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Application No. KAR‑227 of 1981, heard on 30th August, 1981

‑‑ S. 4 (3) [as amended vide Employees Cost of Living (Relief) (Amendment) Ordinance, 1980]‑‑Set‑off of amounts payable under settlement against special or additional cost of living allow ance payable under Ordinance‑Settlement containing clause for such set‑off‑Effect ox such clause in settlement.

Settlement executed on 22nd December, 1979 inter alia provided that in case of any increase in wages granted by Government under law, the employer would be liable to pay only the amount, if any, by which such an increase exceeds in the increase in wages or allowances payable under the settlement and that the Workers Union undertakes not to make any further or other claims on account of a set‑off which the employer would make in consequence of any increase of wages or allowances awarded to workmen by the Government. The employer paid to workmen increased wages and allowances as per settlement till promulgation of the Employees' Cost of Living (Relief) (Amendment) Ordinance, 1980 on 20th June, 1980 and thereafter claimed that he was entitled to set‑off the additional cost of living allowance payable under the said Ordinance against increases admissible under the settlement. It was contended that since settlement made the employer entitled to set off the increase in wages or allowances against any increase announced by the Government, either the employer should be entitled to the claimed set off or if this was not permissible under the law the settlement should be deemed to have become impossible of performance and, therefore, invalid.

Held: The Legislature has prescribed 2 important requirements for the settlement, agreements and awards amounts payable under which can be set off or adjusted against the special or additional cost of living allowance payable under .the Ordinance of 1980. They are, firstly, that the settlement agreement or award should be announced on or after 1st January, 1980, and secondly, that it should become effective on or after the said date, or alternately it should be announced and become effective within one year of the coming into force of the amending Ordinance.

The possibility of the Government awarding increase in wages or allowance to the workmen was clearly contemplated and provided for. Furthermore, by reason of the enactment of the Employees' Cost of Living (Relief) (Amendment) Ordinance, 1980, the payment of increase in wages, as provided under the settlement, has not become impossible of performance. What, has become impossible of performance is the adjustment or set‑off for the amending Ordinance does not provide for set off of the increase provided under the settlement against the additional cost of living allowance payable under the Ordi nance. Merely because the law prohibits such a set‑off though it is pro vided under the settlement, it cannot be said either that the settlement, had become impossible of performance or there has been frustation of the contract. The amending Ordinance is a beneficial piece of legislation and the benefits provided thereunder cannot be ordered or whittled down merely on the score that set‑off under the settlement was provided but the law does not provide for such set‑off and therefore, the whole settlement has become frustrated. The provision for set off is clearly separate from the rest of the provisions of the settlement and only that provision has become invalid and unlawful and not the remaining provisions of the settlement. If the settlement were to be held to have become frustrated on that account, the workmen, while on the one hand obtaining statutory increase in the cost of living allowance under the amending Ordinance, would lose much greater benefits to which they were entitled to under the settlement. This cannot possibly be considered to be the aim object and policy of the law.

Notwithstanding the provisions in the settlement for set‑off, the work men are entitled not only to the increase in wage and allowances admis sible under the settlement, but in addition ‑to the special cost of living allowances awarded under the Employees' Cost of Living (Relief) (Amendment) Ordinance, 1980.

Pakistan Tobacco Co. Ltd. and another v. Sind Labour Appellate Tribunal 1981 P L C 482 rel.

Mansukhdas Bodaras v. Hussain Brothers Ltd., P L D 1980 S C 122 and Province of West Pakistan v. Pir Muhammad 1980 C L C 339 distinguished.

Messrs Jaffari Brother v. Islamic ‑ Republic of Pakistan P L D 1978 Kar. 585 rel.

Muhammad Kazim for Appellant.

Mahmood A. Ghani for Respondent.

Date of hearing : 9th August, 1981.

This is a reference under section 50, I. R. O., for the interpretation of the provisions of a settlement arrived at between the Eastern Federal Union Insurance Company Ltd., the respondents herein and the Eastern Federal Union Insurance Company Workers' Union, Karachi, the applicants herein. The reference has been necessitated on account of a difference of opinion and a dispute having arisen between the parties in regard .to the issue whether the company is required to pay the increase in the emoluments provided for‑ under the settlement, executed on 22nd December, 1979, in addition to the cost of living allowance payable under the Employees' Cost of Living (Relief) (Amendment) Ordinance, 1980, as claimed by the applicant union, or the company is entitled to set off the increase in wages of the workers against the cost of living allowance payable under the above Ordinance, which is the stand taken by the company.

