JURISPRUDENCE OF SANCTITY OF CONTRACTS IN

PAKISTAN – A CONTEXTUAL PERSPECTIVE

INAAMUL HAQUE∗ & NAEEM ULLAH KHAN∗ 

I. INTRODUCTION

The concept of the sanctity of contracts has been always important in any society
where commercial activities play a significant role in the lives of the people. In ensuring
sanctity of contracts, Courts of Law play a critical role. As the Supreme Court of India aptly
observes: “The basic duty of the court of law is to enforce a promise which the parties have
made and to uphold the sanctity of contracts which forms the basis of society1”. It has been,
in this context pointed out that this aspect of the work of the courts has much to do with the
economic prosperity of the nations:

Contract law and the courts help people to cooperate

by enforcing, interpreting, and regulating promises. By
enforcing promises, the courts enable people to make
credible commitments to cooperate with each other.
By enforcing promises optimally, the courts create
incentives for efficient cooperation.2

II. BACKGROUND
The need for ensuring, that contracts are fully respected and all institutions concerned
with contractual matters efficiently and effectively contribute to the compliance process, has
acquired added importance today. This is due to the special characteristic of the
contemporary era which profoundly affects every institution in the society where ever in the
world. Law is no longer regarded as an autonomous territory unaffected by the wind of


Inaamul Haque LL.M (Harvard), Distinguished Scholar/ Adjunct Professor Punjab University Law College,
Former Executive Director World Bank, Advocate High Court. Pakistan. inaamulhaq786@yahoo.com
∗
Naeem Ullah Khan LL.M (Punjab) Lecturer Punjab University Law College, Pakistan.
naeemkhan1976@hotmail.com
This article contains personal views of authors and do not necessarily reflect those of any Organization, where
they are serving.
1
Subba Rao (J) in Gherulal vs Mahadeodas AIR 1959 SC 781, (1959) 2 SCA 342
2
R. Cooter and T. Ulem, Law and Economics at 222 (2000)

1
change that is blowing in the world. It is not simply feasible to have a notion of self
contained legal and judicial system.
The national and global context very much influences the domains of law and judiciary.
In turn legal and judicial systems influence the world external to them. Every nation in order
to survive and provide its people with a decent standard of living must successfully traverse
path of development. Legal development, it would be pertinent to note, forms integral part of
larger development process. As Amartya Sen perceptively points out “the notion of
development cannot be conceptually de-linked from legal and judicial arrangements. 3” Hence
it is inescapable that we in the first place apprise ourselves of the background and context of
the world in which we live, do our business, run our institutions and administer justice. This
is not necessary for understanding the proper significance of the subject only (which we
propose to study) but also for the prosperity of our country. Hence the need for studying the
subject of this paper from a contextual perspective.

III. PRINCIPAL CONTEXTUAL PARAMETER – PHENOMENON OF

GLOBALIZATION
The principal contextual parameter of the contemporary world is globalization which
is really the defining attribute of our times. It refers to multidimensional processes that
“create, multiply, stretch and intensify world interdependencies and exchanges.4” Simply put,
globalization is the process of increasing integration among societies and economies.
Centripetal impulses have received strong impetus from, inter alia, reduced costs of
transport, lower trade barriers, faster communication of ideas, rising capital flows, and
intensifying pressure for migration5. As a matter of fact a highly interdependent world is no
longer an elegant phrase but has become a reality. A Canadian statesman put it very well:
“As sovereign nations in our modern world, we are not merely independent but also
interdependent”6.
Whether it is economy, politics, legislature, executive, judiciary or other walks of life,
globalization touches all areas. It indeed creates parameters for action and determines the
context within which both developed and developing countries must function in the world at
3
A. Sen, What is the Role of Legal And Judicial Reform in the Development Process? Paper read at The World
Bank Legal Conference, Washington , DC. June 5, (2000)
4
4 Adapted from M. Steger “Globalization – A very short note” at 13, (2003)
5
5 World Bank Group, Globalization, Growth and Poverty, 2000
4 Adapted from M. Steger “Globalization – A very, Building An Inclusion World Economy I (2002)
6
6 S. Harper, Joint Press Availability at Fairmont Le Chateau Montebello, Montebello, Canada August 21, 2007
available at http://www.whitehouse.gov/news/relases/2007 /08/20070821-3.html.
Also see J. Paul, The Myth of Economic Interdependence, Waseda Proceedings of Comparative Law, at 294,
Vol.11 (2008)

2
this point in time. The legal and judicial institutions are also fully amenable to the impact of
this phenomenon like any other societal activity: The globalization of law is based on the
globalization of business and trade. The increase in the volume of international law, the use
of comparative analysis, the creation of inter-governmental legal institutions, and the
development of private international law, are unprecedented in modern history. The
emergence of these factors may be attributed to the growing interdependence of the states in
the economic, political and social spheres7….. Economic globalization has increased the
volume of global litigation, the degree of deference to foreign courts, judicial dialogue, and
detailed treatments of foreign materials.8
Globalization, however, is a complex phenomenon. It is simultaneously praised and
denounced. There is, nevertheless, agreement on one point that globalization is a powerful
and mighty force. The option today, therefore, for developing countries including Pakistan is
not whether they should embrace globalization; rather, it is how to manage the process,
respond to challenges posed by this mighty force, and drive optimum benefit form the
immense opportunities offered by it9.

IV. CONCEPTUAL CONTOURS OF CONTRACTS

The foundation of the market economy is certain central concepts including legal
acceptance of property and system of economic exchanges. The latter can not efficiently
function until contracts could be freely made and effectively enforced.10
A contract has been defined by Trietel as “an agreement giving rise to obligations
which are enforced or recognized by law”. The sanctity of contracts is ensured by the
instrument of law which means ultimately by judicial or arbitral agencies. Similar is the
definition by Pollack “Every agreement and promise enforceable at law is a contract11”. The
concept of contract set out above has been duly enshrined in Pakistan’s law i.e. the Contract
Act 1872 which provides, among others, rules governing commercial and investment
transactions12:
Certain issues peculiar to transnational contracts
relate to evidence and procedure in case of foreign contracts. In

7
J. Reitz, The Convergence Theory and Political Economy as a Barrier to Globalization, 2001.
Also see Law & Globalization available at http:/www.google.com last visited 7th August, 2009
8
Id
9
See I.Haque & R.Burdessu, Monterrey Consensus on Financing for Development: Response Sought from
International Economic Law, Boston College Int’l and Comparative Law Review, at 228 (2004)
10
A. Sen, Supra note 3.
11
K. Cheema, Business Law, at 1 (2009)

12
12 Id
3
 Pakistan, the tradition of the common law system has been
followed which has adopted the principle of lex fori (i.e. the law
of the forum or of the jurisdiction where the case is pending).
The lex fori thus determines and governs how far the foreign law
is to be recognized in litigation before Pakistani Courts. The
principle is that: the foreign law will apply so far it is not
inconsistent with the law of the place where the action is
brought: the contract made in a foreign country must be valid
according to the law of that country and must satisfy all the
formal requirements of that law. A contract which is unlawful by
the law prevalent in the country where action is brought but valid
where it is made and where it is to be performed will not be
treated as invalid by Courts unless it is penalized or prohibited
by Statute or contemplates some gross violation of the moral law
which the law of no country would sanction13.

