The issue of an ever-increasing number of pending cases in Pakistan, exacerbated by meagre, inadequate and poorly drafted ambiguous statutes, has intensified the need for alternative dispute resolution measures in the country, especially in the commercial sphere.
This gulf can be bridged by an efficacious arbitration regime in a country that lacks resources as well as a trained cadre to iron out commercial disputes. In my article ‘Encouraging ADR’ (April 25), I highlighted the need for compulsory alternative dispute settlement procedures to trim down the cases backlog pile-up and shun pressure off the judiciary; this article will explore the avenues of arbitration in the commercial backdrop as an effective ADR procedure to help the same.
Interestingly, arbitration has no statutory definition, probably due to its manifold forms. Despite the modern feel to the procedure, arbitration has an impressive history that can be traced back to ancient Greek times and the 15th century in England (Anon  YB 8 Edw IV, fo 1, p 1) where it was called (and is still called seldom) as ‘arbitrament’.
Arbitration can be conducted as institutional arbitration, ad-hoc arbitration, consumer, family, or statutory arbitration, etc. In arbitration, the fringe benefit for the parties to the dispute include tailored and streamlined procedure, time-saving, private, and speedy resolution along with being cost-effective. These perks make more sense in a commercial context where reputation, capital, and competition are at stake.
When arbitration is involved, parties agree when they sign a contract that any disagreements pertaining to the contract will be brought to arbitrators who will resolve the matter in accordance with the laws of a certain nation at a defined location (called the seat of arbitration). In most cases, the parties must abide by the arbitrators’ ruling (also known as the arbitration award). An arbitration agreement is a formal name for a clause in a contract requiring arbitration.
In Pakistan, two types of arbitration awards are enforceable: foreign arbitration awards under the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011 and domestic arbitration awards under the provisions of the Arbitration Act, 1940. Pakistan as a signatory of the New York Convention 1958 enacted the 2011 statute, repealing the Arbitration (Protocol and Convention) Act, 1937; however, the underlying problem remains the differentiation between the two types of arbitrations.
The New York Convention primarily aimed at the recognition of arbitral awards of signatory states. This strategy has the advantage of bringing international certainty to the settlement of commercial disputes and the execution of foreign judgments. Multinational parties recognise that, in the event of a dispute, an arbitral award will be enforceable in all signatory nations to the New York Convention when they choose an arbitration venue that is a member of the New York Convention.
Previously, under the 1937 Act, the Supreme Court only commended foreign arbitration awards that were governed by foreign laws along with having a seat in an alien state. The New York Convention’s spirit was enacted through the 2011 Act. However, the desired results were not achieved, and thus, arbitration remains a substantially unexplored area in Pakistan.
The notable conflict between the Sindh High Court and Lahore High Court’s interpretation of the laws, where the former approved the contemporary aims and objectives of the New York Convention while the latter stuck to the conventional approach of the 1937 Act, called for the Supreme Court’s intervention. In 2-19, the apex court did approve the New York Convention’s approach, citing case laws from the UK, France, and India. However, a clear legal regime is required to achieve clarity and consistency.
In domestic arbitration, the problem lies in the fact that the ruling must be filed in a lower court. This allows the losing party to challenge the award in higher courts, prolonging the case for years. A foreign award, on the other hand, can only be contested in front of the high court or the Supreme Court. The idea of the court’s pecuniary jurisdiction should be relevant for the execution of domestic awards to promote consistency in the handling of commercial arbitration awards. This will enable the parties or arbitrators to directly submit an award in the high court that exceeds a specific monetary value.
Another problem with domestic arbitration includes the judgment itself, which can be contested on a wide range of technical and legal grounds – the recognition and execution of a foreign award under the New York Convention – but can only be rejected on restricted procedural grounds. This makes domestic arbitration attract tactical delays and normal litigation a more lucrative option for commercial entities.
The stamp tax further deters parties in domestic arbitration. While no stamp tax is required for the execution of a foreign arbitral decision, a three per cent stamp fee is required for domestic awards makes no sense. Parties are deterred from filing a domestic award in court because of this fee. The law should be consistent across the board.
Cost-effectiveness, timeliness, and legal clarity are essential components of commercial dispute resolution. Fortunately, the applicable legislation may be changed to alleviate the misery of commercial arbitrations, and arbitration centres need to be established across the country on the United Kingdom’s model. To add consistency and predictability to the process of resolving disputes, Pakistan has to match its arbitration legislation with worldwide advances in the field.
Many legal professionals have come together to promote arbitration and ADR. The eighth judicial conference of 2018 (Islamabad Declaration 2018) and the Pakistan Vision 2025 have also addressed this issue and are a positive step in the right direction. This will not only vacate the judiciary of complex and time-consuming litigation but also restore the trust and confidence of businesses in the country.
The writer is a lawyer.
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