Feisal Naqvi

Archive for May, 2017|Monthly archive page

Arbitration: a lost cause?

In Uncategorized on May 15, 2017 at 4:06 am

It is common cause between lawyers, judges and most of Pakistan that our legal system is broken. And yet nothing ever happens to change that fact. Why is this so? I recently had occasion to examine this issue at a recent conference held at LUMS titled somewhat provocatively, “Arbitration in Pakistan: A lost cause?”

Speaker after speaker made uncontroversial points: the 1940 Arbitration Act is a useless, obsolete statute and needs to be replaced; our courts need to stop seeing arbitration as a bumptious rival and instead encourage the development of alternate dispute resolution strategies; the development of arbitration in Pakistan requires not just a new law but arbitral institutions along the lines of the London Court of International Arbitration (LCIA) and the Singapore International Arbitration Center (SIAC).

If I may be forgiven for regurgitating my talk at the conference, I made basically two points. The first point was that Pakistan is not going to be a hot destination on the international arbitration roadmap for a long time to come: in simple terms, we are not a big enough market for anybody to care. And yes, CPEC is bringing in a lot of money to Pakistan but that deal flow is all emanating from one source. We need to worry first about fixing the domestic arbitration ecosystem and then worry about the international arbitration scene.

The second point though was, I think, more interesting. My question was to ask why nobody cares about commercial arbitration in Pakistan.

To elaborate, commercial arbitration is essentially a service for businessmen, the idea being to provide swift, speedy and private resolution of disputes to people who know the value of a dollar (or a rupee, as the case may be). That is why commercial arbitration practices are not just associated with the great commercial centres of the world (London, Paris, Hong Kong) but are actually driven by the chambers of commerce of those locations. Dubai’s domestic arbitration center, for example, is based in and hosted by the Dubai Chamber of Commerce. Similarly, the ICC rules used in international commercial arbitration are the rules of the “International Chamber of Commerce.” But if you talk to local businessmen about arbitration, their view – to the extent they have one – is that arbitration is a waste of time and not their headache.

Here is the conundrum: in the formal sense, commercial contracts are often unenforceable in Pakistan. If you lend money to somebody in Pakistan, you can forget about getting it back. The situation is slightly better if you’re a bank, but not much. And if somebody reneges on a commercial contract and you want damages, you’re out of luck.

Before I proceed, let me reiterate the words “in the formal sense.” It is certainly possible to recover money from recalcitrant debtors through “alternative” means. Indeed, many political parties (not to mention groups like the TTP) make a side living by settling legal disputes in an ad hoc manner. There are also institutions like the Faisalabad yarn market which enforce contracts through the power of social disapproval and blacklisting of defaulters. But what I am talking about is “formal” adjudication by a court. And in that formal sense, going to court is quite often a waste of time.

So, here’s the question: why don’t Pakistani businessmen care about this? Why are they not screaming about the fact that many of their contracts are not worth the paper they’re written on? Self-evidently, our business leaders are neither dumb nor ignorant? Why don’t they care then?

Let me present two answers, the first is practical and the second is historical.

At the practical level, the short answer is that arbitration doesn’t free you from our dysfunctional judicial system: at best, it speeds up the process of getting a decree. Unfortunately, as observed by the Privy Council back in 1872, the problems of a litigant in India begin when he has a decree. Going through the added hassle and expense of commercial arbitration only to find yourself back at the start line in a civil court is therefore like taking the motorway for ten minutes before being forced to get out of your car and hike up a hill. Or as one of my clients put it to me, “why should I go to arbitration if I’m going to wind up before a civil judge anyways? Why add one round of litigation?”

The historical argument is more intriguing. To begin with, the apathy is neither constant nor universal. The Karachi Cotton Association, for example, had a set of arbitration rules which remained widely used till the middle of the 1980s. More generally, chambers of commerce are not silent bodies. Instead, elections to the various chambers of commerce are heavily contested affairs in which local businesses are deeply invested.

One hypothesis is that this strangely silent business class is a consequence of our misadventures with nationalisation. Think of it this way: ZAB’s actions wiped out not just the famous 22 families but most large scale private enterprise in Pakistan. The enterprises that were left were not just smaller but they were also less sophisticated. Above all, what these enterprises understood in the very marrow of their bones was that it was not a good idea to become too publicly visible, because as noted by a traveler to the court of the Emperor Jahangir, “There are very many private men in cities and towns . . . that are very rich: but it is not safe for them that are so, so to appear, lest that they should be used as fill’d sponges.”

