INTERNATIONAL COMMERCIAL

ARBITRATION AND ENFORCEMENT OF FOREIGN

ARBITRAL AWARDS IN PAKISTAN
Inaamul Haque* & Naeem Ullah Khan**

Abstract

International commercial arbitration has become a preferred mode of resolution of

transnational commercial disputes. Given progressively increasing international transactions in
the globalized world, international convention relating to arbitration, existence of, international
organizations, facilitating arbitration, internationally acceptable arbitral rules and the flexibility to
choose the procedure and designate the arbitrators certainly makes arbitration much more
popular than the conventional litigation. To recognize this development Pakistan has ratified the
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. To
comply with this treaty an Ordinance has been, promulgated. This has brought about a qualitative
change in respect of foreign arbitral awards. Contrary to earlier provisions of law it is no longer
discretionary with courts to refuse stay of proceedings before than in any case where there exists
a solemn agreement to get the disputes resolved through foreign arbitration. It is important for all
organs of state to abide by international commitments made by Pakistan made by Pakistan.

1. Introduction
1.1 International commercial transactions have been enormously growing since the latter half of
the twentieth century. Globalization –signifying greater integration of economies all over the
world-has been significantly contributing to this trend. With the growth in the number of
transnational transactions, trade disputes between the parties located in different countries have
also visibly increased. Preference for arbitration, as a method to resolve disputes, represents a
response to the emerging changes in international commercial landscape. Besides this, as
pointed out by an eminent expert one of the important reasons for popularity of arbitration in
recent decades “has been the enactment of legislation in many countries restricting judicial
intervention”1

Till recently all over the world arbitration was not little more than an additional step in litigation
process. However, a qualitative change has occurred and arbitration has become a far more
important mode of dispute resolution than ever before.

1.2 Arbitration has indeed emerged as a credible alternative to dispute resolution through
national courts. Needless to emphasize, a clause providing for arbitration in commercial contracts
*
Inaamul Haque LL.M (Harvard), Distinguished Scholar /Member Adjunct Faculty, Punjab
University Law College, Former Executive Director World Bank, Advocate High Court.

**
Naeemullah Khan, LL.M (Punjab,) Lecturer Punjab University Law College.
*
This article contains personal views of authors and do not necessarily reflect those of any
organization.
1
M. Pryles, International Trade Law, 652 (1996).

1
is voluntary having been incorporated by free consent of the parties. Those opting for arbitration,
inter alia, exercise greater control over matters regarding the appointment of arbitrators, the
language of arbitration, the place of arbitration ( i.e. forum) and the law governing arbitration.
Principles to be applied to the matter under dispute need not be tied to any particular national law.
The dispute can be decided, if the parties so choose, on equitable principles (ex aequo et bono) 2
or principles of law merchant (lex mercatoria).3

2. Definition and Historical Background of Commercial Arbitration

2.1 Arbitration, refers to, an arrangement for settling a dispute by resorting to resolution
according to the judgment of a selected person or persons rather than taking the matter into the
established courts of justice.4 Black’s law Dictionary defines arbitration as: “a method of dispute
resolution involving one or more neutral third parties who are usually agreed to by the disputing
parties and whose decision is binding”.5

2.2 The history of arbitration goes back to antiquity. This mode of setting dispute was
adopted occasionally between the various city-states of ancient Greece. In the later times it was
resorted to between the 12th and the 15th centuries in the Western Europe. International arbitration
in modern times began with the Jay Treaty6 of 1794, between Great Britain and the United States.
It was agreed under the treaty to submit for adjudication, to a commission consisting of members
of both countries a variety of matters that included determination of boundary disputes,
contentious issues related to the exercise of belligerent rights at sea by Great Britain during its
war with France as well as the fulfillment by the U.S., in the same war, of its obligations of
neutrality.7
2.3 In England, arbitration is, as a matter of fact, older than the Common Law system itself.
Arbitration was adopted as a popular means of commercial dispute resolution as far back as
1224. The attitude of English Courts to arbitration had been however, fluctuating from stiff
opposition to cautious welcome. The Common law courts initially looked jealously at agreements
to submit disputes to extrajudicial fora. The passage of time and growth of commercial activities
led to a more positive change in judicial attitude8.

