The Difference Between Domestic and International Arbitration
Laiba Amjad Lone / October, 2022.
This article seeks to briefly evaluate the difference between international and domestic arbitrations in Pakistan. Alternative Dispute Resolution (ADR) is an option available to parties who seek to resolve disputes without participating in the adjudications before courts. The types of ADR include arbitration, mediation and negotiation. In practice, arbitration is the most recognized, effective and successful way of ADR. Every country has formulated rules of procedure and implementation for conducting arbitration. This, coupled with the fact that the parties are free to choose the terms of reference in the arbitration agreement, categories arbitration in only two forms, namely domestic and international arbitration. There are differences between domestic or international arbitration in Pakistan. Determining the type of arbitration could mean the implementation of a different set of rules.
Currently, in Pakistan, the relevant laws governing domestic and international arbitration are the Arbitration Act, 1940 (“1940 Act”), and the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (“2011 Act”), Alternate Dispute Resolution Act, 2017 (“2017 Act”) (to the extent of the Islamabad Capital Territory) and finally the Punjab ADR Act, 2019 (“2019 Act”). This article will review the present legislations and case-law to identify the criteria which can be used in both domestic and international arbitrations.
Domestic arbitration in Pakistan refers to an arbitration that takes place under the legal system of Pakistan and is in accordance with the 1940 Act. The said Act is the de facto legislation which governs all arbitrations in Pakistan notwithstanding that the 2017 Act and the 2019 Act have now been enacted and are slowly being implemented in the respective territories.
Previously, as per the judgment of the Supreme Court of Pakistan in the case of Hitachi Limited v. Rupali Polyester (reported as 1998 SCMR 1618), an arbitration agreement in which the parties had chosen the governing law to be of Pakistan, the arbitration proceedings would be deemed to be domestic regardless of whether the subject matter of the dispute or the parties themselves being in a foreign country This position changed after the enactment of the 2011 Act and the passing of the judgment of the Divisional Bench of the Lahore High Court in Orient Power Company (Private) Limited v. Sui Northern Gas Pipelines Limited (reported as 2019 CLD 1082) which has also been upheld by the Supreme Court of Pakistan in 2021 SCMR 1728. Presently, if the parties have agreed in the arbitration agreement to adjudicate disputes before a foreign arbitral forum (such as the LCIA, ICC, PCA, SIAC, etc.) then notwithstanding that the governing law is of Pakistan, the award rendered by foreign arbitral tribunal would be deemed to be a foreign arbitral award and will be enforced as a foreign arbitral award in Pakistan. In other words, only those arbitrations will be construed as domestic arbitration where both the seat and venue of the arbitration is Pakistan.
Foreign, or international arbitration is where the parties to the arbitration agreement have agreed to resolve disputes outside Pakistan and in a member state that is signatory to the New York Convention, 1958. As explained above, any award passed in such proceedings would fall within the purview of section 2(e) of the 2011 Act because it is a “foreign arbitral award made in a contracting state and such other state as may be notified by the Federal Government in the official Gazette”. The position has been interpreted by the superior courts of Pakistan in the Orient judgments set out above
Another dimension to international arbitration is where investors may initiate investment disputes against the Government of Pakistan as a result of a Bilateral Investment Treaty before the International Centre for the Settlement of Investment Disputes (ICSID). An award issued by ICSID would come within the purview of the definition of an ‘award’ under Section 2(a) of the Arbitration (International Investment Disputes) Act, 2011 and would be ‘registered’ in Pakistan in accordance with the procedure set out in the said Act.
Whilst, originally, the position regarding arbitrations being domestic or international were unclear, the recent enactments together with the recent judgments of the superior courts of Pakistan have set out above have, to a great extent, clarified the position and the difference between domestic and international arbitrations.