And so our business communities survived their pruning, both recent and old, by turning inwards and by avoiding the state. The average trader therefore regards the instrumentalities of the state with fear and loathing. It is standard practice for columnists and pundits to bemoan Pakistan’s pitifully small number of tax payers. It is not standard practice for people to ask why this mistrust runs so deep and what can be done to overcome it.

Let me try and pull together the skeins of my various arguments. Commercial arbitration has never properly taken off in Pakistan because it requires a certain degree of formal interaction between the business sector and the state. In order for that formal interaction to take place, the business community itself has to be both organised and confident enough of its place in the political structure and to be willing to negotiate with the state in order to protect its interests. At the same time, the various institutions of the state also have to be willing to delegate responsibility on to the business community and trust the business community with some degree of power.

For the last few decades, both aspects have been missing. The business community had withdrawn itself from formal politics and the state itself had become grossly overgrown. At the same time, there are encouraging signs on both fronts. For example, the business community seems to have enough confidence in the rule of law to get involved in politics (witness, for example, the rise of Jahangir Tareen and his bankrolling of the PTI). And at least the Lahore High Court level, there is a new group of commercially saving jurists pushing hard to develop alternate dispute resolution strategies, particularly arbitration. Let’s see now what the future brings.

This column appeared in The News on 3 May 2017


If you think it’s easy, you’re doing it wrong

In Uncategorized on May 15, 2017 at 4:05 am

Many years ago, after being asked one too many a question, I sat down at my computer and hammered out what have henceforth been referred to as the ‘BNR Rules’. Earlier, these rules were printed on a piece of paper. Subsequently, we had them engraved and put on the wall of our office library.

Currently, the BNR Rules are four in number:

1. All work is to be done to the highest possible standards. Always.

2. There is always law. If you can’t find it, look some more.

3. Research is on a strict liability basis. You are liable for finding everything.

4. You can always out-work the opposition.

I mention the BNR Rules because I’m now thinking of adding a fifth rule: If you think it’s easy, you’re doing it wrong.

I’m thinking of adding this rule not just because my firm is blessed with associates who think practising law is a doddle. I’m thinking of adding it because I need to remind myself that two decades of experience doesn’t make the practice of law easy. Easier, yes. Easy, no.

I’m sure that every other profession is difficult. But the type of law I practise is – or so I believe – particularly difficult.

I am a litigator. I argue for a living. If you want to put it poetically, I’m an architect of the imagination: I make and destroy arguments for a living.

High-stakes litigation is difficult everywhere in the world because somebody’s life or somebody’s livelihood is often on the line. But what makes it immeasurably more terrifying in Pakistan is that our advocacy is still done orally, not in writing. That means that when you stand up to argue, you often have no idea what point is going to catch the judge’s fancy or what is going to disturb him: you just have to do your best and try to anticipate everything which might be flung at you.

The further consequence of this oral tradition is that a good lawyer needs to know his entire brief, inside and out, before he stands at the rostrum. As I once explained it to somebody, litigation lawyers are like stage actors: we need to know the entire play. We don’t have the option of only learning the lines needed for the next take.

As you get more experienced, it becomes easier for you to anticipate what point is likely to catch the judge’s eye. And it gets easier for you to extract the gist of the case from a two-foot high stack of documents. But at the end of the day, you still need to go through that stack. And you still need to know everything inside it. Or else.

I may or may not be correct in feeling that my job is exceptionally hard. But my point here is simpler: no matter what the job, doing it well is going to be difficult. If you think it’s easy, you’re doing it wrong.

I make this point because we live in an age where we have a plethora of self-proclaimed messiahs announcing every hour of every day that the solutions to all our problems are easy. In the US, Trump got elected by telling a frustrated electorate that reform was easy. Month after month, he told everybody that he had solutions, secret plans to deal with everything from Isis to healthcare. Now that he has actually been elected, he’s singing a different tune. When his bid to ditch Obamacare ran into trouble, Trump turned in amazement to the press and said, “Nobody knew healthcare could be so complicated.” Wrong. Everybody who actually knew something about the subject knew that it was complicated.

Trump’s experience is relevant to Pakistan because Imran Khan insists, just like his orange counterpart, that he has solutions to every problem. In Imran Khan’s case, not only does he have solutions but every problem has the same solution: getting rid of corruption.

I didn’t vote for Imran Khan last time. And I’m not going to vote for him next time either. But his analysis of Pakistan’s problems still matters to me. Whether I like it or not, the PTI is an important factor in Pakistan’s politics. It is therefore all the more important for the PTI to stop faffing around with meaningless slogans and get down to business. There is no magic solution to Pakistan’s problems. Each of our problems is difficult. Dealing with each of them requires research and insight and hard work. If the Insaafians think that solving Pakistan’s problems is easy, they’re doing it wrong.

