Business class justice

Imagine a country in which it was impossible to enforce a contract. Now imagine the consequences.

The most obvious consequence is that people would enter into a lot fewer contracts. It is one thing to lend money to somebody if you think the courts will back you up. It is another thing entirely to lend money if the only security you have is the borrower’s sense of honour.

It is not entirely impossible to enforce a contract in Pakistan. But it is close enough as to make no real difference; certainly not to businessmen.

The reason why contracts are effectively unenforceable in Pakistan is not because there is anything inherently wrong with our commercial laws. Instead, the reason is that our courts are so utterly overwhelmed by litigation that even though commercial cases account for a miniscule fraction of their caseload, businessmen are condemned to intolerably long waits just like everybody else.

This situation raises two questions. The first is practical, i.e. what can be done to more swiftly resolve commercial cases. The second is philosophical, i.e. whether commercial cases should be accorded higher priority than other cases. Or in other words, should rich men be allowed to travel “business class” through the justice system just like they do on airlines.

Before I deal with the practical aspects of swift justice, let me first clarify that by “commercial” cases, I do not mean to include either banking cases or matters dealing with real property. Banking cases can be excluded because they already have their own separate laws and separate courts. Property cases have to be excluded because they account for the vast majority of all the pending civil cases in Pakistan.

In practical terms, the answers are both simple and well known. The first step is to set up special benches of judges at the high court level to deal with commercial matters. The commercial court sub-division of the High Court of Justice in England was set up in 1895 and is one of the prime reasons why London remains a center of global commerce even today. More pertinently, the Law Commission of India has issued a detailed report on commercial courts which has, in turn, resulted in a Commercial Courts Bill currently pending before the Rajya Sabha. The blueprint for commercial courts in Pakistan is thus already at hand.

The second step is to have a functional and modern arbitration regime. To put it in simple terms, a good arbitration regime allows for the outsourcing of disputes to private adjudicators who are experts in the relevant field, thereby reducing the load on ‘real’ judges.

Pakistan’s domestic arbitration regime is governed by the Arbitration Act of 1940. In 1982, Justice Desai of the Indian Supreme Court remarked in relation to India’s experience with the same law that it has made “philosophers weep and lawyer’s laugh”. India revamped its entire arbitration regime in 1996 to much applause (but possibly less real effect). In the meantime, Pakistan has notched up a staggeringly high number of the type of cases which give fits to the global arbitration community. In 2006, one expert uncharitably described Pakistan as one of the “black spots” of the arbitration world. Little has happened since then to change his view that Pakistan is one of those countries “where it is neither safe to locate an arbitration, nor safe to assume that a foreign arbitration will be respected and safeguarded from court interference”.

The good news in relation to the 1940 Act is that its successor is ready and waiting. In 2009, the federal government prepared a new arbitration law which was then significantly amended and improved at the instigation of the National Assembly’s Standing Committee on Law, Justice and Parliamentary Affairs. Unfortunately, before that revised bill could be enacted, the Eighteenth Amendment was passed and domestic arbitration became an exclusively provincial subject. The bill is still ready and waiting but the provinces have so far shown themselves to be singularly uninterested.

Ultimately, what is needed though is not just a new law. If our commercial justice system is to be fixed, it will be as a consequence of four things: (1) judicial commitment and recognition of commercial disputes as a high priority matter; (2) a revised, modern and updated domestic arbitration regime; (3) support and recognition from the business community for this venture; and (4) a professionally operated arbitral institution, like the London Court of International Arbitration (LCIA), to supervise and manage arbitral proceedings.

All of these four steps are doable. Even in terms of setting up arbitral institutions, the LCIA has recently set up an independent office in India and can presumably be requested to consider setting up a similar office in Pakistan. But somebody in power here has to first care about fixing the commercial justice system. Which, in turn, brings us back to my second question: do businessmen deserve business class justice?

The short answer to this question is, yes. There is a good reason why governments go out of their way to woo investors by giving them incentives. Investors bring funds into the economy and help create jobs which in turn help everybody. This does not mean that investors and businessmen are superior beings. But it does mean that from a macro-economic perspective, their problems are more important than the standard dispute pending before our courts, i.e. whether or not A can be compelled to sell his land to B on the basis of a dodgy or outdated document. There is no moral shame in saying that the resolution of commercial disputes must be dealt with on a priority basis. But there is certainly economic ruin to be found in ignoring that fact.

Published in The Express Tribune, October 3^rd, 2011.