Author: Fahad Bin Tariq*
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Introduction
Pakistan has two statutes regulating arbitration, one from each era, for a different purpose. The procedures for arbitration in this country are prescribed by the Arbitration Act 1940[i], which is a colonial statute, previous to both the New York Convention and the UNCITRAL Model Law. These domestic laws for the recognition and enforcement of foreign awards are provided by the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011[ii], which puts the New York Convention into effect in New Zealand. The rationale for separating the two appears simple: domestic awards are dealt with under the 1940 Act and foreign awards under the 2011 Act.
The Supreme Court further clarified that division in Taisei Corporation v A.M. Construction Company[iii], and established the seat of arbitration as the test for determining an award’s country of nationality. The clarification is appreciated. But it raises a question which the Court never had to answer: which regime is applicable in an international arbitration (in substance) which is based in Pakistan? This blog addresses this issue by arguing that the answer reveals a “structural gap”. The 2011 Act, correctly interpreted and as situated on the territorial plane of Taisei, cannot apply to a Pakistan based arbitration, while the 1940 Act can, but only by default as “domestic” is the fallback category after “foreign”. The government system is therefore not defunct, but anachronistic as it is the cross-border arbitration held in Pakistan is governed by a law that was thought up for none of the following. It outlines the framework and the seat principle, finds the opening, experiments with the distance Taisei is able to carry, shows the practical implications for parties, and compares the differences between how India dealt with the same colonial legacy and how they will do the same.
A Two Era Framework Built
The general law of arbitration in Pakistan is the Act of 1940 which makes an assumption of an arbitration that is connected with the ordinary civil courts. The award is entered into court and, if there is no persistent objection, it is made a rule of court; the courts appoint arbitrators and strike them down; they can extend time limits and set aside awards[iv]. No one could be the better of the statute if it had been able to accommodate the modern concepts of party autonomy of procedure in the sense of Modern Law, or of the power of a tribunal to order interim measures. It, in essence, is a litigation-centred approach to arbitration.
The 2011 Act was passed to fulfil Pakistan’s commitments under the New York Convention. It transfers exclusive jurisdiction to the High Courts, mandates that if there is a valid agreement for arbitration, the court shall refer the parties to arbitration, gives the court jurisdiction to enforce foreign awards and limits refusal to enforce to the grounds set forth in Article V of the Convention[v]. Its subject matter, by its very nature, is the foreign arbitration agreement and the foreign award, and investor-State arbitration is not part of the present discussion.
Taisei and the Primacy of the Seat
Taisei demonstrates a clash of the two regimes. A Japanese contractor and a Pakistani subcontractor are to submit their disputes to ICC arbitration in Singapore, with a subcontract subject to Pakistani law[vi]. Shortly after the award, the award debtor challenged the award in the civil courts at Lahore under the 1940 Act, contending that the award was domestic as the contract was subject to Pakistani law, whereas the award creditor moved the High Court under the 2011 Act for its enforcement, contending that the award was foreign due to the fact that the seat was outside Pakistan. Following over 10 years of parallel litigation, the Supreme Court decided that the award was foreign: the seat of the contract is the governing basis for determining the nationality of an award, and so, neither the contract’s proper law nor the nationality of the parties is important to this determination.
The seat principle was not a surprise. The “place” of arbitration, as a choice of seat, had been previously interpreted by Pakistani courts and they have since demonstrated the importance of the seat[vii]. In Space Com v Wateen, the Lahore High Court issued a fresh review of the seat, and declined to enforce an award on the ground that the parties had agreed on a seat in Dubai, not the DIFC — i.e., that the mis-specification of the seat was itself a defence to enforcement[viii]. The message from these cases is that the seat in Pakistan now plays decisive roles. That leads to the obvious question that cannot be avoided: If the seat decides the foreign factor what happens when the seat is Pakistani?
