ENFORCEMENT OF FOREIGN JUDGMENTS IN PAKISTAN 



The issues discussed here relate  to enforce-ability of foreign judgments in Pakistan. In the existing law, there are two categories of judgments, one passed by the courts of reciprocating states and the other by non-reciprocating states. The judgments of reciprocating states are enforceable per se, but for non-reciprocating states, the judgement creditor will have to seek enforcement by filing a suit in the appropriate court.

In this regard, the require procedure prescribed by domestic laws to recognize and enforce a foreign judgments provides the following options :

A creditor in possession of a foreign judgement has three options namely: 

(i) to seek direct execution of the decree or judgement as the case may be under the provisions of the Civil Procedure Code 1908(C.P.C),(1) particularly, where the country whose court has rendered the judgement belongs to a reciprocating territory so designated by the Government of Pakistan: 

(ii) to file a suit in appropriate Pakistani court for the enforcement of the foreign judgement or decree, treating it as a cause of action; or (2)

(iii) to file a suit on the original cause of action.

Enforcement proceedings  of such foreign judgments can only be challenged on limited grounds as set out in the C.P.C (3 )and these include:

(i) where the judgement has not been pronounced by a Court of competent jurisdiction; or (4)

(ii) where judgement or decree  has not been awarded on the merits of the case; or

(iii) where it appears, on the face of the proceedings, that an incorrect view of international law has been taken  or recognition  of the law of Pakistan has been denied despite the fact that such law stands applicable; or

(iv) the proceedings through which the judgement was obtained violate the principles of natural justice;

(v) where judgement or decree has been obtained through fraud; and

(vi) where the claim founded in the judgement or decree is based on the  breach of any law in force in Pakistan.

Answers to some frequently asked questions: 

1. Once a judgement creditor provides a copy of the judgement, what is the process for getting  that  judgement enforceable in Pakistan?

Where the judgement is from a court belonging to country, which is not a reciprocating state, one will have to file a suit in the appropriate court of law for its execution.

2. Once the judgement is domesticated in Pakistan, what is the process for seizing the debtor's assets?

Once the suit is filed, objection to the suit can not be heard unless the defendant furnishes security. And where the party of the other part fails to furnish security, application for seizure of  the property can be made to the court.

3. Which pieces of property owned by the debtor cannot be seized by the creditor or which assets are considered exempt property or in other words what property owned by a debtor in Pakistan is outside the scope of seizure?

Property which is not in one's possession can not be seized but can be attached till the disposal of execution proceedings.

4. Can the debtor's bank accounts in Pakistan be seized?

Yes. Where the accounts are directly in his name, the same can be seized.

5. How long does the domestication process takes?

It depends, however where the suit for execution is filed and objections are settled no further time is needed .

6. How long after domestication does the seizure of assets takes?

Where the objection raised are not relevant, seizure takes place immediately.

An important proposition was decided by the Karachi High Court.(5) In that case a question was raised whether or not a decree passed by a foreign court under private international law can be executed under Section 44-A read with Rule 23-A of Order XXI of the Code of Civil Procedure 1908, and i whether or not, non-furnishing of security, as required by the law would be fatal to the case.

As per the stated facts, the respondents (Marfani and Company) filed a suit in June,1989 against the appellants claiming that the appellant (Munawar Ali Khan) had agreed to sell and the respondents had agreed to purchase certain immovable properties in Hyde Park Mansions, London. According to the agreement between the parties certain amounts by way of service charges under leases were required to be paid by the appellant to the respondents, which they failed to pay despite completion of sale and purchase in May 1986. The respondent-company filed a suit in the British Court and a Writ of Summons were issued to the appellants all of whom were residents of Pakistan. The British Court later on awarded decree in favor of the respondent.

The respondents sought to execute the decrees through the High Court of Sindhi (Pakistan) under section 44-A, of the Code of Civil Procedure,1908. The appellants filed objections but by an order a learned Single Judge who ruled that the objections could not be heard unless the appellants furnishes a security in terms of Order XXI Rule 23-A of the Code of Civil Procedure(C.P.C). The appellants preferred an appeals against the aforesaid order before a Division Bench  of the High Court,the appeal was disposed of by the court through a consent order, whereby the orders of the learned Single Judge was set aside, and the matter was remanded back to the learned Single Judge with  directions. Upon remand, the learned Single Judge, hearing the execution applications observed that the Appellate Bench had however not decided the question of requirement of furnishing of security under Order 21, Rule 23-A, of the C.P.C. and therefore the single judge proceeded to consider the effects of non-furnishing of the security as required under the law along with the  merits of the case. After reviewing the law on the subject, the Court held that the furnishing of security was a condition precedent for objecting to execution of a money decree including a decree of a foreign Court, therefore, the appellants' objections failed due to failure to comply the mandatory requirements of law.

The attention of the Court was invited to Cheshire and North's Treatise on Private International Law where the authors recorded their opinion in the following words:

"According to the decisions that have dealt with the matter up to the present, it is undoubted that the various circumstances considered above exhaust possible cases in which a foreign Court possesses international competence. Thus it is not sufficient that the cause of action, as for instance a breach of contract or a commission of a tort accrued in foreign country".

