INTERNATIONAL COMMERCIAL ARBITRATION AND ENFORCEMENT OF

FOREIGN ARBITRAL AWARDS IN PAKISTAN

By:
INAAMUL HAQUE** & NAEEM ULLAH KHAN** & NAEEM ULLAH KHAN****

Abstract

International commercial arbitration has become a preferred mode of resolution of transnational

commercial disputes. Given progressively increasing international transactions in the globalized world,
international convention relating to arbitration, existence of, international organizations, facilitating
arbitration, internationally acceptable arbitral rules and the flexibility to choose the procedure and
designate the arbitrators certainly makes arbitration much more popular than the conventional litigation.
To recognize this development Pakistan has ratified the United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards. To comply with this treaty an Ordinance has been,
promulgated. This has brought about a qualitative change in respect of foreign arbitral awards. Contrary
to earlier provisions of law it is no longer discretionary with courts to refuse stay of proceedings before
than in any case where there exists a solemn agreement to get the disputes resolved through foreign
arbitration. It is important for all organs of state to abide by international commitments made by Pakistan
made by Pakistan.

1. Introduction

1.1 International commercial transactions have been enormously growing since the latter half of the
twentieth century. Globalization –signifying greater integration of economies all over the world-has been
significantly contributing to this trend. With the growth in the number of transnational transactions, trade
disputes between the parties located in different countries have also visibly increased. Preference for
arbitration, as a method to resolve disputes, represents a response to the emerging changes in international
commercial landscape. Besides this, as pointed out by an eminent expert one of the important reasons for
popularity of arbitration in recent decades “has been the enactment of legislation in many countries
restricting judicial intervention”.1[1]

Till recently all over the world arbitration was not little more than an additional step in litigation process.
However, a qualitative change has occurred and arbitration has become a far more important mode of
dispute resolution than ever before.

1.2 Arbitration has indeed emerged as a credible alternative to dispute resolution through national
courts. Needless to emphasize, a clause providing for arbitration in commercial contracts is voluntary
having been incorporated by free consent of the parties. Those opting for arbitration, inter alia, exercise
greater control over matters regarding the appointment of arbitrators, the language of arbitration, the place
of arbitration ( i.e. forum) and the law governing arbitration. Principles to be applied to the matter under
dispute need not be tied to any particular national law. The dispute can be decided, if the parties so
choose, on equitable principles (ex aequo et bono)2[2] or principles of law merchant (lex mercatoria).3[3]

2. Definition and Historical Background of Commercial Arbitration

2.1 Arbitration, refers to, an arrangement for settling a dispute by resorting to resolution according to
the judgment of a selected person or persons rather than taking the matter into the established courts of
justice.4[4] Black’s law Dictionary defines arbitration as: “a method of dispute resolution involving one

** & NAEEM ULLAH KHAN*.Inaamul Haque LL.M (Harvard), Distinguished Scholar /Member Adjunct Faculty,
Punjab University Law College, Former Executive Director World Bank, Advocate High Court.

** **.Naeemullah Khan, LL.M (Punjab,) Lecturer Punjab University Law College.

*. This article contains personal views of authors and do not necessarily reflect those of any organization.

1 [1].M. Pryles, International Trade Law, 652 (1996).

2 [2].“ex aequo et bono” is a Latin phrase meaning what is equitable and good. A person who is authorized to decide “ex aequo
et bono” is not bound by legal rules and may instead follow equitable principles. Black’s Law Dictionary 581, (1999).

3 [3].“Lex-mercatoria” is a Latin term which means “Mercantile Law” Black’s Law Dictionary. 923, (1999) Lando,’ Lex-mercatoria
in International Commercial Arbitration (1985) 34 ICLQ 747.

4 [4].See A New survey of Universal Knowledge Encyclopedia Britannica, 214, Vol.2 (1964).
or more neutral third parties who are usually agreed to by the disputing parties and whose decision is
binding”.5[5]

2.2 The history of arbitration goes back to antiquity. This mode of setting dispute was adopted
occasionally between the various city-states of ancient Greece. In the later times it was resorted to
between the 12th and the 15th centuries in the Western Europe. International arbitration in modern times
began with the Jay Treaty6[6] of 1794, between Great Britain and the United States. It was agreed under
the treaty to submit for adjudication, to a commission consisting of members of both countries a variety
of matters that included determination of boundary disputes, contentious issues related to the exercise of
belligerent rights at sea by Great Britain during its war with France as well as the fulfillment by the U.S.,
in the same war, of its obligations of neutrality.7[7]

2.3 In England, arbitration is, as a matter of fact, older than the Common Law system itself.
Arbitration was adopted as a popular means of commercial dispute resolution as far back as 1224. The
attitude of English Courts to arbitration had been however, fluctuating from stiff opposition to cautious
welcome. The Common law courts initially looked jealously at agreements to submit disputes to
extrajudicial fora. The passage of time and growth of commercial activities led to a more positive change
in judicial attitude.8[8]

3. Rationale for Opting for Arbitration

3.1 Before setting out the rationale for the commercial community to opt for arbitration as a method
of dispute resolution, it would be appropriate, to enter into a caveat i.e. arbitration does not provide an
ideal method to resolve dispute principally due to its inability to achieve final dispute resolution because
of frequent interventions by courts. Nevertheless the situation has changed for batter in those jurisdictions
that have adopted more progressive arbitration oriented laws. This has also contributed to the popularity
of arbitration.

Two Categories of Reasons

3.2 Reasons for increasing preference for arbitration can be divided into two categories viz (a) technical
and (b) structural

Technical Reasons9[9]

Privacy and Confidentiality

3.3 Generally, parties wish to keep commercial disputes private and confidential. This is rarely possible in
case of litigation. Arbitrators, on the other hand, are not free to disclose information about proceedings to
third parties and the likelihood of media intrusion into arbitration process is remote, certainty much more
remote than in litigation.10[10]

Free Consent of Parties

3.4 Parties to arbitrations are free to determine the number and method of selection of arbitrators.
Arbitrators may be selected on the basis of neutrality, legal expertise of a particular legal system and
technical expertise.

Flexibility and Economy

5 [5].Supra note 2 at 100.

6 [6].George Washington, United States’ first president had an arbitration clause in his will that stipulated that in case dispute
arose over the wording of the document a panel of three arbitrators be set up to render a final and binding decision.

7 [7] .Supra note 4 at 216.

8 [8] .A. Khan and Barrister T. Rana (Surridge & Beecheno) Arbitration / ADR vs. Litigation available at
http//www.hg.org/articles-1530.html (2006).

9 [9] .Supra note 1 et al, 650.

10 [10].M. Pryles, Institutional International Arbitration, in the Arbitrator, 127 (1991).

3.5 A court of law has its own established procedures concerning the institution and conduct of actions,
proof of facts and manner of proceedings. On the contrary in case of arbitration the parties have great
flexibility to choose the procedure which they deem appropriate and this can be done by an ad hoc
agreement or by selecting particular rules such as International Chamber of Commerce (ICC)’s arbitration
rules or the UNCITRAL arbitration rules. 11[11] The settlement of commercial disputes through
arbitration is relatively more economical and expeditious.

Effectiveness

3.6 In international commercial disputes the parties are resident of or their places of business activities are
located in different states. This leads to difficulties in dispute resolution. Particularly in case of judicial
forums their proceedings in respect of international disputes suffer form several handicaps. The
jurisdiction or competence of courts is limited by reference to specific criteria and these may not be
competent to adjucate a matter involving a foreign defendant or where there are claims of state immunity.
In short there can be many hurdles in the way of effective resolution of disputes in courts. On the other
hand arbitration has much greater effectiveness in matter of dispute resolutions and enforcement of
foreign awards especially due to the existence of an international convention in this behalf.

Structural Reason

3.7 The fundamental reason for preference of arbitration in matters of international trade, to judicial mode
of dispute resolution springs from the very structure of judicial option. From the perspective of traders
engaged in international commerce, lack of a truly international court is a significant barrier to
transnational trade. National courts have their inherent limitations and are at times perceived by one of the
parties to be leaning towards the other. This limitation of national courts is felt all the more in the
contemporary globalized world as a relic of an era that has come to an end. On the other hand commercial
(and also that related to investment disputes) arbitration is much more genuinely international. As
mentioned above none of the parties is obliged to follow any particular legal system in arbitration
proceedings. Flexibility of choice in this connection is really treasured by the parties. Further. There are
truly international rules (e.g. of ICC) which provides for an impartial regulating framework. Likewise the
UNCITRAL12[12] has developed a set of rules of arbitration, which, along with those of ICC are widely
accepted internationally. In case of investment disputes there is a specialized centre for settlement of
investment disputes (ICSID).13[13] As regards determinations in foreign arbitration proceedings there
exists the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
commonly known as the “New York Convention” 14[14] which has greatly facilitated the process and
invested arbitration with commendable degree of effectiveness. 15[15]

In nutshell international convention relating to arbitration, existence of international organizations,

facilitating arbitration, internationally acceptable arbitral rules coupled with the flexibility to choose the
procedure and designate the arbitrators certainly makes arbitration much more international or neutral in
flavour than litigation.16[16] Hence greatly enhancing preference of international business community for
arbitration to judicial proceedings.

4. Current Situation

4.1 England: In England the Arbitration Act 1950 has provided for regulating arbitrations made as a
result of agreements between the parties, as well as under the statutory provisions of various laws.

11 [11].Supra note 1 at 650.

12 [12].United Nation Commission on International Trade Law was established by the UN General Assembly in 1966. Since then
it has been working for the harmonization of International Commercial Law, Sale of Goods, Transport of Goods and
Commercial Arbitration.

13 [13].International Center for Settlement of investment disputes. ICSID is a specialized international organization created by
the Washington Convention, which came into force in 1966.

14 [14].This Convention applies to the recognition and enforcement of arbitral awards made in the territory of a state other than
the state where the recognition and enforcement of such awards are sought and to arbitral awards not considered as
domestic awards.

15 [15].R. Folsom et al, International Business Transactions, 1145 (1999).

16 [16].Supra note 1 at 652.

4.2 United States: Currently in the United States arbitration generally follows the pattern of English
common law system. All states have statutory provisions for arbitration. Trade associations and chambers
of commerce provide arbitration facilities to the businessmen for settling commercial disputes.

4.3 India —Arbitration as a method of resolving dispute came to be first regulated under the East-
India Company. The most significant development in this regard occurred in 1940, when an Arbitration
Act was passed for British India. This law continued after independence till 1996 when it was replaced by
the Arbitration and Conciliation Act.

4.4 Pakistan — The Arbitration Act, 1940 as amended is still applicable. In addition, arbitration has
also been provided in number of Pakistan laws, such as Societies Act, Companies Ordinance, 1984 17[17]
and Code of Civil Procedure (CPC), 1908. As regards foreign arbitral awards the law till recently had
been Arbitration (Protocol and Convention) Act.18[18] The current relevant law relating to such awards is
the Recognition and Enforcement of Foreign Arbitral Awards Ordinance 2007. 19[19]

5. Models of International Commercial Arbitration

5.1 There are two main types of international commercial arbitrations. Contracting parties may opt
either for institutional arbitration provided by national or international institutions or for ad-hoc
arbitration.20[20]

5.2 Institutional Arbitration21[21]

The institutional arbitration refers to an arrangement under which the parties choose the rules of a
particular institution such as the International Chamber of Commerce (ICC) or the American Arbitration
Association (AAA)22[22] or the Netherlands Arbitration Institute (NAI). These are well known
international institutions which generally supervise the arbitration processes and provide support
services.23[23] This type of arbitration prescribes specific procedural rules to resolve the dispute and
provide valuable support through scrutiny of arbitral awards and handling administrative matters
quickly.24[24] Thus the procedural framework is fairly structured and proceedings are conducted in a
systematic manner.

5.3 Ad-hoc Arbitration25[25]

Ad-hoc arbitration alludes to a dispute resolution regime created by the parties themselves and does not
involve any supervisory oversight by any institution. Often no established set of rules governing the
matter are specified. It is up to the parties to decide on the procedure to be followed and they may
formulate their own procedural rules. This kind of arbitration may, at times, generate complications
because there are no institutions to guide and enforce rules or witherwise facilitate the process. One
preferred solution is to adopt the UNITRAL rules which are suitable for use in ad-hoc arbitration.
Institutional and ad-hoc arbitrations both have advantages and disadvantage but on the balance
institutional arbitration is found more practicable.26[26]

17 [17].See section 283 of Companies Ordinance, 1984.

18 [18].See Arbitration (Protocol and Convention) Act, 1937.

19 [19].This law for the first time was promulgated in 2005. However, still the Parliament has not enacted it as an Act. It has
remained an Ordinance (repeatedly re-promulgated).

20 [20].See generally I. Carr et al, International Trade Law, 621 (2005).

21 [21] .Id

22 [22].http\\:www.adr.org visited on February, 2008.

23 [23].See generally supra note 10.

24 [24].See generally supra note 20 at 622.

25 [25].See L. D’Arcy et al, The Law and Practice of International Trade (Schmitt off’s Export Trade), 477 (2000).

26 [26].Supra note 10.

6. Applicability of Arbitration Clause and Enforcement of Foreign Arbitral Awards in
Pakistan

6.1 The Arbitration Act, 1940 as stated above, governs the enforcement of domestic arbitration
agreements in Pakistan. As regards foreign awards and their enforcement the relevant law till recently
had been Arbitration (Protocol & Convention) Act, 1937 based on the Hague Convention. Section 3 of
the Act gave effect to provisions of this law in matters of stay of proceedings notwithstanding anything
contained in Arbitration Act 1940 and the Code of Civil Procedure (CPC) 1908. However, one important
condition was the fact of reciprocity. Before this law could become applicable it was essential that in the
concerned foreign country reciprocal legal provisions had been made. Further, it was provided that a
foreign award subject to provisions of this law would be enforceable as if it were an award made on a
matter referred to arbitration under the domestic law.27[27]

Both under the Arbitration Act, 1940 and Arbitration (Protocol and Convention) Act, 1937

If a party, notwithstanding, existence of valid arbitration agreement chooses to initiate judicial

proceedings the there are/ were provisions for stay of such proceedings.28[28]

6.2. Under section 34 of the Arbitration Act, 1940 any party to the arbitration agreement facing judicial
proceedings initiated by another party to arbitration agreement, can apply for stay of these proceedings.
The court, if satisfied, that there is no sufficient reason as to why the matter should not be referred to
arbitration may accordingly stay them. However, the power of the court is discretionary and it may very
well refuse to stay judicial proceedings if satisfied that there is no satisfactory reason for making
reference to arbitration and substantial miscarriage of justice would take place or inconveniences would
be caused to parties.

6.3 Likewise section 3 of the Arbitration (Protocol & Convention) Act, 1937 provides for stay of
proceedings initiated by one party to arbitration agreement against another party to the same agreement.
The court was required to make an order to stay the proceedings unless satisfied that the agreement or
arbitration has become inoperative or cannot proceed or that there is not in fact any dispute between
parties.

7. Relevant Case Law

7.1 The degree of deference accorded to arbitration clause can be best appreciated by reference to relevant
case law. In Federation of Pakistan vs. Al Farooq Builders. 29[29] The High Court of Sindh held that
truly speaking the arbitrator is a judge of all matters arising out of a dispute whether of fact or law and the
court is not to act as a court of appeal sitting in Judgment. In President of Islamic Republic of Pakistan
Vs. Syed Tasneem Hussain Naqvi30[30] it was observed that the court should always endeavour to sustain
the award rather than destroy it unless it could be shown by sufficient and reliable material on the record
that the arbitrator was guilty of misconduct or that the award was beyond the scope of reference or that it
was violative of a statute or was in contradiction to the well settled norms and principles of law.’ In case
of Meredith Jones & Co through Attorney vs. Usman Textile Mills, 31[31] it was held by the Supreme
Court that the award could be challenged only on the grounds mentioned in section 30 of the Arbitration
Act, 1940 i.e. if the Arbitrator had misconduct himself and the proceedings were not based on merits.
The court while hearing objections against the award could not sit as a court of appeal against the award
and interfere with it on merits.

7.2 The courts, however, have been very much conscious or rather jealous of their jurisdiction. In Hitachi
Limited vs. Rupali Polyester’s and Others32[32] the Supreme Court observed that the agreement which
provided for arbitration under the rules of Conciliation and Arbitration of International Chamber of
Commerce would not divest the jurisdiction of courts of Pakistan if otherwise it was vested in them.

27 [27].See section 2 (3) of the Arbitration (Protocol and Convention) Act, 1937.

28 [28].See section 34 of Arbitration Act, 1940.

29 [29].Federation of Pakistan vs. Al Farooq Builders, 2001 MLD 99.

30 [30].President of Islamic Republic of Pakistan vs. Syed Tasneem Hussain Naqvi, 2004 SCMR 590.

31 [31].A Meredith Jones & Co Through Attorney vs. Usman Textile Mills, 2002 CLD 1121.

