AAMER FAROOQ, C.J. This judgment shall dispose of above appeal as well as F.A.O. Nos.140-2021 and F.A.O. No.141-2021, as common facts and law are involved.
2. The facts, leading to filing of instant appeals, are that Pakistan Telecommunication Company Limited (the appellant) entered into agreements with Universal Service Fund (respondent No.1). As per terms of agreements, the date for completion of the agreements was in 2011, however through various addendums, said dates were extended and lastly, the extension was made in 2019. One of the terms of the agreements, between the parties, was that a performance guarantee/bond shall be executed by the appellant, which accordingly, was done. Clause 4 of the agreement provided that in case of failure to implement schedule provided in the agreements for timely completion of the contracts, performance guarantee shall be encashed unless there is a force majeure certification by respondent No. 1. In this regard, as per said clause, failure to meet final implementation date was at the sole discretion of respondent No. 1. Since the implementation was not as per the schedule in terms of the original agreements, respondent No.1 sought to encash bank guarantee in the form of performance bonds issued by respondent No.2. In order to restrain respondent No.1 from doing so, appellant filed three different suits for permanent injunction and declaration. Along with the suits, applications for interim relief were also filed, which were dismissed by learned trial court vide impugned order dated 15.12.2021, hence the appeals.
3. Learned counsel for the appellant inter alia contended that it is the stance of respondent No.1 that it has not extended implementation date from 23.08.2021, whereas addendums were legally signed by respondent No.1. It was submitted that all the milestones, as per schedule, have been duly achieved and extension of the date, wherever applicable, was by respondent No.1, hence no justification is made out for encashing guarantee in terms of Clause 4 of the agreement. It was submitted that bank guarantees were submitted pursuant to the agreement(s) and have been renewed from time to time. It was submitted that in the facts and circumstances, since agreements were not completed as agreed between the parties, no ground for encashment of the guarantee is made out as a penal clause. Learned counsel submitted that there is prima facie case in favour of the appellant and against respondent No.1 and in case, the guarantees are encashed, the appellant shall suffer irreparable loss and balance of convenience is in favour of appellant due to the fact that same are not encashed. Reference was made to cases reported as M/s Mehboob Enterprises v. Karachi Development Authority and another (1997 MLD 3085), Messrs Mercury Corporation v. Messrs Pakistan Steel Mills Corporation (Pvt.) Ltd. (2000 YLR 734), Saudi Pak Industrial and Agricultural Investment Company (Pvt.) Ltd. Islamabad v. Messrs Allied Bank of Pakistan and another (PLD 2003 Supreme Court 215), Atlas Cables (Pvt.) Ltd. v.
Islamabad Electric Supply Company Limited and another (2016 CLD 1833) Messrs Jamia Industries Limited v. Messrs Pakistan Refinery Ltd. Karachi (PLD 1976 Kar. 644) and Pakistan Engineering Consultants v. Pakistan International Airlines Corporation and another (1989 SCMR 379).
4. On the other hand, learned counsel for respondent No.1 submitted that in case, whether there is default in completing the implementation date, the sole judge of the same is respondent No.1 and where such is the case, other party to the contract namely the appellant, has no say in the matter.
It was submitted that appellant has not produced any force majeure certification as required in the agreements and in the said facts and circumstances, cannot request for restraining of the encashment of the bank guarantee. It was further submitted that the elements required for seeking injunction are not fulfilled in the facts and circumstances, hence equitable remedy of injunction from encashment, cannot be allowed. It was also submitted that performance guarantee is an independent contract i.e. independent of the transactions between the parties and no reference can be made to the principal agreement for encashment of the guarantee. Reference was made to Pakistan Real Estate Investment and Management Company (Pvt.) Ltd. v. Messrs Sky Blue Builders and another (2021 CLC 488), Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 Supreme Court 311), Hyundai Corporation v. Sui Northern Gas Pipelines Limited and 3 others (2015 CLC 1216), Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. (PLD 2003 Supreme Court 191), Braganza v. BP Shipping Limited and another (2015 SCMR 742), Atif Mehmood Kayani and another v. Messrs Sukh Chayn Private Limited, Royal Plaza, Blue Area. Islamabad and another (2021 SCMR 1446) and Oasis Travels (Pvt.) Limited v. Donvand Limited and others (2020 CLC 1128).
