Killing another golden goose

Published: January 21, 2013

The writer is a partner at Bhandari, Naqvi & Riaz and an advocate of the Supreme Court. He can be reached on Twitter @laalshah

On January 7, 2013, the Supreme Court of Pakistan released the short order in the Reko Diq case. To the surprise of very few, the Court found against the respondent Tethyan Copper Company (TCC) and held that the 1993 joint venture agreement between the Government of Balochistan and the predecessors in interest of TCC was not valid.

Since the Supreme Court (SC) has yet to release its detailed reasons, speculation and criticism of the short order may appear unwarranted. At the same time, I still think there is much to be said for sifting through the entrails of the short order. To digress for a moment, there is a famous Sherlock Holmes story in which, he explains to Dr Watson the significance of the dog that did not bark. Similarly, what makes the short order interesting is not because of what it says but because of what it doesn’t say.

Lawyers and courts draw a distinction between different kinds of wrongdoing and, in particular, between misfeasance and malfeasance. Misfeasance means that someone has acted in a manner contrary to that prescribed by law, for example, by signing a contract without obtaining board approval. Malfeasance means deliberate misfeasance. For example, a government servant who sells state secrets for money has committed malfeasance.

In the case of the short order, what I do not see is any discussion of malfeasance. Instead, the short order merely says that the 1993 joint venture agreement (and subsequent agreements) was ‘illegal’ without clarifying whether the illegality was a product of simple misfeasance or of malfeasance (such as bribery). Given the time and effort devoted to this issue, my tentative conclusion is that the SC did not find any malfeasance. If so, we have a problem.

Before going further, let’s review the facts. In 1993, the Government of Balochistan (GoB) entered into a JV with BHP Billiton. In 2000, the JV was amended to allow BHP Billiton to sell out (which it did in 2002). Between 1993 and 2011, the JV spent approximately $440 million in exploring parts of Balochistan to find massive commercially exploitable deposits of copper and gold. In 2011, the JV applied to convert its exploration licence into a mining lease. In 2013, the SC has held that the JV has no rights whatsoever, apparently without finding any malfeasance on the part of the foreign investors.

If the above factual summary is correct, then the inescapable conclusion is that the foreign investors have been penalised for the incompetence of the GoB. In other words, the foreign investors have been told that their agreement — and their investment of close to half a billion dollars — is worthless not because they did anything wrong, but because the Government of Balochistan did not follow the correct protocols. I don’t find that fair.

The standard legal response to a Reko Diq type problem is that there is no estoppel against law. In other words, if the law prescribes a particular way of doing something, and if that method has not been followed, then no matter what the consequences, the step taken remains illegal and can be set aside at any point in time.

I appreciate the sentiment that the illegal cannot be treated as the legal merely because of the passage of time, but this is certainly not the law when it comes to other areas. For example, in the case of private contracts, the ‘indoor management’ rule provides that companies cannot wriggle out of their agreements by citing non-compliance with internal procedures. Similarly, the Limitation Act of 1908 prescribes different time periods after which civil actions are not maintainable. You cannot, for example, sue to enforce a contract more than three years after you become aware of its breach.

My view is thus that the ‘no estoppel against law’ approach is unfair because it shifts the burden of legality onto private parties. In other words, if I am contemplating a commercial transaction with a government entity, it is now my responsibility to ensure that each and every ‘t’ is crossed and each and every ‘i’ is dotted. I see no reason why the government may be the beneficiary of its own incompetence.

More importantly, this ‘zero-tolerance’ approach is dangerous because it makes investment in Pakistan an extremely dicey business. If hundreds of millions of dollars of investment can be thrown into jeopardy through the autopsy of a 20-year-old agreement, who is ever going to bother investing in Pakistan? This particular case was already marred by the suspicion that the Supreme Court was catering to media plaudits and jingoistic nationalism. It was, therefore, particularly necessary for the SC to provide a reasoned and fair basis for interfering with investor rights. So far, at least, I have not seen any such basis.

In my view, the court should have applied the ‘bona fide purchaser’ rule in the Transfer of Property Act of 1882. What that provides is that (1) normally a buyer of land only gets as good a title as the seller actually had; but (2) there is an exception for purchasers in good faith. In other words, if I buy property in good faith from someone who looks like they actually have the title to the land in question, then the law will deem me to be the proper owner even if it turns out that the seller was a complete fraud.

