Arbitration Agreements

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Jowaria Tariq / April, 2023

The rising stance of Pakistani legal system towards arbitration and the support it has received from the Judiciary and international arbitral platforms working for its efficient application in different jurisdictions, have made us redefine how we see Arbitration. At present the laws governing arbitration in Pakistan are the Arbitration Act 1940 and the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011 which is a ratification of the New York Convention 1958 providing that foreign judgments and awards of contracting states are to be enforced without questioning the validity of the same except on the grounds explicitly provided for in the Convention. In this article we see how the 1940 Act has defined ‘arbitration agreements’ and their drafting, application and role in arbitration proceedings practically.

The arbitration agreement is the foundation of every arbitration, regardless of its category such as domestic or international. Not only is it a key player in the absence of which arbitration cannot be initiated, but also evidence, the substance and drafting of which can affect the course of the entire arbitration proceeding and its award. Therefore, close attention must be paid to the terms of the arbitration agreement while drafting. The Arbitration Act 1940 defines arbitration agreement in Section 2 (a) as: “arbitration agreement” means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. It is contractual in nature meaning that the consent of each party is needed for an arbitration to happen.

An important detail to be noticed in the statutory definition is the mention of ‘present or future disputes’. This usually decides the form and length of the arbitration agreement and whether the clauses shall contain every conceivable issue at the time of drafting or cater to specific possible dispute that the consenting parties foresee. For existing disputes, the arbitration agreements tend to be longer and give an in-depth scenario of the issues and the manner of proceeding to be opted. They can be creative and devise special rules for certain procedural issues and agree on tailor-made procedures. In modern practice however, future disputes are mainly popular.

The arbitration agreement can be contained in a separate document and has an existence of its own. This is the case even though arbitration agreements are typically contained in an arbitration clause inserted in the main contract. In such cases the autonomy of the arbitration clause poses an issue, i.e., the interaction between the status of the main contract and the jurisdiction of the arbitrator. For instance, if the main contract is deemed void or illegal or perhaps the contract is terminated, what would that mean for the arbitration clause? This is dealt within the realm of the doctrine of separability, and it is suggested that the arbitration agreement be drafted as a separate document having a solid legal stand regardless of the status of the main contract.

Arbitration agreements are crucial to the entire concept of arbitration and therefore must be drafted with analysis of the entire situation of the contracting parties. They evidence the consent of the parties to submit their disputes to arbitration and are a basic source of the power of the arbitrators. To pen off the discussion, the contractual and jurisdictional character of arbitration agreements make them all the more interesting and in order to successfully conduct arbitration, the contracting parties should ensure that no loopholes exist in the agreement.

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