V. MAJOR MANIFESTATIONS OF GLOBALIZATION

Globalization manifests itself in a variety of ways and affects many aspects of our
existence. For the purpose of this paper however, we propose to confine ourselves to two
major facets embodying the manifestation of this phenomenon – namely international trade
and foreign investments/private capital flows.

1. Trade
The term international trade or transnational trade (hereinafter called “trade”)
conventionally refers to exchange of goods and services across international borders. The
importance of trade has become all the more important with the integration of economies of
developing countries with the world trading system. It has immensely contributed to the
development of nations by significantly increasing their gross domestic product (GDP)14. It
has indeed served as a platform for "globalization"15:

1313
K.B. Abbas, “The Contract Act” at i (2008)
14
Gross Domestic Product means that total market value of all final goods and services produced in a country in
a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the
value of imports. Available at http://www.investorwords.com/2153/GDP.html last visited on August 07, 2009.
15
Globalization is the defining attribute of our times. Societies and economies are becoming increasingly
integrated. Centripetal impulses have received string impetus from, inter alia, “reduced costs of transport, lower
trade barriers, faster communication of ideas, rising capital flows, and intensifying pressure for migration.” The
resulting integration is a highly complex process, affecting almost all aspects of our everyday lives. A highly
interdependent world is no longer an elegant phrase but has become a reality.

4
 In case of Pakistan “greater integration with the world economy
is reflected by the trade openness indicator, i.e. the trade to GDP
ratio. This has increased from 25.8% of GDP in 1999-2000 to
36% of GDP in 2007-2008. If services trade is included, the
increase is higher at 42% of GDP in 2007-2008 from 28% of
GDP in 1999-2000 reflecting greater degree of openness.16

Changes that took place in the foreign trade of Pakistan and which also attest to its
growing importance are set out below:

Table 1 - Exports from and Imports to Pakistan

(US $ Million)
Year
Exports Imports Total
1980-1981 2,958 5,409 8,367
1990-2000 8,569 10,309 18,878
2000-2001 9,202 10,729 19,931
2007-2008 19,052 39,966 59,018
Sources: FBS & EA Wing, Finance Division

Trade among the nations is seen as an important contributor to economic growth,

peace and better standard of living.17 As no country is now an island unto itself it cannot
maintain an acceptable standard of living without an increasing volume of trade. In order to
fully meet the requirements of Pakistan’s growing population, there is no option but to import
goods and services from abroad in progressively increasingly quantities. To pay for these
imports Pakistan has to export goods/services or borrow in foreign exchange (from abroad).
Judged in the proper perspective the contribution of international trade to the welfare of
people is an undeniable reality. As aptly stated the end of economic activity is consumption;
production is only a means to that end:
A policy of production for the sake of production or of employment for
the sake of employment ignores the fundamental reason for
economic activity, which in ultimate analysis is the well being of
a nation’s people18? All the stake holders would gain if the flow of
trade is smooth and expanding. Any factor, like for example

16
Government of Pakistan, Economic Survey 2008-09, at 119 (2009). Available at:
http://www.finance.gov.pk/finance_economic_survey.aspx visited on August 16, 2009.
17
I. Carr “International Trade Law” at 1xxxvii (2005)
18
M. Pryles, etal “International Trade Law” at 10 (1996)

5
 sanctity of contracts that is necessary for unimpeded and
increasing trade flows should be, therefore, promoted.

Pakistan has never been an autarky, cut off form the world but its trade structure has
undergone a change with the passage of time. It is no longer an exporter of primary
commodities. Its industries both import substituting and export promoting require imported
inputs in substantial quantities, hence creditability of Pakistan, as an importer having a
reliable and developed system of courts that protects sanctity of contract is important. Lack of
credibility would add to transaction costs such as costs of L/Cs and financing. Besides this, a
country with a flawed legal system adds to the risk premium and foreign traders would tend
to charge higher profits from their Pakistani counterparts. In short, the cost of sourcing
imports would be much higher if we fail to ensure the sanctity of foreign purchase contracts.
The sanctity of contract is of even greater importance in case of our exports - i.e. foreign sale
contracts as our lapses in this regard, will result in the loss of export markets.
In sum, international trade flourishes only when, there is a legal system ensuring
sanctity of contracts because the legal framework which affects the rights and the obligations of the
parties needs to be clear and predictable. Lack of legal certainty about the enforcement of contract
thus acts as a barrier to trade. Among other things parties to the contract would like to be sure about
the nature and the extent of the obligations they undertake and the remedies available to them should
they breach the contractual terms. Given the plurality of legal systems and the variation in liability
schemes, harmonization through strong court system is the best option in the context of international
commercial transactions”.19

2. Foreign Investments / Foreign Private Capital Flows

Investments in a country, to a large extent, determine the rate of economic growth.
Investments, in turn are, a function of savings. The contribution of national savings to the
domestic investment is indirectly the mirror image of foreign savings required to meet the
total investment demand of a country. In other words the requirement for foreign savings
needed to fill up the saving-investment gap can be gauged from the current account deficit in
the balance of payments. In Pakistan’s case national savings at 13.5% of GDP in 2007-08 is
the lowest ever level since 1999-2000 and has financed 61.5% only of fixed investment in
2007-08 leaving a balance of 48.5% for financing by foreign savings. This reveals the extent
of a huge gap, dependant on financing from foreign sources.20

19
See I. Carr, supra note 17.
20
Economic Survey of Pakistan, 2008-09 supra note 16.

6
 Foreign financing sources include foreign direct investment (FDI) that has emerged as
an important source of private external flows for Pakistan just as the case in many other
developing countries. Understandably, countries prefer to bridge their widening savings-
investment gaps through this non-debt creating inflows. During the last two decades
developing countries including Pakistan, have therefore, liberalized their FDI regimes and
pursued investment-friendly economic and other national policies to attract investment to
maximize the benefits of foreign presence in the host economy. Thus given the proven
positive contribution of FDI to higher economic growth the case for sustaining and increasing
it has been established21.
It would be instructive to glance at the figures of foreign investment inflows set forth
below:

Table 2 -Foreign Investment Inflows in Pakistan22 (US$ Million)

Private
Greenfield Privatization
Year Total FDI Portfolio
Investment Proceeds
Investment

2001-02 357 128 485 -10

2005-06 1,981 1,540 3,521.00 351

2006-07 4,873.20 266 5,139.60 1,820

2007-08 5,019.60 133.2 5,152.80 19.3

Source - Board of Investment Pakistan

Note: Pakistan’s Fiscal Year runs from 1st July till 30th June.