Perhaps you think I’m being unfair. After all, does an opposition party really owe anything to the party in power? Answer: probably not. But it certainly owes a lot to all the people of Pakistan. And for their sakes, it has to make a genuine effort to try and attack the problems of this country rather than focus wholly and exclusively on kicking the current government out of power.

During the Obama years, the Republicans had only one agenda item, which was to get rid of Obama. For eight years, the Republicans did nothing except oppose every single policy measure proposed by Obama, even when those polices were based upon Republican orthodoxy. Instead, they focused exclusively on demonising him.

To some extent, the strategy worked. Trump is now president, a conservative has been appointed as a Justice of the Supreme Court, and Hillary Clinton has been reduced to a spectral presence in the woods of upstate New York. But was it worth it?

I would say that the answer is no. Today’s Republican Party has no soul left. All it has left is the ability to say “No”, an ability which it has most recently exercised against the policy initiative of a Republican president. I don’t know what’s going to happen to the US over the next few years. But one certainly doesn’t get the sense that there are any grown-ups in charge.

Like any other job, politics requires hard work. More importantly, portraying politics as easy work does nobody any favours. If you think Pakistan’s problems are easily solved, you’re going to resent the crooks/idiots/patwaris inexplicably failing to do the simple things necessary to fix Pakistan.

Equally importantly, if Pakistan’s problems are such that they can be fixed with a snap of one’s fingers, then one doesn’t need a professional political class: all one needs is a good man at the top of the pyramid to make sure that all is in order. And if you can’t connect the dots between that narrative and the narrative used to legitimise military interventions, then God help you.

We have real problems here in Pakistan. They have real solutions. Very few of those solutions are easy. As the party in power, the primary responsibility for fixing those problems belongs to the PML-N. But just because the PTI is in opposition doesn’t mean it gets to peddle fairytales to the masses.

Politics is hard, Mr Khan. Governance is even harder. If you think it’s easy, you’re doing it wrong.

This column appeared in The News on 12 April 2017

Sir, laws matter!

In Uncategorized on May 15, 2017 at 4:03 am

I met the chief minister of Punjab yesterday. The meeting was in my capacity as a director of the newly reformed Punjab Board of Investment & Trade. Here is what I had planned to say.

Sir, let me ask you a question: what do you think is the single most consequential law passed by the Punjab Assembly while under your guidance?

In my view, the answer to that question is the Punjab Rented Premises Act, 2009. Let me explain why.

Under the legal system introduced by the British (and specifically the Transfer of Property Act, 1882), the law of rent was simple. All leases of a year or more needed to be registered. Once your lease ran out, the landlord had the right to kick you out – no reason required.

In 1959, the then government of West Pakistan adopted the West Pakistan Urban Rent Restriction Ordinance, 1959. Under this law, once your lease ran out, the landlord could not kick you out. Instead, you could only be evicted if the landlord could establish either default or “bona fide personal need.” And by ‘establish’, I mean establish in court after a full-fledged trial.

The consequences of the 1959 law were horrendous. Given the speed with which our overburdened courts operate, every lease agreement (whether for a month or a decade) became a lease forever. Even routine rent cases were litigated all the way up to the Supreme Court, taking decades along the way. Landlords thus faced two unpalatable choices: either leave their properties untenanted or take the risk of renting to someone who could then not be dislodged for a decade. Some decided to hedge their bets and hung out signs saying: “For rent to banks and multinationals only”. All to no avail.

The end result was not only more frivolous litigation but a severe shortage of rentable property. In simple economic terms, the 1959 ordinance made renting property a high risk proposition. In order to offset that risk, landlords asked for higher rents – which less people were able to pay.

In 2009, the Punjab Assembly passed the Punjab Rented Premises Act. That law repealed the 1959 ordinance and instead reintroduced a system which allows landlords to turf out their tenants when a lease expires. As a consequence of this law, an entire category of litigation has been wiped out. There used to be a class of lawyers who did nothing but rent cases. They still exist but their numbers are far fewer because the advantages of litigation have been taken away. And at least anecdotally, the further result is that more rented property has come on the market because landlords have become more willing to take the risk of renting property out.

Sir, the simple point here is that laws matter. Yes, it is important to build projects. Yes, it is important to improve infrastructure. Yes, it is important to have tangible results. But the intangible doesn’t become any less important just because it is intangible. All of your policies and projects and all of the private sector’s endeavours are dependent on a legal base that hasn’t been modernised in more than a century. And that age is beginning to show. You want your government to be the Ferrari of governments. But you can’t drive a Ferrari on dirt roads. At least, not very fast.