32 [32].Hitachi Limited vs. Rupali Polyester and others, 1998 SCMR 1618.
7.3 As for the enforcement of a foreign arbitral award, certain statutory requirements were pronounced to
be necessary. In Islamic Republic of Iran Shipping Lines through Attorney vs. Hassan Ali & Co Cotton
(Pvt.) Limited33[33] the High Court held that requirements as laid down in rule 297 of the Sindh Chief
Court Rules should be met and fulfilled by the person seeking enforcement of a foreign award, if deficient
in any material particular, application for enforcement be returned for removing deficiency within time
allowed by the court. The plaintiff in this case 34[34] had not also filed authenticated copy of the award.
The court held that rules provided for producing either original award or its authenticated copy. Original
award having been produced, it was held that requisite conditions were fulfilled and the award was rightly
made. The defendant had contended that the arbitrator had no jurisdiction; award was contrary to law and
public policy and arbitrator was guilty of misconduct. Held that no material in that respect was, produced
by the party. The objections were over ruled and the award was enforced. Held further that while
considering the enforcement of a foreign award, the court merely acts as an executing court and it can not
go behind the award and sit as an appellate court and make reappraisal of evidence. 35[35]
In Manzoor Textile Mills Ltd. V. Nichimen Corporation and 2 others 36[36] the court while dealing
with the arbitration (Protocol and Convention) Act, 1973 held: “I cannot be unmindful of well-
established principle that the court should not lightly release the parties from their bargain, which
follows from the sanctity which the Court attracts to contracts. In the present case a foreign firm
is involved, which entered into the contract in question on the basis that in case of any dispute the
same would be adjudicated upon as per arbitration clause but the plaintiff wish to defeat the
above clause with the aid of this Court. In order to acquire a respectable place in the community
of nations, not only the Government, but even the individuals are expected to honor their
commitments…a party having entered into an agreement after having full knowledge of its
consequences cannot be allowed to defeat the arbitration clause.

7.4 Inspite of such pronouncements the position with regard to enforcement of international arbitration
agreements has been somewhat lacking in consistency. At times the agreements providing for
international arbitration are challenged in Pakistani Courts by local parties reluctant to submit to the
agreed foreign dispute resolution mechanism regimes. Hubco vs. Wapda37[37] (PLD 2000 SC 841) is a
case in point in which the Supreme Court by a majority of 3-2 allowed WAPDA on the ground of public
policy to avoid foreign arbitration proceedings. Of course courts have been emphasizing that no hand or
fast rules can be laid down in this regard and facts in each case determine the outcome. Without
controverting this obvious proposition it would be in the larger national interest to lean in favour of
honouring arbitration clause.

7.5 Pakistani Courts of late have started expressing their clear disapproval of efforts to avoid foreign
arbitration clauses by Instituting proceeding in domestic courts. The Supreme Court held in the
Eckhardt’s Co. vs. Mohammed Hanif case:38[38] that the court “in order to deprive a foreign party to
have arbitration in a foreign country as per contract should come to the conclusion that enforcement of
such award an arbitration clause would be unconscionable or would amount to forcing plaintiff to honour
a different contract which was not in contemplation of parties and which could not have been in their
contemplation as a prudent men of business and unless there were some compelling reasons, foreign
arbitration clause should be honored as generally the other party to such arbitration clause is a foreign
party”.

8. New Law re: Foreign Arbitral Awards

8.1 A qualitative change has occurred in the mater of foreign awards when Pakistan in 2005 ratified the
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. The
Convention has been given legislative cover through “Recognition and Enforcement (Arbitration
Agreements and Foreign Arbitral Awards) Ordinance 2005.39[39]

33 [33].Islamic Republic of Iran Shipping Lines through Attorney vs. Hassan Ali & Co Cotton (Pvt.) Limited, 2006 CLD 153.

34 [34].Id

35 [35].Islamic Republic of Iran Shipping Lines through Attorney vs. Hassan Ali & Co Cotton (Pvt.) Limited, 2006 CLD 153.

36 [36] .Manzoor Textile Mills Ltd. vs. Nichimen Corporation and 2 others, 2000 MLD 61.

37 [37].HUBCO vs. WAPDA, PLD 2000 SC 841.

38 [38].M/S Eckhart’s Co. vs. Mohammad Hanif, PLD 1993 SC 42.

39 [39].This law has been successing given lease of life through promulgation of Ordinances latest being Ordinance of 2007.
[Here in after called Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2007].
These ordinances repealed The Arbitration (Protocol and Convention) Act, 1937.
8.2 The Ordinance has recognized and provided for enforcement of foreign awards and arbitration
agreements in the same manner as if were a judgment or order of a Court of Pakistan. If a party to an
arbitration agreement is subjected to legal proceeding by the other party, notwithstanding the arbitration
clause, he may apply to the court to stay such proceedings. The court is bound to stay the proceedings and
refer the parties to arbitration unless it finds the arbitration agreement is null and void, in operative or
incapable of being performed.

8.3 The gist of the Article V of the Convention, 40[40] that makes possible for a party to avoid foreign
arbitration, is as under:
• The parties to the agreement under the law applicable to them, were under some incapacity, 41
[41] or
• The agreement is not valid under the law to which the parties have subjected to or, under the
law of the country where the award was made,42[42] or
• The party against whom it is invoked was not given proper notice of the appointment of the
arbitrator or of the arbitration proceedings or was otherwise unable to present their case; 43
[43] or
• The award deals with a matter not contemplated within the terms of the submission to
arbitration or contains decisions beyond the scope of the submission to arbitration; 44[44] or
• The composition of the arbitral tribunal or the arbitral procedure followed was not in
accordance with the agreement of the parties or not in accordance with the law of the
country where the arbitration took place;45[45] or
• The award has not yet become binding on the parties or has been set aside or suspended by
the country in which, or under the law of which, the award was made.46[46]

8.4 Recognition and enforcement of foreign arbitral awards may also be refused if the authority in the
country where recognition and enforcement is sought, finds the subject matter of the dispute to be
incapable of settlement by arbitration under the law of that country, 47[47] or the recognition or
enforcement of the award will be contrary to the public policy of the country. 48[48]

Implications of Change in Law

8.5 Whether adoption of law giving effect to the New York Convention will bring about palpable change
in the perspectives of courts in Pakistan?

Before an answer is attempted it would be pertinent to point out that international treaties are solemn
agreements between states and therefore signatories to treaties/conventions are expected to abide by them.
Under Article 18 of the Vienna Convention on the Law of Treaties, 49[49] a State is obliged to refrain from
acts which would defeat the object and purpose of a treaty it has signed. In this case while deciding
matters relating to recognition and enforcement of the foreign arbitral awards courts would be expected to
give due weight the object and purpose of the New York Convention which ex-hypothesize is the

40 [40] .Article V of Convention.

41 [41] .See Article V (1) (a) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

42 [42].Id.

43 [43].See Article V (1) (b) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

44 [44].See Article V (1) (c) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

45 [45].See Article V (1) (d) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

46 [46].See Article V (1) (e) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

47 [47] .See Article V (2) (a) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

48 [48] .See Article V (2) (b) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

49 [49].In 1969, A Draft Convention on the law of treaties was submitted to the United Nations General Assembly. A conference
on the law of treaties was there upon Convened, and met in Vienna in 1968 and 1969 the convention on law of treaty was
adopted. However, the Vienna Convention on the law of treaties came into force upon the ratification by a thirty-fifth State on
January 27, 1980.
promotion of international trade.50[50] In case solemnly made contracts between parties located in
Pakistan and those in other countries regarding arbitration are not protected it would be detrimental to
Pakistan’s long term interests and will strengthen sceptism of foreigners about the sanctity of contracts in
our country. Even before Pakistan’s ratification of New York Convention one finds a very appropriate
and wise pronouncement51[51] by Mr. Justice Ajmal Mian of the Supreme Court that:
Section 34 of the Arbitration while dealing with an application in relation to a foreign arbitration
clause the Court’s approach should be dynamic. With the development and growth of
International Trade and Commerce and due to modernization of communication transport system
in the world, the contracts containing such an arbitration clause are very common now a days.
The rule that the Court should not lightly release the parties from their bargains, that follows form
the sanctity which the Court attaches to contracts must be applied with more vigor to the contract
containing a foreign arbitration clause. We should not over look the fact that any breach of a
terms of such a contract to which a foreign company or person is a party, will tarnish the image of
Pakistan in the comity of nations.

8.6 The first case which dealt with the New York Conventions and the implementing Ordinance is In
Travel Automation (Pvt.) Ltd. V. Abacus International (Pvt.) Ltd. Case:52[52]
The learner judge observed: After the enforcement of Ordinance XX of 2005 radical changes
have been made in law and discretion of court which was available under section 34 of the
Arbitration Act, 1940 apparently is no more available to court. The question on which earlier,
while exercising discretion under section 34 of the Arbitration Act about convenience or
inconvenience of the parties, availability of evidence on a place other than the place of
arbitration, whether to stay proceedings or not, was within the discretion of the court. However,
while dealing with the matter under section 4 of the Ordinance XX of 2005 court has no such
discretion except where cases fall within exception categories mentioned in the section
itself….Under section 4(2) of the Ordinance, 2005 pre-condition for refusing stay, of the
proceeding is that arbitration agreement is null land void inoperative, or incapable of being
performed.

8.7 These observations show due judicial recognition of the change that has occurred in respect of foreign
arbitration. It is yet to be, however, seen if courts in Pakistan will follow the lead and exercise self-
restraint while dealing with cases of foreign arbitral awards.

9. Conclusions and Suggestions:

9.1 Arbitration has indeed gained considerable popularity among the world mercantile community due to
a variety of reasons. It is likely to become increasingly a preferred mode of dispute resolution with the
further growth of trade and Pakistan’s fuller integration into the world trading system. Pakistan in view of
expanding volume of transnational commerce and the best practices elsewhere has very appropriable
ratified the New York Convention. It would be necessary to implement commitments solemnly made by
us both in letter and spirit by all organs of the state. We can ill afford to do otherwise.

9.2. Following suggestions are recommended for consideration

(i) The arbitration law in the country should be improved (Arbitration Act of 1940 needs
fundamental changes to cater to changing requirements of the 21st Century).
(ii) Awareness about the advantages of arbitration should be created among the lawyers and
Chambers of Commerce, trade associations and academia.
(iii) Greater attention should be paid to the subject of arbitration (both domestic and foreign) in
law colleges.
(iv) Lack of expertise in respect of international arbitration needs to be remedied capacity
building of businessmen, legal profession and government officials accorded top priority.
(v) Training programs, seminars and workshops should be conducted in co-operation with ICC
and UNICTRAL etc to build capacity
(vi) Arbitration Centers should be established through co-operative efforts of public sector, legal
profession, academia and business community, and private sectors to promote arbitration
and provide facilities to those who choose to opt for this mode of dispute resolution

50 [50].See Georgia journal of International Comparative Law.

51 [51] .See supra note 38.

52 [52].Travel Automation (Pvt.) Ltd. V. Abacus International (Pvt.) Ltd. 2006 C L D 497.
(vii) Courts should be sensitized to the importance of arbitration with particular emphasis on foreign
awards and their enforcement.

CONCILIATION AND ARBITRATION PROCEDURE PROSPECTS AND PROBLEMS

Presented By:

HISTORICAL BACKGROUND

Ensuring harmonious labour-management relations depends on the establishment of procedures

for the settlement of labour disputes. The law provides a detailed procedure for the settlement of
industrial disputes and spells out unfair labour practices, both on the part of the workers and the
employers.

Pakistan upon gaining independence inherited an industrial relations system in the form of the
Industrial Dispute Act, 1947. This legislation provided for, amongst other rights, the
establishment of a works committees to remove causes of friction between workers and
employers in the day-to-day operations of enterprises. This law was repealed by virtue of West
Pakistan Industrial Dispute Ordinance, 1958 which was replaced thereafter by the Industrial
Disputes Ordinance, 1959. In 1969, the Industrial Relations Ordinance, 1969 was promulgated,
repealing the earlier laws. Currently the Industrial Relations Act, 2012 (the “IRA, 2012”) is in
force for ‘establishments’ in more than one province or in Islamabad, and the provincial
Industrial Relations Acts apply to establishments restricted to one province.

The IRA, 2012 offers the following modes to settle an industrial dispute:

(a) Bilateral negotiations

(b) Conciliation

(c) Arbitration

(d) Strike/Lockout

(e) Adjudication

(f) Intervention by the Government by reference to the National Industrial Relations

Commission (“NIRC”) in matters of national importance.

Our discussion will be limited to conciliation and arbitration, and will not take account of the
other modes just named for the resolution of Industrial Disputes.

CONCILIATION AND ARBITRATION

If bilateral negotiations fail, the matter will be dealt with by way of conciliation. Where
conciliation efforts are un-successful, the conciliator persuades the parties to agree to arbitration.
The arbitration is optional and not compulsory.

Arbitration is sometimes confused with other methods for peacefully resolving labour disputes.
Conciliation, mediation and arbitration are sometimes incorrectly used interchangeably.
Conciliation is “the act of a third party, bringing together the two parties in dispute, for
negotiation and for settlement of the dispute”. Mediation is “the process whereby the third party
not only brings two parties together but actively participates in the negotiation, generally
consulting with each of the parties separately and, by persuasion, affecting a compromise
acceptable to both”. Arbitration is a “judicial process.” In Pakistan, the conciliator also acts as a
mediator, as in the ultimate analysis, mediation by a conciliator is essential for the resolution of
the dispute.
In these proceedings, the conciliator or mediator does not take any decision or give any award;
decision-making remains the jurisdiction of the arbitrator and/or the labour Court. The arbitrator
is a judge. The parties agree to accept the arbitrator’s decision as final and binding. The parties
are required to submit evidence, and each is permitted to cross-examine the evidence of the
other. The decision of an arbitrator after the hearing is known as an award. There is no appeal
against an arbitration decision in the High Court and the decision acquires finality.

PROVISIONS OF CONCILIATION AND ARBITRATION

The provision for the appointment of conciliators is provided in Sections 36 to 39 of the IRA,
2012.

It is to be noted that at the stage of raising an industrial dispute by issuing a notice under Section
35(1) of IRA, 2012, the party issuing such notice is not required to send a copy thereof to the
conciliator or to any other authority. At that stage, the law presumes that parties to the dispute
shall come to terms by mutual bilateral negotiations and any interference by the conciliator is not
called for. If an agreement is reached, that will be the end of the matter and copies of the
agreement duly signed by the parties to the dispute are required to be forwarded to the conciliator
and other prescribed authorities. On the failure of bilateral negotiations, the party raising the
industrial dispute can issue a notice of conciliation to the other party under Section 35(3).
Likewise, it is required by Section 38 to simultaneously serve a copy thereof to the conciliator
concerned and to the Labor Court. On receipt of a copy of the notice under Section 38, the
conciliator initiates conciliation proceedings. At this stage the Courts i.e. the National Industrial
Relations Commission (“NIRC”) have no role whatsoever.

If a copy of the notice of conciliation were not delivered to the conciliator, there would be no
valid commencement of the conciliation proceedings. It is the date of receipt of the conciliation
notice and not the date borne by the said notice, which is material. As soon as the conciliator
receives the notice, the conciliation proceedings are deemed to have commenced. The conciliator
is required to call meetings between the parties to the industrial dispute with a view to bring
about settlement. The parties are to be represented before the conciliator by the nominated and
authorized representatives of the parties. The nominees of the parties should be fully authorized
to enter into a settlement binding on the parties. The parties will not be allowed to plead that
their representatives were only nominees and could not bind the principal employer in terms of a
settlement signed by their duly authorized representative. If the conciliator at any stage of the
conciliation proceedings feels that the presence of any particular person from the employer is
necessary, he can issue a notice to the employer to appear before him at a specified date, time
and place. Such person from the employer is bound to comply with the notice.

In all cases of industrial disputes in relation to an establishment notified as a public utility service
or an industry other than public utility service, if the conciliation officer receives a notice of
conciliation, he is under an obligation to initiate conciliation proceedings. The conciliator is
bound to hold conciliation proceedings only in cases where an industrial dispute has arisen and
there is a valid notice of conciliation. If any adjudication in respect of the same subject matter of
the dispute is already pending, no valid conciliation notice can be served in respect of such
subject matter because this would result in a multiplicity of proceedings, which is not
permissible in law. The policy of the law has always been to confine parties to one process and
to discourage simultaneous adjudicating in two parallel proceedings in respect of the same
subject matter.

The function of the conciliator is to conciliate on the dispute between the parties and to narrow
down the controversy. With this end in sight he can suggest such modifications and concessions
as he feels necessary for amicable settlement of the dispute. During conciliation, a settlement
may be arrived at on all demands or on any matter in dispute. To the extent of the settlement of
the dispute, a memo is to be prepared, signed by the parties and shall be reported to the
Government (Federal or Provincial as the case may be).

The conciliation proceedings are to be completed within 15 days or the parties by mutual consent
may extend the time during which the conciliation proceedings may continue. In case the parties
do not come to settlement within this 15 day period or agree to extend the period of conciliation
proceedings, the conciliator is bound to declare the conciliation proceedings as having failed so
as to enable the parties to pursue the industrial dispute and in the prescribed manner take further
steps i.e. resort to strike or lockout, after serving due notice, as the case may be, or to file the
industrial dispute in the NIRC (or Labour Court for Provincial establishment) for adjudication of
the demands.

The question of whether an industrial dispute exists or whether a particular union of workers is
competent to adjudicate the dispute on behalf of the employees and other objections can be
determined only by the Courts and not by the conciliation officer. Similarly, a Labour Court can
adjudicate the question of whether the signatory to the conciliation notice was competent to do
so. However, a Division Bench of the Lahore High Court53[1] has held that “before holding any
proceedings (the Conciliator) must satisfy himself that the notice is a valid one. If the notice is
not valid, it is no notice in the eyes of law and the conciliation officer can ignore it”. However,
the judgment is based on the law as it then existed which specifically conferred power on the
conciliation officer to determine legality or validity of the notice.

Arbitration is provided for in Section 40 of the IRA, 2012. The provisions of Subsection (1) of
Section 40 relating to the appointment of an arbitrator between the parties to a dispute are
attracted only upon failure of the conciliation proceedings. As such, in the absence of the failure
of the conciliation proceedings the provisions of the IRA, 2012 do not warrant the appointment
of the arbitrator. The parties by consent cannot confer jurisdiction upon an arbitrator in the
absence of failure of conciliation proceedings. According to Section 40(5) and (6) the award
given by an arbitrator is final for a period not exceeding two years or as may be fixed by the
arbitrator.

