JURISPRUDENCE OF SANCTITY OF CONTRACTS IN

PAKISTAN – A CONTEXTUAL PERSPECTIVE

INAAMUL HAQUE & NAEEM ULLAH KHAN

I. INTRODUCTION

The concept of the sanctity of contracts has been always important in any society

where commercial activities play a significant role in the lives of the people. In ensuring

sanctity of contracts, Courts of Law play a critical role. As the Supreme Court of India aptly

observes: “The basic duty of the court of law is to enforce a promise which the parties have

made and to uphold the sanctity of contracts which forms the basis of society1”. It has been,

in this context pointed out that this aspect of the work of the courts has much to do with the

economic prosperity of the nations:

Contract law and the courts help people to cooperate

by enforcing, interpreting, and regulating promises. By

enforcing promises, the courts enable people to make

credible commitments to cooperate with each other.

By enforcing promises optimally, the courts create

incentives for efficient cooperation.2

II. BACKGROUND

The need for ensuring, that contracts are fully respected and all institutions concerned

with contractual matters efficiently and effectively contribute to the compliance process, has

acquired added importance today. This is due to the special characteristic of the

contemporary era which profoundly affects every institution in the society where ever in the

world. Law is no longer regarded as an autonomous territory unaffected by the wind of

Inaamul Haque LL.M (Harvard), Distinguished Scholar/ Adjunct Professor Punjab University Law College, Former Executive Director World Bank, Advocate High Court. Pakistan. inaamulhaq786@yahoo.com Naeem Ullah Khan LL.M (Punjab) Lecturer Punjab University Law College, Pakistan. naeemkhan1976@hotmail.com This article contains personal views of authors and do not necessarily reflect those of any Organization, where they are serving.1 Subba Rao (J) in Gherulal vs Mahadeodas AIR 1959 SC 781, (1959) 2 SCA 3422 R. Cooter and T. Ulem, Law and Economics at 222 (2000)

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change that is blowing in the world. It is not simply feasible to have a notion of self

contained legal and judicial system.

The national and global context very much influences the domains of law and judiciary.

In turn legal and judicial systems influence the world external to them. Every nation in order

to survive and provide its people with a decent standard of living must successfully traverse

path of development. Legal development, it would be pertinent to note, forms integral part of

larger development process. As Amartya Sen perceptively points out “the notion of

development cannot be conceptually de-linked from legal and judicial arrangements.3” Hence

it is inescapable that we in the first place apprise ourselves of the background and context of

the world in which we live, do our business, run our institutions and administer justice. This

is not necessary for understanding the proper significance of the subject only (which we

propose to study) but also for the prosperity of our country. Hence the need for studying the

subject of this paper from a contextual perspective.

III. PRINCIPAL CONTEXTUAL PARAMETER – PHENOMENON OF

GLOBALIZATION

The principal contextual parameter of the contemporary world is globalization which

is really the defining attribute of our times. It refers to multidimensional processes that

“create, multiply, stretch and intensify world interdependencies and exchanges.4” Simply put,

globalization is the process of increasing integration among societies and economies.

Centripetal impulses have received strong impetus from, inter alia, reduced costs of

transport, lower trade barriers, faster communication of ideas, rising capital flows, and

intensifying pressure for migration5. As a matter of fact a highly interdependent world is no

longer an elegant phrase but has become a reality. A Canadian statesman put it very well:

“As sovereign nations in our modern world, we are not merely independent but also

interdependent”6.

Whether it is economy, politics, legislature, executive, judiciary or other walks of life,

globalization touches all areas. It indeed creates parameters for action and determines the

context within which both developed and developing countries must function in the world at

3 A. Sen, What is the Role of Legal And Judicial Reform in the Development Process? Paper read at The World Bank Legal Conference, Washington , DC. June 5, (2000)44 Adapted from M. Steger “Globalization – A very short note” at 13, (2003)55 World Bank Group, Globalization, Growth and Poverty, 20004 Adapted from M. Steger “Globalization – A very, Building An Inclusion World Economy I (2002)66 S. Harper, Joint Press Availability at Fairmont Le Chateau Montebello, Montebello, Canada August 21, 2007 available at http://www.whitehouse.gov/news/relases/2007 /08/20070821-3.html. Also see J. Paul, The Myth of Economic Interdependence, Waseda Proceedings of Comparative Law, at 294, Vol.11 (2008)

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this point in time. The legal and judicial institutions are also fully amenable to the impact of

this phenomenon like any other societal activity: The globalization of law is based on the

globalization of business and trade. The increase in the volume of international law, the use

of comparative analysis, the creation of inter-governmental legal institutions, and the

development of private international law, are unprecedented in modern history. The

emergence of these factors may be attributed to the growing interdependence of the states in

the economic, political and social spheres7….. Economic globalization has increased the

volume of global litigation, the degree of deference to foreign courts, judicial dialogue, and

detailed treatments of foreign materials.8

Globalization, however, is a complex phenomenon. It is simultaneously praised and

denounced. There is, nevertheless, agreement on one point that globalization is a powerful

and mighty force. The option today, therefore, for developing countries including Pakistan is

not whether they should embrace globalization; rather, it is how to manage the process,

respond to challenges posed by this mighty force, and drive optimum benefit form the

immense opportunities offered by it9.

IV. CONCEPTUAL CONTOURS OF CONTRACTS

The foundation of the market economy is certain central concepts including legal

acceptance of property and system of economic exchanges. The latter can not efficiently

function until contracts could be freely made and effectively enforced.10

A contract has been defined by Trietel as “an agreement giving rise to obligations

which are enforced or recognized by law”. The sanctity of contracts is ensured by the

instrument of law which means ultimately by judicial or arbitral agencies. Similar is the

definition by Pollack “Every agreement and promise enforceable at law is a contract11”. The

concept of contract set out above has been duly enshrined in Pakistan’s law i.e. the Contract

Act 1872 which provides, among others, rules governing commercial and investment

transactions12:

Certain issues peculiar to transnational contracts

relate to evidence and procedure in case of foreign contracts. In

7 J. Reitz, The Convergence Theory and Political Economy as a Barrier to Globalization, 2001.Also see Law & Globalization available at http:/www.google.com last visited 7th August, 20098 Id9 See I.Haque & R.Burdessu, Monterrey Consensus on Financing for Development: Response Sought from International Economic Law, Boston College Int’l and Comparative Law Review, at 228 (2004)10 A. Sen, Supra note 3.11 K. Cheema, Business Law, at 1 (2009)

1212 Id

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Pakistan, the tradition of the common law system has been

followed which has adopted the principle of lex fori (i.e. the law

of the forum or of the jurisdiction where the case is pending).

