Jurisdictional Issues in Enforcement of International Arbitration Agreements in Pakistan: A Critical Analysis—Part I

The enforcement of international arbitration agreements and foreign awards is a subject that is dealt with by the New York Convention, 1958. In this regard, the New York Convention in Article V envisages a competent authority at every Contracting State to enforce foreign awards. To that end, the High Courts in Pakistan have been conferred the jurisdiction to deal with all enforcement actions of foreign awards. The Convention envisions no competent authority for the purpose of enforcing international arbitration agreements. Thus, the enforcement of arbitral agreements completely remains a subject of domestic law of the Contracting States. In Pakistan, the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011, is promulgated to implement the New York Convention. The relevant provisions of the Act which confer jurisdiction for enforcement of arbitration agreements are worded in a manner that has brought the High Courts across the country at conflicting opinions. One view favours the exclusive jurisdiction of the High Courts to enforce international arbitration agreements, whereas the other supports the concurrent jurisdiction of the Civil Courts to do so. This article deals with this conflict of opinions between the High Courts of Pakistan, keeping in view the requisites of domestic law besides the fundamentals of the New York Convention and the Vienna Convention on the Law of Treaties, 1969. This multipart article aims at critically analysing the question of jurisdiction faced by the courts in Pakistan with regard to enforcement of international arbitration agreements. In this first part, this article delves into case law on the point of jurisdiction as held by the Superior Courts. It then discusses the points of consistency and inconsistency in those judgments. The conclusion of this article, to be published in an upcoming issue of Dispute Resolution Journal, will evaluate the court decisions in light of domestic and international law and will set forth the correct position for the sake of harmony in legal practice in Pakistan.

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) was adopted in New York City on June 10, 1958, and went into effect on June 7, 1959. The object of developing the Convention was primarily to enforce the arbitral awards which were non-domestic to the jurisdiction of enforcement. However, the drafting history reveals that at the concluding stage, the scope of the Convention was enhanced to also encompass the arbitration agreements and resultantly Article II was included in the Convention. The Convention was finally promulgated with two clear objectives: first, the enforcement of arbitration agreements as stipulated in Article II of the Convention; and second, the enforcement of foreign arbitral awards as provided in Articles III, IV, and V of the Convention.

Article II of the Convention, while directing the Contracting States to recognize an agreement in writing under which the parties undertake to submit to arbitration does not distinguish between international and domestic arbitration agreements. Therefore, the first impression of Article II is that it embraces both types of arbitration agreements. However, the juristic comments and scheme^[1] of the Convention clarify that the subject matter of Article II is merely the international arbitration agreement. It is for this reason that the Convention was promulgated to replace the Geneva Protocol^[2] and Geneva Convention,^[3] and the former in its Article 1 encompassed only those arbitration agreements which involved parties from two different States. Thus, the subject matter of the Convention in its Article II is an arbitration agreement which is either transnational or the one that is capable of producing an award which is non-national to the place of enforcement.

With regard to the enforcement of foreign awards, the Convention envisages a competent authority in each Contracting State to perform the job.^[4] However, no such expectation is included for the enforcement of arbitration agreements. Article II of the Convention that deals with arbitration agreements in its subclause 3 uses the expression, “The court of a Contracting State, when seized of an action. . . .” The expression “The court” connotes any court and not any particular court desired by the Convention to deal with the arbitration agreements. Therefore, the enforcement of arbitration agreements remains a subject of domestic law in each Contracting State. Thus, every country can have its own mechanism of enforcing international arbitration agreements under its domestic law.

Pakistan signed the Convention on December 30, 1958; however, Pakistan being a dualist state had to legislate the Convention for its domestic implementation. That implementation of the Convention was made by Pakistan on July 14, 2005, through an ordinance.^[5] However, after several renewals, the Convention was finally made the Act of the Parliament through “The Recognition and Enforcement (Arbitration Agreements and Foreign Awards) Act, 2011” (the 2011 Act).

