International Arbitration 2023 Comparisons

Arbitration as a method of dispute resolution is currently not prevalent in Pakistan. Parties still choose litigation as a means to resolve disputes. However, substantial efforts are being made to promote arbitration. A new Domestic Arbitration Bill 2023 is currently being drafted. Furthermore, in June 2023, the Chief Justice of Pakistan constituted the Arbitration Law Review Committee. The Committee has been formed to analyse the existing legislation on arbitration in Pakistan and recommend suitable measures, including legislation aligned with international and regional best practices on arbitration.

According to a recent report, the pendency of cases in Pakistan has surpassed over two million. There is an increasing recognition that the current system is not functioning effectively, and there is a need to move towards alternate methods of dispute resolution.

There have been various industries, including the energy sector, which have increasingly been using arbitration as a means to resolve disputes. FGE Ebrahim Hosain has recently acted for various LNG companies, and gas transmission and distribution companies in international arbitrations. For instance, it successfully acted for Sui Northern Gas Pipelines Limited (a gas transmission and distribution company) in LCIA Arbitration No 194490 against Quaid-e-Azam Thermal Power Limited (a government owned power plant).

Given the over-burdened court system, arbitration is being encouraged and promoted as an appropriate alternative method for dispute resolution across industries. Potential key industries within the jurisdiction which are likely to consider the increased use of arbitration include securities, telecommunications, textiles, the sports sector and commercial disputes generally.

The Center for International Investment and Commercial Arbitration (CIICA) is an arbitration centre in Pakistan which offers both mediation and arbitration services. The Chartered Institute of Arbitrations (CIArb) also has a Pakistan Branch which provides arbitration and mediation services in Pakistan. However, no new arbitral institutions have been established in 2021–23.

Furthermore, contracting parties in Pakistan often incorporate the institutional rules of international arbitral institutions into their contracts. For instance, parties often incorporate the London Court of International Arbitration (LCIA) Rules, the International Chamber of Commerce (ICC) Rules etc.

There are no specific national courts which hear arbitration disputes. These are heard by the ordinary courts.

Domestic Arbitration

The Arbitration Act 1940 (the “1940 Act”) defines “Court” as a Civil Court having jurisdiction to decide the question forming the subject matter of the reference if the same had been the subject matter of a suit. In domestic arbitrations, the Civil Court has jurisdiction to determine matters relating to the arbitration, as well as the enforcement of an award. The decisions of the Civil Court can be appealed to the High Court and the Supreme Court.

Foreign Arbitrations

Under the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (the “2011 Act”), the High Courts have exclusive jurisdiction to decide the recognition and enforcement of a foreign award. “Court” has been defined under the 2011 Act as a High Court and such other superior courts in Pakistan as may be notified by the Government.

The legal regime in Pakistan differs for domestic arbitrations and foreign arbitrations. The domestic arbitration regime is governed by the 1940 Act. The foreign arbitration regime is governed by the 2011 Act. Neither of these two laws are based on the UNCITRAL Model Law.

The 1940 Act is largely based on the Indian Arbitration Act 1940, whereas the 2011 Act was enacted pursuant to the ratification of the New York Convention, and for implementation of the same.

There have been no changes to the national law in the past year. However, as stated above, a new Domestic Arbitration Bill 2023 is currently in the works.

Domestic Arbitration

The 1940 Act defines an “arbitration agreement” as a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. An arbitration agreement must be in writing.

Section 20 of the 1940 Act states that where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them may apply to a court, requesting that the agreement be filed in the court. Section 34 of the 1940 Act enables a party to an arbitration agreement against whom proceedings are initiated in court to apply to stay the proceedings.

The courts have held that the purpose of these two sections is to seek enforcement of an arbitration against the party “guilty of avoiding/refusing arbitration” for resolution of the dispute. Furthermore, the courts have held that the nature of court orders under Section 20 and Section 34 of the 1940, can be equated with a decree in a suit for specific performance of a contract whereby the contracting parties are directed to settle their dispute according to the arbitration clause in the arbitration agreement instead of following the “intricate lengthy procedure through civil courts”. (2018 MLD Sindh 1770).

The courts are likely to enforce an arbitration agreement. Where a party initiates legal proceedings in contravention of the agreement, the courts are likely to stay the proceedings and refer the matter to arbitration.

