Stipulation in agreement cannot override plain meaning of a provision of law, says law ministry

ISLAMABAD: Ministry of Law and Justice has held that stipulation in an agreement cannot override the plain meaning of a provision of law nor can it operate as estoppel, well informed sources told Business Recorder.

Directorate General of Gas (Petroleum Division) had sought opinion from Law Ministry on applicability of Gas Sales Agreement (GSA)/ PPA with respect to overriding effect on the Natural Gas (Development Surcharge) Ordinance, 1967.

Law and Justice Division, in its comments on Ministry of Energy (Petroleum Division) Office Memorandum (OM) of December 30, 2022 on applicability of Late Payment Surcharge (LPS) on delayed payment of Gas Development Surcharge (GDS), with specific reference to the documents requested by Law Division on November 3, 2022 has stated that Kandhkot Mining Lease had been granted to Pakistan Petroleum Limited (PPL) on October 19, 1964 with effect from January 15, 1962. There appears no freezing clause with respect to the application of laws in the said mining lease.

“Be that as it may, the obligation under the Gas Development Surcharge Ordinance, 1967 is with respect to collection of GDS from the buyer of the gas and thus is not related to exploration and production activity,” said Law Ministry.

The other instrument, according to Law Ministry is Gas Sale/ Purchase Agreement of December 31, 1986 and 1st Supplemental and 2nd Supplemental agreement of December 21, 1989 and January 1, 1993, respectively, between PPL as seller and Water and Power Development Authority as buyer.

Section 11 of the said Gas Sale/ Purchase Agreement provides as follows:

“In addition to the price of raw gas the buyer shall also pay or reimburse to the seller, on production of proof by the Seller, all taxes, duties, charges or levies of whatsoever nature and howsoever calculated levied or that may be levied on natural gas by federal, provincial or any local Government including surcharge if imposed by any such Government on sale of raw gas.”

Law Ministry has also stated that charges under Section 11 also become part of monthly bills as provided under Section 15 (a) (Payment of Bills), which if not paid within the stipulated time, would attract late payment surcharge.

Although at the time of signing of Gas Sale Purchase Agreement, PPL was not included to the Schedule to the GDS Ordinance; however, Section 11 amply provides for possibility of collection of GDS in future. Hence, merely because Section 15(a) (Payment of Bills) of the Gas Sale/ Purchase Agreement does not back to back cover 15% late payment surcharge as provided for in the GDS Ordinance would not relieve PPL from obligation to pay 15% late payment surcharge under the GDS Ordinance. Secondly, PPL was included in the Schedule of the GDS Ordinance vide Notification of July 29, 1989 while 1st Supplemental to the Gas Sale/ Purchase Agreement was signed on December 211989.

According to Law Ministry, PPL had the opportunity twice (i.e., in 1989 and 1993) to have Section 15(a) amended to back to back cover 15% late payment surcharge in the agreement.

After explaining the background, Law Ministry has stated that its viewpoint of November 3, 2022 would remain intact also with respect to Kandhkot Mining Lease and Gas Sale/ Purchase Agreements prior to the date of promulgation of GDS Ordinance or inclusion of PPL in the Schedule thereto, as the case may be.

In November 3, 2022 letter, Law Ministry had stated that it is clear that the obligation to collect and pay the GDS is on the Company(s). It is for the Company(s) that at the time of entering into’ sale agreements with the buyers, they were/ are to take into account requirement of payment of Statutory LPS.

The Company(s)’ obligation to pay Statutory LPS cannot be avoided on the basis that the respective sale agreements provide for no or less amount of late payment surcharge(s) or that the Company(s) cannot, under their respective back to back contractual arrangements, recover the late payment surcharge from the buyers.

Law Ministry had maintained that it is a principle now well settled by the Superior Courts of Pakistan that stipulation in an agreement cannot override the plain meaning of a provision of law nor can it operate as estoppel. Reliance is placed on Abdul Malik Vs Haji Ejaz Ahmed 1985 SCMR 1555; Abdul Latif Vs Parmacie Plus 2019 SCMR 627.

Terms of an agreement providing for overriding effect over legislative process and attempting to make subservient the laws of a sovereign country could not be approved, as per Maulana Abdul Haque Baloch Vs Government of Balochistan through Secretary Industries and Minerals Development 2013 PLD 641 SC.

Copyright Business Recorder, 2023