The lex fori thus determines and governs how far the foreign law

is to be recognized in litigation before Pakistani Courts. The

principle is that: the foreign law will apply so far it is not

inconsistent with the law of the place where the action is

brought: the contract made in a foreign country must be valid

according to the law of that country and must satisfy all the

formal requirements of that law. A contract which is unlawful by

the law prevalent in the country where action is brought but valid

where it is made and where it is to be performed will not be

treated as invalid by Courts unless it is penalized or prohibited

by Statute or contemplates some gross violation of the moral law

which the law of no country would sanction13.

V. MAJOR MANIFESTATIONS OF GLOBALIZATION

Globalization manifests itself in a variety of ways and affects many aspects of our

existence. For the purpose of this paper however, we propose to confine ourselves to two

major facets embodying the manifestation of this phenomenon – namely international trade

and foreign investments/private capital flows.

1. Trade

The term international trade or transnational trade (hereinafter called “trade”)

conventionally refers to exchange of goods and services across international borders. The

importance of trade has become all the more important with the integration of economies of

developing countries with the world trading system. It has immensely contributed to the

development of nations by significantly increasing their gross domestic product (GDP)14. It

has indeed served as a platform for "globalization"15:

1313 K.B. Abbas, “The Contract Act” at i (2008) 14 Gross Domestic Product means that total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. Available at http://www.investorwords.com/2153/GDP.html last visited on August 07, 2009.15 Globalization is the defining attribute of our times. Societies and economies are becoming increasingly integrated. Centripetal impulses have received string impetus from, inter alia, “reduced costs of transport, lower trade barriers, faster communication of ideas, rising capital flows, and intensifying pressure for migration.” The resulting integration is a highly complex process, affecting almost all aspects of our everyday lives. A highly interdependent world is no longer an elegant phrase but has become a reality.

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In case of Pakistan “greater integration with the world economy

is reflected by the trade openness indicator, i.e. the trade to GDP

ratio. This has increased from 25.8% of GDP in 1999-2000 to

36% of GDP in 2007-2008. If services trade is included, the

increase is higher at 42% of GDP in 2007-2008 from 28% of

GDP in 1999-2000 reflecting greater degree of openness.16

Changes that took place in the foreign trade of Pakistan and which also attest to its

growing importance are set out below:

Table 1 - Exports from and Imports to Pakistan

Year

(US $ Million)

Exports Imports Total

1980-1981 2,958 5,409 8,367

1990-2000 8,569 10,309 18,878

2000-2001 9,202 10,729 19,931

2007-2008 19,052 39,966 59,018

Sources: FBS & EA Wing, Finance Division

Trade among the nations is seen as an important contributor to economic growth,

peace and better standard of living.17 As no country is now an island unto itself it cannot

maintain an acceptable standard of living without an increasing volume of trade. In order to

fully meet the requirements of Pakistan’s growing population, there is no option but to import

goods and services from abroad in progressively increasingly quantities. To pay for these

imports Pakistan has to export goods/services or borrow in foreign exchange (from abroad).

Judged in the proper perspective the contribution of international trade to the welfare of

people is an undeniable reality. As aptly stated the end of economic activity is consumption;

production is only a means to that end:

A policy of production for the sake of production or of

employment for the sake of employment ignores the fundamental

reason for economic activity, which in ultimate analysis is the

well being of a nation’s people18? All the stake holders would gain

16 Government of Pakistan, Economic Survey 2008-09, at 119 (2009). Available at: http://www.finance.gov.pk/finance_economic_survey.aspx visited on August 16, 2009.17 I. Carr “International Trade Law” at 1xxxvii (2005)18 M. Pryles, etal “International Trade Law” at 10 (1996)

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if the flow of trade is smooth and expanding. Any factor, like for

example sanctity of contracts that is necessary for unimpeded and

increasing trade flows should be, therefore, promoted.

Pakistan has never been an autarky, cut off form the world but its trade structure has

undergone a change with the passage of time. It is no longer an exporter of primary

commodities. Its industries both import substituting and export promoting require imported

inputs in substantial quantities, hence creditability of Pakistan, as an importer having a

reliable and developed system of courts that protects sanctity of contract is important. Lack of

credibility would add to transaction costs such as costs of L/Cs and financing. Besides this, a

country with a flawed legal system adds to the risk premium and foreign traders would tend

to charge higher profits from their Pakistani counterparts. In short, the cost of sourcing

imports would be much higher if we fail to ensure the sanctity of foreign purchase contracts.

The sanctity of contract is of even greater importance in case of our exports - i.e. foreign sale

contracts as our lapses in this regard, will result in the loss of export markets.

In sum, international trade flourishes only when, there is a legal system ensuring

sanctity of contracts because the legal framework which affects the rights and the obligations of the

parties needs to be clear and predictable. Lack of legal certainty about the enforcement of contract

thus acts as a barrier to trade. Among other things parties to the contract would like to be sure about

the nature and the extent of the obligations they undertake and the remedies available to them should

they breach the contractual terms. Given the plurality of legal systems and the variation in liability

schemes, harmonization through strong court system is the best option in the context of international

commercial transactions”.19

2. Foreign Investments / Foreign Private Capital Flows

Investments in a country, to a large extent, determine the rate of economic growth.

Investments, in turn are, a function of savings. The contribution of national savings to the

domestic investment is indirectly the mirror image of foreign savings required to meet the

total investment demand of a country. In other words the requirement for foreign savings

needed to fill up the saving-investment gap can be gauged from the current account deficit in

the balance of payments. In Pakistan’s case national savings at 13.5% of GDP in 2007-08 is

the lowest ever level since 1999-2000 and has financed 61.5% only of fixed investment in

2007-08 leaving a balance of 48.5% for financing by foreign savings. This reveals the extent

of a huge gap, dependant on financing from foreign sources.20

19 See I. Carr, supra note 17.20 Economic Survey of Pakistan, 2008-09 supra note 16.

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Foreign financing sources include foreign direct investment (FDI) that has emerged as

an important source of private external flows for Pakistan just as the case in many other

developing countries. Understandably, countries prefer to bridge their widening savings-

investment gaps through this non-debt creating inflows. During the last two decades

developing countries including Pakistan, have therefore, liberalized their FDI regimes and

pursued investment-friendly economic and other national policies to attract investment to

maximize the benefits of foreign presence in the host economy. Thus given the proven

positive contribution of FDI to higher economic growth the case for sustaining and increasing

it has been established21.