Applying that approach to Reko Diq would require the SC not only to check if rules were violated but also whether the foreign investors were aware — or should have been aware — that rules were not being followed. If there is any basis to conclude that the investors did not act in good faith, well and good. But in the absence of any such conclusion, the investors would be left alone.

Pakistanis are fond of clichés, none more so than the parable of the golden goose. If the detailed reasoning of the Reko Diq decision does not explain why it was equitable to rob foreign investors of their contractual rights, the rest of the world will only conclude that the foreign investors were wronged. And I, for one, will agree with them.

Published in The Express Tribune, January 22nd, 2013.

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Reader Comments (28)

  • syed baqar ahsan
    Jan 21, 2013 - 10:49PM

    when system,merit and national interest is doomed and personal gains and kick back is prime then his will continue to happen.Hubco case almost 700million US$ pocket by our Shaheed Mohtarma.These foreigners are also not that simple and honest they also wants to become richy rich and throw lots of money to bribe.

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  • John B
    Jan 21, 2013 - 10:57PM

    In coming days, PAK SC could also declare that all the iMF loans and treaties are also illegal because they do not conform to Sharia.

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  • Mirza
    Jan 21, 2013 - 11:37PM

    Thanks for clearly explaining the reasons why nobody wants to invest in Pakistan. We do not have a statute of limitation and can rob any foreign investor even after decades just because our own govt made mistakes or crimes. The worst part of it all is nobody would be punished for the alleged wrongdoings or crimes except the foreign investor! Recommend

  • Sohail Baloch
    Jan 22, 2013 - 12:41AM

    Why the pages of Express Tribune are being used as a mouth peace for multinational corporation? “Bona fide purchaser” no one is a bona fide purchaser of anything, just because they can afford it,and if it creates a bad impression then let it be. Recommend

  • Jameel ur Rasheed
    Jan 22, 2013 - 1:04AM

    Exactly. The recently defunct CM of Balochistan thinks that Governor’s rule has been imposed to steal the Reqo Diq project from the province. While the masses of the province suffered from agony and anger, the CM was too busy to cut short his personal visit of Dubai and Cambridge. Government of Balochistan, alone is responsible for the misery of their people and situation we have in that province. Very good article! two thumbs up! This gold mine will remain untapped for ever and we fools will just happy to write in our note books that Pakistan possesses fifth biggest goldmine on earth!

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  • sabi
    Jan 22, 2013 - 1:36AM

    Sandik copper field,rekodik have turned nightmare for foreign companies who came in Pakistan
    to make fortune.The total outcome is zero plus zero plus bad name for Pakistan.And among these stunts come another, we know it as Thar coal field.There are lots of promises, golden dreams provided people elect revolutionary leaders by derailing democracy.Just on the other side of border (Rajistan India) coal found and explored is of top quality yet that coal has not made India as much rich as Saudi Arabia.The coal that is found in thar is of low quality and extremely difficult to dig.But doubal shahs keep on fooling illiterate people to make that.miracle
    of converting sand in gold.This nation wants to be rich overnight without doing proper home work and crooks know that weakness of this nation.

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  • Junaid
    Jan 22, 2013 - 1:42AM

    Decisions are made by courts based on what is ‘lawful’ not what is fair or unfair. The writer is an experienced lawyer and should know this.

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  • Ammar
    Jan 22, 2013 - 2:09AM

    totally ridiculous. ..:/

    m sorry to say but looks like that its a paid topic to distract the people. ..

    For ur information the TCC has not provided the feasibility report of a single inch which it was bound to provide. ..???

    I hope the writer would be quite happy about the ongoing SANDAK project from which we the Pakistanis have got nothing. ..:/

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  • sabi
    Jan 22, 2013 - 4:02AM

    @John B:
    “In coming days, PAK SC could also declare that all the iMF loans and treaties are also illegal because they do not conform to Sharia.”
    You may had cut a joke but it isn’t.Jpkers, aka deep state, are continuesly pressing governments to to declare Pakistan defaulter to get rid of all debts and they have thousands of moral excuses yet they are preaching for article 62 and 63.hypocrisy at its best.

