International Arbitration  Legislative framework in Pakistan: An overview[1]

Huzaima Bukhari, Dr. Ikramul Haq & Syed Muhammad Ijaz  

 

Pakistan has demonstrated its commitment to international arbitration by being a signatory to significant conventions, such as United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) and Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. These conventions have been duly ratified, and Pakistan continues to reinforce these commitments through dedicated domestic legislation.

Chartered Institute of Arbitration (CIArb), one that is globally renowned for education in arbitration and resources, has a chapter on Pakistan comprising 123 esteemed members who are actively engaged in international arbitration services.

Courts in Pakistan [five High Courts and the Supreme Court] have dedicated arbitration benches. In a judgement, Kausar Rana Resources (Private) Limited, etc. Vs. Qatar Lubricants Company W.L.L. (QALCO), etc. in C.P.L.A. 4468/2024 , the honorable Justice Mansoor Ali Shah of Supreme Court observed as under:

In enforcing an arbitration agreement, ‘the courts’ role is not to pre-empt the jurisdiction of the arbitrators but to support the arbitral process and ensure that the parties adhere to their agreement’. 1By prioritizing arbitration, courts uphold the principle of party autonomy and reinforce the parties’ choice to resolve their disputes outside traditional litigation.

Pakistan has been part of various international arbitration cases in a few cases as appellant but mostly as a respondent. The International Centre for Settlement of Investment Disputes (ICSID) deals in investment conflicts, while local laws of the country are considered for disputes under New York Convention. Currently the database of ICSID provides the following case list where Pakistan was a party as respondent:

The ICSID database reveals that Pakistan has never been an appellant in any recorded case. A significant number of cases adjudicated, are unfavourable for Pakistan, thereby imposing financial strains on an already economically challenged nation. In nearly every instance, Pakistan has initially relied on Rule 41 of Arbitration Rules as it stood then (pre 2022 position), which pertains to preliminary objections on jurisdiction; however, these attempts have been largely unsuccessful.

Violations of Bilateral Investment Treaties (BITs) have not been effectively contested. The subpar quality of representation and these adverse outcomes prompted a thorough investigation to evaluate both the international legal frameworks and those adopted or implemented within Pakistan, as well as the underlying reasons for these cases and their respective outcomes. This chapter, therefore, initiates a series that first scrutinizes the legislative framework within Pakistan and its international commitments. Additionally, it aims to examine the jurisprudence that has been developed both nationally and internationally in relation to Pakistan.

International Treaties signed and ratified by Pakistan

Convention on the Settlement of Investment Disputes Between States and Nationals of Other States.

The ICSID Convention is a treaty ratified by 158 countries. It entered into force on October 14, 1966, 30 days after ratification by the first 20 States. Pakistan is a signatory [Jul 06, 1965] to this convention and has ratified [Sep 15, 1966] it as well. Convention is effective from Oct 15, 1966.

The Convention established an International Centre for Settlement of Investment Disputes (ICSID) to facilitate conciliation and arbitration of investment disputes between states and nationals of other states.

The Centre has an Administrative Council, Secretariat, and panels of Conciliators and Arbitrators. The Administrative Council, composed of one representative from each contracting state, adopt regulations, rules of procedure, and the annual budget.

The Panel of Conciliators and the Panel of Arbitrators consist of qualified individuals designated by and the Chairman. These individuals, of high moral character and expertise in law, commerce, industry, or finance, serve for renewable six-year terms. The Centre, with full international legal personality, enjoys immunities, privileges, and tax exemptions to discharge its functions.

This text outlines the procedures for conciliation and arbitration proceedings. It details the process for requesting conciliation or arbitration, the constitution of the Conciliation Commission or Arbitral Tribunal, and the powers and functions of these bodies. The text also specifies the rules of procedure, including determination of jurisdiction, application of law, and the possibility of ex aequo et bono decisions.

