Force Majeure and the Coronavirus – The performance of contracts during a debilitating pandemic

The coronavirus has taken the demand and supply balance of the world by a storm and continues to cripple businesses and economies that are struggling to continue in the midst of shutdowns, disruptions, supply deficits and labour shortages. In light of this, this post discusses the effect of coronavirus on contracts and contractual arrangements between parties on a national and global level. This post discusses whether affected parties can successfully invoke a force majeure event i.e. an unforeseen event that prevents a party from fulfilling a contract that would, thereby, enable them to be released from their contractual obligations or allow them more time.

Background

The first case of the COVID-19 coronavirus was reported in Pakistan two weeks ago and has since gripped the nation in a mesh of panic, fear-mongering, propaganda and confusion. The rest of the world first heard of this virus in December last year and since then it has developed into a global threat and has been declared by the World Health Organization as a public health emergency of international concern.

As a response to the news of the outbreak in Pakistan, schools and colleges in Sindh were shut down at a first instance and recently, the offices of Engro Corp, a multinational conglomerate company, situated in an expensive area in Karachi was closed for three days.

It is foreseen that the outbreak will have substantial effect, over the coming days, upon businesses, workplaces, supply and distribution channels, labour and demand. In this light, it is important to discuss the impact that the outbreak will have on contracts and the application of the force majeure clause in such contracts.

1. Force majeure as per the laws in Pakistan

(1) Although the doctrine/term of force majeure does not have a statutory definition in Pakistan; the Islamabad High Court discussed the definitions of the same in Atlas Cables (Pvt.) Limited vs. Islamabad Electric Supply Company Limited, 2016 CLD 1833 (Islamabad). In the judgment they relied on the Advanced Law Lexicon by P. Ramantha Aiyar, 3^rd ed., that explained force majeure as “events outside the control of the parties and which prevent one or both of the parties from performing their contractual obligations; A contract provision that stipulates that unforeseen events… will excuse a party from its duty to perform the contract; A contractual provision allocating the risk if performance becomes impossible or impracticable as a result of an event or effect that the parties could not have anticipated or controlled”.

The judgment further discussed the Halsbury’s Laws of England and several cases from the superior courts in India particularly Dhanrajamal Gobindram vs. Shamji Kalidas, AIR 1961 Supreme Court 1285, where it was stated that “where reference is made to “force majeure”, the intention is to save the performing party from the consequences of anything over which he has no control”. The judgment of the Islamabad High Court concluded that “force majeure refers to legal or physical prevention and not economic profitableness”.

(2) Force majeure provisions are usually standard provisions in most contracts. In such standard provisions, a list of certain force majeure events may be provided but the lists are deemed to be inclusive and recognise that there may be such events that are not specifically part of the contract but are, nevertheless, unforeseeable and unavoidable. For example, “pandemics” are usually not specifically provided for but may be covered or addressed within other force majeure events such as government order, national emergency of Acts of God.

(3) In light of the above, what constitutes a force majeure event depends on the wording of the provision. For example, if the provision provides that the force majeure event has affected the ability of a party to perform, then such party is required to demonstrate that its performance became impossible due to the force majeure event and not just that it was difficult or costly to do so. Such provisions also, usually, require that the affected party show that it took all reasonable attempts to mitigate the event and its consequences.

2. Force majeure as per the laws of other jurisdictions

(1) English courts have consistently focused on the actual language of the provisions in contracts and have adjudicated on a case to case basis. In this regard, English courts have also found that the words in a contract, such as “prevent” or “delay” have a wider scope and force majeure may be satisfied if performance has become substantially more onerous. In this regard, the onus to prove the difficulty faced by the affected party is purely such party itself. This includes establishing that the party would have been “ready, willing and able” to perform the contract if it was not for the force majeure event. Additionally, the drafting of such provisions also includes that the affected party has taken all reasonable attempts to mitigate the event and its effects.

(2) In India, force majeure is recognised under Section 56 of the Indian Contract Act, 1872 which provides for an “”agreement to do impossible act” and gives the affected party more time to perform its obligations when events are beyond its control. In this regard, certain requisites have to be fulfilled to ensure that the event is in fact a force majeure event; these include, inter alia, that the act is beyond the control of the party, it is unforeseen and inevitable, it has rendered the contract wholly impossible, and that the suffering party exercised caution.

The superior courts in India have illustrated force majeure in different manners and on a case to case basis; some examples are as follows:

(a) In Energy Watchdog vs. Central Electricity Regulatory, Civil Appeal Nos.5399-5400 of 2016, the Supreme Court held that:

“In so far as a force majeure event occurs de hors the contract, it is dealt with by a rule of positive law under Section 56…The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view.”

(b) In Alopi Parshad & Sons Ltd. vs. Union of India, 1960 (2) SCR 793, the Supreme Court observed that:

“the [Contract] Act does not enable a party to a contract to ignore the express covenants thereof and to claim payment of consideration, for performance of the contract at rates different from the stipulated rates, on a vague plea of equity. Parties to an executable contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate, for example, a wholly abnormal rise or fall in prices which is an unexpected obstacle to execution. This does not in itself get rid of the bargain they have made.”

(3) With respect to the coronavirus being deemed to be a force majeure event in India, the Ministry of Finance vide an office memorandum on 19 February 2020 directed that all ministries treat disruptions of the supply chain due to the outbreak as a case of natural calamity and a force majeure clause may be invoked in appropriate cases.