As per judgments pronounced by the superior courts of Pakistan,  under traditional Common Law rules of private international law an action on the basis of a foreign judgement could only be maintained if the defendant in the aforesaid judgement was a resident or at least physically present in the foreign country at the time of commencement of proceedings or had submitted to or agreed to submit to the jurisdiction of such foreign Court. The mere fact that the cause of action had accrued within the jurisdiction of such Court would not confer competence upon such Court  under the governing rules in this regard so as to make its judgments recognizable and enforceable in Pakistan.

 It is evident, from what has been stated above, that  limitations and hurdles exist in getting a foreign judgement enforced through  Pakistan courts.

                                           REFERENCES;

1.  According to Section 44 A of the Civil Procedure Code , a reciprocating territory means any country or territory outside Pakistan which the Federal Government may, by a  notification in the Official Gazette, declares to be a' reciprocating territory' for this  purpose, and by the term  'superior Courts', with reference to reciprocating territory means specified Courts by the Federal Government,  through a notification.

2. Under Section 14 of the Civil Procedure Code, courts in Pakistan, upon the production of certified copy of the foreign judgement, are under an obligation to  presume that judgement produced has been given by a court of competent jurisdiction, unless the contrary appears form the record. The onus of proving that the foreign court was not a court of competent jurisdiction, shall lie on the party asserting the same.

3. See Section 13 of Code of Civil Procedure,1908.

4. The Court giving a judgement or a decree is to be  be considered to have jurisdiction, if the defendant had, at the time ,when the proceedings were instituted was in  habitual residence in the State of the Court's residence who delivered the judgement or passed the decree. A decree of a foreign Court, in an action in persona,  where the court assumed jurisdiction (under its own system of laws on any ground other than the ground of presence of the defendant within the court's jurisdiction), on the basis of one's residence or of one's action or due to forum of convenience, a judgement or decree  of such a court shall not be recognized and enforced under the Hague Convention. Although Pakistan is not a Contracting State of the Hague Convention but its conventions relating to jurisdiction of a foreign Courts can effectively be used by seeking support from the opinions rendered on the subject by reputed  jurists  of international law.

5. Munawar Ali Khan v Marfani and Co: Pakistan Legal Decisions( PLD) 2003 Karachi 382.

Pakistan’s Legal Framework: Combating money-laundering and counter-terrorist financing

Pakistan faces significant risks of money laundering and even more significant risks of terrorism financing. Aware of the prevalence of corruption, narcotics trafficking and terrorism, the authorities have focused on tackling these predicates. Pakistan has however not yet sufficiently taken into account money laundering and terrorism financing associated with these and other predicate crimes.

Criminals launder funds in Pakistan and reportedly are purchasing real estate, abusing corporate entities to access the financial sector, laundering money through trade and abusing informal channels in Pakistan. Funds for terrorism came from proceeds of crime (including bank robbery, kidnap for ransom, and proceeds of drugs flowing from Afghanistan), with cases of cash couriers and misuse of charities facilitating terrorist financing.

Pakistan has criminalized money laundering (ML) and terrorism financing (TF). Pakistan set up its Financial Intelligence Unit (FMU) in December 2007. Pakistan has taken steps to make the FMU operational. In this background, the present legal set-up of AML regulations has been reviewed in this article.

For prevention of money laundering and forfeiture of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto; the Government of Pakistan enacted, The Anti-Money Laundering Ordinance, 2007 (AMLO), it came into force with effect from 4th day of October 2007.1 The said Ordinance lost its legal authority in 2009,2 consequently, the parliament enacted the new law, namely, the Anti-Money Laundering Act, 2010 (AMLA).3

For carrying out the operation of anti-money laundering law and to meet its purpose, the Financial Monitoring Unit (FMU) stands established with the approval of National Executive Committee, and the said institution issued the Anti-Money Laundering Regulations, 2008.4

Among other things, the Act defines the legal terms such as attachment,5 CTR,6 financial institutions,7 foreign serious offences,8 FMU,9 non-financial business and professions,10 offence of money laundering,11 person,12 proceeds of crime,13 property,14 Suspicious Transaction Report (STR),15 transfer and predicate offence.17 In order to implement the law the Financial Monitoring Unit (FMU) has been established in the State Bank of Pakistan (SBP).18 The main function of the FMU is to receive suspicious Transaction Reports (STR) and reports on Currency Transaction (CTR) of specified monetary limit.

The FMU after the receipt of said reports is required to:19 

i) Analyse the STRs and CTRs;

ii) Disseminate information to the investigating agencies;20

iii) Create and maintain data base of STRs and CTRs;

iv) To co-operate with FIUs and intelligence agencies of other countries;

v) To frame regulations in consultation with SBP.