2
“ex aequo et bono” is a Latin phrase meaning what is equitable and good. A person who is
authorized to decide “ex aequo et bono” is not bound by legal rules and may instead follow
equitable principles. Black’s Law Dictionary 581, (1999).
3. “Lex-mercatoria” is a Latin term which means “Mercantile Law” Black’s Law Dictionary. 923,
(1999) Lando,’ Lex-mercatoria in International Commercial Arbitration (1985) 34 ICLQ 747.
4. See A New survey of Universal Knowledge Encyclopedia Britannica, 214, Vol.2 (1964).
5. Supra note 2 at 100.
6. George Washington, United States’ first president had an arbitration clause in his will that
stipulated that in case dispute arose over the wording of the document a panel of three
arbitrators be set up to render a final and binding decision.
7. Supra note 4 at 216.

4
5

6
7
8

2
3. Rationale for Opting for Arbitration
3.1 Before setting out the rationale for the commercial community to opt for arbitration as a
method of dispute resolution, it would be appropriate, to enter into a caveat i.e. arbitration does
not provide an ideal method to resolve dispute principally due to its inability to achieve final
dispute resolution because of frequent interventions by courts. Nevertheless the situation has
changed for batter in those jurisdictions that have adopted more progressive arbitration oriented
laws. This has also contributed to the popularity of arbitration.

Two Categories of Reasons

3.2 Reasons for increasing preference for arbitration can be divided into two categories viz (a)
technical and (b) structural

Technical Reasons9

Privacy and Confidentiality

3.3 Generally, parties wish to keep commercial disputes private and confidential. This is rarely
possible in case of litigation. Arbitrators, on the other hand, are not free to disclose information
about proceedings to third parties and the likelihood of media intrusion into arbitration process is
remote, certainty much more remote than in litigation.10

Free Consent of Parties

3.4 Parties to arbitrations are free to determine the number and method of selection of
arbitrators. Arbitrators may be selected on the basis of neutrality, legal expertise of a particular
legal system and technical expertise.

Flexibility and Economy

3.5 A court of law has its own established procedures concerning the institution and conduct of
actions, proof of facts and manner of proceedings. On the contrary in case of arbitration the
parties have great flexibility to choose the procedure which they deem appropriate and this can
be done by an ad hoc agreement or by selecting particular rules such as International Chamber
of Commerce (ICC)’s arbitration rules or the UNCITRAL arbitration rules. 11 The settlement of
commercial disputes through arbitration is relatively more economical and expeditious.

Effectiveness
3.6 In international commercial disputes the parties are resident of or their places of business
activities are located in different states. This leads to difficulties in dispute resolution. Particularly
in case of judicial forums their proceedings in respect of international disputes suffer form several
handicaps. The jurisdiction or competence of courts is limited by reference to specific criteria and
these may not be competent to adjucate a matter involving a foreign defendant or where there
are claims of state immunity. In short there can be many hurdles in the way of effective resolution
of disputes in courts. On the other hand arbitration has much greater effectiveness in matter of

9
A. Khan and Barrister T. Rana (Surridge & Beecheno) Arbitration / ADR vs. Litigation
available at http//www.hg.org/articles-1530.html (2006).
9. Supra note 1 et al, 650.
10. M. Pryles, Institutional International Arbitration, in the Arbitrator, 127 (1991).
11. Supra note 1 at 650.