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  • basharat
    Jan 22, 2013 - 9:01AM

    The judgment may be in contravention of contract and other laws, that may be applicable to the transaction, yet it will find readily acceptance among the masses. The judgment is likely to adversely affect the future prospects of foreign investments, which is indispensable even for sustenance of our economy. Declaring a contract void ab initio after 20 years it has been agreed upon, is a problematic scenario.

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  • Saleem Khan
    Jan 22, 2013 - 11:47AM

    SC decision on Steel Mill has alread cost us 100 billion…god save us from this judiciary

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  • Imran Ahmed (@IAgnikul)
    Jan 22, 2013 - 2:59PM

    Do justice even to thine enemy. Every Pakistani especially every Pakistani judge needs this Quranic injunction drilled into his heart and mind from birth.

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  • Truth detector
    Jan 22, 2013 - 5:56PM

    I don’t know why ET did not publish my comments. All I asked for the sake ascertaining objectivity of this article if the writer or his firm has been involved in litigation/case in any manner?

    The premise that corporations cannot be wrong is flawed. They exploit , has done in the past & will do if there is no check.

    No one needs to ‘Holier than thou ” …

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  • TN
    Jan 22, 2013 - 9:53PM

    TCC wanted to be generous by involving Baluchistan Govt a 25% share in the project.
    We wanted 25% profits without making 25% investment. Typical of us!
    Then TCC lawyers made mistakes and now the investors will take a hit.
    Baluchistan and other provinces Mining Concession Rules are simple — first step is to obtain a Reconnaissance Licence after paying prescribed fee then comes Exploration Licence with certain fee and finally Mining Licence with royalty etc.
    This process involve large investment and companies strongly believe that they could make good profits. TCC has invested about half billion dollars and the matter will not just die.
    It is true we have a lot of natural resources but no money and experts to bring out some good.
    Another example is Thar — we keeping bragging with billions and billions ton of coal BUT what good it is doing to Pakistan.
    Hope and pray that we get SOON some good leaders to take our beloved country out of energy, water etc. crisis.

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  • shahid
    Jan 23, 2013 - 2:31AM

    There is no end to which our liberal friends will not go to put down the judiciary in the service of the feudal masters who have been ruling Pakistan for the past five years and more. Every thing that these waderas and their acolytes do is hidden under the garb of democracy and that frees them of all accountability. SC also comprises of human beings and they can also err. But to go after them, with such vengeance, while looking the other way and to use soft gloves when it comes to aristocracy which considers it their divine right to rule the rest of us is really double standards. Compare what the two have done for this country in the past five years and if you still think that judiciary is done the most damage to Pakistan then God have mercy on all of us. Why could the rulers not hve discovered the problems with the Reko Dek case and sorted it out? After all was it not their responsibility of the politicos to take care of this country as they are in charge of the state machinery and should have been the first to worry about it? Or are they there only to make money and throw the ball in others court when it comes to accountability or to scream about how power less they are as “the establishment” is all powerful? But of course they can get away with their robberries in day light as they know that there plenty of “jamhooriat defenders” who will come to their rescue when it gets rough and will help them in deflect the blame to others; in the mean time they can continue with their loot and plunder of this country.

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  • Attorney Kamal
    Jan 23, 2013 - 9:24AM

    You are absolutely right Faisal Saheb. Our incompetent and political SC by interfering in international commercial contracts, wherein international, neutral arbitration exclusively decides liabilities of the parties in case of a dispute,, will cause irreparable damage to Pakistani parties in these contracts and to Pakistan itself. For instance this stupid ruling in this Reko case will strengthen rather than weaken the hands of TCC, the foreign investor in the binding, ongoing arbitration proceedings in London. In such contracts the parties explicitly agree to binding arbitration in London, Paris or NY etc under ICC Arbitration or UNCITRAL Rules and agree to apply the law of a neutral jurisdiction such as UK law as the governing law in the event of a dispute and not the application of local Pakistan law including the decision of the Pakistani courts.