Foreign Arbitration

Section 4 of the 2011 Act states a party to an arbitration agreement against whom legal proceedings have been brought in respect of a matter which is covered by the arbitration agreement may, upon notice to the other party to the proceedings, apply to the court in which the proceedings have been brought to stay the proceedings in so far as they concern that matter. On any such application, the court shall refer the parties to arbitration, unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. The use of the word “shall” indicates that this is a mandatory provision.

Furthermore, Article II (3) of the New York Convention (which is included as a Schedule to the 2011 Act) states that the court of a contracting state, when seized of an action in a matter in respect of which the parties have made an agreement shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the agreement is “null and void, inoperative or incapable of being performed”. This also includes a mandatory requirement to refer the matter to arbitration where there is a valid arbitration agreement.

Criminal matters are not arbitrable under Pakistan law. The Supreme Court has held, “the subject-matter of the reference to the arbitrator as well as of the Award, were opposed to public policy because they dealt with criminal case...” (1991 SCMR 1928). Furthermore, in certain cases, where special laws have been enacted, it has been held that the banking courts have exclusive jurisdiction, and the matter is not arbitrable. In one banking case the Sindh High Court held, “where a Special Tribunal has been created to adjudicate specified disputes such disputes cannot be referred to arbitration even if there is an Agreement between the parties to that effect…” (1999 MLD Sindh 64). In certain criminal matters or where there are special tribunals with exclusive jurisdiction established under law, the subject matter is not arbitrable.

The courts have held an arbitration agreement is a contract. For its terms to be valid and enforceable, they must satisfy the requirements of a written contract, and be sufficiently certain and clear. In one case, the term “authority” was used in an arbitration clause, and the Sindh High Court held “the arbitration clause in the agreement is vague, uncertain and parties are not ad idem about the definition of the term ‘authority’, as to which authority has to act as arbitrator...” (2003 YLR Sindh 1109).

In another case, the Sindh High Court held, “the arbitration agreement makes no provision as to the identity of the arbitrators or their number. This has still to be explored and agreed upon... Not only the agreement does not lay down the mode and manner of arbitration, but it is still to be decided and agreed upon…” (PLD 1973 Sindh 31). When determining the validity of an arbitration clause, the court considered the following: (i) whether there was a provision as to the identity of the arbitrators or their number and (ii) whether the mode and manner of arbitration was agreed by the parties.

In a recent decision, the Islamabad High Court held the question of what disputes fall within the scope of a particular clause is a matter of interpretation of such an agreement. The parties are free to agree as to what matters would be referred to arbitration (PLD 2020 Islamabad 52). Provided the terms of an arbitration agreement are sufficiently clear and certain, the courts are likely to enforce the arbitration agreement as a contract between the parties.

The courts in Pakistan recognise the principle of separability. In one case, the Islamabad High Court held the arbitration clause is severable from the main contract. The arbitration clause in the contract continues to exist even after the termination of the contract. If the main contract is repudiated or frustrated or cancelled or expired, the arbitration clause survives (2016 CLC Islamabad 1772).

Parties are given considerable autonomy on the appointment of arbitrators under the 1940 Act and the 2011 Act. Section 22 of the 1940 Act expressly states, “the arbitrator shall be appointed in such manner as may be agreed upon between the parties”. Parties are given freedom as to how to appoint arbitrators.

Where an arbitration agreement contemplates that two arbitrators shall determine a dispute, there is a default procedure provided under the 1940 Act for domestic arbitrations. Under Section 9(b) of the 1940 Act, where an arbitration agreement provides that a reference shall be to two arbitrators, one to be appointed by each party, and if one party fails to appoint an arbitrator, for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent.

A court may set aside any appointment made as sole arbitrator under Section 9(b) on sufficient cause being shown and allow the defaulting party further time to appoint an arbitrator.

The 2011 Act does not provide for court intervention in appointment of arbitrators.

Under the 1940 Act, a court may appoint an arbitrator under Section 8 in three situations: (i) where the arbitration agreement requires appointment by consent and the parties cannot agree to an appointment, (ii) if an appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy, or (iii) where the parties or the arbitrators are required to appoint an umpire and do not appoint him.

The requirement for appointing an umpire is contained in Section 10 of the 1940 Act. This section states where an arbitration agreement provides that a reference shall be to three arbitrators, one to be appointed by each party and the third by the two appointed arbitrators, the agreement shall have effect as if it provided for the appointment of an umpire.