5. Submissions by the parties have been heard and the documents, placed on record, examined with their able assistance.
6. The relevant facts, essential for deciding instant appeals, have already been mentioned hereinabove.
7. As noted earlier, parties entered into agreement (s) and the original date of the work was not achieved, however, it is the stance of the appellant that implementation date was extended time and again, whereas respondent No, 1's stance is different.
8. The relevant clause, for the purposes of adjudication of instant appeals, is clause 4.01 of the agreement between the parties which is termed as 'Services and Subsidy Agreement for Broadband'. For ease of convenience, relevant clause is reproduced below:- "Article Four-Implementation and Service Failures"
4.01 Failure to Meet Project Implementation Milestone Schedule (a) Unless a Force Majeure Certification has been issued to certify that a Force Majeure Event has caused the failure, failure to meet the Final Implementation Date identified in the Schedule D may, at the sole discretion of USFCo, result in the imposition of one or more of the penalties set out below:
(i) loss of eligibility for all or part of the USF Subsidy;
(ii) forfeiture of all or part of the Performance Bond;
(iii) payment of liquidated damages equal to one-half of one percent (0.5%) of the USF Subsidy amount payable for the work that is delayed, and such half percent shall be payable per every week the failure continues;
(iv) repayment of any USF Subsidy amount previously paid to the USF Service Provider;
(v) payment of liquidated damages equal to all or part of USFCo.'s estimate of the costs of providing the USF Broadband Services in the USF Areas left unserved due to the failure, provided that the total amount of such liquidated damages shall not exceed the amount of the USE Subsidy payable to the USE Service Provider for the provision of the USE Broadband Services in the USF Areas.
(b) Such penalty or penalties shall be specified in a written notice delivered by USFCo to the USF Service Provider in accordance with section 16.11. The penalty or penalties shall become effective 'in the manner specified in such notice".
The reading of the above clause shows that unless there is force majeure certification, whereby respondent No.1 certifies that a force majeure event has caused failure or failures to meet the final implementation date, identified in the schedule, respondent No.1, at its sole discretion, can impose penalties in the one or more forms as are set out in the referred clause; one of the modes of penalties is payment of liquidated damages equal to one-half of one percent (0.5%) of the USF Subsidy amount payable for the work that is delayed, and such half percent shall be payable per every week of the failure. Moreover, under clause 16.02 of the agreement, time was the essence of the agreement.
9. The nature of a bank guarantee, in the form of performance bonds, was considered by the Supreme, Court of Pakistan in case reported as Atif Mehmood Kayani and another v. Messrs Sukh Chayn Private Limited, Royal Plaza, Blue Area, Islamabad and another (2021 SCMR 1446). In the referred judgment, at paragraph 5, the Supreme Court discussed nature of the bank guarantee and concluded that it is a contract, which is independent of the main agreement and the guarantor has to discharge its obligation under the contract of guarantee as per terms thereof; the relevant portion of the judgment is reproduced below:- "5. A bank or insurance guarantee that contains a categorical undertaking and impose absolute obligation on the guarantor i.e., the bank or the insurance company, to pay the guaranteed amount, irrespective of any dispute which may arise between the parties regarding breach of the contract for which performance that one party furnishes the guarantee to the other, is an independent contract; therefore, the guarantor must discharge its obligations under the contract of guarantee as per the terms thereof, independent of the dispute as to performance of the primary contract between the parties. In a similar case of National Construction Ltd. v. Awan-e- Iqbal Authority (PLD 1994 SC 311), this Court, while maintaining the orders of the High Court and the trial court refusing to grant temporary injunction for restraining the respondent therein from encashing the bank guarantee, observed: The contents of para. 3 of mobilization advance guarantee, clearly visualized that the respondent can get encashed guarantee without any question or without any reference of any nature, whatsoever to the contractor (appellants) and irrespective of any dispute between the parties or before any arbitrator or any Court of law in the instant case, therefore, the bank guarantees furnished by the appellants contain categorical undertaking and impose absolute obligations on the banks to pay the amount, irrespective of any dispute which may arise between the parties regarding the breach of contract. In our view the Courts must give effect to the convenants of the bank guarantees, the performance guarantees, for the smooth performance of the contracts.
Those guarantees are independent contracts and the bank authorities must construe them, independent of the primary contracts. They should encash them notwithstanding any dispute arising out of the original contract between the parties. In the instant case, therefore, the encashment of the bank guarantees cannot be postponed pending decision of the arbitration proceedings, which may take years to conclude.