All financial institutions are required to file with FMU STRs and CTRs. 20 A where they know or suspect or have reason to believe that the suspected transaction is an outcome of:

a) Illegal activities or the same is intended or conducted in order to hide or disguise proceeds of crime;

b) An attempt to evade any requirement of Anti-Money Laundering Law; and

c) Is an outcome of unlawful purpose; and

d) Involves financing of terrorism.21

Acquisition, conversion, possession, use or transfer of such property which is proceeds of a crime, constitute the offence of money laundering.22 The offence is punishable with imprisonment ranging from one year to ten years, or a fine up to one million rupees or both, and the property involved in the crime is liable to forfeiture.23

Where a property is suspected to be an outcome of money laundering, an officer investigating such matter may make an order for the attachment of the property, which he believes is the proceed of crime, after taking permission from the court for a period not exceeding ninety days. The officer who makes a provisional attachment of the property is required to file a complaint before the court against the concerned persons within a period of 30 days.24

The investigation officer is required to initiate investigation within seven days after the attachment of the property and where the officer comes to the conclusion that such property is an outcome of money laundering, may ask the court to confirm the attachment.25 And where the attachment of property becomes final,26 the same shall be forfeited by the court.27 After forfeiture the property shall rest in the Federal Government.28

The investigation officer has the power to search, seize and arrest persons engaged in money laundering subject to taking permission of the court.29 All courts of sessions established under the Criminal Procedure Code, 1898, within its territorial jurisdiction have the power to try and adjudicate the offences falling within the purview of AMLA. 30

All offences under the AMLA are not cognizable and non-bailable. The court can take cognizance of such offence upon a complaint made by the investigation officer or by an authorized officer of the federal or provincial government.31 An appeal against any final decision or order of the court established under the Act lies before the High Court on any question of law or fact arising out of such decision or order within a period of sixty days.32

Any investigation office who exercises powers under the Act but acts without the permission of the court is liable to punishment under the Act.33 For the purposes of this act, NAB, FIA, ANF or any other law enforcement agency specified by the federal government are the investigation and prosecution agencies .33 A

Tipping of and confidentiality requirements have been defined in the law.34 The offences falling within the purview of the Act have been defined.35 The Act is not applicable in relation to fiscal offence except, import prohibitions act of smuggling, mis declaration, and fiscal frauds under the Customs Act, 1969 .36 A

Specified offences falling within the scope of Pakistan Penal Code, 1860, The Arms Act, 1878, The foreigners Act, 1946, The Copyright Ordinance, 1965, Securities and Exchange Act, 1969, The Emigration Ordinance, 1979, The Control of Narcotic Act, 1997, National Accountability Ordinance 1999, and The Registered Designs Ordinance, 2000 have been made predicate offences under the Act.37

The contravention of the provisions of AMLA, if committed by a company or person engaged with the company who, at the time the contravention was made, was associated with the company, shall be deemed to be guilty and shall be punished.38

For making or submitting STR, and CTR, FMU is the only designated agency.39 The Director General of FMU can direct an NFBP to submit STRs or CTRs.40 The Director General FMU is authorized to freeze a suspected property on the complaint of a financial institution or NFBP for a period of 15 days.41

The following are examples of potential suspicious transactions for both money laundering and terrorist financing. The lists of situations given below are intended mainly as a means of highlighting the basic ways in which money may be laundered.42

1. Transactions which do not make economic sense.43

2. Transactions inconsistent with the customer's business.44

3. Transactions involving large amounts of cash.45

4. Transactions involving structuring to avoid reporting or identification requirement. Transactions involving forcing currency exchanges that are followed within a short time by wire transfers to locations of specific concern (for example, countries designated by national authorities, or FATF as non-co-operative countries and territories, etc).46

5. Transactions involving accounts.47

6. Transactions involving transfers to and from abroad should state occupation of the sender is not commensurate with the level or type of activity (for example, a student or an unemployed individual who receives or sends large numbers of wire transfers, or who makes daily maximum cash withdrawals at multiple locations over a wide geographic area).48

7. Investment related transactions.49

8. Transactions involving unidentified parties.50

9. Transactions involving insurance.51 A customer obtains a credit instrument or engages in commercial financial transactions involving movement of funds to or from locations of specific concern when there appears to be no logical business reasons for dealing with those locations.

10. Transactions involving embassy and foreign consulate accounts.52

(The author is an Advocate and is currently working  with M/s Azim ud Din Law Associates Karachi.)


References:

1. See Notification No SRO 83 (KE) 2007 dated 4.10.2007: The text of the aforesaid Notification reads as under:-

"In exercise of the powers conferred by sub-section (3) of section 1 of the Anti-Money Laundering Ordinance 2007 (XLV of 2007), the Federal Government is pleased to appoint the 4th day of October, 2007, as the date on which the said Ordinance shall come into force."

2. AMLO was issued as a presidential ordinance in exercise of the extraordinary powers assumed by the president pursuant to the Proclamation of Emergency of 3rd November 2007. According to Article 89 of the Constitution of Pakistan 1973, all ordinances must be introduced in the National Assembly as a bill and are automatically repealed at the expiration of a period of four months from their promulgation. By virtue of the Constitution (Amendment) Order (2007), the President amended the Constitution and Article 270AAA was introduced. This amendment validated all the ordinances issued under the Proclamation of Emergency notwithstanding anything contained in the Constitution. It also provided that such ordinances shall continue in force until altered or repealed or amended by the competent authority. The Constitutionality of the Constitution (Amendment) Order 2007 was challenged and the Supreme Court in the case of Tika Iqbal Muhammad Khan vs General Pervez Musharraf, PLD 2008 SC 178 upheld the constitutionality of the Order including Article 270AAA. However, in the case of Sind High Court Bar Association v Federation of Pakistan: PLD 2009 SC 879, the judgement given in Tika Iqbal Muhammad Khan's case was declared unconstitutional as a result whereof Article 270AAA stood deleted from the Constitution and consequently the Ordinance issued by the then Government of Pakistan were declared to remain operative within the framework of Article 89 and 128 of the Constitution, ie the Ordinance were to be validated by the parliament within the specified period. However, keeping in view the extraordinary circumstances, these laws were given a temporary lease of life up to 31.7.2009 by the Supreme Court through its judgement passed in the Sind High Court Bar Association supra, and there after the government was directed to get these laws validated from the parliament within a period of 4 months. As a consequence Constitution 18th Amendment Act, 2010 was passed which authenticated actions of President Pervez Musharraf taken during 12-10-1999 through 31-10-2003 under Article 270AA(2) of the Constitution, all subsequent law/ordinances did lost their authority after 31-11-2009. Consequently, the government enacted the Anti-Money Laundering Act, 2010 and the new law came into force with effect from March 27, 2010.