Section 11 of the 1940 Act states, the court may remove an arbitrator in two situations: (i) where an arbitrator or umpire fails to use all reasonable dispatch in entering on and proceeding with the reference and making an award, or (ii) where an arbitrator or umpire has misconducted himself or the proceedings.

The 2011 Act does not provide for recourse to the courts to challenge or remove an arbitrator. Such a challenge would usually lie at the seat. However, at the recognition and enforcement stage, a challenge can be raised as a ground to resist enforcement. For instance, Article V(1)(d) states that an award may be refused recognition and enforcement if the composition of the arbitral authority was not in accordance with the agreement of the parties or was not in accordance with the law.

Neither the 2011 Act nor the 1940 Act contain any requirements for an arbitrator. However, through case law, certain prerequisites have been identified. In one case, the Islamabad High Court held, “it is, therefore, noted that in order to achieve the object of arbitration, an arbitrator necessarily has to be a person who is independent, impartial, neutral and non-partisan” (2019 CLD Islamabad 556). Through jurisprudence, it has been established that arbitrators must be independent, impartial and neutral.

Please see 3.2 Arbitrability.

The courts in Pakistan have, in many cases, recognised the principle of competence-competence in that an arbitral tribunal has the authority to rule on its jurisdiction. In one case, the Supreme Court held, “our courts have acknowledged the principle that an arbitral tribunal is a judge of both fact and law, the latter of which includes the question of its own jurisdiction” (PLD 2016 Supreme Court 121). In another case, the Supreme Court held, “in accordance with the doctrine of competence competence, the Sole Arbitrator was well within his rights to determine his own jurisdiction, and the learned counsel for Appellant has not been able to demonstrate that the tribunal lacked jurisdiction” (2021 SCMR 1728).

The power of an arbitral tribunal to rule on its own jurisdiction has been recognised by the courts.

The 1940 Act does give a party the right to challenge the jurisdiction of an arbitrator in the court. Section 31 of the 1940 Act states all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement shall be decided by the court in which the award under the agreement has been, or may be, filed, and by no other court. Section 33 of the 1940 Act states a party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the court and the court shall decide the question on affidavits.

However, importantly, under Section 34 of the 1940 Act, where there is an arbitration agreement and a party commences legal proceedings, a party to the agreement can apply to the court for a stay of the proceedings. If the court finds that there is a valid arbitration agreement, legal proceedings can be stayed.

Under the 2011 Act, the lack of jurisdiction can be raised as a defence to an application filed under Section 4. Section 4(1) states a party to an arbitration agreement against whom legal proceedings have been brought in respect of a matter which is covered by the arbitration agreement may, upon notice to the other party to the proceedings, apply to the court in which the proceedings have been brought to stay the proceedings in so far as they concern that matter. Section 4(2) states the court shall refer the parties to arbitration, unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. Therefore, in response to an application under Section 4, a party could raise the point of jurisdiction.

Sections 31 and 33 of the 1940 Act permit a challenge to the jurisdiction of an arbitrator in the pre-arbitration or post-arbitration stage. The Sections allow a party to challenge the validity of an arbitration agreement and apply to the court to decide the question of jurisdiction. There are no limitations on when such an application can be filed. It could be filed pre-arbitration, during the arbitration, or at the time of the award.

In foreign arbitrations, a party who wishes to challenge the validity of an arbitration agreement prior to the award must first initiate legal proceedings in the courts in relation to the dispute. If the other party files a Section 4 application for referral of the dispute to arbitration, a party can raise jurisdiction as a ground to oppose this application. Therefore, under the 2011 Act, a challenge to the jurisdiction of an arbitrator can be raised when a party applies under Section 4 to stay legal proceedings initiated in contravention of an arbitration agreement. As a defence to this application, the validity of an arbitration agreement can be raised, and a party can resist the stay of legal proceedings on this basis.

Furthermore, under Article V(1)(a) of the New York Convention, a party to an arbitration agreement can resist recognition and enforcement of the award on the ground that the agreement is not valid under the law to which the parties have subjected it.

