Latest News
Modernizing Arbitration: Pakistan's Draft Arbitration Bill
Modernizing Arbitration: Pakistan's Draft Arbitration Bill
Introduction:
In April 2023, Pakistan's Chief Justice formed the Arbitration Law Review Committee (ALRC) to overhaul the country's arbitration laws. Headed by Mr Justice Syed Mansoor Ali Shah, the ALRC's mission was to align Pakistan’s domestic arbitration regime with international standards, particularly the UNCITRAL Model Law. The ALRC, after extensive consultations with stakeholders and experts, finalized the Draft Arbitration Bill and presented it to the Federal Minister for Law and Justice on May 2, 2024. This article explores the essential features of this transformative Bill.
Inspiration and Objectives:
The Draft Arbitration Bill draws heavily from the UNCITRAL Model Law and aims to replace the outdated Arbitration Act of 1940. The 1940 Act, a remnant of colonial rule, allows excessive judicial intervention, diminishing arbitration's advantages over litigation. Although recent Pakistani court judgments have favoured the enforcement of foreign arbitral awards, the Bill seeks to extend this pro-enforcement ethos to domestic arbitration. By adopting best practices from the Indian Arbitration and Conciliation Act of 1996 and arbitration laws from the UK, Singapore, and Malaysia, the Bill aspires to make Pakistan an arbitration-friendly jurisdiction.
Comprehensive Scope:
Under Pakistan’s Constitution, the federal legislature governs international arbitration, while provincial legislatures handle domestic arbitration. To avoid jurisdictional conflicts and ensure consistency, the ALRC drafted the Bill to cover international and domestic arbitration nationwide. This requires provincial legislatures to delegate their arbitration powers to the federal government, as stipulated by Articles 144 and 147 of the Constitution. While the Bill primarily addresses arbitrations seated in Pakistan, it also supports foreign arbitrations, especially regarding court-ordered interim measures and assistance in taking evidence.
Distinguishing International and Domestic Arbitration:
The Bill differentiates between international commercial and non-international commercial arbitration (domestic arbitration). Recognizing the varying sophistication and bargaining power of parties allows greater autonomy and less court intervention for international arbitrations while maintaining some judicial oversight for domestic cases. The Bill clearly defines international commercial arbitration, minimizing disputes about its scope. It also permits parties to opt into the international arbitration regime through agreement, particularly when choosing foreign arbitration rules or laws.
Promoting Pro-Arbitration Policies:
The Bill significantly reduces opportunities for parties to challenge arbitration proceedings. Courts must stay proceedings if there is a prima facie arbitration agreement, deferring full validity assessments to the arbitrator or a later annulment stage. Embracing the competence-competence principle, the Bill empowers arbitral tribunals to rule on their jurisdiction, even when the arbitration agreement's existence or validity is questioned. The Bill moves away from current jurisprudence that excludes arbitration for matters under special court jurisdiction, making them arbitrable unless doing so conflicts with public policy.
Arbitrator Appointments and Challenges:
The Bill mandates an odd number of arbitrators, with a default of a sole arbitrator unless otherwise agreed. Courts, or designated institutions, can appoint arbitrators, and such decisions are non-appealable. Arbitration Councils, established for each High Court, will oversee appointments and procedural rules. Arbitrators must disclose potential conflicts of interest, guided by the IBA Guidelines. Challenges to arbitrators cannot be appealed immediately but can be raised when contesting the final award.
Interim Measures and Enforcement:
The Bill allows for both court-ordered and tribunal-ordered interim measures to preserve parties' rights. Courts can intervene before the tribunal constitution or if tribunals cannot provide adequate relief. Tribunal-ordered measures can be ex parte and are enforceable through courts. The Bill simplifies award enforcement, eliminating the need for awards to be made a "rule of the court" and requiring deposit of liability amounts during challenges. It limits annulment grounds to serious public policy breaches, fraud, corruption, or natural justice violations, avoiding merit reviews.
Conclusion:
Presented to the Federal Law Minister and poised for parliamentary review, the Draft Arbitration Bill promises a radical overhaul of Pakistan’s arbitration laws. By fostering an arbitration-friendly environment, it aims to assure local and international parties of the efficacy of arbitration in Pakistan. The Bill is expected to be enacted later this year, marking a significant step towards modernizing Pakistan’s legal framework and enhancing its appeal as a venue for arbitration.
- The Draft Arbitration Bill draws heavily from the UNCITRAL Model Law and aims to replace the outdated Arbitration Act of 1940.
- By adopting best practices from the Indian Arbitration and Conciliation Act of 1996 and arbitration laws from the UK, Singapore, and Malaysia, the Bill aspires to make Pakistan an arbitration-friendly
- Recognizing the varying sophistication and bargaining power of parties, it allows greater autonomy and less court intervention for international arbitrations while maintaining some judicial oversight