4. Conclusion

On 3 March 2020, the China Council for the Promotion of International Trade issued more than 4,000 force majeure certificates to companies that applied for them enabling businesses in China to invoke force majeure provisions in their contracts. This, however, may have limited applicability in such contracts that are governed by other laws, for example English laws, that require specific contractual provisions and for the affected party to prove that their ability to perform the contract was made impossible by the outbreak. In recent news, Total S.A, a French multinational integrated oil and gas company, has already rejected a force majeure notice from a liquefied natural gas buyer in China (see, https://www.cnbc.com/2020/03/06/coronavirus-impact-china-invokes-force-majeure-to-protect-businesses.html).

Therefore, nations may proceed to declare the outbreak a force majeure event but the enforceability of the particular provisions continue to be governed by the governing law in the contract which may require certain requisites to be met before an affected party is provided any relief.

Photograph credit: thesun.co.uk

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Myra Khan is a Bar-at-Law from the Honourable Society of Lincoln’s Inn and Ex-Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Karachi, Pakistan.

Any queries may be directed to lawyereadia@gmail.com

 

Companies Ordinance, 2016 – The progression of the companies law from 1984 to 2016

The Government has, in November 2016, promulgated the Companies Ordinance, 2016 replacing the Companies Ordinance, 1984. After various seminars, conferences, expert groups, discussions and debates, the Companies Ordinance, 2016 (the “2016 Ordinance”) was drafted, debated and promulgated. The new law encourages a movement towards simplifying certain procedures, enabling greater use of technology, and encouraging a paperless record keeping environment.

The constitution for companies and the backbone legislation for the economy has experienced a cardinal shift. The salient changes to the legislation are provided below and will be revised accordingly; the history of the law and the analysis and discussion on the projected effect will follow in a subsequent post.

1. Classification of Companies as provided by Section 224 and the Third Schedule of the 2016 Ordinance.

The Third Schedule provides for Public Interest Companies and Large Sized Companies (“PILSCs”), Medium Sized Companies (“MSCs”); and Small Sized Companies (“SSCs”). Small Sized Companies, for example, shall include private companies having (1) paid up capital up to Rs. 10 million; (2) turnover not exceeding Rs. 100 million; or (3) employees not more than 250.

The classification of a company shall be based on the previous year’s audited financial statements and can be changed if it does not fall under the previous criteria for two consecutive years.

Special provisions are provided to facilitate small and medium companies.

The 2016 Ordinance also provides for relaxations for Free-Zone Companies (Section 454) and the establishment of an Investor Education and Awareness Fund (Section 245). The 2016 Ordinance further provides for companies that are “Inactive Companies” to seek such status from the registrar to avail limited procedural and accounting requirements (Section 424).

Moreover, the 2016 Ordinance provides for streamlining lengthy processes by introducing an efficient dispute resolution mechanism through the Mediation and Conciliation Panel (Section 276), passing of members’ resolution by circulation and simplified provisions for Mergers and Acquisitions.

2. Memorandum of Association

The 2016 Ordinance requires that companies engage in such business that is the “principal line of business” (Section 26) to reduce the issues related to the doctrine of ultra vires whereby the company undertakes acts that are beyond its scope of work or powers. The principal line of business shall be mentioned in the memorandum of association or notified to the registrar.

3. Conversion of Shares into Electronic Format.

Electronic or “demat” form is the concept of dematerialization in finance and financial law and refers to the substitution of paper-form securities by book-entry securities. This is a form of an indirect holding system which is used as an intermediary, such as a broker or a central securities depository and holds the records of the ownership of the shares in an electronic format. The Central Depository System in Pakistan, established under the Central Depositories Act, 1997 has a similar system of electronic filing, record and transfer for and of securities.

4. Special provisions for Independent and Non-Executive Directors (Section 166).

The 2016 Ordinance provides for the inclusion of independent directors and non-executive directors on the Board including provisions for the manner of selection and maintenance of the data bank of such directors.

5. Increased provisions for Disclosure of Directors, and Beneficial Owners and Increased Transparency by local and foreign companies.

The 2016 Ordinance provides for increased disclosure by companies to the regulatory. It further provides for the companies to maintain a Companies’ Global Register of Beneficial Ownership (Section 452) for every substantial shareholder or officer of a company incorporated under the 2016 Ordinance, having ten percent (10%) or more shares in a foreign company or body corporate.

There is increased regulatory control vis-à-vis fraud, terrorist or corrupt financing, and money laundering.

6. Certificate of Shariah Compliance.

Section 451 enables companies to seek for a Shariah compliance certificate from the Securities and Exchange Commission of Pakistan. No company shall be permitted to be called “Shariah compliant” unless it is conducting business according to the principles of Shariah and has been so certified by the Commission.

7. Agriculture Promotion Companies (Section 457).

The 2016 Ordinance enables the registration of agriculture promotion companies for the development and enabling of the agriculture sector.

8. Table of Fees, amended, to be Paid to the Registrar.

The Seventh Schedule updates the Table of Fees to be paid to the Registrar (Section 462 and 469).

Whistleblower Protection in Pakistan

A whistleblower is a person who raises concern or awareness about a wrongdoing in their workplace, either state or private. 

In the recent years, with the testimonies of Edward Snowden (an American computer professional, former CIA and US Government employee who copied classified information from the United States National Security Agency (the “NSA”) in 2013 without prior authorization. This information revealed numerous global surveillance progams and brought the issue of privacy, security and surveillance to global discussion), Julian Assange (the founder of Wikileaks that publishes secret information, news leaks, and classified media from anonymous sources), and Bradley Manning (a US army officer who disclosed information to Wikileaks), whistleblowing has become a much discussed topic receiving equal amounts of support and opposition.

