“The law does not protect the fools!”. This remark was made by a judge during court proceedings I witnessed in 2010. The remark was directed at a litigant who had pleaded ignorance of the law as a defense. In the aggressive game of push and shove that plays out in a courtroom, it is all too common to see litigants make the most absurd claims to get off the hook.
But courts cannot be outflanked or cajoled by litigants into believing fables that are divorced from the issues at hand. Often always, those who try to outsmart courts are left red-faced.
Multiply this manifold when imagining an international court or a tribunal dealing with international disputes. International law is a complex web of rules. There are judges and arbitrators who, like surgeons trained to diagnose disease in the human body, are trained to get to the bottom of complex legal issues. However, unlike a doctor, the judge’s job is not to nurse the litigant back to health. That is the job of the lawyer.
And the lawyer’s job can get done well if a client is forward-looking who, when asked by the lawyer for facts, provides those facts. It is then the lawyer’s job to do a ‘horizon scanning’ and risk analysis of the potential legal minefields that the client ought to avoid stepping on.
Incompetence, recklessness, and corruption – a deadly cocktail
Now flip this over. If a lawyer is incompetent and the client is careless or clueless, this makes for a deadly cocktail. Throw in a generous portion of corruption and we have on our hands the makings of a legal pantomime.
The Broadsheet saga which has recently hit the headlines in Pakistan is a perfect example of the inglorious troika – incompetence, recklessness, and corruption – manifesting itself nationally and internationally and in the process establishing Pakistan as a state that does not honor its international contractual commitments.
Why call it a saga? First, it is not an event but a series of events. It is a sordid tale of the temerity of purpose but the depravity of skill. It is an incessant monologue of repeat blunders committed at the highest state level. It involves characters masquerading as well-wishers but who, in reality, are experts in the sinister Machiavellian craft.
There is an array of players and characters in this theatrical act: bureaucrats, diplomats, generals, lawyers, and businessmen – each having some role at some point in a varying degree. Far too many cooks have cooked an omelet that cannot be unscrambled. The eventual dire outcome is Pakistan getting penalized for USD 22 million by Sir Anthony Evans of the Chartered Institute of Arbitrators.
So, what do we have on our hands? First, some history.
This all started in 2000 when the President of Pakistan (then General Pervez Musharraf) through the Chairman NAB, entered into an Asset Recovery Agreement or “ARA” with a shell company called “Broadsheet LLC” or “BS” (BS, also short for ‘bullshit’, is perhaps a fitting abbreviation of the company’s name).
BS was incorporated in the Isle of Man with a share capital of British Sterling 200 (yes, you read that right!). Interestingly, BS was incorporated only two months prior by one Mr. Jimmy James.
Another character, Dr. Pepper, a lawyer by profession, was a part of the deal and discussions at different times and at a later stage, a new character Mr. Moussawi emerged to take over the reins of BS’s claims against NAB. The relations between these individuals at different points of time were not exactly friendly.
Overzealous yet callous approach
Hard to pin everything down but the earliest signs of what went wrong include (but are not limited to) the following. BS approached NAB through Pakistani interlocutors – shady characters, no less – who has been named in the arbitration award.
It seems that no due diligence was done by NAB on BS and its owners or on its capacity to perform the contract and deliver what it was promising to deliver. The recitals to the ARA record BS “specializing in the recovery of such assets/missing funds” – a statement that was later held against NAB in arbitration.
The arbitrator determined that this statement confirmed NAB’s knowledge of the “patently incorrect statement” that BS had the capacity to perform the contract. In other words, NAB knew, or ought to have known, that it was contracting with a sham company with no past credentials of performance. And NAB – or Pakistan for that matter – failed to realize this.
Read more: Is NAB losing its credibility?
So, what prompted NAB to enter the ARA with BS, a shell company with dubious credentials? Apparently, the overzealous drive to recover ill-gotten money of the Sharifs, and those politicians who – during that time – had fallen in bad odour with the government. How did the government go about doing this?