IMPORTANCE OF CONCILIATION AND ARBITRATION IN SETTLEMENT OF

DISPUTES

The Industrial law and Labour Laws provide for different modes for resolution or settlement of
disputes. These can be divided into two main categories. One category comprises of resort to
proceedings before a Labour Court set up by law for this purpose. Under this system, the entire
proceedings, which are adversarial in nature, are conducted and the decision taken in accordance
with law. A prescribed procedure is required to be followed by the Courts or tribunals in the
conduct of cases. Decisions are then subject to appeals or revisions. All this takes time - a lot of
time. Prolonged litigation is also very expensive, time consuming and usually beyond the reach
of the ordinary citizen - the common man. The law provides various methods for resolution of
disputes. These modes include conciliation and arbitration.

ARBITRATION VERSUS JUDICIAL DISPUTES

(i) COST EFFECTIVE AND LESS TIME CONSUMING

Basic advantages of the conciliation or arbitration process are the informality and
flexibility of the proceedings, in which the parties themselves get involved as opposed to the
judicial process where the parties are generally not involved in the proceedings which remain in
the control of the Court and lawyers. Further, from the cost and speed perspective, a common
worker or a trade union of workers can sustain the informal process.

(ii) REDUCTION IN LOAD ON COURTS

It reduces considerably the caseload of the Courts and, as a consequence, the quality of
justice dispensed by the Courts also improves as Courts then have a lower pendency of cases and
relatively more time for cases they can handle.

(iii) FEELING OF IMPOSITION IS NOT PRESENT

In these proceedings, the conciliator or mediator does not take any decision or give any
award; decision-making remains the jurisdiction of the parties and based on the consent of the
parties, therefore, the feeling of imposition of judgment, which is consequential to litigation,
does not occur.

53 [1].Muhammad Din & Sons case [PLD 1988 Lahore 1012].

 PROBLEMS AND PITFALL

Awareness programs may have to be organized in various parts of Pakistan. This can be done
through seminars, lectures, and articles in newspapers and debates and discussions on the
electronic media. In addition, capacity building of conciliators and arbitrators is also the need of
the hour.

Structured training programs can be introduced for lawyers and judges. Awareness programs will
create the right kind of climate for introducing conciliation and arbitration methods under
statutory cover.

ANALYSIS OF CONCILIATION, ARBITRATION AND MEDIATION

As discussed, conciliation is the second stage in the process for the amicable resolution of
disputes between the employer and the union. The first stage is bilateral negotiation, Conciliation
assumes importance inasmuch as it is an endeavour by a third party, invariably an official of the
Government in the Ministry of Labour who intervenes, in at helping the employer and the union,
in most cases, the collective bargaining agent, to amicably resolve their disputes. A
Memorandum of Settlement or understanding concluded in the conciliation through the efforts of
the conciliator has binding effects on all the workers of the organization. If a majority of workers
accept the settlement, it is binding. Individual workers do not come in the picture as settlements
are invariably concluded between the employer and the C.B.A. If the settlement so arrived at in
the conciliation proceedings is accepted by the vast majority of the workmen, who have executed
the instrument with their eyes open, it is presumed to be fair and not liable to be ignored merely
because some workers are not prepared to accept the agreement. In fact, it is not necessary that
each individual workman should know the implications of the settlement. Industrial
jurisprudence is based on the spirit of collective bargaining and in the matter of collective
bargaining, during the course of conciliation, the individual workmen do not enter the picture at
all.

Invariably, as is the case in the labour laws of most developed nations, if no understanding can
be reached at the negotiation or conciliation stages, the matter is offered for arbitration. In light
of the volume of work in the NIRC, the labour Courts, the Labour Appellate Tribunals and even
the High Courts, all of which form the overall hierarchy of the labor judiciary, there is now an
increasing need to develop workable methods of alternative dispute resolution. In this
connection, the role of arbitration in almost every country and every field is being increasingly
encouraged. Arbitration proceedings are not governed by the Civil Procedure Code (CPC) or the
Qanune Shahadat Order, 1984 (Evidence Act) etc, but are widely flexible. Arbitration, as the
nomenclature suggests, does not mean any arbitrary act on the part of the arbitrator. The
arbitrator is bound by the general principles of the Labour laws, the rules of natural justice and to
a certain extent also by the broad and general principles of the Civil Procedure Code and / or the
Evidence Act, although rigid notions of these laws are not applicable. An arbitrator can be any
person mutually acceptable to both the parties. In some Labour Laws a panel of arbitrators is
available and both the parties may choose an arbitrator. The jurisdiction of an Industrial
Arbitrator is different from that of a commercial arbitrator. The jurisdiction of an industrial
arbitrator stems from statute, whereas the jurisdiction of a commercial arbitrator is based upon
the agreement or consent of the parties. Such a commercial arbitrator may even have some of the
“trappings of a Court” but lacks the essential judicial powers otherwise vested by the law. The
award of a commercial arbitrator is of a quasi judicial nature.

The task before a mediator or conciliator is well illustrated by Edger L. Warren of the University
of California (Los Angeles) in his Article on “Mediation and Fact Finding”, Chapter 22
(reproduced at page 251 of Labour Laws and Practice by Kothari). He says:

“Perhaps the most potent factor determining the pressure which may be exerted in the
mediation is the comparative economic strength of the two parties. If, the Union is
particularly weak because there is slight pressure on the employer to make concessions.
Under these circumstances the mediator’s only recourse for settlement may be to
convince the Union that it will not be able to carry on a successful strike. Similarly in the
tight labour market and where a loss of production is costly to the employer a small show
of strength by the Union may result in major gains. If however the strength of the two
parties is in approximate balance, the mediator may be able to channel pressures for most
 effective results. Thus the mediator may get the employer’s customers to insist on the
importance of an early settlement so that they will not be deprived of their supplies. In
the case of a Union where a substantial degree of public interest is involved the mediator
may point out that the postponement of the strike is the only way to avoid a government
injunction …. A good deal of the mediator’s effectiveness in dealing with economic
pressures will be based on his ability to make a realistic appraisal of possible future
trends and the comparative economic positions of the parties”.

The Law does not intend to confer on the arbitrator uncontrolled judicial power to make an
award. He has to give reasons so as to render it capable of judicial scrutiny. An arbitrator has to
decide a proposal. An award not based on any reason is liable to be quashed. It is now well
settled by the superior Courts that an arbitrator’s decision is amiable to judicial scrutiny in Writ.
In the Indo- Pak subcontinent, an award of an Arbitrator is amiable to judicial review by the
High Court. However there is Fundamental distinction between Industrial Arbitration and
Commercial Arbitration. Industrial Arbitration is based altogether on different principles and
norms and the scope of the arbitration is also not like civil arbitration.

Conciliation and Arbitration no doubt are the two most important pillars of mutual resolution of
disputes and differences between the employer and the union and these two pillars have now
invariably found recognition in most labour legislation, and are otherwise also recognized by
International Labour Organizations.

In the circumstances of global competition, it may not be possible for some enterprises to
continue and meet the economic consequences of competition. In such cases, one cannot compel
non-viable undertakings to continue to bear the financial burdens needed to keep the concern
going. In the area of determination of industrial disputes, adjudication is still the prevailing
method of dispute resolution and one can only hope that collective bargaining and inbuilt
arbitration will result in the bulk of the disputes between the parties being settled expeditiously.
A system of an independent judiciary under the circumstances is the need of the hour. The basic
role of the Courts is not be capitalistic or humanitarian or social, but to dispense justice
according to the law and to be subject to certain limitations from time to time.

The purpose of industrial law and the object of industrial justice can be taken to establish a
balance between the interests of the workers and those of the owners of industry, so that
harmony of relations may be achieved. It is not easy, perhaps not even possible, to strike a
perfect balance because limitations with respect to the interests of either party are imposed by
existing socioeconomic conditions. The decisive factor for the decisions, in the existing state of
affairs, would ultimately have to be the attitudes and resulting policies designed by those who
administer industrial justice. In these circumstances, the Legislature has considered it best not to
confer industrial jurisdiction on the ordinary Courts and has created special Industrial Courts for
this purpose. One of the reasons behind this move appears to be that the Industrial Courts are
expected to be experienced in and appreciative of the special socioeconomic factors at play in
labour and industrial disputes, while ordinary Courts are trained to administer purely legal justice
with commendable emphasis on rationality and logic which is, however, not the same thing as
the formation of and adherence to a well designed policy within the law. The jurisdiction to hear
appeals from the awards of the Labour Courts has recently been conferred on the High Court; but
the nature of the jurisdiction of such appellate Courts and, I believe, their outlook should be the
same as those of the special Courts from which the appeals are preferred, unless in respect of
their outlook an error can be found which should be an error of law, fact or a legally
recognizable policy, and not merely disunity in the implicit attitudes of mind. The Presiding
Officer of the Labour Courts in the Province have been in some cases ex-Judges of the High
Court perhaps because the right experts are not easily available and because the training in the
administration of purely legal justice guarantees logicality, legality and the capacity to accurately
grasp facts as well as the trends of thought. The discovery and development of policies must
nevertheless remain the responsibility of the special Courts.

-------------------------------
 COURT INTERVENTION IN ARBITRATION: PAKISTAN’S PERSPECTIVE

By:
SAAD MIR
Advocate High Court

INTRODUCTION

With the tremendous growth in international trade and investments, international commercial
arbitration has become a commonly used mechanism to settle investment, trade and contractual
disputes. Arbitration is chosen as a method of dispute resolution over traditional Court
proceedings, because of the possibility of achieving a relatively economical final solution by
specialist arbitrators, through a quick and often less formal procedure. However, arbitration is
not completely independent of the national Courts of the seat of the arbitration. There is room for
interaction between the local Courts and arbitration tribunals. The real issue is to define a point
where the reliance of arbitration on national Court begins and where the Court should detach
itself from arbitral proceedings.

Lord Mustill clearly explained this conflict in his foreword to the treatise on Indian arbitration
law by OP Malhotra: 54[1]

“First, there is the central importance of a harmonious relation between the Courts and
the arbitral process. This has always involved a delicate balance, since the urge of any
judge is to see justice done, and to put right injustice wherever he or she finds it; and if it
is found in an arbitration, why then the judge feels the need to intervene. On the other
side, those active in the world of arbitration stress its voluntary nature, and urge that it is
wrong in principle for the Courts to concern themselves with disputes which the parties
have formally chosen to withdraw from them, quite apart from the waste of time and
expense caused by gratuitous judicial interference. To a degree both views were right,
and remain so; the problem has been to give proper weight to each of them. It was an
unhappy feature of discourse on arbitration in the century just past that the legitimate
arguments which could be advanced in favour of one or another came to be expressed, in
some instances at least, with quite unnecessary vigour. Fortunately, in recent years wiser
counsels have prevailed, and it has, I believe, generally come to be recognized on both
sides of the procedural divide that the Courts must be partners not superiors or
antagonists, in a process which is vital to commerce at home or abroad …..

……… Anyone who has been faced in a judicial capacity with a decision which seems
wrong, can sympathize with the impulse to decide the issue again, this time correctly; yet
in the field of arbitration it is an impulse which must, at all costs, be resisted, except in
those circumstances where the legislature has explicitly created the right of appeal....
Precisely the same considerations apply to procedures in the arbitration. The parties have
chosen to arbitrate, not litigate. By doing so they have selected the procedures laid down
by the relevant legislation or institutional rules. If there are none, then they have
deliberately entrusted the choice of procedures to the arbitrator himself. This is another
choice which the Court must respect. The Judge may think, and think rightly, that the
choice is unwise, that a different procedure would better have suited the dispute in hand.
Or he may believe, again rightly, that what the arbitrator did was inefficient or even in a
degree unjust. But his or her task is not to re-try the case, but simply to ensure that the
method of dispute resolution on which the parties agreed is what they have in the event
received. Moreover, only where the departure from the agreed method is of a degree
which involves real injustice, is the Court entitled to intervene, and even then the

54 [1].OP Malhotra and Indu Malhotra, The Law and Practice of Arbitration and Conciliation (first Published 2002, Lexis Nexis)
Foreword.
 intervention must be so crafted as to cause the minimum interference with the forward
momentum of the process”.

The relationship between national Courts and arbitration is such that both must co-exist together.
As arbitration is a consensual process, it is sometimes necessary to use the Court’s coercive
powers where there is a reluctant party. Again quoting Lord Mustill as he explained this
relationship in the following words: 55[2]

“Ideally, the handling of arbitral disputes should resemble a relay race. In the initial
stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the
Court; for at that stage there is no other organization which could take steps to prevent
the arbitration agreement from being ineffectual. When the arbitrators take charge they
take over the baton and retain it until they have made an award. At this point, having no
longer a function to fulfill, the arbitrators hand back the baton so that the Court can, in
case of need, lend its coercive powers to the enforcement of the award.”

The support of the Courts is an integral and indispensable part of the arbitration mechanism, as
no arbitration can achieve its aims without the assistance of the domestic juridical system. 56[3]
Moreover, the involvement of the public judicial system guarantees that a minimum standard of
due process and fairness in the arbitration proceedings is ensured. 57[4] It may be wondered
whether the fact of situating arbitration in a particular jurisdiction is a connection strong enough
to give its Courts the jurisdiction to check over the mandatory procedural safeguards. 58[5] But
the proximity between the place of arbitration and the local Courts suggests that the local Courts
would be in a much better position to assess the regularity and legality of arbitral proceedings
conducted there to give the process necessary support or assistance than the judge at the place of
enforcement.59[6] The role and the extent of the powers that Courts may exercise relating to
arbitration vary from country to country, depending mainly on the general approach national
legislation takes towards alternative dispute resolution mechanisms, which can range from an
open mistrust to full acknowledgment of their autonomy.60[7]

In this paper, emphasis would be laid upon the practices usually followed in Pakistani
jurisdiction. Pakistani Courts have by and large supported the decision by parties to submit their
disputes to arbitration, for resolution by a forum of their own choice, especially those having an
international dimension. This approach is reflected in their reluctance to interfere with the
arbitral process, or to overrule or reverse arbitration awards but there are some instances which
earned Pakistan a repute of being an unfriendly jurisdiction towards international arbitration.
Those instances would be discussed in detail in this dissertation along with the criticism that was
made by the international arbitration community upon those unwarranted interferences. In those
instances61[8]. Pakistani Courts are said to have intervened into the arbitral process by accepting
the jurisdiction upon the matters where exclusive jurisdiction should have been allowed to the
tribunals. There is no disagreement upon the fact that such instances should had been better
addressed by the Pakistani Courts but it is unfortunate that the international arbitration
community didn’t analyze the overall judicial stand of Pakistani Courts. As mentioned above, a
quick review of a large number of Court decisions of Pakistan depict that majority decisions
uphold the arbitration agreement and refuse the Court jurisdiction in favor of arbitration
proceedings.

The tribal people of Pakistan used to resolve their domestic disputes by nominating a senior
person of the tribe as arbitrator and the commercial disputes by bringing those to

55 [2].Lord Mustill. “Comments and Conclusions in Conservatory Provisional Measures in International Arbitration 9th Joint
Colloquium (1993, ICC Publication) 118.
56 [3].Giulia Carbon. ‘The Interference of the Court of the Seat with International Arbitration’ (2012) J. Disp, Resol. 217, 217.
57 [4].Magaret L. Moses, The principle and practice of International Commercial Arbitration (first published 2008. Cambridge
University Press) 84.
58 [5].Amazu A Asouzu, ‘The National Arbitration Law And International Commercial Arbitration: The Indispensability of The
National Court And The Setting Aside Procedure’ (1995) 7 Afr. J. Intl’l & Comp. L. 68, 86.
59 [6].A Ahmed Khan, ‘Arbitration/ADR versus Litigation’ (Pakistan WSG Submission, 4 September 2006)
<http.//www.hg.org/articles/article_1530.html> accessed 21 December, 2012.
60 [7].Carbon (n 3) 217.
61 [8].Hub Power Company Ltd v. Pakistan WAPDA (2000) PLD SC 841: Societe Generale de Surveillance S.A. v. Pakistan
(2002) PLD SCMR 1694.
‘PUNCHAIAT’62[9] or ‘JIRGA’63[10].64[11] These tribes have been settled there for long and
have been following their customary laws since ages. Even today, along with normal
administration of justice through Courts, this informal activity of justice is also going on side by
side in Pakistan especially in provinces named Baluchistan and Khyber Pakhtunkhawa.
Whenever an offence takes place or a dispute arises, the local elders, who command influence
and credibility, gather and enter into intensive negotiations with the parties for amicable
resolution of the conflicts.65[12] The beauty of the system is that all the affected parties, i.e. the
offender, the victim and local community are deeply involved in the process and efforts are made
to resolve the conflict to the satisfaction of all concerned.66[13] Although this type of arbitration
cannot be compared with the modern institutionalized arbitration but it establishes the fact that
Pakistan does not have any historical prejudice with arbitration system.

Islam is the state religion of Pakistan and the injunctions of Islam as laid down in the Holy Quran
and Sunnah are mandated to be the supreme law and source of guidance for legislation and for
policy-making by the government.67[14] Islam not only recognizes but also encourages settlement
of disputes through arbitration.68[15] Disputes in pre-Islamic society in Arabia, which were not
settled by negotiations between the parties, were settled by means of arbitration.69[16] The Holy
Prophet continued the tradition and acted as an arbitrator in many instances. The Holy Quran
sanctified the process.70[17] Arbitration is, therefore, an integral part of the country’s psyche.
Having such historical and religious connection with arbitration, still Pakistan lags behind in
international arbitration for a number of reasons which will be discussed in this paper later on,
elaborating on them and to come up with solutions to improve the prevailing uncertainty.

