THE AUTHOR<\/strong>: Pakistan\u2019s arbitration legal regime places much emphasis on the location of the seat of arbitration for determining which set of rules is to apply to a given dispute. Given the significance which has been attached to the seat of the arbitration, one would imagine that clear criteria for its determination would be provided. Unfortunately, this is not so, which can have damaging consequences for parties who have not set out their intended seat of arbitration in a manner which corresponds with the applicable law.<\/p>\n\n\n\n The arbitration regime consists of two statutes, namely, the Arbitration Act, 1940 (the \u201c1940 Act\u201d<\/strong>)<\/a> and the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (the \u201c2011 Act\u201d<\/strong>)<\/a>, with the latter having been enacted to bring into force the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (the \u201cNYC\u201d<\/strong>)<\/a>. Following \u00a0the Supreme Court of Pakistan\u2019s (\u201cSC\u201d<\/strong>)\u00a0 judgment in Taisei<\/em> v AM Construction<\/em><\/a>, it is now settled that the 1940 Act is to apply to all Pakistan-seated arbitrations while the 2011 Act will apply to those seated abroad \u2013 a matter which was subject to much controversy due to conflicting judgments in the High Courts below.<\/p>\n\n\n\n The Taisei<\/em> judgment, however, has given rise to a new significant issue. Parties to Pakistan-seated arbitrations that have a foreign nexus (e.g., the parties are resident outside Pakistan) cannot avail themselves of the protections that are provided under the NYC \u2013 since the 2011 Act\u2019s scope of application has been restricted to foreign-seated arbitrations alone. Hence, such parties will be subject to the provisions of the 1940 Act, where courts are free to review arbitral awards.<\/p>\n\n\n\n That said, the Arbitration Law Review Committee (\u201cALRC\u201d<\/strong>) of Pakistan\u2019s Law and Justice Commission has prepared a draft Arbitration Act, 2024 (the \u201cDraft Act\u201d<\/strong>)<\/a> which shall replace the 1940 Act. The Draft Act seeks to thoroughly overhaul Pakistan\u2019s regime on domestic-seated arbitrations in line with the UNCITRAL (United Nations Commission On International Trade Law) Model Law on International Commercial Arbitration (2006) (the \u201cML\u201d<\/strong>)<\/a>. Crucially, similar to Article 1 (3) of the ML, the Draft Act includes within its scope of application Pakistan-seated arbitrations with a foreign nexus, labelling them \u201cinternational commercial arbitration\u201d. Such arbitrations are afforded the same protections as those provided under the NYC; thus, rectifying the aforenoted issues which persist under the 1940 Act.<\/p>\n\n\n\n The 2011 Act is a scant legislation, with only two pages of substantive provisions. The rest of the legislation consists of a Schedule to which the NYC<\/a> is appended. Unsurprisingly, therefore, it contains no provision for determining the seat of the arbitration. \u00a0<\/p>\n\n\n\n On the other hand, the Draft Act is quite comprehensive, with two provisions on the \u201cseat of the arbitration\u201d alone. Therefore, to resolve disputes regarding the seat \u2014and, by extension, determine whether the arbitration is subject to the 2011 Act or the Draft Act\u2014 it would be necessary to refer to the latter.<\/p>\n\n\n\n However, the proposed law provides for a unique concept of the seat of the arbitration. Not only is this concept at odds with the vast majority of arbitration rules of prominent arbitral institutions \u2013 it also diverges from the interpretation under the ML<\/a>, which the Draft Act seeks to adopt and refers to in five of its seven preambulatory clauses.<\/p>\n\n\n\n At first blush, the definition of the term \u201cseat of the arbitration\u201d, provided in Section 2 (1) (m) of the Draft Act, does not seem to pose any problems. The term has been described as the juridical seat of the arbitration designated by the parties to the arbitration agreement. Failing such designation, it is either the seat designated by:<\/p>\n\n\n\n Further, the proposed law, in line with its pro-arbitration scheme, comes to the aid of less-experienced parties who fail to specify a seat of arbitration rather than penalizing them. In an effort to promote party autonomy, which is one of the stated policy objectives of the Draft Act, the term \u201cagreement\u201d has been given a wider meaning. Pursuant to Section 3 (8) of the Draft Act, an agreement also includes the arbitration rules which have been chosen by the parties. This ensures that the parties are subjected to the curial law of the default seat, which the arbitral institution considers to be the best suited. For instance, under the LCIA (London Court of International Arbitration) Arbitration Rules 2020<\/a>, in the absence of agreement, the default seat is London.