The question of whether arbitrators can decide their own jurisdiction (kompetenz-kompetenz) requires an analysis in Pakistan as the domestic courts are progressively adopting pro-enforcement tendency. This article will endeavor to analyze the laws that apply to both domestic and international arbitration.
Domestic Arbitration
In Pakistan, domestic arbitration is governed by the Arbitration Act, 1940. The same law was applicable in India till the enactment of the Arbitration and Conciliation Act, 1996. The change in the law in India was inter alia due to several judicial pronouncements which criticized the 1940 Act. In Guru Nanak Foundation v. Rattan Singh & Sons, AIR 1981 SC 2075, the Supreme Court of India held that the way in which the proceedings under the 1940 Act were conducted and without exception challenged in the courts had “…made lawyers laugh and legal philosophers weep,” and that,
“…the proceedings under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary… Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the Courts been clothed with legalese of unforeseeable complexity.”[1]
There is no better introduction of the 1940 Act. Unfortunately, its infamy continues in Pakistan where the interventionist approach prevails over the courts of the first instance.
Section 33 of the 1940 Act provides that,
“…any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits.”
In other words, the legislature expressly deprives arbitrators of the ability to decide their own jurisdiction with the result that there is no scope for ‘competence-competence’ in Pakistan for domestic arbitrations. This interpretation was upheld by the Supreme Court of Pakistan in Karachi Dock Labour Board v. Quality Builders Ltd., PLD 2016 SC 121.[2] The position can only change if the existing law is amended.
Foreign Arbitrations
Foreign arbitration agreements are recognized in Pakistan under the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 which has ratified the New York Convention, 1958. Unlike the domestic law, there is no express restriction in the 2011 Act on arbitrators, or the arbitral institution, to decide jurisdiction, although under Section 4(2) of the 2011 Act, the court, while recognizing and enforcing an arbitration agreement, has to see whether the said agreement is null, void, inoperative or incapable of being performed.
As per the practice in Pakistan, in case of foreign arbitration agreements where the parties have agreed to resolve the question of the arbitrator’s jurisdiction by the arbitrators themselves, if one party breaches the arbitration agreement by filing domestic proceedings then the court, on application by the other party, is required to decide the said matter before recognizing the arbitration agreement. Similarly, the arbitrators, simultaneously or upon reference made by the court, will also have to decide the question of the arbitrator’s jurisdiction with the consideration that it may result in contradictory findings. Accordingly, whether Pakistani courts conclusively declare an arbitration agreement to be null, void, inoperative or incapable of being performed when hearing an application under Section 4(2) of the 2011 Act or offer a prima facie view, should not affect foreign arbitration proceedings.
In the author’s view, Pakistani courts should follow the negative effect of ‘competence-competence’ by limiting to a prima facie evaluation of the existence of arbitration agreements. On positive evaluation, the courts should take necessary remedial measures which would facilitate foreign arbitrators in deciding their respective jurisdiction to adjudicate the dispute as per the agreement between the parties. By adopting the negative effect, Pakistani courts will not be deprived of the jurisdiction to reevaluate the question of the arbitrator’s jurisdiction under Article V(1)(a) of the New York Convention after the arbitral award has been issued and sought to be enforced in Pakistan.
This position aligns with various foreign precedents. In Fiona Trust & Holding Corporation and Others v. Privalov and Others, [2007] UKHL 40, the House of Lords[3] held that even if one party did not consider an arbitration agreement to be valid because according to the said party the main contract had been executed due to fraud, bribery and misrepresentation, it did not divest the arbitrator of the right to, or invest jurisdiction in the court to, decide the validity of the arbitration agreement on the assumption that the arbitration agreement was invalid. The only exception to this rule is where parties have expressly excluded such an eventuality in the main contract or in the arbitration agreement. Similarly, in First Options of Chicago, Inc., v. Kaplan ET Al., the Unites State Court of Appeal for Third Circuit held that the question of arbitrability was based on the agreement between the parties and, unless expressly excluded, the question would be decided by the arbitrator first while the court would defer to the arbitrator’s decision unless that decision was invalid or contrary to the law. In Shin-Etsu Chemical Co., Limited v. M/s Aksh Opitfibre Ltd., and Another, Case No. Appeal (Civil) 5048 of 2005, the Supreme Court of India, while interpreting Section 45 of the 1996 Act, held that if two parties had agreed to a foreign arbitration agreement, then the courts in India would only evaluate the prima facie existence of the arbitration agreement and refer the parties to the arbitral tribunal to decide the question of arbitrability.
In practice, during arguments, attempts have been made before Pakistani courts to rely on the case Dallah House Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46 of the United Kingdom Supreme Court to support the position that the court of a contracting state has an absolute right to evaluate the arbitrator’s jurisdiction at any stage i.e. both pre or post-award. This is an incorrect interpretation of the judgment for several reasons:
- First, Dallah House relates to proceedings that culminated at the stage of enforcement of the award in Paris, which was recognized and enforced in France but not in the United Kingdom.
- Secondly, the reason why the UK Supreme Court denied to enforce the award was that the respondent in the case had denied the existence of the arbitration agreement before the arbitral tribunal as well as before the courts in England at the stage of enforcement of the award and because, according to the Supreme Court, the mere fact that the arbitral tribunal had decided the issue of jurisdiction did not deprive a contracting court to reevaluate the same de novo at the time of recognition and enforcement of the award.