The overall foreign investment during the first ten months (July-April) of the fiscal
year 2008-09 declined by 42.7 percent and stood at $ 2.2 billion compared to $3.9 billion in
the correspond period of 2007-08 year23.
Pakistan needs far greater capital inflows than what it has been getting. It still lags
well behind investment destinations in the developing world mainly on account of
deficiencies in its investment environment. Its private foreign direct investment levels
represent about 1% of GDP, which is quite low relative to the developing world average of
3.7% of GDP. Further more, while the business policy environment has only a limited
number of large problems it suffers from a significant number of small irritants, leaving it at
risk from political, geopolitical, and economic shocks24. Inflow of foreign investment has

21
Id at 12-13.
22
Board of Investment, available at http://www.pakboi.gov.pk/forign-invest.htm last visited on August 10, 2009
23
Economic Survey of Pakistan 2008-09 supra note 16 at 15-16.
24
Pakistan: Review of Administrative Barriers, Executive Summary, paragraph 3, at xvii.

7
remained subdued in emerging markets in FY 08, however, the case of Pakistan was much
more acute because the political economy experienced many headwinds at continuous
intervals.

3. Special Importance of Investment in Infrastructure

Development and proper maintenance of public infrastructure is indeed a key to
sustainable economic growth and development. The infrastructure-economic growth nexus
indicates a clear need for increased efforts by developing countries to ensure improved access
and quality of services. With a multiplying population and a rapidly industrializing economy,
Pakistan faces a colossal challenge in this regard. However there is acute shortage of
resources at the disposal of both federal and provincial governments”. Limited fiscal space
and gaps in public sector capacity to undertake infrastructure projects plainly call for private
sector collaboration, with the government to fill up these critical deficiencies. It has become
indeed imperative to find innovative methods to bridge this gap. One such method is that of
Public-Private Partnership (PPP). This term describes a range of possible relationships among
public and private entities in the context of infrastructure and other services. PPP initiatives
are being taken in Pakistan by the federal, provincial and city governments to attract private
participation in infrastructure projects.25

VI. COMMON CHALLENGES TO SANCTITY OF CONTRACTS – FACTORS

RESUSLTING IN DEVIATIONS FROM THE SANCTITY OF CONTRACTS

Structural Weaknesses of Systems

Experience world over has revealed that a multitude of factors have a bearing on the
sanctity of transnational contracts. These tend to result in deviations or incline parties to
deviate form the contractual terms and conditions despite the fact that those were agreed
consciously and solemnly. Challenges to the sanctity of contracts emanate from various
sources including business practices, standard of business ethics, political systems,
legislature, governmental authorities and judicial institution (including the fact of congestion
in courts).
Besides the above factors, special problem arise in cases involving issues of choice of
law, choice of forum, plea of forum non-convenience, public policy and the prevalent judicial

25
Pakistan Infrastructure Investment Conference, Concept Note, at 1, para 1, May 11-13 2008, Islamabad,
Pakistan.

8
thinking in respect of foreign jurisdiction particularly arbitrability of international
commercial disputes.

Delay in Disposal of Cases

Delay in administration of justice definitely contributes to ineffective enforcement of
contracts. The problem of delay is neither new nor unique. Even the most highly developed
countries with advanced legal systems suffer from this problem. If securing redressal of one’s
contractual grievances is extremely difficult in practice, the purpose of putting any provision
to safeguard one’s interest in a legal document is assuredly defeated. As the old dictum goes
“Justice delayed is justice denied”. The sanctity of contracts, needless to emphasize, in such a
situation does not rally exist.

The views and findings of experts on law and economics in developing countries are worth
repeating here:

The belief is growing that the judicial sector in

developing countries is ill-prepared to foster private
sector development within a market system.
Research has revealed that in several developing
countries a large number of court users are “not
much inclined” to bring commercial disputes to
courts. The enhancement of the capability of the
courts to satisfy the people’s demands for justice
particularly in such cases a challenging and
important aspect of judicial reform in developing
countries.26

There is a clear nexus between the level and the pace of foreign investments and the
quality of judicial system. Chief Justice Iftikhar Muhammad Chaudhry highlighted this fact
as a far back as 2005:

26
E. Buscaglia and W Ratliff “Law and Economics in Developing Countries” at 55 (2000)

9
 Existence of courts and their independent functioning
not only gives a sense of security to citizens but also
provides protection to foreign investors.27

Serious efforts are being made to strengthen the judicial system in Pakistan and inter
alia, to make effective the supervision of court management by the apex court. The recently
announced National Judicial Policy 2009 aims at ensuring speedy dispensation of justice. It
has been stated in the policy document:

The policy is an attempt to streamline the judicial

system in the country and make it responsive to
the present-day requirements of society. The
objective is to clear the huge backlog that has
accumulated over the years at all level of judicial
hierarchy…….28. The thrust of the policy is to
consolidate and strengthen the independence of
judiciary, thereby enabling the judicial organ to
exercise institutional and administrative
independence and judges to have decisional
independence to decide cases fairly and
impartially.29

The policy has further provided that:

Certain categories of cases, having close nexus

with economic development and good governance,
have been prioritized including disputes pertaining
to trade, commerce and investment.30

27
Foreign Investment and Rule of Law, Business Recorder, September 21, 2005

28
See National Judicial Policy at 7 (2009) available at http://www.google.com.pk last visited on July 30, 2009

29
See Supra note 23, at 9
30
Sec Supra note 23, at 10

10
Nationalism
Nationalistic sentiments in host countries can create at times problems with foreign
investments. This can be particularly so when the host economy is experiencing economic or
political stress. Prosperous foreign investors in such a milieu are perceived to be exercising
excessive control over the economy. Repatriation of profits – contractually agreed, can
become easy targets of xenophobic nationalism.31 As pointed out by respected scholars of
international trade law:

Foreign investors become ready targets for

opportunistic politicians who may see advantage in
such a situation to bring about a change of
government. It is also easy to deliver the promise
of taking over or divesting ownership of established
foreign-owned plants. It is a popular measure
which would cause immediate appeasement of
nationalistic forces.32

The Pyramid Arbitration Case from Egypt illustrates the manner in which nationalistic
feelings may engineer a foreign investment dispute. The government of President Sadat relaxed rules
on the admission of foreign investments in Egypt. One foreign enterprise viz Southern Properties
Private Limited (SPP) entered into an agreement with the Egyptian Government Tourist Corporation
to build a tourist complex near the pyramids. The company had commenced building when an outcry
arose about the building of such a project so close to a historical monument. The mater was raised in
Parliament frequently. After the assassination of President Sadat, the incoming government found it
prudent to stop the construction of the complex. The dispute resulted in protracted arbitration
proceedings before several tribunals. The arbitration gave rise to litigation concerning the
enforcement of awards in several states”.33 The confidence of foreign investors as a consequence
suffered considerably and took many years to gather momentum again.

Contracts Made by Previous Regimes

Threat to sanctity of contracts also arises frequently when there are unstable regimes
(this problem has been arising only in developing countries). At times when the change of a
regime takes place the incoming government may wish to change the contracts made with

31
R. H Folsom et al “International Business Transactions” 906-907 (1999)
32
Id
33
Pakistan took special care in the era of nationalization under President Zufikar Ali Bhutto not to nationalize
foreign investment except in case of one life insurance company (Namely American Life).

11
foreign investors by the previous governments. This often happens, particularly, where
allegations of corruption were leveled in the making of the contracts or where the legitimacy
of the previous government had been doubted by the incoming government. The moral is that
a foreign investor making an investment under a contract with an unrepresentative regime
does so at its own peril because the new government may claim a right to rescind such
contracts.34 Likewise, contracts made with military regimes are also suffused with risks as
the incoming democratic regime may declare that it is not bound by them:

The extent to which democracy and self-

determination are normative factors affecting even
the exercise of power of governments in the
conclusion of contracts is yet to be worked out in
international law…. But, as far as risk analysis is
concerned, the entry of foreign investment on the
basis of contracts made with unrepresentative
governments or through corruption increases the
risk to the foreign investment…. The foreign
investor who deals with unrepresentative
governments increases the risks to his investments
considerably35.

In Pakistan after the ouster of a government that had entered into contracts in PPP
format, with Independent Power Producers (IPPs) the incoming government started a review
of those contracts, generating a lot of uncertainty in energy sector and creating an unenviable
situation from the perspective of sanctity of contracts. (This subject has been further dealt
with elsewhere in the article.)

Onerous Contracts
Challenges to contractual sanctity also arise if these contracts are inherently of
onerous-nature. In such cases performance may become onerous due to subsequent
developments. In such circumstances, governments of host countries may seek to reduce the
loss if the contract is implemented as originally agreed. The host countries tend to use
legislative instruments to interfere with the contract. A good illustration would be the case of
Settebello Ltd. v. Banco Totta Acores, where a state-owned shipyard in Portugal had
34
R. H Folsom et al, supra note 29, at 908.
35
Id.

12
contracted to build an oil tanker. There were penalty provisions in the agreement for the late
performance. Being behind schedule it was in the danger of having to make large payments
for its default. The Portuguese government intervened through legislation and altered the
penalty provisions of the contract. The other party found that it could not have any remedies
against this change both within and outside Portugal. The sanctity of the contract was
violated with impurity which saved the shipyard from penalty payments but it affected the
credibility of the government of Portugal in the eyes of foreign investors.36

Public Policy - A Common Source of Challenges to Sanctity of Contracts

Courts all over the world in some cases have been letting parties to escape from the
contractual obligations on the ground that the agreements made by them (through freely and
willingly) were unlawful being opposed to public policy. The implication of the concept in its
broadest sense is that considerations of public interest may require the courts to depart from
their primary function and refuse to enforce a contract37.

English Courts’ Views on Public Policy

In the English law a contract is struck down if a court holds it to be opposed to the
public policy. However, in this regard, there are fairly well established parameters. For
example a contract of marriage brokerage, the creation of perpetuity, a contract in restraint of
trade, a gaming or wagering, or assisting of the enemies, are all unlawful ” on the ground of
public policy.38 Courts are required to rely on the well settled heads of public policy and to
apply those to varying situations.39 If a contract fits into one or the other of these pigeon-
holes, it may be declared void.40 The court is, however, allowed to mould the well-settled
categories of public policy to suit new conditions of changing world. 41 But can a court invent
a new head or category of public policy? According to Lord Halsbury the categories of public
policy are closed42 “I deny”, he said, “that any court can invent a new public policy”:

From time to time judges of the highest reputation

have uttered warning notes as to the danger of

36
R. H Folsom et al, supra note 29, at 908-909.
37
See generally Lord Wright, LEGAL ESSAYS AND ADDRESSES; Winfield Public Policy in the English
Com noun law, 42Har LR76-102 (1928).
38
See Lord Wright in Fender vs. St John Mildmay, AC1, at 38 (1938)
39
Earl of Halsbury LC in Jason vs. Driefontein consolidated mines Ltd (1902) AC484.
40
See Subba Rao J(as he than was) in Gherulal vs. Mahadeodas; (1959) 2SCA369.
41
Ashquith J views in Monkland vs. Jack Barclay Ltd. (1951) All ER 714,723.
42
Lord Wright views in fender vs. John Mildmay,(1938) AC 1 723

13
 permitting judicial tribunals to roam unchecked in
this field.43 A judge criticizing public policy in an
early case said, it is a very unruly horse and once
you get astride it you never know where it will carry
you.44

Another opinion in a similar vein may be cited. “Public Policy is a vague and
unsatisfactory term.”45 The remarks of Parker J in the case of Egerton vs. Brownlow are also
worth referring to:

Certain contracts have been held void at common

law on this ground --- a branch of the law however
which certainly should not be extended, as judges
are more to be trusted as interpreters of the law
than as expounders of what is called public
policy.”46 Another judge observed that “Public
policy is always an unsafe and treacherous ground
for legal decisions, and in the present case it would
not be easy to say on which side the balance of
convenience would incline.47
Yet the principle of public policy rendering a contract
void holds ground if parameter of rules is fully
respected and strictly construed. But as observed by
Lord ATKIN, “The doctrine should only be invoked in
clear cases in which the harm to the public is
substantially incontestable and does not depend upon
the idiosyncratic inference of a few judicial minds.48”

