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Lack of Pakistani International Arbitration Not Due to Judicial Bias

JURIST Guest Columnist Rizwan Hussain, Advocate High Courts of Pakistan, argues that the lack of international arbitration in Pakistan is not due to judicial bias, but rather due to an independent legal analysis without the influence of outside bodies or organizations...

It is of significant importance for the judiciary of a country to create an environment friendly to international arbitration. Although international and domestic arbitration is governed under different legal regimes, a friendly domestic arbitration practice serves as a good base for international arbitration to grow. Several elements contribute to an arbitration friendly environment — developed arbitration law regime, developed arbitration institutions, and training facilities for law professionals in arbitration. Above these and other elements, the role of the judiciary stands paramount. Pakistan is one of the countries which is known for its unfriendliness towards international arbitration.

Pakistan faced a great deal of criticism due to the HUBCO v. WAPDA and SGS v. Pakistan cases in which Pakistani courts went against the expectations of the international arbitration community and passed anti-arbitration injunctions. In these cases, Pakistani courts allegedly breached the international arbitration law regime by accepting jurisdiction where exclusive jurisdiction should have been allowed to the arbitration tribunals. Pakistan also came to the attention of the international arbitration community in Dallah v. Pakistan. In this case, Pakistan was accused of causing a delay in arbitration proceedings due to its unwillingness to arbitrate the matter. The matter was finally disposed of by the International Chamber of Commerce (ICC) tribunal in Paris, almost eight years after the beginning of the arbitration. Although this matter was also taken up in Pakistani courts, no anti-arbitration injunctions were issued.

Certainly, these cases should have been better addressed by the courts, yet what has been neglected in analysis is the overall judicial stance of Pakistani courts and judges, and the element of judicial bias in light of overall court practice. A quick perusal of court decisions of Pakistan shows that the majority of decisions uphold arbitration agreements and refuse jurisdiction in favor of arbitration proceedings. In the case of Metropolitan Steel Corporation Ltd v. Macsteel International UK Ltd, a suit for the recovery of money was filed by the plaintiff; the defendant raised the objection that there was an agreement between the parties to refer all disputes to arbitration, and thus requested the court to appropriately refer the matter. The plaintiff denied the contention and said that there was no agreement between the parties. The Court found that the parties had agreed upon arbitration in the correspondence between them and stayed the proceedings of the suit in favor of arbitration, holding that the arbitration agreement could also be inferred from the correspondence between the parties. Finally, the Court directed the parties to resort to the terms of the sale contract for the settlement of the dispute. In another case, Islamic Republic of Iran Shipping Lines v. Hassan Ali & Co Cotton (Pvt) Limited, Sindh High Court Karachi, acting as the executing court of a foreign award, found that a court considering the enforcement of foreign awards merely acts as an executing court and while doing so it cannot act an appellate court and make an appraisal of evidence. In the same line there are number of other precedents which uphold arbitration agreements and enforce foreign awards.

The Supreme Court of Pakistan fought its battle of independence (known as the "lawyers' movement") against the establishment in 2007-2009. The HUBCO and SGS cases were decided in between the years 2000-2002. A common element in both the cases was that the state or the its interests were directly involved. Hence, the element of influence upon the judiciary cannot be overlooked in these specific cases. On the other hand, the element of judicial bias can be rebutted in the light of the majority judgments referred to above, and the receptivity of the legal system towards alternative dispute resolution (ADR), including arbitration. There are enactments in Pakistan which specifically contain the provisions which allow the parties to resolve their disputes through arbitration. The Pakistan Law Commission, which works for the development of law and justice in Pakistan and consists of chief justices and senior judges of superior courts along with other law personalities, has approved various draft statutes, such as the Small Claims and Minor Offences Courts Ordinance, which recognize the ADR mechanisms. This receptivity of the top judicial body towards the arbitration system helps negate the existence of bias against arbitration in the mindset of the judiciary.

Regardless of the discussion above, the HUBCO and SGS cases can also be considered as the exceptions to general practice, which can take place even in the reputed arbitration-friendly jurisdictions. Dallah is one of the most recent examples, in which an English court refused to enforce the award rendered by a French tribunal. The refusal was based on § 103(2)(b) of the English Arbitration Act, 1996, which reflects Article V(I)(a) of the New York Convention. According to the Convention, recognition and enforcement of an award may be refused at the request of the party if the arbitration agreement between the parties was not valid under the law to which the parties have subjected it to, or, failing any indication thereon, under the law of the country where the award was made. In the Dallah case there was no express agreement on the choice of law applicable to the arbitration agreement, hence the tribunal should have decided the validity of arbitration agreement under the French law. The French tribunal decided the validity of arbitration agreement under the principles of international law, which was rejected by the English court at the enforcement stage. The awards could be enforced before the enforcing court at Dallah's plea that the principles of international law align to the French law, as the French law promotes the approach that arbitration agreements are governed under the transnational principles of law. This example illustrates that exceptions to the general practice can also take place in arbitration-friendly jurisdictions.

The Supreme Court of Pakistan, after its success in its battle for the rule of law, has admirably passed several bold decisions at the national level without accepting the pressure or influence of any other body. In this sequence, if a matter relating to international arbitration comes to be dealt by the court, the best expectations are that the court would follow its independent approach, and the decision passed would be reasoned and free from the effect of the elements discussed above. Although Pakistan has failed to develop a friendly image in the field of international arbitration, it is not because of the judicial mindset.

Rizwan Hussain is an Advocate High Courts of Pakistan. He received his LL.B. from the University of Punjab and his LL.M. from the University of London. He is a Visiting Lecturer at Punjab Law College and maintains his own private practice.

Suggested citation: Rizwan Hussain, Lack of Pakistani International Arbitration Not Due to Judicial Bias, JURIST - Sidebar, Jan. 14, 2012, http://jurist.org/sidebar/2012/01/rizwan-hussain-pakistani-arbitration.php.

This article was prepared for publication by Sean Gallagher, an assistant editor for JURIST's professional commentary service. Please direct any questions or comments to him at professionalcommentary@jurist.org

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.

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