Locomotives contract: ‘Government should not be wasteful of resources’

LHC chief justice adjourns further hearing till June 17.

LAHORE:

The Lahore High Court chief justice on Friday expressed serious concern over a $104 million contract (now terminated) for purchase of 75 locomotives awarded to a Chinese firm by the Government of Pakistan.

Chief Justice Umar Ata Bandial was hearing a petition by Dongfang Electric Corporation, challenging the termination of the contract by the government.

The chief justice observed that prima facie, the government’s grievance against the petitioner stemmed from the supply of 69 diesel locomotives rendering ‘inferior performance’ under an earlier contract in 2001.

The CJ remarked that awarding a second contract for 75 locomotives to the company after the previous contract for locomotives had rendered poor results was tantamount to inviting the government to squander its resources.

Earlier, petitioner’s counsel Sameer Khosa had submitted that the chief executive of the Chinese company had authorised Mr Sun Zhenping [present in the court] to amend the bank guarantee for $15.77 million in favour of Pakistani government which was valid till June 30, 2014.



He said the guarantee shall be encashable on the orders of the court or an authority appointed by the court for the just and fair resolution of the dispute between the petitioner and the government.

He sought an interim order restraining the government from demanding encashment of the said guarantee.

The chief justice observed that the assurance given by the petitioner’s counsel needed to be implemented apart from demonstrating on record the bona fides of the petitioner to establish its credibility for faithful and satisfactory contractual compliance.

“Notwithstanding maintenance contract that the petitioner entered with the federal government on September 28, 2009, the latter’s complaint persists and there is no material on record to vindicate the petitioner in respect of that allegation,” the CJ remarked.

Justice Bandial further observed regarding the petitioner’s complaint that the government had not established a letter of credit under the 2008 contract that the government could not be faulted unless it was shown that past performance of the petitioner was satisfactory and compliant with contractual and industrial standards.

It was necessary to first establish the threshold for the relief of stay against encashment of performance guarantee, the CJ added.

The CJ also observed that apart from the petitioner securing advance payment of $15.77 million through an unconditional escrow deposit or bank guarantee encashable according to determination of the dispute between the parties by the court or an authority appointed by it, there also ought to be specific material on record to evidence faithful performance by the petitioner according to contractual and industry standards in respect of the supply of locomotives already made by it to the federal government.

The chief justice adjourned further hearing till June 17 and asked the petitioner to show material establishing the foregoing element to be eligible for relief.

Published in The Express Tribune, June 15^th, 2013.