Pakistan enacts New York Convention

The Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011 entered force last month after it was approved by President Asif Ali Zardari on 15 July.

The new act requires the courts to refer disputes to arbitration where there is a valid arbitration agreement and limits the grounds for setting aside awards to those set out in Article V of the Convention. According to section 8 of the new act, 'if there is any inconsistency between this Act and the Convention, the Convention shall prevail'.
Earlier this year, Pakistan passed a law implementing the ICSID Convention, which it signed in 1965. Andrew Battisson of Allen & Overy in Singapore says both reforms are aimed at promoting investor confidence and will be welcomed by the international business and arbitration communities.

Pakistan was one of the first signatories of the New York Convention in 1958 but did not ratify it until 2005. A temporary ordinance passed that year gave effect to the convention and was periodically renewed by presidential decree, but the legislation expired last August, leaving the country in limbo.
Battison says the new act is 'good news' as it will remove the uncertainty surrounding the enforcement of convention awards in Pakistan that has prevailed ever since.
However, some parties hoping to enforce international awards in Pakistan could still face problems since section 4 of the new act states that it does not apply to awards made before 14 July 2005.
Speaking to GAR earlier this year, Yousaf Khosa, a partner at Rizvi Isa Afridi & Angell in Islamabad, also warned that the legislation contains a drafting error that could seriously hamper parties hoping to rely on international arbitration agreements in Pakistan. As it stands, only Pakistan's High Courts are bound by the act. Yet under Pakistan's Civil Procedural Code, commercial disputes in many areas of the country must be referred to the local courts, which are not bound to recognise arbitration agreements in accordance with the New York Convention. While this problem has not been addressed, it should be noted that section 2(g) of the new act gives the government powers to correct the situation through secondary legislation.

As well as being an early signatory of the ICSID Convention, Pakistan signed the first ever bilateral investment treaty, with Germany, in 1959. A replacement BIT between the two states was signed this year.

(picture: Pakistan's president, Asif Ali Zadari (Credit: Sikander Hayat))