration and permanent injunction, as such an agreement cannot be specifically enforced.
In the case of M/s. Business Computing International (Pvt.) Ltd. (supra), Sabihuddin Ahmed, C.J., whilst holding that making of substantial investments in the business of agency would not make the agency irrevocable, observed that, `It is difficult to see how an agent can tie down his principal into an eternal bond by making some investments when a partner contributing a major part of the capital of a firm and tying down his assets cannot do so. His Lordship further Held that even if there has been a premature or illegal termination of the contract of agency, it can be compensated in money terms. It would not be just and equitable to force a relationship upon the defendant who might have to incur further financial liabilities on account of the same, and dismissed the injunction application.
In Huma Enterprises and 3 others v. S. Pir Ali Shah and others (1985 CLC 1522), where the dealership/sales agreement was terminated by the principal purportedly acting in terms of the agreement, under which at the most three months' notice was required to be given. It was held that even if such notice was not given, at the most the plaintiff firm could claim damages from the defendants and that by seeking declaration and permanent injunction, the plaintiff was in fact seeking specific performance of the dealership/sales agreement which agreement was not an agreement which could be got specifically enforced through the Court and that if at all there was unlawful termination of the sales/dealership agreement, the plaintiff firm could have only asked for damages.
The plaintiff's apprehension that since in pursuance of the agreement they have entered into several contracts with third parties, the termination of the agency, at this stage, would lend them into multifarious litigation is wholly un-founded and based on misconception as Clause 4 of the agreement clearly stipulates that in the event of termination of the agency the contracts already made by the plaintiff with third parties on behalf of the plaintiff and in respect of all contracts that are on the books on the date of such termination of the agreement, the parties shall perform the duties and observe the covenant to be performed and absolved by them respectively, and therefore, the defendants even in the case of termination of the agency would be bound to perform their obligations in terms of such agreement provided the same have been entered into with the consent of the defendant and in conformity with the various provisions of the agreement in question.
In view of the foregoing, I allow the petition and direct the defendants to file the original arbitration agreement in Court within three days from today. The case will be put up for further orders in this behalf on 10-11-2006. The injunction application is dismissed.

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