By :
HUMA ANBREEN
(Advocate High Court)

Twentieth century set down its last sun amidst lots of pains and pleasures. Advancement of technology, media, communication, space exploration for navigation of hidden mineral resources of Mother Planet all have extended and enhanced industrialization and merchandise of goods and services. Institutions like World Trade Organization, GATT, World Bank, IMF, have given boost to Multi-national commercial transactions and the projects, which earlier were not feasible with limited resources of a single country, were carried through amalgamation of multiple accounts of different countries. This all has given rise to multiple disputes between persons and persons, associations of persons forming into companies, between companies and companies and between companies and states. Since each country is run by its own constitution and Lex Fori for each state varies to a large extent, so global transactions found a way for settlement of mega companies, disputes and that was International Arbitration. Its expedient, and somewhat cheaper aspects have made it popular and now hardly there would be an arbitration clause.

Though it is open to consenting parties to appoint mutually any person or institution to receive their references for adjudication through arbitration, but eventually, such Awards have to earn seal of the Court for execution, as well to entertain and decide objections to such arbitral awards. Here come the state laws of country to handle such awards. So long the Awards are made for the natives and filed in Courts of the same country, there is no problem, but when the contracting parties belong to different states and continents, it becomes an issue as to where such awards would be filed for the assent of the Court. Majority of such awards are satisfied through the voluntary compliance of the parties, but on some occasions a party must invoke external authority to enforce a losing party’s obligation and to collect the damages awarded.

Effective international arbitration is dependent on the parties’ success in getting the arbitral awards enforced. Owing to lack of enforcing power with arbitrators, statutes and treaties are made available to successful parties. The Geneva Protocol on Arbitration Clauses 1923 was the first effort in this context. Then the Convention of 1927 supplemented the Protocol. The third convention is the New York Convention of 1958 which simplified the procedure for recognition and enforcement of foreign arbitral awards.

New York Convention 1958 has achieved wide spread acceptance by the international community. The fact that the signatories are from both the East and the West, representing developed as well as developing countries is the best testimony for international satisfaction with and the recognition of the benefits available under the convention. Member states have almost developed a harmonized legal system of recognition and enforcement of foreign arbitral awards through the convention. Thus the business persons through out the trading world can provide for prompt dispute settlement mechanisms that can function no matter what system of national law might encumber them domestically. The member states give business persons much more flexibility in planning their foreign transactions. Instead of attempting to tie the settlement of disputes to the favourable law of one country, the drafters of International agreements provide for much greater play in the selection of the place of settlement of disputes, confident of enforcement in all the contracting states.

Pakistan is a signatory to all the conventions. It gave effect to the Geneva Protocol and convention by implementing “the Arbitration (Protocol and Convention) Act, 1937 and after a long time came “Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards Ordinance, 2005 to give effect to the New York Convention of 1958.

This Ordinance was to give effect to the 1958 Convention so it embodied the provisions relating to it. It repealed the Arbitration (Protocol and Convention) Act, 1937 but this repeal was not for the Awards made before the application of the Ordinance and for the awards which are foreign according to the definition given by the Arbitration (Protocol and Convention) Act, 1937 and not foreign according to the definition given by the Ordinance [1]. The Ordinance defined foreign arbitral awards as awards made in the states which are signatories to the New York Convention 1958. [2]

Under Section 3 of the Ordinance the Court was given exclusive jurisdiction to adjudicate and settle the matters relating to or arising from the Ordinance. The procedure for the stay of legal proceedings was also given in this section. The application for the stay of legal proceedings was to be filed according to Article II of the Convention of 1958 and the Court was to follow the procedure and exercise the powers provided by the Code of Civil Procedure, 1908. [3]

The Ordinance also provides for the enforcement of arbitration agreements. Section 4 of the Ordinance provided that a party to an arbitration agreement against whom legal proceedings have commenced in respect of a matter which is covered by the arbitration agreement can apply to the Court to stay the proceedings concerning that matter and after receiving such an application the Court shall enforce the arbitration agreement and refer the party to arbitration. But the Court will not do so if it finds that the arbitration agreement:–

(1)        is null and void,

(2)        inoperative or

(3)        incapable of being performed

The documents at the time of application were to be furnished in accordance with Article IV of the Convention 1958. [4]

The reasons to refuse the enforcement of foreign arbitral awards are which are provided Under Article V of the Convention 1958 [5] which recognizes only 7 grounds for refusing enforcement of an arbitral award. Such as:–

(1)        the absence of a valid arbitration agreement

(2)        lack of a fair opportunity to be heard

(3)        the award or a non-severable part of it exceeds the submission to arbitration

(4)        improper composition of the arbitral tribunal

(5)        the award is not binding

(6)        subject matter not arbitrable

(7)        the award is against the public policy of the forum

When the Court is satisfied that above mentioned reasons are not present to refuse the enforcement of foreign arbitral award it will recognize and enforce the award in the manner provided for the enforcement of a judgment or order of a Court in Pakistan. The effect of the enforcement is that it will be binding on the concern parties. In case of any inconsistency between this Ordinance and any other law, the provision was provided that the Convention will prevail. [6]

Of course, Arbitration (Protocol and Convention) Act, 1937 and Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance 2005, are different from each other. They are different because they are based on different conventions. Their difference is the difference of both the Convention, Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2005 is much more simple. It is not very much elaborative. Most of the detail is left upon the Convention of 1958 itself. Also it is not like the Foreign Awards (Recognition and Enforcement) Act 1961, of India, in which some of the provisions have been copied from the Arbitration (Protocol and Convention) Act, 1937.