It would be instructive to glance at the figures of foreign investment inflows set forth

below:

Table 2 -Foreign Investment Inflows in Pakistan22 (US$ Million)

Year Greenfield

Investment 

Privatization

Proceeds Total FDI 

Private

Portfolio

Investment 

2001-02  357 128 485 -10

2005-06  1,981 1,540 3,521.00 351

2006-07  4,873.20 266 5,139.60 1,820

2007-08 5,019.60 133.2 5,152.80 19.3

Source - Board of Investment Pakistan

Note: Pakistan’s Fiscal Year runs from 1st July till 30th June.

The overall foreign investment during the first ten months (July-April) of the fiscal

year 2008-09 declined by 42.7 percent and stood at $ 2.2 billion compared to $3.9 billion in

the correspond period of 2007-08 year23.

Pakistan needs far greater capital inflows than what it has been getting. It still lags

well behind investment destinations in the developing world mainly on account of

deficiencies in its investment environment. Its private foreign direct investment levels

represent about 1% of GDP, which is quite low relative to the developing world average of

3.7% of GDP. Further more, while the business policy environment has only a limited

number of large problems it suffers from a significant number of small irritants, leaving it at

risk from political, geopolitical, and economic shocks24. Inflow of foreign investment has 21 Id at 12-13.22 Board of Investment, available at http://www.pakboi.gov.pk/forign-invest.htm last visited on August 10, 200923 Economic Survey of Pakistan 2008-09 supra note 16 at 15-16.24 Pakistan: Review of Administrative Barriers, Executive Summary, paragraph 3, at xvii.

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remained subdued in emerging markets in FY 08, however, the case of Pakistan was much

more acute because the political economy experienced many headwinds at continuous

intervals.

3. Special Importance of Investment in Infrastructure

Development and proper maintenance of public infrastructure is indeed a key to

sustainable economic growth and development. The infrastructure-economic growth nexus

indicates a clear need for increased efforts by developing countries to ensure improved access

and quality of services. With a multiplying population and a rapidly industrializing economy,

Pakistan faces a colossal challenge in this regard. However there is acute shortage of

resources at the disposal of both federal and provincial governments”. Limited fiscal space

and gaps in public sector capacity to undertake infrastructure projects plainly call for private

sector collaboration, with the government to fill up these critical deficiencies. It has become

indeed imperative to find innovative methods to bridge this gap. One such method is that of

Public-Private Partnership (PPP). This term describes a range of possible relationships among

public and private entities in the context of infrastructure and other services. PPP initiatives

are being taken in Pakistan by the federal, provincial and city governments to attract private

participation in infrastructure projects.25

VI. COMMON CHALLENGES TO SANCTITY OF CONTRACTS – FACTORS

RESUSLTING IN DEVIATIONS FROM THE SANCTITY OF CONTRACTS

Structural Weaknesses of Systems

Experience world over has revealed that a multitude of factors have a bearing on the

sanctity of transnational contracts. These tend to result in deviations or incline parties to

deviate form the contractual terms and conditions despite the fact that those were agreed

consciously and solemnly. Challenges to the sanctity of contracts emanate from various

sources including business practices, standard of business ethics, political systems,

legislature, governmental authorities and judicial institution (including the fact of congestion

in courts).

Besides the above factors, special problem arise in cases involving issues of choice of

law, choice of forum, plea of forum non-convenience, public policy and the prevalent judicial

25 Pakistan Infrastructure Investment Conference, Concept Note, at 1, para 1, May 11-13 2008, Islamabad, Pakistan.

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thinking in respect of foreign jurisdiction particularly arbitrability of international

commercial disputes.

Delay in Disposal of Cases

Delay in administration of justice definitely contributes to ineffective enforcement of

contracts. The problem of delay is neither new nor unique. Even the most highly developed

countries with advanced legal systems suffer from this problem. If securing redressal of one’s

contractual grievances is extremely difficult in practice, the purpose of putting any provision

to safeguard one’s interest in a legal document is assuredly defeated. As the old dictum goes

“Justice delayed is justice denied”. The sanctity of contracts, needless to emphasize, in such a

situation does not rally exist.

The views and findings of experts on law and economics in developing countries are worth

repeating here:

The belief is growing that the judicial sector in

developing countries is ill-prepared to foster private

sector development within a market system.

Research has revealed that in several developing

countries a large number of court users are “not

much inclined” to bring commercial disputes to

courts. The enhancement of the capability of the

courts to satisfy the people’s demands for justice

particularly in such cases a challenging and

important aspect of judicial reform in developing

countries.26

There is a clear nexus between the level and the pace of foreign investments and the

quality of judicial system. Chief Justice Iftikhar Muhammad Chaudhry highlighted this fact

as a far back as 2005:

26 E. Buscaglia and W Ratliff “Law and Economics in Developing Countries” at 55 (2000)

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Existence of courts and their independent functioning

not only gives a sense of security to citizens but also

provides protection to foreign investors.27

Serious efforts are being made to strengthen the judicial system in Pakistan and inter

alia, to make effective the supervision of court management by the apex court. The recently

announced National Judicial Policy 2009 aims at ensuring speedy dispensation of justice. It

has been stated in the policy document:

The policy is an attempt to streamline the judicial

system in the country and make it responsive to

the present-day requirements of society. The

objective is to clear the huge backlog that has

accumulated over the years at all level of judicial

hierarchy…….28. The thrust of the policy is to

consolidate and strengthen the independence of

judiciary, thereby enabling the judicial organ to

exercise institutional and administrative

independence and judges to have decisional

independence to decide cases fairly and

impartially.29

The policy has further provided that:

Certain categories of cases, having close nexus

with economic development and good governance,

have been prioritized including disputes pertaining

to trade, commerce and investment.30

27 Foreign Investment and Rule of Law, Business Recorder, September 21, 2005

28 See National Judicial Policy at 7 (2009) available at http://www.google.com.pk last visited on July 30, 2009

29 See Supra note 23, at 930 Sec Supra note 23, at 10

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Nationalism

Nationalistic sentiments in host countries can create at times problems with foreign

investments. This can be particularly so when the host economy is experiencing economic or

political stress. Prosperous foreign investors in such a milieu are perceived to be exercising

excessive control over the economy. Repatriation of profits – contractually agreed, can

become easy targets of xenophobic nationalism.31 As pointed out by respected scholars of

international trade law:

Foreign investors become ready targets for

opportunistic politicians who may see advantage in

such a situation to bring about a change of

government. It is also easy to deliver the promise

of taking over or divesting ownership of established

foreign-owned plants. It is a popular measure

which would cause immediate appeasement of

nationalistic forces.32

The Pyramid Arbitration Case from Egypt illustrates the manner in which nationalistic

feelings may engineer a foreign investment dispute. The government of President Sadat relaxed rules

on the admission of foreign investments in Egypt. One foreign enterprise viz Southern Properties

Private Limited (SPP) entered into an agreement with the Egyptian Government Tourist Corporation

to build a tourist complex near the pyramids. The company had commenced building when an outcry

arose about the building of such a project so close to a historical monument. The mater was raised in

Parliament frequently. After the assassination of President Sadat, the incoming government found it

prudent to stop the construction of the complex. The dispute resulted in protracted arbitration

proceedings before several tribunals. The arbitration gave rise to litigation concerning the

enforcement of awards in several states”.33 The confidence of foreign investors as a consequence

suffered considerably and took many years to gather momentum again.

Contracts Made by Previous Regimes

Threat to sanctity of contracts also arises frequently when there are unstable regimes

(this problem has been arising only in developing countries). At times when the change of a

regime takes place the incoming government may wish to change the contracts made with

31 R. H Folsom et al “International Business Transactions” 906-907 (1999)32 Id33 Pakistan took special care in the era of nationalization under President Zufikar Ali Bhutto not to nationalize foreign investment except in case of one life insurance company (Namely American Life).

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foreign investors by the previous governments. This often happens, particularly, where

allegations of corruption were leveled in the making of the contracts or where the legitimacy

of the previous government had been doubted by the incoming government. The moral is that

a foreign investor making an investment under a contract with an unrepresentative regime

does so at its own peril because the new government may claim a right to rescind such

contracts.34 Likewise, contracts made with military regimes are also suffused with risks as

the incoming democratic regime may declare that it is not bound by them:

The extent to which democracy and self-

determination are normative factors affecting even

the exercise of power of governments in the

conclusion of contracts is yet to be worked out in

international law…. But, as far as risk analysis is

concerned, the entry of foreign investment on the

basis of contracts made with unrepresentative

governments or through corruption increases the

risk to the foreign investment…. The foreign

investor who deals with unrepresentative

governments increases the risks to his investments

considerably35.

In Pakistan after the ouster of a government that had entered into contracts in PPP

format, with Independent Power Producers (IPPs) the incoming government started a review

of those contracts, generating a lot of uncertainty in energy sector and creating an unenviable

situation from the perspective of sanctity of contracts. (This subject has been further dealt

with elsewhere in the article.)

Onerous Contracts

Challenges to contractual sanctity also arise if these contracts are inherently of

onerous-nature. In such cases performance may become onerous due to subsequent

developments. In such circumstances, governments of host countries may seek to reduce the

loss if the contract is implemented as originally agreed. The host countries tend to use

legislative instruments to interfere with the contract. A good illustration would be the case of

Settebello Ltd. v. Banco Totta Acores, where a state-owned shipyard in Portugal had

34 R. H Folsom et al, supra note 29, at 908.35 Id.

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contracted to build an oil tanker. There were penalty provisions in the agreement for the late

performance. Being behind schedule it was in the danger of having to make large payments

for its default. The Portuguese government intervened through legislation and altered the

penalty provisions of the contract. The other party found that it could not have any remedies

against this change both within and outside Portugal. The sanctity of the contract was

violated with impurity which saved the shipyard from penalty payments but it affected the

credibility of the government of Portugal in the eyes of foreign investors.36

Public Policy - A Common Source of Challenges to Sanctity of Contracts

Courts all over the world in some cases have been letting parties to escape from the

contractual obligations on the ground that the agreements made by them (through freely and

willingly) were unlawful being opposed to public policy. The implication of the concept in its

broadest sense is that considerations of public interest may require the courts to depart from

their primary function and refuse to enforce a contract37.

English Courts’ Views on Public Policy

In the English law a contract is struck down if a court holds it to be opposed to the

public policy. However, in this regard, there are fairly well established parameters. For

example a contract of marriage brokerage, the creation of perpetuity, a contract in restraint of

trade, a gaming or wagering, or assisting of the enemies, are all unlawful ” on the ground of

public policy.38 Courts are required to rely on the well settled heads of public policy and to

apply those to varying situations.39 If a contract fits into one or the other of these pigeon-

holes, it may be declared void.40 The court is, however, allowed to mould the well-settled

categories of public policy to suit new conditions of changing world.41 But can a court invent

a new head or category of public policy? According to Lord Halsbury the categories of public

policy are closed42 “I deny”, he said, “that any court can invent a new public policy”:

From time to time judges of the highest reputation

have uttered warning notes as to the danger of

36 R. H Folsom et al, supra note 29, at 908-909.37 See generally Lord Wright, LEGAL ESSAYS AND ADDRESSES; Winfield Public Policy in the English Com noun law, 42Har LR76-102 (1928).38 See Lord Wright in Fender vs. St John Mildmay, AC1, at 38 (1938)39 Earl of Halsbury LC in Jason vs. Driefontein consolidated mines Ltd (1902) AC484. 40 See Subba Rao J(as he than was) in Gherulal vs. Mahadeodas; (1959) 2SCA369.41 Ashquith J views in Monkland vs. Jack Barclay Ltd. (1951) All ER 714,723.42 Lord Wright views in fender vs. John Mildmay,(1938) AC 1 723

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permitting judicial tribunals to roam unchecked in

this field.43 A judge criticizing public policy in an

early case said, it is a very unruly horse and once

you get astride it you never know where it will carry

you.44

Another opinion in a similar vein may be cited. “Public Policy is a vague and

unsatisfactory term.”45 The remarks of Parker J in the case of Egerton vs. Brownlow are also

worth referring to:

Certain contracts have been held void at common

law on this ground --- a branch of the law however

which certainly should not be extended, as judges

are more to be trusted as interpreters of the law

than as expounders of what is called public

policy.”46 Another judge observed that “Public

policy is always an unsafe and treacherous ground

for legal decisions, and in the present case it would

not be easy to say on which side the balance of

convenience would incline.47

Yet the principle of public policy rendering a contract

void holds ground if parameter of rules is fully

respected and strictly construed. But as observed by

Lord ATKIN, “The doctrine should only be invoked in

clear cases in which the harm to the public is

substantially incontestable and does not depend upon

the idiosyncratic inference of a few judicial minds.48”