The Tribunal can request evidence, visit dispute sites, and address additional claims. Failure to appear does not constitute admission. The award is binding, subject to interpretation, revision, or annulment under specific grounds and timeframes.

This convention establishes a framework for conciliation and arbitration proceedings between states. It outlines the composition of commissions and tribunals, their powers, and the process for replacing or disqualifying members. The convention also addresses cost of proceedings, place of hearings, and the resolution of disputes.

The Convention outlines exclusions, amendment entry into force, and denunciations. The International Bank for Reconstruction and Development performs functions under the Convention.

Applicable rules and regulation pertaining to this convention are available at the website of ICSID.

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Model Law on International Commercial Arbitration as adopted by UN 40/72. Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law 112th plenary meeting I1December1983 and as amended/revised by [2]61/33.  Resolution adopted by the General Assembly on 4 December 2006.

The New York Convention is an example of a treaty that falls under the purview of these provisions. The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) applies to the recognition and enforcement of arbitral awards made in foreign territories subject to specific conditions outlined in the Convention that also addresses the recognition and enforcement of arbitration agreements and the grounds for refusing recognition or enforcement of awards.

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards establishes a framework for recognition and enforcement of foreign arbitral awards. It allows states to sign, ratify, or accede to the Convention, and outlines the process for its entry into force. The Convention also addresses application of its provisions to federal states and territories and provides for denunciation or withdrawal from the Convention.

The UN Secretary-General transmits a certified copy of the Convention to the states mentioned in article VIII.

Pakistan, a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 [New York Convention] since December 30, 1958. Pakistan ratified the convention on July 14, 2005.

Incorporation into Local/Domestic Laws to give effect the convention

Incorporation of the convention under domestic law is provided in Article III of the New York convention which reads as follows:

“Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.” 

Jurisprudence on Implementation of International Conventions and Treaties:

Higher judicial fora in Pakistan have clearly, in their various judgements have held that treaties can only be given binding effect through incorporation in local laws.[3]

ICC Model Contracts and ICC Dispute Resolution Courts

International Chamber of Commerce (ICC) is another forum that provides guidance on Model Contracts and ICC-International Court of Arbitration is a platform for assistance in dispute resolution. Currently Arbitration Rules In force as from 1 January 2021 and Mediation Rules in force as from 1 January 2014. Although called a court in name, it does not make formal judgments on disputed matters. Instead, it administers arbitrations by exercising judicial supervision of arbitration proceedings. Its responsibilities include:

• confirming, appointing and replacing arbitrators, as well as deciding on any challenges made against them
• monitoring the arbitral process to make certain that it is performed properly and with the required speed and efficiency necessary
• scrutinizing and approving all arbitral awards to reinforce quality and enforceability
• setting, managing and — if necessary — adjusting arbitrator fees and cost advances
• overseeing emergency proceedings before the start of the arbitration

Constitutional Framework in Pakistan—Pre 18^th Constitutional Amendment

Pre 18th Constitutional Amendment legislation related to contracts [entry 9], arbitration [entry 8], evidence [entry 4] and civil procedures [entry 3] were items contained in the concurrent list hence Federation adopted the Contract Act, 1872, Arbitration Act 1940, Civil Procedure Code 1908 and Indian Evidence Act 1872 [later repealed through Qanoon e Shahdat Order 1984].

Constitutional Framework in Pakistan—Post 18^th Constitutional Amendment

Vide The Constitutional (Eighteenth Amendment) Act 2010 [hereinafter “18^th Constitutional Amendment”] concurrent list was abolished and entries in FLL are now mutually exclusive in the light of articles 141 to 144 of the Constitution of Pakistan i.e. whatever is not within FLL falls within the domain of province hence the laws are now within provincial domain.