- Thirdly, insofar as the question of evaluating the arbitrator’s jurisdiction at the pre-arbitration stage is concerned, the judgment authored by Lord Collins[4] has reinforced the principle of ‘competence-competence’ that if the parties have expressly agreed to resolve the issue through the arbitral tribunal, then the courts of a contracting state must adopt the negative effect of ‘competence-competence’.
As far as Pakistan is concerned, there are no direct judgments regarding this point, but there is one judgment by the Sindh High Court titled Karachi Development Company Limited v. IM Technologies Pakistan (Private) Limited, 2017 CLCN 157 which requires analysis. In this case, the petitioner challenged a foreign arbitration clause (giving jurisdiction to the Singapore International Arbitration Centre (SIAC)) under Section 33 of the 1940 Act (law for domestic arbitration) alleging that the arbitration agreement was without jurisdiction, illegal and had no legal effect. The Sindh High Court correctly held that since the dispute was covered by a foreign arbitration agreement, the 1940 Act had no applicability in the presence of the 2011 Act. However, the court added that a foreign arbitration agreement could be challenged under Section 9 of the Civil Procedure Code (CPC), 1908 relating to residuary proceedings of the court. In other words, the Sindh High Court opened the doors for parties in Pakistan to obtain declaratory decrees against foreign arbitration agreements from the civil courts. This, most respectfully, is an incorrect interpretation of the law and must not be appreciated for at least two reasons:
- First, where parties have resolved to adjudicate disputes through a foreign arbitral institution, the rules of the respective institution are applicable to the parties which expressly empower the foreign arbitral tribunal to rule on its own jurisdiction. In the aforementioned case, the contesting parties had agreed to settle disputes through SIAC with the result that SIAC Rules, 2016, as per Rule 1.1 thereof, were deemed to have been agreed upon by the parties to be applied and that SIAC would, under Rule 28.2, rule on its own jurisdiction, including any objections with respect to the existence, validity or scope of the arbitration agreement. The Sindh High Court completely ignored the competence of SIAC to rule on its own jurisdiction, which had been agreed upon by the contesting parties under the arbitration agreement.
- Secondly, the jurisprudence surrounding Section 9 of the CPC had been ignored by the Sindh High Court. According to Section 9 of the CPC, “The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.” This provision has been interpreted by the Supreme Court of Pakistan in numerous judgments including Abbasia Cooperative Bank Hakim Rafiz Muhammad Ghaus, PLD 1997 SC 3 which held that, “The Civil Court under section 9 of the Code of Civil Procedure are competent to try all- suits of civil nature except those or which their jurisdiction is barred either expressly or by necessary implication. It is a well-settled principle of interpretation that the provision contained in a statute ousting the jurisdiction of Courts of general jurisdiction is to be construed very strictly and unless the case falls within the letter and spirit of the barring provision, it should not be given effect to.” If this principle is applied to the case above, even if the argument of ‘competence-competence’ in the above paragraph is rested, Section 3(1) of the 2011 Act grants “exclusive jurisdiction” to the “High Court” to adjudicate and settle matters related to or arising from the 2011 Act. In other words, theoretically (whilst it remains to be tested), a party may apply to the High Court under Section 3(1) of the 2011 Act and challenge the validity of the arbitration agreement and the jurisdiction of the arbitrators, but there is no doubt that the language of Section 3(1) of the 2011 Act impliedly bars the civil court from exercising any jurisdiction in the matter. The Sindh High Court should not have overlooked this aspect of the matter in the judgment because its observation is tantamount to encouraging the parties to defeat and frustrate foreign arbitration agreements.
Conclusion
For domestic arbitration, the author cannot foresee the adoption of ‘competence-competence’ until the 1940 Act is amended. Pakistan currently ranks at 156 for enforcing contracts in Measuring Business Regulations by the World Bank with an estimated contract enforcement time of 1071 days. This is quite unfortunate and in the author’s opinion, the 1940 Act is a major part of the problem inhibiting good commercial judges from enforcing contracts. Like other member states and signatories to the Convention, Pakistan must actively take steps to adopt the UNCITRAL Model Law on International Commercial Arbitration to the extent of domestic arbitration. If this happens, it will likely resolve ancillary issues, including the question of jurisdiction, since under Article 16 of the Model Law an arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.
With regard to foreign arbitration, since jurisprudence under the 2011 Act is still developing in Pakistan and given that there is no express prohibition under the said Act or Convention, Pakistani courts must follow international precedents by actively adopting the negative effect of ‘competence-competence’. In the author’s opinion, such adoption will reinforce pro-enforcement tendency in Pakistan, minimize the traditional interventionist approach and align Pakistan on the subject with foreign jurisdictions.
References
[1] In another judgment titled Saha & Co. v. Ishar Singh, AIR 1956 Calcutta 321, the High Court held that “the statutes of arbitration are Jerry-built structures suffering from divided loyalties precariously balanced between sympathy with private courts of litigant’s choice and a nostalgia for public courts which are expected to exercise a kind of paternal control over them. Like all hybrids, this cross-breeding has produced one of the most defective and unreliable species of legal creatures.”
[2] paragraph 14 of the judgment held that the principle of kompetenz-kompetenz is inapplicable in Pakistan.
[3] Lord Hoffmann’s judgment at paragraphs 1 to 15 starting from page 7 to 12 of the Judgment
[4] at paras No. 79 to 98
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 he might be associated.
MashAllah v nice n detailed article on law of arbitration good attempt 👏