Need For an Arbitration Institution for Pakistan

NEED FOR AN ARBITRATION INSTITUTION NEED FOR AN ARBITRATION INSTITUTION FOR PAKISTAN By Barrister Umar Shahid* "If one party resolves to demand what the other resolves to refuse, the dispute can be determined only by arbitration, and between powers who have no common superior" Samuel Johnson (September 18, 1709 - December 13, 1784). Fuelled by international trade and investments, commercial arbitration has experienced exponential growth over the past decades. Accordingly, it is a prominent feature in both foreign and domestic commercial disputes. The globalization of business prioritized the successful presentation and defence of arbitration claims in companies business strategies. From amongst all the alternate dispute resolution methods, arbitration is the most vital form for parties unfamiliar with court systems of the applicable law. Its universal appeal is tied to its binding yet flexible nature. However, like any other dispute resolution method, arbitration is only as good as its enabling provisions and its practitioners. Pakistan has always been a problematic country for dispute settlement. Litigation perils aside, other forms of dispute resolution have also been plagued by inability to flourish to their full potential. Arbitration, which was globally introduced as a better alternative to litigation, has traditionally been viewed as an inferior process. So much so that courts and legislators have taken the view that arbitration proceedings require careful supervision and control. Nevertheless, recent years have witnessed an extraordinary rise in the popularity of international arbitration in Pakistan and it is considered as a standard means of dispute resolution especially where a domestic party enters into a commercial contract with a foreign entity. A number of international organizations such as the International Chamber of Commerce ("ICC"), the London Court of International Arbitration ("LCIA"), the American Arbitration Association ("AAA") and the Arbitration Institute of Stockholm Chamber of Commerce ("SCC"), amongst others, operate to provide institutionalized arbitration under their own set of distinct procedures and parties to commercial contracts in Pakistan can submit to the rules and procedures of such international organizations, however, usually the applicable law or the seat of arbitration is chosen to be other than that of Pakistan. The initial choice made by legal counsel regarding the type of arbitration (ad hoc or institutional) can change the entire scheme of arbitration in the sense that different types of arbitration provide their own set of advantages and disadvantages especially in relation to the applicable procedure and enforcement of the arbitral award. A lot of the problems associated with arbitration practice can be resolved by institutional arbitration. The increase in international commercial agreements triggered the need for proper international institutions which could administer arbitration with their own neutral rules and procedures which would be universally applicable. These institutions were either created by "private law means" or by an "instrument of public international law". The goal of these institutions was to provide timely and cost effective arbitration resolution to parties from different nationalities who did not wish to submit to national courts of any jurisdiction. Major financial hubs of the world now have their own institutions for arbitration. The United Kingdom has the LCIA, the United States of America has the AAA and now countries like the United Arab Emirates have the Dubai International Arbitration Institution. Such institutions play a vital role in facilitating investments in countries by providing an impartial and reliable legal framework for foreign parties. Unfortunately, Pakistan currently has no arbitration institution of its own. Even though the ICC has a significant presence in Pakistan, parties usually submit to its framework while selecting the seat of arbitration outside Pakistan. The infamous Arbitration Act, 1940 did set out to provide a 'complete code' for arbitration practice by allowing three types of arbitration: (i) arbitration without court intervention; (ii) arbitration where no suit is pending, (but through court) and (iii) arbitration in suits (through court) There are various problems with this 'complete code' being provided by the 1940 Act. For starters, the 1940 Act, does not give primacy to party autonomy and many aspects of the procedure are subject to the discretion of national courts, which enjoy wide powers of interference in arbitration proceedings. Procedural matters detailing the stages of arbitration and conduct of proceedings are overlooked and evidential matters and matters relating to disclosure are left unaddressed. The 1940 Act looks to provisions of the Civil Procedure Code to supplement itself however arbitrators are not bound to comply with the said provisions. In light of the myriad problems that arbitration faces in Pakistan, from the inadequacy of arbitration procedure in the 1940 Act to court interference and problems with recognition and enforcement of arbitral awards, it is the view of this paper that introduction of institutionalized arbitration is the need of the hour in Pakistan. The establishment of a body, much like the LCIA or other regional institutes, with its own set of rules and distinct procedures will go a long way in removing Pakistan from the list of "arbitration blackspots". The ICC has had a presence in Pakistan since 1955, through the Pakistan National Committee of the International Chamber of Commerce, however, it is still treated much like a foreign jurisdiction to which Pakistan counsel, especially those representing State entities, are not willing to submit their parties to. Institutional arbitration affords many advantages over ad hoc arbitration such as credibility, quality of arbitrators, constructive guidance and an impartial and reliable legal framework. An institute for arbitration services established for Pakistan can provide similar advantages and can look towards the basic rules of arbitration as those contained in the LCIA Rules of the ICC Rules of Arbitration. Essential elements from the domestic civil and common law as practised in Pakistan should be taken as a base and built upon while providing maximum flexibility to the parties. This flexibility should extend to all procedural matters as long as they are not contrary to public policy. The rules of the institution can provide for: 1. an efficient and swift method for arbitrators appointment 2. delay reducing mechanisms and means to counter delaying tactics used by parties 3. tribunals' power to decide on their own jurisdiction 4. a variety of interim and conservatory measures 5. tribunals' power to order security for claims and for costs 6. special powers for joinder of third parties 7. fast-track option 8. waiver of right of appeal 9. calculation of costs whilst disregarding the disputed amount 10. option to pay in deposits - parties are not required to pay for the whole arbitration in advance In a survey carried out amongst international arbitration institutions it has been learnt that practitioners have a strong preference for regional institutes due to geographical closeness to the subject matter of the dispute, convenience and reduced costs. Practitioners suggest that the future of arbitration is in regional institutes provided that domestic laws are tightened and regional institutes improve their rules of procedure to be more appealing to foreign commercial entities. In light of this and coupled with the fact that institutions such as the ICC charge exaggerated amounts, it would be very much advisable for Pakistan to establish its own arbitration institute, provided that national law completely envisages the soul and purpose of the New York Convention and the internal rules of procedure are modeled in such a way that foreign investors consider it a more attractive option. In addition the rules of the arbitration institute should allow foreign parties to be represented in Pakistan by their own foreign counsel as they are currently precluded from doing so under Pakistan law. Pakistan can adopt the simple yet modern and effective code provided in the LCIA Rules or incorporate the UNCITRAL model. Either way, the goal should be to provide a proper regional institute which can support arbitration proceedings entirely on its own accord without having to resort to the courts to fill gaps in the system - backed by a proper national statute which enables recognition and enforcement of foreign and domestic arbitration awards.