3. The Anti-Money Laundering Act, 2010 came into force on March 27, 2010, see Notification no. F9(4)/2010-Leqis dated 27-3-210.

4. See Notification No SRO 02 (KE) 2009. Under Section 46 of AMLA, the existing rules have been validated.

5. Section 2(1)(a), the Anti-Money Laundering Act, 2010: "Attachment" means prohibition of transfer, conversion, disposition or movement of property by an order issued under section 8.

6. Id. Section 2(1)(c). "CTR" means report on currency transactions exceeding such amount as may be specified by the National Executive Committee by notification in the official gazette.

7. Id. See Section 2(1)(f), "financial institution" includes any institution carrying. on any one or more of the following activities, namely:-

i) acceptance of deposits and other repayable funds ,from the public;

ii) lending in whatsoever form;

iii) financial leasing;

iv) money or value transfer;

v) issuing and managing means of payments including but not limited to credit and debit cards, checks, travelers checks, money orders. bank drafts and electronic money;

vi) financial guarantees and commitments;

vii) trading in-

(a) money market instruments;

(b) foreign exchange;

(c) exchange, interest rate and index instruments;

(d) transferable securities; and

(e) commodity futures trading;

viii) participation in shares issues and the provision of services related to such issues;

ix) individual and collective portfolio management;

x) safekeeping and administration of cash or liquid securities on behalf of other persons;

xi) investing, administering or managing funds or money on behalf of other persons;

xii) insurance business transactions;

xiii) money and currency changing; and

xiv) carrying out business as intermediary.

8. Id. See Section 2(1)(i). "Foreign serious offence" means an offence -

i. against the law of a foreign State stated in a certificate issued by, or on behalf of, the government of that foreign State; and

ii. which, had it occurred in Pakistan, would have constituted a predicate offence.

9. Id. See Section 2(1)(h). "FMU" means the Financial Monitoring Unit established under section 6.

10. Id. See Section 2(1)(n). "Non-financial business and professions" means real estate agents, jewelers, dealers in precious metals, precious stones, lawyers, notaries and other legal professionals, accountants, trust and company service providers and such other non-financial businesses and professions as may be notified by the Federal Government.

11. Id. See Section 2(1)(0). "Offence of money laundering" has the meaning as defined in section 3.

12. Id. See Section 2(1)(p). "Person" means an individual, a firm, an entity, an association or a body of individuals, whether incorporated or not, a company and every other juridical person.

13. Id. See Section 2(1)(q). "Proceeds of crime" means any property derived or obtained directly or indirectly by" any person from the commission of a predicate offence or a foreign serious offence.

14. Id. See Section 2(1)(r). "Property" means property or assets of any description, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and includes deeds and instruments evidencing title to, or interest in, such property or assets, including cash and monetary instruments, wherever located.

15. Id. See Section 2(1)(y). "Suspicious Transactions Report" means the report on suspicious accounts transactions specified under section 7.

16. Id. See Section 2(1)(z). "Transfer" means sale, lease, purchase, mortgage, pledge, gift, loan, or any other form of transfer of right, title, possession or lien.

17. Id. See Section 2(1)(s). "Predicate offence" means an offence specified in the Schedule to this Act.

18. Id. See Section 6 of the Act read with Notification No SRO 84(KE)/2007 dated 4.10.2007.

19. Id. See Section 6(4).

20. Id. See clause (K) of Section 2.

20A. Id. See Section 7, as per FE Circular No 1 dated 6.1.2012. The State Bank of Pakistan (SBP) has directed all the exchange companies (EC) to meticulously follow the requirements of Anti-Money Laundering (AML), Countering Financing of Terrorism (CFT) regime by submitting Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs) manually or electronically as per Section 7 of AML Act, 2010, directly to the Financial Monitoring Unit (FMU). Section 33 of the AML Act 2010, inter alia, specifically provides for criminal sanctions on failure to file required reports and for providing false information. In case any EC is found to be in violation of legal requirements, a simultaneous regulatory action shall be initiated against concerned EC and officials involved as per rules, which may result, among others, in suspension, cancellation of licenses of the concerned company.

21. Id. See Section 7.

22. A person is guilty of offence: a) acquires, converts, possesses or transfers proper knowing or having reason to believe that such property is proceeds of crime b) renders assistance to another person for the acquisition, conversion, possession or transfer of, or for concealing or disguising the true nature, origin, location, disposition, movement or ownership of property, knowing or having reason to believe that such property is proceeds of crime, or participates in association, conspires or commits, attempts to commit, aids, abets, facilitates on conceals the acts of crime.