Likewise, in the case of 'Shipyard K. Damen v. Karachi Shipyard' (PLD 2003 SC 191) this Court maintained the orders passed by the High Court refusing the prayer for interim orders to restrain the respondents from encashment of Performance Bank Guarantees, and observed:
23. The law is thus settled that extraneous claims and counter-claims do not bar the enforcement of the bank guarantee. The enforcement depends upon its terms and conditions. If bank guarantees are unconditional, there is no other option for the bank and moreso, the bank would have no defence, when its guarantee is sought to be enforced 24 ....... encashment of bank guarantee has no nexus with the spirit of the contract executed between the parties being an independent contract containing its own terms and condition to be performed by the concerned parties. The encashment of the bank guarantee had nothing to do with the alleged dispute between the petitioners and the respondent, which must be decided independently on the basis of terms of that contract without involving the contract of bank guarantee. It must be noted that bank guarantee in an autonomous contract and imposes an absolute obligation on the bank to fulfil the terms and the payment on the bank guarantee becomes due on the happening of a contingency on the occurrence of which the guarantee becomes enforceable.
In view of this legal position, we find. that the judgment of the High Court setting aside the order of the trial court and dismissing the application of the petitioners for temporary injunction to restrain the respondent No.1 from encashment of the insurance guarantee till decision of the suit is in accordance with the law declared by this Court in the above cases, and thus do not call for any interference. CPLA No. 3209 of 2020 is, therefore, dismissed and leave refused".
Similar observations were made by Supreme Court of Pakistan in case reported as Shipyard K.
Damen International v. Karachi Shipyard and Engineering Works Ltd. (PLD 2003 Supreme Court 191). The said opinion was also confirmed for the performance guarantee and it was observed that performance guarantee stands on the footing similar to an irrevocable letter of credit of Bank, which must be honoured according to its terms irrespective-of the fact whether the supplier is in default or not. It was observed that the Bank must pay according to its guarantee at demand if so stipulated without proof or conditions. The Supreme Court of Pakistan, after discussing the relevant case law, concluded as follows:- "7. After having gone through the precedented law as mentioned hereinabove the judicial consensus seems robe as follows:--
(i) The performance of guarantee stands on the footing similar to an irrevocable letter of credit of Bank, which gives performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier has performed his contracted obligation or not, nor with the question whether the supplier is in default or not. The Bank must pay according to its guarantee all demand if so stipulated without proof or conditions. Only exception is when there is a clear fraud of which Bank has notice.
(ii) There is an absolute obligation upon the banker to comply with the terms and conditions as enumerated in the guarantee and to pay the amount stipulated therein irrespective of any disputes there may be between buyer and seller as to whether goods are up to contract or not.
(iii) The bank guarantee should be enforced on its own terms and realization against the bank guarantee would not affect or, prejudice the case of contractor, if ultimately the dispute is referred to arbitration for the reason, once the terms and conditions of the guarantee were fulfilled, the bank's liability under the guarantee was absolute and it was wholly independent of the dispute proposed to be raised.
(iv) The contract of bank guarantee is an independent contract between the bank and the party concerned and is to be worked out independently of the dispute arising out of the work agreement between the parties concerned to such work agreement and, therefore, the extent of the dispute and claims or counter-claims were matters extraneous to the consideration of the question of enforcement of the bank and were to be investigated by the arbitrator.
(v) Where the bank had undertaken to pay the stipulated sum to respondent, at anytime, wit horn demur, reservation, recourse, contest or protest, and without any reference to the contractor, no interim injunction restraining payment under the guarantee could be granted.
(vi) The Bank guarantee is an autonomous contract and imposes an absolute obligation on the bank to fulfil the terms and the payment on the bank guarantee becomes due on the happening of a contingency on the occurrence of which the guarantee becomes enforceable.
(vii) When once bank guarantee is discharged, the obligation of the bank ends and there is no question of going behind such discharge bank guarantee. Courts should refrain from probing into the nature of the transactions between the bank and customer, which led to the furnishing of the bank guarantee.
(viii) In the absence of any special equities and the absence of any clear fraud, the bank must pay on demand, if so stipulated and whether the terms are such must behave to found out from the performance of guarantee as such.
(ix) The unqualified terms of guarantee could not be interfered with by Courts irrespective of the existence of dispute".
