' MUNIB AKHTAR, J.---This suit, at least insofar as Karachiites are concerned, is a clash of giants. The protagonists are Karachi's water utility ("KWSB"), a statutory body in the public sector, and the city's electricity utility, now in private hands ("KESC"). KWSB and KESC are respectively the plaintiff and the defendant No,
1. Squashed between the disputants, and suffering like the proverbial grass beneath fighting elephants, are the hapless people of Karachi. Perhaps fittingly then, and this will be appreciated by those acquainted with the law of contract, the principal legal issue involved is also of great importance. The question is this: can the doctrine of privity of contract in relation to third party benefits be modified, and if so, ought this to be done, and if so, in what manner and to what extent? Privity of contract has been regarded as one the pillars of the law of contract. However, this is no longer true in a great many jurisdictions, including the original home of the common law itself and to a greater or lesser degree the question just formulated has been answered in the affirmative. Should the law of Pakistan also move in the same direction?
2. First however, the facts. Learned counsel for KWSB submitted that the present suit had been necessitated on account of the disconnection of electricity supply by KESC to KWSB in respect of certain facilities, which according to him was entirely unlawful. Stating his case, learned counsel drew attention to the privatization of KESC in 2005. The shares were acquired by certain private investors by means of a share purchase agreement dated 14-11-2005. On the same date, an Implementation Agreement was also entered into between KESC and the Government (technically, the President) of Pakistan ("GOP", the defendant No, 2). This agreement was amended on 13-4-2009 by an amendment agreement. Referring to various provisions including, in particular, the definition clauses of the three agreements, learned counsel submitted (and this is not in dispute) that the Implementation Agreement was in force at all material times and will continue to remain so till 13- 4-2016.
3. Essentially, the entire case put forward by learned counsel rests on Article II of the Implementation Agreement. This Article needs to be examined in full, but because of its length, has been placed in an annex to this decision. The key provision is Article 2.1, which for convenience is reproduced below:-- "2.1 The parties recognize that the Company has Strategic Customers who, in view of the security considerations, must be supplied electrical power by the Company at all times without interruption in accordance with the requirements of the Strategic Customers from time to time. The Company undertakes not to disrupt, discontinue or reduce the supply of electrical power to the Strategic Customers at any time whatsoever. The Company shall ensure that all equipment (including metering systems) which is required to deliver and record the delivery of electrical power to Strategic Customer shall, at all times, remain in working order so as to accurately and completely deliver and record the delivery of electrical power to Strategic Customers. In the event of any disruption, discontinuance or reduction of the supply of electrical power to any Strategic Customer(s) the Company shall:
(a) not later than the next Business Day, as its own cost, take all measures to restore the supply of electrical power to the Strategic Customer(s) in question in accordance with the normal requirements of such Strategic Customer(s);
(b) not later than the next Business Day notify GOP and the affected Strategic Customer(s) in writing of the occurrence of any disruption, discontinuance or reduction in the supply of electrical power of the Strategic Customer(s) in question, the reasons therefor and the measures being taken by the Company to ensure the immediate resumption of electrical power to the Strategic Customer(s) in question together with a forecast of the time required to ensure such resumption; and
(c) not later than the next Business Day notify GOP and the affected Strategic Customer of the resumption of the supply of electrical power to the Strategic Customer(s) in question in accordance with the usual requirements of such Strategic Customer(s)."
It is not in dispute that KWSB is a Strategic Customer within the meaning, and for the purposes. Of the Implementation Agreement. (Any capitalized terms used herein, but not defined, have the same meaning as in the Implementation Agreement.)
4. Learned counsel submitted that on a bare reading of Article 2.1, KESC was prohibited from disrupting, discontinuing or reducing the supply of electricity to KWSB, and it could not resile from this fundamental obligation. The attempts by KESC to do so were therefore entirely unlawful and KWSB was entitled, inter alia, to suitable injunctive relief, both interim and final. The reason given by KESC for disconnecting electricity (or threatening to do so) was that KWSB owned around Rs,17 Billion to the former. Learned counsel took issue with this amount. It may be noted that while KESC supplies electricity to KWSB, the latter supplies water to the former. Learned counsel placed on record a statement that purported to show KWSB's payment position vis-a-vis KESC. As per this statement, rather than KESC being a creditor, an amount of around Rs, 8.5 Billion was payable or refundable by it. But this was very much a subsidiary submission of secondary importance, and no further attention shall be paid to it. The primary submission. Even as regards to payments, was centered on Article II of the Implementation Agreement. Learned counsel read through the entire Article and submitted that it contained a detailed and exhaustive mechanism whereby, if there was any default by a Strategic Customer in making payment to KESC, it was GOP which was to make the payment. An elaborate mechanism was provided in this regard to which learned counsel referred. He relied in particular on Article 2.9, which is reproduced below for rendy reference: "2.9. The Parties agree that the compensation methodology set out in this Article II represents the full and final amount payable by the Strategic Customer to the Company in the manner and method set out herein and the Company:
(a) agrees that any amount received as compensation under this Article II (whether by way of an Accepted Claim or as the result of a determination by the Expert) shall stand adjusted against amounts due to the Company from Defaulting Strategic Customer;
(b) agrees that no interest, profits or mark up shall be payable on any amount due to the Company from a Defaulting Strategic, Customer;
(c) hereby waives to the fullest extent permitted by the Laws of Pakistan any further or additional claims it may have against the Defaulting Strategic Customers in respect of any amounts due to it in addition to the amounts set out herein; and
(d) agrees that the amount of compensation set forth in this Article II is reasonable."
Learned counsel submitted that this provision was clear on the face of it. He further submitted that the Implementation Agreement also contained its own mechanism for dispute resolution, including reference to an Expert and arbitration (Article VI). Thus, his case was that Article II was a complete code for regulating the manner in which amounts due and payable by Strategic Customers were to be dealt with, and it was KESC's absolute obligation not to disrupt or disconnect supply of electricity. If at all KESC had any grievance with regard to any non-payment, its sole recourse was to GOP and not against KWSB and certainly not by way of disconnection of electricity supply. KWSB was entitled to interim injunctive relief against KESC, and this was the relief sought by C.M.As.
Nos.10555 of 2011 and 10556 of 2011, which are two of the applications being decided today. On 27- 2-2012, when these applications came up for hearing, I had made an interim arrangement. I had granted an interim injunction to KWSB but subject, inter alia, to its depositing a sum of Rs,1 Billion with the Nazir of the Court, and giving a guarantee to his satisfaction in the further sum of Rs,4 Billion within a period of 21 days. Admittedly, KWSB has not complied with this order. The third application, also filed by KWSB, is C.M.A. 2737 of 2012 which seeks recall and vacation of the interim arrangement. Learned counsel submitted that because KESC was absolutely barred from disconnecting electricity supply to Strategic Customers by reason of Article II, KWSB was entitled to interim relief without being put to terms, whether in the manner as directed in the order of 27-2- 2012 or otherwise.
5. One question that arose in respect of the case put forward as above was whether KWSB itself could at all invoke and rely on the provisions of the Implementation Agreement since it was not party to this agreement. In other words, there is no privity of contract between it and KESC. To this question, which was put by me to learned counsel, three answers were given. Firstly, it was contended that precisely because KWSB was a beneficiary in terms of Article II, it could invoke the Implementation Agreement. Secondly, relying on Leigh and Sullivan v. Aliakmon Shipping Co. Ltd.