Indian Courts’ Views on Public Policy

The Indian Courts mostly adopted the English view. An important case is that of
Gheru Lal vs. Mahado Das,49 where the court held:

43
See Parke B views in Egerton vs. Brownlow, (1853 )4HLC1 123:10 ER 359, 408
44
Lord Atkin views in Fender vs. john Mildmay,( 1938) AC1
45
Borrough J views in Richardson vs. Mellish, (1824) 2 Bing 229,252
46
Parke B. views in Egerton vs. Brownlow (1853) 4HLC 1,123.
47
Lord Davy views in Janson vs. Driefontein Consolidated Mines, (1902) AC 484, 500.
48
In Fender vs. St. John Mildmay, (1938) AC1
49
AIR 1959 SC 781 : (1959) 2 SCA 342, 370

14
 Public Policy or the policy of the law is an illusive
concept. It has been described as an
“untrustworthy guide” of, “variable quality” and an
“untruly horse. The doctrine of public policy
embraces not only harmful cases but also
harmful tendencies.50

Highlighting the fact that public policy principles are derived form precedents, the
following observations were regarded persuasive:

These principles have been crystallized under

different heads and though it is permissible for
courts to expound and apply them to different
situations. It should only be invoked in clear and
incontestable cases of harm to the public through
heads are not closed and though theoretically it
may be permissible to evolve a new head under
exceptional circumstances of a changing world, it is
advisable in the interest of stability of society not to
make any attempt to discover new heads in these
days”51.

In another case an Indian Court reminds us that:

The twin touchstones of public policy are

advancement of the public good and prevention of
public mischief and these questions have to be
decided by judges not as men of legal learning but
as experienced and enlightened members of the
community representing the highest common
factor of public sentiment and intelligence.52

50
Dr. A. Singh, Law of Contract, at 214 (….).
51
Cave J Mirams, Re (1891) 1 QB 594,595 JESSEL MR IN printing and numerical registering Ca v. Sampson
(1875) LR 19 Eq 462,465.
52
Ratanchand Hirachand vs. Askar Nawaz Jung, AIR 1976 AP 112.

15
The Policy of Law / Public Policy in Pakistan
The provision of law adopting the principle of public policy in Pakistan is enshrined
in section 23 of the Pakistani Contract Act 1872 which, inter alia, provides:

The consideration or object of an agreement is lawful,

unless – it is forbidden by law; or
………………………………………………………………………
………………………………………………………….…………..
The Court regards it as immoral, or opposed to public
policy.

In interpreting the term ‘public policy’ Pakistani courts have been also, by and large
following English courts. In Manzoor Hussain and Others vs. Wali Muhammad and Abdul
Shakur53, the Supreme Court observed:
It is now well-settled that the provisions of section
23 of the Contract Act have to be construed strictly
and the Courts should not invent new categories or
new heads of public policy in order to invalidate a
contract.

In the case of the Lloyds Bank Ltd. Karachi,54 the Supreme Court observed that the
duty of the Court is to expound and not to expand public policy and the doctrine of public
policy should be invoked only in clear cases, in which the harm to the public is substantial
and does not depend upon the idiosyncratic inferences of a few judicial minds.
In case of Sultan Textile Mills Karachi Ltd. vs. Muhammad Yousaf Shamsi, 55 the court noted
that the problem of illegality at common law on the ground of public policy is the discovery
of injuriousness to society. This concept has elasticity as well as impreciseness. The court
referred to well known treaties on contract law which highlighted:

The crux of the matter being injuriousness to

society. It should be found as a fact to exist in each
case. Referring to the judgments of Sir Lawrence
Jenkins, C.J. and Justice Batty it was stated that the
courts declined in Govind Subrao v. F.S. Facheco
53
Manzoor Hussain and Others vs. Wali Muhammad and Abdul Shakur, PLD 1965 SC 425.
54
PLD 1969 SC 301
55
PLD 1972 Karachi 226

16
 and others (1), to hold a transaction as illegal in
spite of the fact that it conditionally prohibited
subletting of a license on the ground that it was not
shown to be illegal at its inception.
Secondly, even though the contract is one which,
prima facie, falls under one of the recognized heads of
public policy, it will not be held illegal unless its
harmful qualities are indisputable…. Doctrine as Lord
Atkin observed…..In popular language….The contact
should be given the benefit of the doubt.

HUBCO’s CASE
The issue of Public Policy again came up in the well known case of the Hub Power
Company (HUBCO) vs. WAPDA case56. The Supreme Court by a majority held that in view
of the fact, that the allegations of corruption leveled by the WAPDA, supported by
circumstances, provided prima facie basis for further probe into the matter judicially, the case
was not referable to arbitration. Such matters, the court held, according to the public policy
required judicial findings about the alleged criminality. It thus arrived at the findings that the
disputes between the parties were not commercial disputes, arising from an undisputed
legally valid contract, or relatable to such a contract. On account of the alleged criminal acts
there did not come into existence any legally binding contract between the parties. The
dispute primarily related to the very existence of a valid contract and not a dispute under such
a contract. Hence, the Supreme Court upheld the injunction granted by the High Court of
Sindh against proceeding with arbitration before the International Chamber of Commerce.
The minority view was that: the Power Purchasing Agreement (PPA) was valid and
the arbitration agreement contained in it is certainly not contrary to public policy. A
subsequent amendment which, it is alleged, was procured by fraud, cannot, on any analysis
taint the PPA itself. In short, it is totally unclear how a valid contract can itself become
contrary to public policy because of an allegation that a later amendment was the product of
an illegal act.
While referring to the public policy the dissenting judges quoted with approval
various judgments of both the English and Pakistani courts57 and observed that consideration

56
HUBCO vs. WAPDA, PLD 2000, SC 841
57
Richardson v. Mellish (1824) 2 Bing 229, CBI NZ Ltd. vs. Badger Chiyoda (1989) 2 NZLR 669, at 676,
Manzoor Hussain v. Wali Muhammad (1965 SC 425), Dawood Corporation Ltd. V. Jasian Jasimina and others
(1988 MLD 987), Sultan Textile Mills (Karachi) Ltd. V. Muhammad Yousuf Shamsi (PLD 1972 Kar. 226).