In case reported as Oasis Travels (Pvt.) Limited v. Donvand Limited and others (2020 CLC 1128), Sindh High Court, while discussing the nature of guarantee as a 'document/contract', observed as follows:- "6. The guarantee has been defined in Halsbury's Laws of England. Volume 20. Fourth Edition, page 49, page 101 as 'a guarantee is an accessory contract whereby the promisor undertakes to be answerable to the promiser for the debt, default or miscarriage of another person whose primary liability to the promise must exist or be contemplated'. The 'guarantee' as defined indicates that it contains the ingredients of 'dedicated commitment', 'absolute undertaking', 'an unambiguous assurance', unconditional 'willingness', 'definite certainty', 'compliance without objections'. 'scarred obligation' and 'defined responsibility'. In view of the ingredients as mentioned hereinabove which constitute a guarantee on the basis whereof its binding effect and nature can be well-adjudged, a guarantee once given cannot be avoided, except on the ground of fraud or misrepresentation. It may be added that in the banking system, it is understood that a bank guarantee has a dual aspect. In the case of a bank guarantee, the banker is the promisor. It is a contract between the bank and the beneficiary by a third party. It may not be out of context to mention here that the plaintiff in the instant suit has not raised the plea of fraud; rather admitting, the existence of the agreement and execution of guarantee has filed the suit seeking, declaration with regard to its entitlement to a commission to the value of USD 92,380 while claiming its liability towards defendant No.1 as USD 82,345/-".
Similar observations were made in case reported as Messrs National Construction Ltd. v. Aiwan- e-Iqbal Authority (PLD 1994 Supreme Court 311) as well as judgment of this Court reported as Pakistan Real Estate Investment and Management Company (Pvt.) Ltd. v. Messrs Sky Blue Builders and another (2021 CLC 488). The other relevant case law, for the purposes of present controversy, also reiterates what has been discussed by the Supreme Court. Reference is made to cases reported as M/s Mehboob Enterprises v. Karachi Development Authority and another (1997 MLD 3085), Messrs Mercury Corporation v. Messrs Pakistan Steel Mills Corporation (Pvt.) Ltd.
(2000 YLR 734) and Atlas Cables Pvt. Ltd. v. Islamabad Electric Supply Company Limited and another (2016 CLD 1833).
10. In the backdrop of referred case law on the subject as propounded by the Supreme Court in various pronouncements, it is clear that a bank guarantee (which in the instant case is performance guarantee) operates independently of the agreement between the parties. The guarantor/promisor, which in the instant case is respondent No.1, is bound to honour the same as and when the beneficiary wishes to encash the same and it is not to go into the agreement between the parties.
11. The reading of clause 4.01 shows that whether to invoke penalty clause is at the sole discretion of respondent No.1. The nature of such clause was discussed by the Supreme Court of U.K. in case reported as Braganza v. BP Shipping Limited and another (2015 SCMR 742). The Supreme Court, of UK was also confronted with the clause, whereby one party to the agreement, had to judge whether to invoke penalty clause and ask for the same. The principles, with respect to such clauses, were discussed in paragraph 17 onwards, which are as follows:-
17. This case raises two inter-linked questions of principle, one general and one particular. The particular issue is the proper approach of a contractual fact-finder who is considering whether a person may have committed suicide. Does the fact finder have to bear in mind the need for cogent evidence before forming the opinion that a person has committed suicide? The general issue is what it means to say that the decision of a contractual fact-finder must be a reasonable one. There are many statements in the reported cases to the effect that the principles are well- settled and well -understood, but this case illustrates that all is not as clear or as well understood as it might be.
18. Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to re-write the parties bargain for them, still less to substitute themselves for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.
19. There is an obvious parallel between cases where a contract assigns a decision-making function to one of the parties and cases where a statute (or the royal prerogative) assigns a decision-making function to a public authority. In neither case is the court the primary decision- maker. The primary decision-maker is the contracting party or the public authority. It is right, therefore, that the standard of review generally adopted by the courts to the decisions of a contracting party should be no more demanding than the standard of review adopted in the judicial review of administrative action. The question is whether it should be any less demanding.