(The Aliakmon) [1986] 2 All ER 145; [1985] UKHL 10, learned counsel submitted that KESC had a duty of care in tort towards KWSB and since it was in breach thereof, the latter had a cause of action to maintain the present suit. Thirdly, learned counsel submitted that on account the provisions of Article II, KWSB could, and should, be regarded as itself being a party to the Implementation Agreement. For reasons that will presently become clear, it will not be necessary for me to consider the second and third grounds taken by learned counsel, *hich in any case I have found to be less than satisfactory. Insofar as the first ground is concerned, it begs the very question that, in my view, lies at the heart of the present dispute, and which was posed at the outset. If the answer to that question is in the negative (i,e,, that the doctrine of privity of contract in relation to third party benefits cannot or ought not to be modified) then the case put forward by learned counsel must necessarily fail. Even if this question is answered in the affirmative, the extent to which the doctrine is to be modified, and whether KWSB's case comes within it as so modified, will remain to be seen.
6. Learned counsel for KESC strongly opposed the case put forward by learned counsel for KWSB.
He submitted that it was undeniable that a huge sum, running into tens of billions of Rupees, was payable by KWSB to KESC. He submitted that there had been periodic reconciliations of accounts between the parties (the most recent of which took matters up to January 2012). Which had been accepted by both sides, save and except in relation to certain amounts that were relatively insignificant. Thus. KWSB's liability was determined, settled and admitted. Learned counsel emphasized that the primary obligation and liability to make payment of the outstanding amount was KWSB's, which it could neither deny nor escape. Learned counsel further submitted that when the plaint was read as a whole, the main case made out by KWSB was not against KESC, but rather the defendants Nos. 2 and 3 (GOP and the Government of Sindh), on account of non-payment of amounts payable to KWSB. All of this was the result of the problem of 'circular debt' that currently bedeviled the economy. However, that did not absolve KWSB of its legal liability towards KESC.
Furthermore, KESC was fully entitled to take recourse to its legal remedies on account of the nonpayment, including disconnection of electricity supply. However, even in this regard, the only grievance made out in the plaint/applications was in relation to a few identified residences, which hardly amounted to any case at all. Learned counsel emphasized that despite the fact that such a huge amount was due and payable KESC did not disconnect electricity to the pumping stations and installations and other facilities operated by KWSB. However, it was Accepted that on 6 -10-2011 and 6-1-2012, "final disconnection notices" were served on KWSB under section 24(1) of the Electricity Act, 1910 on account of the around Rs,15.5 Billion that was 'then outstanding.
' Subsequently, another such notice was served on or about 16-2-2012. Claiming an amount of around Rs,16.6 Billion (which was by then the outstanding claim), and threatening disconnection as before. In this notice. KWSB was asked to make payment of at least Rs,1 Billion but, learned counsel submitted even this small portion of the outstanding amount was not paid. However, even then no disconnection actually took place.
7. Learned counsel submitted that admittedly. KWSB had been unable to comply with the interim arrangement made on 27-2-2012. No appeal had been preferred against this order, and the 21 days stipulated therein had also expired. He submitted that the interim arrangement had attained finality, and KWSB was not entitled to any injunctive relief in any manner. It was only after the expiry of the 21 days that KESC had disconnected power supply to KWSB's head office, and this was the only facility to which electricity was not being supplied. Learned counsel submitted that KESC had accepted the interim arrangement, but. KWSB had failed to comply with its terms.
8. As regards Article II of the Implementation Agreement. Learned counsel submitted that in fact KESC had invoked the payment mechanism provided therein on account of KWSB's failure to make payments, and sent the notices thereby required to GOP. It had meticulously complied with the procedural requirements of Article II. However, not only did GOP fail to make payment, it did not even bother replying to the notices. KESC had not taken any further steps in terms of the Implementation Agreement to obtain payment from GOP. However, learned counsel emphasized, the primary responsibility and legal liability remained that of KWSB. Learned counsel also submitted that the doctrine of privity of contract was well established and since KWSB was a stranger to the Implementation Agreement, it could not in any case invoke or rely on the same.
Learned counsel contended that KESC could not be made to suffer doubly, i,e,, not receive any payment either from GOP or KWSB and yet be required to continue supplying power to the latter. He submitted that KW SB's case was entirely without merit and there were no equities in its favour. It had failed to establish any of the ingredients for interim relief and therefore all of its applications merited dismissal.
9. Learned AAG, appearing for the defendant No,3 ("GOS") without admitting any liability supported the case put forward by KWSB. He submitted that water was one of the necessities of life, and shutting down KWSB, which would result from the disconnection of electricity supply, would deprive the people of Karachi of this vital resource. Learned counsel submitted that, like other necessities of life, supply of water was a State responsibility and therefore in a sense KWSB acted as the alter ego of GOP in this regard. It was precisely in recognition of this that Article II had been made part of the Implementation Agreement. He submitted that KESC was bound by the agreement in its entirety and could not pick and choose, i,e,, enforce those provisions which suited it and seek to evade those which did not. He further submitted that water charges were nominal (in the sense of being less than the operating cost of KWSB) and had risen only incrementally in recent years. In contrast, electricity charges had increased manifold. The public interest, which was paramount, required that KESC remain bound by and act in accordance with its obligations under Article II. Learned AAG also referred to Article 38 of the Constitution to emphasize the duties of the State in this regard. He referred to the calamitous results for Karachi if its water supply were to be shut down or held hostage to the threat of a shutdown on account of KESC's refusing the supply electricity.
10. Learned counsel for KWSB, exercising his right of reply, referred to one Pakistani and a number of Indian decisions, which I will consider later, to contend that it was well settled that there was a general exception to the doctrine of privity in favour of beneficiaries under contracts. In the alternative, he contended that KWSB's case came within the other well recognized exceptions to the doctrine. Learned counsel for KESC, replying to the submissions by learned AAG, pointed out that GOS had not filed any counter affidavit. He took issue with the factual assertions made by learned AAG. And again pointed out that the primary relief sought by KWSB was against GOS and GOP. Given the importance of the legal issue involved, I permitted learned counsel to also reply to the case-law cited by learned counsel for KWSB. Learned counsel relied on certain Indian decisions, considered below, to contend that it was well settled that the privity of contract was the established doctrine.
11. I have heard learned counsel as above, examined the record with their assistance and considered the case-law reliedupon, Before proceeding further, one procedural point requires consideration. Now, the fact is that the case put forward by learned counsel for KWSB on the basis of Article II of the Implementation Agreement finds no mention in the plaint. In other words, the case as argued goes beyond the case as pleaded. Quite properly, learned counsel for KESC took the objection that this was impermissible. However, equally properly, he accepted the 1i-imitations of a procedural objection of this nature at this stage of the proceedings. In my view, the procedural objection ought not to stand in the way of a determination on the merits. It is to be kept in mind that KESC is party to the Implementation Agreement and therefore reliance on this agreement cannot take it by surprise. Indeed, both parties to this agreement are defendants in the suit. In my order dated 27-2-2012 (referred to above), I had specifically directed that a copy of the Implementation Agreement be placed on the record, and had also, inter alia, directed that the Court be assisted on the following question: "In so far as this Implementation Agreement is concerned, learned counsel for parties, in particular learned counsel for plaintiff. May assist the Court as to whether, if the Federation has assumed certain obligations in terms of the said agreement. That as a matter of law absolves the plaintiff from its obligations towards the defendant No, 1 in respect of the electrical power being consumed by the plaintiff."
In my view, this question essentially expresses the basis on which learned counsel for KWSB argued the matter, and as to which therefore learned counsel for KESC had appropriate notice.
Accordingly, in the present facts and circumstances, the procedural objection cannot be sustained.
12. I turn therefore to a consideration of the fundamental legal issue that requires consideration and for convenience state it once again: can the doctrine of privity of contract in relation to third party benefits be modified, and if so. Ought this to be done, and if so, in what manner and to what extent? The general rule is stated as follows in Chitty on Contracts, 30th (2008) ed., para 18-001:-- "Under the common law doctrine of privity of contract, the general rule is that contracts cannot be enforced either by or against third parties."
In Mastersons v. Ebrahirn Enterprises and another 1988 CLC 1381, a learned single Judge of this Court stated the principle in the same terms as follows-- "A contract cannot (as a general rule) confer rights or impose obligations arising under it on any person except party to it.'