In the context of foreign arbitrations, the courts have held that the phrase “null and void, inoperative or incapable of being performed” is not defined in the 2011 Act. The Islamabad High Court has interpreted the phrase as follows: “The arbitration agreement attracts the standard principles of contract law, therefore, as a corollary ‘null and void’, ‘inoperative’ or ‘incapable of being performed’ will also have to be construed and interpreted accordingly. Consequently, an ‘arbitration agreement’ may be null and void due to several factors recognised by the applicable law, eg, for lack of consent, capacity, fraud, etc. The invalidity in the case of being ‘null and void’ is from the very inception. The arbitration agreement will be ‘inoperative’ if for some reason it ceases to have effect. It will, therefore, be inoperative if, for example, disputes have been settled, or a judicial order has been passed by a competent court of law restraining the parties from giving effect to the arbitration agreement. Likewise, ‘incapable of being performed’ relates to circumstances where the enforcement or performance of the ‘arbitration agreement’ becomes impossible – eg, the forum agreed for arbitration no more exists, or the conditions of the ‘arbitration agreement’ are such that they are not capable of being enforced” (2015 MLD Islamabad 1646). It is on this basis as outlined that the validity of an arbitration agreement can be called into question.

The courts have applied a high standard to challenges to jurisdiction in the case of foreign arbitrations. The courts have held that it is for the party challenging the jurisdiction to demonstrate that the arbitrator lacked jurisdiction. In the case of SNGPL v Orient (2021 SCMR 1728), the Supreme Court held, “41. Under the facts and circumstances of this case and in accordance with the doctrine of competence competence, the Sole Arbitrator was well within his rights to determine his own jurisdiction, and the learned counsel for Appellant has not been able to demonstrate that the tribunal lacked jurisdiction, or that assuming jurisdiction as regard the Payment Agreement, exceeded his mandate under Article V(1)(c) of the New York Convention”. The courts will not readily accept jurisdictional challenges particularly in the case of foreign arbitrations.

As highlighted in 3.1 Enforceability, under both the domestic and the foreign arbitral regimes, where a party breaches an arbitration agreement by initiating legal proceedings, the other party can apply to the court for a stay of such proceedings. Provided that there is a valid arbitration agreement, the courts are likely to stay the legal proceedings and refer the matter to arbitration.

An arbitral tribunal does not have jurisdiction over a third party who is not a party to the arbitration agreement, and no binding decision can be given against third parties.

Section 18 of the 1940 Act permits the court, upon being satisfied by affidavit or otherwise, that a party has taken or is about to take steps to defeat, delay or obstruct the execution of any decree that may be passed upon the award, or that speedy execution of the award is just and necessary, to pass such interim orders as it deems necessary. The 1940 Act also permits an arbitrator to make an interim award. Section 27 of the 1940 Act states that arbitrators may, if they think fit, make an interim award. An interim award normally finally disposes of an issue in the arbitration, such as jurisdiction.

Section 41(b) of the 1940 Act states the court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the second schedule as it has for the purpose of, and in relation to, any proceedings before the court.

The second schedule states the courts shall have the following interim powers:

• the preservation, interim custody or sale of any goods which are subject matter of the reference;
• securing the amount in difference in the reference;
• the detention, preservation or inspection of any property or thing which is the subject of the reference or as to which any question may arise therein and authorising, for any of the aforesaid purposes, any person to enter upon or into any land or building in the possession or any party to the reference, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
• interim injunctions or the appointment of a receiver; and
• the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitration proceedings.

In contrast, the role of the courts in case of a foreign arbitration is extremely limited. Such procedural matters would ordinarily be raised at the seat of the arbitration.

Section 41 (b) of the 1940 Act states that the court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of, and in relation to, any proceedings before the court. Paragraph 2 of the Second Schedule states a court may pass orders “securing the amount in difference in the reference”.

Section 3(1) of the 2011 Act states the court shall exercise exclusive jurisdiction to adjudicate and settle matters related to or arising from the act. Section 3(2) of the 2011 Act states an application to stay legal proceedings pursuant to the provisions of Article II of the New York Convention may be filed in the court, in which the legal proceedings are pending (in contravention of the arbitration agreement). Section 3(3) of the 2011 Act states the court shall have all the powers vested in a civil court under the Code of Civil Procedure 1908.