20. The decided cases reveal an understandable reluctance to adopt the fully developed rigour of the principles of judicial review of administrative action in a contractual context. But at the same time they have struggled to aciculate precisely what the difference might be. In Abu Dhabi National Tanker Co. v. Product Star Shipping Ltd. (The 'Product Star') (No. 2) (1993) Lloyds Rep 397, 404, after contrasting the position in judicial. review, Leggatt LJ explained that: 'The essential question is always blether the relevant power has been abused Where A and B contract with each other to confer a discretion upon A, that does not render B subject to A's uninhibited whim. In my judgment, the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provisions of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably:
21. That was in the context of a ship-owner's decision as to whether a port to which a vessel was directed was dangerous. In Paragon Finance plc v Nash [2001] EWCA Civ 1466, [2002] 1 WLR 685, the court had to consider whether there was any implied term limiting the power of a mortgagee to set interest rates under a variable rate mortgage. Dyson had no difficulty in holding (at paras 32 to 36) that it was necessary, in order to give effect to the reasonable expectations of the parties, to imply a term that the power would not be exercised dishonestly, for an improper purpose, capriciously or arbitrarily. He went on to discuss whether there should also be a term that the power would not be exercised unreasonably. He concluded that there had been a 'somewhat reluctant' extension of the implied term to include 'unreasonableness that is analogous to Wednesbury unreasonableness' (paras 37 to 42).
22. These authorities, together with Ludgate Insurance Co Ltd. v. Citibank NA [1998] Lloyd's Rep IR 221, 239-240, and Gan Insurance Co. Ltd. v. Tai Ping Insurance Co Ltd (No. 2) [2001] EWCA Civ 1047, [2001] 2 All ER (Comm) 299, at paras 64, 67, 73, are helpfully summarised by Rix LJ in Socimer International Bank Ltd. v. Standard Bank London Ltd. [2008] EWCA Civ 116, [2008]. Bus LR 1304. In his conclusion, at para 66, he substitutes the more modern term 'irrationality' for unreasonableness: 'It is plain from these authorities that a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria: as for instance when there might be an implication of a term requiring the fixing of a reasonable price, or a reasonable time. In the latter class of case, the concept of reasonableness is intended to be entirely mutual and thus guided by objective criteria. ... Laws LJ in the course of argument put the matter accurately, if I may respectfully agree, when he said that pursuant to the Wednesbury rationality test, the decision remains that of the decision-maker, whereas on entirely objective criteria of reasonableness the decision-maker becomes the court itself".
23. The same point was made- (albeit in a completely different context, and so obiter) by Lord Sumption in Hayes v Willoughby [2013] UKSC 17, [2013] 1 WLR 935, at para 14: 'Rationality is not the same as reasonableness. Reasonableness is an external, objective standard applied to the outcome of a person's thoughts or intentions. ... A test of rationality, by comparison, applies a minimum objective standard to the relevant person's mental processes. It imports a requirement of good faith, a requirement that there should be some logical connection between the evidence and the ostensible reasons for the decision, and (which will usually amount to the same thing) an absence of arbitrariness, of capriciousness or of reasoning so outrageous in its defiance of logic as to be perverse.' (emphasis added)
This is an obvious echo of the classic definition given by Lord Diplock when summarising the grounds of judicial review in Council of Civil Service Unions v Minister for the Civil Service [1985)
AC 374,410: By 'irrationality' I mean what can by now be succinctly referred to as 'Wednesbury unreasonableness'. ... It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.'
24. The problem with this formulation, which is highlighted in this case, is that it is not a precise rendition of the test of the reasonableness of an administrative decision which was adopted by Lord Greene MR in Associated Provincial Pictures Houses Ltd. v. Wednesbury Corporation [1948] 1 KB 223,233-234. His test has two limbs: The court is entitled to investigate the action of the local authority with a view to seeing whether they have taken into account matters which they ought not to take into account, or conversely, have refused to take into account or neglected to take into account matters which they ought to take into account. Once that question is answered in favour of the local authority, it may still be possible to say that, although the local authority have kept within the four corners of the matters which they ought to consider, they have nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it.'
The first limb focusses on the decision-making process - whether the right matters have been taken into account in reaching the decision. The second focusses upon its outcome - whether even though the right things have been taken into account, the result is so outrageous that no reasonable decision-maker could have reached it. The latter is often used as a shorthand for the Wednesbury principle, but without necessarily excluding the former.
25. The parties in this case disagree as to whether the term to be implied into this contract includes both limbs. Mrs. Braganza argues that the employer must 'keep within the four corners of the matters which they ought to consider,' while the employer argues that its decision may only be impugned if it is a decision which no reasonable employer could have reached.
