ISLAMABAD: The Supreme Court said the recognition and enforcement of a foreign arbitral award may be refused by the courts of Pakistan on the public policy ground only where it would violate the “most basic notions of morality and justice” prevailing in the country.

However, the public policy ground cannot be used to examine the merits of a foreign arbitral award or to create more grounds of defence that are not provided for in the New York Convention, such as misapplication of the law of Pakistan by the arbitrator in making the award or the arbitrator’s decision being contrary to the law of Pakistan.

A three-judge bench, headed by Justice Syed Mansoor Ali Shah ruled that while hearing the petitions of Taisei and AMC regarding an Award whether it was a foreign award or a domestic award.

The apex court found that the Award is a “foreign arbitral award” within the meaning and scope of the expression defined in Recognition and Enforcement of Arbitration Agreement and Foreign Award Act 2011 (2011 Act).

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The order of the Civil Court, Lahore, made on Taisei’s objection as to lack of subject matter jurisdiction is held to be erroneous, adding that the Lahore High Court (LHC) in the exercise of its revisional jurisdiction failed to correct the legal error committed by the Civil Court and went wrong on a point of law in upholding the Civil Court’s order.

International commercial arbitration plays a crucial role in resolving disputes arising from cross-border trade and commerce, expeditiously and efficiently. In this regard, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 plays a pivotal role, underpinning the global enforcement regime for foreign awards that has made arbitration a linchpin in international commerce.

The role of courts in the context of international commercial arbitration has thus evolved to support and complement the arbitration process. Courts are no longer seen as competitors to arbitration but as essential partners in ensuring the effectiveness and integrity of the process. Their duty is to support, not to supplant, the arbitral process.

Taisei, a Japanese company, (appellant) was awarded a contract by the National Highway Authority of Pakistan, on 4th October 2006, for carrying out certain works on the Karar-Wadh Section of the Highway (N-25) in Balochistan (project).

On 19 May 2007, Taisei entered into a subcontract with the AMC (respondent), a Pakistani company, for doing some part of the project. It was agreed in the subcontract that the governing law of the subcontract shall be the law in force at the time in Pakistan, and that any dispute arising between the parties would be settled through arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC), to be held at Singapore.

In the course of performing their respective obligations under the subcontract, some disputes arose between the parties. On 17 December 2008, AMC referred the matter to ICC for arbitration as per the arbitration agreement incorporated in the subcontract, and after holding the arbitration proceedings in Singapore, the arbitrator delivered the award on 9 September 2011.

In order to challenge the Award, AMC filed an application under Section 14 of the Arbitration Act 1940 (1940 Act) in the Civil Court, Lahore, on 21 September 2011, praying for a direction to the arbitrator to file the Award and the record of the arbitration proceedings.

Taisei filed an application before the Civil Court under Order VII, Rule 10 of the Code of Civil Procedure 1908 (CPC), to return the application of AMC made under the Arbitration Act 1940. It pleaded that the Civil Court Lahore lacked territorial jurisdiction as it did not reside or carried on business in Lahore nor the cause of action had arisen at Lahore.

Taisei maintained that the Award was a “foreign award” regarding which the jurisdiction exclusively vested in the High Courts under the Recognition and Enforcement of Arbitration Agreement and Foreign Award Act 2011 (2011 Act).

The Civil Court dismissed the Taisei’s application on 28 January 2012, holding that the cause of action partly arose at Lahore and that the Award was not a foreign award. Taisei then filed a revision petition in the LHC, against the Civil Court order.

The LHC, dismissing the petition, upheld the civil court’s order vide its judgment dated 14 May 2012. Taisei then challenged LHC order before the Supreme Court. The appeal was granted on 8 August 2012 to examine, inter alia, the question of whether the Award was a foreign award or a domestic award.

Copyright Business Recorder, 2024