The further point to note is that after the 18th     Amendment, the role of the provinces has become massively more important. Before 2010, you could (in theory) rely on parliament to do the needful or, at least, comfort yourself with the thought that if things were really that bad, then parliament would step in. Well, those days are over. Parliament’s law-making is now confined to the limited items on the Federal Legislative List.

And we’re not talking here about controversial stuff. We’re talking about simple, basic stuff, the kind you figure out after sleeping through a freshman lecture on economics. Here are three examples.

First up is a benami law. Yes, I know the National Assembly has just passed a benami bill. No, I don’t know why the National Assembly is messing around with benami. Land was a provincial subject even before the 18th          Amendment. If by some miracle the new benami law gets passed by the Senate, it will last about 30 seconds in court.

“Learned DAG, are you familiar with the Federal Legislative List?”

“Err, yes your Lordship.”

“Thank you. Writ allowed with exemplary costs.”

Second up is a limited partnership act. Yes, I know the SECP is keen on passing a limited liability partnership law. No, I don’t know why they’re messing around with partnership. Like land, partnership has been a provincial subject since the dawn of time.

The fundamental issue here is the mechanism through which people organise business activity. Currently, there are two options: a company limited by shares or a general partnership. A company works great at a larger level. It allows people to invest and it provides for limited liability. But for small enterprises, the regulatory demands and hassles of the SECP are simply too much to handle. Small businesses don’t want to file forms every year and they don’t want to deal with the hassle of board meetings and board resolutions. In any event, most banks won’t lend to a company without getting a personal guarantee from every director, so the whole point of a company stands defeated in many cases.

A partnership, on the other hand, is wondrously simple and easy. You only have to register it once. And it is more tax-efficient than a company. But then again, a partnership makes you liable for everything your partners do, as the saying goes, down to the last cufflink.

The simple answer to this problem is to introduce the concept of a ‘limited partnership’. In a limited partnership, there are two types of partners: general partners who remain fully liable and limited partners, who are liable only to the extent of their investment. A limited partnership therefore offers the best of both worlds: simplicity and limited liability for investors. Interestingly, this ‘innovation’ was introduced in England in 1907!

The third subject that needs immediate attention is domestic arbitration. Our current law dates back to 1940. And that is a significant issue because unlike many of our other laws, it has not dated well. In 1940, even English judges regarded commercial arbitration with barely disguised loathing. Today, the business world regards arbitration as a commercial necessity. Pakistan, however, remains mired in a situation which (to quote an Indian judge) has “made lawyers laugh and legal philosophers weep.”

Mr Chief Minister, your legacy has to consist of more than bricks and mortar. If you want businesses to flourish in Punjab, you have to use your majority in the Punjab Assembly to pass laws which make a significant economic impact. You have to lead the way.

As it happened, I didn’t get to make the whole speech. But I did manage to get my point across. And the good news is that I have been tasked with presenting drafts of the three laws so that they can be formally considered. Let’s see what happens now.

This column appeared in The News on 29 March 2017

Burnol lagaiye!

In Uncategorized on May 15, 2017 at 4:02 am

Back in the dark ages when PTV was all one had to watch, one of the jingles that went viral was the ad for Burnol, a tube containing a panacea for all ills. Or as the dialogue went, “Jal gaya? Burnol lagaiye! Cut gaya? Burnol lagaiye! Keeray nay kata? Burnol lagaiye?

I was reminded of the Burnol advertisement by the recent spate of columns advising the armed forces to step in, initiate ruthless accountability, replace our corrupt kleptocrats with a new bunch of “clean tareen” leaders and set Pakistan on the path to becoming Switzerland. If you think you’ve heard that advice before, rest assured, so has the rest of Pakistan. It is advice that gets trotted out at every crisis, big or small. Like Burnol, the fauj fixes every problem.

My question today is this: why do people do this? What part of the history of Pakistan encourages people who should know better to turn to the armed forces for solace? What makes people think that replacing one head with another will fix Pakistan?

Let’s put the conspiracy theories aside for a moment and assume that there is a rational (and respectable) explanation for such reductionism. If so, what could that be?

My thesis is that the faujis (and by extension, the fauji sympathisers) believe in the ‘minus one’ option because it accords with their own experience and because they fail to differentiate between the wildly different natures of military and civilian institutions.

Let me begin by stating the obvious: the military is the strongest institution in Pakistan. No other institution or entity is even remotely comparable to it as an organisational entity, not even the DMG of yore.

