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Alternative Dispute Resolution in Pakistan

ALTERNATE DISPUTE RESOLUTION: ARBITRATION, MEDIATION AND CONCILIATION

Mughal Barristers specializes in assisting clients for disputes which can be amicably settled by alternative disputes resolution (ADRs), such as:

  • Arbitration (Local and International); and
  • Mediation and Reconciliation.

METHODS OF DISPUTE RESOLUTION IN PAKISTAN:

  1. ARBITRATION:

The Arbitration Act 1940 (“Act”) governs arbitration proceedings in Pakistan. Rules follow ordinary law of contract to major extent. An “Arbitration Agreement” has been defined in the Act as “a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not”. An Arbitrator’s Award, in order for it to be valid, must be final and certain, and must contain decisions only on matter referred.

Conditions to be followed in Arbitration Agreements:

The law implies certain conditions in arbitration agreements, which may be excluded by express statements to the contrary. These statements include the following conditions:

  • reference to arbitration will be deemed to be made by a sole arbitrator;
  • where there is an even number of arbitrators appointed by parties, the umpire must be appointed by those arbitrators within a month of their own appointment;
  • an Award by the arbitrators will be made within four months of reference whereas the umpire must announce his Award within two months of entering on reference;
  • an Award shall be final and binding on all parties; and
  • the awarding cost of reference shall be within discretion of arbitrators.

Power of Court to remove arbitrators or umpire

The Court may, on the application of any party to a reference, remove an arbitrator or umpire who fails to use all reasonable dispatch in entering on and proceeding with the reference and making an award. The Court may remove an arbitrator or umpire who has misconducted himself or the proceedings.

Where an arbitrator or the umpire is removed by the court, he is not entitled to receive any remuneration in respect of his services.

Powers of Arbitrators

Powers of Arbitrators include:

  • to administer oath to parties and witnesses;
  • to make Award conditional; and
  • to administer such interrogatories to any party to arbitration as may be necessary.

In arbitrating the matter, the arbitrators are under duty to observe common principles of equity and justice. Authority of arbitrator may be revoked in the following circumstances:

  • if his/her power is granted by an arbitration agreement itself,
  • on such grounds as are specified therein,
  • or it may be revoked with leave of court.

Powers of the Court to grant leave

The Court will grant leave where the following situations occur:

  • the arbitrator has personal interest in matter, or
  • he is indebted to one of the parties, or
  • has conducted proceedings with undue and inordinate delay, or
  • has committed some misconduct, or
  • lacks jurisdiction, or
  • there is some other bias in the mind of the arbitrator which may unfairly prejudice interest of any of parties.

Modification of Award

An Arbitration Award may be modified or corrected by the court in the following circumstances:

Where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred; or

Where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or

Where the award contains a clerical mistake or an error arising from an accidental slip or omission.

Setting aside of Arbitration award

The Arbitration Award may be set aside by the court on any of following grounds:

  • the arbitrator or umpire has committed some misconduct (which includes not following common rules of justice);
  • the Award has been made after issue of order by court superseding arbitration or after arbitration proceedings have become invalid; or
  • the Award has been improperly procured or is otherwise invalid.

 

  1. MEDIATION

Mediation is an informal process for helping people who have a dispute to sort it out for themselves without going to court. A mediator is a neutral third person who encourages those in the dispute to talk to each other about the issues. The mediator is not an advice-giver or decision-maker. The parties examine the real problems, large or small. They then create and agree upon an outcome that meets their needs and addresses their concerns.

The Karachi Centre for Dispute Resolution (KCDR) is successfully resolving commercial disputes that are increasing along with business activity, according to Pakistan former Chief Justice who is on KCDR board. Established in 2005 with the World Banks assistance, International Finance Corporation (IFC), KCDR is now a non-governmental organization guided by both active and retired judges and business leaders. By reducing expenses and delays and freeing assets tied up in court, it is observed that KCDR encourages market based activity as also intended by IFC and serves as example for rest of Pakistan.

The Benefits of Mediation

Mediation often improves understanding between the parties in an ongoing relationship.

Compared with going to court, mediation is:

  • less expensive
  • quicker
  • more informal and
  • less stressful.

Mediation is voluntary. The parties and the mediator have the right to withdraw at any time, although this is rare.

Making the most of mediation

  • Who decides on mediation?

Participants themselves can choose to go to mediation. Alternatively, their lawyers may advise them to do so. Courts may refer matters to mediation.

  • Who attends mediation?

In consultation with the mediator, each participant can arrange to bring one or more people to support or assist them at the mediation. This may be a professional adviser such as a lawyer or accountant, or a friend or non-professional person.

  • Who makes decisions at mediation?

The participants attending the mediation have the authority to make decisions on any proposed settlement, unless other arrangements have been made.

The final settlement may be legally binding, depending on the conditions of referral, or the wishes of the parties.

  • What about confidentiality?

Mediation is as confidential as the participants wish it to be and as far as the law allows. This will be discussed between the mediator and the participants at the start of the mediation.

 

Alternative Dispute Resolution (ADR) is a vast field. It is not a very new concept in Pakistan. Dispute resolution has been apart of our culture for a long time, i.e. in the form of Panchayats and Jirgas, (committee of honorable elders of the community). However, this type of particular dispute resolution has been most often associated with marital and other family matters.