26. Mrs Braganza can pray in aid the approach of Mocatta J in The Vainqueur Jose. He held that the common law principles applicable to the exercise of a contractual discretion include fairness, reasonableness, bona fides and absence of misdirection in law (p 574). He later quoted (p 575), without reservation, Lord Greene's summary of the public law concept of reasonableness. There is nothing on Mocatta J's judgment to suggest that only the second of those elements is applicable to the exercise of a contractual discretion. He did (at 574) contrast the contractual principles with the principles applicable to the exercise of a statutory discretion by Ministers of the Crown, but on the basis that, in addition, the Minister's decision had to be consistent with the objects and other provisions of the statute in question, citing Laker Airways Ltd. v. Department of Trade [1977] 2B 643.
27. On that point, on the other hand, in Hayes v Willoughby, just before the passage quoted in para 23 above, Lord Sumption stated that rationality 'has ... in recent years played an increasingly significant role in the law relating to contractual discretions, where the law's object is also to limit the decision-maker to some relevant contractual purpose': [2013] 1 WLR 935 para 14. This is consistent with his earlier observation sin British Telecommunications Plc v Telefonica 02 UK Ltd.
[2014] UKSC 42, [2014] Bus LR 765, at para 37: "As a general rule, the scope of a contractual discretion will depend on the nature of the discretion and the construction of the language conferring it. But it is well established that in the absence of very clear language to the contrary, a contractual discretion must be exercised in good faith and not arbitrarily or capriciously [citing Abu Dhabi, Gan, and Paragon, above]. This will normally mean that it must be exercised consistently with its contractual purpose (citing Ludgate Insurance, above and Equitable Life Assurance Society v. Hyman [2002] 1 AC 408, 459 (Lord Steyn), 461 (Lord Cooke of Thorndon)].'
28. There are signs, therefore, that the contractual implied term is drawing closer and closer to the principles applicable in judicial review. The contractual cases do not in terms discuss whether both limbs of the Wednesbury test apply. However, in Gan Insurance, where the issue was the limits, if any to the reinsurers' power to withhold approval to the insured's agreement to settle a claim, Mance LJ first commented that 'what was proscribed was unreasonableness in the sense of conduct or a decision to which no reasonable person having the relevant discretion could have subscribed' (para 64), but he concluded that 'any withholding of approval by reinsurers should take place in good faith after consideration of and on the basis of the facts giving rise to the particular claim and not with reference to considerations wholly extraneous to the subject matter of the particular reinsurance.... ' (para 67).
29. If it is part of a rational decision-making process to exclude extraneous considerations, is in my view also part of a rational decision-making process to take into account those considerations which are obviously relevant to the decision in question. It is of the essence of "Wednesbury reasonableness" (or 'GCHQ rationality') review to consider the rationality of the decision-making process rather than to concentrate upon the outcome. Concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision-maker.
30. It is clear, however, that unless the court can imply a term that the outcome be objectively reasonable for example, a reasonable price or a reasonable term-the court will only imply a term that the decision-making process be lawful and rational in the public law sense, that the decision is made rationally (as well as in good faith) and consistently with its contractual purpose. For my part, I would include both limbs of the Wednesbury formulation in the rationality test. Indeed, I understand Lord Neuberger (at para 103 of his judgment) and I to be agreed as to the nature of the test.
31. But whatever term may be implied will depend upon the terms and the context of the particular contract involved. 1 would add to that Mocatta J's observation in The Vainqueur Jose, that 'it would be a mistake to expect [of a lay body] same expert, professional and almost microscopic investigation of the problems, both factual and legal, that is demanded of a suit in a court of law'
(577). Nor would 'some slight misdirection' matter, at least if it were clear that, had the legal position been properly appreciated, the decision would have been the same. It may very well be that the same high standards of decision-making ought not to be expected of most contractual decision-makers as are expected of the modern state.
32. However, it is unnecessary to reach a final conclusion on the precise extent to which an implied contractual term may differ from the principles applicable to judicial review of administrative action. Given that the question may arise in so many different contractual contexts, it may well be that no precise answer can be given. The particular context of this case is an employment contract, which, as Lord Hodge explains, is of a different character from an ordinary commercial contract. Any decision-making function entrusted to the employer has to be exercised in accordance with the implied obligation of trust and confidence. This must be borne in mind in considering how the contractual decision-maker should approach the question of whether a person has committed suicide.