Order XXV of the Code of Civil Procedure 1908 states that where at any stage of a suit, it appears to the court that a plaintiff is residing out of Pakistan and does not possess any sufficient immoveable property within Pakistan other than the property in the suit, the Court may either on its own motion or on the application of any defendant, order the plaintiff or the plaintiffs, within a time fixed by it, to give security for the payment of all costs incurred and likely to be incurred by any defendant.

The national courts have the power to order security for costs in suits and may exercise the same in relation to arbitration where there is a suit in relation to the same.

Parties are given the freedom to agree to the rules of procedure which are to apply.

In many decisions, the courts have held that arbitrators are not bound by strict rules of procedure and are given considerable discretion as to how to govern the procedure. The Sindh High Court has held, “the scheme of Arbitration Act, 1940 is to curtail litigation in regular Court to get disputes settled by avoiding all types of technicalities of procedural law… the technical rules of procedure contained in the Code of Civil Procedure are not extended to arbitration proceedings” (2006 CLC Sindh 1678). To enable the quick resolution of disputes, the courts have held arbitral tribunals are not required to comply with strict procedural rules which are mandatory in a civil case. 

The 1940 Act expressly identified the powers of an arbitrator. Section 13 of the 1940 Act states the arbitrator or umpire shall have power to: (i) administer oath to the parties and witnesses appearing, (ii) state a special case for the opinion of the court on any question of law involved, (iii) make the award conditional, (iv) correct any clerical mistake or error in the award, and (v) administer to any party to the arbitration such interrogatories as may, in the opinion of the arbitrator or umpire be necessary.

The arbitrator has a duty to act fairly and impartially. One of the grounds for objecting to an award under the 1940 Act is misconduct of an arbitrator.

There is no legal bar on foreign qualified lawyers appearing as counsel in domestic arbitrations in Pakistan. Unlike the courts, there are no strict rules of audience which apply.

The arbitrator is given significant autonomy as to how to govern the procedure, and how to adduce evidence in the proceedings. The strict rules of evidence as contained in Qanun-e-Shahadat Order 1984 (the domestic law on evidence) are not applicable to arbitration proceedings. The courts have also stated that the intricacies of the Qanun-e-Shahadat Order could not be invoked in arbitration proceedings (2003 YLR Sindh 1696).

Please see 8.1 Collection and Submission of Evidence.

Section 43(1) of the 1940 Act states that the court shall issue the same processes to the parties and witnesses whom the arbitrator or umpire desires to examine as the court may issue in suits tried before it. Section 43(2) states that persons failing to attend in accordance with such process shall be subject to the like disadvantages, penalties and punishments by order of the court on the representation of the arbitrator or umpire as they would incur for the like offices in suits tried before the court.

There are no express provisions as to confidentiality in the 1940 Act. However, there is a general expectation that matters and documents relating to the proceedings are to be confidential until the award and related documents are filed in court for enforcement.

The 1940 Act states that “award means an arbitration award”. Section 14 of the 1940 Act states when the arbitrators or umpire have made their award, they shall sign it and shall give notice in writing to the parties of the making and signing thereof and of the amount of fees and charges payable in respect of the arbitration and award. Signing and giving notice are two requirements. 

Furthermore, the First Schedule, paragraph 3 of the 1940 Act states the arbitrator shall make their award within four months after entering on the reference or such time as the court may allow. However, parties can, by consent, dispense with or extend the time period for issuance of the award.

There are no specific limitations prescribed on remedies available. An arbitral tribunal under domestic law has the power to announce “awards” and an award is vested with the status of a decree once it is made a rule of court by a competent court.

However, at the stage of objecting to an award, objections can be raised including that the remedy goes beyond the scope of the dispute referred by the parties, etc.

Paragraph 8 of the First Schedule of the 1940 Act states the cost of the reference and award shall be in the discretion of the arbitrators or umpire who may direct to, and by whom, and in what manner, such costs or any part thereof shall be paid. It is for the arbitrator to determine in the award questions of cost and interest pertaining to the dispute. Furthermore, Section 29 of the 1940 Act states where and in so far as an award is for the payment of money, the court may in the decree order interest, from the date of the decree at such rate as the court deems reasonable, to be paid on the principal sum as adjudged by the award and confirmed by the decree.

However, a recent decision of the Federal Shariat Court declared interest-based banking as against Islamic law. This decision has, however, been appealed to the Supreme Court, and is not currently binding. Interest in awards may be challenged on this basis as being contrary to public policy or otherwise unlawful. There is no reported judgment of the superior courts specifically dealing with this point at this stage.