Indian Courts’ Views on Public Policy

The Indian Courts mostly adopted the English view. An important case is that of

Gheru Lal vs. Mahado Das,49 where the court held:

43 See Parke B views in Egerton vs. Brownlow, (1853 )4HLC1 123:10 ER 359, 40844 Lord Atkin views in Fender vs. john Mildmay,( 1938) AC145 Borrough J views in Richardson vs. Mellish, (1824) 2 Bing 229,25246 Parke B. views in Egerton vs. Brownlow (1853) 4HLC 1,123.47 Lord Davy views in Janson vs. Driefontein Consolidated Mines, (1902) AC 484, 500.48 In Fender vs. St. John Mildmay, (1938) AC149 AIR 1959 SC 781 : (1959) 2 SCA 342, 370

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Public Policy or the policy of the law is an illusive

concept. It has been described as an

“untrustworthy guide” of, “variable quality” and an

“untruly horse. The doctrine of public policy

embraces not only harmful cases but also

harmful tendencies.50

Highlighting the fact that public policy principles are derived form precedents, the

following observations were regarded persuasive:

These principles have been crystallized under

different heads and though it is permissible for

courts to expound and apply them to different

situations. It should only be invoked in clear and

incontestable cases of harm to the public through

heads are not closed and though theoretically it

may be permissible to evolve a new head under

exceptional circumstances of a changing world, it is

advisable in the interest of stability of society not to

make any attempt to discover new heads in these

days”51.

In another case an Indian Court reminds us that:

The twin touchstones of public policy are

advancement of the public good and prevention of

public mischief and these questions have to be

decided by judges not as men of legal learning but

as experienced and enlightened members of the

community representing the highest common

factor of public sentiment and intelligence.52

50 Dr. A. Singh, Law of Contract, at 214 (….).51 Cave J Mirams, Re (1891) 1 QB 594,595 JESSEL MR IN printing and numerical registering Ca v. Sampson (1875) LR 19 Eq 462,465.52 Ratanchand Hirachand vs. Askar Nawaz Jung, AIR 1976 AP 112.

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The Policy of Law / Public Policy in Pakistan

The provision of law adopting the principle of public policy in Pakistan is enshrined

in section 23 of the Pakistani Contract Act 1872 which, inter alia, provides:

The consideration or object of an agreement is lawful,

unless – it is forbidden by law; or

………………………………………………………………………

………………………………………………………….…………..

The Court regards it as immoral, or opposed to public

policy.

In interpreting the term ‘public policy’ Pakistani courts have been also, by and large

following English courts. In Manzoor Hussain and Others vs. Wali Muhammad and Abdul

Shakur53, the Supreme Court observed:

It is now well-settled that the provisions of section

23 of the Contract Act have to be construed strictly

and the Courts should not invent new categories or

new heads of public policy in order to invalidate a

contract.

In the case of the Lloyds Bank Ltd. Karachi,54 the Supreme Court observed that the

duty of the Court is to expound and not to expand public policy and the doctrine of public

policy should be invoked only in clear cases, in which the harm to the public is substantial

and does not depend upon the idiosyncratic inferences of a few judicial minds.

In case of Sultan Textile Mills Karachi Ltd. vs. Muhammad Yousaf Shamsi,55 the court noted

that the problem of illegality at common law on the ground of public policy is the discovery

of injuriousness to society. This concept has elasticity as well as impreciseness. The court

referred to well known treaties on contract law which highlighted:

The crux of the matter being injuriousness to

society. It should be found as a fact to exist in each

case. Referring to the judgments of Sir Lawrence

Jenkins, C.J. and Justice Batty it was stated that the

courts declined in Govind Subrao v. F.S. Facheco

53 Manzoor Hussain and Others vs. Wali Muhammad and Abdul Shakur, PLD 1965 SC 425.54 PLD 1969 SC 30155 PLD 1972 Karachi 226

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and others (1), to hold a transaction as illegal in

spite of the fact that it conditionally prohibited

subletting of a license on the ground that it was not

shown to be illegal at its inception.

Secondly, even though the contract is one which,

prima facie, falls under one of the recognized heads of

public policy, it will not be held illegal unless its

harmful qualities are indisputable…. Doctrine as Lord

Atkin observed…..In popular language….The contact

should be given the benefit of the doubt.

HUBCO’s CASE

The issue of Public Policy again came up in the well known case of the Hub Power

Company (HUBCO) vs. WAPDA case56. The Supreme Court by a majority held that in view

of the fact, that the allegations of corruption leveled by the WAPDA, supported by

circumstances, provided prima facie basis for further probe into the matter judicially, the case

was not referable to arbitration. Such matters, the court held, according to the public policy

required judicial findings about the alleged criminality. It thus arrived at the findings that the

disputes between the parties were not commercial disputes, arising from an undisputed

legally valid contract, or relatable to such a contract. On account of the alleged criminal acts

there did not come into existence any legally binding contract between the parties. The

dispute primarily related to the very existence of a valid contract and not a dispute under such

a contract. Hence, the Supreme Court upheld the injunction granted by the High Court of

Sindh against proceeding with arbitration before the International Chamber of Commerce.

The minority view was that: the Power Purchasing Agreement (PPA) was valid and

the arbitration agreement contained in it is certainly not contrary to public policy. A

subsequent amendment which, it is alleged, was procured by fraud, cannot, on any analysis

taint the PPA itself. In short, it is totally unclear how a valid contract can itself become

contrary to public policy because of an allegation that a later amendment was the product of

an illegal act.

While referring to the public policy the dissenting judges quoted with approval

various judgments of both the English and Pakistani courts57 and observed that consideration

56 HUBCO vs. WAPDA, PLD 2000, SC 84157 Richardson v. Mellish (1824) 2 Bing 229, CBI NZ Ltd. vs. Badger Chiyoda (1989) 2 NZLR 669, at 676, Manzoor Hussain v. Wali Muhammad (1965 SC 425), Dawood Corporation Ltd. V. Jasian Jasimina and others (1988 MLD 987), Sultan Textile Mills (Karachi) Ltd. V. Muhammad Yousuf Shamsi (PLD 1972 Kar. 226).

17

of public policy can never be exhaustively defined, but they should be approached with

extreme caution.