In nutshell, the New York Convention, 1958 was tried to give effect. Though it was many years late. It is true that Arbitration (Protocol and Convention) Act, 1937 was serving the purpose and it is also true that Pakistan is not such a developed country, which has a large business activity going on. But this is also true that at this time when the whole world is almost transformed in to a global village, one should not take the risk to stand-alone. To increase the business activity, trade and foreign investment in country, many steps should be taken. One is to provide a legal system, which is in harmony with the legal systems of other countries. The Ordinance, 2005 though was very late attempt, but at least an effort was made in a department which was neglected for a long time. Globally, while considering enforcement of awards, the starting point is of course the New York Convention, 1958. But in Pakistan this is the last point. Many other attempts have been made internationally to improve this convention and to make the laws more harmonized. The 1985 UNCITRAL Model Law owes it’s origins to a request made in 1977 by the Asian African Legal Consultative Committee for a review of the operation of the New York Convention. The Committee maintained that there was an apparent lack of uniformity in the approach of national Courts to the enforcement of awards. The Secretary General of UNCITRAL concluded that harmonization of the enforcement parties of states and the judicial control of the arbitral procedure could be achieved more effectively by promulgation of a model or uniform law, rather than by any attempt to revise the New York Convention. [7]

L, Organization pour 1’ Harmonization en Afrique du Droit des Affairs (OHADA) was created by the treaty relating to the Harmonization of Laws in Africa, signed on 17 October 1993, in Port Louis. OHADA is open to members of the Organization of African Unity and to date sixteen states have joined. [8] On 11 March 1999, the council of Ministers of OHADA adopted a uniform Arbitration Laws.

One major hindrance in enforcement of arbitral awards is the defence of Public Policy. As all practitioners and scholars know, violation of public policy of the enforcing state has long been a ground for refusing recognition and enforcement of foreign judgments and awards. This principle is enshrined in Article V. 2 of the New York Convention, Article 36 of UNCITRAL Model Law and Article 1 (e) of Geneva Convention of 1927. The public policy exception to enforcement is an acknowledgement of the right of the State and it’s Courts to exercise ultimate control over the arbitral process. There is a tension however, which the legislature and the Courts must resolve between on the one hand, not wishing to lend the States authority to enforcement of awards which contravene domestic laws and values, on the other hand, the desire to respect the finality of foreign awards. [9]

Public Policy is often regarded as a vague concept, which is impossible to define which varies from state to state. This leads to uncertainty and unpredictability, which encourages the unsuccessful party in the arbitration to resist enforcement of the award on grounds of public policy. The International Commercial Arbitration Committee of the International Law Association [10] conducted a six-year study into the application of public policy by enforcement Courts. The Committee concluded it’s work in 2007. It concluded that greater harmonization of approach would lead to greater consistency and predictability which would dissuade unmeritorious challenges to awards. It recommended that the finality of awards rendered in the context of international commercial arbitration should be respected save in exceptional circumstances. The ILA also recommended the application of “International Public Policy” which is defined as that part of a state which, if violated, would prevent a party from invoking a foreign law or foreign judgment or foreign awards. [11]

The time has not yet come for there to be a global standard of “public policy” but it is hoped that the ILA represent a broad consensus and if applied will lead to greater consistency in the interpretation and application of public policy as a bar to enforcement of international arbitral awards.

This all was the progress, which has been made internationally throughout the world relating to the enforcement of foreign arbitral award. Pakistan needs to conform with all this progress being a part of the world. This type of legislation and harmonization of laws can not be done in a fort night. But it should be started at least. New Parliament for the next term of five years has come into existence. A very heavy responsibility of starting a new era is on it’s shoulders. Pakistan is facing all sorts of challenges at the moment. Now everything depends upon the success of democracy. Let’s pray for it.

[1].  Section 10 of the Ordinance.

[2].  Section 2 (d) of the Ordinance.

[3].  Section 3 (2) (3) of the Ordinance.

[4]. Section 5 of the Ordinance.

[5]. Section 7 of the Ordinance.

[6]. Section 8 of the Ordinance.

8. Inconsistency.—In the event of any inconsistency between this Ordinance, any other law, or any judgment of any Court and the Convention, the Convention shall prevail to the extent of the inconsistency.

[7].  Report entitled “Study on the application and interpretation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards” UN Doc. A/CN. 9/168.

[8].  Benin, Burkina-Faso, Cameron, Chad, Central African Republic, Cote d’ Ivoine, Congo, Lawmeros, Gabon, Guninea, Guinea-Bissau, Equatorial-Guinea, Mali, Niger, Senegal, Togo.

[9].  “Public Policy and the Enforcement of Arbitral Awards, should there be a Global Standard” by Audley Sheppard, Clifford Chance-Article in OGEL available at www.gasandoil.com

[10].  The International Law Association was founded in 1873. It was the result of the combined efforts of several Americans who brought to Europe the idea of an international association to work on a code of international law. The original objectives are still in the current Constitution and include: the study, elucidation and advancement of international law, public and private; the study of comparative law; the making of proposals for the solution of conflicts of law and forthe unification of law; and the furthering of international understanding and goodwill.

[11].  The ILA Committee Report can be found in pdf format at www.ila_hg.org.