However, since provinces have not made any material amendments therefore, these laws are still applicable in provinces as well as Islamabad Capital Territory [ICT]. Further entry 32 dealing with international treaties, conventions, agreements and international arbitration was added through 18^th Constitutional Amendment reinforcing the legislative competence of federation over international treaties and arbitration etc. Entry 32 reads as follows:

Implementation of Treaties

The implementation of international treaties and conventions is governed under entry 3 of Part 1 of the Federal Legislative List, Fourth Schedule to the Constitution of Pakistan 1973 which reads as follows:

Pakistani laws promulgated to give effect to treaties and conventions

For forming a holistic view on arbitration proceedings and award following laws need to be considered:

1. The Ratification of International Treaties Act, 2013.
2. The Arbitration Act 1940 [Under consideration through Arbitration Bill 2024]
3. The Recognition and Enforcement (Arbitration Agreement and Foreign Arbitral Awards) Act, 2011
4. The Arbitration (International Investment Disputes) Act, 2011

Other Relevant Laws

5. Contract Act, 1872,
6. Civil Procedure Code 1908 (Under review) and
7. Qanoon e Shahdat Order 1984.

Conclusion

Pakistan’s commitment to international arbitration is evident through its ratification of key international conventions, such as the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States.

These conventions are critical to promoting arbitration as a preferred method of dispute resolution, providing a structured framework that enhances legal certainty and investor confidence.

Pakistan’s legislative framework, including the Recognition and Enforcement (Arbitration Agreement and Foreign Arbitral Awards) Act, 2011, and the Arbitration (International Investment Disputes) Act, 2011, aligns with international standards. The country has made significant strides in reinforcing its arbitration laws, particularly following the 18th Constitutional Amendment, which clarified the legislative competency over international treaties and arbitration.

The judiciary in Pakistan, as demonstrated by key judgments, supports arbitration by upholding party autonomy and ensuring that agreements to arbitrate are respected. This judicial endorsement enhances the credibility and attractiveness of Pakistan as a venue for arbitration.

Despite these advancements, the country’s experience in ICSID arbitrations highlights challenges, primarily the financial burdens resulting from unfavorable outcomes. These underscore the need for comprehensive legal and policy reforms to minimize disputes and strengthen arbitration practices.

Incorporating international best practices and continuously updating domestic laws to align with global standards will be crucial for Pakistan to effectively manage investment disputes and improve its business environment. The ongoing legislative review, including the proposed Arbitration Bill 2024, reflects Pakistan’s proactive approach towards creating a robust arbitration framework that fosters economic growth and international investment.

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Ms. Huzaima Bukhari, MA, LLB, Advocate High Court, Visiting Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram. From 1984 to 2003, she was associated with Civil Services of Pakistan.

Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media and cyber laws, ML/CFT, IT, intellectual property, arbitration and international taxation. He studied journalism, English literature and law. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996.

Syed Muhammad Ijaz, FCA (ICAP), ACA (ICAEW), LL.B., is a distinguished financial and legal expert with a comprehensive educational background and over 25 years of professional excellence. A Fellow Chartered Accountant (ICAP) and Advocate of the High Court, Ijaz also holds the ACA designation from the Institute of Chartered Accountants in England and Wales (ICAEW) and an LL.B. degree, enhancing his multifaceted expertise in finance, tax, and corporate laws.

[1] This is chapter I of our forthcoming book with this title. It will be available both in print and digital form

[2]           61/33.  Revised articles of the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law, and the recommendation regarding the interpretation of article II, paragraph 2, and article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, 10 June 1958

[3]           Government of Punjab and others vs. Aamir Zahoor-Ul-Haq and others [PLD 2016 Supreme Court 421]

20. There is yet another aspect of the case which require serious consideration. Mr. Farooque H. Naek, learned Sr. ASC pointed out that CMS has not been ratified by the Parliament. In this regard reliance has been placed upon the report Societe Generale De Surveillance S.A v. Pakistan through Secretary, Ministry of Finance (2002 SCMR 1694). It is well settled proposition of law that international treaties and convention unless incorporated in the municipal laws, the same cannot be enforced domestically. In the judgment relied upon by the learned Sr. ASC this Court held:

“Admittedly, in Pakistan, the provision of Treaty were not incorporated through legislation into the laws of the country, therefore, the same did not have the effect of altering the existing laws, as such, rights arising therefrom called treaty rights cannot be enforced through Court as in such a situation, the Court is not vested with the power to do so”

 Unless, therefore, CMS is incorporated into municipal laws the same cannot be enforced. Balochistan Act, 2014 and KPK Act, 2015 recognizes CMS, however as noted above Balochistan Act, 2014 places Houbara Bustard both in protected and game animal categories.

Mubarik Ali alias Makhan vs Government of the Punjab and other [PLD 2023 Lahore 19]

22. Pakistan has ratified core international human rights treaties/conventions relevant to prisoners’ rights, including ICCPR, ICESCR and CAT.18 The general rule is that the provisions of a treaty are not automatically incorporated into the municipal law and a country’s legislature must pass legislation to implement them. The courts in Pakistan are required to interpret and apply every statute, so far as its language admits, in accordance with the principle of comity of nations and the recognized norms of international law, even in situations where no such law has been enacted. Reliance is placed on Hanover Fire Insurance Company v. Messrs Muralidhar Banechand (PLD 1958 SC 138), Al-Jehad Trust through Habibul Wahab AlKhairi, Advocate, and 9 others v. Federation of Pakistan, and 3 others (1999 SCMR 1379), Human Rights Case No.29388-K of 2013 (PLD 2014 SC 305), and Najib Zarab Limited v. Government of Pakistan and 4 others (PLD 1993 Karachi 93). In Khadim Hussain v. Secretary, Ministry of Human Rights, Islamabad, and others (PLD 2020 Islamabad 268), while considering a case relating to the plight of the prisoners in the country, the Islamabad High Court held that the rights of the prisoners contemplated by the aforementioned treaties and conventions are enshrined in Articles 9 and 14 of the Constitution.

LPG ASSOCIATION OF PAKISTAN through Chairman vs. FEDERATION OF PAKISTAN through Secretary, Ministry of Petroleum and Natural Resources, Islamabad and others [2021 C L D 214]

40. Having held that Parliament is competent to make law on the subject of competition, in this context, it is also necessary to examine Entry 3 and Entry 32 of the FLL which also creates an obligation on the Federation to make law on the subject of competition. Entry 3 relates to external affairs which include implementing treaties and agreements, and Entry 32 is the subject of international treaties, conventions and agreements as well as international arbitration. Pakistan has signed several international agreements in which it has committed to ensure free and fair competition within its borders. The World Trade Organization requires free trade amongst Member States and in this regard requires that Member States make laws to discourage monopolies with a view to promote competition. In a meeting of the World Trade Organization held in Doha, a declaration was adopted known as Doha Declaration in 2001 which focused on core principles such as transparency, non- discrimination and competition. Pakistan is required to comply with the same. The United Nations Conference on Trade and Development and the United Nations Set of Principles and Rules on Competition (“UNCTAD”) requires that Member States make appropriate legislation on the subject of competition. The objective of the UNCTAD is to ensure that restricted business practices do not implead or negate the realization of benefits that should arise from the liberalization of trade and to attain greater efficiency in international trade, particularly that of developing countries, by stressing on economic structures that encourage and protect free and fair competition and prohibit the concentration of economic power or capital in a few hands. Some of the other agreements executed by the Federal Government with respect to free trade is the SAFTA and the trade agreements with Sri Lanka and China. These agreements also require the Federation to fulfil its obligation to provide fair conditions of competition for trade in goods and services between these countries. Therefore, the Federation is obligated to fulfill its commitments under international treaties and agreements and since the subject of competition is the subject matter of international agreements and treaties, Parliament can make law on the subject of competition. Reliance is placed on 2018 SCMR 802 (supra).