In certain cases, however. Third parties are entitled to sue in their own right." (pg. 1388)
' As noted by the learned single Judge, there are certain exceptions. Some of which are judicially evolved while others are statutory in nature. Two of the established and recognized exceptions are where the contract creates a trust or quasi-trust in favour of the third party or a case involving a family arrangement.
13. The general rule has not been immune from, criticism. Thus, the following appears in Chitty on Contracts immediately after the sentence reproduced above:-\ "The second limb of the rule (under which the contract cannot impose liabilities on anyone except a party to it) is generally regarded as just and sensible. But the first limb (under which a contract cannot confer rights on anyone except a party to it) has been the subject of much criticism, culminating in a Report, issued by the Law Commission in 1996.. On Privity of Contract: Contracts for the Benefit of Third Parties. The recommendations of this Report have (where legislation for this purpose was necessary) been implemented by the Contracts (Rights of Third Parties) Act, 1999."
(op. Cit.)
' I am here concerned only with the first limb of the rule, since the third party {KWSB) invokes and claims the benefit conferred upon it as a Strategic Customer by Article II of the Implementation Agreement. The first limb of the rule is herein after referred to as the "no-benefit rule" (or sometimes, simply as the "rule"). In order to,properly assess the present state of the no-benefit rule, it will be necessary to examine how it has been dealt with in different common law jurisdictions. (It may be noted that the right as may be acquired by a third party in respect of or under a contract between others is also known by the Latin phrase jus quaesitum tertto. I mention this because this phrase is used in some of the cases considered below.)
14. I begin the survey from the original home of the common law. It appears that initially, English law was uncertain on the point with some decisions permitting third parties to claim contractual benefits and others refusing to recognize any such possibility. The common law is regarded as having been settled in favour of the no-benefit rule by Tweddle v. Atkinson (1861) 1 B&S 393; 121 ER
762. The rule was subsequently confirmed by the House of Lords in Dunlop Pneumatic Tyre Company Ltd. v. Selfridge and Company Ltd. [19151 AC 847: [1915] UKHL 1 (a decision referred-to by learned counsel for KESC), where it was observed as follows:-- ... In the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract." (per Viscount Haldane, LC; pg. 853)
' Although the no-benefit rule thus received, fairly early on, the highest judicial imprimatur. It was nonetheless subjected to strong criticism. As early as 1937, the Revision Committee (chaired by the Master of the Rolls) noted, in its Sixth Interim Report (Cmd 5449), that English law was almost alone in its rigid adherence to the rule and essentially recommended its abrogation subject to certain safeguards. Even on the judicial side, the no- benefit rule came under criticism, especially from Lord Denning. In. e.g., Drive Yourself Hire Co. (London) Ltd. v. Strutt [1953] 2 All ER 1475, he observed (as Denning, LJ) as follows: "It is often said to be a fundamental principle of our law that only a person who is a party to a contract can sue on it. I wish to assert, as distinctly as I can, that the common law in its original setting knew no such principle. Indeed, it said quite the contrary. For the 200 years before 1861 it was settled law that, if a promise in a simple contract was made expressly for the benefit of a third person in such circumstances that it was intended to be enforceable by him, then the common law would enforce the promise at his instance. Although he was not a party to the contract." (pg. 1482)
' Nonetheless, the no-benefit rule was reaffirmed by the House of Lords in such decisions as Midland Silicones Ltd. v Scruttons Ltd. (19621 1 All ER 1; 119611 UKHL 4 (Lord Denning dissenting) and Beswick v Beswick 119671 2 An ER 1197: 119671 UKHL 2, the latter decision -being regarded as the leading modern authority in English law.
15. Notwithstanding the foregoing decisions, judicial criticism of the no-benefit rule continued apace. In Darlington Borough Council v. Wiltshier Northern Ltd. 119951 3 All ER 895: (1994] .EWCA Civ 6, Steyn LJ (who later became a taw Lord) strongly criticized the rule in the opening part of his judgment (pp. 903-5), and reference may be made to the passage with which he started (Emphasis supplied): "The case for recognizing a contract for the benefit of a third party is simple and straightforward.
The autonomy of the will of the parties should be respected. The law of contract should give effect to the reasonable expectations of contracting parties. Principle certainly requires that a burden should not be imposed on a third party without his consent. But there is no doctrinal, logical or policy reasons why the law should deny effectiveness to a contract for the benefit of a third party where that is the expressed intention of the parties. Moreover, often the parties, and particularly third parties, organize their affairs on the thith of the contract. They rely on the contract. It is therefore unjust to deny effectiveness to such a contract.... (Emphasis supplied)
16. Steyn, Li had expected that there would be a report from the (UK) Law Commission, and shortly afterwards (in 1996) the Commission did publish its report, referred to in the passage from Chitty On Contracts cited above (see para 13). This report (available at: htto://lawcommission.
Justice.Gov.Ukioublicationsiorivity-of-contract.Htrn) merits and repays close study. It comprehensively sets out the defects and deficiencies of the no-benefit rule, and makes a broad comparative study of the position in other common law jurisdictions. Attached to the report was a proposed bill, which ultimately resulted in the (UK) Contracts (Rights of Third Parties) Act, 1999.
17. The position therefore is that while the no-benefit rule is generally still part of English law legislative intervention has, in many respects. Removed many of its defects and reduced much of its rigor. I. Now turn to consider the situation in other common law jurisdictions.
18. In the United States, at precisely the time that the no-benefit rule was crystallizing in Tweddle v.
Atkinson (1861) 1 B&S 393, the common law took a diametrically different route. In the leading case of Lawrence v. Fox (1859) 20 NY 268, the Court of Appeals of the State of New York (contract law being a matter for the states in the USA) observed by majority decision that "a promise made to one for the benefit of another, he for whose benefit it is made may bring an action for its breach"
(available at: www. Cou rts. State. Nv. u s / reporter/ archives / lawrence fox. Htm). This rule, which of course is the opposite of the no-benefit rule. Has been adopted in all the states. It also appears as 302 in the Restatement (2nd) of Contracts. (It may be noted that in "American jurisprudence, the Restatements of the Law are a set of treatises... About general principles of common law....
Although Restatements of the Law are not binding authority in and of themselves, they are highly persuasive...." The second Restatement of contracts is regarded as "one of the best-recognized and frequently-cited legal treatises in all of American jurisprudence" (see the relevant articles in Wikipediaj.)
19. In Australia also. The no-benefit rule came in for judicial criticism, and in Trident General Insurance Co. Ltd. v McNicce Bros Pty Ltd. (1988) 165 CLR 107; [1988] HCA 44, a case arising out of an insurance contract, the rule was considerably relaxed. Toohey, J.. For example, observed as follows:-- "But when a rule of the common law harks back no further than the middle of the last century.
When it has been the subject of constant criticism and when, in its widest form, it lacks a sound foundation in jurisprudence and logic and further, when that rule has been so affected by exceptions or qualifications, I see nothing inimical to principled development in this Court now declaring the law to be otherwise in the circumstances of the present case. That -view is strengthened when, as Windeyer J. Pointed out in Olsson v. Dyson [(1969) 120 CLR 365; 119691 HCA 3], at p.393: "It is not however a rule which is necessarily inherent in the idea of contract."" (para 22)
It is also to be noted that in the Australian states of Western Australia. Northern Territory and Queensland, the no-benefit rule has been wholly or partially abrogated by statute.
20. In New Zealand, the no-benefit rule was substantially abrogated by the Contracts (Privity) Act, 1982, and the legislature also intervened similarly in Singapore with the Contracts (Rights of Third Parties) Act, 2001. In Ireland (2006 consultation paper) and Hong Kong (2005 report), the law commissions have also recommended the substantial abrogation of the rule (the recommendations are available on their respective websifes).