23. Id. See section 4.

24. Id. See Section 8.

25. Id. See Section 9.

26. Id. See clause (b) of sub-section (3) of section 9.

27. Id. See section 9(6).

28. Id. See Section 10.

29. Id. See Sections 13, 14, 15, and 16.

30. Id. See section 20.

31. Id. See Section 21.

32. Id. See Section 23. An appeal can be filed within a period of 60 days from the date of communication of the decision or order.

33. Id. See Section 32.

33A. Id. See Section 2(j).

34. Id. See Section 34.

35. Id. See Schedule to the Act.

36. Id. See Section 41.

36A. Id. Section 2(g). Act applies to offence under Section 15, 16, 32, 32A of the Customs Act, 1969 and the powers of search under Section 158 of the Customs Act, 1969 will be exercise-able in relation to offences of money laundering.

37. Id. See Section 2(s) and (w) read with schedule to the Act.

38. Id. See Section 37.

39. See regulation 3 of the Anti-Money Laundering Regulations, 2008.

40. Id. See regulation 4. As per Circular No 1 of 2012 dated 22-1-2012, Securities and Exchange Commission of Pakistan issued instructions to NBFC's, directing that: (a) NBFCs, being "Financial Institutions" under the Anti-Money Laundering Act 2010, are required to submit Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs), as per Section 7 of the AML Act, 2010, to the Financial Monitoring Unit (FMU). The standard templates for STRs & CTRs are part of the AML Regulations 2008, issued under the AML Ordinance 2007 and protected under the AML Act, 2010; (b) In this respect, NBFCs are advised to meticulously follow the requirements of the law, and report STRs and CTRs manually or electronically, as per Section 7 of AML Act, 2010, directly to the Financial Monitoring Unit (FMU); (c) It may be noted that Section 33 of the AML Act 2010, inter alia specifically provides for criminal sanctions on failure to file above mentioned reports and for providing false information. Furthermore, in case any NBFC is found to be in violation of above legal requirements, the regulatory authority may also revoke its license or registration or take such other administrative action as it may deem appropriate. The same directions were issued to Modarba Companies vide Circular No 20 of 2012.

41. Id. See regulation 7.

42. Id. See regulation 4 and Para 1 of Appendix 1.

43. Id. Para 2.

44. Id. Para 3.

45. Id. Para 4.

46. Id. Para 5.

47. Id. Para 6.

48. Id. Para 7.

49. Id. Para 8.

50. Id. Para 9.

51. Id. Para 10.

52. Id. Para 11.

                              Legal Aspects of International Business Transactions





International trade is increasing day by day, small and big countries alike are mutually engaging in the transfer of huge quantities of goods and services. As with any contractual relationship, these mutual actions, between the trading partners may at times, create legal challenges and problems. However, due to the international nature of these undertakings, potential difficulties are exacerbated if and when they do become present.

The issues which tend to give rise to the complications are the formation of contracts, distribution of agreements, joint ventures and the setting up of foreign companies or subsidiaries. Such transactions can pose a wide-range of legal uncertainties and it is trite that uncertainty does not bode well in contractual undertakings. For example, determining appropriate jurisdictions, interpreting applicable legal norms such as promissory estoppel and the enforcement of bilateral or unilateral promises (1). are particularly troublesome.

As per international trade practices, goods are sold against bills of exchange, delivery of documents, letter of credits, bank guarantees, merchant leasing, post-arrival payments or through barter trade.

Globally, bills of exchange are governed by two legal families. These are the Geneva system founded in the Geneva Conventions and the Anglo American system which applies in the UK, much of the Commonwealth and the United States. The distinctions between the two families can be traced back to different origins of law - thus the Geneva system is adopted in civil law jurisdictions whereas the latter applies to countries under the common law system.(2) Before we look at specific issues, let's examine to what extent a court, in these different legal traditions, can, essentially, ignore what a contract states and apply what the court believes are principles of fairness in deciding a case.(3)

All these segments of trade create legal complexities and therefore can give rise to conflict. Where the legal instruments, relating to such transactions are properly drafted and executed, no adverse cause arises, but where there are mistakes, errors or shortcomings particularly in the bilateral trade instruments, these faults or oversights may lead to dispute and litigation. These contractual disagreements so arisen, pose manifold problems of jurisdiction, applicability of law, enforcement of judgments and the interpretation of the parties' actions and the instruments involved.

Adequate understanding and correct advice is essential. When a problem does arise it will not necessarily only relate to individual businesses, but may also encompass conflicts between respective states on bilateral trade matters. A degree of uncertainty in these dealings is evident, perhaps no more so than when prior to executing an investment, promises made by a state to foreign investors are withdrawn. This change of policy leads to conflict both at domestic and international levels. Therefore conscientious decision making by the parties in these international regards are crucial, as ultimately this will affect their rights and obligations. When conflicts do occur, they are often settled either through municipal courts lex fori or by mutually agreed international tribunals.(4)

The disputes so arising are settled through arbitration either by the International Chamber of Commerce (ICC) or through the International Centre for Settlement of Investment Disputes (ICSID) as the case may be. The states in such disputes give their consent for settlement through arbitration. Particular reference is invited towards Bilateral Investment Treaties (BIT's). There are hundreds of such bilateral treaties between different countries which govern the rules for Foreign Direct Investment (FDI). For example, the ICSID tribunal has, in many cases, found there to be violations of such bilateral or multilateral treaties by the states, thereby violating treaty provisions.(5)