Whistleblowing, however, has been practiced for centuries. From the Ramayana, where Vibhishan, younger brother of the King of Lanka, Ravana, informs Ram about the whereabouts of Sita, the consort of Ram, to the Watergate scandal that toppled the presidency of Richard Nixon on the information provided by a secret informant known as Deep Throat (revealed in 2005 as Mark Felt). Whistleblowing has grave consequences for the accused and the accuser. The whistleblower, though seemingly working for the greater good, is oft seen as dangerous and misguided (e.g. why did he have to make the information public, why didn’t he use the correct mechanisms) and forced to live either in hiding, never revealing his identity, or in exile.

In Pakistan, there is no specific legislation on whistleblower protection on a Federal level. Within the provinces, only Khyber Pakhtunkhwa, vide the Khyber Pakhtunkhwa Right to Information Act, 2013 (the “KPK 2013 Act”), provisions for the protection of whistleblowers (Section 30). Section 30 of the KPK 2013 Act provides for protection of whistleblowers as follows:

30. Whistleblowers.—(1) No one may be subject to any legal, administrative or employment related sanction, regardless of any breach of a legal or employment obligation, for releasing information on wrongdoing, or which would disclose a serious threat to health, safety or the environment, as long as they acted in good faith and in the reasonable belief that the information was substantially true and disclosed evidence of wrongdoing or a serious threat to health, safety or the environment.

(2) For purposes of sub-section (1), wrongdoing includes the commission of a criminal offence, failure to comply with a legal obligation, a miscarriage of justice, corruption or dishonesty, or serious maladministration regarding a public body.

The other provinces also have similar acts: Punjab has the Right to Information Act, 2013; Balochistan has enacted the Freedom of Information Act, 2005; and Sindh has enacted the Sindh Freedom of Information Act, 2006 (collectively referred to as the “Acts”). However, there is no provision in the Acts which is analogous to Section 30 of the KPK 2013 Act or provides for protection of whistleblowers.

The fate of whistleblowers is, therefore, left to the jurors deciding each case upon its facts. The following factors act as a deterrent against whistleblowing:

1. Red-tapism; no outcome of the complaint made using the correct procedures, if any, available.
2. Defences, such as national security, interest of the state, and confidentiality obligations, argued, usually successfully, by the accused.
3. No procedure for the protection of the identity of the whistleblower.

The Eighteenth Amendment to the Constitution of Pakistan, 1973, with the insertion of Article 19A, allowed citizens the right to have access to information in all matters of public importance. The Eighteenth Amendment was an attempt to bring information “in all matters of public importance” to the public sphere. Public bodies, officials, institutions were now required to record, store and be accountable for the information used and processed by them. Unfortunately, the Eighteenth Amendment was qualified with the proviso “subject to regulation and reasonable restrictions imposed by law” that resulted in curtailing the rights of citizens. The proviso provided an opening for the holders of information to restrict access. The only remedy available to citizens seeking information under Article 19A is challenging any refusal in the courts which include the usual issues with court proceedings, i.e. years of litigation, costs, waste of time, etc.

The text of Article 19A is as follows:

19A. Right to information.−Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law.

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Myra Khan is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Lahore, Pakistan.

Rights of Employees: Employed Directly or through an Independent Contractor

28 December 2015

In the recent years, many multinational companies and other companies have “outsourced” the workings of the department of human resources. This means that the company hires and fires employees through a middle-company, the independent contractor. Usually, the remuneration of such “contracted” employees is also agreed and disbursed by the independent contractor. The advantage for doing so for the company is that it does not assume any liability on the part of the employee. Therefore, the company protects itself from the benefits that are usually provided to the employee.

When such cases reach the courts of Pakistan, due to some grievance of the employee, the company regrets any responsibility on the defence that such employee was the employee of the independent contractor and not the company.

The courts of Pakistan deliberate on the status of the employee, whether of the company or the independent contractor, when such employee falls within the definition of “workman” under the dominant labour laws such as the provincially adopted Industrial Relations Ordinance and the Industrial Relations (Standing Orders) Ordinance. However, any employee employed in a supervisory role or such employee that is expected to use creativity, imagination, intellect, skill, know-how or generally apply his mind to the assignments, does not fall within the definition of a workman. Therefore, employees employed in multinationals or such companies would usually fall outside the ambit of the definition of “workman”.

The rights of the employees are then limited to the contractual terms and conditions agreed with either the employer or the independent contractor.

Notably, the concept of “independent contractor“, as defined in the laws of United Kingdom, United States of America, and other (Western) jurisdictions is different from the concept in Pakistan. The jurisprudence in Pakistan has not yet evolved to define independent contractor as separate from an employee, outside the definition of workman. The definition of independent contractor remains limited as, what appears to be, a sub-section of those employees defined as “workman”.

Although the considerations applied when determining the status of a workman as a worker of the company or an independent contractor may be applied to the status of an employee (who is not a workman), but these considerations have, as yet, not been incorporated in the precedents set by the superior courts of Pakistan.

Such considerations include: (1) technical and administrative control over the employee; (2) the decisions re hiring, firing, remuneration and other benefits, the employees; (3) the involvement of the employee in the company; (4) that the employee works in a department that would constitute the principal organ of the company; (5) the machines, equipment, and raw material belong to the company; and the department is controlled by the supervisors of the company; (6) the company benefits from the performance of the employees functions; (7) the employee is integrated into the company; (8) the reality of the contract with the employee.

If the above considerations are present in the relationship between the employer and employee, whether hired directly or through an independent contractor, such employee is deemed to be an employee of the company and not the independent contractor.

For all employees, not protected as “workman” under the labour laws of Pakistan, the contract with the employer is the most important document and establishes the rights of the employee with the employer.

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Myra Khan is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Lahore, Pakistan.

Any queries may be directed to lawyereadia@gmail.com

Harassment at the Workplace – What should I do ?!

KNOW YOUR RIGHTS!