    .Any subsequent proceeding or judgement by the local court or our SC much after the dispute was arisen on this contract would be seen by the 3 member neutral panel of arbitration as a “state action” on behalf of the local party (the Balochistan Govt) and as an attempt to influence and interfere in the case. The only exception.would have been if TCC was coming to this arbitration court with ‘unclean’ hands, that is if there was clear proof that TCC obtained this contract through corruption or bribery.

    The only silver lining in this matter is that generally in arbitration proceedings a party (i.e.TCC) would be limited to claiming only actual damages, that is the amount of its investment, and would not be awarded consequential damages or damages for potential loss of future profits if its mining license was not cancelled by the Balochistan Govt.

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  • Bakhtiar
    Jan 23, 2013 - 12:22PM

    To my friends who are supporting the SC on this………….. Can somenone tell me, without being jazbaati:

    What is the wrong doing SC found in the Reko Dic contract
    How do we plan to mine it now?
    Why wont anybody now challenge any contract using this as a reference.

    Playing and igniting emotions of the people is what this decision has achieved. If the objective was getting a fair deal, certain amendments could have been proposed to ensure that government gets equitable benifits. We will live to see that these mines will now never be developed as we do not have the capability and no companny in the world with the skills will ever come near it.

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  • Parvez
    Jan 23, 2013 - 1:36PM

    This is complicated but the average man on the road who reads the Urdu papers and watches TV , he sees a handful of Baloch sardars rolling in money with businesses, properties and children abroad and the rest of Balochistan in tatters and steeped in poverty then for him to be told that foreigners are resorting to unfair means etc, etc really does not make sense.

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  • TAM
    Jan 23, 2013 - 3:40PM

    @Attorney Kamal:
    Obviously you will agree, because you are part of the branded lawyer community that has made justice and national interest hostage to legal wizards.

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  • Attorney Kamal
    Jan 23, 2013 - 7:30PM

    @TAM:. Thanks for your feedback. It’s not important that whether I agree or disagree with Mr Faisal or not. What is important for Pakistan and for Balochistan is what will the ICC Arbitration panel hearing this dispute will rule. Politically, legally and economically this SC decision will hurt the country in the long run. Tthe Baloch government under the principles of the laws of contract , reliance, equity, fairness, unjust enrichment, restitution etc cannot now get away with the argument that the contract was invalid after both parties relying it for almost 10 years without it having to reimburse TCC for the amount it invested. Our learned SC has also improperly indulged in tortuous interference in other similar cases like the KK Turkish power rental case which will have similar disastrous results. Its bad for Pakistan for now foreign investment will decrease or cease coming to our capital-starved country. Do you really think that after this some other foreign investor will come to Balochistan to explore this mine in the violence ridden Balochistan and with this kind of a SC? Chinese have already run away. We should have learnt a lesson from the booming, prosperous Arab Muslim countries who successfully employed foreign capital and expertise to develop their resources. Thats another story why we are at the near bottom of nations.

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  • TAM
    Jan 24, 2013 - 12:06AM

    @Attorney Kamal:
    The Arab countries are booming because the government has a stake, a real stake in whatever is constructed, or built within their countries, unlike Pakistan. It is not that the Arab princes don’t take commissions, but they don’t sell out in the manner the elite in this country does. the Reko Diq deal should never have been negotiated to our sole disadvantage as it has been done. The KK Turkish deal would never have taken place in any country, where the state and establishment are onj same page and national interest really means the financial interest of state exchequer. It is the corruption mafia and nexus of few branded attorneys who have harmed this country financially.

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  • Attorney Kamal
    Jan 24, 2013 - 10:19AM

    @TAM. Your point regarding the corrupt govt officials and politicians in cahoots with some greedy ‘brand’ lawyers is well taken. There’s substantial truth in your assertion. But on the other hand there are many upright, honest officials and politicians and many professional and highly ethical lawyers in Pakistan. I know this because I’ve dealt with them closely in the oil, gas and energy sector. Also, I did not find any unpatriotic person who was willing to ‘sell out’ his country. Not to my knowledge. By the way I’m not a supporter of this Govt nor do I belong to any political party.