The issues relating to trade laws are generally governed by conflict of laws where the principle of lex domicile (6)determines the issue of jurisdiction and the application of law in such disputes. It is desirable for the parties when reaching an agreement to specify which country and which court has the jurisdiction to settle a potential dispute.(7 )This explains why the trading parties are required to be more vigilant in respect of their international business transactions. Businesses must show attention to detail whilst agreeing to the terms and conditions of the contracts. Litigation is never without problems, yet understandably, such problems are magnified when they present international ramifications. It is advised that particular regard and diligence is afforded to the specification of jurisdiction and the application of law and the clauses for the settlement of disputes.

The International Chamber of Commerce (ICC) (8) plays an important role in the settlement of such disputes through arbitration, yet another important institution is the United Nations and its instruments such as the Convention on Contracts for the International Sale of Goods. [CSIG](9)

The Uniform Commercial Code (UCC) and the UNIDROIT principle of international commercial law, also become applicable in addition to the said convention, where disputes arise from transactions involving the international sale of goods. One has to be vigilant to compare the said conventions; the UNIDROIT principles and Article ii of the Uniform Commercial Code are noteworthy for understanding the complexities arising from the bilateral relationship between trading partners.

Three other recent treaties, the United Nations Convention on International Bills of Exchange and International Promissory Notes (CIBN) and the two Conventions on International Lease Financing and International Factoring (CILF) are also important.(10)

In addition to merchant trading, contractual relationships also exist between private businesses and the state ie agreements with the state in respect of foreign direct investments etc. In such cases, the disputes arise from a violation of bilateral treaties, restrictions imposed on the transfer of technologies, creating licensing requirements, and the imposition of technical fees. Regarding the bilateral relationship between the states, grievances are settled by way of arbitration either through the International Chamber of Commerce or the tribunal constituted under the ICSID.(11)

The tribunal under the ICSID has so far arbitrated and decided many important cases in relation to foreign investments particularly where the terms of agreement between the parties stood changed, eg where certain facilities extended earlier were withdrawn.(12) Such events generally happen in developing and underdeveloped countries.

The WTO, under the 1994 General Agreement on Tariffs and Trade (GATT) is another important institution which defines the limits of international business transactions in the framework of international agreements agreed among states. The issues under the trade laws of various countries relate to import controls, customs controls, anti-dumping, countervailing, origin of goods, and export controls. One of the striking features of GATT's forty-five-year history, however, is that it has evolved an elaborate dispute settlement procedure. In recent years this has resulted in a fairly rigorous approach to the legal obligations of the GATT. In fact, an argument can be made that the GATT jurisprudence which now exists and consists of almost 200 reported cases, is the largest significant body of case law experience developed through a major multilateral treaty of broad purpose and application.

Among the many issues raised in this jurisprudence are those of institutional power distribution, treaty compliance, the role of tribunals in settlement negotiations, the use of prior reports as a sort of "precedent," legal authority of an organisation to interpret its own charter, and third party interests in a procedure between two other disputants, to say nothing of the headline grabbing questions such as those of the 1991 Tuna Dolphin case,(13) which involved mediating a clash between international trade and environment treaties. World Trade Organisation tribunals have also decided many other important principles of international law.

Another leading case relates to the dispute between Panama and Columbia, which involved the wrong application of Article vii of the GATT and the WTO Customs Valuation Agreement. The restriction and wrong application of GATT vii, were made by Columbia in violation of GATT principles.(14)

The current wave of international business law treaties is supplemented by the older INCOTERMS (an acronym for "international commercial terms"). Lawyers prepare these definitions of trade terms for the Commission on International Commercial Practice of the International Chamber of Commerce. The Commission first adopted a uniform statement of the meaning of nine such terms in 1936. The INCOTERMS are important because parties may use them as a shorthand way of stating their agreement, with assurance that there is an outside, objective source for the definition of the contract terms. Although certainly not positivistic law per se, the INCOTERMS represent a quasi-codification of the trade usages among merchants. Particularly where the parties expressly refer to the INCOTERMS themselves when incorporating those terms into a contract, much of the uncertainty inherent in the conflicts approach, and even in the lex mercatoria approach, may be reduced. As a clarification and crystallization of trade practices, the INCOTERMS help bridge the latter two evolutionary periods of international business.

There are many vague areas relating to commercial trade such as quantity restrictions, application of the rules of origin, technical specifications, and health regulations. All these have been used by states to restrict or bar the flow of trade in order to afford protection to the domestic industry.(15)

(Legal disputes, disputed regulations, unethical state policies, and powerful domestic lobbies, create barriers to trade by applying laws and regulations that are contrary to GATT principles.