17
of public policy can never be exhaustively defined, but they should be approached with
extreme caution.
The crux of these judgments referred to by the dissenting judges was that the courts
should be cautious before striking down contracts in the name of public policy.

ECKHARDT’s CASE
Another important case is that of ECKHARDT & Co, Marine vs. Muhammad Hanif58,
where the petition for stay of a suit as contemplated under Section 34 the Arbitration Act was
dismissed by the lower courts. The Supreme Court unanimously dismissed the appeal on the
ground that exercise of discretion by the lower courts could not be said to be perverse,
arbitrary or capricious. Further, it was held that in the circumstance of the case, taking of
evidence to London would be inconvenient and expensive.
Mr. Justice Ajmal Mian while agreeing with the conclusion of other judges thought it
fit to add his remarks which are indeed insightful:

Section 34 of the Arbitration while dealing with an

application in relation to a foreign arbitration clause
the Court’s approach should be dynamic. With the
development and growth of International Trade and
Commerce and due to modernization of
communication transport system in the world, the
contracts containing such an arbitration clause are
very common now a day. The rule that the Court
should not lightly release the parties from their
bargains that follows form the sanctity which the
Court attaches to contracts must be applied with
more vigor to the contract containing a foreign
arbitration clause. We should not over look the fact
that any breach of a terms of such a contract to
which a foreign company or person is a party, will
tarnish the image of Pakistan in the comity of
nations.

The principles of law which has been expounded by Mr. Justice Ajmal Mian are
worth following in the present day world. His observations show the sensitivity to the reality

58
PLD 1993 SC 42

18
of the globalized world where sanctity of contracts has come to assume a new importance. It
is respectfully submitted that a judgment on these lines instead of based on the technical
considerations as to exercise of discretion by subordinate courts and (effectively influenced
by) the doctrine of forum non-convenience, would have been more appropriate in the larger
interest of the country. One would also respectfully submit that perhaps Mr. Justice Ajmal
Mian could have clearly dissented from the judgement instead of upholding the decision of
the lower court.

VII. CONTEMPORARY JUDICIAL APPROACHES TO ISSUE OF SANCTITY OF

CONTRACTS

English Courts
The approach of English law had been moulded to a considerable extent by it’s
largely laissez faire attitude to contracts in the domestic law. The 19th century position59 can
be summed up by quoting Jessel MR in Printing and Numerical Registering Co. v Sampson:60

If there is one thing more than another which public

policy requires, it is that men of full age and
competent understanding shall have the outmost
liberty in contracting, and that their contracts,
when entered into freely and voluntarily, shall be
held sacred and shall be enforced by courts of
justice.61

Thus the juristic model of contracts in the domestic context was that of an agreement
freely negotiated between economic equals and the underlying the concept was that
agreements must be honored. However, noticeable changes took place in the 20th century
because of palpable imbalances in bargaining power in areas such as housing62 employment63

59
For the relationship between 19th century political philosophy and the law of contract, see Atiyah, The rise
and fall of freedom of contract (1979)
60
J. Brien, Smith’s Conflict of Laws, at 307 (1999).
61
Printing and Numerical Registering Co. v Sampson (1875) LR19 Eq 462, p465. George Jessel had himself
served as a liberal MP and solicitor General in the first administration of WE Gladstone (1868-74)
62
See the housing of the working classes act 1890, leading to the increase of rent and Mortgage interest (War
Restrictions) Act 1915 and the volume of legislation that subsequently followed, culminating in the rent act
1977.
63
See the workmen’s compensation Acts 1897, 1906; Coal Mines Regulation Act 1908; trade boards Act
1909;however, the subject was only to expand in the post-war period, with the contracts of Employments Act
1963 and the Redundancy Payments Act 1965.

19
and consumer contracts64 that warranted correction by the state. Though, the business
contracts are not closely regulated and autonomy of parties has remained the rule.
For a long time, however, the English Courts were not inclined to trust the foreign
dispute resolution forums. As an eminent scholar puts it:
There can be little doubt that in the nineteenth century, there was
an assumption that the justice available in the King’s courts was
superior to that in the less fortunate lands”. Indeed, sometimes
judges were not slow to say so, for example, Shadwell VC
observed that “I consider that in the contemplation of the court
of Chancery every foreign court is an inferior court65.

One of the land mark cases making a point of departure was that of Atlantic Star. The
facts of the case were as follows: the Atlantic Star, a Dutch Container Vessel, was involved in
a collision in Belgian internal waters in which two barges were sunk. In consequence, several
actions were begun in Belgium. An owner of a Dutch barge began Admiralty proceedings in
rem in England. The owner of the Atlantic Star applied to have the proceedings stayed. The
majority in the House of Lords felt that it should be acknowledged that an equivalent level
of justice might be obtainable in other jurisdictions. Lord Reid observed “It was time to
develop the common law and render it less reminiscent of the good old days, the passing of
which many may regret, when the inhabitants of this island felt an innate superiority over
those unfortunate enough to belong to other races”.66

U.S. Courts
The U.S Courts’ attitude towards the foreign jurisdiction was initially unfavorable and
the choice of forum in favor of foreign jurisdictions was not generally found acceptable67.
This perspective underwent a qualitative change when the US Supreme Court honored the
forum selection clause in M/S Bremen vs. Zapata Off-Shore Company’s case68. The Court
held that the Court of Appeal had given too little weight to the choice of the forum clause (in
this case, the courts of England).

64
Although the courts had tried to restrict the scope of exclusion clauses priors to 1945, the central division
between consumer contracts and commercial contracts was given effect to in the Supply of Goods (Implied
Terms) Act 1973.
65
Bent vs. Young (1838) 9 Sim 180, at 191.
66
Smith’s Conflict of Laws, supra note 57 at 201.
67
Carbon Black Export Inc. vs. The Monrosa 254 F 2d 297 (CAS 1958); cert dismissed, 359 US 180; 79 S Ct
710; 3 L Ed 2d 723 (1959).
68
407 U.S. 1 (1972) M/S Bremen vs. Zapata Off-Shore Company