21. In Canada. The Supreme Court in two important decisions (available at: http://scc.Lexum.Org/en/index.Html), London Drugs Ltd. .v. Kuehne and Nagel International Ltd.
[1992] 3 SCR 299 and Fraser River Pile and Dredge Ltd. v. Can-Dive Services Ltd. [1999] 3 SCR -108, has created a "qualified exception" to the no-benefit rule. The first decision was relied upon by learned counsel for KWSB. I will consider these decisions in some detail later in the judgment. It may also be noted that the provinces of Quebec and New Brunswick have legislatively abrogated the no-benefit rule either entirely or at least in substantial part.
22. As the foregoing survey indicates, the position in much of the common law world is now radically different from that prevailing when Tweddle v. Atkinson or even Dunlop Pneumatic (supra) were decided. There is a widespread recognition that the no-benefit rule is deficient and defective and courts, law commissions and legislatures (to say nothing of academics) have intervened to rectify the situation. In many cases, the no-benefit rule has been essentially abrogated; in others, it stands substantially eroded.
23. I turn now to consider the position in India, the common law jurisdiction with which our law of contract still has the greatest similarity. The judicial approach in India is the major exception to the foregoing trends, despite some strong dissenting voices in the past. The first case, relied upon by learned counsel for KWSB, that requires consideration is the decision of the Privy Council in Khwaja Muhammad Khan v. Husaini Begam (1909-10) 37 IA 152; [1910] UKPC 25. The facts of this case were similar to Tweddle v. Atkinson. Both involved marriage settlements, in which the beneficiary was not party to the relevant contract, but subsequently tried to enforce its terms. In Tweddle v. Atkinson of course, this attempt failed thereby crystallizing the no-benefit rule. The Privy Council however refused to apply Tweddle v. Atkinson. It was observed as follows:-- "Their Lordships desire to observe that in India and among communities circumstanced as the Mahomedans, among whom marriages are contracted for minors by parents and guardians, it might occasion serious injustice if the common law doctrine was applied to agreements or arrangements entered into in connection with such contracts." (pg. 159)
' The . Next decision is also that of. The Privy Council, reported as Jamna Das v. Pandit Ram Autar Pande and others (1911-12) 39 IA 7; [1911] UKPC 69. This is a short judgment (comprising literally of two paragraphs), and appears to turn entirely on whether or not section 90 of the Transfer of Property Act. 1882 applied (which was repealed when the C.P.C. Came into force). I note this decision because it is sometimes cited as authority in support of the application of the no-benefit rule in India. However, it does not appear to be such. It is pertinent to note that two of their Lordships who sat on the respective Boards that decided the cases were common (Lord Macnaghten and Mr. Ameer Ali), but no reference was made in Jamna Das to Husaini Begam, where, as just noted, Tweddle v. Atkinson was not applied. Indeed, Jamna Das itself also did not refer to the last mentioned case.
24. The next ,cases that require attention both date to 1914. In Debnarayan Dub- v. Chunilal Ghose (1914) 41 Cal. 137, it was observed as follows: " we now have ample authority for saying that the administration of justice in these Courts is not to be in any way hampered by' the doctrine laid down in Tweddle v. Atkinson. That. I take to be the result of the decision of the Privy Council in the recent case Khwaja Muhcunmad Khan v. Husaini Begam ILR (1910) All. 410; L.R. 37 I.A.
152."
' However, in Iswa ram Pillai v. Tharagan and others AIR 1914 Madras 701. The opposite view was taken. The Madras High Court was referred not merely to Tweddle v. Atkinson and other English cases, but also to Khwaja Muhammad Khan v. Husaini Begam and the decision of the Calcutta High Court just considered. After a detailed and careful analysis, the High Court came to the following conclusion:-- "I am therefore of opinion that the principle that the proper person to bring an action is the person whose right has been violated.... a principle recognized both by common law and equity applies in India also no less in England and that, except in cases which are not material at present the person who acquires a right to enforce a contract of such a nature as we have to deal with is the promisee and not a stranger to the contract who may benefit under the contract...." (pg. 706)
25. In Krishna Lal Sadhu and another v. Mt. Promila Bala Dasi AIR 1928 Calcutta 518, a decision cited by learned counsel for KESC, the Calcutta High Court took the view that a beneficiary under a life insurance contract was not entitled to enforce the claim against the insurance company because of lack of privity. The Court considered the decisions of the Privy Council in Khwaja Muhammad Khan v. Husaini Begam and of the High Court itself in Debnarayan Dutt v. Chunilal Ghose (supra), but distinguished the same.
26. It is thus clear that from early on, there was a difference and divergence of opinion among the High Courts, and even within High Courts, as to whether or not the no-benefit rule was applicable in India.
27. The next case, which was relied upon by learned counsel for KESC, that requires attention is a Full Bench decision of the Madras High Court reported as Thirumulu Subbu Chetti v. Aruhachalam Chettiar AIR 1930 Madras 382. The Full Bench considered the case-law in great detail, including those decisions of the Madras High Court itself where divergent views had been expressed. It was observed as follows:-- "There has been great divergence of opinion in Courts in India as to how far a stranger to a consideration can enforce the contract and how far the rule in Tweddle v. Atkinson (1861) 1 B. & S 393: 121 E.R. 762 is applicable in India. There are decisions which decide that the rule of English law as laid down in Tweddle v. Atkinson (1861) 1 B. & S 393: 121 E.R. 762 and Gandy v. Gandy (1885) 30 Ch. D. 57 will apply to cases in India. There are other decisions which are to the effect that the principle in Tweddle v. Atkinson (1861) 1 B. & S 393: 121 E.R. 762 founded as it is on English Law on the form of action known as assumpsit is not applicable to contracts in India governed by the Contract Act where all the parties are before the Court and the Court can do complete justice between them.
There are other decisions which take a middle course and decide that the rule in Tweddle v.
Atkinson (1861) 1 B. & S 393 : 121 E.R. 762 is applicable subject to certain specified exceptions which we shall refer to later on. It is difficult to reconcile the various views and we think the balance of authority is in favour of the view that a stranger to a contract cannot without more sue to enforce it." (p. 384)
28. The debate however, did not end. In Khirod Behari Dutt v. Man Gobinda and others AIR 1934 Calcutta 682, a decision relied upon by learned/counsel for KWSB, it was observed as follows: "Nor is there anything in the Indian Contract Act which prevents the recognition of a right in a third party to enforce a contract made by others, which contains a provision for his benefit.. In the United States of America this is frankly recognized. Section 136, American Law of Contract, as 'stated by the American Law Institute, provides that 'a promise to discharge the promisee's duty creates a duty of the promisor, the creditor beneficiary, to perform the promise." (p.689) (The reference to the US "Law of Contract" was to the first edition of the Restatement.)
' Reference was then made to Khwaja Muhammad Khan v. Husaini Begam, and Debnarayan Dutt v.
Chunilal Ghose (supra) and other cases, including the Full Bench decision of the Madras High Court (supra). It was held that the correct view was that expressed in the 1914 Calcutta decision (supra) and, speaking with reference to that case, it was observed (emphasis supplied):-- "If that case can be explained, and it is felt desirable to explain it, by pretending that there was something in it iri the nature of a trust or agency, then, in my opinion, in the present case the facts constituted a trust or agency just as much as in that case, or in the English cases to which I have referred. However. I prefer to base my decision, on a frank recognition that these are fictions and that in India no necessity arises for resorting to them.
' In the present case all the parties were before the Courts below and are before us, and neither common sense nor convenience, nor equity nor good conscience require me to force the parties into further and unnecessary litigation. In my opinion, the plaintiff is entitled to enforce the contract in suit." (p. 690)
' In Bhujendra Nath Biswas and others v. Sushamoyee Basu and another AIR 1936 Calcutta 67, another decision cited by learned counsel for KWSB, the High 'Court again took the view that "a strange'r to a contract which is to his benefit is entitled to enforce the contract to his benefit...." (pg.
