One-Sided Arbitration Clauses in Pakistan Government Contracts
One-Sided Arbitration Clauses in Pakistan Government Contracts
Asymmetrical arbitration clauses, also known as “unilateral option” or “asymmetrical” arbitration clauses, refer to clauses that allow only one party to a contract to choose to initiate arbitration, while the other party must resort to the courts for any disputes. Such clauses can raise concerns about fairness and equitable treatment in contractual relationships.
Asymmetrical arbitration clauses in Pakistan government contracts have been the subject of much debate and controversy in recent years. Proponents of asymmetrical arbitration clauses argue that they are a necessary tool for protecting the government’s interests in complex and high-value transactions. Whereas others argue that asymmetrical arbitration is unfair to contractors and gives the government too much power in the dispute resolution process.
Critical analysis of the role of asymmetrical arbitration in Pakistan government contracts:
1. Inequitable Power Dynamics:
From a practical standpoint, government contracts often involve huge sums of money, complex technical projects, and public interests. The government might argue that asymmetrical arbitration clauses allow them to have more control over dispute resolution, ensuring that public interests are adequately protected.
Asymmetrical arbitration inherently creates inequitable power dynamics. When one party, especially the government, can exclusively determine the dispute resolution mechanism, it can lead to misuse of power, potentially sidelining the interests of the weaker party. This inequity can discourage businesses, especially smaller entities or foreign investors, from entering into contracts with the government.
2. Efficiency vs. Fairness:
Proponents may argue that asymmetrical arbitration can streamline the dispute resolution process, allowing the government to ensure swift decisions, especially in time-sensitive projects.
While on the other hand the core principle of arbitration is to provide a fair, neutral, and efficient platform for dispute resolution. Asymmetrical arbitration might compromise the fairness aspect. When one party feels that the deck is stacked against them, the legitimacy and acceptance of arbitration outcomes can be questioned.
3. Attracting International Investments
Asymmetrical arbitration might be seen as a measure to protect local interests against potential adverse actions by foreign entities. It might be positioned as a protective tool in strategic sectors or sensitive areas.
Pakistan, like many developing countries, seeks foreign direct investment (FDI). Incorporating asymmetrical arbitration clauses can deter international entities who might view such clauses as inherently risky and biased against them because they may only have recourse to the local courts in Pakistan if they have a claim, whereas the government would have the option to make any claims against the international entities before the courts or an arbitral tribunal. This can negatively impact FDI and the perception of Pakistan as an investment-friendly nation.
4. Judicial Intervention
One might argue that if asymmetrical arbitration clauses become problematic, the contractors take relief from courts thus asking that public interest and justice are served.
Whereas regular judicial interventions can lead to unpredictability. Contracting parties seek certainty. If they feel that signed contracts can be regularly challenged or modified by courts, it can undermine the very essence of contractual freedom and can deter entities from entering into agreements.
5. Public Perception and Transparency:
Government might position asymmetrical arbitration as a tool to safeguard public interests, arguing that it retains more control over disputes and can better protect national and public concerns.
On the flip side, the public might perceive asymmetrical arbitration as a tool for the government to offer undue advantages to certain entities, undermining transparency and potentially leading to allegations of corruption or favoritism.
In recent years, there has been a trend towards greater transparency and accountability in Pakistan government contracts. This has led to increased scrutiny of asymmetrical arbitration clauses in government contracts. In 2019, the Supreme Court of Pakistan ruled that asymmetrical arbitration clauses are not invalid per se, but that they must be fair and reasonable. The Court also set out a number of factors that will be considered when determining whether a asymmetrical arbitration clause is fair and reasonable, such as the bargaining power of the parties and the nature of the contract. Orient Power Company (Private) Limited vs Sui Northern Gas Pipelines Limited (CIVIL APPEAL NO.1547 OF 2019)
The trend towards greater transparency and accountability in Pakistan government contracts is likely to continue in the future. This could lead to a reduction in the use of asymmetrical arbitration clauses in government contracts. However, it is likely that asymmetrical arbitration will continue to play a role in some Pakistan government contracts, particularly those that involve complex and high-value transactions.
Conclusion:
Asymmetrical arbitration in Pakistan government contracts is a complex issue with both advantages and disadvantages. It is important to weigh the pros and cons carefully before deciding whether to include an asymmetrical arbitration clause in a government contract.
While asymmetrical arbitration in government contracts might have practical justifications in certain situations, its broader implications on fairness, transparency, international perceptions, and contractual predictability cannot be ignored.
For a country like Pakistan, where fostering a transparent and investor-friendly environment is crucial, excessive reliance on asymmetrical arbitration in government contracts might be more detrimental than beneficial in the long run. It’s crucial to strike a balance that upholds both efficiency and fairness.