20
 The Supreme Court took note of the fact that overseas commercial
activities by the American enterprises had greatly expanded. The barrier
of distance that once tended to confine a business concern to a modest
territory no longer does so…. The expansion of American business and
industry will hardly be encouraged if, notwithstanding solemn
contracts, we insist on the parochial concept that all disputes must be
resolved under our laws and in our courts….We cannot have trade and
commerce in world market and international water exclusively on our
terms, governed by our laws and resolved in our courts….The argument
that such clauses are improper because they tend to “oust” a court of
jurisdiction is hardly more than a vestigial fiction. It appears to a rest at
core on historical judicial resistance to any attempt to reduce the power
and business of a particular court.…. When businesses once essentially
local now operate in world markets, it reflects something of a provincial
attitude regarding the fairness of other tribunals. The threshold question
[in regard to issue of ouster of jurisdiction] is whether that the court
should have exercised its jurisdiction to do more than give effect to the
legitimate expectations of the parties manifested in their freely
negotiated agreements, by specifically enforcing the forum clause.
There are compelling reasons why a freely negotiated private
international agreement, unaffected by fraud, undue influence, or
overweening bargaining power, such as that involved here, should be
given full effect.69

Indian Courts
The Supreme Court of India held that the parties may, by agreement, select one of the
two competent Courts for the disposal of their disputes.70 Parties to a contract can choose
between one of several Courts having concurrent jurisdiction.71 A term in a contract between

69
See also C. Hotchkiss, “International Law For Business” at 153-154 (1994).
70
Shree Subhalaxmi Fabrics (P) Ltd. vs. Chand Mal Baradia, (2005) 10 SCC 704; Continental Drug Co, Ltd. vs.
Chemolds and Industries Ltd. AIR 1955 Cal 161 (DB); Ram Bahadur Thakur and Co.vs.Devidayal (Sales) Ltd,
AIR 1954 Bom 176 (DB); Hoosen Kasam Dada (India) Ltd. vs. Motilal Padampat Sugar Mills Co. Ltd, AIR
1954 Mad 845 (DB); National Petroleum Co. vs. F.X. Rebello, AIR 1935 Nag48; Kidri Prasad vs.K.R. Khosala,
AIR 1923 Lah 425 : 75 IC 590; Jagan Nath vs. Burma Oil Co., AIR 1929 Lah 605 :0119 IC 481.
71
Patel Roadways pvt. Ltd. Vs. Bada India Ltd,. AIR 1982 Cal 575 : (1982) 86 Cal WN 992 (DB); Bajrang
Electric Steel, Co. Pvt. Ltd. Vs. Commisioners for the Port of Calcutta, AIR 1957 Cal 240.

21
 A and B living in places at C and D respectively that all suits arising out of it should be filed
only in Court at D is not illegal.72
Where a clause in a contract stated that any legal action arising out of the contract
would be taken at C Court, though normally Courts at C and D would both have jurisdiction,
the effect of the agreement is to prevent the parties absolutely from filing the suit in Court at
D.73 where the parties to a contract agreed to submit the dispute arising from it to a particular
jurisdiction which would otherwise also be a proper jurisdiction under the law, their
agreement to the extent they agreed not to submit to other jurisdiction cannot be said to be
void as being against public policy74.

VIII. SANCTITY OF CONTRACTS IN PAKISTAN:

SPECIAL CASE OF PUBLIC PRIVATE CONTRACTS

While dealing with the subject of sanctity of contracts, it would be helpful if the type
of contacts that generated problems relating to contractual sanctity in Pakistan are given some
attention. These contacts are those falling within the classification of public-private
partnership (PPP) contracts particularly those relating to the Independent Power Producers
(IPPs).
The concept of sanctity of contracts under the Public-Private Partnership (PPP)
arrangements, including cases of Independent Power Producers (IPPs), given their inherent
long term nature, has acquired a special significance. There would be little chance of
attracting private sector to enter into PPP arrangements unless there is a certainty about
honouring of contractual commitments by parties (particularly by the public sector partners).
Contracts are long term in nature. On such time horizons many changes take place. PPP
contracts can work out only if contracts are dynamically and imaginatively conceived and are
insulated from challenges arising from time to time to their sanctity.
In Pakistan the track records these contracts has not been enviable. Several problems
have been encountered by foreign (private) parties in regard to contractual terms – mostly by
IPPs.

Case of Highway: There is also another PPP case relating to a highway project is highly
illustrative of problems faced by the private partners: A headline, some time ago appeared in

72
P.C. Markanda, The Law of Contract Act Vol. I at 602-603 (2008)
73
Cittaranjan Guha vs. Parul Rani Nanda, AIR 1946 Cal 112 : 50 CWN 281.
74
P.C. Markanda, supra note, 72 at 603.

22
a national daily “Bad contract challenging assembly writ.”75 This was about a PPP contract
under which Lahore Faisalabad Expressway had been constructed. The matter came under
strong criticism in the Punjab Legislative Assembly. The contract was concluded between
the Punjab Government on one hand and private sector parties and Frontier Works
Organization (FWO) on the other hand in 2003 for building this first ever PPP Highway in
the country on the BOT (build, operate and transfer) basis. A privilege motion was tabled in
the Assembly, questioning the “Constitutional status” of the contract. The offending clause
in the contract reportedly provided that “Punjab Government undertakes not to take any
action, administrative or legislative, affecting terms of the contract”76. The mover questioned
the constitutional status of the clause. In his view, thousand of users of the highway were
being over charged for use of the highway and he informed that a House Committee had
already pointed out loopholes in the contract which empowered the private partners to raise
toll tax annually and transfer the maintenance cost of the road to the Provincial Government.
The ouster of powers of the Assembly was not correct. However, action leading to re-fixing
toll rates by any authority would damage the contract. Hopefully the state authorities will
resolve the matter. The matter is still pending before the Privilege Committee of Punjab
Assembly and consequential uncertainty is proving discouraging to new investment under
PPP mode.

Case of IPPs: One important sector in which PPP projects have become popular is that of
energy. In this sector public-private partnership has assumed the form and nomenclature of
the Independent Power Producers (IPPs). An IPP is “an entity, which is not a public utility, but
which owns facilities to generate electric power for sale to utilities and end users”.77 In Pakistan,
IPPs accounts for about 30% of the total generation capacity. The electricity market was
opened to them in 1990. The Benazir Bhutto government signed a number of IPP contracts
under the 1994 Power Policy and in June 1996, Pakistan’s first private sector power plant, the
Hub Power Company (HUBCO) came into operation. Subsequently, fifteen IPPs achieved
commercial operations in record time.

In February, 1997, the Muslim League (N) won the elections and formed the
government which in 1998 started investigations into IPP contracts signed under the previous
regime. These investigations had serious repercussions on IPP mode of energy generation.
75
“Bad Contract Challenging Assembly Writ” Dawn Newspaper, Saturday February 07, 2009
76
Id.
77
Independent Power Producers (IPP) Rating Methodology, at 1 January 2009. Available at
http://www.pacra.com last visited on August 08, 2009.