The Unasked Question: A Regime by Default
If nationality is a part of the seat, it is impossible for an arbitration in Pakistan to produce a foreign award. All of the foreign awards and agreements were dealt with in the Act of 2011, the architecture of which is discussed throughout, and so does not require any comment in this context with respect to the conduct of an arbitration seated in Pakistan, on its own terms and on Taisei’s territorial logic. It is not a vacuum. The Act of 1940 still exists and has effect because the arbitration is not foreign. The concept of domestic arbitration in Pakistani arbitration law is a residual concept. Therefore, it implies, if an arbitration does not take place elsewhere, then it must be domestic.
This is the crux of the difficulty, which was inherent in both the statute and the case. The 2011 Act was drafted for foreign venues and is silent with regard to a Pakistani venue. It reaches the 1940 Act, which was drafted for the ad hoc domestic arbitration of the mid-twentieth century. Foreign parties, foreign counsel, an institutional rulebook, and an expectation of a delocalised procedure are funneled into a statute that does not consider any of these. It is the structural features that give rise to this result which are concrete: the 1940 Act restricts the power to grant interim relief to the courts, and the 1940 Act gives no power to the tribunal to grant interim relief[ix]; it codifies no principle of competence-competence[x]; it requires the award to be filed in and adopted by a court before it comes into operation, and its provisions expose the award to recourse on grounds which extend far beyond the Convention’s closed list of grounds, including the grounds of misconduct and illegality apparent on the face of the award[xi]. None of this was intended to consider international arbitration, for in 1940 there was, in fact, no arbitration to respond to.
The Reach of Taisei: Binding, but on What?
When it comes down to the question, Taisei is bound in the strictest manner. The Supreme Court has decided a question of law in a decision, which is binding by Article 189 of the Constitution on all other courts in Pakistan[xii]. It was not a persuasive line, and it expressly overruled an opposing one that had given rise to a proper law of the contract to affect an award’s nationality. It is now established that the seat-based test can be overturned only by the higher court and not by lower ones, which Taisei had rejected.
But there needs to be openness about the limits of the holding. The Taisei arbitration was held outside Japan and the question was whether it was foreign. The rule on which this proposition is based is the corollary of the seat principle and is not expressly stated in the 1940 Act. By necessary implication, if so, then an award made at a Pakistani seat is domestic, and there is no domestic statute other than the 1940 Act. The meaning is too strong to be avoided and the legislature had acted on that assumption when it drafted the reform that is discussed below. But it has not yet been tested in a court and a litigant can continue to assert the issue remains open until a court sitting in Pakistan presumes to deal with an international arbitration head-on. What is not in question is whether the seat controls, but what the seat-based answer entails when the arbitration becomes Pakistani.
Why the Seat Choice Bites
The selection of the regime is not a mere matter of labels, but one that alters the arbitration in a fashion that advanced participants value. The point is made by three flashpoints. However, in the matter of interim relief, an arbitration seated in Pakistan is allowed to obtain such relief from the courts only in that forum, no power to do so being conferred on it by the 1940 Act[xiii]. One of the parties who has bargained for a tribunal competent to preserve the status quo and set up before the constitution, does not get it at a Pakistani seat; and before the reform Bill, it would look at the tribunals themselves.
As for recourse, a domestic award is made a rule of court and can be set aside only on the grounds of misconduct and illegality apparent on its face while a foreign award has a narrow Article V gateway and can be set aside in Pakistan only on account of misconduct and illegality apparent on the face of the award[xiv], which belongs to the supervisory power of the seat. The same controversy thus gives rise to a broadly reviewable or essentially review-proof award in Pakistan depending solely on the location of the controversy. When it comes to the supervision, the 1940 Act provides for supervision in the ordinary civil courts, with, as the implication of this, a wide range of supervisory powers; the 2011 Act, by contrast, focuses a more limited supervisory jurisdiction in the High Courts, but with powers that are geared towards enforcement[xv]. Appetite for intervention, standard of review, and forum all change according to the seat.