The crux of these judgments referred to by the dissenting judges was that the courts

should be cautious before striking down contracts in the name of public policy.

ECKHARDT’s CASE

Another important case is that of ECKHARDT & Co, Marine vs. Muhammad Hanif58,

where the petition for stay of a suit as contemplated under Section 34 the Arbitration Act was

dismissed by the lower courts. The Supreme Court unanimously dismissed the appeal on the

ground that exercise of discretion by the lower courts could not be said to be perverse,

arbitrary or capricious. Further, it was held that in the circumstance of the case, taking of

evidence to London would be inconvenient and expensive.

Mr. Justice Ajmal Mian while agreeing with the conclusion of other judges thought it

fit to add his remarks which are indeed insightful:

Section 34 of the Arbitration while dealing with an

application in relation to a foreign arbitration clause

the Court’s approach should be dynamic. With the

development and growth of International Trade and

Commerce and due to modernization of

communication transport system in the world, the

contracts containing such an arbitration clause are

very common now a day. The rule that the Court

should not lightly release the parties from their

bargains that follows form the sanctity which the

Court attaches to contracts must be applied with

more vigor to the contract containing a foreign

arbitration clause. We should not over look the fact

that any breach of a terms of such a contract to

which a foreign company or person is a party, will

tarnish the image of Pakistan in the comity of

nations.

The principles of law which has been expounded by Mr. Justice Ajmal Mian are

worth following in the present day world. His observations show the sensitivity to the reality

58 PLD 1993 SC 42

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of the globalized world where sanctity of contracts has come to assume a new importance. It

is respectfully submitted that a judgment on these lines instead of based on the technical

considerations as to exercise of discretion by subordinate courts and (effectively influenced

by) the doctrine of forum non-convenience, would have been more appropriate in the larger

interest of the country. One would also respectfully submit that perhaps Mr. Justice Ajmal

Mian could have clearly dissented from the judgement instead of upholding the decision of

the lower court.

VII. CONTEMPORARY JUDICIAL APPROACHES TO ISSUE OF SANCTITY OF

CONTRACTS

English Courts

The approach of English law had been moulded to a considerable extent by it’s

largely laissez faire attitude to contracts in the domestic law. The 19 th century position59 can

be summed up by quoting Jessel MR in Printing and Numerical Registering Co. v Sampson:60

If there is one thing more than another which public

policy requires, it is that men of full age and

competent understanding shall have the outmost

liberty in contracting, and that their contracts,

when entered into freely and voluntarily, shall be

held sacred and shall be enforced by courts of

justice.61

Thus the juristic model of contracts in the domestic context was that of an agreement

freely negotiated between economic equals and the underlying the concept was that

agreements must be honored. However, noticeable changes took place in the 20 th century

because of palpable imbalances in bargaining power in areas such as housing62 employment63

59 For the relationship between 19th century political philosophy and the law of contract, see Atiyah, The rise and fall of freedom of contract (1979)60 J. Brien, Smith’s Conflict of Laws, at 307 (1999).61 Printing and Numerical Registering Co. v Sampson (1875) LR19 Eq 462, p465. George Jessel had himself served as a liberal MP and solicitor General in the first administration of WE Gladstone (1868-74)62 See the housing of the working classes act 1890, leading to the increase of rent and Mortgage interest (War Restrictions) Act 1915 and the volume of legislation that subsequently followed, culminating in the rent act 1977.63 See the workmen’s compensation Acts 1897, 1906; Coal Mines Regulation Act 1908; trade boards Act 1909;however, the subject was only to expand in the post-war period, with the contracts of Employments Act 1963 and the Redundancy Payments Act 1965.

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and consumer contracts64 that warranted correction by the state. Though, the business

contracts are not closely regulated and autonomy of parties has remained the rule.

For a long time, however, the English Courts were not inclined to trust the foreign

dispute resolution forums. As an eminent scholar puts it:

There can be little doubt that in the nineteenth century, there was

an assumption that the justice available in the King’s courts was

superior to that in the less fortunate lands”. Indeed, sometimes

judges were not slow to say so, for example, Shadwell VC

observed that “I consider that in the contemplation of the court

of Chancery every foreign court is an inferior court65.

One of the land mark cases making a point of departure was that of Atlantic Star. The

facts of the case were as follows: the Atlantic Star, a Dutch Container Vessel, was involved in

a collision in Belgian internal waters in which two barges were sunk. In consequence, several

actions were begun in Belgium. An owner of a Dutch barge began Admiralty proceedings in

rem in England. The owner of the Atlantic Star applied to have the proceedings stayed. The

majority in the House of Lords felt that it should be acknowledged that an equivalent level

of justice might be obtainable in other jurisdictions. Lord Reid observed “It was time to

develop the common law and render it less reminiscent of the good old days, the passing of

which many may regret, when the inhabitants of this island felt an innate superiority over

those unfortunate enough to belong to other races”.66

U.S. Courts

The U.S Courts’ attitude towards the foreign jurisdiction was initially unfavorable and

the choice of forum in favor of foreign jurisdictions was not generally found acceptable67.

This perspective underwent a qualitative change when the US Supreme Court honored the

forum selection clause in M/S Bremen vs. Zapata Off-Shore Company’s case68. The Court

held that the Court of Appeal had given too little weight to the choice of the forum clause (in

this case, the courts of England).

64 Although the courts had tried to restrict the scope of exclusion clauses priors to 1945, the central division between consumer contracts and commercial contracts was given effect to in the Supply of Goods (Implied Terms) Act 1973.65 Bent vs. Young (1838) 9 Sim 180, at 191.66 Smith’s Conflict of Laws, supra note 57 at 201.67 Carbon Black Export Inc. vs. The Monrosa 254 F 2d 297 (CAS 1958); cert dismissed, 359 US 180; 79 S Ct 710; 3 L Ed 2d 723 (1959).68 407 U.S. 1 (1972) M/S Bremen vs. Zapata Off-Shore Company

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The Supreme Court took note of the fact that overseas commercial

activities by the American enterprises had greatly expanded. The barrier

of distance that once tended to confine a business concern to a modest

territory no longer does so…. The expansion of American business and

industry will hardly be encouraged if, notwithstanding solemn contracts,

we insist on the parochial concept that all disputes must be resolved

under our laws and in our courts….We cannot have trade and commerce

in world market and international water exclusively on our terms,

governed by our laws and resolved in our courts….The argument that

such clauses are improper because they tend to “oust” a court of

jurisdiction is hardly more than a vestigial fiction. It appears to a rest at

core on historical judicial resistance to any attempt to reduce the power

and business of a particular court.…. When businesses once essentially

local now operate in world markets, it reflects something of a provincial

attitude regarding the fairness of other tribunals. The threshold question

[in regard to issue of ouster of jurisdiction] is whether that the court

should have exercised its jurisdiction to do more than give effect to the

legitimate expectations of the parties manifested in their freely

negotiated agreements, by specifically enforcing the forum clause.