The preamble of the 2011 Act clarifies its object and purpose that is to give effect to the Convention for the purpose of recognition and enforcement of arbitration agreements and foreign awards in Pakistan. Section 1 elucidates the applicability of the 2011 Act besides the limitations of it. Section 2 gives definitions to the material terms used in it and its subsection (d) defines a crucial term for the purpose of determining jurisdiction, that is, “Court” as:

2(d) “Court” means a High Court and such other superior court in Pakistan as may be notified by the Federal Government in the official Gazette.

Thereafter, Section 3(1) of the 2011 Act starts with a non-
obstante expression and provides:

3(1) Jurisdiction of Court.—Notwithstanding anything contained in any other law for the time being in force, the Court shall exercise exclusive jurisdiction to adjudicate and settle matters related to or arising from this Act.

In this Section, the 2011 Act gives an exclusive authority to the High Courts to exercise jurisdiction on the matters related to or arising from the 2011 Act. Whereas, the 2011 Act deals with both subject matters, that is, arbitration agreements as well as the foreign awards. Thus, it appears from Section 3 of the 2011 Act that the High Courts are vested with the exclusive jurisdiction to deal with all the matters pertaining to international arbitration agreements and the foreign awards. However, this impression is dispelled by Section 4(1) of the 2011 Act, which generalizes the authority and extends to any court before which the proceedings are instituted by a party relating to a subject that is covered by an arbitration agreement. Section 4(1) further directs that the court seized with such a matter must refer the parties to arbitration upon an application by one of the parties subject to exceptions stipulated in Section 4(2) of the 2011 Act. In this regard, Section 4 provides:

4. Enforcement of arbitration agreements. (1) A party to an arbitration agreement against whom legal proceedings have been brought in respect of a matter which is covered by the arbitration agreement may, upon notice to the other party to the proceedings, apply to the court in which the proceedings have been brought to stay the proceedings in so far as they concern that matter.

(2) On an application under sub-section (1), the court shall refer the parties to arbitration, unless it finds that the arbitration agreement is null and void, in operative or incapable of being performed.

The court referred to in Section 4(1) of the 2011 Act can be the High Court or any other court before which the proceedings have been instituted in breach of the arbitration agreement. The apparent clash between Sections 3 and 4(1) of the 2011 Act with regard to the competence of court(s) to enforce international arbitration agreements has caused a difference of opinion between the judges of the High Courts in Pakistan. The core issue is whether the High Courts are vested with the exclusive jurisdiction to examine the validity of arbitration agreement on the parameters of Section 4(2) of the 2011 Act and refer the parties to arbitration or any court which comes across such an arbitration agreement has a parallel jurisdiction to that effect, as reflects from Section 4(1) of the 2011 Act.

The purpose of this article is to figure out the correct position under Pakistani law, that is, whether the High Courts are vested with the exclusive jurisdiction to deal with the matters relating to international arbitration agreements or that authority is also shared by the Civil Courts of the country. For the sake of analysis, this article first delves into case law on the point of jurisdiction deposited by the Superior Courts. At the second stage, it discusses the points of consistency and inconsistency in those judgments. At the final stage, this article evaluates the court decisions in the light of domestic and international law and sets forth the correct position for the sake of harmony in legal practice in Pakistan.

Case Law in Favour of Exclusive Jurisdiction of the High Courts

Tradhol International v. M/s Shakarganj

The parties had entered into a contract of ethanol trading which contained an arbitration clause. After the disputes arose, Tradhol filed the request for arbitration before the London Court of International Arbitration (LCIA) and the tribunal was accordingly constituted. Shakarganj challenged the jurisdiction of the tribunal on the ground that the arbitration agreement was not valid. The tribunal seized with the question eventually ruled in favour of having jurisdiction on the subject matter. Shakarganj instead of participating into the arbitration proceedings, filed a civil suit before the Civil Court at Lahore challenging the validity of the arbitration agreement. Subsequently, the award on merits of the dispute was rendered by the tribunal in favour of Tradhol and against Shakraganj, which was brought before the Lahore High Court for enforcement. Shakarganj joined the enforcement proceedings and asserted that the enforcement of the award would be against the public policy of Pakistan for its having been rendered in the pendency of a challenge to the arbitration agreement before the Civil Court. Confronted with this proposition, the High Court came across the question whether the Civil Court had the jurisdiction to adjudicate upon the validity of an international arbitration agreement. While answering this question, the High Court came across Sections 3 and 4 of the Act and it held:

If we examine the jurisdiction of this Court as defined under section 3 of the “Act” which states that the Court shall exercise exclusive jurisdiction to adjudicate and settle matter relating to or arising out from this “Act,” the Court has to enforce (i) foreign arbitral award and (ii) foreign agreements; although foreign agreements are not defined under the “Act” but the agreements are defined under Article II of the “NY Convention” therefore, any issue with regard to enforcement of foreign arbitral award or foreign agreement, as defined under the “Act” and the Article II, is arisen, then this can further be examined under section 3(2) of the “Act” where again in proceeding regarding the stay application may be filed in the Court. The word “Court” is defined in capital which means the High Court and has been referred in various sections of the “Act” which again means the High Court but under Section 4, the word “court” is not in capital but it still means it is in capital and would be the High Court notified by the Federal Government. Section 3 of the “Act” gives exclusive jurisdiction to this Court in terms of section 2(d) of the “Act” and the section ibid starts with ‘notwithstanding anything contained in any other law for the time being in force’ the Court shall exercise exclusive jurisdiction to adjudicate and settle matters related to or arising from the “Act.” If section 3 of the “Act” be read with Section 4 of the “Act” it makes it clear that jurisdiction is only confined to the High Court because section 4(1) of the “Act” do mentions the word “court” and it is intertwined with section 3 of the “Act” under the doctrine of intertwined. . . .^[6]

In this case, the Lahore High Court came across an award which had been opposed on the ground of invalidity of the arbitration agreement. Since that agreement had already been challenged by one of the parties before the Civil Court, therefore, the Lahore High Court expressly dealt with the jurisdiction of the Civil Court to decide upon the validity of arbitration agreement. As the above findings reveal, the Lahore High Court held in favour of exclusive jurisdiction of the High Courts to deal with the matters relating to or arising from the 2011 Act, including the enforcement of arbitration agreements. While holding so, the Lahore High Court also added that the word “court” used in Section 4 of the Act as non-capital would still mean that it is in capital and resultantly the High Court would have unparalleled jurisdiction to deal with international arbitration agreements.

Orient v. SNGPL

In a gas supply agreement, certain disputes arose between the parties which triggered the arbitration proceedings before the LCIA, which eventually rendered the award against Orient. The award was brought before the Lahore High Court for its enforcement under the 2011 Act. The Single Judge of the Lahore High Court recognized the award and allowed the enforcement application.^[7] An intra-court appeal against the enforcement order of the Single Judge was filed before the Division Bench of the High Court, wherein the award-debtor contended that the Civil Court under the Arbitration Act, 1940 (“the 1940 Act”) had the concurrent jurisdiction to enforce the award whereas the Single Bench declined the opportunity to Orient to avail appropriate remedies before the Civil Court. The contention of the award-debtor was repelled by the Division Bench of the Lahore High Court with the following findings:

Section 3 grants exclusive jurisdiction to the High Court to fulfil the objective of the Act and the Convention. Section 3 of the Act has also been interpreted by a learned Division Bench of the Honourable Sindh High Court in Taisei Corporation v. A.M. Construction Company (Pvt.) Ltd. (2018 MLD 2058) wherein it has declared that the High Court has exclusive jurisdiction to adjudicate and settle matters related to and arising from the Act. The Court also held that these words are clear and broad enough to encompass the question whether an award is foreign arbitral award or not as well as reference to objections under Article V of the Convention. Therefore, the Court found that Section 3 of the Act leaves little room to argue that recognition and enforcement of foreign arbitral award does not fall exclusively within the jurisdiction of the High Court and there is a concurrent jurisdiction between the High Court and the civil court.^[8]

