We have been receiving numerous inquiries concerning the environmental, health, safety, and tax issues related to the ship breaking industry in Pakistan. To assist our clients in understanding the legal intricacies involved, we have compiled a summary of recent significant cases. For professional legal advice regarding any matters pertaining to ship breaking in Pakistan, please contact aemen@joshandmak.com.
HYDRI SHIP BREAKING INDUSTRIES LTD v. Sindh Government (2007 MLD 770 Karachi High Court)
In this case, the petitioners sought relief under a constitutional petition against the Sindh Government, challenging the vires of the Octroi Rules and the interpretation of “consumption, use or sale within the Octroi limits.” The High Court entertained the constitutional petitions as an alternate remedy by way of appeal under the West Pakistan Municipal Committee Octroi Rules, 1964, was deemed inadequate and inefficient. The court emphasized that a speedy decision was necessary due to the involvement of significant amounts and the impact on the entire ship-breaking industry.
USMAN ENTERPRISES v. Federation of Pakistan (1997 MLD 3161 Quetta High Court)
Usman Enterprises contested the penalty imposed for non-payment of outstanding dues under the Customs Act, 1969, and the Deferment of Import Duty (On Ships for Scrapping) Rules, 1993. The High Court held that the authorities could not charge a penalty for recovery of specified mark-up dues as it was not sustainable under the law. The action by the authorities was declared without lawful authority and of no legal effect, highlighting the limits of administrative powers in imposing penalties.
SPHINX SHIPPING AGENCY P.E.C.H.S v. M.V. Justice (1997 PLD 216 Karachi High Court)
This case involved a suit against a vessel for the recovery of claims under the Admiralty Jurisdiction of High Courts Ordinance, 1980. The court found that the plaintiff’s claim was not covered under the provisions of maritime lien, as the vessel in question had been completely dismantled and no longer existed. The court dismissed the application for arrest and detention of the ship, recalling the interim order earlier granted.
SEMCO SALVAGE PTE LIMITED v. Kaptan Yusuf Kalkavan Turkish (1995 MLD 706 Quetta High Court)
SEMCO Salvage Pte Limited sought to recover remuneration for salvage services provided to a vessel that had been arrested and sold in Egypt. The court determined that the relevant law for maritime liens was Egyptian Law, which ceased to exist upon judicial sale of the vessel. The High Court dismissed the claim, emphasizing the need for judicial sale by a competent court to maintain a maritime lien.
GOVERNMENT OF BALOCHISTAN v. Shershah Industries Ltd., Karachi (1992 SCMR 1062 Supreme Court)
The Supreme Court upheld the imposition of duty on ship-breaking by the local council, affirming the efficacy of earlier notifications under the Balochistan Local Government Act 1975 and the Balochistan Local Government Ordinance, 1979. The court recognized the continuance of tax imposition as per the terms of the existing law.
FEDERATION OF PAKISTAN v. Messrs Noori Trading Corporation (Private) Ltd. (1992 SCMR 710 Supreme Court)
In this case, the Supreme Court addressed the excise duty on iron and steel plates recovered from ship-breaking. The court ruled that the liability to pay excise duty arose from the date goods were cleared for export or home consumption, dismissing the contention that the plates were not liable to excise duty as they were recovered before the relevant ordinance came into effect.
Recent Cases
The recent cases on ship breaking in Pakistan reveal significant insights into the legal and policy frameworks governing this industry, highlighting issues related to lease agreements, administrative actions, and judicial interpretation of relevant statutes and regulations.
In the case of Usman Ship Breakers v. Government of Balochistan (2024 PLD 50 Quetta High Court), the petitioner, a ship-breaking company, challenged the cancellation of its plot allotment in Gaddani Ship Breaking Yard. The court upheld the cancellation, emphasizing the compliance requirements under Rule 14(1) of the 1979 Rules, which mandated that plots must not remain vacant without a ship for more than four months without prior written approval from the Authority. The court found no substantial evidence supporting the petitioner’s claim of financial crises and noted that the lease agreement had already expired. This case underscores the strict regulatory environment and the importance of adhering to lease terms and conditions in the ship-breaking industry.
In Muhammad Anwar v. Pakistan (2023 PTD 1519 and 2023 PLD 391 Karachi High Court), the plaintiff sought damages for the loss incurred when a ship purchased for breaking sank, and the authorities prevented the scrapping of the submerged vessel. The court ruled in favour of the plaintiff, highlighting that the actions of the Income Tax Department officials were tainted with malafide intent and exceeded their jurisdiction. This decision illustrates the judiciary’s role in protecting businesses from administrative overreach and emphasizes the principles of vicarious liability and compensation for wrongful acts by government functionaries.
The case of A&B Petrol Urunleri Pazarlama v. MV Nazlican (2022 PLD 1 and 2021 CLD 1049 Quetta High Court) dealt with the recovery of money for fuel supplied to ships that were later sold and in the process of breaking. The court held that the suit was not maintainable under the Admiralty Jurisdiction of High Courts Ordinance, 1980, as the ships were no longer beneficially owned by the defendants. This decision highlights the complexities of admiralty law and the need for clear proof of ownership and jurisdiction in maritime claims.
In Ghulam Ali Bhatia v. The Federation of Pakistan (2020 PTD 2038 Karachi High Court), the petitioners challenged the discriminatory tax treatment favouring the ship-breaking industry. The court dismissed the petition, upholding the policy decision to grant tax incentives to the ship-breaking industry, considering the unique risks and financial implications involved in ship breaking compared to other scrap importers. This case reflects the court’s deference to policy decisions aimed at supporting specific industries and acknowledges the distinct nature of ship-breaking operations.
Lastly, in Muhammad Rafique v. Federation of Pakistan (2014 PTD 1881 Quetta High Court), the petitioners contested the retrospective application of increased advance income tax rates on vessels imported for demolition. The court ruled that retrospective application of tax changes was inequitable and unjust, thus protecting the petitioners’ vested rights based on pre-existing agreements. This decision underscores the principle that legislative and executive actions should not impair contractual rights and highlights the importance of legal certainty and fairness in tax administration.
These cases collectively illustrate the legal landscape of ship breaking in Pakistan, characterized by stringent regulatory compliance, judicial protection against administrative overreach, complexities in maritime claims, and deference to policy decisions supporting the industry. The courts have balanced the enforcement of regulations with the protection of business rights, ensuring fairness and adherence to the rule of law.
