The endless potential for arbitration in Pakistan

When the 400m super ship Ever Given recently blocked the Suez Canal it did so in one of the world’s busiest shipping corridors. That it went on for nearly a week with all the consequent damage to international trade is no less remarkable. The inevitable result is that the Canal Authority is now expected to look to seek compensation of over $1 billion in damages as a result of this astonishing accident.

International trade is increasingly complex. It is also precarious being subject to the vagaries of force majeure of the kind that could barely have been contemplated over the last 50 years, namely, such improbable events as the coronavirus pandemic, and now the blocking of the Suez Canal, leaving much of the international trading community stunned. What may have been all too easily over-looked in the past half-century as the world economy hurtled onwards from strength-to-strength, is now staring us right in our face: life is unpredictable, uncertain, and not within our control. That condition is one which can have a clear effect on domestic and international trade.

How would a similar maritime incident at a Pakistani port be seen? The question may be posed not just at anyone of the traditional Karachi ports, but more pressingly with respect to the new jewel in its crown at Gwadar. We know that international best practice promotes the resolution of any disputes that might arise from an incident at a Pakistani port or involving a Pakistani registered ship by way of arbitration. Indeed, maritime arbitration is a recognised branch of dispute resolution in international trade and commerce.

Maritime dispute resolution may arise from the diversity of activity concerning the affairs of the sea; the financing, building, sale and acquisition of ships, the deployment of ships, the carriage of goods by sea, the insurance of ships, cargo and other maritime adventures and other contractual relationships arising from the use of ships e.g. salvage.

The economic growth of China with the Belt and Road initiative has the consequence of increasing trade flows in the region followed by the desire of the maritime community in the region to resolve disputes locally. Given this backdrop, it is essential that there be a bespoke maritime arbitration centre which sets out to specifically promote such work in the region. Surely, the city of Gwadar in Pakistan will have the potential to become a central hub for maritime arbitration, and especially in respect to the Belt and Road initiative.

Yet, Pakistan has not always been well placed to take advantage of the opportunities that lie within its grasp. In recent years there have been a series of unprecedented international awards made against the government of Pakistan. This is unfortunate, to say the least, given that it is one of the early signatories of the New York Convention 1958 and the ICSID Convention 1965.

In fact, Pakistan has only recently ratified the two by way of enacting the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011 (REFA) and The Arbitration (International Investment Disputes) Act 2011(AIDA). In addition to this, Pakistan has only recently seen evidence of both its government and its judiciary giving serious heed to building capacity in ADR, and especially to arbitration for domestic dispute resolution.

It is true that Pakistan has taken welcoming steps in the last two years by way of enacting ADR acts in various provinces as well as in the federal territory Islamabad besides amending the civil procure code to create an ever-friendly ADR environment. But it is suggested that much more needs to be done in this arena, and much more indeed can be done.

The Pakistan branch of the Chartered Institute of Arbitrators launched in the last month. The ‘CIArb’ is a London based body with 17,000 members in more than 130 countries that promotes the use of Alternative Dispute Resolution (‘ADR’) methods such as but not limited to arbitration.

Bodies such as CIArb Pakistan need to build up a cohort of local arbitration practitioners who can develop their experience in smaller arbitrations and then move on to dealing with larger domestic and international disputes as their careers develop.

Infrastructure, energy and maritime are key areas of focus for Pakistan over the next decade and notwithstanding the concern at awards against the government in the Tethyan Copper Company arbitration. Pakistan needs to embrace this process and flex its muscles so as showcase a cohort of arbitrators who can deal with the complex disputes expected to emerge in the post-Covid world.

An increase in domestic arbitrations to resolve small to medium disputes will help to build capacity in this area of dispute resolution and show to an increasing amount of people the advantages of this well-established process. Pakistan’s Domestic arbitration law is archaic and is ripe for reform. Currently arbitration proceedings are governed by The Arbitration Act 1940, which was enacted before the inception of Pakistan that allows the classical intervention of courts in almost every stage of the arbitration proceedings and have yet not been modernised in line with modern best practice globally.

The Honourable Supreme Court of Pakistan in its 8th Judicial conference, held in 2018, proposed recommendations to the government of Pakistan that included enacting ADR friendly laws and the establishment of ADR Centres. There are more than 1.5 Million cases pending before various courts of law. As a result, this has set the path for the enactment of updated ADR Acts in Pakistan. It is only a matter of time before ‘The Arbitration Act’(1940) is replaced by a modern Arbitration Act.

We need to ensure that Pakistan has effective mechanisms that are on par with global best practices to ensure that domestic arbitration can thrive with similar schemes such as ‘Business Arbitration Scheme’ operated by CIArb in the United Kingdom.

The BAS was developed to provide simple, cost effective, and timely resolution of low to medium monetary value (£5,000-£10,000). The amount recoverable in legal fees was limited to dissuade parties from incurring high legal costs. BAS is a fixed fee scheme, giving the parties certainty as to costs.

There needs to be particular focus on the advantages of arbitration the speed, lower cost and certainty that it can bring compared to traditional litigation. Whilst international arbitration awards such as Tethyan Copper Company have rightly triggered comment the reality is that arbitration is here to stay and Pakistan needs to look to make the best use of it that it can.

The writers are barristers, arbitrators and mediators.