10
11

3
dispute resolutions and enforcement of foreign awards especially due to the existence of an
international convention in this behalf.
Structural Reason
3.7 The fundamental reason for preference of arbitration in matters of international trade, to
judicial mode of dispute resolution springs from the very structure of judicial option. From the
perspective of traders engaged in international commerce, lack of a truly international court is a
significant barrier to transnational trade. National courts have their inherent limitations and are at
times perceived by one of the parties to be leaning towards the other. This limitation of national
courts is felt all the more in the contemporary globalized world as a relic of an era that has come
to an end. On the other hand commercial (and also that related to investment disputes) arbitration
is much more genuinely international. As mentioned above none of the parties is obliged to follow
any particular legal system in arbitration proceedings. Flexibility of choice in this connection is
really treasured by the parties. Further,. There are truly international rules (e.g. of ICC) which
provides for an impartial regulating framework. Likewise the UNCITRAL12 has developed a set of
rules of arbitration, which, along with those of ICC are widely accepted internationally. In case of
investment disputes there is a specialized centre for settlement of investment disputes (ICSID)13.
As regards determinations in foreign arbitration proceedings there exists the United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as
the “New York Convention”14 which has greatly facilitated the process and invested arbitration
with commendable degree of effectiveness.15

In nutshell international convention relating to arbitration, existence of international organizations,

facilitating arbitration, internationally acceptable arbitral rules coupled with the flexibility to choose
the procedure and designate the arbitrators certainly makes arbitration much more international
or neutral in flavour than litigation.16 Hence greatly enhancing preference of international business
community for arbitration to judicial proceedings.

12
13
United Nation Commission on International Trade Law was established by the UN General
Assembly in 1966. Since then it has been working for the harmonization of International
Commercial Law, Sale of Goods, Transport of Goods and Commercial Arbitration.
13. International Center for Settlement of investment disputes. ICSID is a specialized
international organization created by the Washington Convention, which came into force in
1966.
14. This Convention applies to the recognition and enforcement of arbitral awards made in the
territory of a state other than the state where the recognition and enforcement of such awards
are sought and to arbitral awards not considered as domestic awards.
15. R. Folsom et al, International Business Transactions, 1145 (1999).
16. Supra note 1 at 652.

14

15
16

4
4. Current Situation
4.1 England: In England the Arbitration Act 1950 has provided for regulating arbitrations
made as a result of agreements between the parties, as well as under the statutory provisions of
various laws.
4.2 United States: Currently in the United States arbitration generally follows the pattern of
English common law system. All states have statutory provisions for arbitration. Trade
associations and chambers of commerce provide arbitration facilities to the businessmen for
settling commercial disputes.
4.3 India —Arbitration as a method of resolving dispute came to be first regulated under the
East-India Company. The most significant development in this regard occurred in 1940, when an
Arbitration Act was passed for British India. This law continued after independence till 1996 when
it was replaced by the Arbitration and Conciliation Act.
4.4 Pakistan — The Arbitration Act, 1940 as amended is still applicable. In addition,
arbitration has also been provided in number of Pakistan laws, such as Societies Act, Companies
Ordinance, 198417 and Code of Civil Procedure (CPC), 1908. As regards foreign arbitral awards
the law till recently had been Arbitration (Protocol and Convention) Act.18 The current relevant law
relating to such awards is the Recognition and Enforcement of Foreign Arbitral Awards Ordinance
2007.19

5. Models of International Commercial Arbitration

5.1 There are two main types of international commercial arbitrations. Contracting parties
may opt either for institutional arbitration provided by national or international institutions or for
ad-hoc arbitration.20

5.2 Institutional Arbitration21

The institutional arbitration refers to an arrangement under which the parties choose the rules of a
particular institution such as the International Chamber of Commerce (ICC) or the American
Arbitration Association (AAA)22 or the Netherlands Arbitration Institute (NAI). These are well
known international institutions which generally supervise the arbitration processes and provide
support services.23 This type of arbitration prescribes specific procedural rules to resolve the
dispute and provide valuable support through scrutiny of arbitral awards and handling

17
18
See section 283 of Companies Ordinance, 1984.
18. See Arbitration (Protocol and Convention) Act, 1937.
19. This law for the first time was promulgated in 2005. However, still the Parliament has not
enacted it as an Act. It has remained an Ordinance (repeatedly re-promulgated).
20. See generally I. Carr et al, International Trade Law, 621 (2005).
21. Id
22. http\\:www.adr.org visited on February, 2008.
23. See generally supra note 10.

