A Step in the Right Direction: The Pakistan Arbitration Law and Conciliation Act, 2015

Pakistan Arbitration Law was on the verge of being reformed and modernized by a draft bill, the Arbitration and Conciliation Act, 2015 [1], which was introduced in the Senate in 2016 (“2016 Draft Bill”). This was meant to replace the Arbitration Act of 1940 [2] (“Arbitration Act 1940”). The 2016 Draft Bill incorporated many features of the UNCITRAL Model Law on International Commercial Arbitration [3] (“Model Law”), and was a step in the right direction to bring arbitration in line with international practice and standards. The 2016 Draft Bill sought to bring about sundry changes, and the author outlines some of them in this article.

Firstly, it expressly permitted parties to engage in institutional arbitration, which was missing in the Arbitration Act 1940. Institutional Arbitration is defined as an “arbitration that is administered by an institution agreed upon by the parties and conducted in accordance with that institution’s arbitral rules [4]. The Arbitration Act 1940, however, does not contain any such reference or definition; this is presumably for the reason that there were no arbitral institutions in 1940. In the same vein, the 2016 Draft Bill has expanded on the general definition of arbitration to include the phrase “whether or not administered by a permanent arbitral institution.” Further references to institutional arbitration can be seen in Articles 2(6) and 6 of the 2016 Draft Bill. Article 2(6) gives the parties the freedom to authorise an institution to determine the issues between them, and Article 6 permits them to seek administrative assistance from an arbitral institution.

An express acknowledgment of institutional arbitration in the law would be a steppingstone in moving away from a domestic arbitration market which is focused on ad hoc arbitration. Institutional arbitration has several advantages. These include a time-saving element of the arbitration procedure, which would already be pre-determined, and giving the flexibility to the parties to select experts from various field of technical and legal knowledge. Moreover, it limits the need for judicial intervention as parties may refer to the institutions to resolve procedural matters.

Another feature adopted by the 2016 Draft Bill of the Model Law is the reference to, and explanation of, international arbitration. There are four circumstances in which an arbitration is considered to be an international commercial arbitration. These are laid down in Article 2(f) of the 2016 Draft Bill: (i) if one party is a national of or resides in a country other than Pakistan, (ii) if the party is incorporated in a country other than Pakistan, (iii) if the central management or control of a party is managed in a country other than Pakistan; and (iv) if one of the parties is a government of a foreign country. Such a reference to the international nature of arbitration was not made in the Arbitration Act 1940. The inculcation of this crucial element of commercial agreements demonstrates that the legal system has progressed with the ever-evolving business environment, and would instil confidence of business in the Pakistani arbitration regime.

A further significant development in the 2016 Draft Bill is in respect of tribunal’s jurisdiction and the grounds for challenging the same. It is important to note that the Arbitration Act 1940 provides that the parties must challenge the tribunal’s jurisdiction in the court. In contrast, the 2016 Draft Bill directs that such challenges made before the tribunal itself. This appears to be a step taken to lower judicial intervention in the arbitral process so that the parties’ valuable time can be saved.

Under the Arbitration Act 1940, the grounds for challenging the tribunal are mentioned in Articles 7(a) and 9(1)(2). The grounds under Article 7(a) are if the arbitrator neglects and/or refuses to act, is incapable of acting, or fails to use reasonable performance in proceeding with the reference or making an award. The ground under Article 9(1)(2) is if the arbitrator has engaged in ‘misconduct’ during the proceedings. However, the term misconduct has not been defined in the law itself, and one has to look to case law to discern the meaning of the same. Given that there are an unexpected and innumerable ways in which misconduct can be construed, this may result in uncertainty as to its meaning and scope. Therefore, in line with the international standards, the 2016 Draft Bill uses the phrase “justifiable doubts to the independence and impartiality” of the tribunal [5], rather than misconduct, as grounds for challenge. This language provides clearer and more focused grounds. An additional ground is given in Article 12(2)(b), and relates to the tribunal’s qualifications.

Additionally, the 2016 Draft Bill provides a detailed arbitral procedure by dedicating an entire chapter to the conduct of arbitral proceedings. It elucidates on the process by giving details of the rules of procedure, language, the commencement of the proceedings, and the rules for written and oral proceedings. Guidance with regards to procedures allows a more standardized and less time-consuming arbitration process, which would be to the benefit of the parties.

Therefore, it appears that the 2016 Draft Bill adopted several important features of the Model Law. However, the reasons why the 2016 Draft Bill was not pursued any further are not clear. If the same had been pursued, it would have been a substantial step towards developing arbitration law in Pakistan, and modernising it to bring it closer to international standards and practices. Foreign businesses would have been encouraged to set up commercial practices in Pakistan, as a stable underlying legal regime particularly in the context of dispute resolution is an important factor. Having said that, arbitration remains an area of law where reform is long overdue, especially where other countries like India have moved past the pre-colonial arbitration laws and modernised the system by enacting the Arbitration and Conciliation Act 1996, a replica of the Model Law which has been further modified as recently as 2019.

Pakistan Arbitration Law

References

[1] Arbitration and Conciliation Act, 2015.

[2] The Arbitration Act, 1940 (Act X Of 1940).

[3] The UNCITRAL Model Law on International Commercial Arbitration, 1985.

[4] Lexis Nexis, Institutional Arbitration: An introduction to the key features of institutional arbitration (LexisNexis) <https://www.lexisnexis.co.uk/legal/guidance/institutional-arbitration-an-introduction-to-the-key-features-of-institutional-arbitration> accessed 22 June 2020.

[5] Article 12 of the 2016 Draft Bill.

Author:

Nameer Saeed Patel

Nameer is currently pursuing his BA.LLB degree at Lahore University of Management Sciences (LUMS), and is part of the LUMS Law & Politics Society. He has a keen interest in commercial law and dispute resolution.