PAKISTAN: An Introduction to Dispute Resolution: General Commercial

Pakistan’s economy has undergone a major turmoil in the last fiscal year. However, things appear to be stabilising now with the Stock Exchange’s performance picking up and exchange rate remaining consistent. Pakistan has also been recently removed from the grey list of Financial Action Task Force, a global money laundering and terrorism financing watchdog, due to the various measures taken by the legislature and authorities against money laundering and terror financing. This is set to increase export levels and foreign direct investments in Pakistan.

There is no doubt that Pakistan’s legal system continues to struggle with delays. However, despite overcrowded dockets, legal costs and delays still being lamented, Pakistan is making steady efforts to restore people’s confidence by seeking ways to improve procedural delays as well as by encouraging modes of dispute resolution alternate to litigation as an actionable recourse for redress of grievance. The establishment of consumer and commercial courts for expeditious disposal of claims, the operation of electronic courts and the implementation of e-hearing system at the Supreme Court of Pakistan are encouraging steps, which will undoubtedly decrease timelines for adjudicating disputes. These are welcome signs for any foreign investor.

Moreover, while the importance of reforming its civil code remains a constant, there is also realisation that alternate dispute resolution is a low-hanging fruit. It is becoming increasingly common to see businesses opt out of the traditional legal dispute resolution mechanism of approaching domestic courts and instead agree on arbitration and/or mediation as the preferred means.

The most immediate test of an arbitration clause comes when one party seeks to avoid arbitration by initiating legal proceedings in courts. Although the legislature has lagged behind, the superior courts in Pakistan have strived hard to honour arbitration clauses, especially foreign arbitration clauses. The Supreme Court has repeatedly held that “unless there are compelling reasons, an arbitration clause should be honoured.”

Such progressive attitude by the Superior Courts ought to be reassuring for foreign investors, especially since the New York Convention 1958 has been implemented by way of local legislation and given permanent life as an act of Parliament. This definitive legal architecture for enforcement for foreign awards in Pakistan may have come late to Pakistan, but we can benefit from the global experience in dealing with this celebrated arbitration law.

Although mediation is not as common as other forms of dispute resolution, it is gradually gaining traction in Pakistan. The Sindh and Punjab governments have taken legislative measures to ensure that the litigants are encouraged to consider mediation to resolve civil and commercial matters. Various mediation centres have also been set up, particularly in the province of Punjab, to promote mediation as an effective alternative form of commercial dispute resolution.

Despite the reformative measures taken in the past by the governmental authorities and courts, there are numerous issues that are yet to be addressed. These include: (i) lack of mandatory case management laws; (ii) no restriction on the number of adjournments that may be taken by the parties; (iii) lack of usage of technology in proceedings; and (iv) lack of awareness regarding the dispute resolution mechanism.

Most recently, the Supreme Court (Practice & Procedure) Act, 2023 was passed by Parliament, which requires the Chief Justice and the two most senior judges to decide whether or not to entertain petitions filed for the enforcement of fundamental rights in the public interest under Article 184(3) of the Constitution. Previously, this was solely the prerogative of the CJP. Additionally, all urgent cases or cases for interim relief must now be fixed for hearing within 14 days. This law was upheld by the full bench of the Supreme Court earlier this year, and the verdict is set to usher in a new era with profound implications not only for rule of law but also for the nation's political fabric, parliamentary democracy and transparency within the justice system.