Foreign Arbitral Awards and their Enforcement in Pakistan

Arbitration is one of the most well-developed alternative dispute resolution mechanisms used around the globe for the settlement of disputes between contracting parties. It is preferred globally because of its speedy and flexible nature and parties can avoid the exhaustive process of litigation. Another important aspect of arbitration is its universal acceptability and enforceability. On the other hand, unfortunately, the enforcement of foreign arbitral awards in Pakistan is not fully developed; therefore, Pakistan has found it difficult to attract foreign direct investment.

The foreign awards are not properly enforced and recognized because of weak legislation and non-coherence of laws with international standards. Another important reason for its unenforceability is the uncertainty in judicial precedents. In the past, vague and differing judgments have been given, which has resulted in the improper enforcement of foreign awards in Pakistan. This article will address this issue in the light of various important cases.

Recognition and Enforcement of Foreign Arbitral Awards

The principle of recognition and enforcement of foreign arbitral award is mainly derived from the New York Convention 1958. It is implemented on the awards given by the countries signatory as well as non-signatory to the convention. The basic principle of the New York Convention 1958 is that each signatory country has to recognize foreign awards as binding upon the parties and ensures its enforceability upon them in compliance with the procedural rules of the seat.[1]

The importance of this principle is to abolish the need to have the judicial recognition of the award in the state where it was rendered and then again to have it recognized in the country where it has to be enforced;  the practice known as “double exequatur”.[2]

The Recognition and Enforcement of Foreign Arbitral Awards and Agreements Act, 2011 (The 2011 Act) incorporates New York Convention 1958 into municipal law thereby facilitating the recognition and enforcement of foreign awards in Pakistan. The foreign award is enforced under s. 6 of the 2011 Act, which provides that; the local courts will recognize and enforce foreign awards in the same way as the court’s judgement in Pakistan unless the foreign award is explicitly refused by the courts according to Art. V of the New York Convention 1958.

The enforceability of foreign awards under the above-mentioned Act shall legally bound the contracting parties and arbitration agreement and can therefore be relied upon by way of defence, set off or else in any judicial proceedings in Pakistan.[3]

The recognition and enforcement of foreign awards under s. 7 of the 2011 Act can only be rejected according to Art. V of the New York Convention 1958.[4] However, practically the Pakistani courts have not complied with the radical change in the law and due to which contrary judgements were passed by the judiciary against the principle of arbitration.[5]

In the case of Taisei Corporation[6], the Lahore High Court while construing s. 14 of the Arbitration Act, 1940 (The 1940 Act) and s. 6 and 7 of the 2011 Act apprehended that:

“under the 2011 Act, the courts of Pakistan have limited scope regarding recognition and enforcement of foreign awards and the remedy is still given under s. 14 of the 1940 Act. Hence, the 1940 Act not only applies to the foreign awards but also to the domestic awards.”[7]

Another important interpretation was the judgement in the case of CNAN[8] where it was held that:

“An aggrieved party to an award cannot seek to invalidate a foreign award based on Art. V of the New York Convention 1958 by filing civil suit against such award in the court. The aggrieved party can only take up the grounds of Art. V of the New York Convention 1958 for defending themselves from a proceeding initiated by the other party for the recognition and enforcement of foreign award.”

The s. 4 of the 2011 Act deals in matters related to stay of the proceedings and provides that, if parties to the contract and having a valid arbitration agreement, choose to initiate judicial proceedings, the proceedings should be stayed.[9]

In Hitachi Ltd., the Supreme Court observed that, the arbitration agreement under the ICC rules of arbitration will not deny the Pakistani court’s jurisdiction if else it was devolved in them.[10] There are a lot of cases where Courts of Pakistan refused to recognize the enforceability of foreign awards on the ground of inoperative and incapable to be performed.[11]

In Abdul Haque Baloch[12] case, the Supreme Court of Pakistan has rejected to recognize and enforce the foreign award and declared the contract as null and void according to Art. XI (3) of the New York Convention 1958 and Art. 34 of the UN Convention Against Corruption, 2003.