ENGLISH PRACTICE REGARDING INTERVENTION OF COURTS IN

ARBITRATION PROCESS

Before 1947, Pakistan was a British colony and was governed by English laws. Even today, after
passing of its own constitution in 1973, some terraces of English law are quite evident, on the
face of the constitution. As Pakistan is a common law jurisdiction and still in a phase, it would be
much better to compare it with the English practices regarding Court intervention in arbitration
because it provides an excellent example of a legal system moving from a regime of strict control
over arbitration to one of comparative-freedom. In England, arbitration was adopted as a popular
means of commercial dispute resolution as far back as 1224.71[18] Initially, common law Courts
weren’t comfortable with the fact of submitting disputes to extra judicial forums but as the
commercial activities grew and the burden of large volumes of litigation was upon the Courts as
well, it led to a positive change in the judicial attitude. The relationship between the English
Courts and arbitration has not always been an easy one.

In England, the hostile attitude of the Court started with the infamous 1609 decision of Lord
Coke72[19] in the Vynior’s case73[20]. The case involved a performance bond that supported the
obligation to arbitrate. After enforcing the penalty originally agreed upon by the parties for
breach of the agreement to arbitrate. Lord Coke indicated in dictum that a party to a dispute
62 [9].A village council in India and southern Pakistan.
63 [10].A Pashto term for a decision making assembly of male elders; most criminal cases are handled by a tribal jirga rather
than laws or police.
64 [11].Rana Rizwan Hussain, ‘International Arbitration in Pakistan’ (Wordpress, 10 April, 2013)
<http://ranarizwanhussain.wordpress.com/2013/04/10/international-arbitration-in-pakistan/> accessed 13 June 2013.
65 [12].Ahmed Khan (n 6).
66 [13].Ibid.
67 [14].Constitution of Pakistan 1973, Article 2.
68 [15].Tariq Hassan, ‘International Arbitration in Pakistan, A developing country perspective’ (2002) 19(6) Journal of
International Arbitration, 591, 592-593.
69 [16].Ibid, 593.
70 [17].See, Mustafa Monjur, ‘An Analysis on the practices of Prophet Muhammad (PBUH) in resolving conflicts’ (2011) Journal
of the Bangladesh Association of Young Researchers (JBAYR), Volume I. Number 1, January 2011, Page 109-125.
71 [18].Grace Xavier, Evolution of Arbitration as a Legal Institutional and the Inherent Powers of the Court. ASLI Working Paper,
No. 009, February 2010, < www.law.nus.sg/asli/pub/wps.htm> accessed 2 February 2013.
72 [19].Coke was appointed Solicitor-General in June 1592, promoted to Attorney-General in June 1594, and was raised to the
Common Pleas bench in June 1606. In October 1613 he was named the Chief Justice of King’s Bench, a position he held until
he was removed in November 1616. He was named to the Privy Council in October 1613. He was removed in June 1616,
restored in September 1617 and served until December 1621.
73 [20].4 Eng Rep 302 (1609)
could revoke the arbitrator’s authority to hear and decide cases, at any time before an award was
rendered. The dictum pronounced by Lord Edward Coke in Vyinor’s case was:

“that though one may be bound to stand to the arbitrament yet he may countermand the
arbitrator...as a man cannot by his own act make such an authority or warrant not
countermandable which by law and its own...nature is countermandable.”

This ruling meant that the decisions of arbitrators could be reversed by the English Courts and
the contracts to submit to arbitration were declared to be revocable. This precedent was viewed
to be binding for the next two to three centuries in England. Indeed while this ruling occurred
before the common law doctrine of binding contracts was fully formed, as common law Courts
began enforcing all contracts to which parties intended to bind themselves, they continued to
treat arbitration clauses as revocable. The Vynior’s case doctrine of revocability was later on
again justified and even reinforced in Kill v. Hollister,74[21] when it was declared that contracts
to arbitrate are revocable because they oust Courts of their jurisdiction. Thus, the first defenders
of the revocability doctrine spoke of the interest of the Courts, rather than the interests of parties
contracting to use arbitration, suggesting that the Courts of England saw arbitration as a threat to
their control of dispute resolution, that is, as a possible substitute for their services.75[22] The
English, Court’s attitude to arbitration was a reflection of existing legislations, which did not
advance the prospect of arbitration. The situation did not improve even after lord Campbell had
declared in the case of Scott v. Avery76[23], that there was nothing wrong when parties hound
themselves to settle their disputes in any manner agreeable to them. In Scott v. Avery, a marine
insurance policy provided that the insured was not entitled to maintain any action of that policy
until the matter has been decided by the arbitrators. Thus obtaining the decision of the arbitrator
was made a condition precedent to maintain an action. The House of Lords decided that though it
is a principle of law that the parties cannot, by contrast oust the jurisdiction of the Courts, any
person may covenant that no right of action shall accrue till an arbitrator has decided on any
difference that may arise between the two parties to the covenant. The House of Lords upheld the
legality of this condition holding that until an award was made, no action could be maintained. 77
[24]

The English Parliament enacted successive Arbitration Acts which persistently maintained the
supervisory powers of the Courts over arbitral proceedings, through the special case procedure,
enabling Courts to set aside awards for error of law and fact.78[25] The special case procedure
was codified in section 21 of the Arbitration Act, 1950 which gave power to an arbitrator to state
any part of an award in the form of a ‘special case’ for the consideration of the High Court and
empowered the Courts to order the arbitrator to state a case if he refused to do so. So in this way
the English Courts exercised a strict supervision of arbitral tribunals and arbitrators by reviewing
the arbitration awards. The procedure was strongly criticized as it was commonly used by the
losing parties to delay the payment of an award and England came to be viewed as an
unattractive place for international arbitration.

Then came the Arbitration Act, 1979 which abolished the special case procedure and allowed the
parties to exclude the right of appeal to the Court, subject to certain limitations. 79[26] However
the Arbitration Act, 1979 was not enough to deal with the complexity of the issue. The hostility
came to an end in England with the enactment of the Arbitration Act of 1996. which gave
validity to arbitration agreements and empowered the Courts to stay proceedings of claims
subject to valid arbitration agreements; thus offering support to the arbitral process. 80[27] The
Arbitration Act, 1996 also recognizes the competence of arbitral tribunals to resolve

74 [21].1 Wilson 129(1746).

75 [22].David Gordon, Secession, Stale & Liberty (first published 1998, Transaction Publishers 2009) 257.
76 [23].10 ER 1121 (1856).
77 [24].Ashwinie Kumar Bansal, Arbitration and ADR (first published 2005, Universal Law Publishing Co. (Pvt.) Ltd. 2009) 37.
78 [25].Samuel Marful-Sau, `Can international commercial arbitration be effective without national Courts? A perspective of
Courts involvement in international commercial arbitration’ <http://www.dundee.ac.uk/cepmlp/gateway/files.php?
file=cepmlp_car13_4_635429854.pdf> accessed 20th June 2013.
79 [26].Arbitration Act, 1979, sec 3 and 4.
80 [27].Khan (n 6);
jurisdictional objections. The major objective of the Arbitration Act, 1996 is to drastically reduce
the extent of Court intervention in the arbitral process. This Act developed a hybrid solution:
under Section 32, the Court may decide a preliminary point of jurisdiction only upon agreement
of all parties, or if the tribunal grants permission and the Court is satisfied that its intervention is
appropriate. In the absence of these conditions, a party may challenge the tribunal’s jurisdiction
before a Court only after the award has been rendered. In both cases, the tribunal may continue
the arbitral proceedings while the application to the Court is pending. The English approach
seems to offer a good compromise between the need to prevent disruption of the arbitral
proceedings and the need to save costs and avoid arbitration proceedings when the tribunal lacks
jurisdiction. 81[28]

Despite the fact that England has come a long way in development of its arbitration laws and
organized a much efficient system of resolving its commercial disputes, still there have been
some instances when English Courts have intervened in the arbitration proceedings or refused
enforcement of arbitral awards. One of the most controversial grounds for non-enforcement of
arbitral awards is public policy. This forms the basis of Article V(2)(b) of the New York
Convention which is also incorporated as section 103(3) of English Arbitration Act, 1996. It
provides that an award cannot be recognized or enforced if it is contrary to the country’s public
policy. There are some instances when English Courts showed some reluctance to recognize or
accept the award triggering up the controversy that existed long time ago. Like in Soleimany v.
Soleimany82[29] a dispute arose under a contract for the illegal export of carpets from Iran and it
was referred to arbitration in England in accordance with Jewish law. The award referred to the
illegality of the contract but awarded a sum to the claimant. The Court of Appeal held that it
would be contrary to public policy for the award to be enforced.83[30]

Recently, in Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious
Affairs, Government of Pakistan84[31], the English Supreme Court refused to enforce the French
ICC award against assets of Government of Pakistan in England, on the ground that Government
of Pakistan was not a party to the relevant arbitration agreement. This decision has triggered a
great deal of debate because in an application challenging the award in France, the French Court
of Appeal subsequently ruled that the Government of Pakistan was a party to the arbitration
agreement. The decision of the English Supreme Court has prompted some commentators to
suggest that the England’s pro-arbitration reputation has started to erode. Such small number of
instances as mentioned above can occur in any jurisdiction but the overall stand of English
Courts especially after the codification of Arbitration Act, 1996 has been to refrain from
interfering in the arbitral proceedings as much as they can. Apart from some others attractive
factors (convenience, neutrality, time zone, infrastructure, institutions, language) its supportive
legislation and positive attitude of English Courts towards arbitration, today England has become
the most popular international commercial arbitration venue. For jurisdictions struggling to build
effective arbitration regimes, lessons are obvious.85[32] The aim for discussing the development
of arbitration regime in England and throwing light over the historical perspective was to present
England as an exemplary jurisdiction regarding arbitration practices. The countries which are yet
to develop such an efficient mechanism of resolving commercial disputes through arbitration
should study the English journey that started decades ago. Later on, this paper would discuss the
Pakistani practices as Pakistan is also a common law jurisdiction and compare it with the English
jurisdiction. The object of this comparison is reformative, to provide and suggest some
guidelines for the developing countries (like Pakistan) so they can quickly realign themselves
with the prevailing international standards and learn from the experience of jurisdictions that
have taken decades to reach to the point of excellence like England.

INTERVENTION IN ARBITRAL PROCESS: POSITION OF PAKISTANI COURTS

81 [28].Guilia Carbone, ‘The Interference Of The Court of The Seat With International Arbitration’ (2012) J. Disp. Resol 217, 222.
82 [29].[1999] QB 785.
83 [30].“Sir Vivian Ramsey, `The conflict between local Court and international arbitration’ (2012)
<http://www.londonarbitrators.org/ sites/default/files/ editor/Sir%20Vivian%20Ramsay%20presentation%2025%20April
%202012.doe>accessed 25 June 2013.
84 [31].[2010] UK SC 46.
85 [32].J. William Rowley and Sudhanshu Swaroop, ‘The Role of the Judiciary in International Arbitration-The benefits of
Support: Recent English Experience’ (2009) 10 Bus. L. Int’l 272, 279.
The law of arbitration in Pakistan is governed by the Arbitration Act, 1940 which deals with the
conduct of domestic arbitrations. Foreign arbitration and enforcement of foreign award was
provided in the Arbitration (Protocol & Convention) Act, 1937 based on The Hague Convention
which under section 3 excluded the application of Pakistan Arbitration Act, 1940 and the
Pakistan Civil Procedure Code. Section 4(2) of the Arbitration (Protocol & Convention) Act
provided for the foreign awards to be enforceable and shall be treated as binding for all purposes
on the parties as between whom it was made. Pakistan signed the 1958 Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) on 30
December 1958 but did not ratify or incorporate the Convention into domestic law until 2005. At
that time the Convention was enforced through a Presidential Ordinance. In accordance with
Article 89 of the Constitution (as it stood at the time), however, a Presidential Ordinance
automatically lapsed at the end of four months from its promulgation unless approved by
Parliament. The Ordinance was, therefore, re-promulgated several times between 2005 and 2011
before being passed by Parliament and being enacted as Recognition and Enforcement
(Arbitration Agreements and Foreign Awards) Act, 2011 on 15 July 2011, repealing the
Arbitration (Protocol & Convention) Act, 1937. Pakistan already has certain legislation in the
field of Family Laws relating to marital dispute where dispute must first be attempted to be
resolved through mediation and conciliation and only upon failure of conciliation parties can go
to Courts86[33]. Similarly, under the Industrial Employment laws a union cannot resort to strike
unless the dispute relating to terms and conditions of service has first been negotiated between
the parties and upon failure of negotiation has been referred to a conciliator, where after only a
union can resort to have the dispute settled through Court.87[34] Apart from this, certain other
enactments Pakistan have got the provisions for settling disputes through arbitration e.g. Co-
operative Societies Act, 192588[35]; Electricity Act, 191089[36]. In order to resolve taxation
dispute the Pakistan Government in the year 2004 amended the Income Tax Ordinance, the
Customs Act and the Sales Tax (VAT) Act, providing for an alternate dispute resolution in cases
where the assessee disputes the levy and collection of taxes.90[37] According to which - The
assesse can make an application to the Central Board of Revenue which will constitute a
Committee consisting of an officer of the tax officials, two persons from a notified panel of
Chartered/Cost Accountant. Advocates and a reputable tax payer. The Committee after
examining the dispute shall make recommendations in respect of resolution of the dispute and
the Central Board of Revenue on the basis of recommendations of the Committee will decide the
dispute.

The Arbitration Act, 1940 is now almost obsolete in its present form as it is not well equipped to
handle modern and more complex commercial arbitration disputes. There is an immense need of
a new legislation so that it could provide uniformity and certainty to both the categories of
arbitration, domestic as well as international commercial arbitration. Despite the fact that there
was no proper legislation for the international commercial disputes, still the role of Pakistani
Courts is commendable. As Justice Saqib Nisar, in his article has rightly highlighted this fact,
quoted below:91[38]

“Pakistani Courts have by and large supported the decision by parties to submit their
disputes for resolution by a domestic forum of their own choice, especially those having
an international dimension. This approach is reflected in their reluctance to interfere with
the arbitral process or to overturn or upset arbitration awards. The Courts have sparingly
exercised the statutory powers vested in them in this regard. The basic judicial approach
has been to hold the parties to their bargain, and to enforce the arbitration agreement in
letter and spirit to ensure the sanctity of the arbitral process. Thus, if a party to an
arbitration agreement attempts to institute legal proceedings in a Court of law, and the

86 [33].Family Courts Act, 1964, Sections 10 and 12.

87 [34].Industrial Relations Ordinance 2008, Sections 42 and 43.
88 [35].Cooperative Society Act, 1925, Sections 50(g), 54, 54A.
89 [36].Electricity Act, 1910, Sections 5(b), 7(1), 13, 14(2), 14(3), 15(5), 16(3). 19(2), 21(4), 22, 32(3).
90 [37].Income Tax Ordinance 2001, Section 134A, as amended by the Finance Act, 2004.
91 [38].Justice Saqib Nisar, International Arbitration in the context of Globalization: A Pakistani Perspective’
<http://www.supremeCourt.gov.pk/ijc/Articles/8/2.pdf> accessed at 14th Feb 2013.
 other side seeks stay of proceedings on the ground that recourse should be made to
arbitration, the Courts have generally been quick to allow such an application. The desire
to uphold the arbitration agreement, and force the parties to resolve their disputes before
the domestic forum selected by them is all the more pronounced in the case of arbitration
agreements having an international dimension, i.e. Where one of the parties is a foreign
national or entity”.

The sense that prevailed amongst the judiciary of Pakistan is clearly reflected by the concurring
opinion of Justice Ajmal Mian (as he then was) in a 1993 decision of the Supreme Court, and his
Observations deserve to be quoted at length:92[39]

“I may observe that while dealing with...foreign arbitration clause like the one in issue,
the Court’s approach should be dynamic and it should bear in mind that unless there are
some compelling reasons, such an arbitration clause should be honored as generally the
other party to such an arbitration clause is a foreign party. With the development and
growth of International Trade and Commerce and due to modernization of
Communication/Transport system in the world, the contracts containing such an
arbitration clause are very common nowadays. The rule that the Court should not lightly
release the parties from their bargain, that follows from the sanctity which the Court
attaches to contracts, must be applied with more vigor to a contract containing a foreign
arbitration clause. We should not overlook the fact that any breach of a term of such a
contract to which a foreign company or person is a party, will tarnish the image of
Pakistan in the comity of nations.... [A] ground like that it would be difficult to carry the
voluminous evidence or numerous witnesses to a foreign country for arbitration
proceedings or that it would be too expensive or that the subject matter of the contract is
in Pakistan, or that the breach of the contract has taken place in Pakistan, in my view,
cannot be a sound ground for refusal to stay a suit filed in Pakistan in breach of a foreign
arbitration clause contained in contract of the nature referred to hereinabove. In order to
deprive a foreign party to have arbitration in a foreign country in the manner provided for
in the contract, the Court should come to the conclusion that the enforcement of such an
arbitration clause would be unconscionable or would amount to forcing the Plaintiff to
honour a different contract, which was not in contemplation of the parties and which
could not have been in their contemplation as a prudent man of business.”

Most of the foreign awards that have come for enforcement before Pakistani Courts were filed
under the Arbitration (Protocol and Convention) Act, 1937. Majority of the awards were upheld
and the Courts have invariably rejected challenges and objections to their enforcement by
Pakistani defendants. It is only in rare cases, where the objection is of such a nature that the
defect is floating on the face of the award, and the Courts have upheld the objection and declined
to enforce the award. In a decision in 1999, it was observed by a learned judge of the High Court
of Sindh that:93[40]

“...if Pakistan is to attain some respect in the commercial world, it is necessary that trans
national commercial agreements must be honoured and judicial process must not be used
merely to delay the implementation of such agreements or judicial or quasi judicial
decisions passed in disputes arising from such agreements.”

The same learned Judge observed even more trenchantly in a subsequent case:94[41]

“Increasingly, it is seen that the parties who are involved in Transnational or International
Agreements agree to an arbitration clause at the time of entering into [the] agreement but
when as a result of that agreement an award is made against them they raise frivolous
objections and deliberately refrain from seeking remedy of appeal available to them
under the agreement or other rules and attempt to delay or avoid payment under the
award by simply initiating proceedings in a Court in Pakistan ….. I do believe this is
tantamount to abuse of the process of the Court .... [and] may lead Pakistan into
becoming pariah in the commercial world.”