 

The Constitution of Pakistan

There is no specific mention of ADR in the Constitution of Pakistan. A reference to commercial and financial activities can be pinpointed in the Constitution, which may, however implicitly, lead to a view that Pakistan practices certain types of ADR. A quick review of the Constitution reveals that articles 153-154 deal with the Council of Common Interest, article 156 deals with the National Economic Council, article 160 deals with the National Finance Commission, and article 184 of the Constitution gives rise to original jurisdiction to the Supreme Court of Pakistan in “any dispute between any two or more Governments.”

International Treaties and Conventions

Specifically, with regards to ADR, a researcher can use these international trade organizations that Pakistan is a member of to find detailed information on ADR in Pakistan.

Multilateral Investment Guarantee Agency (MIGA) Pakistan is a member of MIGA. MIGA is an agency of the World Bank that enhances foreign direct investment into developing countries by insuring cross-border investments. ADR is an important component of any international trade organization and because MIGA insures and promotes investments into developing countries, it also provides “an umbrella of deterrence against government actions that could disrupt insured investments and helps resolve potential disputes” to enhance investor confidence. To promote its goal, in 1996, MIGA began offering dispute resolution services to help governments and foreign investors find creative solutions to their disagreements. Pakistan is a developing country that has an influx of investments. Given that it has signed and ratified the convention establishing MIGA, it has agreed to all its terms including those pertaining to ADR. Pakistan became a member to MIGA in April 1992.

International Center for Settlement of Investment Disputes (ICSID)

Pakistan is a member of ICSID. ICSID is also an institution of the World Bank that “provides facilities for conciliation and arbitration of international investment disputes.”

ICSID was formed via the ICSID Convention, also known as the Washington Convention. ICSID is a “multilateral treaty formulated by the Executive Directors of the International Bank for Reconstruction and Development (the World Bank). It was opened for signature on March 18, 1965 and entered into force on October 14, 1966.” Today, ICSID is considered to be a leading international arbitration institution.

As stated above, foreign direct investment in Pakistan is fairly large. Given that Pakistan has signed and ratified the Washington Convention establishing ICSID, it has agreed to all its terms. Pakistan was one of the first countries to sign the Washington Convention on July 6, 1965. It deposited its ratification of the Convention on September 15, 1966 and the Convention went into force one month after, in October 1996.

United Nation’s Conventions

Pakistan has also signed and ratified the New York Convention. The New York Convention is also known as the New York Convention of 1958 and the Convention for the Recognition and Enforcement of Foreign Arbitral Awards.

UNCITRAL is a Commission of the UN established by the General Assembly on 17 December 1966 by Resolution 2205 (XXI). Thus, although the New York Convention was adopted in 1958, the Commission’s essential mandate is to promote the Convention further. Furthermore, UNCITRAL serves as the International Trade Law Branch of the Office of Legal Affairs of the UN. Hence, UNCITRAL, under the umbrella of the UN, is the biggest organizational body to prepare rules relating to ADR, namely arbitration and conciliation.

Pakistan has signed and ratified the New York Convention. Pakistan was once again, one of the earliest signatory members to an ADR related document, here the New York Convention. It signed the Convention on December 30, 1958 and ratified it on July 14, 2005, bringing it into force three months later in October 2005.

Although the New York Convention is just one treaty related to ADR that Pakistan has signed and ratified, there are various other ADR related Conventions by the UN that Pakistan has overlooked in implementing. These include, but are not limited to, 1) Convention on the Limited Period in International Sales of Goods; 2) UN Convention on Contracts for the International Sale of Goods (CISG); 3) UN Convention on Independent Guarantee and Stand-by-Letters of Credit; 4) UN Convention on International Bills of Exchange and International Promissory Notes; 5) UN Convention on Assignment of Receivables in International Trade; 6) UN Convention on Carriage of Goods by Sea. You can access the color-coded database maintained by LegaCarta, the International Trade Centre’s database to gather this information.

Civil Procedure Code, 1908

89-A Alternate Dispute Resolution ……… The court may, where it considers necessary, having regard to the facts and circumstances of the case with the object of securing expeditious disposal of a case, in or in relation to a suit, adopt with the consent of the parties alternate dispute resolution method, including mediation and conciliation.

Order–X Rule IA ……… The Court may adopt any lawful procedure not inconsistent with the provisions of this Code to (i) conduct preliminary proceedings and issue order for expediting processing of the case; (ii) issue, with the consent of parties, commission to examine witnesses, admit documents and take other steps for the purpose of trial: (iii) adopte, with the consent of parties, any alternative method of dispute resolution including mediation, conciliation or any such other means.

Pakistan Fiscal Laws

To resolve fiscal dispute between the parties from the forum of their choice necessary amendments have been made in the various fiscal laws. By Finance Act, 2004 section 13-A of the Income-Tax Ordinance has been incorporated and it allows any aggrieved person in connection with any matter pertaining to the liability of income tax, to apply to Central Board of Revenue for appointment of a committee for resolution of any hardship or dispute mentioned in the application. The Central Board of Revenue, which is the highest authority in the revenue matters, after examining the application, can appoint a committee consisting of an Income Tax Officer along with two persons from a notified panel of reputable tax payers for resolution of the dispute. Section 36-D of the Central Excise Act, 1944 and Section 195-C of Customs Act, 1969 were also incorporated by Finance Act, 2004 for resolving the dispute through a panel of mediators. Section 47-A of Sales Tax Act also provided that any registered person may apply to Central Board of Revenue for appointment of a committee for resolution of any hardship or any dispute through mediation.

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