In Global Quality Foods (Pvt.) Ltd.[13], the High Court of Sindh clearly rejected the recognition and enforcement of foreign awards and agreements. The court held that, the dispute between the parties is not relevant to the provisions of agreement and referring the matter for arbitration is only an exhaustive exercise without any reason.

Another interesting conflict is emerged after the judgment of the Orient Power[14] case where the court rejected all the past precedents and held that the award should be considered a foreign award if it is executed in another contracting state regardless of the fact that it is administered by the laws of Pakistan.

Now, a general pro-enforcement bias existed in the courts of Pakistan which permeated the 2011 Act and was the policy of law. In the case of Louis Dreyfus Commodities[15], it was held that, the courts on a proper objective analysis, must give effect to the intentions of the legislature and the purpose of New York Convention 1958 for the enforcement of foreign arbitral awards.

Hence this portrays that, there is still uncertainty in the courts regarding the enforceability of the foreign arbitral awards.

Jurisdiction of National Courts

The jurisdiction of national courts regarding recognition and enforcement of any foreign award is determined exclusively by the municipal law of that country.[16] If there is an express legislation in which it is directed the courts to exercise jurisdiction, then the local courts are bound to exercise it.[17]

In Pakistan, the enforcement of international arbitration agreements lacks the element of consistency.[18] Initially in many cases, the local parties to the contract challenged in Pakistani courts the arbitration agreement which is providing for international arbitration.

In case of HUBCO[19], the Supreme Court for the first time allowed a local party to avoid international arbitration on the ground of public policy. The Pakistani courts are of the view that there is no particular rule for enforcement. Rather, it is based on the case itself. For a larger interest, the courts of Pakistan are of the view of honouring the foreign arbitration clause.

In the case of Hitachi Ltd.[20], the principle was established that, the arbitral proceedings seated outside of Pakistan rely on the law of seat of arbitration as the governing procedural law, and therefore, the courts of Pakistan have ousted the exclusive jurisdiction of intervention in the arbitral proceedings. In the Mitsui [21] case, the Supreme Court laid down that the courts of Pakistan should first check that there is a remedy to the aggrieved party in the foreign courts before giving up the jurisdiction of Pakistani courts. In view of the above-mentioned matter, the plea of ouster of jurisdiction of the Pakistani courts cannot be upheld.

After enactment of the 2011 Act, the foreign awards are now recognized, enforced and considered as a judgement of the Pakistani courts.[22] If a party to the arbitration agreement initiated judicial proceedings in the courts of Pakistan against the other party and not moved towards the arbitration proceedings, then the court has to stay the judicial proceedings and refer the matter for arbitration, unless such agreement between the parties is illegal or void ab initio, inoperative or unable to be performed.[23]

The High Courts and the Supreme Court of Pakistan have exclusive jurisdiction for the adjudication and settlement of the matters related to arbitration agreement and recognition and enforcement of foreign arbitral awards.[24]

Conclusion

The arbitral regime of Pakistan is in developing stage as compared to other international jurisdictions. The limited choice of independent and institutional forums and procedure to initiate, conduct or conclude the arbitration is affecting the pace of arbitration. The foreign investor only requires respectability of terms of the agreement or contract and enforceability of the arbitration agreement and award rendered. Unfortunately, these requirements are not addressed here, and because of that, there is a serious lack of foreign investment in Pakistan.

In the past, Pakistan has suffered a lot because of the unenforceability of foreign awards and weak legislation regarding laws of the arbitration either national or international as well as incompetency while drafting the trans-national contracts and arbitration agreements. There are a lot of cases like the Hitachi case, HUBCO case, and the Reko Diq case, etc. where Pakistan has suffered losses and paid a huge amount of compensation.

Pakistan has only two legislations which deal with arbitration. The 1940 Act is obsolete now and cannot fit with the current international standards and needs amendment to cater the needs of the 21st century.