92 [39].Eckhardt & Co. GmbH vs. Muhammad Hanif (1993) PLD SC 42, 52.
93 [40].A. Meredith Janes Co. Ltd v. Crescent Board Ltd (1999) CLC 437, 441.
94 [41].Conticotton S.A. v. Farooq Corporation and others (1999) CLC 1018, 1022-23.
There is a long list of case laws which shows the degree of deference accorded to arbitration
clauses and some of them are worth mentioning. In Federation of Pakistan vs. Al Farooq
Builders95[42], the High Court of Sindh held that, ‘truly speaking the arbitrator is a judge of all
matters arising out of a dispute whether of fact or law and the Court is not to act as a Court of
appeal sitting in Judgment’. In President of Islamic Republic of Pakistan vs. Syed Tasneem
Hussain Naqvi,96[43] it was observed that, ‘the Court should always endeavor to sustain the
award rather than destroy it unless it could be shown by sufficient and reliable material on the
record that the arbitrator was guilty of misconduct or that the award was beyond the scope of
reference or that it was violative of a statute or was in contradiction to the well settled norms and
principles of law’. In case of Meredith Jones & Co through Attorney vs. UsmanTextile Mills,97
[44] it was held by the Supreme Court that, the award could be challenged only on the grounds
mentioned in section 30 of the Arbitration Act, 1940 i.e. if the Arbitrator had misconduct himself
and the proceedings were not based on merits. The Court while hearing, objections against the
award could not sit as a Court of appeal against the award and interfere with it on merits.’

In Hitachi Limited vs. Rupali Polyester’s and Others,98[45] on the strength of the governing law
of the contract being Pakistani law, the Pakistani party to an international contract urged the
Courts in Pakistan to assume jurisdiction on the validity of the arbitral award made on the
contractual dispute by an ICC tribunal in proceedings held in London and to exercise jurisdiction
over the composition and actions of the said English arbitral tribunal. A number of international
were quoted before the Supreme Court, in particular the judgment of the Indian Supreme Court
in National Thermal Power vs. Singer Co. & others.99[46] The Supreme Court of Pakistan
declined to adopt the view taken by Indian Supreme Court in Singer case and rejected the
plaintiffs application for removal of English arbitrators in foreign arbitration.

As for the enforcement of a foreign arbitral award, certain statutory requirements were
pronounced to be necessary. In Islamic Republic of Iran Shipping Lines through Attorney vs.
Hassan Ali & Co Cotton (Pvt.) Limited,100[47] the High Court held that requirements as laid
down in rule 297 of the Sindh Chief Court Rules should be met and fulfilled by the person
seeking enforcement of a foreign award, if deficient in any material particular, application for
enforcement be returned for removing deficiency within time allowed by the Court. The plaintiff
in this case had not also filed authenticated copy of the award. The Court held that rules provided
for producing either original award or its authenticated copy. Original award having been
produced, it was held that requisite conditions were fulfilled and the award was rightly made.
The defendant had contended that the arbitrator had no jurisdiction; award was contrary to law
and public policy and arbitrator was guilty of misconduct. It was held that no material in that
respect was produced by the party. Thus, the objections were over ruled and the award was
enforced.

In the case Flame Maritime Ltd. v. Hassan Ali Rice Export,101[48] award was brought to the
Court to make it the rule of the Court. An objection was raised that the arbitrator is guilty of
misconduct for passing an ex-parte award and granting the claim of one party without taking into
consideration the facts constituting the claim of the other party. Another objection was raised
that awarding of’ interest on amount determined by the arbitrator is against the injunctions, of
Islam, therefore, award cannot be made rule of the Court. Court after appraisal of evidence upon
the first objection found that arbitrator left no stone unturned to apprise the objecting party to
participate in the arbitration proceedings but the objecting party with its own free will remained
away from the proceedings, hence, rejected the objection. Court while dealing with the argument
of grant of interest held that the award had already become final in England, therefore, could not
be nullified at the enforcement stage in Pakistan. The disposal of second argument on the ground
of finality of award is a credible decision which excludes any iota of element of biasness against
the foreign parties as grant of interest being in violation of injunctions of Islam could be accepted
by the Court as a public policy ground, as plead by the objecting party.

95 [42].Federation of Pakistan v. Al Farooq Builders (2001) MLD 99.

96 [43].President of Islamic Republic of Pakistan v. Syed Tasneem Hussain Nuqvi (2004) SCMR 590).
97 [44].Meredith Jones & Co through Attorney vs Usman Textile Mills (2002) CLD 153.
98 [45].Hitachi Limited vs. Rupali Polyester’s and Others, (1998) SCMR 1618.
99 [46].[1992] 2 Comp. L.J..256.
100 [47].Islamic Republic of Iran Shipping Lines through Attorney v. Hassan Ali & Co Cotton (Pvt.) Limited (2006) CLD 153.
101 [48].Flame Maritime Ltd. vs. Hassan Ali Rice Export (2006) CLD Karachi 697.
In, another case titled as Metropolitan Steel Corporation Ltd v. Macsteel International UK Ltd.102
[49] suit for recovery of money was filed by plaintiff against which defendant raised the
objection that there was an arbitration agreement between the parties to refer all the disputes to
arbitration and thus requested the Court to refer the matter to arbitration. Plaintiff denied the
contention and said that there was no agreement between the parties. Court looked into the detail
and found that parties had agreed upon arbitration in the correspondence between them. Court
stayed the proceedings of the suit in favor of arbitration and gave finding that the arbitration
agreement could also be inferred from the correspondence between the parties and directed the
parties to resort to terms of sale contract for the settlement of dispute.

Apart from the cases mentioned above, there are numerous other instances as well where the
Pakistani Courts have upheld the sanctity of arbitration clauses. Pakistan stands in a very distinct
position as compared to many other countries which are far behind in the development of
modern arbitral practices and where international arbitration is the victim of judicial prejudice.
There are a few exceptions103[50] (which would be discussed in detail in the next chapter) to this
general practice, which can take place even in reputed arbitration friendly jurisdictions but
overall trend of judiciary in Pakistan is in the favor of international commercial arbitration.

PAKISTAN AN UNSAFE JURISDICTION FOR ARBITRATION: CRITICAL VIEW

Despite of a number of sound and supportive Court decisions in this field over many years as
mentioned in the previous chapter, there have been a few very high profile judgments in which
the Courts of Pakistan have intervened or rather undermined international arbitration. One was
the infamous Hub Power Company Ltd. vs. Pakistan WAPDA and another renowned case SGS
Societe Generate de Surveillance S.A. V Islamic Republic of Pakistan, that earned Pakistan a
great deal of notoriety in commercial arbitration circles internationally. 104[51] It is really
important to go through the facts of these cases briefly.

In Hub Power Company vs. Pakistan WAPDA, The Hub Power Company (or HUBCO) was
supplying electrical power to WAPDA, the public sector utility, under a power purchase
agreement (PPA), executed on 3rd August 1992. Schedule VI to the PPA contained the
provisions about the financial model for tariff calculations and payments to be made by WAPDA
to HUBCO during the thirty years life of the project. The agreement had an arbitration clause
providing for ICC arbitration at London. WAPDA alleged that Schedule VI to the PPA had been
revised by HUBCO through collusion and illegality without lawful agreement by WAPDA to
incorporate terms that vastly inflated the tariff payments due from WAPDA. On 11th October
1998, through a termination letter, WAPDA repudiated three amending contractual documents
on grounds of these being illegal, fraudulent, and collusive, without consideration, malafide and
designed to cause wrongful loss to WAPDA. Prior to the issuance of this termination letter.
WAPDA filed a criminal complaint (FIR) against a number of persons including its own officers
alleging the commission of various offences in the procurement of the tainted amendments.
Thereafter WAPDA filed a suit in Lahore for recovery of overpaid tariff amounting to Rs. 16.0
billion. HUBCO filed its suit in Karachi challenging the aforesaid termination letter by WAPDA,
seeking its suspension and an injunction restraining WAPDA from adopting any judicial remedy
contrary to the ICC arbitration clause in the PPA. As an additional measure HUBCO also
commenced ICC arbitration proceedings alleging contractual breach by WAPDA.105[52]

The matter then reached to the Supreme Court of Pakistan. The case was heard by a 5 member
bench of the Court. The Supreme Court gave a divided judgment in the HUBCO case. The
majority opinion by three Judges noted several facts and pieces of evidence in the case to draw
the conclusion that the allegations of corruption in support of which the above mentioned
circumstances do provide prima facie basis for further probe into the matter judicially. It was
observed that, if proven, the allegations of criminality would render the contract documents to be
void. Accordingly, on grounds of public policy it was held that the matter involving alleged
criminality in the dispute was not referable. On the other hand the minority opinion given by
two, learned judges took the view that the allegations by WAPDA were capable of being

102 [49].PLD 2006 Kar. 664.

103 [50].Refer to (N8).
104 [51].Ibid.
105 [52].Justice Umar Ata Bandial, ‘Limitations on Arbitrability of International Commercial Disputes Under Pakistani Law’
addressing the fiftieth year of establishment of Supreme Court of Pakistan.
<http://www.supremeCourt.gov.pk/ijc/Articles/8/1.pdf> accessed at 13 Jan 2013.
determined in arbitration proceedings. This view was based on the ground that the arbitration
clause in the. PPA was severable and survived the allegations of illegality made by WAPDA.
Reliance was placed on the English case of Harbour Assurance vs. Kansa.106[53] On the matter
of public policy the minority view referred the English case of Westacre Investment vs.
Jugoimport107[54] wherein the Court directed enforcement of the award although the underlying
agreement contemplated procurement of business for the defendants through bribery. After the
HUBCO decision, it was contended that the Judiciary has apparently set its face against
international commercial arbitration by invoking public policy and the development of the law
has been diverted into barren lands where it can only wither away.108[55] The Asian Development
Bank took the view that “the Supreme Court essentially restricted the freedom of investors to
choose how to resolve disputes”.109[56]

This decision of Supreme Court of Pakistan was criticized widely at international forums on the
following grounds. Firstly it was considered a misapplication of the doctrine of separability.
Secondly, it was an intervention in circumstances in which it was accepted by all parties that the
arbitration agreement in question was contained in a separate agreement that was not itself the
subject of any allegations of bribery, corruption or invalidity. Thirdly, the allegations of bribery
and corruption had been merely asserted and the tribunal remained entirely, competent to
investigate the same. The last criticism upon this decision was that, the proper time for the
Courts of Pakistan to interfere could only have been if and when an award was brought to
Pakistan for recognition or enforcement.

The other widely discussed case that too received a lot of criticism was SGS Societe Generale de
Surveillance S.A. v. Islamic Republic of Pakistan.110[57] This case concerned a claim filed by
SGS against Pakistan arising from an alleged breach of a contract dated 29 September 1994
under which SGS was to provide Pakistan with certain pre-shipment inspection services for
goods to be exported from various countries to Pakistan (“PSI Contract”) and a related breach of
the Pakistan-Switzerland BIT dated 11 July 1995. SGS initially filed a commercial claim in the
Swiss Courts in January 1998. The claim was unsuccessful and SGS’s final appeal was rejected
by the Federal Tribunal in November 2000 as well. Shortly before the decision of the Federal
Tribunal, however, Pakistan filed an application under section 20 of the Act, 1940 in a trial Court
in Pakistan seeking the referral of the dispute to arbitration under the terms of the contract. While
Pakistan’s application was pending, on 12 October 2001, SGS initiated ICSID arbitration
proceedings. On 4 January 2002, SGS also filed an application before the trial Court in Pakistan
asking it to stay the proceedings in view of the initiation of ICSID arbitration. The trial Court
rejected SGS’s application and its appeal before the High Court was also dismissed on 14
February 2002. SGS then appealed to the Supreme Court. Pakistan filed its own appeal before
the Supreme Court seeking to restrain SGS from pursuing the ICSID arbitration.

On 7 March 2002, SGS applied to the ICSID tribunal for provisional measures seeking to stay
the local arbitration proceedings initiated by Pakistan and requiring Pakistan to withdraw its
application before the Supreme Court for stay of the ICSID proceedings. On 15 March 2002, the
Supreme Court issued an interim order staying both the local and ICSID arbitration proceedings
and restraining both parties from pursuing them further until the Court decided the appeals.
While the matter was pending before the ICSID tribunal, on 3 July 2002. the Supreme Court
announced its judgment rejecting SGS’s appeal while accepting Pakistan’s. The Court restrained
SGS from pursuing or participating in the ICSID arbitration and further held that Washington
Convention was not part of the municipal laws of Pakistan so no reliance could be placed on the
same to defeat the express agreement between the parties to arbitrate at Islamabad under the
1940 Act. On 16 October 2002, the tribunal issued Procedural Order No. 2 on SGS’s application
for provisional measures. The tribunal ordered Pakistan not to pursue the contempt application
106 [53].[1993] 1 Lloyd’s Rep. 455.
107 [54].[1998] 4 All ER 570.
108 [55].Kairas N Kabraji, ‘Hubco v. Wapda: Allegations of Corruption Vitiate International Commercial Arbitration: The Pakistan
Experience’ prepared for the 17th LAWASIA Biennial conference at Christchurch, New Zealand,
<http://www.lawyers.org.nz/conference/pdf%20fiIes/KabrijiSal7and25.pdf > accessed 15 February 2013.
109 [56].Judicial Independence Over view and Country-level Summaries’, Asian Development Bank Judicial Independence Project
RETA No. 5987, submitted by The Asia Foundation, October 2003, as cited in Justice Saqib Nisar,’ International Arbitration in
the context of Globalization: A Pakistani Perspective’ (n 38).
110 [57].PLD 2002 SCMR 1694.
against SGS before the Supreme Court for any violation of its judgment and recommended a stay
of the local arbitration until the tribunal issued its decision on jurisdiction. Pakistan thereafter
withdrew its contempt application against SGS.

On 6 August 2003, the tribunal issued its Decision on Objections to Jurisdiction, holding that
while it had jurisdiction to hear claims arising under the Pakistan-Switzerland BIT, it did not
have jurisdiction to hear claims arising from the contract. After the tribunal’s decision, on
jurisdiction, the parties settled the matter. Under the terms of the settlement, SGS agreed to make
a lump-sum payment of US$ 2,000,000 towards the legal expenses of Pakistan and also agreed to
make available a pilot version of its software to Pakistan. Furthermore, it issued a written
apology to the President of Pakistan in respect of certain payments made by former employees of
SGS. On 23 May 2004, the tribunal made an order for discontinuance of the proceedings.111[58]
After SGS Societe Generate de Surveillance S.A. V Islamic Republic of Pakistan case. Pakistan
became the first country who’s Supreme Court has issued an injunction against an ICSID
arbitration which is a form of arbitration that by international convention (signed and ratified by
Pakistan) may not be subject of any interference by national Courts. So in this case as well,
Pakistani Courts were criticized for providing injunction and restraining the parties to participate
in ICSID arbitration proceedings. These were the two most renowned cases that brought a bad
name to Pakistan being an unsafe jurisdiction for international commercial arbitration. No doubt
that such instances should had been better addressed by the Pakistani Courts but it’s never too
late to get back on track.

REALIGNMENT OF PAKISTAN WITH PREVAILING NORMS IN INTERNATIONAL

ARBITRATION

The political affairs of Pakistan have constantly been fluctuating ever since it came into being.
Sixty-six years of Pakistan’s history is marred with intrigues, illegitimate use of power and
persistent interference in politics by both civil and military establishments. 112[59] The constant
interference of democratic rule and bringing down of elected governments has to a great extent
weakened the political as well as judicial institutions. A comparative analysis between military
and democratic rule clearly demonstrate that a limited leverage has been enjoyed by civil
governments as compared to military regimes.

If we study the role of Pakistan’s judiciary in the past 66 years, it is not very impressive rather it
is more controversial. Judiciary in Pakistan has legitimized the military takeovers, allowing the
dictators to subvert the constitution and adopt a compromised approach towards military rules.
The two cases (Hubco and SGS) that have been mentioned in the previous chapter also took
place during the era of a military dictator. A common element in both the cases was that in these
cases, state or the state interest were directly involved. As it was a dictatorial regime, the element
of influence upon the judiciary cannot be overlooked.

In March 2007, the dictator sacked the Chief Justice of Pakistan along with other judges of the
Supreme Court and had put them under house arrest along with their families. This caused a
great amount of disturbance and anger amongst the legal fraternity throughout the whole country.
The lawyers of Pakistan started agitation against Gen. Pervaiz Musharraf (then the President)
which was famously known as “Lawyer’s Movement”.113[60] As a result of this movement.
President Musharraf’s era came to an end and a new democratic government came to power
which restored the deposed Chief Justice and other judges of the Supreme Court of Pakistan. The
general impression now is that, the judiciary is independent and the recent bold decisions of the
Supreme Court of Pakistan against government depict that judiciary will uphold the law at any
cost and in all circumstances. So it is the best opportunity for Pakistan to realign itself with the
prevailing norms in international arbitration. The receptivity of top judicial body towards
111 [58].Makhdoom Ali Khan, ‘National Report for Pakistan’ (2012) in Jan Paulsson (ed). International Handbook on Commercial
Arbitration, (Kluwer Law International, 1984 updated June 2012 Supplement No. 69) 1 -- 46.
112 [59].Muhammad Iqbal Malik, ‘Political Transitions and Instability in Pakistan’ (Lets start thinking)
<http://www.letsstartthinking.org/history/political-transitions-and-instability.asp> accessed 28 June 2013.
113 [60].For more details see, Ayesha Siddiqa, ‘Looking back at the Lawyer’s Movement’ The Friday Times, Pakistan Issue March
23-29, 2012 Vol. XXIV No. 6, available at <http://w\vw.thefridaytimes.com/beta2/tft/article.php?issue=20120323&page=3>
accessed 22nd March, 2013; also, Usama Khilfi, ‘The Lawyer’s Movement in Pakistan’ (Movements, 29 April, 2011) <http://\
vww.movements.org/case-study/entry/the-lawyers-movement-in-pakistan/> accessed 22nd March, 2013.
arbitration system negates the existence of element of bias for arbitration in the mindset of
judiciary.

