Honouring contracts

Concrete manifestations of broken promises, breached agreements, dishonoured contracts litter the national landscape

If you drive around our country, you are bound to come across some sights painful to the eyes: unfinished buildings, incomplete structures, abandoned roads, bridges, dams, power plants and projects of various types.

All such concrete manifestations of broken promises, breached agreements and dishonoured contracts litter our national landscape. The story of Pakistan is a story of these gaping and gashing economic and psychological wounds that have been self-inflicted on the nation by the abrupt cancellation of various project contracts, simultaneously accompanied by stoppage of work thereunder in mid stride. And none of these has had more of a devastating impact on the national economy and national reputation than contractual disputes involving international parties.

We have been witnessing a cascade of adverse arbitration decisions against Pakistan by international arbitration forums, such as ICSID, ICC, noted for their neutrality and expertise, in cases of international contracts that we entered into with foreign investors and entities. Jolted by the unpleasing reality of this fiasco, many of our fellow citizens are asking the inevitable question: why is Pakistan losing all the international arbitration cases? No mystery there, no rapacious capitalists lurking in the background, no international conspiracy against Pakistan.

We are losing because, in the eyes of neutral judges, our government and its agencies are not fulfilling their obligations or duties under these agreements or contracts and/or violating the relevant bilateral treaty that protects foreign investments. In other words, we are not honouring contracts we have agreed to and signed.

For instance, in the Reko Diq mining case the ICSID arbitrators ruled that our government was in breach of the joint venture contract and the pertinent bilateral investment treaty because it refused to grant TCC, the Argentina/Australia company, the required mining production lease.

In the IPP case filed by nine IPPs, all domestic, before the ICC arbitration tribunal in London, all the neutral arbitrators held our federal government violated its agreement as it was in default of its payment obligations to the IPPs.

To avoid huge setbacks in international arbitration, our government and its agencies must follow at least the following crucial caveats before executing any international or domestic contracts. First, the government functionaries must minutely read, fully comprehend and be agreeable to all our obligations in the proposed contract, realising that once it’s signed, all its terms and conditions will be enforceable with the force of law.

Second, they must pay close attention to the dispute resolution clauses. Understand the legally binding nature of arbitration and the exclusive jurisdiction of the selected arbitration forum that preempts jurisdiction of our Pakistani courts and laws in the event of a dispute.

Third, the government should be aware that failure to meet our obligations and duties on any pretext can have disastrous consequences and result in payment of billions of dollars in damages.

Fourth, not honouring international contracts tarnishes the country’s image as a trustworthy destination for sorely needed foreign capital and know-how, increases political risk coverage and the total cost of doing business in Pakistan. Abiding by contracts is also a moral and ethical matter. We must keep our word and honour.

Fifth, realise that collateral defence of fraud and corruption in the procurement of international contracts is very difficult to prove since it requires solid documentary proof.

Sixth, as we all know that any international contract or joint venture awarded in secrecy gives rise to suspicion of impropriety and corruption, it behooves the government to display transparency in the execution of contracts. Prime examples of such surreptitiously executed contracts are the Qatar LNG Gas Sales and other ancillary agreements.

Published in The Express Tribune, October 4^th, 2017.

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