Mr. Umar Rashid's Profile
Umar Rashid is an Assistant Professor and Chairperson of Department of Skills Development and Co-Director Centre for Human Rights and Justice at University of Management and Technology. He received his LLB from University of London and his LLM from New York University (NYU), School of Law. He is an advocate of the High Court and a Fulbright Scholar, who earned a Deans Graduate Award and was the Mamdouha Bobst Global Scholar at NYU.
His research interests include public international law, law of international trade, international investment law, comparative law and Pakistan’s constitutional law.
Enforcement of Contracts and the Pakistani Courts: The Need for Greater Reliance on Liquidated Damages
The court system in Pakistan is plagued by lengthy delays in dispute resolution. In addition, Pakistan ranks 151 out of 189 countries in enforcement of contract which plays a role in making Pakistan one of the worst countries to do business in (138 out of 189). In this regard, greater reliance on liquidated damages can play an important role in improving enforcement of contracts and reducing delays in contractual claims in Pakistan.
Liquidated damages are those damages whose amount has been agreed upon by the parties at the time of the formation of the contract. These damages are payable to the innocent party in the event of breach of the contract or any of its terms. These can be distinguished from normal damages which are not predetermined but are only assessed, (by the courts, tribunals or parties) once the breach has occurred. Thus, liquidated damages can be beneficial in several ways: reducing the costs of contract breakdown by eliminating the expense of calculating damages and by reducing the likelihood of litigation. They also ensure that damages can be recovered even where they cannot be proved with sufficient certainty.
In Pakistan, liquidated damages are provided in s.74 of the Contract Act 1974. However, the courts have interpreted it in such a way that liquidated damages cannot be provided unless actual loss/ damage has been proved. This interpretation has the effect of disregarding the advantages liquidated damages provide by increasing the expense of going to trial, wasting valuable time in ascertaining the actual loss/ damage suffered and motivating parties to engage in litigation.
This paper will critically analyze the treatment of liquidated damages by Pakistan courts and make a case for greater reliance on liquidated damages. Such a change will play an essential role in reducing court delays and improving contract enforcement.