Section 30 of the 1940 Act deals with setting aside an award. It states an award shall not be set aside except on one or more of the following grounds, namely: (i) that an arbitrator or umpire has misconducted himself or the proceedings, (ii) that an award has been made after the issue of an order by the court superseding the arbitration or after arbitration proceedings have become invalid under Section 35, or (iii) an award has been improperly procured or is otherwise invalid.

As regards foreign arbitrations, there is no appeal or setting aside of an award. An award may only be refused recognition and enforcement in accordance with one of the grounds in Article V of the New York Convention. Any challenge to a foreign award must be availed at the seat of arbitration.

Section 30 of the 1940 Act states an award “shall not be set aside except on one or more of the following grounds…” The 1940 Act expressly limits the grounds for setting aside an award to those expressly mentioned in the law. Section 7 of the 2011 Act states the recognition and enforcement of a foreign arbitral award shall not be refused except in accordance with Article V of the Convention. Parties cannot alter legal provisions through an agreement.

In Karachi Dock Labour Board v Quality Builders Private Limited (2016 PLD Supreme Court 121), the Supreme Court stated: “court is duty bound to examine the validity and legality of an award and it may sua sponte modify or set aside the award if the facts and dictates of justice so demand... Therefore, it is not possible to exclude a challenge to an arbitral award on the grounds provided under the law”.  The courts have expressly held that it is not possible to exclude challenges to an award which are expressly provided under the law.

One of the fundamental flaws in the 1940 Act is the standard of judicial review. The courts have held that the “misconduct” of an arbitrator is not limited to factual or procedural matters. “Misconduct” can also include errors of law. This expansive definition of misconduct adopted by the courts effectively gives a right to appeal to an objecting party. In Gerry’s International Private Limited v Aeroflot Russian International Airlines (2018 SCMR 662), the Supreme Court held that: “the arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. The arbitrator was a tribunal selected by the parties to decide their disputes according to the law and so was bound to follow and apply the law, and if he did not do so he could be set right by the Court provided the error committed by him appeared on the face of the award”.

However, in a recent case, the court adopted a more limited definition of misconduct under the 1940 Act. In National Highway Authority v Messrs Sambu Construction Co Ltd (2023 SCMR 1103) the court imposed costs on a party which challenged the award all the way up to the Supreme Court. A judgment authored by Justice Mansoor Ali Shah held, “In this case, the petitioner challenged the Award in the civil court thereafter in the High Court and now before us. The Award was announced in the year 2010 and the petitioner is still litigating the matter in 2023, totally undermining the purpose of ADR. Such practice must be strictly curbed... we have observed that the petitioner has dragged the Award in the courts for over last ten years, which passes for vexatious litigation; wasting the time of all courts below as well as this Court”.

The Supreme Court has noted that frivolous challenges to awards must be restricted.

On misconduct, Justice Shah stated, “misconduct of an Arbitrator in the judicial sense means failure to perform his essential duty or any conduct inconsistent with his duties, resulting in substantial miscarriage of justice between the parties...” This is a higher and more limited standard than has previously been adopted by the courts.

Pakistan is a signatory to and has ratified the New York Convention 1958.

Section 17 of the 1940 Act states that where there is no cause to remit or set aside the award the court shall proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow. Section 6 of the 2011 Act states that the court shall recognise and enforce the award in the same manner as a judgment or order of a court in Pakistan. An award, in both domestic and foreign arbitrations, shall be enforced like a judgment of a court in Pakistan. The execution takes place in accordance with the Code of Civil Procedure 1908. 

If an award has been challenged at the seat, in accordance with Article VI of the New York Convention, the court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security. There is no case law in Pakistan which sets out what factors the courts ought to consider when deciding whether to adjourn proceedings and give suitable security. Article VI states the court may adjourn if it “considers it proper”. The ultimate discretion lies with the enforcing court.

Section 7 of the 2011 Act states, “the recognition and enforcement of a foreign arbitral award shall not be refused except in accordance with Article V of the Convention”. The only grounds on which an award may be refused recognition and enforcement under Pakistan law are contained in Article V of the New York Convention.