33. Teare J directed himself, in relation to his own decision as to the cause of Mr. Braganza's disappearance, that 'before a finding of suicide is made there must be evidence of sufficient cogency commensurate with or proportionate to the seriousness of the finding' (para 46), citing the observation of Watkins LJ in R v West London Coroner, Ex p Gray [1988] QB 467, 477-478, that suicide is 'still a drastic action which often leaves in its wake serious social, economic and other consequences'. He also directed himself following the House of Lords' decision in The Popi M (1985)
1 WLR 948, 955-956, that, where two improbable causes are suggested, he was not bound to make a finding one way or another. I agree with Lord Neuberger, at para 100 of his judgment, that it is also perfectly proper for the employer to conclude that he or she is unable to form an opinion as to the cause of death. But the question is how he or she should go about making a positive finding of suicide.
34. Longmore LJ pointed out that the direction based on Gray 'might itself be said to be a little outdated since the decisions in In re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 and In re B (Children) (Care Proceedings: Standard of Proof) [2009] AC 11, which have emphasised that in civil cases there is only one standard of proof viz the balance of probabilities'
(para 15). Those cases make it clear that there is not a sliding scale of probability to be applied, commensurate with the seriousness of the subject-mailer or the consequences of the decision.
The only question is whether something is more likely than not to have happened. Lord Hoffmann put it thus in In re B at para 15: "There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities.'
35. Some things are inherently a great deal less likely than others. The more unlikely something is, the more cogent must be the evidence required to persuade the decision-maker that it has indeed happened. As Lord Nicholls explained in In re H, at 586, "When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred, and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probabilities."
Thus, for example, most parents do not sexually abuse their children. Cogent evidence is therefore required to establish that sexual abuse is more likely than not to have happened. But once it is clear that such abuse has happened the threshold of incredunty has been surmounted, and the question of who was responsible can be answered on the balance of probabilities. Hence it is not the seriousness of the consequences of a finding of suicide which demands that there be cogent evidence to support it, but its inherent improbability.
36. However, Implore. LJ also took the view that the employer did not have to approach the matter in this way. I respectfully disagree. The employer is entrusted with making a decision which has serious consequences for the family of a deceased employee. It deprives them of what would otherwise a contractual right. There is no reason why the employer should not approach that decision in the same way that any other decision-maker should do. On the contrary, in view of the special nature of the employment relationship, there is every reason why they should do so.
Employers can reasonably be expected to inform themselves of the principles which are relevant to the decisions which they have to make. Employment law incomplicated and demanding in many legal systems, but employers are expected to know it. They can also reasonably be expected to know how they should approach making the important decisions which they are required or empowered to make under the terms of the employment contract. In my view, a decision that an employee has committed suicide is not a rational or reasonable decision, in the terms discussed above, unless the employer has had it clearly in mind that suicide is such an improbability that cogent evidence is required to form the positive opinion that it has taken place.
37. The employer now accepts that it is for him to show that the decision which it reached was a reasonable decision in the sense which is required by the contract".
In terms of above judgment, the courts are to adjudge invocation of the penalty or decision to do so by the party to the contract which is to decide the same is on the same principles, on which, a judicial review is made. The courts generally do not rewrite agreement by taking over role of one party but examine whether the decision made is reasonable, rationale and proper in the facts and circumstances which are broadly the parameters, in which, judicial review is made.
12. On the basis of above case law, respondent No.1 was the sole judge, whether 'there is delay in the implementation of agreement and that penalty clause could be invoked; the same could only be excluded, if there is a force majeure clause. Admittedly, there is no force majeure and on the basis thereof, respondent No.1 seeks to encash bank guarantees issued in its favour due to delay as penalty. The fact, whether there is delay or not, is a question of fact, which can only be decided on the basis of evidence led; on the baths of documents, there is no force majeure fact, hence there is no prima facie case in favour of appellant and since it is a money matter, there is no question of irreparable loss and balance of convenience is also in favour of respondent No. 1. In case, if eventually the suit filed by the appellant is decided in its favour, return of the money can always be ordered by the court. The basic elements for grant of injunction i.e. prima facie case, balance of convenience and irreparable loss are not in favour of the appellant. This Court, while hearing appeal against dismissal of application file for injunction, cannot delve into deeper appreciation of the facts and judge whether invocation of penalty clause fulfills requirement of the judicial review viz. it was reasonable, rationale or proportional. The order impugned does not suffer from any error of 'fact or law warranting interference.
3. For the above reasons, instant appeals are without merit and are accordingly dismissed.