Until a Pakistani seat adopts the 1940 Act (court-only interim relief, court adoption of the award and broad setting-aside grounds), a party with authority to seat an arbitration will, even if the contract, project and counterparty are all Pakistani, choose to sit the arbitration elsewhere. The model is Taisei, a Pakistani-law subcontract for a Pakistani highway under ICC rules in Singapore. The seat clause is being used to drive international arbitration with Pakistan out of the door, and the predictable result is that it is doing what an up-to-date domestic statute would do.
The Indian Mirror
The situation is exacerbated, when compared to the jurisdiction that shares Pakistan’s starting point. India has got the same Arbitration Act 1940 from the time of Independence. In 1996, it changed that Act with a law modeled on the UNCITRAL Model Law and in the BALCO case, a Constitution Bench of the Supreme Court ruled that the substantive portion of the 1996 Act applies to arbitrations seated in India, overturning the previous doctrine of extending the domestic doctrine to foreign-seated proceedings[xvi]. Hence, India simultaneously found itself with two strands: one, a modern statute to regulate the conduct of India-seated arbitration; and two, a judicial doctrine to define the seat as the threshold of the statute’s application.
Only the second track has been taken by Pakistan. The judicial doctrine (seat as the basis of an award’s nationality) is provided by Taisei while the statute that should regulate the conduct of an international arbitration seated in Pakistan is the 1940 Act. In principle Pakistan is now where the analysis casts India as being in 2024, though without the legislative half. It has the diagnosis but doesn’t have the cure.
A Cure in Waiting
That cure is being drawn up. The Taisei draft Arbitration Bill 2024 had been drafted by the Arbitration Law Review Committee (ALRC) set up by the Chief Justice and led by its chairman, and approved by the Federal Cabinet in June 2024, but yet to be enacted[xvii]. The Bill is drafted on the Model Law drafted by UNCITRAL and is directed specifically at arbitrations sit in Pakistan, leaving the 2011 Act for the arbitration that are established in a foreign state. It would enable the tribunal – not just the court – to provide for interim measures; give the court some help in taking evidence; add arbitrator-disclosure provisions from the IBA Guidelines; and change the interventionist structure of the 1940 Act for one that is more limited in scope in terms of the court’s control[xviii].
The symmetry is very impressive. The same judicial sensibility that had deemed the seat as the criterion of the nationality of an award is now guiding the law that would empower a Pakistani seat to be an option to pick. Permanent as yet is the corollary to Taisei: an international arbitration located in Pakistan is governed by a 1940 law not originally intended to cover such arbitrations.
Conclusion
The other half of the architecture was fixing the nationality of awards. Taisei explained to Pakistan how to distinguish between an award by a foreign court and one by domestic court; Pakistan cannot show Taisei how domestic court, but international court, should function, as the law governing this type of arbitration does not have a modern answer. The real issue here is not that there is no law applicable to an international arbitration held in Pakistan, but that the wrong law is applicable, and that the more the issue is postponed, the more parties will continue to vote with their drafting pen against a seat in Pakistan. Nowadays the seat is the beacon of recognition that is Pakistan. Whether it can also be a believable place for international arbitration resting on an authored and approved Bill that awaits.
*Fahad Bin Tariq is a Trainee Lawyer at ABS & Co., where his work focuses on arbitration, commercial litigation, constitutional law, and company matters
[i] Arbitration Act 1940 (Pak.). The Act, in force since July 1, 1940, is not based on the UNCITRAL Model Law and regulates arbitration conducted in Pakistan through court-centred mechanisms (chs. II–IV, §§ 3–25).
[ii] Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011, § 1(4) (Pak.) (giving effect to the New York Convention and applying to foreign awards made on or after July 14, 2005); see Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. V, June 10, 1958, 330 U.N.T.S. 38 [hereinafter New York Convention].
