Arbitration law in Pakistan is chiefly grounded on the Arbitration Act of 1940. It is used to manage both local and international corporate dispute resolution in Pakistan and this law was initially encouraged by the Indian Arbitration Act from 1899 . Over time, the Constitution of Pakistan and court verdicts have also played a function in shaping how arbitration works.
Pakistan has joined numerous foreign agreements related to arbitration, like the New York Convention from 1958, which assist in recognizing and enforcing foreign arbitration awards.
The country has also made recent changes to improve its arbitration system, especially for international business cases.
Court involvement in commercial disputes in Pakistan
The corporate dispute resolution system in Pakistan is negatively affected by frequent and unchecked judicial intervention, resulting in business disruptions and substantial distrust in the market. There are two types of judicial intervention in Pakistan: one is allowed by the Arbitration Act 1940.The second type is empowered by the principles of law and barred by Section 32 of the said Act, creating a serious issue.
Some parts of the Arbitration Act 1940 let the courts take an active part in arbitration. Completely leaving arbitration out of the court system isn’t really practical, because courts do several important things that help arbitration work. It’s true to say that arbitration can’t work well or be successful without the courts getting involved. In many cases, courts are needed to do things that arbitration can’t, especially when it comes to making sure that the decisions made in arbitration are carried out. An arbitrator alone can’t make sure that happens—it takes the help of the government system. Courts also have other important roles to play.
Illegal Judicial Involvment
Court and dispute resolution lawyer intervention is most commonly seen during the enforcement or execution of arbitration awards, often leading to a series of appeals by the parties up to the High Courts, and in some instances, the Supreme Court. This extended process can take several years.
What Happens in Arbitration
Arbitration is a form of proceeding in which the parties themselves select the judge (arbitrator) for their dispute. In arbitration proceedings, the arbitrator alone is responsible for making the decision. The courts must consider appeals and objections from the parties but should not forget the purpose of arbitration and must adhere to their allowed jurisdiction.
Dismissal Other Cases Of Arbitration & What High Court Has Stated
Some lengthy trials of arbitration cases, followed by their dismissal by the Supreme Court or High Courts, highlight the oversights made by civil courts and High Courts during the initial stages. In a case where the trial court repeatedly rejected the appeal of the aggrieved party and upheld the arbitral award, the matter was brought before the Supreme Court, which criticized the actions of the lower courts.
High Court’s decision as unwarranted intervention. In its judgment, the Supreme Court stated:
“The High Court has proceeded on erroneous grounds and has misapplied the applicable law to the facts and circumstances of the instant controversy, which warrants interference by this Court. We have been unable to agree with the conclusions reached by the High Court in the impugned judgment. Accordingly, the impugned judgment is found to be unsustainable in law as well as in fact and is therefore set aside.”
Reasons Behind The Intervention
There may be several reasons why the court got involved. These reasons can be as simple as the judge not understanding the basics of arbitration or the importance of the corporate dispute resolution in Pakistan, or as complicated as missing the award or having a lack of experience in district courts, which are later guided by higher courts.
For example, in a case where the commercial court made mistakes in its observations about the respondent’s application under Section 34 of the Arbitration Act, the court wrongly used past communications and a previous case to suggest that the party had agreed to give up their right to arbitration. However, Section 34 allows a stay application at any stage of legal proceedings. Because of this, the order from the learned court was set aside, and the appeal was granted by the Lahore High Court.
Governmental Initiatives and Parliamentary Development of the Arbitration Act 2024
The new bill, the Arbitration Act 2024, seems more detailed and thorough. It covers many issues that were previously handled through court decisions because the Arbitration Act 1940 had gaps like dispute regulation and litigation. If we recall the earlier details from this article, we can see how some of the legal principles developed under the old law have been included in the new law, replacing the 1940 Act.
It’s a good step forward because several problems have been fixed and improved.
Also, the new procedural rules are inspired by the UNCITRAL Model Law on International Commercial Arbitration from 1985, with updates made in 2006. Before we start the critical analysis of this new bill, we should first look at and understand the improvements made. Therefore, the discussion will be divided into two parts.
The Powerful Role Of Jurisprudence
Some parts of the Arbitration Act 2024 are influenced by court decisions, especially Section 11. This section focuses on public policy and whether a corporate dispute resolution in Pakistan can be settled through arbitration. It makes the idea of public policy clearer and more specific. Before, this idea was sometimes used unfairly to question awards from foreign arbitrations under the Arbitration Act 1940. Courts later fixed this problem with their rulings.
Critical Evaluation of The Arbitration Act 2024
Going back to the main topic, which is “Judicial Intervention.” Even though a lot of effort has been put into making the framework match international standards, there’s still a big problem. When we look for any rule that can stop judicial intervention properly, we don’t find much. Only a few rules like interim orders, the power to give specific performance, and the ability to challenge the arbitration process under section 15 seem to help a little. These small changes make the arbitrator’s role a bit stronger, but they don’t stop judicial interference completely. This major issue hasn’t been properly dealt with. To stop judicial intervention, we need to fix the problem properly from the right angle.
Conclusion
The challenges faced by commercial arbitration in Pakistan are deeply rooted in dispute resolution in Pakistan, judicial intervention, procedural inefficiencies, and the reluctance of parties to accept arbitral awards. Although arbitration is intended to be a faster and more efficient alternative to litigation, the frequent involvement of courts often leads to overstepping their authority, prolonging disputes that arbitration was designed to resolve efficiently. This not only undermines the purpose of arbitration but also discourages businesses from relying on it as a viable dispute resolution mechanism.