The recent example is the National Judicial Conference held from 13-15 April 2012. It was
presided over by the Chief Justice of Pakistan. The conference was attended by Judges of
Supreme Court, Chief Justices and the judges of High Courts, international legal luminaries,
members of district judiciary and the office bearer of bar councils and bar associations. Amongst
the eight thematic groups which were formed to be discussed by the participants, one of them
was “Alternate Dispute Resolution and International Arbitration”.

In this inaugural address, the Chief Justice of Pakistan, Mr. Iftikhar Muhammad Chaudry
asserted the importance of alternate dispute resolution. Quoting him:

“Amicable resolution of disputes is a desirable objective of the administration of justice,

permissible by law and strongly recommended by the injunctions of Islam. The delay in
the delivery of justice not only causes agony and suffering to litigants but also adversely
affects the socio-economic activities in the country. The alternate to the formal system of
administration of justice is system of Alternate Dispute Resolution. It provides justice in
less formal yet efficient manner. This system of dispute resolution has earned great
recognition all over the word. Keeping in view the potential in delivering inexpensive and
expeditious justice, the system of ADR has been introduced in Pakistan in a codified
form. Although this is passing through an evolutionary process, yet the results are
encouraging. Our predominant adversarial culture, demands for the introduction of new
ways and means to create public awareness, acceptability and confidence for promotion
of ADR mechanism. Judges should also be educated regarding this newly emerging
mechanism. Conscious of the role of ADR in expeditious justice, the Presiding Officers
were directed to strive at every material stage of the proceeding to induce, in a very non-
intrusive manner and subject to the consent of the parties to settle their disputes through
ADR without wasting time and money on protracted and contested litigation. The Courts’
are encouraged to apply the Small Claims and Minor Offences Ordinance, 2002 and other
enabling provisions in law. To be effective, the Bar members need to extend helping hand
in the process by bringing about awareness and encouraging their clients to avail the
option.”114[61]

In the same conference, Mr. Justice Shakir Ullah Jan, while addressing the topic of ‘Alternate
Dispute Resolution and International Arbitration’, expressed his views in the following words:
“Need for the resolution of disputes, shortage of the Courtrooms and other ancillary issues have
increasingly made it imperative for lawyers and business community to resort to techniques and
methods to resolve disputes out of Court. A working group has been formulated to deal with
Alternative Dispute Resolution and International Arbitration to evolve effective strategies for
implementation of arbitration mechanisms at national and international levels. Another working
group will formulate recommendations regarding reforms in judicial education as we are certain
that this Conference will provide a forum for the Federal Judicial Academy, Islamabad and
similar Academies/Institutions around the world to create a relationship which would be
mutually enriching and interactive; it would also provide an opportunity to national as well as
international academies who maintain a sustained interest in Pakistani law, to meet each other
and develop collaborative relationships; and to promote greater interaction and exchange of ideas
between the judiciary and the legal academia.”115[62]

So the mindset of top judicial body of Pakistan is worth noting that how much aware they are of
the importance of growing economic activities and need for quick disposal of commercial
disputes though Alternate Dispute Resolution. The National Judicial Policy, 2009 emphasizes the
expeditious disposal of cases.116[63] To meet that objective it. inter alia, suggests that Courts
should adopt the following measures in civil cases: “The Courts should make use of section 89A
[Civil Procedure Code] (“CPC”) to resolve disputes through Alternate Dispute Resolution

114 [61].‘Report on International Judicial Conference, 2012,’ International Judicial Conference, Secretariat. Law and Justice
Commission of Pakistan (13-15 April, 2012), 16.
115 [62].Ibid, 10
116 [63].National Judicial Policy 2009, revised edition 2011. National Judicial (Policy Making) Committee and published by the
Secretariat, Law & Justice Commission of Pakistan, Supreme Court Building, Islamabad. <http://www.ljcp.gov.pk/Menu
%20Items/National%20Judicial%20Policy/Judicial%20
Policy%20June%202011.pdf > accessed 23 March, 2013.
(ADR) including conciliation, mediation and arbitration or any such other appropriate
mode.”117[64]

This policy has been followed in a number of recent Court judgments. For example, the Karachi
High Court in a recent case held that under Section 89-A, CPC the Court might adopt any
alternate method of dispute resolution including mediation, conciliation or any other means
including arbitration for bringing an end to the controversy and expediting disposal of the case
by the consent of parties.118[65] Similarly in another case, the Lahore High Court noted the
preference of the parties to resort to amicable means for dispute resolution in corporate matters
and acknowledged the fact that almost all commercial contracts contain clauses as to
negotiations etc. for amicable resolution of disputes. The Court in this case went on to suggest
that Courts are also expected to encourage the parties to adopt such modes in view of provisions
of Section 89-A, CPC. According to the Court, this is now a universally accepted method being
followed as a less expensive, less time consuming, less cumbersome and ultimately a fruitful and
beneficial mode, commonly known as ADR.119[66] This sentiment was echoed in another Lahore
High Court case, wherein the Court held that the resolution of dispute by way of compromise,
being a recognized mode, relieves parties of expensive and lengthy agonizing litigation and saves
valuable time of Court.120[67] Likewise, the Peshawar High Court has also held that small claims
could also be referred to ADR under Section 89-A, CPC and issues could be resolved through
mediation and arbitration.121[68]

Although the judicial policy was intended to apply to lower Courts, there is mounting evidence
that it is being followed by High Courts as well. However, the value of this developing judicial
practice is diminished by the fact that arbitration is considered to be an alternative dispute
resolution mechanism to overcome the inability of the Courts to provide timely justice. As aptly
stated by Mr. Justice Tassaduq Hussain Jillani:

“The growth of ADR in the last few decades on the one hand reflects disenchantment
with the formal justice system characterized by delays and on the other an effort to
promote a less formal dispute resolution mechanism. This development is not the
outcome of any juristic philosophy. Rather it was necessitated by the growth of
commercial litigation needing speedy resolution. by the ever increasing volume of Court
work, by Court dockets becoming heavier and by the judge/case ratio getting inbalanced
on account of limited resources. Therefore, one has to go beyond the judicial policy
objectives and procedural expediency to see how the superior Courts in Pakistan have
dealt with arbitration conceptually. Analysis of judicial precedents is necessary to
determine the efficacy of arbitration in Pakistan.”122[69]

It was not until recently, Pakistan has promulgated Recognition and Enforcement (Arbitration
Agreements and Foreign Awards) Act, 2011, which gives effect to the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) 1958. Along
with the adoption of New York Convention. Pakistani legislature has also contemporaneously
enacted the Arbitration (International Investment Disputes) Act, 2011 in order to implement the
International Convention on the Settlement OF Investment Disputes (ICSID Convention) 1958.

The Arbitration Bill, 2009 was introduced in the National Assembly of Pakistan on 24th April
2009. In its preamble, the bill aspires to implement the UNCITRAL Model Law on International
Commercial Arbitration into Pakistan. Till present, the bill is still pending in the parliament
because of the debate that triggered amongst some jurists that the pending bill is a modified
version of the Indian Arbitration Act, 1996. It is being suggested that some more changes and
amendments should be made to the bill, keeping in view the problems being faced in India after
the implementation of the similar bill as pending in the parliament. This healthy debate shows

117 [64].U.I.G, (Pvt.) Limited v. Muhammad Imran Qureshi (2011) CLC 758 Karachi.
118 [65].Ibid.
119 [66].Messrs, Alstom Power Generation v. Pakistan Water and Power Development Authority (2007) PLD 581 Lahore.
120 [67].Dr. Mrs. Yasmeen Abbas v. Rana Muhammad Hanif (2005) PLD 742 Lahore.
121 [68].Muhammad Ramzan v. Afridi Variety Center (2005) PLD 269 Peshawar.
122 [69].Mr. Justice Tassaduq Hussain Jillani. `Delayed justice & the Role of A.D.R.” (unpublished paper) as cited in the
International Judicial Conference Report (n 61), 310.
the level of awareness that is found now in Pakistan regarding alternate dispute resolution.
especially international commercial arbitration.

CONCLUSION

The criticism that Pakistan faced by the international arbitration community on the two
renowned judgments123[70] (HUBCO and SGS) made by the Supreme Court was unduly harsh.
The judgments and the principles upon which those judgments were given, those reasons were
overlooked. If the facts of both the cases are observed in detail, one would come up with a
different view. Like in HUBCO case that concerned the important question of the arbitrability of
criminal matters. The majority judges in HUBCO case were careful to note expressly that the
disputes raised by WAPDA were not commercial in nature, but were such as raised very serious
public policy issues which were essentially criminal in nature. Thus, although in this case the
Supreme Court did interfere with the arbitral process, it did so reluctantly (as indicated by the
strong dissenting judgment) and drew a clear line with regard to commercial matters in respect of
which arbitration proceedings would not be stopped. A considered judicial comment that is
contemporary to the HUBCO case was made by the English Court of Appeal as well in the case
of Soleimany v. Soleimany124[71] on the effect of palpable illegality of a contract on the prospect
of arbitrability of a dispute under such a contract. It was observed that the legality or illegality of
a contract would determine whether the dispute should be resorted to arbitration or whether the
Courts should deal with the dispute. A Court may, on the ground that arbitration cannot law fully
enforce a contract neither can it enforce an illegal contract, refuse to transfer a dispute to
arbitration. The aim behind this was that the Courts wanted to preserve the integrity of its
process, to save it from abuse. Public policy would not allow that an illegal contract be disputed
through the means of arbitration.125[72] Public policy plays a major role in determining whether a
dispute should be referred to arbitration or not. An illegal contract cannot be referred to
arbitration for arbitration. Only national Courts have the power to decide on such disputes.

The settled law of Pakistan is that matters involving questions of criminality or public policy
cannot be referred to arbitration: Ali Muhammad etc Vs Basheer Ahmad,126[73] Manzoor Hussain
etc. Vs Wali Muhammad etc127[74]. In any event, the effect of illegality or violation of public law
is a matter to be adjudicated by a Court of law and not by a private forum as Justice Umar Ata
Bandial. Chief Justice of Lahore High Court, has rightly addressed this issue in the following
words:128[75]
“Our jurisprudence prescribes and ensures that commercial contracts executed by
statutory or public bodies satisfy the procedural standards of propriety laid down by
mandatory laws and rules. Thus the criteria applied consistently by the superior Courts to
assess the validity of disputed public contracts include, for example, the requirements that
only a competent authority may sign a contract, on which consents and approvals
prescribed by law have been duly secured and disclosures prescribed by law have been
duly made, that benefits given to contracting parties are conferred transparently. These
safeguards are mainly of a procedural nature and are applied in public interest on duly
notified criteria laid down by statutory laws and regulations or under settled law declared
by the Hon’ble Supreme Court. To meet the prescribed standards is the duty of the
contracting parties. These should figure on the routine check-list in precontractual due
diligence performed by any private contracting party Foreign contracting parties that fail
to meet these standards should not therefore complain about its consequences. The
mandatory procedural safeguards arc applied by the Courts as a matter of public policy of
the law of Pakistan. If an international commercial contract fails the mandatory legal tests
prescribed for its validity, it would be farfetched to suggest that the question of
contractual invalidity and its effects should be left to determination by an arbitrator under
a foreign arbitration clause. Indeed the violation of public policy is not a commercial

123 [70].See(n8).
124 [71].[1999]Q.B.785
125 [72].Ibid.
126 [73].1991 SCMR 1928.
127 [74].PLD 1965 SC 425.
128 [75].Justice Bandial (n 52).
 dispute under the contract but de hors such contract. The best judge in a matter of public
policy is a Court of law. This approach follows as a matter of ordinary prudence and
should not be characterized as judicial intervention in the dispute resolution mechanism
of an international commercial contract.”

Therefore, notwithstanding the sound and fury that the HUBCO ease generated, given the prima
facie factual inferences drawn by the majority judgment, the Supreme Court of Pakistan arrived
at a conclusion that is consistent with the principles of both domestic law as well as private
international law.129[76] Later on, WAPDA and HUBCO settled their disputes amicably. After
giving WAPDA a favorable adjustment in the tariff, HUBCO remains a high profit earner and a
leader on the National Stock Exchanges.130[77] The law as developed subsequent to the HUBCO
case has not shown any deviation by the Courts from the principles laid down earlier and the
general trend of judicial authority as noted above and the HUBCO case can be regarded as
turning of its own special facts.131[78] The Courts have been diligent in holding Pakistani entities
to their end of the bargain in terms of agreements having an international dimension and which
contain arbitration clauses or agreements.132[79]

Similar is the scenario in the SGS case as well. The whole facts of the case were over looked by
international arbitration community, and this time, it was the foreign party (SGS) that attempted
to walk away from the contract.133[80] But the Courts were very stern in order to prevent such a
breach of agreement. The contract there provided for arbitration at Islamabad under the 1940
Act. SGS. which had a claim of several million dollars against Pakistan, attempted to litigate the
claim in Swiss Courts, but the latter were equally firm in holding the company to its contract to
arbitrate in Pakistan. An application was made by Pakistan in the civil Courts under the 1940 Act
seeking to take the dispute to arbitration. SGS however, proceeded to file its claim for arbitration
under the ICSID convention. On the basis of a Bilateral Investment Treaty entered into between
Pakistan and Switzerland. Pakistan objected to such an arbitration on the ground. inter alia, that
the Washington Convention of 1965 under which the ICSID operated had not been incorporated
into Pakistani municipal law. Interestingly, SGS, the foreign party relied on the HUBCO case,
and contended that arbitration in Pakistan could not proceed as there were allegations of fraud,
corruption and mala fides against it.134[81] The stand taken by SGS was obviously self-
contradictory: it did want arbitration, but on its own terms, i.e. outside of Pakistan, and not in
terms of the actual arbitration agreement entered into between the parties with called for
arbitration at Islamabad. An attempt was therefore, made to transform the HUBCO case from a
shield into a sword. This attempt failed. The Supreme Court held that the dispute between the
parties was wholly within the four corners of the contract, i.e. was commercial in nature (the
Government having expressly stated that it would not press any claims in the nature of
corruption and fraud) and hence the HUBCO decision had no application to the facts and
circumstances of the case. It was further held that since the Washington Convention was not part
of the municipal laws of Pakistan, no reliance could be placed on the same to defeat the express
agreement between the parties to arbitrate at Islamabad under the 1940 Act.135[82]

One can agree on the point that the cases like HUBCO and SGS should have been better
addressed by the Courts or one can criticize the timing or manner in which these cases were
handled, but it would be unjust to completely ignore the overall judicial stand of Pakistani
Courts. Like many other jurisdictions, the things here in Pakistan are not ideal or perfect for
international commercial arbitration. Still Pakistan has to go a long way to improve the things.
Pakistan was in political isolation after the terror attacks on the World Trade Tower on 9/11, but
is trying to surpass that and come out of its effects. Thus, it can be said that the economic
condition of Pakistan is also improving and will be much better with the increased international
trade and commerce and investment activities. In order to take advantage of this upcoming
129 [76].Ibid, 5.
130 [77].Ibid, 5.
131 [78].Justice Saqib Nisar(n 38) 4.
132 [79].Ibid.
133 [80].Ibid.
134 [81].See, (n 57).
135 [82].Justice Saqib Nisar, (n 38) 4-5.
opportunity. Pakistan should review and strengthen its legal and institutional framework for trade
and investment, of which arbitration is an important element, as foreign businessmen and
investors usually prefer arbitration as an alternate method of dispute settlement in place of
litigation.136[83]

People who have their cases pending in litigation before the national Courts would not want such
political, economic and legal instability to affect their proceedings. They would prefer a means
which is free from any outside influence. Thus, they resort to Arbitration. Resolution of
international commercial disputes through arbitration is more favourable than it would be
through litigation. There are several reasons for this. Some of the reasons include: Arbitration
prevents the matter from being aggravated as the matters are resolved without blowing them out
of proportion; it is more private than Court room litigation as if the disputes are being behind
closed doors without anyone else, other than the parties, knowing about it: it helps preserve
future relationships between the parties by solving their disputes amiably it proves to be more
faster and economical than litigation; and also for arbitration is a confidential process which
protects the parties from loss of reputation and also from disclosure of important and private
information.137[84] Thus, Arbitration proves to be more favorable process for dispute resolution
in international commercial disputes. As discussed earlier, the Arbitration Act in Pakistan has
gone obsolete and provides for numerous instances where a Court may intervene in arbitration
proceedings and thereby disrupting the process. The Act provides excessive opportunities and
instances where a Court may intervene in arbitration. Some instances when a Court may
intervene are:

• appoint arbitrator or arbitrators where the parties fail to appoint, or replace the arbitrator
if he neglects to perform his duties;138[85]

• replace an arbitrator in certain circumstances;139[86]

• power to pass interim orders;140[87]

• power to modify an award;141[88]

• power to remit the award;142[89]

• power to supersede arbitration;143[90]

• set aside the award;144[91]

• extend time of proceedings.145[92]

It can be said that too many powers may lead to delay in the arbitration process and can exploit
and disrupt the proceedings. So measures to decrease the role of Courts and increase in the use of
arbitration can help to reduce the workload of Courts and reclaim competence.

Following are the areas that need to be developed for Pakistan to become a more attractive
country for international arbitration:146[93]

136 [83].Tariq Hassan, (n 15) 591.