2. By the settlement arrived at between the parties on 22nd December, 1979, an increase in basic wages and other allowances of workers was provided for in addition to grant of other benefits to them. The company paid to its workmen increased wages and allowances, as per the settlement, till the promulgation of the Employees' Cost of Living (Relief) (Amendment) Ordinance, 1980, on 20th June, 1980. when it claimed that it was entitled to set off the additional cost of living allowance payable under the Ordinance against the increase in wages and allowances admissible to workmen under the settlement.

3. It has been pointed out by this Tribunal in the case of Prince Glass Work Ltd. v. Prince Glass Mazdoor Union, decided on 27^thAugust, 1980 and United Paints Workers' Union v. United Paints (Pak). Ltd., on 19^thAugust, 1981, that the Legislature has prescribed important requirements for the settlement, agreements and awards amounts payable under which can be set off or adjusted against the special or additional cost of living allowance payable under the Ordi nance of 1980. They are, firstly, that the settlement agreement or award should be announced0 on or after 1^stJanuary, 1980, and secondly, that it should become effective on or after the said date, or alternately its should be announced and become effective within one year of the coming into force of the amending Ordinance. A Division Bench of the Karachi High Court in the cases of Pakistan Tobacco Co. Ltd. An another v. Sind Labour Appellate Tribunal (1981 P L C 482), has endorsed the above view and has observed that settlement and awards which have been made or announced or become effective from the year 1979 have been excluded from the operation of the proviso and the employer cannot claim set‑off.

4. In view of the above settled position, Mr. Mahmood Abdul thaw, the learned Representative for the Appellant Company did not attempt to argue that the company was entitled to set off the additional cost of living allowance against the increase in wages and allowances provided under the settlement. He based his case on paragraph 11 of the settle which provides, firstly, that it was the essence of the settlement that in case of any increase in wages granted by the Government under the law, the company would be liable only to pay the amount, if any, by which such an increase exceeds in the increase in wages/allowances pay able under the settlement, and that secondly; that the union undertake not to make any further or other claims on account of a set off which the company would make in consequence of any increase of wages/allowances awarded to the workmen by the Government. The said paragraph reads as follows:‑.

"It is the very essence of this agreement that if in the event of the Government, whether Provincial or Federal and/or any process of law increasing the Cost of Living Allowance granted under Employees Cost of Living (Relief) Act, 1973 or granting any other allowance or increasing the gross salaries including basic salaries by merging any allowance or otherwise, such increase, being to the extent that the same is not more than the total increase in wages and or allowances granted in terms of any all paragraphs of this settlement will not be applicable to the Union. It is specifically understood that the Company will be entitled to set off the increase granted in terms hereof as if the same were granted under the pro visions of any relevant statute or Order in force or introduced during the period of this agreement. The Union on their part undertake not to make any further or other claim on account of such set off during the period of operation of this agreement except and to the extent that the statutory increase or increase order is more than the aggregate of increase in terms of any/all paragraphs of this agreement.

This agreement is in full and final settlement of the Union's Charter of Demands of at Annexure 'A' and in consideration hereof the Union hereby withdraws a_11 demands which are not specifically, covered by this agreement.

5. It was contended by Mr. Mahmood Ghani that in as much as the above paragraph. clearly recites that the entitlement of the company to set off the increase in wages/ allowances under the settlement against any increase in wages/allowances announced by the Government in the essence of the settlement, either the company should be entitled to the set off claimed by it, or if this is not permissible under the law, the settlement should be deemed to have become impossible of performance and, therefore, invalid. In support of his contention, Mr. Mahmood Ghani cited a number of authorities. The first case relied upon by him is that of Mansukhdas Bodaras v. Hussain Brothers Ltd. (PLD1980S C122), The facts of that case were that Messrs Mansukhdas Bodaras entered into a forward contract for the supply of rapeseed, 1959‑60 corp at the rate of Rs. 68 per bag to Messrs Hussain Brothers Ltd. Another contract of similar nature, but at a slighty different rate was entered into between the parties on 23^rdJuly, 1958. Due to the promulgation of Martial Law Regulation 42 of 1958, the price of rapeseed pas filed at the reduced rate of Rs. 27/8 per maund. On account of the issuance of this Martial Law Regulation, M/s. Hussain Brothers refused to take the delivery of the rapeseed in respect of which they had entered into contracts with Messrs Mansukhdas Bodaras. The issue which fell to be consider ed by their Lordships of the Supreme Court was whether the contracts have become bad on account of frustration and Messrs Hussain Brothers were entitled to refuse to take delivery of the contracted‑ rapeseed. Hold ing that the contracts had become unlawful on account of the promulga tion of Martial Law Regulation 42, the Supreme Court observed as follows: ‑

