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The Sindh High Court recently granted an interim injunction restraining the civil court from passing judgment in suits alleging short landing of imported edible oil cargoes. The injunction, secured by RIAA Barker Gillette on behalf of a leading shipping agent, marks a potential turning point in addressing the proliferation of shortage claims that have long plagued carriers operating in Pakistani ports.

Navigating Pakistan’s Complex Maritime Legal Landscape

Pakistan, one of the world’s largest importers of edible oils, has seen a surge in shortage claims filed by importers in civil courts, alleging discrepancies between bill of lading quantities and shore tank measurements. The high volume of shipments and multiple receivers of cargoes aboard a single vessel have led to substantial potential liabilities for carriers and their insurers.

The Carriage of Goods by Sea Act 1925 incorporates the Hague Rules, which embody the internationally accepted “tackle to tackle” principle under which the carrier’s responsibility ends when the cargo leaves the ship’s manifold. However, the lack of application of a clear and consistent test for cargo delivery of edible oil cargoes has resulted in inconsistent rulings, with lower courts often favouring importers in shortage claims despite a Sindh High Court judgment upholding the “tackle to tackle” principle.

Mitigating Operational Risks for Carriers and Industry Initiatives

The current environment has created significant operational risks for carriers, with the threat of vessel attachment forcing many to settle shortage claims to avoid financial and operational disruptions. Vessels worth tens of millions of dollars, with substantial daily charter hires, can be detained to satisfy claims of just a few thousand dollars, affecting not only carriers but also charterers and sub-charterers.

In response to the proliferation of shortage claims, organizations like the Global Compact Network Pakistan, in collaboration with the Maritime Anti-Corruption Network (MACN) of Denmark, launched “Collective Action against Corruption Practices in Maritime Industry of Pakistan.” This project, initiated in September 2021, aims to combat corrupt practices and enhance the integrity of maritime operations in Pakistan.

Challenging Civil Court Jurisdiction in a Test Case

The present dispute arose when an importer filed suits in the Civil Court against the carrier and others, claiming damages for alleged short delivery of imported soybean oil. RIAA Barker Gillette filed an application challenging the Civil Court’s jurisdiction, arguing that the claim was an admiralty matter over which the High Court had exclusive jurisdiction under the Admiralty Jurisdiction of the High Courts Ordinance, 1980. The petition before the High Court raises a test case that seeks to leverage recent jurisprudential developments, particularly the Supreme Court’s decision in General Manager, SNGPL v. Qamar Zaman (2021 SCMR 2094), holding that special laws designating specific forums for dispute resolution impliedly bar civil courts’ jurisdiction in such matters.

Mayhar Kazi, Partner at RIAA Barker Gillette, leading the team on this case, commented:

“The Sindh High Court’s interim injunction is a crucial step towards addressing the risks faced by vessels and carriers due to the current practice of filing shortage claims in civil courts. If the petition is ultimately granted, it would establish that such claims can only be filed before the High Court, potentially curbing the abuse of the civil court system for such matters.”

Implications for the Future of Shipping Litigation in Pakistan

Should the High Court ultimately grant the petition and affirm that shortage claims fall under its exclusive admiralty jurisdiction, this would likely reduce the number of frivolous shortage claims filed in civil courts, mitigating risks for vessels and carriers operating in Pakistani ports.

Pakistan Partner Mayhar Kazi leads the RIAA Barker Gillette team on this matter, including Associate Muhammad Turhan Khan.

For expert guidance on admiralty matters and shipping shortage claims, please contact Mayhar Kazi.

We represent a global consumer healthcare and pharmaceutical industry leader in a complex customs duty dispute before the Sindh High Court. The case challenges the denial of concessionary customs duty rates on materials required to manufacture an over-the-counter medicine that is a household name.

The dispute centres on the interpretation of a condition in the Fifth Schedule to the Customs Act, 1969, which allows concessionary rates for importing packaging and other raw materials for the manufacture of drugs registered under the Drugs Act, 1976, subject to their “in-house use in the manufacture of specified pharmaceutical substances”. The Directorate General of Input Output Co-efficient Organisation (IOCO) rejected our client’s application for quantitative entitlement enabling the import, arguing that the use of a toll manufacturer disqualifies it from availing concessionary rates.