In addition to the earlier post re protection of women in Pakistan, many have queried in respect of what should be done if a woman actually experiences harassment in the workplace in Pakistan. With the harassment case at LUMS (read about it at the LUMS official website: http://dailystudent.lums.edu.pk/lds/the-vice-chancellor-dr-sohail-naqvi-on-the-sexual-harassment-case/) becoming widely popular, many are concerned of the steps that are to be taken, in law, if such sexual harassment is experienced.

TL;DR:

1. If you are or anyone you know is facing sexual harassment at your workplace, the law provides for certain rights and procedures.

2. It is the duty of your employer, by law, to have an Inquiry Committee and a Code of Conduct in place to deal with harassment internally. If such bodies/procedures are not in place, the employee is permitted to complain directly to the Ombudsman (appointee of the Government) or file a petition against the employer (for not complying with having the correct fora in place) in a District Court for which the employer, if guilty, will be liable to a fine.

3. Workplaces include universities, schools, colleges, businesses, corporations, public sector companies, private companies, multi-nationals, hospitals, clinics, factories, branches, departments and any place where an employee operates.

There are, practically, no places of work that are exempt from the ambit of the Protection Against Harassment of Women at the Workplace Act, 2010.

4. All proceedings, whether conducted internally or externally, are to be confidential.

5. Strict timelines are imposed by the law and therefore, the authorities are not allowed to delay the dispensing of justice or discourage the complainant.

6. Your organization is responsible to impose and implement penalties on the accused if found guilty. Such penalties range from warnings to fines to temporary and even permanent stoppage of work.

7. Your organization is responsible to compensate for the harm caused to you either by offering therapy, medical treatment or damages.

8. The intention of the law is to have a zero-tolerance policy with respect to harassment of women at work. This is an encouraging trend to facilitate women to continue working without the threats of harassment and abuse.

1. General

(1) Under the Protection Against Harassment of Women at the Workplace Act, 2010 (the “Protection Act”), (sexual) “harassment” is defined in Section 2(h) as:

(h) “harassment” means any unwelcome sexual advance, request for sexual favors or other verbal or written communication or physical conduct of a sexual nature or sexually demeaning attitudes, causing interference with work performance or creating an intimidating, hostile or offensive work environment, or the attempt to punish the complainant for refusal to comply to such a request or is made a condition for employment;

Therefore, the Protection Act provides for a restricted meaning of the term “harassment”. It states that “harassment means” and does not state that “harassment included”. The difference between “means” and “includes” in a definition has been noted in many judgments of our superior courts to point out that where “means” is used, the interpretation cannot expand the definition to include that which is not provided after “means”. This raises the concern that the matters such as gender based discrimination, same sex sexual harassment and the many examples of sexual harassment, particularly outside the “workplace”, are not within the ambit of the Protection Act. It may be argued that the Protection Act could encompass the protection of “men” also but the larger intention is to “women” specifically “at the workplace”.

2. Steps to be Taken in the Event of Sexual Harassment

(1) Most institutions are, under the Protection Act, required to formulate a sexual harassment policy to handle the complaints at an internal forum.

(2) Institutions and organizations are required to constitute an Inquiry Committee (Section 3) which consists of three (3) members of whom at least one (1) must be a woman. One (1) member shall be from the senior management, and one (1) member shall represent the employees or be a senior employee.

(3) If such an Inquiry Committee is formulated in your organization, the victim of sexual harassment is required to issue a written complaint to the Inquiry Committee and the Inquiry Committee is required, by law, to, within three (3) days:

(a) communicate to the accused the charges and statement of allegations leveled against him;

(b) require the accused within seven (7) days from the day the charge is communicated to him to submit a written defense and on his failure to do so without reasonable cause, the Inquiry Committee shall proceed ex-parte (without him); and

(c) enquire into the charge and may examine such oral or documentary evidence in support of the charge or in defense of the accused as the Inquiry Committee may consider necessary and each party shall be entitled to cross-examine the witnesses against him.

(4) All proceedings are to be kept confidential.

(5) No hostility can be created for the complainant that may prevent her from freely pursuing the complaint.

(6) The Inquiry Committee is required, thereafter, to submit its findings and recommendations to “the Competent Authority”. The Competent Authority is appointed by the management of the organization and can be any such authoritative figure as the organization deems fit.

(7) The Inquiry Committee shall recommend to the Competent Authority whether, on the basis of its findings, one or more of the following penalties may be imposed:

(i) Minor penalties:

(a) censure;

(b) withholding, for a specific period, promotion or increment;

(c) stoppage, for a specific period, at an efficiency bar in the time-scale, otherwise than for unfitness to cross such bar; and

(d) recovery of the compensation payable to the complainant from pay or any other source of the accused;

 (ii) Major penalties:

 (a) reduction to a lower post or time-scale, or to a lower stage in a time-scale;

(b) compulsory retirement;

(c) removal from service;

(d) dismissal from service; and

(e) Fine. A part of the fine can be used as compensation for the complainant. In case of the owner, the fine shall be payable to the complainant.

The Competent Authority is required to impose the recommended penalty within one (1) weeks of the receipt of the recommendation of the Inquiry Committee.

(8) If the victim has suffered trauma, it is the responsibility of the organization to arrange for psycho-social counselling or medical treatment, or permit additional medical leave. The organization may also offer compensation to the complainant in the event of loss of salary or other damages.

(9) Any party aggrieved with the decision of the Competent Authority may appeal to the Ombudsman, appointed by the Government at a Federal and Provincial Level.

(10) The Ombudsman is either an ex-judge of a high court or qualified to be appointed as a judge of the high court. The powers vested in the Ombudsman are the same as those vested in a Civil Court under the Code of Civil Procedures, 1908.