There are compelling reasons why a freely negotiated private

international agreement, unaffected by fraud, undue influence, or

overweening bargaining power, such as that involved here, should be

given full effect.69

Indian Courts

The Supreme Court of India held that the parties may, by agreement, select one of the

two competent Courts for the disposal of their disputes.70 Parties to a contract can choose

between one of several Courts having concurrent jurisdiction.71 A term in a contract between

69 See also C. Hotchkiss, “International Law For Business” at 153-154 (1994).70 Shree Subhalaxmi Fabrics (P) Ltd. vs. Chand Mal Baradia, (2005) 10 SCC 704; Continental Drug Co, Ltd. vs. Chemolds and Industries Ltd. AIR 1955 Cal 161 (DB); Ram Bahadur Thakur and Co.vs.Devidayal (Sales) Ltd, AIR 1954 Bom 176 (DB); Hoosen Kasam Dada (India) Ltd. vs. Motilal Padampat Sugar Mills Co. Ltd, AIR 1954 Mad 845 (DB); National Petroleum Co. vs. F.X. Rebello, AIR 1935 Nag48; Kidri Prasad vs.K.R. Khosala, AIR 1923 Lah 425 : 75 IC 590; Jagan Nath vs. Burma Oil Co., AIR 1929 Lah 605 :0119 IC 481. 71 Patel Roadways pvt. Ltd. Vs. Bada India Ltd,. AIR 1982 Cal 575 : (1982) 86 Cal WN 992 (DB); Bajrang Electric Steel, Co. Pvt. Ltd. Vs. Commisioners for the Port of Calcutta, AIR 1957 Cal 240.

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A and B living in places at C and D respectively that all suits arising out of it should be filed

only in Court at D is not illegal.72

Where a clause in a contract stated that any legal action arising out of the contract

would be taken at C Court, though normally Courts at C and D would both have jurisdiction,

the effect of the agreement is to prevent the parties absolutely from filing the suit in Court at

D.73 where the parties to a contract agreed to submit the dispute arising from it to a particular

jurisdiction which would otherwise also be a proper jurisdiction under the law, their

agreement to the extent they agreed not to submit to other jurisdiction cannot be said to be

void as being against public policy74.

VIII. SANCTITY OF CONTRACTS IN PAKISTAN:

SPECIAL CASE OF PUBLIC PRIVATE CONTRACTS

While dealing with the subject of sanctity of contracts, it would be helpful if the type

of contacts that generated problems relating to contractual sanctity in Pakistan are given some

attention. These contacts are those falling within the classification of public-private

partnership (PPP) contracts particularly those relating to the Independent Power Producers

(IPPs).

The concept of sanctity of contracts under the Public-Private Partnership (PPP)

arrangements, including cases of Independent Power Producers (IPPs), given their inherent

long term nature, has acquired a special significance. There would be little chance of

attracting private sector to enter into PPP arrangements unless there is a certainty about

honouring of contractual commitments by parties (particularly by the public sector partners).

Contracts are long term in nature. On such time horizons many changes take place. PPP

contracts can work out only if contracts are dynamically and imaginatively conceived and are

insulated from challenges arising from time to time to their sanctity.

In Pakistan the track records these contracts has not been enviable. Several problems

have been encountered by foreign (private) parties in regard to contractual terms – mostly by

IPPs.

Case of Highway: There is also another PPP case relating to a highway project is highly

illustrative of problems faced by the private partners: A headline, some time ago appeared in

72 P.C. Markanda, The Law of Contract Act Vol. I at 602-603 (2008)73 Cittaranjan Guha vs. Parul Rani Nanda, AIR 1946 Cal 112 : 50 CWN 281.74 P.C. Markanda, supra note, 72 at 603.

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a national daily “Bad contract challenging assembly writ.”75 This was about a PPP contract

under which Lahore Faisalabad Expressway had been constructed. The matter came under

strong criticism in the Punjab Legislative Assembly. The contract was concluded between

the Punjab Government on one hand and private sector parties and Frontier Works

Organization (FWO) on the other hand in 2003 for building this first ever PPP Highway in

the country on the BOT (build, operate and transfer) basis. A privilege motion was tabled in

the Assembly, questioning the “Constitutional status” of the contract. The offending clause

in the contract reportedly provided that “Punjab Government undertakes not to take any

action, administrative or legislative, affecting terms of the contract”76. The mover questioned

the constitutional status of the clause. In his view, thousand of users of the highway were

being over charged for use of the highway and he informed that a House Committee had

already pointed out loopholes in the contract which empowered the private partners to raise

toll tax annually and transfer the maintenance cost of the road to the Provincial Government.

The ouster of powers of the Assembly was not correct. However, action leading to re-fixing

toll rates by any authority would damage the contract. Hopefully the state authorities will

resolve the matter. The matter is still pending before the Privilege Committee of Punjab

Assembly and consequential uncertainty is proving discouraging to new investment under

PPP mode.

Case of IPPs: One important sector in which PPP projects have become popular is that of

energy. In this sector public-private partnership has assumed the form and nomenclature of

the Independent Power Producers (IPPs). An IPP is “an entity, which is not a public utility, but

which owns facilities to generate electric power for sale to utilities and end users”.77 In Pakistan,

IPPs accounts for about 30% of the total generation capacity. The electricity market was

opened to them in 1990. The Benazir Bhutto government signed a number of IPP contracts

under the 1994 Power Policy and in June 1996, Pakistan’s first private sector power plant, the

Hub Power Company (HUBCO) came into operation. Subsequently, fifteen IPPs achieved

commercial operations in record time.

In February, 1997, the Muslim League (N) won the elections and formed the

government which in 1998 started investigations into IPP contracts signed under the previous

regime. These investigations had serious repercussions on IPP mode of energy generation.

75 “Bad Contract Challenging Assembly Writ” Dawn Newspaper, Saturday February 07, 200976 Id.77 Independent Power Producers (IPP) Rating Methodology, at 1 January 2009. Available at http://www.pacra.com last visited on August 08, 2009.