68),
29. In 1936, the Bombay High Court weighed in on the debate. In National Petroleum Co. Ltd. v.
Popatlal Mulji AIR 1936 Bombay 344, it was observed as follows: "The question really is, whether, where A and B enter into a contract under which A agrees to indemnify B against all his debts, a creditor of B can sue A on the contract. The rule of English law is clearly established that the only persons who can sue upon a contract are the parties to that contract. No doubt there are many cases in the books in which persons who are not in terms parties to a contract have been allowed to sue upon it.... Those cases are a recognized exception to the general principle that only parties to a contract can sue' upon it. There seems to me to be nothing in the Indian Contract Act which suggests that that principle does not apply in India; It Is true that the definition of 'consideration' in section 2 of the Indian Contract Act gives a wider meaning to that term than is accepted in English law, because it includes consideration moving from the promisee or any other person. But the fact that consideration may move from a third party does not involve the proposition that a third party may sue upon a contract. The learned trial Judge based his judgment very largely on Debnarayan Dutt v. Chunilal Ghose I.L.R. (1914) Cal.
137. But the facts of that .Case were peculiar.... I am not sure that I should be prepared to go as far as the learned Chief Justice went in some of his observations. Later cases in the Calcutta High Court have applied the principle underlying that case to cases where the facts were quite different.... In the latest case in Calcutta, Kehirod Bihari Dutt v. Man Gobinda Panda I.L.R. (1934) 61 Cal. 841, the Court, after reviewing all the authorities, English and Indian, came to the conclusion that under Indian law any person who took a benefit under a contract to which he was not a party could sue directly upon that contract, and that it was not necessary to invoke the doctrine of trust or agency. With all respect to the learned Judges who decided that case, I am not prepared to adopt that view. The decision seems to me to be opposed to established principle and authority; and if the rule is to be introduced into this country that any person may sue upon a contract if he takes a benefit under it, although a stranger to such contract, I think that such rule must be introduced by the legislature, and not by the Courts. From the point of view of practical convenience there seems to me to be quite as much to be said against the introduction of such a rule, as in favour of it. The reasoning in the Calcutta case is in conflict with a decision of the full bench of the Madras High Court in Subbu Chetti v. Arunachalam Chettiar I.L.R. (1929) Mad. 270, where it was held that a person not a party to a contract could not sue upon the contract except in the special cases there enunciated. I prefer the Madras decision to the reasoning in. Kehirod Bihari Dutt's case." (pg. 346; Emphasis supplied)
30. As is clear from the foregoing, there was a considerable divergence of views among (and to a certain extent, even within) the pre-Partition High Courts, with the Calcutta High Court, in effect, concluding that the no-benefit rule did not apply and the Madras and Bombay High Courts adhering to the opposite view. However, it is generally accepted (see para 34 below) that the weight of authority was that the no-benefit rule was applicable.
31. As regards the situation after 1947, learned counsel for KESC relied on Babu Ram Budhu Mal and others v. Dhan Singh Bishan Singh and others AIR 1957 Punjab 169, but it is not necessary to consider this, and other cases in any detail. This is so because in M.C. Chacko v. State Bank of Travancore AIR 1970 SC 504, the Supreme Court of India expressed its definite view in favour of the no-benefit rule as follows, in the closing part of para 9 of the judgment:-- "It must therefore be taken as well settled that except in the case of a beneficiary under a trust created by a contract or in the case of a family arrangement, no right may be enforced by a person who is -not a party to the contract." (pg. 508)
' Interestingly, this case was cited by learned counsel for KWSB, who relied on the opening part of para 9 (at pg. 507), where it is stated as follows: "It is settled law that a person not a party to a contract cannot subject to certain well recognised exceptions enforce the terms of the contract: the recognised exceptions are that beneficiaries under the terms of the contract or where the contract is a part of the family arrangement may enforce the covenant." (Emphasis supplied)
' Learned counsel relied on the words emphasized. Now, read in isolation, these words appear to support his case, but if so, then it is obvious that there would be an inconsistency between the opening part of para. 9 and the closing part thereof. I find it difficult to accept that there could be such a discrepancy in the same decision and in the same paragraph. In my view, the correct approach is to read the words relied upon by learned counsel contextually, and when so read, I have no doubt whatsoever that the Supreme Court of India intended to restrict the word "beneficiaries" to cases of trusts or quasi trusts created by or under contracts, as expressly stated in the last part of para 9.
32. Learned counsel for KWSB also relied on Klaus Mittelbachert v. East India Hotels Ltd. AIR 1997 Delhi 102 (SB), where, in para 124 at pg. 230, the learned single Judge observed as follows: "The doctrine of privity of contract is subject to many exceptions. One of them being that a beneficiary can sue on a contract for enforcement of the benefit intended to confer on him by the contract."
Strangely, the High Court did not cite the decision of the Supreme Court noted supra. In my view, with respect, the decision of the Delhi High Court did not correctly state the law in India on the point. It is also to be noted that the decision was reversed on appeal: E. 1 Ltd. And another v. Klaus Mittelbachert AIR 2002 Delhi 124. The learned Division Bench concluded: "Judgment and decree passed by learned single Judge is set aside including the findings recorded on various issues and leaving the questions of law open" (pg. 128),
33. Learned counsel for KWSB also cited Peruri Somanna v. Grandhi Manikarn (1911) 14 Ind. Cases 517 (Madras), Tulsidas and others v. Gangaram Ghanshamas AIR 1925 Sindh 272, Torabaz Khan and another v. Nanah Chand and another AIR 1932 Lahore 566, Ram Dhan and another v. L. Chauthmal and others AIR 1935 Oudh 496 and Pandurang Ganpatrao v. Vishwanath Pandurang AIR 1939 Nagpur 20. However, these decisions in my view clearly came within the scope of the well recognized exceptions to the no-benefit rule, in particular where the beneficiary takes under a trust (or quasi-trust) created or recognized by or under the contract or involve a family arrangement. In my view, none of the exceptions (whether judicially evolved or statutory) apply in the facts and circumstances of the present case, and therefore it is not necessary to consider these decisions in any detail.
34. Interestingly, the Privy Council, in a post-Partition decision reported as Kepong Prospecting Ltd. v. A. E. Schmidt [1968] AC 810; [1967] UKPC 22, also concluded that the no-benefit rule was the doctrine applicable in India. This was an appeal from Malaysia, where the law of contract was based on the Contract Act. The Privy Council observed as follows:-- "Mt was suggested that... The law of Malaysia differed from the law of England in admitting the principle of jus quaesium tertio. Their Lordships are of opinion that the appellant Company failed to make good this contention. Their Lordships were not referred to any statutory provision by virtue of which it could be said that the Malaysian law as to contracts differs in so important a respect from English law. It is true that section 2(d) of the Contracts Ordinance gives a wider definition of "consideration" than that which applies in England particularly in that it enables consideration to move from another person than the promisee, but the appellant was unable to show how this affected the law as to enforcement of contracts by third parties, and it was not possible to point to any other provision having this effect.... Reference was made to certain Indian decisions on the Indian Contract Act on which the Malaysian Contracts Ordinance is based. These were Subbu Chetti v. Arunachazan(sic) Chetttar (1930) 53 Madras 270 (where however it was said that the balance of authority is in favour of the view that a stranger to the contract cannot without more sue to enforce it) and Khirod Behari Dutt v. Man Gobinda AIR 1934 Calcutta 682. But other decisions in a contrary sense were cited which appeared to their Lordships to be more authoritative: Their Lordships refer to decisions cited in Subbu Chetti v. Atunachazaurt(sic) Chetti (u.$) and in Pollock and Mulla on the Indian Contract Act 6th Edition, pp.21 and two decisions so recent as 1957 (Protapmull Rameswa r v. State of West Bengal 61 C.W.N. 78 and Babu Ram a Dhan Singh AIR 1957 Punjab 169). These, in their Lordships' view, confirm that the law was correctly stated by Sir John Beaumont C.J in the Bombay case of National Petroleum Co. Ltd. v. Popatlal AIR 1936 Bombay 344.