19
20
21

22
23

5
administrative matters quickly.24 Thus the procedural framework is fairly structured and
proceedings are conducted in a systematic manner.

5.3 Ad-hoc Arbitration25

Ad-hoc arbitration alludes to a dispute resolution regime created by the parties themselves and
does not involve any supervisory oversight by any institution. Often no established set of rules
governing the matter are specified. It is up to the parties to decide on the procedure to be
followed and they may formulate their own procedural rules. This kind of arbitration may, at times,
generate complications because there are no institutions to guide and enforce rules or witherwise
facilitate the process. One preferred solution is to adopt the UNITRAL rules which are suitable for
use in ad-hoc arbitration. Institutional and ad-hoc arbitrations both have advantages and
disadvantage but on the balance institutional arbitration is found more practicable.26

6. Applicability of Arbitration Clause and Enforcement of Foreign

Arbitral Awards in Pakistan
6.1 The Arbitration Act, 1940 as stated above, governs the enforcement of domestic arbitration
agreements in Pakistan. As regards foreign awards and their enforcement the relevant law till
recently had been Arbitration (Protocol & Convention) Act, 1937 based on the Hague Convention.
Section 3 of the Act gave effect to provisions of this law in matters of stay of proceedings
notwithstanding anything contained in Arbitration Act 1940 and the Code of Civil Procedure (CPC)
1908. However, one important condition was the fact of reciprocity. Before this law could become
applicable it was essential that in the concerned foreign country reciprocal legal provisions had
been made. Further, it was provided that a foreign award subject to provisions of this law would
be enforceable as if it were an award made on a matter referred to arbitration under the domestic
law.27
Both under the Arbitration Act, 1940 and Arbitration (Protocol and Convention) Act, 1937

If a party, notwithstanding, existence of valid arbitration agreement chooses to initiate judicial

proceedings the there are/ were provisions for stay of such proceedings.28

6.2. Under section 34 of the Arbitration Act, 1940 any party to the arbitration agreement facing
judicial proceedings initiated by another party to arbitration agreement, can apply for stay of these
proceedings. The court, if satisfied, that there is no sufficient reason as to why the matter should
not be referred to arbitration may accordingly stay them. However, the power of the court is
discretionary and it may very well refuse to stay judicial proceedings if satisfied that there is no
satisfactory reason for making reference to arbitration and substantial miscarriage of justice
would take place or inconveniences would be caused to parties.

6.3 Likewise section 3 of the Arbitration (Protocol & Convention) Act, 1937 provides for stay of
proceedings initiated by one party to arbitration agreement against another party to the same

24
See generally supra note 20 at 622.
25. See L. D’Arcy et al, The Law and Practice of International Trade (Schmitt off’s Export Trade),
477 (2000).
26. Supra note 10.
27. See section 2 (3) of the Arbitration (Protocol and Convention) Act, 1937.
28. See section 34 of Arbitration Act, 1940.

25
26

27
28

6
agreement. The court was required to make an order to stay the proceedings unless satisfied that
the agreement or arbitration has become inoperative or cannot proceed or that there is not in fact
any dispute between parties.

7. Relevant Case Law

7.1 The degree of deference accorded to arbitration clause can be best appreciated by reference
to relevant case law. In Federation of Pakistan vs. Al Farooq Builders.29 The High Court
of Sindh held that truly speaking the arbitrator is a judge of all matters arising out of a dispute
whether of fact or law and the court is not to act as a court of appeal sitting in Judgment. In
President of Islamic Republic of Pakistan Vs. Syed Tasneem Hussain Naqvi30 it
was observed that the court should always endeavour to sustain the award rather than destroy it
unless it could be shown by sufficient and reliable material on the record that the arbitrator was
guilty of misconduct or that the award was beyond the scope of reference or that it was violative
of a statute or was in contradiction to the well settled norms and principles of law.’ In case of
Meredith Jones & Co through Attorney vs. Usman Textile Mills,31 it was held by the
Supreme Court that the award could be challenged only on the grounds mentioned in section 30
of the Arbitration Act, 1940 i.e. if the Arbitrator had misconduct himself and the proceedings were
not based on merits. The court while hearing objections against the award could not sit as a
court of appeal against the award and interfere with it on merits.