[iii] Taisei Corp. v. A.M. Construction Co. (Pvt) Ltd., 2024 SCMR 640 (Pak. S. Ct.) (Syed Mansoor Ali Shah, J.). The judgment of the Lahore High Court below is reported at PLD 2012 Lahore 455.
[iv] Arbitration Act 1940, §§ 14, 17, 30, 34 (Pak.) (filing of the award and its adoption as a rule of court; setting aside; and stay of a suit brought in breach of an arbitration agreement, respectively). The Act contains no concept of the juridical seat.
[v] 2011 Act, §§ 3, 4, 6, 7 (Pak.) (exclusive jurisdiction of the High Courts; stay and reference to arbitration; recognition and enforcement; and refusal of enforcement only in accordance with Article V of the New York Convention, respectively).
[vi] Taisei, supra note 3. The award issued in an ICC arbitration seated in Singapore, under a subcontract governed by Pakistani law; the award debtor proceeded under § 14 of the 1940 Act before the civil courts at Lahore, while the award creditor sought enforcement under the 2011 Act before the High Court of Sindh.
[vii] Société Générale de Surveillance S.A. v. Pakistan, 2002 SCMR 1694 (Pak.) (construing a reference to the “place” of arbitration as a choice of seat).
[viii] SpaceCom Int’l LLC v. Wateen Telecom Ltd., 2025 CLD 241 (Lahore High Ct.) (Pak.) (conducting a de novo review of the seat and refusing enforcement of a DIFC award where the parties had agreed to a seat in Dubai); see ST Group Co. v. Sanum Invs. Ltd., [2019] SGCA 65; Dallah Real Estate & Tourism Holding Co. v. Ministry of Religious Affairs, Pak., [2010] UKSC 46.
[ix] Arbitration Act 1940, § 41 (Pak.) (interim measures available only from the courts, read with Order XXXIX of the Code of Civil Procedure 1908); the Act confers no power on the tribunal to grant interim relief.
[x] No statute presently codifies competence-competence in Pakistan, although the courts accept that a tribunal may rule on its own jurisdiction.
[xi] Arbitration Act 1940, §§ 15, 16, 30 (Pak.) (modification, remittal, and setting aside, respectively). Recourse against a domestic award has been understood to extend to arbitrator misconduct and to illegality apparent on the face of the award — grounds wider than Article V of the New York Convention.
[xii] Pakistan Const. art. 189 (decisions of the Supreme Court on questions of law bind all other courts).
[xiii] See supra note 11 (interim relief under the 1940 Act).
[xiv] See supra note 13 (recourse against a domestic award).
[xv] 2011 Act, §§ 3, 7 (Pak.); see supra note 5.
[xvi] Arbitration and Conciliation Act, 1996 (India) (based on the UNCITRAL Model Law); Bharat Aluminium Co. v. Kaiser Aluminium Technical Servs. Inc., (2012) 9 SCC 552 (India) (Part I applies only to arbitrations seated in India, on the territoriality principle), overruling Bhatia Int’l v. Bulk Trading S.A., (2002) 4 SCC 105 (India).
[xvii] The Arbitration Law Review Committee, constituted in April 2023 at the direction of the Chief Justice of Pakistan and chaired by Syed Mansoor Ali Shah, J., published the final draft of the Arbitration Bill 2024 on May 2, 2024; the Federal Cabinet approved it on June 11, 2024. The Bill remains unenacted.
[xviii] Arbitration Bill 2024, §§ 10, 19, 29 (Pak.) (draft) (court- and tribunal-ordered interim measures and court assistance in taking evidence, respectively); id. § 15 & sch. 1 (arbitrator disclosure modelled on the IBA Guidelines on Conflicts of Interest, and challenge to an arbitrator folded into the challenge to the final award). Commentators have additionally noted a statutory definition of public policy and a provision for emergency arbitrators; these should be confirmed against the operative text of the Bill.