Originally from The American Review of International Arbitration (ARIA)

PREVIEW PAGE

Pakistan’s relationship with international arbitration has been marred with difficulty. For too long it has created a hostile environment for foreign direct investment and international arbitration. Has the situation in Pakistan improved? Is it on its way to becoming a friendly environment for foreign investment and international arbitration? If so, is the change lasting or will it evaporate after a short while? This article will seek to answer these complicated questions by first revealing Pakistan’s issues and then suggesting solutions to them. It will propose innovations and improvements to Pakistan’s legislative, executive, and judicial landscape to help resolve its arbitral difficulties. It’s time for Pakistan to become a valuable part of the international arbitration world once again; the tide is turning, and Pakistan has been given an opportunity to redeem itself. It must.

I.   INTRODUCTION

Pakistan has come a long way in the world of international arbitration. It was one of the first signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards  (NY Convention) in 1958 and invented the first ever bilateral investment treaty (BIT) in 1959.  No one could have predicted that in the decades to follow, Pakistan’s journey would be marred by several international arbitrations initiated against it and that it would face awards of up to $5.8 billion from international tribunals. This journey from pioneer to detractor  mired in arbitral turmoil is worth exploring.

In recent years international arbitration has had a hostile reception in Pakistan. Pakistan’s involvement in high-profile cases along with the growth of social media brought international arbitration to the forefront of Pakistani news. Repeated failures, lack of understanding of the subject, and repetitive court interference gave rise to national “resentment”  against international arbitration and made foreign investors hesitant to invest in Pakistan. In response to said resentment, the Pakistan Government and legal community became frequent targets of criticism both inside and outside Pakistan. Some attributed Pakistan’s weaknesses or lack of success in international arbitration to the “choice of lawyers and others blame[d] the government for not having capable and qualified officials negotiate the agreement with foreign investors.”  Such criticism forced Pakistan’s parliament, executive, judiciary, and legal community to reconsider their approach to international arbitration and to reform Pakistan’s participation in arbitrations.

After decades of abysmal performance, Pakistan seems to be making a comeback. In a groundbreaking judgment, Orient Power Company (Private) Limited v. Sui Northern Gas Pipeline Limited (Orient Power), the Supreme Court of Pakistan (SCP) dismissed efforts to annul an arbitral award.  The case involved complex and wide-ranging questions, from the validity of the arbitration agreement to multi-contract disputes and from recognition and enforcement of arbitral awards to the scope of grounds for set-aside. The judgment neutralized tensions between Pakistani courts and international tribunals and gave credence to the recent judgment of the High Courts of Pakistan upholding arbitral awards. This judgment, combined with the recent settlement between Barrick and the Government of Pakistan over the Reko Diq project,  seem to be the early signs of stabilization of Pakistan’s performance in international arbitration.

This article will track Pakistan’s difficult and troubled participation in the world of international arbitration and examine various elements of its performance. It is divided into three parts. Part A will examine the legal framework surrounding international arbitration, giving context to Pakistan’s performance. This part will take a two-pronged approach: first, it will trail the evolution of international arbitration laws in Pakistan; and second, it will examine judicial precedents on this subject. It will find that until recently, Pakistan’s parliament and judiciary remained unfriendly towards international arbitration and a change in approach started to surface after 2011. Part B will critically analyze Pakistan’s participation within the international arbitration field, examine improvements that have been made, and expound areas still requiring development. It will illustrate that Pakistan’s shortsighted approach to solving its international arbitration woes may prove to be disadvantageous in the long run. Last, using the discussion in Parts A and B as a springboard, Part C will attempt to propose solutions and the way forward for Pakistan. It will show that to bring about any meaningful involvement in international arbitration all three branches of Pakistan’s government need to work together.