There is another aspect of trade as well, that is where import traders indulge in unethical practices either by mis-declaring the values of imported goods, or by hiding the quantity, or description or by violating the state regulations with regard to fitness of the goods so imported.(16)

To sum up, it is observed that the flow of trade in goods and services across borders faces legal issues relating to: (a) licensing (b) quality (c) fitness (d) quantity (e) specification (f) value (g) import-ability (h) contractual obligation (i) origin of goods (j) state policies which often change without prior notice and which do not consider the contractual obligations between the parties as a final step towards commercial bargain.(17 )There can also be disputes between a state and the individual relating to promises made at an earlier time and withdrawn subsequently. There may be issues relating to public policy, where the investor can be denied the contractual obligations in the name of public policy.(18)

One can imagine the existing complexities of the legal aspects of international business transactions. Trading partners are advised to be careful while considering the impact of trade laws and regulations which govern international trade. Showing laxity in understanding the legal aspects of international business transactions is likely to result in loss or damage.

Nevertheless, it is important that the changes in international business today suggest more than an incremental revision of the law-they symbolize a paradigmatic shift in the international business system itself, a shift in the structural underpinnings of the legal order.

(The writer is an advocate and is currently working  with Azim-ud-Din Law Associates Karachi)

References:

1. See the provisions of bilateral investment treaties: For a compendium on bilateral treaties see Bilateral Investment Treaties: 1959-1999, UN: 2000: available at www.UNCTAD.org/Docs/Poiteiiad2.en.pdf

2. Civil Law (Europe, China): Abstract; ordered by general concepts and highly codified, tendency of the courts to apply, rather than interpret or overrule, legislature-made statutes. Common Law (England, United States, most of British Commonwealth): Judge-made law; pragmatic; case by case solutions to the problem at hand. Insistence that the courts interpret and sometimes, as a matter of checks and balances, overrule statutes created by the legislature.

3. Equity in the Civil Law Tradition: No formal distinction between "legal" rights and remedies (those already established by statute), and "equitable" remedies. If a particular law code, a commercial code, for example, provides that a judge may fashion an equitable remedy, then the judge can do so.

Equity in the Common Law Tradition: Scope of relief is broader in equity than in the strict application of the common law. For example, in common law jurisdictions, equity may be used by courts to intervene in certain cases to provide relief from the rigors of the common law. In parts of Canada, for example Quebec, the codified civil law concept of "good faith" can be used by the courts in limited circumstances to fashion an equitable remedy.

4. There are many dispute settlement bodies at the international level, well known among them are organs of the United Nations (UN), such as the International Court of Justice (ICJ), the International Chamber of Commerce (ICC), or other tribunals of arbitration constituted under the International Center for the Settlement of Investment Disputes (ICSID).

5. For example, see the case of SGS Societe Generale de Surveillance v. Islamic Republic of Pakistan: ICSID case no. ARB/01/13 decided on 6-8-2003: Where the issue of whether an investment was made in the territory of a treaty party arose in two cases by the same claimants involving similar transactions, one against Pakistan and the other against the Philippines. In SGS Societe Generale de Surveillance SA v Islamic Republic of Pakistan, and SGS Societe Generale de Surveillance SA v Republic of the Philippines, the disputes arose out of the alleged wrongful termination of contracts under which SGS, a Swiss group, was to provide 'pre-shipment inspection services', including comprehensive import supervision of goods before shipment to the Philippines and Pakistan. Because of the nature of the services to be rendered, the SGS activity was carried out in the territories of exporting countries. In both cases the respondent states I objected to the tribunal's jurisdiction by arguing that SGS?s investments were not made in the territory of the host states and so were not covered by the applicable BITs, which included the territoriality investment requirement. As a result, they argued, the dispute did not arise out of an investment. In determining whether SGS made an „investment? „in the territory of Pakistan?, the tribunal noted that the Pre-Shipment Inspection (PSI) Agreement SGS?s commitments such a way as to ensure that SGS, if it were to comply with them, had to make certain expenditures within Pakistan. It observed that „while the expenditures V may be relatively small (Pakistan's Reply estimated them as amounting to approximately US $800,000, while SGS?s estimate put them at US $15 million), they involved the injection of funds into the territory of Pakistan for the carrying out of SGS?s engagements under the PSI Agreement?. The tribunal also found relevant the fact that the claimant adduced evidence of expenditures to establish and operate liaison offices in Pakistan to perform its obligations under the PSI Agreement, "and that Pakistan itself recognized that the PSI Agreement involved the delegation of some of the state's customs powers to the private party in order, to increase the customs revenue of that state." Therefore, the tribunal held that the expenditures made by SGS pursuant to the PSI Agreement constituted an investment within the meaning of the BIT and, moreover, that the ICSID Convention's requirement that there be a legal dispute arising directly out of an investment' stood satisfied.