(11) The Ombudsman shall within three (3) days of receiving the complaint issue a show cause notice to the accused giving the accused five (5) days to respond.

(12) Any party aggrieved by the decision of the Ombudsman, may, within thirty (30) days of the decision, make a representation to the President of Pakistan or the Governor, who may pass such order as he may deem fit.

3. Duty of the Employer

(1) It is the responsibility of the employer to ensure implementation of the Protection Act and incorporate a Code of Conduct for protection against harassment at the workplace as part of their management policy. The Code of Conduct is attached as a Schedule to the Protection Act.

(2) The employer must form the Inquiry Committee and appoint a Competent Authority.

(3) The management must display copies of the Code of Conduct in English and in another language understood by the majority of the employees at all conspicuous places in the organization.

(4) On the failure of the employer to comply accordingly, any employee may file a petition before the District Court which shall, upon being found guilty, make the employer liable to a fine which may extend to one hundred thousand rupees but shall not be less than twenty five thousand rupees.

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Myra Khan is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Karachi, Pakistan.

Any queries may be directed to lawyereadia@gmail.com

In protection of women…

9 March 2015

In the spirit of celebrating International Women’s Day (8 March 2015), here is a short note on the efforts of the authorities to ensure “fair representation” and “protection” of women in the workforce:

TL;DR:

1. At least 33% of the workforce should be women.

2. Female workers should be included in trade unions in proportion to their numerical strength in the organization.

3. Employer’s representation councils should include women in proportion to their numerical strength in the organization.

4. Governing body of the Employees Social Security Institution should include a woman.

5. Minimum Wages Board should include a woman.

6. National Committee on the Rights of the Child should consist of 4 women among the 10 experts employed.

7. All provisions of the law in respect of the protection of harassment of women at the workplace should be employed, implemented and extended to women.

8. Where 25 or more women are employed, the employer(s) shall reserve a suitable daycare room for children under 6 years of the women employed, maintained in accordance with such standards as may be notified.

Detailed Note: The Government of Punjab passed the Punjab Fair Representation of Women Act, 2014 (the “FRWA”) in respect of fair representation of women in the workforce, applicable to the various sectors and companies functioning in the Province.

The discussion, herein, is limited to the applicability of the FRWA to private limited companies.

The Schedule to the FRWA provides a list (the “List”) of sixty six (66) acts and ordinances that are amended by the FRWA to ensure fair representation of women in decision-making bodies and their empowerment at the workplace. The requirement of ensuring that the workforce consists of at least thirty three percent (33%) women, as stated in the Punjab Women Empowerment Package, 2012*, is provided in the following statutes.

None of the following laws are applicable to companies:

(a) The Town Improvement Act, 1922;

(b) The Punjab Government Servants Benevolent Fund Ordinance, 1960;

(c) The Punjab Health Foundation Act, 1992;

(d) The Punjab Information Technology Board Ordinance, 1999;

(e) The Punjab Medical and Health Institutions Act, 2003;

(f) The Punjab Technical Education and Vocational Training Authority Act, 2010; and

(g) The Punjab Holy Quran (Printing and Recording) Act, 2011.

The laws applicable to companies are:

(1) Punjab Industrial Relations Act, 2010

(a) The Punjab Industrial Relations Act, 2010 (the “PIRA”), included in the List, applies to all persons employed in any establishment.

PIRA defines “establishment” to include a company employing workers in Punjab:

(ix) “establishment” means any office, firm, factory, society, undertaking, company, shop, premises or enterprise in the Punjab, which employs workmen directly or through a contractor for the purpose of carrying on any business or industry and includes all its departments and branches, whether situated in the same place or in different places having a common balance sheet and except in section 25 includes a collective bargaining unit, if any, constituted in any establishment or group of establishments; (emphasis added)

“Workman” is defined as follows:

(xxxi) “worker” and “workman” mean a person not falling within the definition of employer who is employed (including employment as a supervisor or as an apprentice) in an establishment or industry for hire or reward either directly or through a contractor whether the terms of employment be express or implied… (emphasis added)

The provisions of PIRA would, thus, be applicable to a company.

(b) The amended Section 6(2) of the PIRA provides:

(2) Without prejudice to the provisions of sub-section (1), a trade union of workmen shall not be entitled to registration under the Act– …. (c) if women are employed as workers in the establishment, group of establishments or industry with which the trade union is connected, unless it has included the female workers in the executive body, not being less than the proportion of their numerical strength in the work force of the establishment, group of establishments or industry. (emphasis added)

Section 6(2) provides that a trade union of workmen shall not be entitled to registration under the PIRA, unless the trade union has included female works in the executive body (management) in proportion to their numerical strength in the work force of the establishment (Section 6(2)(c)).

(c) The amended sub-section (2) to Section 29 (Workers Management Council) provides as follows:

(2)   The employer’s representative in the council shall be from amongst the directors or their nominees or senior executives and the workers’ representatives shall be workmen employed in the same establishment and shall– (a) where there is a collective bargaining agent in the establishment, be nominated by it, or (b) where there is no collective bargaining agent in the establishment, be elected by simple majority at a secret ballot by all workmen employed in the establishment; and (c)   if women are employed as workers in the establishment, be women not less than the proportion of their numerical strength in the work force of the establishment. (emphasis added)

Section 29(2)(c) thus provides that the employer’s representative in the council shall be from amongst the directors/ their nominees/ senior executives and the workers’ representatives shall be workmen employed in the same establishment provided that if women are employed as workers then the proportion of their representation shall be in proportion to their numerical strength in the work force.

(2) The Provincial Employees’ Social Security Ordinance, 1965

The Provincial Employees’ Social Security Ordinance, 1965 is amended to the extent that sub-section (1) of Section 5 (Governing Body) includes that at least one (1) woman should be included in the three (3) persons to represent the employers (Section 5(1)(c)) and secured persons (Section 5(1)(d)) in the governing body of the Employed Social Security Institution.

