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Governing law clause:

Clause 21 (choice of law clause) of the finance agreement provides

the law of Pakistan as the law applicable to construction of the
agreement and to the determination of the rights and obligations of
the parties thereunder. Kindly note that the choice of law clause is
usually relevant where parties have agreed to settle their disputes
through arbitration. An arbitration tribunal as opposed to the courts
of law is not obliged to apply the law of the place of arbitration. In
cases where disputes are to be settled through the courts of law, the
courts are bound to apply the law of their land. In view of the
exclusive jurisdiction clause conferring jurisdiction upon the courts at
Lahore (which shall in any case be obliged to apply the law of
Pakistan) to settle all disputes between the parties arising out of the
finance agreement, the choice of law clause is of no significance.
Exclusive jurisdiction clause:
We note that the finance agreement contains an exclusive jurisdiction
clause, wherein, the power to determine any dispute between the
parties can only be determined by the competent courts at Lahore.
Kindly note that only disputes arising out of the finance agreement
are subject to the exclusive jurisdiction clause.
The reference to the competent courts would be deemed to be a
reference to the banking courts as envisaged in the Financial
Institutions (Recovery of Finances) Ordinance, 2001 (Ordinance of
2001). The objective trialibility of all matters relating to the grant of
the finance pursuant to a finance agreement between a financial
institution and a customer is within the exclusive domain of the
banking courts established under section 5 of the Ordinance of 2001.
Whereas in respect of the territorial jurisdiction, the banking courts at
Lahore shall have the exclusive jurisdiction to adjudicate upon any
dispute between the parties. It may be noted that the parties cannot
confer jurisdiction upon a court, which it otherwise doesnt possess.
However, where two or more courts have jurisdiction to entertain a
suit, the parties can by mutual agreement confer exclusive jurisdiction
upon one court. There is abundant case law on this subject where the
courts have held that such an agreement is permitted in law and is
not against the public policy. Reference may be made to a recent case
titled Tradesmen International (PVT) Limited Vs Federation of
Pakistan through Secretary, Ministry of Food, Agriculture and
Livestock, and another reported as 2008 CLD 1217, wherein, the
court while determining the territorial jurisdiction of courts at K or
L observed that exclusive jurisdiction clauses in the agreement did

not restrict either of the parties to take up the matter to the court or
ordinary tribunals having jurisdiction under the relevant provisions of
the Code of Civil Procedure. It was held that the jurisdiction could be
stretched to either place at "K" or "L", however, the sanctity of
agreement had restricted both the parties to avail remedy at place "L"
by virtue of its clause. Accordingly, the court returned the plaint to
the plaintiff to file it before the competent court at L.

Enforcement expenses:
We have found clause 4 (b) of the finance agreement to be relevant in
this regard that entitled the bank to recover from the customer all
costs and expenses including legal and court costs incurred by the
bank in effecting recovery from the customer.
In this regard, in accordance with section 3 of the Ordinance of 2001
if a customer defaults in fulfillment of his obligations he shall, in
addition to the payment of cost of funds to the financial institution,
incur all civil and criminal liabilities under the contract or any other
law for the time being in force.
Section 35 of the CPC is the law for the time being in force relating to
the determination and payment of costs. It provides that the costs of
and incident to all suits shall be in the discretion of the court, and the
court shall have full power to determine by whom or out of what
property and to what extent such costs are to be paid. Costs of the
suit would include costs incurred on payment of court fees, notices
and any other cost as is allowed by the court to be recovered.
Fees paid to a legal counsel may be an incidental cost as stipulated in
section 35. The Lahore High Court Rules and Orders (the Rules)
have elaborated on the limit, manner and formal requirements vis-vis costs paid to the legal counsel. Part B of Chapter 16 (Volume 1) of
the Rules prescribe a maximum limit of Rs.15,000/- that can be
granted by a court inferior to the High Court as costs for fees of the
counsel provided the counsel submits a certificate in prescribed form
signed by him in the court certifying the amount of fees actually paid
by his client.
As regards the expenses incurred in the sale of the mortgaged
property, reference is made to section 19 (5) of the Ordinance of 2001
dealing with the execution of the decrees and sale of assets of the
judgment debtor in execution of the decrees. Section 19 (5) by
reference makes section 15 (9) of the Ordinance of 2001 mutatis
mutandis applicable to the sale of assets of the judgment debtor in
execution of the decree under section 19 of the Ordinance of 2001.

Section 15 (9) entitles the mortgagor to deduct all expenses of sale or

attempted sale from the net sale proceeds of the mortgaged property.
Material adverse change:
Under Clause 9-f of the finance agreement the Borrower represents to
the Bank that no material adverse change in the business, conditions
(finance or otherwise) operations or prospects of the Borrower since
the date of its financial statement. Kindly note that the representation
encompasses questions of fact (or matters relating to finance) that
may vary from case to case and are, therefore, beyond the scope of
the instant legal opinion.
Financial covenants:
The financial covenants in the finance agreement would be
interpreted differently according to the facts of each case. We note
that the contract confers certain rights on the Bank in case of breach
of any financial covenant by the Borrower. However, it would be in the
interest of the Bank to opine that where a party under a contract has
been conferred with a right and that party does not exercise its right
upon the commission or omission of any act triggering the option to
exercise that right, that party may be said to have waived its right. In
case of continuing relationship between the parties, that party cannot
insist upon the enforcement of that right then without notice to the
other party. Reference in this regard may kindly be made to the
renowned case of Panoustos Vs Raymond Hadley Corporation
cited as [1917] 2 K.B 473. However, mere silence has been held not
to be waiver of a right unless it is coupled with some clear and decisive act
or conduct beyond mere silence signifying the waiver of the right. Reference in this
regard may kindly be made to the case of Shaukat Ali Vs Sakhawat Hussain cited as
1985 CLC 34.
Failure on the part of the Bank to exercise its right accruing as a result of out of the
breach of any financial covenant would be held to a waiver of its right under the finance
agreement except as indicated hereinabove.