<\/p>\n\n\n\n Arbitral tribunals have also been empowered under Section 22 (2) of the Draft Act to determine the appropriate seat of arbitration, if it has not been designated by either the parties or the arbitral institution under the aforesaid deeming mechanism.<\/p>\n\n\n\n However, on closer inspection, a curious provision appears to be out of place with the otherwise pro-arbitration scheme of the proposed law. The provision in question is Section 22 (4) of the Draft Act, which explicitly provides that the place<\/em> of arbitration is not necessarily the seat<\/em> of the arbitration. This marks a significant departure from the general understanding developed thus far around the concept of the seat of arbitration, because of which the term is often used interchangeably with the place of arbitration. More importantly, the ML<\/a>, which the Draft Act seeks to implement, uses the nomenclature of \u201cplace of arbitration\u201d rather than seat. While jurisdictions that have adopted the ML do not also use its exact terminology, the Draft Act\u2019s (artificial) distinction between the place and seat of arbitration is a first. \u00a0\u00a0\u00a0<\/p>\n\n\n\n As detailed below, the aforesaid Section 22 (4) throws the question of seat designation into a realm of uncertainty.<\/p>\n\n\n\n A particularly unhelpful feature of the Draft Act is the absence of any preparatory report, detailing why certain provisions that deviate from both the ML and international practices have nevertheless been adopted. Typically, most law commissions from around the world prepare detailed reports for even minor amendments to their arbitration legislations which act as an aid for interpretation.<\/p>\n\n\n\n Given that the bald provisions of the Draft Act alone are available, the potential implications of its unusual Section 22 (4) may only be examined through the lens of those jurisdictions from which its draftsmen drew inspiration.<\/p>\n\n\n\n India was one of the key jurisdictions that influenced the ALRC, owing to the two countries\u2019 shared legal history. Under the Arbitration and Conciliation Act, 1996 (the \u201cIAA\u201d<\/strong>)<\/a>, due to a (much milder) ambiguity created from the use of the term \u201cplace\u201d rather than \u201cseat\u201d of arbitration<\/a>, the Indian Supreme Court (\u201cISC\u201d<\/strong>) has had to grapple with the issue on a number of occasions.<\/p>\n\n\n\n For instance, in Mankastu Impex v Airvisual Ltd<\/a><\/em>, the parties had only stipulated the place of arbitration, namely, Hong Kong; rather than the seat. It was held that the two terms are not interchangeable. The court reasoned that in order for a designated place of arbitration to be treated as the seat, the court would also have to consider \u201cother clauses in the agreement and the conduct of the parties\u201d. Thus, only after the court found another provision in the arbitration agreement stating that all disputes were to be administered in Hong Kong, did it hold the said place of arbitration to also be its seat. \u00a0<\/p>\n\n\n\n However, what happens if there is no other supporting provision in the arbitration agreement? A recent ISC judgment, Arif Azim Company v. Micromax Informatics<\/em>, <\/a>\u00a0suggests that the seat of arbitration in such an instance would have to be determined pursuant to the capricious closest-connection test. Under the closest-connection test, the seat of the arbitration is determined in accordance with a number of \u201cabstract connecting factors\u201d of the arbitration with the underlying contract, including the contract\u2019s governing law, the contract\u2019s place of performance and the parties\u2019 place of business or residence. Crucially, the ISC emphasized that the \u201cformulaic and unpredictable\u201d closest-connection test only has a limited application under the IAA.<\/p>\n\n\n\n Prior to the coming into force of the NYC<\/a> in Pakistan, foreign arbitral awards were governed by the Arbitration (Protocol and Convention) Act, 1937 (the \u201c1937 Act\u201d<\/strong>)<\/a>, through which the Geneva Convention on the Execution of Foreign Arbitral Awards<\/a> had been ratified. Section 9 (b) of the 1937 Act provided that the said law would not apply to arbitration agreements governed by Pakistan law.<\/p>\n\n\n\n
Ammad Manzur<\/strong><\/strong>, Advocate of the High Courts of Pakistan<\/strong><\/p>\n\n\n\n
\n\n\n\nIntroduction<\/strong><\/h2>\n\n\n\n
Location of the Seat and the Applicable Law<\/strong><\/h2>\n\n\n\n
A Unique Concept of the \u201cSeat of the Arbitration\u201d<\/strong><\/h2>\n\n\n\n
First Impressions<\/strong><\/strong><\/h3>\n\n\n\n
\n
A Closer Look<\/strong><\/strong><\/strong><\/h3>\n\n\n\n
The Creeping in of Capricious Judicial Determination<\/strong><\/strong><\/h2>\n\n\n\n
The Indian Experience<\/strong><\/strong><\/h3>\n\n\n\n
The Ghost of Hitachi v Rupali<\/em><\/strong><\/h3>\n\n\n\n