(3) The Minimum Wages Ordinance, 1961

The Minimum Wages Ordinance, 1961 is amended, by virtue of sub-section (1) to Section 3 (Establishment of Minimum Wages Boards) to include that the three (3) persons to represent the employers (Section 3(1)(c)) and workers of the Province should include at least one (1) woman (Section 3(1)(d)) in the Minimum Wages Board of the Province.

(4) The Employment of Children Act, 1991

The Employment of Children Act, 1991 is amended to include “four (4) women” in the National Committee on the Rights of the Child that shall consist of the Chairman and ten (10) experts, in sub-section (2) of Section 5 (National Committee on the Rights of the Child).

(5) The Protection Against Harassment of Women at Workplace Act, 2010 (the “PAHWWA”)

(a) The PAHWWA provides for the protection of women from harassment at the workplace. Section 2(n) defines workplace to be a place of work where an organization or employer operates.

(b) “Organization” is defined in Section 2(l) to include a company:

(1) “organization” means a Federal or Provincial Government Ministry, Division or department, a corporation or any autonomous or semi-autonomous body, Educational Institutes, Medical facilities established or controlled by the Federal or Provincial Government or District Government or registered civil society associations or privately managed a commercial or an industrial establishment or institution, a company as defined in the Companies Ordinance, 1984 (XLVII of 1984) and includes any other registered private sector organization or institution; (emphasis added)

(6) The Punjab Shops and Establishment (Amendment) Act, 2014

The Punjab Shops and Establishment (Amendment) Act, 2014 (the “Act”) amends the West Pakistan Shops and Establishments Ordinance, 1969 (the “Ordinance”) to the effect that daycare rooms for children should be added to any establishment or company where twenty five (25) or more women are employed:

10-A. Daycare rooms for children.— (1) Where twenty five or more women are employed in an establishment, the employer shall reserve a suitable daycare room for under six years old children of the women. (2) The daycare room shall be established, managed and conformed to such standards, as may be prescribed.

*The Punjab Women Empowerment Package, 2012 is a guide prepared by the Women Development Department, Government of Punjab to intimate the proposed amendments to various laws for the empowerment of women in the workforce. The Punjab Women Empowerment Package, 2012 does not have statutory force and is not a legal document.

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Myra Khan is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Lahore, Pakistan.

Any queries may be directed to lawyereadia@gmail.com

Can a foreign company sue in Pakistan?

4 August 2014

Under Section 456 of the Companies Ordinance, 1984 (the “Ordinance”), a foreign company may contract, deal or transact (with other companies) in Pakistan but unless the foreign company meets the requirements laid out under the laws of Pakistan, in the event of any conflict, dispute, or issue, the foreign company is not entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceedings. Section 456 is as follows:

456. Company’s failure to comply with this part not to affect its liability under contracts, etc.-Any failure by a foreign company to comply with any of the requirements of section 451 or section 452 shall not affect the validity of any contract, dealing or transaction entered into by the company or its liability to be sued in respect thereof; but the company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of any such contract, dealing or transaction, until it has complied with the provisions of section 451 and section 452. (emphasis added)

Sections 450 to 460 of the Ordinance, inter alia, deal with the requirements that foreign companies must meet in order to effectively defend themselves or initiate proceedings in Pakistan.

Section 450 provides as follows:

450. Application of this Part to foreign companies.- This Part shall apply to all foreign companies, that is to say, companies incorporated or formed outside Pakistan which, after the commencement of this Ordinance, establish a place of business within Pakistan or which have, before the commencement of this Ordinance, established a place of business in Pakistan and continue to have an established place of business within Pakistan at the commencement of this Ordinance.

A “place of business” includes a branch, management, share transfer or registration office, factory, mine or fixed place of business but does not include an agency unless the agent exercises a general authority to negotiate and conclude contract or maintains stock of merchandise on behalf of the company.

Section 451 provides for the documents to be delivered to the registrar by foreign companies. These documents include:

(a) a certified copy of the memorandum and articles of the company (Form 38);

(b) full address of the registered or principal office of the company (Form 39);

(c) a list of the directors, chief executive and secretaries (if any) (Form 40);

(d) a return showing the full name and surname, father’s name, nationality, designation and full address in Pakistan of the principal officer of the company in Pakistan by whatever name called;

(e) the full name and surname, father’s name, nationality, designation and full address of some one (1) or more persons resident in Pakistan authorised to accept on behalf of the company service of process and any notice or other document required to be served on the company together with his consent to do so (Form 42);

(f) the full address of that office of the company in Pakistan which is deemed to be the principal place of business in Pakistan (Form 43); and

(g) particulars of principal officer of the company in Pakistan (Form 41).

Section 451 is read in line with with Rule 22 of the Companies (General Provisions and Forms) Rules, 1985.

Moreover, a foreign company is required to obtain a permission letter from the Board of Investment with a specific validity period for opening and maintaining of its branch/liaison office in Pakistan. Copy of such permission letter is required to be furnished with the documents meant for registration.

Section 454 of the Ordinance provides the statutory obligations that the foreign company is required to comply with. These include, among others, maintaining registers of Pakistani members, directors and officers at its principal place of business and keeping it open to inspection, stating the country of origin in every prospectus, exhibition of the name of the company.

Disclaimer: This post is intended as an introduction and for information only and should be read with the relevant legislation. This post does not provide or intend to provide an alternate to legal advice by a competent counsel. For any further queries or assistance, please contact Myra Khan at lawyereadia@gmail.com.

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Myra Khan is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Lahore, Pakistan.