Article V (1) of the New York Convention states recognition and enforcement of an award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that one of the grounds engages. Article V (2) states that recognition and enforcement may also be refused if the competent authority in the country where recognition and enforcement is sought finds that one of the grounds engages. Both Article V (1) and (2) use the phrase “may” refuse. This suggests that even if the enforcing court finds that any of the grounds in the New York Convention do engage, it still has discretion to recognise and enforce the award.

The courts in Pakistan have adopted a pro enforcement approach to foreign awards and stated that public policy must be given a restricted meaning. In Orient Power Company (Private) Limited v Sui Northern Gas Pipelines Limited (2021 SCMR 1728), the Supreme Court held: “104. Article V(2)(b)’s defense of public policy is one ground that is frequently invoked by a party resisting enforcement of the award, but rarely is it granted. We find that it would be remiss if we did not echo the Learned High Court in quoting the words of an English court upon this issue, which are by now almost inextricably linked to this topic and oft cited: public policy is a very unruly horse, and once you get astride it you never know where it will carry you. It may lead you from sound law. It is never argued at all, but when other points fail... 112. A restrictive interpretation on challenge to enforcement of an award would therefore, ensure finality of award at its last stage, giving greater certainty to parties after having gone through rigorous arbitrations. The New York Convention itself advocates for a “pro-enforcement bias” and we are mindful of the same”.

M/s Tradhol International SA v M/s Shakarganj Limited (Civil Original Suit No 80492 of 2017), the Lahore High Court held: “46. The “NY Convention” in Article V advocates ‘pro-enforcement bias’ policy in dealing with applications of recognition and enforcement of international arbitral awards. It sets forth the general principle that each contracting state shall recognize arbitral awards as binding and enforce them. As a result, foreign awards are entitled to a prima facie right to enforcement...”

The approach taken by the courts in Pakistan in connection to foreign awards is encouraging, and in line with the pro-enforcement bias of the New York Convention.

Furthermore, the courts have held that an award debtor cannot seek declaratory and injunctive relief on any of the grounds in paragraph 1 of Article V. In Abdullah v Messrs CNAN Group SPA (PLD 2014 Sindh 349), the Sindh High Court held, “This means that a ground in paragraph I, of Article V can only be taken in enforcement proceedings brought by the award-creditor and not otherwise. Action to be initiated by the award-debtor is precluded in such a situation, on account of the language used in Section 7 read with Article V. Put differently, at least insofar as paragraph 1 of Article V is concerned, Section 7 only operates as a shield and cannot be used as a sword”.

This limits the challenges to awards and ensures that award debtors cannot stay a foreign award. It ensures that an award creditor must file a case for recognition and enforcement, and the court can either recognise and enforce, or refuse to recognise and refuse. This is in accordance with the spirit and intent of the New York Convention. 

There are no express provisions in the arbitration statutes pertaining to group arbitrations. Provided this is by consent of the parties involved and there is an appropriate arbitration agreement in place, there is no express prohibition in the law stopping such arbitrations.

There are no specific ethical codes governing arbitrators. However, as stated in 4.2 Default Procedures, through case law, the courts have held that an arbitrator must be impartial and independent of the parties. As regards counsel in the arbitration, if counsel is registered with a Bar Council in Pakistan, they are bound by the Legal Practitioners and Bar Councils Act 1973 and the rules made thereunder. 

There are no express provisions in the arbitration statutes which pertain to third-party funding. Any third-party funding agreement would need to be examined under ordinary principles of contract law. Section 23 of the Contract Act 1872 states that the consideration or object of an agreement is lawful unless it is prohibited by law, is fraudulent, involves or implies injury to the person or property of another, or the court regards it as immoral or opposed to public policy.

The validity of any third-party funding agreement could be called into question on grounds of public policy or fraud as set out in Section 23. In Pakistan, generally, there is no third-party funding of litigation and a successful litigant is not permitted to share the proceeds of any decree or award.

There is no bar on consolidation in the 1940 Act. By consent of the parties, an arbitration may be consolidated.

The First Schedule of the 1940 Act pertains to implied conditions of arbitration agreements. Paragraph 7 of the First Schedule states that the award shall be final and binding on the parties and persons claiming under them respectively. This clearly suggests that the award is binding only on the parties to the agreement, not a third party. However, there may be certain limited exceptions including where an arbitration agreement signed by an agent is binding against the principal.