Uncertainty in the Enforcement of Foreign Arbitration Awards in Pakistan

Pakistan became a signatory of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards also known as the New York Convention in 1958 (“NYC”)^[1]. Under Article 3 of the NYC, Pakistan as a contracting state is obliged to recognize and enforce arbitral awards rendered in other contracting states pursuant to their rules of procedure. However, it was not until 2005 that Pakistan implemented the NYC through the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance.^[2]

The ratification and implementation of the NYC was made concrete when the Pakistani legislature enacted the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (“2011 Act”)^[3]. Under Section 6 of the 2011 Act, Pakistani courts are under a duty to enforce foreign arbitral awards, subject to the exceptions provided under Article 5 of the NYC. Under Section 1 of the 2011 Act, the jurisdiction to enforce foreign arbitral awards lies with the High Courts of Pakistan.

Despite Pakistan’s obligations under the NYC and the clear duty of the Pakistani courts to recognize and enforce foreign arbitral awards under the 2011 Act, the practicality of recognition and enforcement of foreign arbitral awards has been subjected to tedious litigation processes of local courts, resulting in inconsistent precedents, which have only made the waters murkier. The local courts have been reluctant to enforce foreign arbitral awards and, in the author’s view, the case law reflects increased judicial intervention in cases of international arbitrations.

The stance of the local courts has somewhat been confusing and does not follow one single line of precedents; therefore, no objective test for the enforcement of foreign arbitral awards has been devised till date. The Supreme Court, in the case of Hitachi Ltd. v. Rupali Polyester (“Hitachi Case”),^[4] refused to accept jurisdiction over the issue of validity of an arbitration clause, and stated that the law of the seat of arbitration governed the arbitration clause and the arbitration procedure. The Hitachi Case is one of example, which limits judicial intervention towards international arbitrations.^[5]

On the contrary, the cases of SGS v. Government of Pakistan^[6], HUBCO Power Company v. WAPDA^[7] and Tethyan Copper Company (TCC) Pty Ltd. v. Islamic Republic of Pakistan have proved detrimental to the image of Pakistan’s Alternative Dispute Resolution (“ADR”) system: these cases demonstrate the power of local courts over Pakistan’s international obligations and the issue of excessive judicial intervention in international arbitrations.^[8] The aforementioned cases have raised serious concerns about Pakistan’s obligations under international agreements and conventions, including the NYC.

More recently, the courts’ pro-intervention approach towards international arbitrations and foreign awards is illustrated by the case of Taisei Corporation v. A.M. Construction Company (Private Limited).^[9] The Lahore High Court, while interpreting the powers of the court to enforce foreign arbitral awards under the 2011 Act, stated that the powers of the court are limited and, thus, Section 14 of the Arbitration Act, 1940 (“1940 Act”) would govern the recognition and enforcement of foreign arbitral awards. It is interesting that the Lahore High Court rendered such a judgment, especially since the 1940 Act does not apply to foreign arbitrations.^[10]

Furthermore, in 2017, the Quetta High Court in the case of Rossmere International Limited v. Sea Lion International Shipping Inc.,^[11] while recognizing a foreign arbitral award, refused to enforce the same. Such procedural inconsistencies in the enforcement of foreign arbitral awards adversely impact the development of international arbitrations and the overall ADR culture in Pakistan. In the author’s view, one of the primary reasons for the inconsistent application of the 2011 Act is that it does not contain a comprehensive procedure for the recognition and enforcement of foreign arbitral awards.

Having said that, the more recent case law demonstrates a positive change in the attitude of the local courts towards international arbitrations and foreign awards. The courts in the cases of Louis Dreyfus Commodities v. Acro Textile Mills^[12] and Dhanya Agro-Industrial v. Quetta Textile Mills^[13] have shown acceptance of the norms and obligations associated with international arbitrations and have ordered the enforcement of foreign arbitral awards in line with the requirements of the NYC.^[14]

Although the notions of ADR and international arbitration are not new to Pakistan’s courts and legal fraternity, yet the development and acceptance of the same have been hindered primarily due to the lack of an unambiguous and well-entrenched legal regime that is supported with consistent precedents. Pakistan’s legal fraternity, with the support of the legislature, should work together with a view to bringing certainty to the regime governing international arbitrations, and devise clear and comprehensive rules to govern enforcement of foreign arbitral awards, powers and jurisdiction of local courts and realization of contract sanctity.

It is also vital that the local judiciary realizes the need to recognize Pakistan’s obligations under international conventions and uphold the same in order to provide protection to foreign investors. In a nutshell, Pakistan’s success in developing its international arbitrations system lies in aligning its procedures with international standards and divorcing them from the fetters of litigation.