Enforcement of Foreign Arbitral Awards in Pakistan

Enforcement of Foreign Arbitral Awards in Pakistan

In the international arena, the convention that regulates enforcement of foreign arbitral awards is the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards concluded in New York in June, 1958 (also known as the New York Convention 1958).

Pakistan ratified it on 12 October, 2005 which meant that it had to be passed by domestic legislation in order to be enforced. For that purpose, the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2005 was passed, which had been reenacted in 2006, 2007, 2009 and 2010, until the final Act was enacted in 2011, known as the Recognition and Enforcement (Arbitration Agreement and Foreign Arbitral Awards) Act, 2011. Before the New York Convention, the Arbitration (Protocol and Convention) Act 1937 was used for the same purpose, i.e. the enforcement of foreign arbitral awards.

The objective of arbitration is to save time and lessen the burden on courts by seeking an alternative remedy for dispute resolution and avoiding long and exhaustive procedures of litigation. In order to give effect to this purpose, the Convention sets out Rules in Articles II to V which aid the implementation of the purpose of international arbitration and give recognition and status to foreign arbitral awards similar to that given to domestic arbitral awards. These Rules contribute towards the enforcement of foreign arbitral awards by interpreting the intent of the legislation to be pro-enforcement.

Let us now examine how these articles proceed through the Convention in aiding the enforcement of arbitral awards. Article II seems to be biased in favor of arbitration during pre-arbitral proceedings, that is, if a party takes the matter to court in the presence of an arbitration agreement, the other party may make the application to stay the proceedings and refer the parties to arbitration, unless the other party has already stepped into the proceedings.

Under the legislation ratifying the New York Convention, i.e. Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011, a matter had been brought to the court where the agreement had become null and void and was incapable of being performed where the court used the severability principle that the arbitration agreement was separate from the rest of the contract and nullity of the contract did not render the arbitration agreement void. Hence, court granted the stay of proceedings and referred the parties to arbitration.[1] Moreover, in my opinion, nullity of the contract and incapability of its performance are to be determined by the arbitral tribunal and article V cannot be invoked in court proceedings before arbitral tribunal proceedings. Invalidity and nullity of the contract is to be invoked when enforcement of the award is sought by a court of the concerned country “after” the award has been made.

Regarding the matter of having stepped into proceedings, no such matter has been brought to the courts yet, as this law has been passed very recently, however, under Arbitration Act 1940, courts have interpreted the phenomenon of stepping into proceedings quite strictly where lenient interpretation has been required so as to fulfill the purpose of arbitration at the beginning. The mere asking for adjournment to submit a written reply would amount to stepping into the proceedings of the court after which a stay of proceedings would not be granted to refer the matter to arbitration on application under section 34 of Arbitration Act 1940[2]. This judgment relied upon another judgment of the Supreme Court in 1981 in which, after several adjournments, the court interpreted the intent of the parties to have given in to court proceedings and hence dismissed the application to stay proceedings.[3]

Although this interpretation of PLD 2006 S.C. 196 has been set aside in another case, Pakistan Stone Development Company v. Mohammad Yousaf,[4] by stating that the judgment of the Supreme Court has been misconstrued in PLD 2006 and allowing the application of stay of proceedings after one adjournment, this narrow interpretation of stay of proceedings by court at various times reflects the insecurity of our judiciary as to its authority and jurisdiction to adjudicate being challenged. The attitude is the same towards domestic arbitration. However, it is good to see that the judiciary is understanding the significance of arbitration agreements and procedures as reflected by the 2018 judgment.

Since there is no direct case-law on the stay of proceedings under the Recognition and Enforcement (Arbitration Agreement and Foreign Arbitral Awards) Act 2011, the courts of Pakistan tend to rely on case-law under the Arbitration Act 1940 for the purpose of interpretation of “stay of proceedings” and “stepping into proceedings”. Such judgments do have persuasive value if not mandatory value in cases of stay of proceedings and referral to international arbitration. It is the pre-arbitral procedure that favors taking the matter to an arbitral forum and reflects the arbitration-biased intention of the Convention.