7.2 The courts, however, have been very much conscious or rather jealous of their jurisdiction. In
Hitachi Limited vs. Rupali Polyester’s and Others 32 the Supreme Court observed that the
agreement which provided for arbitration under the rules of Conciliation and Arbitration of
International Chamber of Commerce would not divest the jurisdiction of courts of Pakistan if
otherwise it was vested in them.

7.3 As for the enforcement of a foreign arbitral award, certain statutory requirements were
pronounced to be necessary. In Islamic Republic of Iran Shipping Lines through
Attorney vs. Hassan Ali & Co Cotton (Pvt.) Limited33 the High Court held that
requirements as laid down in rule 297 of the Sindh Chief Court Rules should be met and fulfilled
by the person seeking enforcement of a foreign award, if deficient in any material particular,
application for enforcement be returned for removing deficiency within time allowed by the court.
The plaintiff in this case34 had not also filed authenticated copy of the award. The court held that
rules provided for producing either original award or its authenticated copy. Original award having
been produced, it was held that requisite conditions were fulfilled and the award was rightly
made. The defendant had contended that the arbitrator had no jurisdiction; award was contrary to

29
30
Federation of Pakistan vs. Al Farooq Builders, 2001 MLD 99.
30. President of Islamic Republic of Pakistan vs. Syed Tasneem Hussain Naqvi, 2004 SCMR
590.
31. A Meredith Jones & Co Through Attorney vs. Usman Textile Mills, 2002 CLD 1121.
32. Hitachi Limited vs. Rupali Polyester and others, 1998 SCMR 1618.
33. Islamic Republic of Iran Shipping Lines through Attorney vs. Hassan Ali & Co Cotton (Pvt.)
Limited, 2006 CLD 153.

31
32

33
34

7
law and public policy and arbitrator was guilty of misconduct. Held that no material in that respect
was, produced by the party. The objections were over ruled and the award was enforced. Held
further that while considering the enforcement of a foreign award, the court merely acts as an
executing court and it can not go behind the award and sit as an appellate court and make
reappraisal of evidence.35

In Manzoor Textile Mills Ltd. V. Nichimen Corporation and 2 others36 the court while
dealing with the arbitration (Protocol and Convention) Act, 1973 held: “I cannot be
unmindful of well-established principle that the court should not lightly release the parties
from their bargain, which follows from the sanctity which the Court attracts to contracts. In
the present case a foreign firm is involved, which entered into the contract in question on
the basis that in case of any dispute the same would be adjudicated upon as per
arbitration clause but the plaintiff wish to defeat the above clause with the aid of this
Court. In order to acquire a respectable place in the community of nations, not only the
Government, but even the individuals are expected to honor their commitments…a party
having entered into an agreement after having full knowledge of its consequences cannot
be allowed to defeat the arbitration clause.

7.4 Inspite of such pronouncements the position with regard to enforcement of international
arbitration agreements has been somewhat lacking in consistency. At times the agreements
providing for international arbitration are challenged in Pakistani Courts by local parties reluctant
to submit to the agreed foreign dispute resolution mechanism regimes. Hubco vs. Wapda37
(PLD 2000 Sc 841) is a case in point in which the Supreme Court by a majority of 3-2 allowed
WAPDA on the ground of public policy to avoid foreign arbitration proceedings. Of course courts
have been emphasizing that no hand or fast rules can be laid down in this regard and facts in
each case determine the outcome. Without controverting this obvious proposition it would be in
the larger national interest to lean in favour of honouring arbitration clause.

7.5 Pakistani Courts of late have started expressing their clear disapproval of efforts to avoid
foreign arbitration clauses by Instituting proceeding in domestic courts. The Supreme Court held
in the Eckhardt’s Co. vs. Mohammed Hanif case38: that the court “in order to deprive a foreign
party to have arbitration in a foreign country as per contract should come to the conclusion that
enforcement of such award an arbitration clause would be unconscionable or would amount to
forcing plaintiff to honour a different contract which was not in contemplation of parties and which
could not have been in their contemplation as a prudent men of business and unless there were
some compelling reasons, foreign arbitration clause should be honored as generally the other
party to such arbitration clause is a foreign party”.