137 [84].Hussain Rashid, ‘Resolving commercial disputes through arbitration and ADR in Pakistan’
<http://www.dundee.ae.uk/cepmlp/gateway/files.php?file=cepmlp_car13_1_ 654222172.pdf>accessed 10 March, 2013.
138 [85].Arbitration Act, 1940, Section 6.
139 [86].Arbitration Act, 1940. Sec. 9.
140 [87].Sec. 16 of the Act.
141 [88].Section 13 of the Act.
142 [89].Section 14 of the Act.
143 [90].Section 17 of the Act.
144 [91].Section 28 of the Act.
145 [92].Section 26 of the Act.
146 [93].Rana Rizwan, (n 11).
1. Development of Procedural law of Arbitration;

2. Development of Arbitration Institutions;

3. Enforcement of Foreign Awards;

4. Availability of Training Facilities to Students and Lawyers to seek Expertise in the field
of Arbitration.

1. Development of Procedural Arbitration Law:--The procedural law is of utmost

importance in international commercial arbitration. It describes the procedure which did to be
followed in arbitral proceedings so that the parties have a smooth arbitral process without any
obstacles and problems. The arbitration laws of every country contain provisions for the
arbitrators to follow for conducting the arbitration proceedings and also allow the freedom to the
parties and the arbitrators to determine the procedure, where it is not specifically provided. 147[94]
But the Arbitration Act of Pakistan suffers from many flaws and ambiguities. It does not address
a number of vital points, which are of core importance in the modern arbitration laws. Such as,
lack of power of tribunal to decide upon its own jurisdiction, grant of interim measures by the
tribunal and privacy and confidentiality of arbitration proceedings, grant of interest by the
tribunal, provision for an amiable compositeur and ex acquo et bono, etc.148[95] Lack of
developed procedural law of arbitration, not only leaves Pakistan far behind in international
arena of arbitral practices but gives an image of being an unfriendly jurisdiction for the
international arbitration to the foreign parties. Also, this lack of a proper and developed
procedure provides the opportunity to the national Courts to fill in the gaps which in turn leaves
a lot of power in the hand of the national Courts. Therefore, it is very important to have a
developed procedural law which is suitable for the commercial disputes of international arena.

2. Development of Arbitration Institutions:--there are two prominent and important

arbitration institutions in Pakistan, one being the “Chamber of Commerce and Industry of
Karachi’ and the other being the ‘Federation of Pakistan Chamber of Commerce and Industry’.
But despite being the two most prominent arbitral institutions both these institutions attract two
to three cases on an average every year since their inception in 1959 and 1960 respectively.149[96]
The Federation of Pakistan Institute has entered into bilateral agreements for arbitration with the
American Arbitration Association and the Japan Commercial Arbitration Association, which
operate by means of so-called joint arbitration clauses’.150[97] However, this doesn’t quite
provide an incentive to foreign parties to choose Pakistan as a venue for international
commercial arbitration. In 2009 an attempt was made to establish an arbitration institution in
Lahore on the style and pattern of London Court of International Arbitration (LCIA) with the
name Alternative Dispute Resolution Centre (ADRC). The institution was shut down due to an
extremely poor response to it.151[98] No steps so far have been brought on public record which
should be taken to invite the International Organizations e.g. International Chamber of
Commerce (ICC), International Centre for Dispute Resolution (ICDR) etc., to create their arbitral
venues in the country.152[99] This shows the poor infrastructure for international Commercial
arbitration which is why there is such poor response in terms of the cases that come for
arbitration in this country. This can only be surpassed if more arbitral institutions are established
in this country and are given a proper infrastructure and when Pakistan is made attractive as a
venue for international arbitration.

3. Enforcement of Foreign Awards:--Pakistan being a member state of the New York

Convention is under an obligation to enforce the foreign commercial awards. Before the
enactment of the New York Convention it was ratified by Pakistan through an Ordinance153[100]
and the foreign awards were enforced, for the encouragement of international arbitration in
147 [94].Julian D. M. Lew, Loukas A. Mistelis, Stefan M. Kroll, Comparative International Commercial Arbitration (first published
2003, Kluwer Law International, Hague, 2003) 523.
148 [95].Rana Rizwan, (n11).
149 [96].Mahomed J. Jaffer and Sarmad J. Osmany, ‘National Report - Pakistan’, in Pieter Sanders (ed). Yearbook Commercial
Arbitration 1980, Volume V (1980, Kluwer Law International) 114 – 140, 115.
150 [97].Ibid.
151 [98].Uzair Karamat Bhandari, Feisal Hussain Naqvi, Iftikharuddin Riaz, Ch. 20 ‘Pakistan’, Asia Arbitration Handbook, edited by
Michael J. Moser and John Choong (2011, Oxford University Press).
152 [99].Rana Rizwan, (n 11).
153 [100].The Recognition and Enforcement (Arbitration Agreement and Foreign Arbitration Awards) Ordinance. 2005.
Pakistan, any technicalities or infirmities coming into the way of enforcement of award should
be bypassed and the spirit of the New York Convention must be given effect. It has been
observed that in some cases of international arbitration, the lawyers do not provide the Courts
with the proper assistance upon the points of international arbitration. The Courts generally give
their verdict on the basis of materials available in front of them and rarely appoint amicus curiae
in these cases to seek proper brief upon the complex issues of international arbitration. To be in
line with the international arbitral practice, the Pakistani Courts should be more willing and more
enthusiastic when dealing with such eases so as to be more arbitration friendly. This would also
give an impression to the international community that Pakistan is becoming more attractive as a
venue as it won’t interfere with recognition and enforcement of foreign arbitral award. If this is
successfully done then a major hurdle would be cleared.

4. Training Facilities for the Students and the Lawyers to Seek Expertise in
International Arbitration:--Pakistan has got no training institutions organized for providing
training to the lawyers and the students for the development of arbitration skills.154[101] As a
matter of fact no efforts at a large scale have ever been made to develop international arbitration
in the country by providing opportunities to the students and lawyers to seek expertise in it.155
[102] It seems that the Pakistani government is absolutely oblivious of the fact that this stream of
dispute resolution needs to be taken care of needs to be developed and needs a new and proper
infrastructure which is only possible if the present and future (law students) lawyers are trained
intrinsically. Gorden Jaynes, has criticized this situation of Pakistan pointing out that,
‘International Development Law Organization (IDLO) has been offering services on the
development of international arbitration for twenty years. More than 60 lawyers from Pakistan
are the alumni of IDLO’s various training programs, who can offer services of training to the
students in the field of international arbitration. IDLO has also got its distance learning
programs, for students and lawyers of developing countries from all over the world. International
Islamic University of Islamabad has been offering a program of dispute settlement of WTO and
recognition and enforcement of foreign arbitral awards. If the University is so proposed, another
training program of international arbitration can also be initiated with the same resources
available to the University but what appears is the lack of initiative and interest to start any
program of this nature.’156[103] Therefore, it is important to note here that a compulsory
arbitration training institution is the need of the hour in Pakistan, which provides information and
knowledge about how international commercial arbitration can be developed, how a proper
infrastructure can be provided to it and most importantly what all needs to be changed to make
Pakistan an attractive venue for international arbitration.

The development of international trade, commerce and investment in a developing country like
Pakistan is of prime importance. For the maintenance of such development in the field of
international trade and commerce it is important that the dispute resolution of international
commercial disputes should be impeccable and without any flaws. The foreign investors should
not lose faith in the legal system of the country they are investing it as this can have negative
effects. If the foreign parties do not trust the legal system of the nation they are trading with then
they will think twice before such trade, as they wouldn’t want to be stuck in dispute resolution
for years and years. They would prefer a safer jurisdiction where in case of any dispute they
would be able to solve them amiably without any problems and delays. Thus, for the
development of trade and commerce and investment, a perfect dispute resolution system in
needed to re-gain and maintain the trust of the foreign parties in the legal system of Pakistan.

Coming towards the end of the discussion, the main question is what scale of judicial
intervention should be allowed in international commercial arbitration. Parties in arbitration want
a prompt, less expensive and final resolution of the dispute, whilst states also want to ensure, that
the arbitral process is just and impartial.157[104] Arbitration must be free from the control of
national Courts; but at the same time it cannot be denied that to be completely effective
arbitration also needs the support of national Courts. The involvement of Courts begins even
before the arbitral tribunal is established. The Courts then enforce arbitration agreements for the

154 [101].Rana Rizwan, (n 11).

155 [102].Ibid.
156 [103].Gordon Jnynes, ‘International Arbitration in Pakistan: A Janusian Perspective’ (2004) 1 Journal of International
Arbitration Vol. 21, 83-89, 84-85.
157 [104].Okezie Chukwumerije, ‘Judicial Supervision of Commercial Arbitration’ (1999) 2 Arbitration International Vol.15, 171-
192, 183.
arbitral process to start; during the pendency of the arbitration itself, it issues interim orders and
at the end of the arbitration, it either recognizes and enforces, or set aside arbitral awards. 158[105]
Though arbitration is private in nature but still it cannot exist in a vacuum. The relationship
between the national Courts and arbitration is such that both must exist together. The arbitrators
and the parties must give national Courts due respect because it is the national Courts that
ultimately hold the keys to recognition and enforcement. If national Courts refuse to provide the
nourishment and sustenance sought at the right time and in the right place, the giant squid of
international arbitration might be forced into shallower waters, where it will inevitably find itself
in peril.159[106] The Courts should also respect the intent of the parties to settle their disputes at a
private forum and to hold the parties to their part of bargain. If the parties had the intent to
involve national Courts in their dispute resolution, they would have opted for litigation rather
than arbitration: the Courts should keep this in mind. However, at the same time it must be kept
in mind that absolute freedom cannot be provided to arbitration as it would lead to arbitrariness
and may lead to exploitation. Thus, Pakistan stands in a very distinct position in comparison with
other countries in the sense that the arbitral practices are not very advanced and not very
developed to meet all the requirements of the international commercial arbitration community.
But at the same time it should be kept in mind that there is no judicial prejudice against
arbitration in this country. Even though there are instances of excessive Court intervention as
discussed earlier but such instances are very few. The impression of these few instances should
not be carried forward to all the international commercial arbitration practices in this jurisdiction.
The Courts and the legal system of Pakistan are quite welcoming towards alternate dispute
resolution systems. The Courts of Pakistan have never shown an interventionist attitude, despite
the fact that the present Arbitration Act, 1940 provides a lot of room for such intervention. The
national Courts do not interfere with each and every international commercial arbitration
proceeding. There certainly are some areas that need to be improved to bring Pakistan amongst
one of the leading arbitration friendly jurisdictions, but to grant Pakistan the title of being an
unfriendly jurisdiction for international commercial arbitration is unjustified and a bit too
extreme. Pakistan is capable of being one of the friendliest jurisdictions for international
commercial arbitration; all that is needed is a better infrastructure and arbitration laws that are in
line with international standards.

BIBLIOGRAPHY

PRIMARY SOURCES

LEGISLATIONS:

1. Arbitration Act, 1979

2. Constitution of Pakistan, 1973. Article 2

3. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958,

4. Cooperative Society Act, 1925

5. Electricity Act, 1910

6. Family Courts Act, 1964

7. Industrial Relations Ordinance 2008

8. National Judicial Policy, 2009, revised edition 2011

9. The Income Tax Ordinance, 2001, as amended by the Finance Act, 2004

CASES:
158 [105].Samuel Marful-Sau, (n 25).
159 [106].Prof. Julian D M Lew QC, ‘Does National Court Involvement undermine the International Arbitration process’, 24Am-U-
Int’IL, Rev. 489, 537.
1. A. Meredith Janes Co. Ltd v. Crescent Board Ltd (1999) CLC 437, 441

2. Ali Muhammad etc. v. Basheer Ahmed 1991 SCMR 1928

3. Conticotton S.A. v. Farooq Corporation and others (1999) CLC 1018, 1022-23.

4. Dallah v. The Ministry of Religious Affairs. Govt. of Pakistan [2010] UK SC 46

5. Dr. Mrs. Yasmeen Abbas v. Rana Muhammad Hanif (2005) PLD 742 Lahore

6. Eckhardt & Co. GmbH vs. Muhammad Hanif (1993) PLD SC 42. 52

7. Federation of Pakistan v. Al Farooq Builders (2001) MLD 99

8. Flame Maritime Ltd. v. Hassan Ali Rice Export (2006) CLD Karachi 697

9. Harbour Assurance v. Kansa [1993] 1 Lloyd’s Rep, 455

10. Hitachi Limited v. Rupali Polyester’s and Others (1998) SCMR 1618

11. Hub Power Company Ltd v. Pakistan WAPDA (2000) PLD SC 841

12. Islamic Republic of Iran Shipping Lines through Attorney v. Hassan Ali & Co Cotton
(Pvt.) Limited (2006) CLD 153

13. Kill v. Hollister I. Wilson 129 (1746)

14. Manzoor Hussain etc. v. Wali Muhammad etc PLD 1965 SC 425

15. Meredith Jones & Co through Attorney v. UsmanTextile Mills (2002) CLD 153.

16. Messrs. Alstom Power Generation v. Pakistan Water and Power Development Authority
(2007) PLD 581 Lahore

17. Metropolitan Steel Corporation Ltd. v. Macsteel International UK Ltd. PLD 2006 KAR
664.

18. Muhammad Ramzan v. Afridi Variety Center (2005) PLD 269 Peshawar.

19. National Thermal Power v. Singer Co. & others [1992] 2 Comp. L.J. 256

20. President of Islamic Republic of Pakistan v. Syed Tasneem Hussain Naqvi (2004) SCMR
590

21. Societe Generate de Surveillance S.A. v. Pakistan (2002) PLD SCMR 1694

22. Soleimany v. Soleimany [1999] QB 785

23. U.I.G. (Pvt.) Limited v. Muhammad Imran Qureshi (2011) CLC 758 Karachi

24. Vynior’s Case 4 Eng Rep 302 (1609)

25. Westcare Investment v. Jugoimport [1998] 4 All ER 570

SECONDARY SOURCES

BOOKS:

1. Bansal A, Arbitration and ADR (first published 2005, Universal Law Publishing Co.
(Pvt.) Ltd. 2009)
2. Bhandari U, Naqvi F, Riaz I, ‘Pakistan’, Asia Arbitration Handbook, edited by Michael J.
Moser and John Choong (2011, Oxford University Press)

3. Gordon D, Secession, State & Liberty (first published 1998. Transaction Publishers 2009)

4. Lew J, Mistelis L, Kroll S. Comparative International Commercial Arbitration (first

published 2003, Kluwer Law International, Hague, 2003)

5. Malhotra OP and Malhotra I, The Law and Practice of Arbitration and Conciliation (first
published 2002, LexisNexis)

6. Moses L. M, The principle and practice of International Commercial Arbitration (first

published 2008, Cambridge University Press)

7. Paulsson J, International Handbook on Commercial Arbitration: National reports and

Basic Legal Texts, (Kluwer Law International, 1984, Supplement No. 69)

8. Sanders P (ed), Yearbook Commercial Arbitration 1980. Volume V (1980. Kluwer Law
International)

ARTICLES:

1. Asouzu A, ‘The National Arbitration Law And International Commercial Arbitration:

The Indispensnbility of The National Court And The Setting Aside Procedure’ (1995) 7 Afr. J.
Intl’l & Comp. L. 68

2. Carbon G, ‘The Interference of the Court of the Seat with International Arbitration’
(2012) J.Disp. Resol. 217

3. Chukwumerije O, ‘Judicial Supervision of Commercial Arbitration” (1999) 2 Arbitration

International Vol.15

4. Hassan T, ‘International Arbitration in Pakistan, A developing country perspective”

(2002) 19(6) Journal of International Arbitration

5. Hussain R, ‘International Arbitration in Pakistan’,

<http://ranarizwanhussain.wordpress.com/2013/04/10/
international-arbitration-in-pakistan/>

6. Jaynes G, ‘International Arbitration in Pakistan: A Janusian Perspective” (2004) 1

Journal of International Arbitration Vol 21

7. Justice Nisar S, ‘ International Arbitration in the context of Globalization: A Pakistani

Perspective”. <littp://www.supremecourt.gov.pk/ijc/Articles/8/2.pdf>

8. Khan A, ‘Arbitration /ADR versus Litigation’ (Pakistan WSG Submission. 4 September

2006), <http://www.hg.org/articles/article_l 530.html>

9. Khilfi U, ‘The Lawyer’s Movement in Pakistan’ (Movements. 29 April. 2011).

<http://www.movements.org/case-study/entry/the-lawyers-movement-in-pakistan/>

10. Malik M, ‘Political Transitions and Instability in Pakistan’ (Lets start-thinking).

<http://www.lelsstartthinking.org/history/political-transitions-and-instability.asp>

11. Marful-Sau S, ‘Can international commercial arbitration be effective without national

Courts? A perspective of Courts involvement in international commercial arbitration’,
<http://www.dundee.ac.uk/cepmlp/gateway/files.php?filecepmlp_car13_4_635429854.pdf.