By enclosing an appendix/schedule to the ARA setting out the names of persons and entities who had “fraudulently obtained, converted and/or secreted funds and other assets belonging to the Government of Pakistan…”.
What did BS get out of the ARA? “twenty (20%) of the “amount available to be transferred” in regards to the “assets recovered” and – hear this one out – share in any “settlement reached by NAB and any registered person or entity with or without the involvement of Broadsheet (bold is my emphasis) provided that such persons or entity had been registered before the settlement.” Favorable contractual outcomes for Pakistan be damned!
Pakistan’s ‘stellar’ legal team
The legal maverick(s) who drafted the ARA not only did not define “assets” (the subject matter of the ARA) but also forgot to specify whether “assets” included only those situated abroad (a line of reasoning adopted by NAB to avoid sharing the spoils with BS from assets recovered domestically).
The arbitration award records an admission by a NAB official that NAB disputed BS’s share in local recoveries, recoveries made through bank settlement, plea bargains based on local assets, and fines imposed by Pakistani courts.
This became a friction point between NAB and BS and was one of the main reasons behind BS taking the matter to arbitration. Not surprisingly, the arbitrator used a literal interpretation of the term “assets” (as used in the ARA) and rightly denied NAB’s defense that BS was not contractually entitled to any share in NAB’s local recoveries, plea bargains, and settlements.
Other glaring deficiencies in the ARA observed by the author include the following. No parameters were set for determining BS’s performance or lack thereof. Also, there were no milestones or dates by which BS was to achieve results – whatever they were.
The result was an open-ended agreement, subjective and fraught with ambiguity. In other words, a perfect recipe for disaster. Shockingly, clauses that are essential in a most basic contract for services were missing from the ARA – a contract entered by a sovereign state, no less!
The mother of all blunders
One only wishes the blunders would have ended there. They did not. In 2003, an English solicitors’ firm was engaged by NAB to serve a notice on BS terminating the ARA for ‘repudiatory breach’ (i.e. BS’s alleged failure to perform the ARA).
The termination notice – laden with fancy wording but devoid of legal substance – was held against NAB by the arbitrator who termed this very termination letter a ‘repudiatory breach’ of the ARA. In other words, NAB’s termination for the breach was itself deemed a breach!
One only wishes that the English law firm that had served the legal notice was sued for professional negligence. But then, that would be wishful thinking and asking for too much from the State or NAB.
Enter the mother of all blunders. Acting on a whim, advice, or fancy, NAB entered a Settlement Agreement in May 2008 with Mr. James (the original founder and beneficial owner of BS) who was purportedly acting for
(i) “Broadsheet LLC”,
(ii) “Steeplechase Financial Services LLC as Manager”, and
(iii) in his personal capacity as “shareholder and beneficiary of “Broadsheet LLC (under winding up)”.
Further to this 2008 Settlement Agreement, NAB thereafter made a payment of USD 1.5 million to Mr. James. But an incredibly costly legal blunder was made by NAB and its legal team which later came to haunt Pakistan.
NAB had known during discussions with BS representatives that it was undergoing liquidation (a process whereby a company that is unable to pay its debts is dissolved and its assets distributed to its creditors).
The 2008 Settlement Agreement however did not make the liquidator managing BS’s liquidation in the Isle of Man a party to the 2008 Settlement Agreement or inform him about the payment of USD 1.5 million made to Mr. James. (Notably, the signed the 2008 Settlement Agreement left blank the spaces that were to contains BS’s incorporation and other details).
Professional Negligence or crash of institutions?
Pakistan / NAB’s legal team thus failed to appreciate a most fundamental tenet of contract law: a company under liquidation can be bound contractually only if that company’s liquidator is a party to that contract (the 2008 Settlement Agreement in this case).
In the end, Pakistan’s plea that the 2008 Settlement Agreement was binding on BS was rejected by the arbitrator who rightly determined that “Mr. James” had no capacity to act for BS (under liquidation in the Isle of Man).