8. New Law re: Foreign Arbitral Awards

8.1 A qualitative change has occurred in the mater of foreign awards when Pakistan in 2005
ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral

35
36
Id
35. Islamic Republic of Iran Shipping Lines through Attorney vs. Hassan Ali & Co Cotton (Pvt.)
Limited, 2006 CLD 153.
36. Manzoor Textile Mills Ltd. vs. Nichimen Corporation and 2 others, 2000 MLD 61.
37. HUBCO vs. WAPDA, PLD 2000 SC 841.
38. M/S Eckhart’s Co. vs. Mohammad Hanif, PLD 1993 SC 42.

37
38

8
Awards 1958. The Convention has been given legislative cover through “Recognition and
Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance 2005.39

8.2 The Ordinance has recognized and provided for enforcement of foreign awards and
arbitration agreements in the same manner as if were a judgment or order of a Court of Pakistan.
If a party to an arbitration agreement is subjected to legal proceeding by the other party,
notwithstanding the arbitration clause, he may apply to the court to stay such proceedings. The
court is bound to stay the proceedings and refer the parties to arbitration unless it finds the
arbitration agreement is null and void, in operative or incapable of being performed.

8.3 The gist of the Article V of the Convention40,that makes possible for a party to avoid foreign
arbitration, is as under:

• The parties to the agreement under the law applicable to them, were under some
incapacity,41 or

• The agreement is not valid under the law to which the parties have subjected to or, under
the law of the country where the award was made,42 or

• The party against whom it is invoked was not given proper notice of the appointment of
the arbitrator or of the arbitration proceedings or was otherwise unable to present their
case;43 or

• The award deals with a matter not contemplated within the terms of the submission to
arbitration or contains decisions beyond the scope of the submission to arbitration;44 or

39
40
This law has been successing given lease of life through promulgation of Ordinances latest
being Ordinance of 2007. [Here in after called Recognition and Enforcement (Arbitration
Agreements and Foreign Arbitral Awards) Ordinance, 2007]. These ordinances repealed The
Arbitration (Protocol and Convention) Act, 1937.
40. Article V of Convention.
41. See Article V (1) (a) New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958.
42. Id
43. See Article V (1) (b) New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958.
44. See Article V (1) (c) New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958.

41
42

43
44

9
 • The composition of the arbitral tribunal or the arbitral procedure followed was not in
accordance with the agreement of the parties or not in accordance with the law of the
country where the arbitration took place;45 or

• The award has not yet become binding on the parties or has been set aside or
suspended by the country in which, or under the law of which, the award was made.46

8.4 Recognition and enforcement of foreign arbitral awards may also be refused if the authority
in the country where recognition and enforcement is sought, finds the subject matter of the
dispute to be incapable of settlement by arbitration under the law of that country,47 or the
recognition or enforcement of the award will be contrary to the public policy of the country.48

Implications of Change in Law

8.5 Whether adoption of law giving effect to the New York Convention will bring about palpable
change in the perspectives of courts in Pakistan?
Before an answer is attempted it would be pertinent to point out that international treaties are
solemn agreements between states and therefore signatories to treaties/conventions are
expected to abide by them. Under Article 18 of the Vienna Convention on the Law of Treaties 49, a
State is obliged to refrain from acts which would defeat the object and purpose of a treaty it has
signed. In this case while deciding matters relating to recognition and enforcement of the foreign
arbitral awards courts would be expected to give due weight the object and purpose of the New
York Convention which ex-hypothesize is the promotion of international trade 50. In case solemnly
made contracts between parties located in Pakistan and those in other countries regarding
arbitration are not protected it would be detrimental to Pakistan’s long term interests and will
strengthen sceptism of foreigners about the sanctity of contracts in our country. Even before