    I think the difference between Arab and Pakistani officials is not patriotism or lack thereof, both are equally patriotic and care about their national interest, but a difference in approach and mindset. The Arab decision makers are pragmatic and commercial minded, though not immune to commissions etc, Pakistani decision makers and officials lack commercial and business sense, are rigid and short sighted, not business savvy.

    Just look at the dismal way they handled this Reko exploration. Instead of cancelling outright the entire agreement, thus loosing international credibility and depriving the Baloch people and the country of prospective much needed revenues, infrastructure, jobs and development that would have taken place had TCC allowed to mine and produce and market the copper or gold, and tried to renegotiate a higher percentage of profits and granted a small area for their mining lease. And if it turned out to be highly productive and profitable area, then in the next bidding for the adjoining areas the govt would have gotten a much higher share of profits because of the proven and producing area and the presence of infrastructure and a multinational like TCC operating there. etc.

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  • Attorney Kamal
    Jan 24, 2013 - 10:22AM

    @ TAM…By the way I’m sending you a bill for my expert opinion….just kidding!

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  • Behari Kebab
    Jan 24, 2013 - 10:29AM

    I am in complete agreement with the author and Attorney Kamal. The SC must do justice based on the agreement ofthe parties, and must protect the sanctity of a contract. It is not the court’s job to fix a bad contract, that is the parties’ responsibility to weigh the pro and cons of the agreement they expect to enter into before signing the contract. This decision is not only bad for foreign investment in Pakistan, but also reflects very poorly on Pakistani justice. No one can now rely on the courts to enforce the commitments of their counter-party, and we might as well go back to a barter economy.

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  • Behari Kebab
    Jan 24, 2013 - 10:59AM

    @TAM:
    Government ownership has little to do with the booming Arab economies. In fact government ownership has proven to be an obstacle, since when a government owned entity defaults on its contractual obligations (and many have in recent years) the state court systems do not protect the injured party and find procedural and I would even say illegal excuses to let the government entity off the hook. Have you ever tried to sue Nakheel or Emaar in Dubai courts?

    Those Arab economies that are booming are doing so because even though their governments do not allow majority foreign ownership of companies, they do allow unrestricted import of capital and expertise, offer a secure financial transactions system, well developed alternate dispute resolution mechanisms, investment friendly envronment in form of free trade zones, world class infrastructure, apply minimal or zero corporate and personal taxes, allow 100% repatriation of profits, and most of all ensure personal safety and security. If Pakistan could do all this (and it is within Pakistan’s ability to do so), it would leave most of the world’s economies in dust.

    Finally, ask yourself this: would you invest in a place where you didn’t beleive your investment would enjoy legal protection?

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  • TAM
    Jan 24, 2013 - 5:32PM

    @Attorney Kamal:
    My pennies wont attract you. I wish they did. Yet to see any of these vocal lawyers, who talked of “Riayasat Hoh gi Maa Kay Jaisi” volunteeer to stand up and fight the case of Kamran Feisal or strive to ensure that every Pakistani who cannot afford to hire a lawyers is provided one by the state, or the Bar during interim period. Why don’t you Sir volunteeer your services for relatives of over 300 poor laborers burnt to death in Baldia factory fire in Karachi, where the PM has just ordered the FIR to be changed, or take the sitting govt to task for appointing incompetent corrupt cronies who have destroyed PIA, PSM, PSO, Railways etc. While it may be financially rewarding to defend the LPG Don or the Land Mafia Don, it will surely provide moral high ground to those who may offer services to fight these thugs in courts of law. Is this not in our national interest?

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  • Imran Ahmed (@IAgnikul)
    Jan 24, 2013 - 8:10PM

    @TAM:
    Ad hominem argument. Abusive without substance. This sort of weird thought processing only leads to hopeless confusion, address the issue without attacking the messenger please.

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  • Attorney Kamal
    Jan 24, 2013 - 9:18PM

    @Behari. Very well said and right on the dot. Foreign investors look for key factors such as safety and security of their lives and property and legal protection of their investment and a reliable, solid contract enforcement and implementation regime in the host country, beside adequate infrastructure etc.

    @TAM. You’re now talking about a different subject:, an affordable, fair, impartial, transparent justice and legal system. I fully agree for its absolute necessity in Pakistan, for its progress and survival….

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