12. Monjur M, ‘An Analysis on the practices of Prophet Muhammad (PBUH) in resolving
conflicts’ (2011) Journal of the Bangladesh Association of Young Researchers (JBAYR).
Volume 1, Number 1, January 2011
13. Prof. Lew J QC. ‘Does National Court Involvement undermine the International
Arbitration process’, 24 Am. U. lnt’l L. Rev. 489

14. Rashid H, ‘Resolving commercial disputes through arbitration and ADR in Pakistan’,
<http://www.dundee.ac.uk/cepmlp/gateway/files.php?file=cepmlp_carl3_l_654222172.pdf>

15. Rowley J and Swaroop S, ‘The Role of the Judiciary in International Arbitration-The
benefits of Support : Recent English Experience’ (2009) 10 Bus. L. lnt’l 272

16. Siddiqa A, ‘Looking back at the Lawyer’s Movement’ The Friday Times, Pakistan Issue
– March 23-29, 2012 Vol. XXIV No. 6, <http://www.thefridaytimes.com/beta2/tft/article.php?
issue=20120323&page3>

17. Sir Ramsey V, ‘The conflict between local Courts and international arbitration’ (2012).
<http://www.londonarbitrators.org/sites/default/files/
editior/Sir%20Vivian%20Ramsay%20presentation%2025%20April%202012.doc>

18. Xavier G, Evolution of Arbitration as a Legal Institutional and the Inherent Powers of the
Court, ASLI Working Paper, No. 009, February -2010, < www.law.nus.sg/asli/pub/wps.htm>

REPORTS/SPEECHES:

1. Justice Bandial U, ‘Limitations on Arbitrability of International Commercial Disputes

Under Pakistani Law’ addressing the fiftieth year of establishment of Supreme Court of Pakistan,
<http://www.supremeCourt.gov.pk/ijc/Articles/8/l.pdf>

2. Kabraji K, ‘Hubco v. Wapda: Allegations of Corruption Vitiate International Commercial

Arbitration: The Pakistan Experience’ prepared for the 17th LAWASIA Biennial conference at
Christchurch, New Zealand,
<http://www.lawyers.org.nz/conference/pdf%20files/KabrijiSal7and25.pdf>

3. Lord Mustill, ‘Comments and Conclusions in Conservatory Provisional Measures in

International Arbitration’ 9th Joint Colloquium (1993, ICC Publication)

4. ‘Judicial Independence Over view and Country-level Summaries’, Asian Development

Bank Judicial Independence Project RETA No. 5987, submitted by The Asia Foundation,
October 2003

5. ‘Report on International Judicial Conference, 2012’, International Judicial, Conference,

Secretariat, Law and Justice Commission of Pakistan (13-15 April, 2012)

THE RESOLUTION OF CONTROVERSIES AMICABLY THROUGH

ARBITRATION. CONCILIATION & MEDITATION

By:
MRS. NAILA KAREEM KHILJI L.L.M.
Advocate High Court
Part Time Lecturer, BZU Gilani Law College, Multan.

The Constitution of Pakistan, 1973 grants ambient laws to ensure the safety, freedom, fairness,
Security of person, Safeguards as to arrest and detention, Slavery, forced labour, etc., prohibited,
Protection against retrospective punishment, Protection against double punishment and self-incrimination,
inviolability of dignity of man, etc., Freedom of movement etc., Freedom of assembly, Freedom of
association, Freedom of trade, business or profession, Freedom of speech etc., Freedom of profess
religion and to manage religious institution, Safeguards as to educational institution in respect of religion
etc., Provision as to property, Equality of citizens, Safeguard against discrimination in services,
Preservation of language, script and culture, Principles of Policy, Responsibility with respect to Principles
of Policy, Islamic way of life, Promotion of local Government institutions, Parochial and other similar
prejudices to be discouraged, Full participation of women in national life, Protection of family etc.,
Protection of minorities, Promotion of social justice and eradication of social evils, Promotion of social
and economic well-being of the people, Participation of people in Armed Forces, Strengthening bonds
with Muslim world and promoting international peace.

Many times it is seen that the peoples are not aware how to proceed when a wrong or injustice
has been done to them. There are people who wish to resort to judicial litigation to resolve disputes and
are at a loss regarding whom to approach and what option are available to them. The entire process of
suing in a Court of law for wrongs done and the proceedings that follow seem to be much beyond their
comprehension. It could be people with landed property involved in disputes over inheritance, ownership,
possession, title or could even be a family related dispute. The common man appears to be lost in the
maze of legal jargons because the legal parlance and term are difficult for them to comprehend. It is heart
rendering when innocent victim do not even know that something like mediation and conciliation exists
within the frame work of the law.

Simple rural folk who come to the Courts seeking justice for disputes related to farmland and its
parameters and confused by the legal terms and cannot even distinguish a "plaintiff from a defendant",
neither are they aware that a system exists through which they can resolve matters amicably through
creative solutions acceptance to both the parties and that they had not go through expensive litigation.
Litigation does not always had to satisfactory results. It is expensive in terms of time and remedy. A case
won or lost in a Court of law does not change the attitude of the litigants who continue to be adversaries
go on fighting in appeals after appeals. The laws relating to arbitration enables the change in the approach
of the parties. The alternative dispute resolution, negotiation and mediation system is becoming more
popular in throughout world.

WHAT IS ARBITRATION

Arbitration is an alternative way to resolve dispute through Court-litigation. Arbitration is a

recognized private legal procedure used to resolve disputes between two or more parties. Arbitration
proceedings are administered and managed by a knowledgeable, independent, and impartial third party.
The parties to a dispute present their pleadings, evidence and arguments to the Arbitrator who decides the
case and resolves the dispute.

Where two or more persons agree that a dispute or potential dispute between them shall be
decided in a legally binding way by one or more impartial persons in a judicial manner, that is upon
evidence put before him or them, the agreement is called as Arbitration agreement or a submission to
Arbitration. When, after a dispute has arisen, it is put before such person or persons for decision, the
procedure is called as Arbitration, and the decision when made is called award.

Arbitration is a method whereby parties can resolve their disputes privately. It is known as an
Alternative Dispute Resolution mechanism. In this mechanism, instead of filing a case in a Court, parties
can refer their case to an arbitral tribunal, which is the forum where Arbitration proceedings are
conducted. The arbitral tribunal considers the cause of the conflict between the parties and arrives at a
decision known as 'award'. The arbitral tribunal controls the process and outcome of dispute. Generally
the hearing is limited by rules agreed by parties and is conducted in private and strangers cannot be
present.

(Ronald Bernstein Derek Wood in Handbook of Arbitration Practice, Second Edition, P. 9).

1. History of the Act.

In Indo-Pakistan the Law of Arbitration remained unknown till the advent of British Rule. So far
as Muslim Law is concerned the Holy Quran provided this forum 1400 years back in Surah Al-Noor,
Verse:35. First enactment to regulate procedure of Civil Courts passed in 1859 contained Ss. 312 to 327
which dealt with law of Arbitration. These provisions remained repeated in the Code of Civil Procedure
revised in 1882 as Ss. 506 to 526. The above said provisions contained reference to disputes referable to
arbitration with or without intervention of the Court after they had arisen. There was no provision for a
reference to arbitration of future disputes. A need was felt to make the law or arbitration more
comprehensive when the Code of Civil Procedure was revised in 1908, the Special Committee headed by
Sir Else Richard's observed:--
"We are of opinion that the best course would undoubtedly be to eliminate from the Code all the
clauses as to arbitration and insert them in a new and comprehensive Arbitration Act. There are
perhaps difficulties as to this at present. We have determined, therefore, to leave the arbitration
clauses much as they are in the present Code, but we have placed them in a Schedule in the hope
that at no distant date they may be transferred into a comprehensive Arbitration Act".
The Chief Justice Committee presided over by Mr. J. Rankin to examine this branch of law in 1925
observed:--
"This hope has not been fulfilled although sixteen years have elapsed, is certainly a pity, but it is
important to observe that what is required is not so much that the whole of the law, on this subject
should be put into one Act, as that the law should be made more workable".

It was in the year 1940 that a comprehensive and uniform law on the subject of arbitration was adorned
on the Statute Book for the whole of the Sub-Continent to cater for the needs of all arbitrations. The
Arbitration Act, 1940 repealed the Indian Arbitration Act, 1899 and the Second Schedule of the Code of
Civil Procedure, 1908. The present Act is self contained, comprehensive and uniform law on the subject
of arbitration. It is complete Code and covers not only the procedure, passing of award, remittance and
modification of the same but also the method and manner to impeach the same, to probe misconduct of
the arbitrator as well as in the proceedings, to provide forum of appeal and jurisdiction. So is mentioned
in the preamble, it amends and consolidates the law relating to arbitration in the Sub-Continent.

2. Preamble.

The preamble of a statute is a preparatory statement at its beginning, following the title and
preceding the enacting clause, explaining or declaring the policy and purpose, the reasons and motives
for, and the objects sought to be accomplished by the enactment of the statute. (AIR 1958 SC 956). The
purpose of a preamble, is that in case of any doubt as to the intention of the Law Makers it may be looked
at in order to ascertain a true meaning of a particular provision but cannot control the substantive
provisions of the enactment. (PLD 1973 SC 49). Preamble is a good means to find minds of the makers of
the Act and the mischief which they intend to redress. (AIR 1956 SC 246). It has been considered as a
key to the statute affording a clue to the scope of the statute. A preamble cannot override the specific
provisions made in the statute, however, it can be used to remove any ambiguity in the statute keeping in
view the aims and objects of the same and the interest of justice. Arbitration Act, 1940 is to save the
parties from the cumbersome and tiring proceedings of the civil litigation and to resolve their disputes
through arbitration as early as possible. (1999 CLC 1005). The sole purpose of the Arbitration Act, 1940
is to curtail litigation in Courts and to promote the settlement of the dispute amicably through persons in
whom both the parties repose their trust. Therefore, the course that the Courts should generally follow is
to encourage the settlement of disputes by this method wherever the parties have themselves agreed to do
so. To allow one side to evade and wriggle out from the agreement merely by making allegations of
fraud, even though the same may not ultimately be proved or even pressed, would amount to giving a
handle to that party to circumvent the arbitration clause. (1981 SCMR 129) Role of Courts in the scheme
of Arbitration Act, 1940 is of supervisory character. (PLD 2003 Kar. 180).

3. Scheme of Arbitration Act, 1940.

Arbitration is a judicial determination of differences between the parties. Necessary ingredient

being that there must be a controversy, presentation of case from both sides, if necessary, evidence be
brought on record and application of mind by the arbitrator and a reasoned award must follow. (1999
YLR 978). Scheme of the Arbitration Act, 1940 is that the dispute between the parties, who entered into
an agreement of arbitration, should be decided by one or more persons, who are called to be Judges in the
said dispute, and not by a regular or ordinary Court of law. Scheme further envisages that the decision of
the said arbitrators is binding upon the parties whether they agree to the decision either upon law or fact,
if the award is good on the face of it. Arbitration in substance ousts jurisdiction of Court except for
purpose of controlling arbitrator and preventing misconduct and for regulating procedure after award.
Perusal of Arbitration Act, 1940, reveals that there are three modes of arbitration: Arbitration without
intervention of Court; arbitration with intervention of Court where there is no suit pending and arbitration
in a suit pending before Court. First category of arbitration is provided under Chapter II of the Act, which
contains Ss. 3 to 19, Second category of arbitration is available in Chapter III of the Act which contains
only one section, that is, S.20 and Chapter IV of the Arbitration Act deals with the third category of
arbitration which contains Ss.21 to 25. (2005 YLR 2709) Whole scheme of Arbitration Act, 1940 is to
curtail litigation in regular Courts to get disputes settled by avoiding all type of technicalities of
procedural law but within the four corners of substantive law and to provide a domestic forum for speedy
disposal of disputes. (PLD 1995 Kar. 286).

4. Principle of natural justice.

There can be no cavil against the proposition of law that an arbitration has to adhere to the
principles of natural justice in spite of the latitude in the matter of procedure allowed to him at the
hearing. The basic norms of fair adjudication contained in the rule of natural justice are inherent on the
adjudication of a dispute by any domestic tribunal. Accordingly, if the Court finds that at no stage in the
history of the dispute and its eventual adjudication by the arbitrator, the adverse party is informed about
the claim of the party seeking decision of the dispute, the award must necessarily be struck down. (PLD
1977 Kar. 37). However, principle of natural justice cannot be stretched so as to make it incumbent for a
domestic tribunal to do more then to give notice of proceedings to party. (PLD 1977 Kar. 37).

5. Application of C.P.C.

Generally rule of Code of Civil Procedure though applicable to all proceeding of civil nature but
scheme of Arbitration Act, 1940 is to curtail litigation in regular Court to get disputes settled by avoiding
all types of procedural law. Technical rules of procedure contained in the Code of Civil Procedure are not
extended to arbitration proceedings. Provisions of the Code are made available to all proceedings before
the Court and not before arbitrator. (2006 CLC 1678, 2000 YLR 758). However, arbitrator at the time of
recording evidence is to see whether questions put to the witnesses are relevant to the dispute in the
matter or not, but request to call a witness except in exceptional circumstances cannot be denied. (2006
CLC 1678). Where order passed is not an order under Arbitration Act but is under the provision of Code
of Civil Procedure provision of Arbitration Act would not apply. (PLD 1999 Kar. 235) Section 41 of the
Arbitration Act itself says:--

(a) The provisions of the Code of the Civil Procedure, 1908, shall apply to all proceedings
before the Court and to all appeals, under this Act".

Therefore, the reference and the award could only be interfered within the manner laid down by
Sections 30, 31, 32 and 33 and to that extent the provisions of the Code of Civil Procedure are expressly
excluded and no Court other than that mentioned therein could deal with the matter. The statutory bar
created by Sections 30, 31, 32 and 33 of the Act was affirmed in Prafulla Chandara Karmakar Vs.
Panchanan Karmakar (AIR 1946 Calcutta 427) in the following words:--
"In the first place, the operative part of S. 41 is prefaced by the words "subject to the provisions
of the Act" and therefore the Civil Procedure Code can apply only subject to the provisions of Ss.
23(2) and 32. Since those provisions forbid interference with the reference and the award except
as provision for in the Act, to that extent the Civil Procedure Code is excluded. Indeed, it seems
to me that the scope of S.41, is limited to attracting the procedural rules of the Code to
proceedings before the Court under the Arbitration Act."

This case was followed in Indian Minerals Co. Vs. N.I.L.M. Association (AIR 1958 Allahabad 692), and
it was held that the words "subject to the provisions of this Act" in Section 41 of the Arbitration Act mean
that the Code of Civil Procedure is applicable only subject to the provisions of Section 23(2) and Section
32 of the Act. These provision forbid interfere with the references and awards save as provided for in the
Act, and to that extent only the Code of Civil Procedure is excluded.

An objection to the existence of a valid contract containing the arbitration clause, when the award
is filed in Court, if affirmed, automatically results in the setting aside of the award and the matter,
therefore, falls under Section 30 clause (c) of the Act as that will be covered by the express provision
"otherwise invalid". (See Messrs Badri Narayan Agarwala Versus Messrs Pak Jute Balers Ltd., (PLD
1970 SC 43). Such an order is appealable under Section 39 (vi) of the Act and so also an order refusing to
set aside an award. In the circumstances, this power had to be exercised, in the first instance, by the Court
mentioned in Clause 2(c) of the Act. The High Court in the exercise of its revisional jurisdiction
examined the validity of the contract containing the arbitration clause and held that one of the documents
containing it should have been stamped so as to make the agreement valid. This controversy could only
be examined by the Court referred to in Sections 31, 32 and 33 of the Act if the award had been filed in
the Court as the objection to the legality of the arbitration clause would have eventually affected the
making of the award. The premature exercise of the revisional jurisdiction, therefore, resulted in
rendering the award null and void. It cannot be disputed that the High Court can exercise revisional
jurisdiction to correct an order under Section 8 of the Arbitration Act which suffers from jurisdictional
error or procedural irregularity as no appeal lies against such an order under Section 39 of the Act.
However, the exercise of this power is limited by the provisions of the Act when an award has been made
on the grounds mentioned in Section 30 of the Act. (See sections 31(2) and 41 (a) of the Act). Therefore,
there has to be an order by the Court against which an appeal does not lie to the High Court. It is only
then that the revisional jurisdiction can be exercised. Here as adverted earlier the revision was filed after
the award was made but not filed in Court, and, therefore, the exercise of revisional power was
circumstances.
World Intellectual Property Organization (WIPO) Arbitration and Mediation Center
World Intellectual Property Organization (WIPO) Arbitration and Mediation Center

Chemin des Colombettes.

P.O. Box 18
CH-1211 Geneva 20

Switzerland

Telephone: 41 22 3388247

Fax: 41 22 7403700

Email: Arbiter.Mail@wipo.int

URL: http: / /www.arbiter.wipo.int

(iv) ICC International Court of Arbitration
38 cours Albert ler
75008 Paris France
Tel.: +33 1 496 53 29 05
Fax.: +33 1 496 53 29 33
E-mail: arb@iccwbo.org
(v) National Arbitration Forum
P.O. Box 50191
Minneapolis, MN 55405-0191 USA
Telephone: 651 631-1105 800 474-2371
Email: info@art-forum.comn
URL: http://www.arbitration-forum.com
(vi) The Regional Centre for Arbitration Kaula Lampur
No. 12, Jalan Conlay,
50450 Kuala Lumpur
Telephone: 603 2142 0103, 21420702, 21420384
Facsimile: 603 2142 4513
Email: enquiryffircakl.org.my
URL: http://www.rcakl.org.my
(vii) Arbitration Court at the Bulgarian Chamber of Commerce and Industry Bulgaria Sofia
1058
42 Partchevich Str. - Arbitration Court at the BCCI
Floor 4 room 2 - Secretariat of the Arbitration Court at the BCCI
Lyubka Vassileva – secretary
Boriana Nenkova – secretary
E-mail: aCourt@bcci.bg
Tel: (+359 2) 980 98 99, 987 26 31 ext. 143
Fax: (+359 2) 987 32 09
(viii) British Columbia International Commercial Arbitration Centre
#104 - 1260 Hornby Street
Vancouver, British Columbia
Canada V6Z 1W2
Telephone: (604) 484-2821
Within Canada: 1-877-684-2821
Facsimile: (604) 736-9233
E-Mail: options@bcicac.com
(ix) The Arbitration Institute of the Stockholm Chamber of
Commerce jakobs Torg 3, P.O. Box 16050 Stockholm Sweden
Postal Code: S-103 21
Telephone: 046 8 5551 0050
Facsimile: +46 8 5663 1650
URL: http://www.chamber.se
E-mail: arbitration@chamber.se
(x) ADR Center
Via del Baduino,
114 -00187 Roma-
Tel. +39 06 693.800.04
Fax+39 06 691.904.08