23
The judgment in HUBCO’s case further aggravated the situation.78 This case greatly damaged
the confidence of investors. As a consequence there occurred a drought in the IPP
investments, with disastrous impact on the national economy of Pakistan (See table 3). For
several years afterwards, the IPP program remained stagnant. On the other hand no
investment in the public sector was made in keeping with the pro-private sector policy of the
government. IPP projects were revived only as a huge power shortage hit the country in
2006-07. As a result, after an interval of several years implementation agreements have been
signed with IPPs (both incumbents and new players) to contract about 2,500 MW of capacity
by 2009-2010 under second generation PPAs (those signed under Power Policy 2002). Out of
these, a majority of IPPs have already achieved financial close.79 A synoptic view as to the
status of IPPs is presented in the table below:
Table 3 – Status of IPPs
Status Years of Commissioning Number of IPPs
Commissioned 1997-2001 15
Commissioned 2002-2007 0
Commissioned 2007-2008 1
Expected 2009-2010 21*
Source: Private Power and Infrastructure Board, available at:http://ppib.gov.pk/CommissionedIPPs.htm
* Including rental plants.

IX. APPROACH OF PAKISTANI COURTS TO SANCTITY OF CONTRACTS

Pakistan has been a free market economy since its independence. The nationalization
in the Bhutto era did not alter its fundamental character. The legal framework for contractual
transactions - the Contract Act of 1872 - is based on principles of English Law. It respects the
autonomy of parties. Various judgments on public policy alluded to, in this paper show that
courts do not normally interfere with the lawful intentions of the parties to a contract. This
attitude, characterized by the self restraint and concern for contractual obligations, has been
applicable largely in case of domestic contracts. As regards transnational contracts providing
the choice of forum clause in favour of dispute resolution abroad there is still resistance.
Courts in Pakistan, like their counterparts elsewhere in the world (but in earlier eras), have
not been feeling comfortable with adjudication in foreign courts or arbitral forums. Arguably,

78
A. Siddiqui, IPPs: The Real Issues, The Pakistan Development Review 37 : 4 Part II (Winter 1998) pp. 37:4, at 812.

79
Id.

24
our courts still subconsciously echo reasoning and perspective of the British Courts in Pre-
Atlantic Star case era and that of the United States in Pre-Breman case period.
Mr. Justice Umar Ata Bandial has made a perceptive analysis regarding limitations on
arbitrability of international disputes under the Pakistani Law:

“For a long time international commercial

arbitration was treated with apprehension in
Pakistan. Efforts were made to avoid the contracted
mode of dispute resolution by approaching the
courts in violation of the arbitral remedy for
seeking relief on the substantive dispute.80

One wishes that the state of affairs depicted above is now really prevalent and judicial
resistance has become a “history”. This, in view of the authors is, more of a wish than a
reality on ground. Only dissenting judgments in Hubco and Eckhardt cases recognized the
manifest need of respecting the agreements of parties to refer disputes to the foreign
arbitration. The “visionary call”, (as Justice Bandial rightly calls it) by Mr. Justice Ajmal
Mian has not been effectively heeded to.
It seams that paradigm shift in the world economy bringing in its wake, the evident
importance of foreign investments and trade has not been fully registered. It was very much
possible in Hubco case for the majority of the Court to adopt a different view of public policy
and the issue of criminality. The minority opinion was backed by cogent reasons. Similarly
the majority could have embraced the more forward looking and appropriate view of Mr.
Justice Amjad Mian in Eckhardt case. Decisions of the majority in both Hubco and Eckhardt
cases may be unexceptional in the sense that they are consistent with a certain strand of the
existing principles of domestic law and private international law as adopted in Pakistan. The
point however, is that there is a clear need to make a departure from the existing approach so
that the benefit of doubt goes to the validity of terms of contract about the choice of forum
clauses unless there are manifestly compelling reasons for the contrary view. Dynamism
should be preferred to a relatively static approach.

X. CONCLUSIONS

80
See U. Bandial (Justice) “Limitations on Arbitrability of International Commercial Dispute under Pakistani
Law paper presented on the occasion of 59th Anniversary of the Establishment of Supreme Court.

25
 Globalization is fact of life. The process of integration has to be, therefore, addressed
in a dynamic manner keeping with the spirit of time. Attitudes and perspectives which proved
useful in earlier times and the way the challenges of life were met, will have to undergo
change if one desires to survive in the new world. Any nation that fails to live by new rules of
existence is liable to pay the penalty of being marginalized. Such an outcome would have
patently adverse implications for the welfare of the people. They will remain struck in
narrow grooves while other nations will keep on marching on the road to progress in a
globalized world.
Countries can reap the benefits of globalization, if among other things, they recognize
the importance of the sanctity of commercial and investment contracts, made between them
and their citizens on one hand and foreign countries and foreign nationals/entities on the
other.
Judicial institutions like other organs of states will have to keep in step with the dynamics of
emerging realities. Our judiciary is extremely enlightened and capable to realize the validity
of this proposition. However, at times other factors can become barriers to change. As it has
been pointed out by the Chief Justice Mr. Muhammad Iftikhar Chaudhry in his address to
Harvard Law School in 2008:

In Pakistan, both civilian as well as uniformed

autocrats have been influencing judicial decision-
making for the past six decades… Remember,
almost all of the Fortune 500 companies are a
product of economies where the law rules supreme.
At the same time, the poorest of the poor continue
to dwell in countries where men govern as opposed
to law. A government of laws stimulates economic
growth. A government of men impedes economic
growth81.

Hopefully, the judiciary of Pakistan that has recently gained independence will, inter
alia, strengthen the sanctity of contracts and help in bringing about a new era of prosperity.

81
Chief Justice Iftikhar Chaudhry’s Speech at Harvard Law School – November 19th, 2008

26
Schematic Representation of Jurisprudence of Sanctity of Contracts in Pakistan –A Contextual Perspective

Globalization
Outcome

Trade Investment

More investment, more trade

Sanctity of Contracts, inter alia, must be ensured to improve trade & investment.

Prosperity
Challenges to Sanctity of Contracts Responses

Judicial system, structural weaknesses Formulating strategy for more effective system

Judicial system, lack of independence Ensuring independence of Judiciary

Nationalism/ excessive patriotism

Change of judicial mind set

Contracts made by previous regimes Recognition of larger national interest/eschewing

old notions

Onerous contracts Need for caution

Public policy Pro-contractual compliance interpretation

27