Like all Pakistani institutions, the military is peculiarly susceptible to the foibles of its leader. A good chief can do wonders and a bad chief can run the whole organisation down. But as a retired general explained to me, a good chief can fix in a year whatever mess a bad chief has produced. To use his examples, first term Kayani fixed the mess that Musharraf made in the army. And Raheel Sharif has fixed the mess made by second term Kayani.

In other words, notwithstanding its susceptibility to problematic individuals, the Pakistan Army has sufficient organisational strength and institutional integrity that the damage which can be done by even a terrible leader is readily fixable by a good leader.

The fauji therefore looks at the messes made by civilians and assumes that the solution to the mess is to replace the ‘chief of civilian staff’ leader with his deputy. To put it mildly, this doesn’t work.

The reason why the ‘minus one’ approach doesn’t work when applied to civilian politics is because none of our political parties has any independent institutional existence comparable to the army. Take any political party in Pakistan today and remove its head: the entity which emerges will not just be exponentially weaker than its predecessor, it will – in effect – be a different party.

Seriously, think this point through. Imagine that tomorrow Imran Khan retires from politics, takes a vow of silence and goes for a long walk in the Hindu Kush. How long do you think the PTI would last?

Unfair, you may say. After all, the PTI is a new party. Obviously it is going to be dependent on the charisma of its leader.

My answer is that the same problems afflict even the two older parties. Benazir’s assassination and her replacement by Asif Zardari has resulted in a hugely weakened entity, just like the assassination of ZAB and his replacement by Benazir produced a pale shadow of the party ZAB had created.

As for the PML-N, it has to be remembered that the ‘N’ in the PML-N stands for Nawaz. Yes, the Noonies are the most institutionalised of all the parties. But even they are a far cry from matching the institutional identities of parties like the Democrats and the Republicans in the USA.

Louis XVI, the greatest of all French emperors and the builder of Versailles reportedly addressed the French parliament with the words, “L’etat, c’est moi.” Thankfully, the time has passed when any leader of Pakistan could say that. However, that pathology – “I am the state!” – is still true of our political parties. Our political parties are their leaders. Replacing one party leader with another and the result is a new party, not an improved party.

Let me spell out my argument. People who think that Pakistan is going to hell in a hand-basket (ie, the ‘drunken uncle’ brigade) need to stop fantasising about quick solutions. The army cannot fix Pakistan. Been there, done that. Repeatedly. More importantly, the army cannot midwife a better, more democratic Pakistan. If you decapitate a political party and replace its head, the ensuing chimera will be weaker, more corrupt and more incompetent than its predecessor. Yes, democracy sucks. But the alternatives are worse.

What then is the solution? Well, if you would like a long answer, please track down the forthcoming edition of the Journal of Development Studies and read the article on ‘Pathologies of Development Practice’ by Dr Ijlal Naqvi, distinguished (assistant) professor of sociology at the Singapore Management University. And yes, he’s my younger brother.

The condensed version of younger bro’s article is that governance reform efforts in the Pakistani electrical power sector failed despite people writing about (and recognising) the shortcomings of these programs before, during and after the programs failed. The World Bank and USAID even revisited these failed programmes and pointed out all that had gone wrong in earnest post mortems (before then repeating their mistakes all over again).

The point being made by younger bro is this: aid agencies (and other starry-eyed dreamers) constantly come up with programmes intended to recreate a Denmark in Pakistan. They even sketch out elaborate paths and multiple steps from here to there, forgetting that governance in the real Denmark evolved over decades (and centuries) of political compromise, and certainly not according to any preconceived plan.

In short, governance problems are complex and can’t simply be solved through preconceived notions. People are not machines. Not only are humans unpredictable but they have the capacity to learn from new situations and to then respond in ways intended specifically to stymie reform efforts.

As a consequence of this fundamental fact, the home-run approach very rarely works when it comes to governmental reform. Instead, what tends to work better is a ‘small-ball’ approach, empowering local actors to make multiple attempts to figure out solutions through trial and error. Compare the Citizen Feedback Monitoring Programme (growing out of Zubair Bhatti’s experiments in Jhang) to the ADB’s Access to Justice Programme. It takes patience, local knowledge, and a willingness to adapt – all factors in short supply at international development agencies.

While Naqvi junior doesn’t draw out the obvious parallel, fixing Pakistan’s political system is no more susceptible to quick fixes than Pakistan’s bijli system. Nobody – no matter how honest, no matter how well-intentioned, no matter how learned – can fix Pakistan’s problems in one go. Governance belongs to a different class of problem. You can’t create a competent state in one go any more than you can create a full-grown tree in one go. In both cases, growth will take time.

This column appeared in The News on 17 April 2016