In a passage, which through strictly obiter. Was based on a full argument and consideration of the cases, the learned Chief Justice expressed the view that Khirod Behari Dutt v. Man Gobinda (u.$) was opposed to established principle and authority. An argument on this legal issue was, so their Lordships were informed, submitted to the Federal Court: no reference to it appears in their judgment and their Lordships must assume that they did not accept it. The appellants failed to persuade their Lordships that they were wrong."
35. Although the judicial view in India has thus clearly settled in favour of the no-benefit rule, the Indian Law Commission took an entirely different approach. As long ago as 1958, in its Thirteenth Report, which was devoted to the Contract Act (available at: http://lawcommissionofindianic.In), the Law Commission recommended the inclusion of a new section 37A in the following terms (see pp. 8-11 and 79-80 of the Report):-- "37A. Benefits conferred on third parties.
(1) Where a contract expressly confers a benefit directly on a third party, then, unless the contract otherwise provides, it shall be enforceable by the third party in his own name, subject to any defences that would have been valid between the contracting parties.
(2) Where a contract expressly conferring a benefit directly upon a third party has been adopted, expressly or impliedly, by the third party, the parties to contract cannot substitute a new contract- for it or rescind or alter it so as to affect the rights of the third party."
' As is clear from the proposed section, the Indian Law Commission recommended the complete abrogation of the no-benefit rule (subject to the safeguards as therein stated), a position starkly (and startlingly) different from that which found favour with the Indian Supreme Court.
36. Learned counsel for KWSB also relied on certain observations made by a learned single Judge of the Lahore High Court in Allah Wasaya v. Sardar Shah PLD 1984 Lahore 59 at pp. 64-65. Two pre- Partition decisions of the Calcutta High Court were cited before the Court. One was the 1928 decision noted in para 25 above; the other was Jnan Chandar Mukherjee v. Manoranjan Mara and others AIR 1942 Calcutta 251. In both these decisions, the Calcutta High Court concluded that the no-benefit rule applied, but also recognized and applied the well established exception to that rule where the contract can be regarded as creating a trust in favour of the third party beneficiary. It was this exception that was applied by the Lahore High Court in the case before it. There is nothing in the judgment that would suggest that the learned single Judge took the view that the no-benefit rule did not apply. Thus, this decision rather than supporting the case sought to be made by learned counsel for KWSB, would actually seem to go against it insofar as his submission that the law recognizes a broad exception to the no-benefit rule in favour of beneficiaries generally is concerned.
37. It is well settled since the decision of the Privy Council in Irrawady Flotilla Company v.
Bugwandas (1891) 18 Cal. 620; [18911 UKPC 23 (reaffirmed in Jwaladutt R. Pillani v. Bansilal Motilal AIR 1929 PC 132) that the Contract Act is not exhaustive of the principles of the law of contract. As observed in the case first mentioned: "The Act of 1872 does not profess to be a complete code dealing with the law relating to contracts. It purports to do no more than to define and amend certain parts of that law" (pg. 628). Matters not covered by the Contract Act are to be decided on the principles of "justice, equity and good conscience", and indeed, the debate and divergence of views amongst the High Courts described above in the present case is an excellent example of this.
In pre-Partition days, while applying the principles of "justice, equity and good conscience", Indian High Courts looked naturally to English law, and their fixation with that law is perfectly understandable. In modern times however, it is not necessary to limit oneself to the original home of the common law. This is all the more so when English courts have no hesitation (even at the highest level) in enriching themselves by developments in other common law jurisdictions.
38. After having carefully considered the matter, and examined the material referred to above, I have come to the conclusion that the no-benefit rule cannot be sustained. The present position in India is clearly out of step with the view that now prevails in, and has found favour across, the common law world. In my view, the criticism to which the rule has been subjected is wholly justified and entirely persuasive. I am firmly of the view that the law of Pakistan should move in the same direction. The answer to the first two parts of the question posed at the beginning of this judgment (can the doctrine of privity of contract in relation to third party benefits be modified, and if so, ought this to be done) must therefore be in the affirmative. The only question that remains is, in what manner and to what extent?
39. In my view, for reasons to be stated presently, it would not be appropriate at this stage, and in this decision, to hold that the no benefit rule is completely abrogated. Judicially, an incremental approach is to be preferred and should be adopted. After having considered the position obtaining in the various common law jurisdictions, in my view the no-benefit rule should be regarded as being modified in a manner, and to an extent, that I will presently state, which is an amalgam of the approach taken by the Canadian Supreme Court in the two decisions noted above (para. 21) and the ,section 37A(1.) proposed to be added to the Contract Act by the Indian Law Commission.
For this purpose, it will be necessary first to consider the Canadian decisions in some detail.
40. In the first case, London Drugs, Iacobucci, J., writing for the majority, undertook a detailed and thorough analysis of the no-benefit rule, its genesis and development and also the criticism that has been directed against it. The judgment merits close study, especially the portion titled "The Doctrine of Privity of Contract and Third Party Beneficiaries". The conclusions arrived at by the Court need to be stated as some length:-- "As we have seen earlier, the doctrine of privity has come under serious attack for its refusal to recognize the right of a third party beneficiary to enforce contractual provisions made for his or her benefit. Law reformers, commentators and judges have pointed out the gaps that sometimes exist between contract theory on the one hand, and commercial reality and justice on the other. We have also seen that many jurisdictions around the world, including Quebec and the United States, have chosen from an early point (as early as the doctrine became "settled" in the English common law) to recognize third party beneficiary rights in certain circumstances. As noted by the appellant, the common law recognizes certain exceptions to the doctrine, suck as agency and trust, which enable courts, in appropriate circumstances, to arrive at results which conform with the true intentions of the contracting parties and commercial reality. However, as many have observed, the availability of these exceptions does not always correspond with their need. Accordingly, this Court should not be precluded from developing the common law so as to recognize a further exception to privity of contract merely on the ground that some exceptions already exist.
' While these comments may not, in themselves, justify doing away with the doctrine of privity, they nonetheless give a certain context to the principles that this court is not dealing with. This context clearly supports in my view some type of reform or relaxation to the law relating to third party beneficiaries. Again, I reiterate that any substantial amendment to the doctrine of privity is a matter properly left with the legislature. But this does not mean that courts should shut their eyes to criticisms when faced with an opportunity, as in the case at bar, to make a very specific incremental change to the common law.
' At this point, it is useful to recall briefly the salient facts with which this Court is seized. The appellant entered into a contract with Kuehne and Nagel for certain services, namely, the storing of its transformer. When the contract was signed, the appellant knew that it contained a clause limiting the liability of the "warehousenfan" to $40. It also knew, or can be assumed to have known, that Kuehne and Nagel employed many individuals and that these employees would be directly involved in the storing of the transformer. The appellant chose not to obtain additional insurance from Kuehne and Nagel and instead arranged for its own all-risk coverage. When the damages to the transformer occurred, the respondents, two of Kuehne and Nagel's employees, were acting in the course of their employment and were performing services directly , related to the contract of storage. The appellant is now seeking to recover the full amount of damages from these employees, since it can only obtain $40 from the employer. As a. Defence to such a claim, the respondents are attempting to obtain the benefit of the limitation of liability clause. ...Mt would be absurd in the circumstances of this case to let the appellant go around the limitation of liability clause by suing the respondent employees in tort. The appellant consented to limit the "warehouseman's" liability to $40 for anything that would happen during the performance of the contract. When the loss occurred, the respondents were acting in the course of their employment and performing the very services, albeit negligently, for which the appellant had contracted with Kuehne and Nagel. The appellant cannot obtain more than $40 from Kuehne and Nagel, whether the action is based in contract or in tort, because of the limitation of liability clause. However, resorting to exactly the same actions, it is trying to obtain the full amount from the individuals ("warehousemen") who were directly responsible for the storing of its goods in accordance with the contract. As stated earlier, there is an identity of interest between the 'respondents and Kuehne and Nagel as far as performance of the latter's contractual obligations is concerned. When these facts are taken into account, and it is recalled that the appellant knew the role to be played by employees pursuant to the contract, it is clear to me that this Court is witnessing an attempt in effect to "circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort". In my view, we should not sanction such an endeavour in the name of privity of contract.