23

The judgment in HUBCO’s case further aggravated the situation.78 This case greatly damaged

the confidence of investors. As a consequence there occurred a drought in the IPP

investments, with disastrous impact on the national economy of Pakistan (See table 3). For

several years afterwards, the IPP program remained stagnant. On the other hand no

investment in the public sector was made in keeping with the pro-private sector policy of the

government. IPP projects were revived only as a huge power shortage hit the country in

2006-07. As a result, after an interval of several years implementation agreements have been

signed with IPPs (both incumbents and new players) to contract about 2,500 MW of capacity

by 2009-2010 under second generation PPAs (those signed under Power Policy 2002). Out of

these, a majority of IPPs have already achieved financial close.79 A synoptic view as to the

status of IPPs is presented in the table below:

Table 3 – Status of IPPs

Status Years of Commissioning Number of IPPs

Commissioned 1997-2001 15

Commissioned 2002-2007 0

Commissioned 2007-2008 1

Expected 2009-2010 21*

Source: Private Power and Infrastructure Board, available at:http://ppib.gov.pk/CommissionedIPPs.htm

* Including rental plants.

IX. APPROACH OF PAKISTANI COURTS TO SANCTITY OF CONTRACTS

Pakistan has been a free market economy since its independence. The nationalization

in the Bhutto era did not alter its fundamental character. The legal framework for contractual

transactions - the Contract Act of 1872 - is based on principles of English Law. It respects the

autonomy of parties. Various judgments on public policy alluded to, in this paper show that

courts do not normally interfere with the lawful intentions of the parties to a contract. This

attitude, characterized by the self restraint and concern for contractual obligations, has been

applicable largely in case of domestic contracts. As regards transnational contracts providing

the choice of forum clause in favour of dispute resolution abroad there is still resistance.

Courts in Pakistan, like their counterparts elsewhere in the world (but in earlier eras), have

not been feeling comfortable with adjudication in foreign courts or arbitral forums. Arguably,

78 A. Siddiqui, IPPs: The Real Issues, The Pakistan Development Review 37 : 4 Part II (Winter 1998) pp. 37:4, at 812.

79 Id.

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our courts still subconsciously echo reasoning and perspective of the British Courts in Pre-

Atlantic Star case era and that of the United States in Pre-Breman case period.

Mr. Justice Umar Ata Bandial has made a perceptive analysis regarding limitations on

arbitrability of international disputes under the Pakistani Law:

“For a long time international commercial

arbitration was treated with apprehension in

Pakistan. Efforts were made to avoid the contracted

mode of dispute resolution by approaching the

courts in violation of the arbitral remedy for

seeking relief on the substantive dispute.80

One wishes that the state of affairs depicted above is now really prevalent and judicial

resistance has become a “history”. This, in view of the authors is, more of a wish than a

reality on ground. Only dissenting judgments in Hubco and Eckhardt cases recognized the

manifest need of respecting the agreements of parties to refer disputes to the foreign

arbitration. The “visionary call”, (as Justice Bandial rightly calls it) by Mr. Justice Ajmal

Mian has not been effectively heeded to.

It seams that paradigm shift in the world economy bringing in its wake, the evident

importance of foreign investments and trade has not been fully registered. It was very much

possible in Hubco case for the majority of the Court to adopt a different view of public policy

and the issue of criminality. The minority opinion was backed by cogent reasons. Similarly

the majority could have embraced the more forward looking and appropriate view of Mr.

Justice Amjad Mian in Eckhardt case. Decisions of the majority in both Hubco and Eckhardt

cases may be unexceptional in the sense that they are consistent with a certain strand of the

existing principles of domestic law and private international law as adopted in Pakistan. The

point however, is that there is a clear need to make a departure from the existing approach so

that the benefit of doubt goes to the validity of terms of contract about the choice of forum

clauses unless there are manifestly compelling reasons for the contrary view. Dynamism

should be preferred to a relatively static approach.

X. CONCLUSIONS

80 See U. Bandial (Justice) “Limitations on Arbitrability of International Commercial Dispute under Pakistani Law paper presented on the occasion of 59th Anniversary of the Establishment of Supreme Court.

25

Globalization is fact of life. The process of integration has to be, therefore, addressed

in a dynamic manner keeping with the spirit of time. Attitudes and perspectives which proved

useful in earlier times and the way the challenges of life were met, will have to undergo

change if one desires to survive in the new world. Any nation that fails to live by new rules of

existence is liable to pay the penalty of being marginalized. Such an outcome would have

patently adverse implications for the welfare of the people. They will remain struck in

narrow grooves while other nations will keep on marching on the road to progress in a

globalized world.

Countries can reap the benefits of globalization, if among other things, they recognize

the importance of the sanctity of commercial and investment contracts, made between them

and their citizens on one hand and foreign countries and foreign nationals/entities on the

other.

Judicial institutions like other organs of states will have to keep in step with the dynamics of

emerging realities. Our judiciary is extremely enlightened and capable to realize the validity

of this proposition. However, at times other factors can become barriers to change. As it has

been pointed out by the Chief Justice Mr. Muhammad Iftikhar Chaudhry in his address to

Harvard Law School in 2008:

In Pakistan, both civilian as well as uniformed

autocrats have been influencing judicial decision-

making for the past six decades… Remember,

almost all of the Fortune 500 companies are a

product of economies where the law rules supreme.

At the same time, the poorest of the poor continue

to dwell in countries where men govern as opposed

to law. A government of laws stimulates economic

growth. A government of men impedes economic

growth81.

Hopefully, the judiciary of Pakistan that has recently gained independence will, inter

alia, strengthen the sanctity of contracts and help in bringing about a new era of prosperity.

81 Chief Justice Iftikhar Chaudhry’s Speech at Harvard Law School – November 19th, 2008

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Schematic Representation of Jurisprudence of Sanctity of Contracts in Pakistan –A Contextual Perspective

Globalization

Trade Investment

Sanctity of Contracts, inter alia, must be ensured to improve trade & investment.

Challenges to Sanctity of Contracts

Judicial system, structural weaknesses

Judicial system, lack of independence

Nationalism/ excessive patriotism

Public policy

Contracts made by previous regimes

Onerous contracts

Responses

Formulating strategy for more effective system

Ensuring independence of Judiciary

Change of judicial mind set

Recognition of larger national interest/eschewing old notions

Need for caution

Pro-contractual compliance interpretation

Outcome

More investment, more trade

Prosperity

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