6. In conflicts, the law of one's domicile is applied in choice of law questions.

7. The parties are free to choose whatever law they want to apply to their contract, but "closest connection" and protection of "weaker party" to a contract may prevail. Example: termination of an agent. In United States, a party can inadvertently find itself bound to a contract if, by its conduct in the negotiations, it can be "proved" to have entered into an oral agreement. Solution: writing between the parties, sometimes called a "nonbinding letter of intent" which states that either side can pull out of the discussions, without any consequence, at any time prior to execution of a formal manuscript contract. Caveat: A letter of intent can constitute a binding contract, or be nonbinding, depending upon its terms. In Canada, general rule is that the parties are free to choose the law that will govern the contract. There are exceptions. Canada: Important to specify, in addition to the federal laws of Canada, the laws of a particular Canadian province. China: Parties may select the governing law, except as otherwise provided by law. Where parties fail to select the governing law, contract shall be governed by the law of the country with the "closest connection" to the contract. A contract for a joint venture in China between a Chinese person or entity and a foreign person or entity must be governed by the law of China. Canada: Canadian courts will generally recognize the choice of forum selected by the parties in the contract. Where the contract does not specify the forum for the resolution of disputes, Canadian courts will look to a multi-part test to determine the most appropriate forum, focusing on the location of the parties, the location for performance of the contract, and the "interests of justice". United States: In general, the law selected by the parties in the contract will be applied. Sometimes, if all the facts surrounding the contract and the dispute took place in a state other than the state whose law was selected by the parties in the contract, and if the application of the law of the state selected by the parties would impose a significant hardship on one of the parties, a court may choose to ignore the governing law clause and apply the law of that other state. Where the parties have failed to choose a governing law, a court will likely apply the law of the state where the parties are located or where the contract was performed (or not performed).

8. See the provisions of UCP 600, through this binding procedure ICC has prescribed uniform documentations relating to letters of credit and has also published ICC standard documentary credit forms (UCP600). Occasionally, the ICC banking commission is asked to express its views on the interpretation and application of UCP by the banks and its published collection of opinions provide valuable source material.

9. The new international sales convention, while the most important and far-reaching of the multilateral treaties enacted thus far, it is yet not completely paramount even within the sphere of international sales. Reservations allowing limitations on the treaty's scope coupled with the treaty's opt-out feature result in a scheme far narrower in scope than, for example, the U.C.C. And topics like products liability proved too sensitive for multilateral treatment.

As a nation's interest in having its own law applied within its own borders grows stronger, its willingness to bow to international norms lessens. Resolving such conflicts between municipal and international law is destined to be a key focus of subsequent international legislation. Nevertheless, the CISG represents a giant step forward from the eras of conflicts and the law of merchants in the international unification of commercial law.

10. The United Nations Convention on International Bills of Exchange and International Promissory Notes, UN COMM'N ON INT'L TRADE LAW, 21st Sess., at 2-42, UN Doc. A/43/820 (1988), reprinted in 28 I.L.M. 170 (1989) (with commentary) [hereinafter CIBN]; Conventions on International Factoring and on International Lease Financing, Unidraft Conf. 7/C.1/W.P.27 (1988), reprinted in 27 I.L.M 922 (1988) (with commentary) [hereinafter CILF].In addition to these broadly applicable conventions, multilateral treaties that are more specialized in focus have recently been enacted. See, eg, World Intellectual Property Organisation Treaty on Intellectual Property in Respect of Integrated Circuits, 28 I.L.M. 1477 (1989); Arrangement Regarding International Trade in Cotton Textiles, December 20, 1973, 25 UST 1001; general agreement on tariffs and trade organisation, basic instruments and selected documents 7 (33d Supp. 1987).

The world order is also increasingly marked by regional multilateral treaties. The most systematic regional efforts are those of the European Economic Community. See, eg, convention on the law applicable to contractual obligations, O.J. (l 266) 1 (1980); convention on the contract for international carriage of goods by road, May 19, 1956, 399 UNTS 190.

11. International Convention on the Settlement of Investment Disputes (ICSID)

12. See for example, CMS Transmission Co v Argentina, ICSID Case No ARB/01/08, Award dated 10th May 2005. ICSID has taken cognizance in respect of issues such as Treatment No Less Favorable than that required by International Law, "Arbitrary Treatment", "Discrimination", and "Comply with all Obligations Undertaken towards Investment", "Currency Transfer and Expropriation".

13. Tuna/Dolphin case, GATT, DS21/R of September 3, 1991, J. H. Jackson, "Dolphins and Hormones: GATT and the Legal Environment for International Trade after the Uruguay Round" (1992) 14 University of Arkansas at Little Rock Law Journal 429-454.

14. See WTO decision in re Colombia - Indicative Prices and Restriction on Ports of Entry WT/DS366/a dated April 27, 2009.

15. Whereas the fact is that in many cases domestic industries are either inefficient or uneconomical and efforts are made to create monopoly to protect inefficient domestic industry to hinder the flows of international trade.

16. I recall one such case where in violation of domestic health laws an importer did import cooking oil which was unfit for human consumption and in spite of the fact that goods were not fit for consumption the legal battle was won by the unethical trader on the basis of flaws in the relevant laws. There are two sets of views on this issue. One view suggests that import control authorities have no legal authority to detain imported goods since the fitness problem falls within the domain of laws controlled and implemented by the local authorities. The other view states that trade control authority can withheld release of imported goods where the same are found to be unfit for human consumption. The examples suggest, how complex are the legal aspect of international business transactions.

17. For example, see Section 31A of the Pakistan Customs Act, 1969. It reads: 31A Effective rate of Duty - (1) Notwithstanding anything contained in any other law for the time being in force or any decision of any court, for the purposes of section 30 [30A] and 31, the rate of duty applicable to any goods shall include nay amount of duty imposed under section 18 [18A and 18C] and the amount of duty that may have become payable in consequence of the withdrawal of the whole or any part of the exemption or concession from duty whether before or after the conclusion of a contract or agreement for the sale of such goods or opening of a letter of credit in respect thereof.

18. It may be noted that in many cases promissory estoppel does not apply against the state