' In the end, the narrow question before this Court is: in what circumstances should employees be entitled to benefit from a limitation of liability clause found in a contract between their employer and the plaintiff (customer)? Keeping in mind the comments made earlier and the circumstances of this appeal, I am of the view that employees may obtain; such a benefit if the following requirements are satisfied:
(1) The limitation, of liability clause must, either expressly or impliedly, extend its benefit to the employees (or employee) seeking to rely on it; and
(2) The employees (or employee) seeking the benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the plaintiff (customer) when the loss occurred. Although these requirements, if satisfied, permit a departure from the strict application of the doctrine of privity of contract, they represent an incremental change to the common law."
41. In the next decision, Fraser River. Lacobucci, J., this time speaking for a unanimous Court, clarified that the ratio of London Drugs was not limited to a situation involving an employer- employee relationship, but was a general relaxation or qualification of the no-benefit rule. The requirements for the qualified exception to apply were recast in general terms, and it was observed as follows:-- "31. As a preliminary matter, I note that it was not our intention in London Drugs, supra, to limit application of the principled approach to situations involving only an employer-employee relationship. That the discussion focussed on the nature of this relationship simply reflects the prudent jurisprudential principle that a case should not be decided beyond the scope of its immediate facts.
32. In terms of extending the principled approach to establishing a new exception to the doctrine of privity of contract relevant to the circumstances of the appeal, regard must be had to the emphasis in London Drugs that a new exception first and foremost must be dependent upon the intention of the contracting parties. Accordingly, extrapol ting from the specific requirements as set out in London Drugs, the determination in general terms is made on the basis of two critical and cumulative factors: (a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? And (b) Are the. Activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties'?"
42. In my view, the two conditions identified by the Supreme Court of Canada furnish an appropriate basis for developing a proper test for a qualified exception to the no-benefit rule. If such (or similar) conditions are satisfied, then, as recommended by the Indian Law Commission in its proposed section 37A(1), the contract, insofar as it confers the benefit, may be enforced directly by the third party. However, this would be subject to any defences that would have been valid between the contracting parties.
43. It is my view therefore that in Pakistan, the no-benefit rule should be applied only in a modified form, subject to a general exception or qualification to the rule that will apply if the following test, comprising of four elements, is fulfilled:--
(a) Did the parties to the contract intend to confer or extend the benefit in question on or to the third party seeking to rely on the contractual provision?, and
(b) Are the actions of any of the contracting parties in relation to or affecting the third party seeking to rely on the contractual provision, or of the third party itself (as the case may be), the very actions contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties? If so, then
(c) The contract, insofar as it confers or extends the benefit, may be enforced directly by the third party, but
(d) Subject to any defences that would have been valid between the contracting parties. I use the word "actions" in a broad and general sense and as including, e.g., omissions. The no-benefit rule should be regarded as having been modified in the foregoing manner and to that extent.
44. In para 39 above, I had expressed the view that at this stage, and in this decision. It would not be appropriate to conclude that the no-benefit rule is completely abrogated. It was noted in London Drugs that a wholesale change in the common law, by a complete abrogation of the no- benefit rule, should preferably be left to the, legislature. However, it was also observed that this did "not mean that this Court should refuse to assist in the evolution of the common law when faced with appropriate circumstances", and that "in appropriate circumstances courts have not only the power but the duty to make incremental changes to the common law to see that it reflects the emerging needs and values of our society". It was noted that even in the House of Lords, dissatisfaction had been expressed with the no-benefit rule and reference was made to Beswick v.
Beswick (supra) at p. 1201 per Lord Reid, Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [19801 UKHL 11; [19801 1 All ER 571 at pp. 88-89 per Lord Keith and at p. 591 per Lord Scarman, and Swain v. Law Society [19821 2 All ER 827 at p. 832 per Lord Diplock. To this list may be added the words of Lord Dunedin in his speech in Dunlop Pneumatic Tyre Company Ltd. v.
Selfridge and Company Ltd. (supra) itself, where he observed that the rule made "it possible for a person to snap his fingers at a bargain deliberately made, a bargain not in itself unfair, and which the person seeking to enforce it has a legitimate interest to enforce."
45. In London Drugs, it was further noted that the Law Lords had also expressed the view that if there was no legislative action, the House itself could reconsider the matter, and the following passage from Lord Scarman's speech in Woodward Investment (supra) was cited:-- "I respectfully agree with Lord Reid that the denial by English law of a jus quaesitum tertio calls for reconsideration. In Beswick u Bestack, Lord Reid, after referring to the Law Revision Committee's recommendation that the third party should be able to enforce a contractual promise taken by another for his benefit, observed: "If one had to contemplate a further long period of Parliamentary procrastination, this House might find it necessary to deal with this matter." The committee reported in 1937; Beswick v Beswick was decided in 1967. It is now 1979; but nothing has been done.
If the opportunity arises, I hope the House will reconsider Twedle v Atkinson and the other cases which stand guard over this unjust rule." (pg. 591)
As these observations make clear, judicial restraint was shown only because it was expected that the legislature would act to remedy the defect in the law. In this country, where the legislature has intervened hardly, if at all, in matters relating to the law of contract, it may well be that the Courts will have to continue playing the leading role in the proper development and evolution of the law. It may be that eventually the Courts themselves will totally abrogate a rule that is, after all, a judicial creation in the first place. However only the future can tell whether, when and/or how this will happen. What I have held in para 43 should therefore be regarded only as a beginning and certainly not the end. But for the time being I am content to conclude that the no benefit rule is to be regarded only as having been modified in the manner and extent as stated above, and is to be applied accordingly. (For convenience, it is hereinafter referred to as the "modified rule".) I turn therefore to consider whether the modified rule applies in the facts and circumstances of the present case.
46. When Article II of the Implementation Agreement is considered, it is absolutely clear that it conferred a benefit on third parties, i,e,, Strategic Customers, one of which is undoubtedly KWSB.
Thus, the first element of the modified rule is applicable. The second element also clearly applies, since the relevant activities or actions of KESC and KWSB (namely, supply on electric power on the one hand, and its consumption and use on the other) are precisely those in respect of which the benefit is being conferred. Once the first two elements are found to exist, then of course the third element automatically applies, and therefore, in my view, KWSB is entitled to enforce the provisions of Article II by means of the present suit insofar as they confer a benefit on it, including in particular that its supply of electrical power is not be disrupted, discontinued or reduced. The crucial question that remains is whether the last element enumerated in para. 43 above has any the application or not, and if it does apply, in what manner and to what extent.
