Syed Hasnain Ibrahim Kazmi
The Government of Pakistan has ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”). Following the ratification process, Pakistan is obligated to implement the New York Convention in its entirety. This requires comprehensive and extensive adaptation and mitigation measures across all sectors of the economy. The task is enormous, multidisciplinary, and inter-ministerial, demanding a coordinated effort at the national level.
Given the legally binding international requirements, the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (the “Act of 2011”) was enacted to fulfill Pakistan’s obligations under the New York Convention. The primary purpose of the Act of 2011 is to ensure the recognition and enforcement of arbitration agreements and foreign arbitral awards in Pakistan.
Before the Act of 2011, the Arbitration (Protocol and Convention) Act, 1937 governed the enforcement of such awards. However, with the enactment of the Act of 2011, the 1937 Act was repealed. Parallel to this legal framework, the Arbitration Act, 1940 (the “Act of 1940”) remains in force, consolidating and amending the law relating to domestic arbitration in Pakistan.
Domestic vs. International Arbitration
It is essential to distinguish between municipal and international law in this context. Municipal law governs domestic aspects of government and addresses issues between individuals and administrative bodies, whereas international law primarily governs relations between states. Similarly, while the Act of 1940 regulates domestic arbitration proceedings, the Act of 2011 is concerned with the recognition and enforcement of foreign arbitral awards.
Subsequent to the 18th Amendment to the Constitution of the Islamic Republic of Pakistan, the Act of 1940 became a provincial law, primarily dealing with domestic arbitration. It does not apply to international arbitration or any awards rendered therein. In Pakistan, parties are encouraged to use alternative dispute resolution (ADR) mechanisms for quicker and less costly dispute resolution.
To qualify as a foreign arbitral award under the Act of 2011, the arbitration must have taken place in a foreign state. This requirement eliminates certain misconceptions about what qualifies as a foreign award and the applicability of the Act of 2011. These misconceptions include factors like:
(i) the governing law of the contract,
(ii) the law governing the arbitration agreement,
(iii) the law governing the arbitration proceedings, and
(iv) the nationality of the parties involved.
Challenges in Enforcement
An arbitration award under the Act of 2011 cannot be enforced automatically. It must navigate the procedural requirements set forth in the Act. Unfortunately, some foreign arbitral awards fail to complete this process due to procedural technicalities in Pakistan’s legal system, in addition to the grounds for refusal outlined in Article V of the New York Convention. The language of Article V is permissive rather than mandatory, allowing exceptions like “Public Policy” to restrict the enforcement of foreign arbitral awards in Pakistan.
The superior courts of Pakistan have defined the grounds for Public Policy, which can be invoked if an arbitral award is contrary to a constitutional mandate, forbidden by existing law, or would defeat the provisions of any Pakistani law. However, Public Policy should not serve as a backdoor to review the merits of a foreign arbitral award or create grounds not available under Article V of the New York Convention. Such interference could undermine the effectiveness of arbitration clauses, encouraging parties to challenge foreign awards on Public Policy grounds.
The Act of 2011 explicitly states that High Courts in Pakistan cannot review the merits or substance of a foreign arbitral award, adhering to the principle that courts should not substitute their judgment for that of the arbitrators. The New York Convention leaves no room for Pakistani courts to examine the merits of a foreign award on factual or legal points. The High Court’s role is limited to directing the enforcement of the award as a judgment of the High Court. Moreover, the Act of 2011 limits the discretionary powers of the High Courts in Pakistan.
Moving Forward
The Supreme Court of Pakistan, in the case of Orient Power Company (Private) Limited vs. Sui Northern Gas Pipelines Limited, emphasized that in today’s fast-paced commercial world, Pakistan must incorporate the provisions of the UNCITRAL Model Law into its domestic law. Unfortunately, the Act of 2011 does not currently include the incorporation of arbitration clauses by reference.
The Federal Government may need to consider amending the Act of 2011 to address potential challenges in its implementation. As Pakistan embraces ADR mechanisms with the support and guidance of the superior courts, ensuring that no obstacles hinder the enforcement of foreign arbitral awards is a positive step. This will help build confidence among foreign investors and foster a commercially viable financial sector, which is crucial for Pakistan’s economic growth.
Author: Syed Hasnain Ibrahim Kazmi (Advocate Supreme Court)
Email: [email protected]
Cellphone # 03218452727