Our client’s petition before the Sindh High Court challenges this rejection, arguing that the condition is satisfied even when our client uses a toll manufacturer, as it retains ownership of the materials and finished product throughout the process. The petition argues that the rejection contradicts the Supreme Court’s judgment in Commissioner Inland Revenue vs Messrs Ori Tech Oil (Pvt.) Limited (2019 SCMR 875), which held that “in-house consumption” for manufacturing includes toll manufacturing arrangements.

Mayhar Kazi, Partner at RIAA Barker Gillette and lead counsel in this litigation, said:

“This case has significant implications for the pharmaceutical industry and the interpretation of concessionary customs duty provisions. It highlights the complex interplay between fiscal and regulatory regimes in the pharmaceutical sector. Our strategic legal representation aims to ensure the uninterrupted supply of essential medicines while asserting our client’s legal rights.”

This petition follows an earlier one we filed to challenge the jurisdiction of the IOCO to determine entitlement to concessionary benefits and contest the vires of Rule 313B of the Customs Rules as inconsistent with the Customs Act’s adjudication procedure. The Sindh High Court restrained coercive action against our client pursuant to such demand without proper adjudication. We also represented the company before the Customs Appellate Tribunal in appeals against orders passed in adjudication proceedings concerning its entitlement to the concessionary rates.

Our team on this matter is led by Pakistan Partner Mayhar Kazi and includes Associate Muhammad Turhan Khan.

For more information on our tax dispute practice, please contact Mayhar Kazi.

We recently obtained an interim injunction against a regulatory penalty imposed by the State Bank of Pakistan (SBP) on PFB Pvt Ltd, a leading manufacturer of medium-density fiberboard operating under the brand name Patex. The order underscores the application of due process requirements to cases of violations of strict liability regulations under Pakistan’s foreign exchange laws.

The case arose when Patex, seeking to construct a manufacturing facility, secured syndicated financing to import plant and machinery from China. However, in response to Pakistan’s recent balance of payments crisis, the SBP imposed temporary prohibitions on banks opening letters of credit for such imports. These undocumented restrictions led to a lapse in the statutory import period under the Foreign Exchange Regulation Act, 1947 and Chapter 13 of the Foreign Exchange Manual. Consequently, the SBP imposed a fine on Patex, threatening to recover it directly from the company’s bank account without a hearing.

Pakistan’s exchange control regime, administered by the SBP under the Foreign Exchange Regulation Act 1947, grants the central bank broad powers to regulate foreign exchange transactions. The Foreign Exchange Manual provides detailed permissions and procedures for various types of foreign exchange dealings. Notably, the Act includes an ouster clause in Section 26, limiting judicial review of SBP’s actions.

Led by Shahbakht Pirzada, RIAA Barker Gillette’s team sought injunctive relief from the High Court to protect the Plaintiff from being penalized without any adjudication. We argued that this action violated principles of natural justice, as the company was not given an opportunity to present its case. We further emphasized that the delay was due to circumstances beyond Patex’s control. We also pleaded for an exception to the ouster of jurisdiction clause in section 26 of the Act.

Shahbakht Pirzada, Partner at RIAA Barker Gillette, lead counsel on the commented, “This interim order is significant as it reinforces the fundamental right to be heard before adverse regulatory action is taken, even in the context of the wide powers given to SBP under the Act. It also highlights the need to consider external factors and intent when determining regulatory penalties.”

The Single Bench of the High Court granted an interim injunction restraining the SBP from recovering the penalty until a final judgment is reached.

This case demonstrates the complexities of navigating regulatory landscapes in Pakistan’s business environment, particularly regarding foreign exchange controls during economic downturns. It also showcases our expertise in handling regulatory disputes and protecting clients’ interests against unilateral actions by state bodies.

Contact Pakistan Partner Shahbakht Pirzada should you require assistance with foreign exchange or other regulatory disputes.

In a landmark decision, our client Star Hydro Power Limited (SHPL),  a 147 MW hydropower project in Azad Jammu and Kashmir, secured a crucial victory in its tariff dispute with the National Transmission and Dispatch Company (NTDC). As reported in the press, the recent award given in the London Court of International Arbitration (LCIA) arbitration proceedings confirmed the applicability of the contractual tariff under the Power Purchase Agreement (PPA) between SHPL and NTDC and awarded damages to SHPL.

The dispute arose when NTDC refused to adhere to the agreed-upon tariff following a one-time adjustment determination by the National Electric Power Regulatory Authority (NEPRA) at the commercial operation stage. In response, SHPL initiated arbitration proceedings under the LCIA rules.