Any queries may be directed to lawyereadia@gmail.com

Are emails considered “original documents”? Can they be used as official documents or as evidence in court?

24 March 2014

Are emails/faxes considered “original documents” for the purposes of record keeping or as evidence in court or is it essential to provide a traditional certified/attested hard copy of the same?

TL;DR: Yes. Emails etc. are considered original documents provided that they meet a certain legibility and authenticity criteria.

Detailed Response:

The relevant authority vis-à-vis this query is the Electronic Transactions Ordinance, 2002 (the “ETO”):

1. Section 4 of the ETO  provides as follows:

4.         Requirement for writing.—The requirement under any law for any document, record, information, communication or transaction to be in written form shall be deemed satisfied where the document, record, information, communication or transaction is in electronic form, if the same is accessible so as to be usable for subsequent reference. (emphasis added)

2. The requirement under the law if that any document (including record, information, communication or transaction) should be in “written form”.  The requirement under Section 4 of the ETO for, inter alia, a document or communication to be in “written form” shall be deemed to be satisfied, provided that the same is accessible for any future reference.

3. Section 5, of the ETO, provides the requirement for original form:

5.         Requirement for original form.—(1) The requirement under any law for any document, record, information, communication or transaction to be presented or retained in its original form shall be deemed satisfied by presenting or retaining the same if:

(a)        there exists a reliable assurance as to the integrity thereof from the time when it was first generated in its final form; and

(b)        it is required that the presentation thereof is capable of being displayed in a legible form.

(2)        For the purposes of clause (a) of sub-section (1);

(a)        the criterion for assessing the integrity of the document, record, information, communication or transaction is whether the same has remained complete and unaltered, apart from the addition of any endorsement or any change which arises in the normal course of communication, storage or display; and

(b)        the standard for reliability of the assurance shall be assessed having regard to the purpose for which the document, record, information, communication or transaction was generated and all other relevant circumstances. (emphasis added)

The requirement of the law is that a document should be in its “original form”. Under Section 5 this requirement is deemed to be satisfied if the integrity of such document or communication is assured and if the same is capable of being presented in legible form. The criteria for integrity and legibility is provided in Section 5(2).

4. In view of the provisions of Section 5 of the ETO, a fax/ email shall be considered to be an original document provided that there is reliable assurance from the recipient that the content of such fax/ email has remain unaltered from the time it was generated by the sender. Furthermore, the recipient shall be required to produce the fax/ email in legible form to be able to have the same treated as an original document.

5. The ETO further provides for the criteria required for retention of any electronic document. Section 6 provides as follows:

6.         Requirement for retention.—The requirement under any law that certain document, record, information, communication or transaction be retained shall be deemed satisfied by retaining it in electronic form if:

(a)        the contents of the document, record, information, communication or transaction remain accessible so as to be usable for subsequent reference;

(b)        the contents and form of the document, record, information, communication or transaction are as originally generated, sent or received, or can be demonstrated to represent accurately the contents and form in which it was originally generated, sent or received; and

(c)        such document, record, information, communication or transaction, if any, as enables the identification of the origin and destination of  document, record, information, communication or transaction and the date and time when it was generated, sent or received, is retained. (emphasis added)

6. In light of Section 6 of the ETO, if a fax/ email is retained by the recipient in a form that such fax/ email: (1) remains accessible so as to be available for subsequent reference; and (2) represents accurately the content and form in which the same was originally generated; (3) while clearly providing the particulars in respect of its origin, destination, date and time, then the criteria laid down in Section 6 of the ETO shall be sufficiently satisfied.

7. The ETO by virtue of Section 29, read with the Schedule attached thereto, has amended the Qanun-e-Shahadat Order, 1984 (law of evidence) (the “Order”), the relevant amended Articles of which are provided/ discussed hereunder:

(a)                Certain expressions provided in the Order are to bear the meanings as provided in the ETO, including the expressions “automated”, “electronic”, “electronic document”, “information”, “information system” and “security procedure”. 

“security procedure” means a procedure which :

(i)                 is agreed between parties;

(ii)               is implemented in the normal course by a business and which is reasonably secure and reliable ; or

(iii)             in relation to a certificate issued by a certification service provider, is specified in its certification practice statement; for establishing the authenticity or integrity, or both, of any electronic document, which may require the use of algorithms or codes, identifying words and numbers, encryption, answer back or acknowledgment procedures, software, hardware or similar security devices.

(b)               Article 73 of the Order has been amended by inclusion of the following new explanations:

Explanation 3. A printout or other form of output of an automated information system shall not be denied the status of primary evidence solely for the reason that it was generated, sent, received or stored in electronic form if the automated information system was in working order at all material times and, for the purposes hereof, in the absence of evidence to the contrary, it shall be presumed that the automated information system was in working order at all material times.

Explanation 4. A printout or other form of reproduction of an electronic document, other than a document mentioned in Explanation 3 above, first generated, sent, received or stored in electronic form, shall be treated as primary evidence where a security procedure was applied thereto at the time it was generated, sent, received or stored.

(c)                A new Article 78-A has been inserted, in the Order, by virtue of the ETO as follows:

78-A. Proof of electronic signature and electronic document.—If an electronic document is alleged to be signed or to have been generated wholly or in part by any person through the use of an information system, and where such allegation is denied, the application of a security procedure to the signature or the electronic document must be proved.

8. As per the aforementioned relevant amendments to the Order, if a fax/ email is reproduced and presented in court, the same would be deemed to be evidence in primary form if the automated information system used by the recipient for obtaining the output of the fax/ email is in working order or if the same has been subject to a security procedure i.e. (i) has been obtained through a mechanism which has already been agreed between the recipient and its sender; or (ii) has been subject to implementation of a secure and reliable procedure carried out in the normal course of business; or (iii) which in relation to a certificate issued by a certification service provider, is specified in its certification practice statement, for establishing the authenticity or integrity, or both, of any electronic document, which may require the use of algorithms or codes, identifying words and numbers, encryption, answer back or acknowledgement procedures, software, hardware or similar security devices.