The arbitration award also contains some damning statements about individuals. The arbitrator expressed his surprise in Para. 238 of the award about NAB’s local counsel (named in the arbitration award) as to how: “… could a lawyer of his distinction when he knew that Broadsheet IOM [BS] was or had been in liquidation in the Isle of Man and that its affairs and the interests of its creditors were or had been in the hands of a liquidator, fail to contact the liquidator or make further enquiries about the liquidation before concluding his negotiation of the Settlement Agreement? His evidence, which I accept, is that he relied upon the reassurances he was given by Mr. James…”
This raises some serious questions. How could Pakistan / NAB’s local counsel, or other members of Pakistan legal team, if any, fail to undertake basic legal due diligence on Pakistan and NAB’s behalf to ascertain the corporate status (solvency and capacity) of an entity with whom Pakistan and NAB were entering into a huge settlement?
And how in the world did the local counsel rely on a representation or warranty made by a person purporting to represent the counterparty (which he was not)? More importantly, the country needs answers about who all are responsible for this blunder that resulted in the arbitrator passing an award in December 2018 making Pakistan and NAB jointly and severally liable to pay USD 21,589,460 plus interest for wrongful repudiation of the ARA.
Back to the primal age?
An inquiry committee led by Justice (retd) Azmat Saeed has been set up by the Prime Minister to probe the Broadsheet saga and present its report in 45 days. The opposition has opposed Justice Saeed’s appointment on grounds that he was part of the Supreme Court bench that disqualified former prime minister Nawaz Sharif and that he was a prosecutor for NAB in a previous stint. The opposition thus claims an apparent conflict of interest in Justice (retd) Saeed heading the committee.
In my view, this is no longer about who is right or wrong. The government singing peans about the arbitration award confirming the Sharif family’s massive corruption, or the opposition alleging that the government is engaged in a witch hunt, is a dizzying pirouette that will lead Pakistan nowhere.
Lost in the political clamor lies the hard-hitting and bitter truth: the Broadsheet saga is emblematic of the complete crash of Pakistan’s institutions. Although in term of financial impact, Broadsheet pales in comparison with the far bigger ant mound of corruption and incompetence that is the Reko Diq fiasco where a whopping USD 5.8 billion penalties has been levied on Pakistan by the World’s Bank’s ICSID and Pakistan’s state assets are in the process of getting attached worldwide, the underlying malady in Broadsheet and Reko Diq is the same.
A way out of blunders
In the past, I have written in this Magazine several times about Pakistan’s lawfare options and what needs to be done to avoid such disasters. My advice seems to be falling on deaf ears. Let me say this out loud one last time: we have been bludgeoned internationally before international tribunals and our international legal systems have atrophied. If we are to avoid similar blunders in the future, we need to consider and act fast on the following:
- We must do away with the historic baggage of our international ‘experts’ and ‘consultants’ who have minted millions but given nothing in return to the motherland. Pakistan must also urgently consider setting up a Lawfare Ministry – an independent body led by an international lawyer of repute – that will advise the state on the entire gamut of Pakistan’s international obligations and commitments. The Ministry would be ultimately responsible to Pakistan and to its people for all of Pakistan’s international contracts (and for any blunders!). The first task of such a Ministry would be to stop Pakistan ‘bleeding’ dollars in international cases and arbitrations.
- Second, it is high time that Pakistan sets up its own think-tank – an arm of the Lawfare Ministry– that assesses, weighs, and examines Pakistan’s international obligations and generates a seamless blend of ‘law’ and ‘policy’. We do not have a single think tank of global repute and we are only getting policy input that is regurgitated and of little value.
It is high time that the state wakes up from its slumber. All grand claims about making Kashmir a part of Pakistan and Pakistan becoming a welfare state ultimately depend on our national security which is an offshoot of our economic security.
It can never be the other way around. The world respects solvents and those who honor their contracts. Let us get out of this mindless embrace of complacency and thinking that all is well. It isn’t. The law does not, and never will, protect the fools.
The author is a practicing international lawyer based in the Middle East. He can be reached at: firstname.lastname@example.org. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.