RIAA Barker Gillette acted as Pakistan law counsel, working closely with the English law firm representing SHPL in the arbitration. Our team, led by Pakistan Partner Nadir Altaf and assisted by Senior Associate Fahim Khan, provided crucial advice on various aspects of Pakistani law throughout the proceedings. The dispute involved complex legal questions, including the arbitrator’s jurisdiction, NEPRA’s statutory role in tariff determination, and regulatory risk allocation under the PPA.

Independent expert witnesses, retired Supreme Court Justice Faisal Arab for SHPL and former Chief Justice Jawad S. Khwaja for NTDC, also provided evidence on Pakistan law during the arbitration proceedings.

The award was a significant victory for SHPL, as it confirmed the tariff under the PPA and awarded damages. It also addresses the increasing regulatory interference in the power sector, often conflicting with contractual promises made by the Government of Pakistan (GOP) and related entities.

“This landmark victory for Star Hydro Power Limited sets a precedent for upholding the sanctity of contracts in the face of regulatory challenges,” commented Nadir Altaf, Partner at RIAA Barker Gillette. “We are proud to have played a key role in securing this favorable outcome for our client, an international investor in Pakistan’s power sector.”

The arbitral award demonstrates the importance of international arbitration in resolving disputes arising from conflicts between regulatory actions and contractual obligations. It also highlights the need for clear and consistent regulatory frameworks to minimize such disputes and protect investments in Pakistan’s power sector.

Don’t hesitate to contact Nadir Altaf for more information on our capabilities in assisting with disputes involving Pakistan’s power sector.

Successful defence of SIAC award against invalidity, incapacity and public policy challenges

The Lahore High Court recently recognized a foreign arbitral award favouring Cargill International Trading Pte. Ltd., rejecting arguments by the award debtor, BBJ Steel Limited, that the signatory lacked authority. The RIAA Barker Gillette team, led by Mayhar Kazi, successfully argued for the recognition and enforcement of the award.

The dispute arose from a sales contract between Cargill and BBJ Steel for the steel coils supply. When BBJ Steel failed to establish the requisite letter of credit, Cargill terminated the contract and commenced arbitration proceedings before the Singapore International Arbitration Centre (SIAC). We assisted with Pakistan law submissions in the capacity and corporate authority arbitration. The sole arbitrator rendered an award in Cargill’s favour.

In the enforcement proceedings brought under the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011, BBJ Steel argued that the employee who signed the contract lacked authority from its board of directors, invoking the invalidity and incapacity defences under Article V(1)(a) and the public policy defence under Article V(2)(b) of the New York Convention. Denial of the signatory’s authority is a common defence in Pakistani enforcement proceedings.

The Court examined the issue of signatory authority, noting its importance in determining whether BBJ Steel agreed to the arbitrator’s jurisdiction. Importantly, the Court held that while an arbitrator’s decision on jurisdiction generally binds the parties, a party resisting enforcement has the right to have the enforcing court determine this issue. Relying on the UK Supreme Court’s decision in Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan  [2010] UKSC 46, the Court affirmed that under the New York Convention, even if a party can no longer challenge the arbitrator’s jurisdiction at the arbitral seat, it can still do so before the enforcing court.

In a nuanced and well-reasoned judgment, the Lahore High Court upheld the award, even though it disagreed with the arbitrator’s “flimsy” reasoning that BBJ Steel’s signatory had implied or ostensible authority. The Court held that the invalidity defence under Article V(1)(a) must be established under the law governing the arbitration agreement, which the arbitrator had determined was Singapore law in this case. The Court upheld BBJ Steel’s right to challenge the arbitrator’s jurisdiction before the enforcing court but found it failed to make out the invalidity defence on the facts. The Court also rejected the public policy defence, noting its narrow scope.

“This judgment is a landmark decision that will boost confidence in Pakistan’s arbitration framework,” said Mayhar Kazi, the lead partner on the case. “It sends a strong signal that Pakistani courts will not lightly interfere with foreign awards on technical grounds.”

The case is notable for its nuanced treatment of the signatory authority issue in the context of the New York Convention defences. By focusing on the law governing the arbitration agreement, the judgment promotes consistency with international standards and enhances Pakistan’s reputation as an arbitration-friendly jurisdiction. It shows the courts’ pro-arbitration approach and reluctance to reopen the merits of awards. Parties seeking to enforce foreign awards in Pakistan can take comfort from this decision.

For expert guidance on cross-border commercial disputes, please contact Mayhar Kazi.