9. Furthermore, in the event a sender challenges the authenticity of the fax/ email received by the recipient, then as provided under the new Article 78-A of the Order, the application of any of the security procedures (as provided above) to the relevant fax/ email shall have to be proved by the recipient.

*italics have been used to differentiate the quotations from the rest of the text and to avoid confusion in the numbering. Italic and Underlined form is only to avoid confusion and provide emphasis, respectively.

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Myra Khan Qureshi is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Lahore, Pakistan.

Any queries may be directed to lawyereadia@gmail.com

Can I be stopped from undertaking competitive work after resignation from a company?

Restriction in a Contract: Professional / Employment / Trade Freedom

13 March 2014

Companies and firms in Pakistan usually contain a non-compete clause in their agreements. The wording of such clause can range from restricting another company from partaking in competitive work while engaged with the restricting party to restricting an employee from working with a competing firm after resignation.

Is such a clause valid and enforceable in Pakistan?

Yes, provided that it is reasonable.

Although Section 27 of the Contract Act, 1872 provides that any agreement that restrains a person from exercising a lawful profession, trade or business is void to that extent; the courts in Pakistan have held that a restraint of trade clause or a non-compete clause in an agreement is valid and is not hit by Section 27 provided that it is “reasonable”.

The test then falls simply on the question of whether such clause is “reasonable” which is evaluated on a balance of probabilities and evidence.

The High Court of Sindh in Exide Pakistan Limited vs. Abdul Wadood, 2008 CLD 1258 (Karachi) provided that:

reasonableness of the clause will vary from case to case and will inter alia, depend upon the following:–

the extent of duration;

the extent of the geographical territory.

The case law in Pakistan, briefly, illustrates the following principles:

(1) The restraint of trade clause should only be aimed at protecting interest of the employer and not aimed at penalizing the employee or causing him inconvenience.

(2) The clause should not be vague and generalized but should be rather specific.

(3) The clause shall only be the applicable to the particular type of business in which the employer is actually engaged in and not to any business activity in which the employer would possibly engage in the future.

(4) The restriction cannot be termed to be unreasonable as to time and scope i.e. “for eleven (11) months in XYZ Company”. By such covenant the defendant is not restrained from getting employment in an organization other than XYZ Company which is neither fair nor reasonable (see, Al-Abid Silk Mills Limited vs. Syed Mudassar Rizvi, 2003 MLD 1947 (Karachi)).

(5) A restriction may be placed as a form of good-will on the part of an ex-employee and to protect the ex-employer from having to compromise the fruits of his business because an ex-employee has opened up a competitive business in the same neighbourhood (see, generally, Shabih Haider Zaidi vs. Muhammad Zahoor Uddin, 2001 CLC 69 (Karachi)).

(6) In global contracts, incorporation of a restraint clause cannot be said to be hit by doctrine of restraint of trade, provided it is reasonable, on equal bargaining strength, is not unilateral and operates during the currency of the agreement (see, generally, Pak China Chemicals vs. Department of Plant Protection, 2006 CLD 210 (Lahore)).

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Myra Khan Qureshi is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Lahore, Pakistan.

Any queries may be directed to lawyereadia@gmail.com

Directors of a Company in Pakistan

14 February 2014

1. What do the Board of Directors do?

(1) Under the law, the Board of Directors is the repository of all corporate powers, except those powers which, by law, are to be undertaken by the shareholders or such powers which have been given to the shareholders under the Articles of Association of a company.

Section 196 of the Companies Ordinance, 1984 outlines the powers of the Directors.

(2) Directors have almost all the powers over the operation and management of the Company until they are removed. It has been held that the shareholders cannot undertake functions allowed to the Board under law (Abdul Malik vs. Janana De Malucho Textile Mills Limited, PLD 1973 Note 116 (Lahore)).

2. Can Directors hold Board Meetings through telephone/video conferencing?

Circular Number 20/2005 dated 10 November 2005 issued by the Securities and Exchange Commission of Pakistan allows the Board to conduct board meetings through telephone/video conferencing.

3. What if the matter is urgent and the Directors have no time to hold a regular meeting?

If the matter is urgent then the Directors may exercise certain powers on behalf of the Company without their formal meeting through a circular resolution or a resolution in writing, provided that this permission has been granted in the Articles of Association of the Company.

4. What are the fiduciary (ethical/legal) duties of Directors?

(1) In the Companies Ordinance, 1984, there are strict provisions for disclosure of interest/ conflict of interest of Directors (Sections 215 and 216)

(2) Directors must exercise their powers for (only) the purposes for which they were conferred and if they are for the benefit of the Company as a whole.

(3) Directors should ensure that they do not put themselves in a position in which their duties to the Company and their personal interests may conflict (Section 214).

(4) The Directors have a duty to take care of the Company.

5. What is the benchmark expected of a Director?

In discharging his duties, Directors must act honestly and must exercise such care as might be expected from an ordinary man (see, generally, Govind Narayan Kakade vs. Rangnath Gopal Rajopadhye, 1930 AIR Bombay 572). If a Director so acted, and the decision led to irregularities or losses, he would not be liable in negligence for breach of his duty of care (see, generally, Dovey vs. Cory, (1901) AC 477: (1895-9) All ER Rep 724 (HL)).

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Myra Khan Qureshi is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Lahore, Pakistan.

Any queries may be directed to lawyereadia@gmail.com