Who Benefits From Pakistan’s Outdated Arbitration Framework?

Pakistan has spent more than two years debating a reform that should have been among the least controversial items on its legal agenda: replacing an arbitration law enacted in 1940 with legislation suited to twenty-first-century commerce.

In April 2023, the government established an Arbitration Law Review Committee chaired by Justice Syed Mansoor Ali Shah, then a Supreme Court judge, to address deficiencies in the existing framework. By May 2024, the Law and Justice Commission of Pakistan had delivered the Arbitration Bill 2024 to the federal law minister, describing the current regime as suffering from an “absence of arbitration-friendly rules and time-consuming procedures.” Yet as 2027 approaches, the bill remains unenacted.

Investors were told to expect reform, but the assurances have not translated into legislation. The central question has therefore shifted from whether Pakistan can modernize its arbitration law to who benefits from preserving the status quo. Parties resisting the enforcement of arbitral awards may gain from delays, broad judicial discretion and commercial uncertainty, while businesses reliant on predictable dispute resolution bear the cost. Reform need not be formally blocked for an obsolete system to survive; institutional incentives can sustain it on their own.

An award that has to be fought over a second time before it can be enforced has lost much of what arbitration promises.

– Muhammad Siddique Ali Pirzada

Arbitration is not merely procedural housekeeping. It determines who has authority to resolve a dispute, how courts and tribunals interact, how far parties may define their own terms, and whether an award is genuinely final.

The defects in the 1940 Act are structural rather than simply a product of its age. The statute permits courts to intervene before, during and after an arbitration. Judges may become involved when a dispute is referred to arbitration, remit awards for reconsideration, extend deadlines for issuing awards and decide questions concerning either the award or the underlying arbitration agreement. Collectively, these powers weaken the autonomy, efficiency and finality that arbitration is intended to provide.

The Act also fails to expressly adopt the competence-competence principle widely accepted in modern arbitration law: a tribunal determines its own jurisdiction at the outset, while courts exercise supervision only within defined limits. The crucial issues are when courts may intervene, on what grounds and to what extent. Disciplined oversight discourages obstruction and tactical litigation; broad and unpredictable supervision encourages both.

This tension has left Pakistan in an incoherent position. Its courts increasingly endorse the principles of contemporary arbitration practice, while the governing statute remains out of step with them.

In Taisei Corporation v. A.M. Construction Company, decided in 2024, the Supreme Court ruled that a Singapore-seated award constituted a foreign award under Pakistani law even though Pakistani law governed the contract, emphasizing that the arbitral seat was decisive. The court also stressed restraint in recognizing and enforcing such awards. In Kausar Rana Resources v. Qatar Lubricants Company, decided in December 2024, it went further, holding that courts should support rather than pre-empt arbitral proceedings. It likewise acknowledged that the draft legislation had reached the federal government in May 2024 and expressed hope that it would be prioritized.

International experience points in the same direction. In the Bharat Aluminium case, India’s Supreme Court curtailed domestic courts’ authority over arbitrations seated abroad. Singapore and the United Kingdom similarly restrict judicial intervention to statutory grounds. Their experience shows that arbitration succeeds not because courts play no role, but because the boundaries of that role are clear.

Investors do not commit capital on the strength of legislative promises. They price predictability. They need to know whether arbitration agreements will be honored, whether tribunals can determine their own jurisdiction, whether courts will intervene only on established grounds and whether awards will receive final effect.

Pakistan does have legislation for recognizing and enforcing foreign awards. The Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011 gives effect to the New York Convention. But enforceability on paper is not the same as finality in practice.

The World Bank’s 2025 Business Ready data estimates that recognizing a foreign arbitral award in Pakistan takes 383 days and costs approximately 11 percent of the claim’s value. An award that must be litigated again before it can be enforced has lost much of the speed and certainty that arbitration is meant to deliver.

Legislation alone would not transform the system. Dubai, Qatar and Singapore did not become arbitration hubs through statutes alone. They developed capable institutions, modern rules, specialist practitioners, experienced tribunals and courts prepared to treat finality as a central objective. Such credibility is built over time, not proclaimed.

The delay therefore reflects more than legislative inertia. It reveals a gap between Pakistan’s ambitions for cross-border commerce and the institutional discipline required to support them. The jurisprudence has evolved, the shortcomings have been identified and the cost of continued delay is measurable.

What remains to be determined is whether Pakistan will remove the incentives sustaining an outdated law and align its statute with the principles its own courts already embrace.[/p]

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