The actual enforcement of an arbitral award starts after the award has been rendered enforceable. The New York Convention 1958 again shows an intent to support the easy enforcement of foreign arbitral awards when it sets out in article III that enforcement of foreign arbitral awards would be done in the same manner as the enforcement of domestic arbitral awards, with regard to their procedure as well as their cost. The cost of enforcing foreign arbitral awards would not be higher merely on the basis of it being a foreign award and not a domestic one. Pursuant to this article, Pakistan’s enactment in 2011 stated that the enforcement of a foreign arbitral award would be carried out considering it as a domestic arbitral award under section 6. However, the issue that remains, even after the enactment of the 2011 Act, is regarding the procedure that is to be followed for enforcement.

With this ambiguity, two methods are left for pursuing enforcement:

1. Filing a civil suit for enforcement in which the options of appeal are available and giving courts an option to exercise their discretion for the enforcement of awards (as has been exercised in several cases under the 1937 Act[5]). This kills the purpose of the Convention - which has a pro-enforcement bias – and the speedy enforcement of foreign arbitral awards.

2. The second method that is left is a summary procedure, which lacks proper trial procedures and can leave lacunas when judgments are given.

In interpreting the prevention of enforcement of awards under article V of the Convention, a few judgments have been handed out which favor enforcement and are according to the purpose of the New York Convention. One such recent judgment is Abdullah v. Mssrs CNAN Group SPA where the judge relied on the Yearbooks on Commercial Arbitration (YCA) -which stated the purpose of the New York Convention- and various commentaries on the subject -including the Global Commentary on New York Convention by Herbert Kronke 2010- and concluded that where the award-debtor sought a declaratory and injunctive relief against the enforcement of the award under article V of the New York Convention, the article must have been interpreted narrowly and used as a shield and not a sword. This indicates that enforcement can only be prevented when the enforcement of the award is sought and that the article does not favor the award-debtor to seek nullity of the award.

Considering how Pakistani courts and Pakistani laws have acted in enforcing foreign arbitral awards, the road to enforcement seems vague and uncertain. On some occasions the courts have used discretion where proper procedures have been lacking and at some points the courts have relied upon global commentaries for highlighting the purpose and correct interpretation of the Convention. This shows that there is a lack of proper legislation for enforcement of foreign arbitral awards, especially with regards to the procedure of enforcement, even after the enactment of the 2011 Act. Although Justice Saqib Nisar in his article International Arbitration in the context of Globalization: A Pakistani Perspective has expressed contentment towards the 2005 Ordinance for Enforcement of Foreign Arbitral Awards being close to the purpose of the New York Convention, there is still a need for filling the gaps in procedure and limiting the power of the courts to exercise jurisdiction in acting as the appellate forum for the award.

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References:

[1] 2015 MLD 1646
[2] PLD 2006 S.C. 196
[3] PLD 1981 S.C. 553
[4] 2018 CLC  Islamabad 877
[5] 1982 CLC 301, 1990 MLD 857 (Court refused to enforce the award by stating that arbitration agreement was vague and uncertain and that the parties had failed to affix stamp duty on foreign award under Pakistani law. This shows procedural irregularities).

 

The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any other organization with which she might be associated.

 

For an update on the law, see also: http://courtingthelaw.com/2019/01/16/commentary/foreign-arbitration-agreements-a-pakistani-perspective/

Areeba Rashid

The writer is a recent law graduate from Quaid-i-Azam University, Islamabad. She has interned at various law firms in Islamabad and Lahore and worked on different projects involving arbitration and its implementation in Pakistan. She has also participated in various moot court competitions including the Henry Dunant IHL Moot Court Competition (winning the Best Memorial Award), the Philip C. Jessup International Law Moot Court Competition and the Quaid-i-Azam Moot Court Competition.



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