The arbitral law in Pakistan regarding the enforcement is not coherent and does not comply with international standards. This means that the enforcement laws of Pakistan are not effective. The laws are quite vague and uncertain. In the past, the courts of Pakistan in many cases used discretion where the proper procedure was lacking and, in some cases, used the international commentaries for precise interpretation of the conventions. Hence, this portrays a lack of proper legislation regarding the enforcement of the foreign awards even after the enactment of the 2011 Act.

References

[1] Convention on the Recognition and Enforcement of Foreign Arbitral Award (adopted 10 June 1958, entered into force 7 June 1959) 330 UNTS 38 (CREFAA), Art. 3.

[2] Jacob Dolinger, International Commercial Arbitration (University of Chicago Press, 1996) 253.

[3] Karyl Nairn QC and others, Arbitration World; International Series (5th edn, Sweet and Maxwell 2015) 731.

[4] Abdullah v. CNAN Group SPA through Chief Executive Managing Director and another, 2014 PLD Sindh 349.

[5] Ijaz Ali, ‘Enforcement of Foreign Arbitral Award in Pakistan (2012)’ (SSRN, 17 July 2012) <http://dx.doi.org/10.2139/ssrn.2111626> accessed April 08,2020.

[6] Taisei Corporation v. A.M. Construction Company (Pvt.) Ltd, PLD 2012 Lahore 455.

[7] Hassan Raza, ‘Pakistan’s dilemma with foreign Arbitrations 2018’, (Kluwer Arbitration Blog, 24 April 2018) <http://arbitrationblog.kluwerarbitration.com/2018/04/24/pakistans-dilemma-foreign-arbitrations/>  accessed April 08,2020.

[8]  Abdullah v. CNAN Group SPA through Chief Executive Managing Director and another, 2014 PLD Sindh 349.

[9] The Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act (2011), s.4.

[10] Hitachi Limited vs. Rupali Polyester and others, 1998 SCMR 1618.

[11] Hassan Raza, ‘Foreign Arbitration Agreements – A Pakistani Perspective’ (Courting the Law, 16 January 2019) < http://courtingthelaw.com/2019/01/16/commentary/foreign-arbitration-agreements-a-pakistani-perspective/> accessed 28 March 2020).

[12] Maulana Abdul Haque Baloch v. Government of Balochistan through Secretary Industries and Mineral Development, PLD 2013 SC 641.

[13] Global Quality Foods (Pvt.) Limited v. Hardee’s Food Systems Inc., PLD 2016 Sindh 169.

[14] Orient Power Company v. SNGPL, 2019 CLD 1082.

[15] Louis Dreyfus Commodities Suisse S.A. v. Acro Textile Mills Ltd., PLD 2018 Lahore 597.

[16] Companhia de Mozambique v. British South Africa Company, (LR 1892) 2 QB 358 (394).

[17] Ibid.

[18] Inaamul Haque and Naeem Ullah Khan, International Commercial Arbitration and Enforcement of Foreign Arbitral Awards in Pakistan (2008) Pakistan Law Journals PLJ, 2008.

[19] HUBCO v. Wapda, PLD 2000 SC 841.

[20] Hitachi Limited v. Rupali Polyester and others, 1998 SCMR 1618.

[21] MA. Chaudhry v. Mitsui O.S.K. Lines Ltd., PLD 1970 SC 373.

[22] Inaam ul Haque and Naeem Ullah Khan, ‘International Commercial Arbitration and Enforcement of Foreign Arbitral Awards in Pakistan’ (2008) Pakistan Law Journals PLJ, 2008.

[23] Cummins Sales and Service (Pakistan) Limited v. Cummins Middle East FZE, 2013 CLD Kar. 291.

[24] Karyl Nairn QC and others, Arbitration World; International Series (5th edn, Sweet and Maxwell 2015) 743.

Author:

Mouood Fiaz Chaudhary

The author is a lawyer based in Islamabad, currently working at Fazleghani Advocates.