The subject of the proceedings before the High Court was the enforcement of foreign award unlike the enforcement of international arbitration agreement. Therefore, the High Court did not explicitly deal with the enforcement of arbitration agreements. However, a notable aspect of the findings given by the Division Bench in this case is that while canvassing the exclusive jurisdiction of the High Court under Section 3 of the Act, the High Court enunciated, “Section 3 grants exclusive jurisdiction to the High Court to fulfil the objective of the Act and the Convention.” The use of expression “objective of the Act and the Convention” includes their Objective to enforce arbitration agreements under Section 4 of the Act and Article II of the Convention. Thus, the findings given in this case can easily be stretched to include the exclusive jurisdiction of the High Court to enforce international arbitration agreements. The order of Division Bench of the Lahore High Court was further assailed before the Supreme Court where the contention pertaining the concurrent jurisdiction of the Civil Court was neither made nor addressed by the Supreme Court.^[9]

Case Law in Favour of Parallel Jurisdiction of the Civil Court

Zaver Petroleum v. Saif Energy

In this case, the parties belonging to Pakistan entered into an arbitration agreement which provided for LCIA arbitration in case of any dispute. After the issues erupted, Saif Energy instituted a civil suit before the Civil Court at Kohat challenging the validity of the arbitration agreement. Within that suit, Zaver Petroleum filed an application under Section 34 of the 1940 Act to stay the proceedings and refer the parties to arbitration. The said application of Zaver Petroleum was confronted with an objection by Saif Energy that the subject arbitration agreement was international and thus the provisions of the 1940 Act were not applicable. Zaver Petroleum conceded to that objection and resultantly withdrew the application. Simultaneously, Zaver Petroleum filed another application under Order VII Rule 10 of the Code of Civil Procedure, 1908 (CPC), praying for return of the suit to be filed before the competent forum, that is, the High Court. The said application of Zaver Petroleum was accepted by the Civil Court and the suit filed by Saif Energy was returned. The order of the Civil Court was assailed through an appeal before the Peshawar High Court which declined the same acceding to the ground that the High Court under the Act had the exclusive jurisdiction on the subject matter. The order of the Peshawar High Court was further assailed by Saif Energy before the Supreme Court, which remained pending.

In the course of the above proceedings, Zaver Petroleum had also filed a request for arbitration before LCIA in which arbitration proceedings took place and the award was rendered against Saif Energy. Zaver Petroleum initiated the enforcement action of the award before the Islamabad High Court, wherein Saif Energy filed objections. One of the objections raised by Saif Energy was that the arbitration agreement between the parties was not valid, which had also been challenged before the Civil Court and an appeal on that matter was pending before the Supreme Court. The Islamabad High Court once came across the entire proposition analysed the same thoroughly and held:

Section 4(1) of the 2011 Act is explicit in its terms that a party to an arbitration agreement against whom legal proceedings have been brought in respect of a matter which is covered by the arbitration agreement may, upon notice to the other party to the proceedings, “apply to the court in which the proceedings have been brought” to stay the proceedings insofar as they concern that matter. In the instant case, since the proceedings (i.e. the civil suit) had been brought by Saif Energy before the Civil Court at Kohat, it is that very Court to which Zaver Petroleum could have applied under Section 4(1) to stay the proceedings. The legislature has been conscious in not using the term “court” in capitalized form in Section 4 unlike other provisions of the 2011 Act including Sections 3, 5 and 6 of the said Act. It is only where the term “Court” is used in capitalized form in the 2011 Act that it would be given the meaning as given to it in the definition Section of the said Act. Thus, where a party to an arbitration agreement brings legal proceedings before a court other than the High Court, it is the court where the legal proceedings have been brought that the other party to the arbitration agreement is to file an application for stay of the proceedings. To hold that the term “court” used in Section 4 only means the High Court would amount to attributing surplusage to the expression “apply to the court in which the proceedings have been brought” appearing in Section 4(1). The mere fact that Section 3(1) contains a non-obstante clause would also not mean that an application under Section 4 for stay of legal proceedings could only be brought in the High Court. This is because the non-obstante clause in Section 3(1) reads this: “notwithstanding anything contained in any other law for the time being in force.”