"Martial Law Regulation 42 of 1958 was issued on 14th November, 1958 and then it was the Martial Law Government itself (being the Central Government) which issued the relevant notification on 10/14 November, 1958 fixing thereunder the maximum price of rapeseeds at Rs.27/8 per maund (i.e. Rs. 55 per bag of two maunds). Violation of any price fixed under Martial Law Regulation 42 of 1958 was made a penal offence. In these circumstances it will be too much to expect that the purchasers should have despite the situation above explained gone on 28th May, 1959 (the date up to which the contract were kept alive by the plaintiffs) or hazarded to go ahead in ignoring that notification and taking risk of facing a prosecution by purchas ing the rapeseeds at the contract price, in violation of (if we can use this term) Regulation price. The risk for prosecution was in this way "real" as distinct from a mere commercial risk of just some financial, loss or gain in the bargain. Reference here may be made to section 56 of the Contract Act IX of 1872 which so far, as relevant states that "A contract to do an act which after the contract is made, be comes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful."

6. In the above decision, their Lordships of the Supreme Court further observed that frustration of the contract in a developing concept like negligence; its categories are never closed but are as wide as the cate8ories of human conduct.

7. The next authority relied upon by Mr. Mahmood Ghani is re ported as Province of West Pakistan v. Pir Muhammad (1). In that case, it was held that where the risk does not pass with property in agreement for sale of goods and subsequently agreement becomes impossible of performance due to perishing of goods, doctrine of frustra tion will become applicable to the case as from time goods are destroyed or cease to exist.

8. The third case cited by Mr. Mahmood Ghani is reported as Messrs Jaffar Brother v. Islamic Republic of Pakistan (2). In that case the Supplier filed the following claims against the Purchaser (Government) before the arbitrator to whom the dispute between the parties was referred for decision; (1980 C L C 339) extra expenses incurred on stevedoring and lighterage charges due to the Industrial Court award, dated 8th October, 1963, (P L D 1978 Kar.585) a demmurage suffered on account of detention of the lighters at Chittagong Port for want of jetties, and (3) Labour charges for transporting the cement from the lighters at the jetty to the covered shed. Disallowing the first 2 claims a Division Bench of the Karachi High Court observed as follows :‑

"In matters of contract, parties in this country are governed by the Contract Act, 1872 and, the legal position is not different under that Act. In the case of an executory contract, where an un-con templated" turn of events has occurred which makes further per formance impossible or unlawful, the contract becomes frustrated at that point and, the parties are absolved from further perform ance under it. This is provided in section 56 of the Contract Act. But, if the Court holds that not standing the un-contemplated turn of events, the contract does not become impossible to per form, the parties continue to be founded by the terms of the con tract. The Court has no power or discretion to qualify the contract and depart from the express terms thereof in order to apply it to the changed circumstances on the ground that it seems just and reasonable to do so, because the change of circumstances was unforeseen by the parties at the time they entered into‑the contract of because the performance of the contract has become more onerous."

9. In my respectful view none of the above authorities support the contention of Mr. Mahmood Ghani as they proceed on different facts altogether. As a matter of fact, the decision in the case of Jaffer Brothers goes against his contention, in so far as it was held that if the Court takes the view that not standing the un-contemplated turn of events the contract does not, become impossible of performance, the parties continue to be bound by the terms of the contract. In the instant case, the possibility of the‑Government awarding increase in wages or allowance to the workmen was, clearly contemplated and provided for. Further more, by reason of the enactment of the Employees' Cost of Living (Relief) (Amendment) Ordinance, 1980, the payment of increase in wages,) as provided under the settlement, has not become impossible of performance. What has become impossible of performance is the adjustment or set off for the amending Ordinance does not provide for set off of the increase provided under the settlement against the additional cost of living allowance payable under the Ordinance. Merely because the law prohibits such a set off though it is provided under the settlement, cannot be said either that the settlement had become impossible of per formance or there has been frustration of the contract. The amending Ordinance is a beneficial piece of legislation and the benefits provided thereunder cannot be ordered or whittled down merely on the score that set off under the settlement was provided but the law does not provide for such set off, and therefore, the whole settlement has become frustrated. I am of the opinion that the provision for set off is clearly separate from the rest of the provisions of the settlement and only that provision has be come invalid and unlawful and not the remaining provisions of settlement. If the settlement were to be held to have become frustrated on that account, the workmen, while on the one hand obtaining statutory increase in the cost of living allowance under the amending Ordinance, would lose much greater benefits to which they were entitled to under the settlement. This cannot possibly be considered to be the aim object an policy of the law.

10. For the reasons discussed by me above, I am of the view that not standing the provisions in the settlement for set off, the workmen are entitled not only to the increase in wage and allowances admissible under the settlement, but in addition to the special cost of living allowances awarded under the Employees Cost of Living (Relief) (Amendment) Ordinance, 1980.

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