47. During the course of the hearing, I had invited learned counsel for KESC to assist me on the question whether, if the suit had been filed by GOP (rather than KWSB) seeking injunctive relief against the discontinuance or disruption of electrical supply to KWSB, GOP would be entitled to any relief. GOP of course, is the other party to the Implementation Agreement. Learned counsel accepted, quite correctly in my view, that GOP would be entitled to interim injunctive relief if a case were properly made out. However, he submitted that in so deciding, the Court would have to take into account the breaches by GOP of its obligations under Article II, i,e,, the complete non-payment by it of the amounts due and payable by KWSB. Learned counsel submitted that these breaches amounted to a repudiation of the Implementation Agreement by GOP, and this would constitute a valid defence to any relief sought by GOP (in the putative suit filed by it). He submitted that KESC's obligation under Article 2.1 was contingent upon GOP fulfilling its payment obligations under the succeeding clauses of Article II, which it had manifestly failed to honour. He further submitted that even if GOP were found entitled to any relief, it would have to be put to terms such as, e.g., the interim arrangement made by means of the order dated 27-2-2012 referred to above. Learned counsel for KESC submitted that if at all KWSB were entitled to any interim relief (which of course, he denied), it would be subject to the same conditions. As is at once obvious, the submissions by learned counsel, which are cogent and weighty, go directly to the last element identified in para 43 above and it is this aspect of the matter that must now be considered.
48. I have carefully considered the submission that the Implementation Agreement was repudiated by GOP on account of non-payment despite the notices sent by KESC, or at least should be regarded as having been so repudiated for present purposes. However, in my view, ultimately this defence would not succeed. The reason is that if there is a repudiatory breach of a contract, the innocent party has a choice. It can either regard the contract as continuing and thereby affirm it or it can accept the repudiation and consider the contract as having come to an end. In other words, the innocent party must make an election. If it, elects to continue with the contract (i,e,, affirms it) such affirmation is irrevocable. Furthermore, the contract then continues as a whole, i,e,. The innocent party cannot regard the provision breached as terminated while continuing with the rest of the contract. This, in brief, is the effect of section 39 of the Contract Act, which provides as follows:-- "39. Effect of refusal of party to perform promise wholly.-- When a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. In the present case, it is clear that KESC has continued with the Implementation Agreement despite nonpayment of any amount under Article II by GOP. Therefore, KESC has elected to affirm the agreement, and must therefore continue with its performance, both as to its rights as well as its obligations, whether in terms of Article II or otherwise. Reference may also be made in the present context to A. C. Yusuf and Co. v. K B. M Habibullah and Co. PLD 1965 Karachi 374 (SB), 382-5 (paras 16 and 17).
49. The next point that requires consideration is the submission that in any case, KWSB must be put to terms if at all it is found entitled to interim injunctive relief. As noted above, learned counsel had emphasized that notwithstanding Article II, the primary legal liability to make payment for electricity supply continued to be that of KWSB. Learned counsel for KWSB on the other hand relied on Article 2.9 to contend that the payment obligation was solely and exclusively that of GOP and it was only to the latter that KESC could look 'for payment. Indeed, on learned counsel's interpretation, KESC could not sue KWSB at all, and had no remedy against it for any amount due and payable for the supply of electricity.
50. A consideration of Article 2.9 indicates that it is cast in particularly strong language, stating that the "compensation methodology" of Article II represents the "full and final amount" due from a Strategic Customer, payable in the "manner and method" set out therein. The stand taken by learned counsel for KWSB is therefore, not implausible.
' However, section 28 of the Contract Act, which provides in material part as follows, must also be taken into consideration:
28. Agreement in restraint of legal proceedings void.-- Every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract by the usual legal proceedings in the ordinary tribunals ... Is void to that extent."
' It must be kept in mind that ultimately, the relationship between an electricity utility and its customers is a contractual one. It may be overlaid and regulated by an elaborate statutory framework, but the essence of the relationship is simply a contract between two parties. If therefore, Article 2.9 has the effect of "absolutely" restricting KESC from enforcing its rights in respect of its contract with KWSB in the ordinary course in a court of law, as learned counsel for KWSB submitted, then Article 2.9 could fall foul of section 28. At the same time however, it is clear that Article 2.9 is intended to have some effect beyond simply being a contractual term between GOP and KESC. In other words, it also is part of the benefits that are conferred by Article II as a whole on Strategic Customers, and must therefore be given effect accordingly.
51. In my view, the proper interpretation of Article 2.9 is to chart a middle course between the two 'extreme' positions taken by learned counsel for KESC and KWSB respectively. In my view, KESC is entitled to pursue its legal remedies against KWSB, but it must show (and this should be regarded as a heavy burden for it to discharge) that it has sought to avail, but without success, the remedies provided by the Implementation Agreement against GOP. Only then can it be regarded as entitled to have recourse against KWSB. Thus, Article 2.9 must be regarded as barring KESC from its remedies against KWSB not absolutely but only conditionally. At present the position is that KESC has not availed all the remedies available to it against GOP. No doubt it has sent the requisite notices under Article II. However, if no payment was forthcoming, it could, and ought, to have gone further and sought the remedies provided, e.g., by Article VI. It has not done so. No doubt this inaction was for sound commercial reasons. But since it has not followed the route provided by the Implementation Agreement, it cannot change course midway and start pursuing its remedies against KWSB.
52. It will also be recalled that learned counsel for KESC submitted that its obligations under Article 2.1 were contingent upon GOP fulfilling its payment obligations. Since GOP has not yet done so, learned counsel submitted, in effect, that KESC was not bound to continue honouring its obligations under Article 2.1. I have carefully considered this submission, but in the end must conclude that it cannot be accepted as stated. Like Article 2.9, Article 2.1 is also cast in strong and peremptory terms. Strategic Customers "must" be supplied electric power "at all times without interruption" according to their requirements. KESC has given an undertaking not only to "disrupt, discontinue or reduce", but to immediately (within one Business Day) rectify the situation should any such event occur. In my view, when Article II is read as a whole, and in the context of the Implementation Agreement (especially Article VI), it is clear that the obligations undertaken by KESC in Article 2.1 stand on their own footing. There is a linkage with the payment obligations undertaken by GOP, but not in the manner that learned counsel submitted. As I have indicated in the preceding para, in my view KESC cannot pursue its legal remedies against KWSB on account of non-payment unless it has first exhausted the remedies against GOP under the Implementation Agreement. Article 2.1 ensures that even while KESC is doing so (and this may inevitably take some time if the remedies are invoked), it will continue supplying electricity to the Strategic Customers.
53. When I had put KWSB to terms by the order dated 27-2-2012, I did not have the Implementation Agreement before me. Having now seen that agreement, and gone through its relevant provisions with the assistance of learned counsel, I am of the view that KWSB ought not to be put to terms.
This is so for the reasons stated above. Had KESC diligently pursued its remedies against GOP under, inter alia, Articles II and VI the situation could have been different. But that is not the case. In my view, KESC cannot resile from its, obligations under Article 2.1 in these circumstances.. No doubt it is being put in the position of having to continue supplying electricity to KWSB without getting paid for it. But that is the consequence of its own (in)action. It chose to enter into the Implementation Agreement and must now live with the consequences of, its choice. If it has decided (for whatever reason) not to fully pursue its remedies against GOP, that also is its choice.
But these choices flow directly and inevitably from the Implementation Agreement, and KESC must abide by its terms, no matter how unpalatable the resultant situation.
54. In my view, on the basis of the analysis and discussion in the foregoing paras, KWSB has been able to make out a case for interim relief. A prima facie case is clearly made out the balance of convenience lies in its favour and it will inevitably suffer irreparable loss and injury if electricity supply is disrupted, discontinued or reduced. Furthermore, I am satisfied that KWSB is entitled to such relief without being put to terms.
55. Before concluding, I may note that the foregoing observations are not intended to affect or prejudice the trial of the suit, which will of course ultimately be decided on its own merits and strictly on the basis of the evidence led by the parties.
56. Accordingly, C.M.A. 2737 of 2012 is hereby allowed and the order dated 27-2-2012 stands recalled and vacated to the extent of the interim arrangement made thereby and therein. C.M.A.
10555 of 2011 and C.M.A. 10556 of 2011 are also hereby allowed, and as long as the Implementation Agreement continues to remain in force, KESC is restrained from disrupting, discontinuing or reducing electricity supply to KWSB on account of non-payment of electricity charges, and is further bound to comply with the other terms of Article II which inhere to the benefit of KWSB.