Therefore, the High Court is to have the exclusive jurisdiction to adjudicate and settle the matters related to or arising from the 2011 Act regardless of “any other law” which expression is relatable to other statutes presently in force but would certainly not include the other provisions of the 2011 Act, including Section 4 thereof. . . . It ought to be borne in mind that Saif Energy, in its civil suit, had not made a claim or agitated a dispute arising from or related to the Letter Agreement or the Farmout Agreement. Saif Energy had challenged only the arbitration clause contained in the Farmout Agreement. One must appreciate the distinction between a case where one of the parties to a contract providing for a foreign seated arbitration makes a claim under such contract against the other party in a civil suit or proceedings instituted before Courts in Pakistan and a case where one such party challenges the validity of a clause in a contract providing for a foreign seated arbitration or even the very contract containing such a clause through a civil suit or proceedings before Courts in Pakistan. In the former case, if the defendant asserts its right to arbitration through an application under Section 3(2) or 4 of the 2011 Act filed before the Court where the proceedings are pending, the Court will have no discretion but to stay the proceedings unless it finds that the arbitration agreement is null and void or incapable of being performed. In the latter case, the Court will, in my view, have two options. It can either stay the proceedings and leave the matter regarding the validity of the arbitration agreement to be adjudged by the Arbitral Tribunal under the principle of competence-competence or it can return the plaint by invoking the provisions of Order VII, Rule 10 C.P.C. leaving the plaintiff with the option to file a suit questioning the validity of the arbitration agreement before the High Court under Section 3(1) of the 2011 Act.^[10]

In its detailed findings, the Islamabad High Court not only explained the difference between the use of two different expressions, that is, “Court” and “court” within the 2011 Act, but also thoroughly discussed the jurisdiction of the Civil Court or any other court to enforce the arbitration agreement where it is seized with a subject matter which is covered by an arbitration agreement. However, the High Court held that the Civil Court would not have the jurisdiction to deal with an independent challenge to the arbitration agreement. It was added by the court that where an independent challenge against an arbitration agreement is brought, the Civil Court would either hold its hands in favour of arbitral tribunal to adjudicate upon that challenge under the doctrine of competence-competence or would return the plaint to be filed before the concerned High Court to deal with the challenge.

Tallahasee Resources v. Director General Petroleum Concessions

In this case, the agreement between the parties provided for the arbitration before ICSID or ICC tribunal at a foreign seat. After the dispute arose, one of the parties instituted a civil suit before the Civil Court at Islamabad, which was confronted by the other through a miscellaneous application under Section 34 of the 1940 Act seeking stay of suit proceedings in favour of arbitration. The plaintiff objected to the maintainability of the application with the contention that the provisions of the 1940 Act were not applicable to international arbitration agreements. This objection was spurned by the Islamabad High Court in the following manner:

The learned Civil Court had ample jurisdiction to treat respondent No.1’s application seeking a stay of the proceedings in the appellant’s suit as an application under Section 4 of the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011. . . . There is no denying the fact that the learned Civil Court had jurisdiction under Section 4 of the Act to stay the proceedings in the appellant’s suit on the basis of the arbitration clause in the PCA.^[11]

In the above findings, the Islamabad High Court clearly held in favour of jurisdiction of the Civil Court to refer the parties to a foreign-seated arbitration. The Civil Court would exercise this power on the application of a party, where one of them initiates a civil suit in contravention to the arbitration agreement. The court categorically held that the Civil Court being the competent court can refer the parties to arbitration in consonance to the arbitration agreement.

Ovex Technologies (Pvt.) Ltd. v. PCM PK (Pvt.) Ltd. Etc.

In this case, the parties had entered into a business agreement that contained an arbitration clause to arbitrate all the disputes except those which included injunctive reliefs and interim orders. The parties in their agreement had consented upon the jurisdiction of courts in California. After the differences arose, one of the defendants, En Pointe, filed a suit before Californian court seeking an interim relief. The court in California denied the relief, after which En Pointe withdrew the suit and filed a request for arbitration in consonance to the arbitration agreement. Meanwhile, Ovex Technologies filed a suit for declaration and permanent injunctions against En Pointe at Lahore wherein different declaratory and injunctive reliefs were sought by Ovex Technologies. Within that suit, En Pointe filed an application under Section 4 of the 2011 Act seeking stay of court proceedings in favour of arbitration according to the arbitration agreement. The court instead of referring the parties to arbitration under Section 4 of the 2011 Act, suo motu returned the suit to be filed before the competent forum, that is, Californian court. The order of the Civil Court was assailed before the Islamabad High Court which set aside the decision with the findings that the Civil Court while dealing with an application under Section 4 of the 2011 Act can at the most stay the proceedings in favour of arbitration but not return the suit. The High Court held:

[T]he learned Civil Court could only have stayed the proceedings in the suit to the extent of En Pointe, but could not have returned the plaint.^[12]

In this case, the question before the High Court was whether the Civil Court while dealing with an application under Section 4 of the 2011 Act could only stay the proceedings in favour of arbitration or it could also return the plaint under Order VII Rule 10 CPC in exercise of its ex officio authority. While answering the same, the court held that the Civil Court could only stay the proceedings in favour of arbitration. The implied meaning of the court’s ruling is that the Civil Court does have the authority to refer the parties to a foreign-seated arbitration under Section 4 of the 2011 Act by staying its proceedings.

Point of Consistency: Jurisdiction to Entertain an Independent Challenge to Arbitration Agreement

The courts of Pakistan are uniformly of the opinion that where a party brings an independent challenge to the arbitration agreement, the jurisdiction to deal with that challenge rests exclusively with the High Court of competent jurisdiction. It is for this reason that Section 4(1) of the Act that generalizes the jurisdiction to “any court” does it only in a specific scenario where one of the parties to the arbitration agreement institutes legal proceedings in respect of that matter which is within the scope of the arbitration agreement. It is in this narrow situation that the Civil Court or any other court that is seized with a matter entailing an international arbitration agreement, upon an application by one of the parties, would refer the parties to arbitration subject to the exceptions stipulated in Section 4(2) of the 2011 Act. Unlike that where an independent action has been initiated to challenge the vires of an arbitration agreement, no court but the High Court can deal with such a challenge. In the Zaver Petroleum case,^[13] one of the parties had independently challenged the validity of the arbitration agreement through a civil suit. It was in this situation that the Islamabad High Court held that the Civil Court had no jurisdiction to deal with the matter. The High Court in this case added that the Civil Court once comes across any such challenge can either surrender jurisdiction in favour of the foreign arbitrator to decide the question of validity of arbitration agreement under the doctrine of competence-competence or it can return the plaint to file it before the High Court.

Point of Inconsistency: Jurisdiction to Refer the Parties to Arbitration at a Foreign Seat

The point on which the High Courts are at difference with each other is whether the Civil Courts keep the authority to refer the parties to a foreign-seated arbitration where they come across any such matter that is covered by an arbitration agreement. It is different from that independent legal action which is initiated by a party merely to challenge the validity of an arbitration agreement. The difference of opinion that exists between the courts pertains to those legal proceedings which are brought on a subject matter, which is covered by an arbitration agreement. In this regard, judges at the Lahore High Court appear to be at consensus^[14] that the High Courts of the country are vested with the exclusive jurisdiction to refer the parties to a foreign-seated arbitration. Their view is based on Section 3 of the 2011 Act, which provides for the exclusive jurisdiction of the High Court. The Lahore High Court, in the Tradhol^[15] case added  that the word “court” used in Section 4 of the 2011 Act as non-capital would still mean that it is in capital and resultantly the High Court would have unparalleled jurisdiction to deal with international arbitration agreements and foreign awards.

Unlike the above, the Islamabad High Court has taken a contrary view^[16] which leans in favour of parallel jurisdiction of the Civil Court to refer the parties to arbitration where it comes across a legal action that is covered by an arbitration agreement. The Islamabad High Court has based its view on Section 4 of the 2011 Act and has interpreted the word “court” in Section 4 of the 2011 Act as a conscious decision on the part of legislature to confer parallel jurisdiction to all those forums which may come across a subject that is covered by an arbitration agreement. The court explained that Section 3(1), bearing a non-obstante clause, would not mean that an application under Section 4 for stay of legal proceedings could only be brought in the High Court. This is because, by virtue of a non-obstante clause, the High Court keeps exclusive jurisdiction on those subject matters which relate to or arise from the 2011 Act regardless of any other law which does not include the other provisions of the 2011 Act.

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Editor’s note: This article will conclude in an upcoming issue of Dispute Resolution Journal.