45
46
See Article V (1) (d) New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958.
46. See Article V (1) (e) New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958.
47. See Article V (2) (a) New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958.
48. See Article V (2) (b) New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958.
49. In 1969, A Draft Convention on the law of treaties was submitted to the United Nations
General Assembly. A conference on the law of treaties was there upon Convened, and met in
Vienna in 1968 and 1969 the convention on law of treaty was adopted. However, the Vienna
Convention on the law of treaties came into force upon the ratification by a thirty-fifth State on
January 27, 1980.
50. See Georgia journal of International Comparative Law.
47

48

49

50

10
Pakistan’s ratification of New York Convention one finds a very appropriate and wise
pronouncement51 by Mr. Justice Ajmal Mian of the Supreme Court that:
Section 34 of the Arbitration while dealing with an application in relation to a foreign
arbitration clause the Court’s approach should be dynamic. With the development and
growth of International Trade and Commerce and due to modernization of communication
transport system in the world, the contracts containing such an arbitration clause are very
common now a days. The rule that the Court should not lightly release the parties from
their bargains, that follows form the sanctity which the Court attaches to contracts must
be applied with more vigor to the contract containing a foreign arbitration clause. We
should not over look the fact that any breach of a terms of such a contract to which a
foreign company or person is a party, will tarnish the image of Pakistan in the comity of
nations.

8.6 The first case which dealt with the New York Conventions and the implementing Ordinance
is In Travel Automation (Pvt.) Ltd. V. Abacus International (Pvt.) Ltd. Case52.
The learner judge observed: After the enforcement of Ordinance XX of 2005
radical changes have been made in law and discretion of court which was
available under section 34 of the Arbitration Act, 1940 apparently is no more
available to court. The question on which earlier, while exercising discretion
under section 34 of the Arbitration Act about convenience or inconvenience of the
parties, availability of evidence on a place other than the place of arbitration,
whether to stay proceedings or not, was within the discretion of the court.
However, while dealing with the matter under section 4 of the Ordinance XX of
2005 court has no such discretion except where cases fall within exception
categories mentioned in the section itself….Under section 4(2) of the Ordinance,
2005 pre-condition for refusing stay, of the proceeding is that arbitration
agreement is null land void inoperative, or incapable of being performed.

8.7 These observations show due judicial recognition of the change that has occurred in
respect of foreign arbitration. It is yet to be, however, seen if courts in Pakistan will follow the lead
and exercise self-restraint while dealing with cases of foreign arbitral awards.

9. Conclusions and Suggestions:

9.1 Arbitration has indeed gained considerable popularity among the world mercantile community
due to a variety of reasons. It is likely to become increasingly a preferred mode of dispute
resolution with the further growth of trade and Pakistan’s fuller integration into the world trading
system. Pakistan in view of expanding volume of transnational commerce and the best practices
elsewhere has very appropriable ratified the New York Convention. It would be necessary to
implement commitments solemnly made by us both in letter and spirit by all organs of the state.
We can ill afford to do otherwise.

9.2Following suggestions are commended for consideration

(i) The arbitration law in the country should be improved (Arbitration Act of 1940 needs
fundamental changes to cater to changing requirements of the 21st Century).

51

52
51. See supra note 38.
52. Travel Automation (pvt.) Ltd. V. Abacus International (pvt.) Ltd. 2006 C L D 497.

11
(ii) Awareness about the advantages of arbitration should be created among the lawyers and
Chambers of Commerce, trade associations and academia.

(iii) Greater attention should be paid to the subject of arbitration (both domestic and foreign)
in law colleges.

(iv) Lack of expertise in respect of international arbitration needs to be remedied capacity

building of businessmen, legal profession and government officials accorded top priority.

(v) Training programs, seminars and workshops should be conducted in co-operation with
ICC and UNICTRAL etc to build capacity

(vi) Arbitration Centers should be established through co-operative efforts of public sector,
legal profession, academia and business community, and private sectors to promote
arbitration and provide facilities to those who choose to opt for this mode of dispute
resolution

(vii) Courts should be sensitized to the importance of arbitration with particular emphasis on
foreign awards and their enforcement.

12