Arbitration is often described as an alternative to the courts. Under the 1940 Act in Pakistan it is better understood as a process that runs alongside them: the tribunal decides the dispute, but the court appoints arbitrators when parties deadlock, supports the process, and ultimately converts the award into something enforceable.
It starts with the agreement
There is no arbitration without an agreement to arbitrate. It is usually a clause in the underlying contract, occasionally a separate submission agreement after a dispute arises.
What a workable agreement establishes:
- That disputes go to arbitration rather than to court.
- Which disputes are covered - drawn broadly to avoid arguments about scope.
- How many arbitrators and how they are appointed.
- Where the arbitration is seated.
- What law governs.
Once a dispute has arisen, a party who benefits from delay will rarely agree to arbitrate voluntarily. That makes the clause a drafting decision taken at contract stage, not a choice available later - see drafting an arbitration clause.
Appointing the tribunal
The agreement should say how arbitrators are appointed. Where it does not, or where a party refuses to cooperate, the court can be asked to appoint.
| Scenario | What happens |
|---|---|
| Clause specifies a sole arbitrator and both agree | Straightforward appointment |
| Clause specifies one arbitrator each plus an umpire | Each appoints; the two appoint the third |
| A party refuses to appoint | Application to court for appointment |
| Clause silent on mechanism | Court application likely - the commonest failure |
| Appointed arbitrator declines or dies | Replacement per the clause, or court |
The fourth row is why vague clauses cost so much. A clause saying only that disputes "shall be referred to arbitration" leaves every step contestable, and the parties end up in court simply to constitute the tribunal.
How the arbitration runs
- Reference of the dispute to the tribunal.
- Preliminary meeting fixing procedure and timetable.
- Statements of case from each party.
- Documents and evidence exchanged.
- Hearings, where the parties present their case.
- Award made by the tribunal.
- Filing in court and application to make the award a rule of the court.
- Enforcement as a decree once the award is made a rule.
Step seven is the one parties do not expect. Under the 1940 Act framework an award is not self-executing - it must be filed and made a rule of the court before it can be enforced. Budget time and cost for that stage rather than assuming the award ends matters.
Where the court is involved
Understanding the touchpoints prevents unpleasant surprises:
- Staying court proceedings where a party sues despite an arbitration agreement.
- Appointing arbitrators where the parties cannot or will not.
- Interim relief - injunctions and preservation orders, which the tribunal cannot grant with the same force.
- Extending time for making the award in some circumstances.
- Making the award a rule of the court.
- Setting aside an award on limited grounds.
- Enforcement of the resulting decree.
Where urgent relief is needed - freezing assets, preserving evidence - the court is the effective forum, and that remains true even with an arbitration clause in place.
Challenging an award
Grounds are deliberately narrow. Arbitration trades appeal rights for finality, which is an advantage when you win and a real exposure when you lose.
Challenges typically concern matters such as misconduct in the proceedings, an award made after the tribunal's authority ended, or an award improperly procured. What you generally cannot do is re-argue the merits because you disagree with the outcome.
Understand this before agreeing to arbitrate. If your dispute turns on a difficult point of law where you would want a route of appeal, arbitration's finality is a genuine disadvantage. If you value certainty and an end to the matter, it is the main attraction.
Foreign awards are different
Awards made outside Pakistan, and disputes with an international element, engage a different framework. Pakistan is a party to the New York Convention, and separate legislation addresses recognition and enforcement of foreign arbitral awards.
The practical significance is large:
- Foreign awards benefit from an established international enforcement route in the many contracting states.
- Foreign court judgments do not, depending instead on reciprocity.
- For cross-border contracts, this is usually the decisive argument for an arbitration clause.
See our comparison of arbitration against litigation for how this affects the choice.
Practical advice
- Get the clause right at contract stage. Almost every arbitration problem in Pakistan is a drafting problem.
- Specify the appointment mechanism, including what happens if a party refuses.
- Choose an arbitrator with relevant expertise - a principal advantage over a generalist forum.
- Agree a timetable early and hold to it.
- Budget for the court stage of making the award a rule.
- Preserve documents from the outset.
- Consider whether you need interim relief, and go to court for it promptly if so.
When arbitration suits a Pakistani business
Arbitration is not automatically better. It suits some disputes and is a poor fit for others.
| Situation | Arbitration? | Why |
|---|---|---|
| Cross-border contract | Strongly favoured | Enforceability under the New York Convention |
| Technically complex dispute | Favoured | You choose an arbitrator who understands the subject |
| Confidentiality matters | Favoured | Proceedings are private |
| Straightforward unpaid debt | Usually not | A recovery suit is faster and cheaper |
| Low-value dispute | Usually not | Arbitrator fees can exceed the court fee |
| Urgent injunction needed | Court alongside | Courts hold the coercive powers |
| Counterparty likely to obstruct | Weaker | Obstruction pushes you into court anyway |
For a straightforward unpaid invoice, a recovery suit is generally the better route regardless of what the contract says, and where a cheque was involved see our cheque dishonour guide.
Frequently asked questions
What law governs arbitration in Pakistan?
Domestic arbitration is principally governed by the Arbitration Act 1940. Recognition and enforcement of foreign arbitral awards engages a separate framework reflecting Pakistan's position as a party to the New York Convention.
Can I arbitrate without an arbitration clause?
Only if the other side agrees after the dispute has arisen, which is uncommon because a party benefiting from delay will rarely consent. In practice it is a drafting decision taken when the contract is made.
Is an arbitration award directly enforceable?
Not immediately under the 1940 Act framework. The award is filed in court and must be made a rule of the court before it can be enforced as a decree, so budget time and cost for that stage.
What happens if the other party refuses to appoint an arbitrator?
An application can be made to the court for appointment. This is why the clause should specify the appointment mechanism including a default, otherwise you end up in court simply to constitute the tribunal.
Can I appeal an arbitration award?
Grounds for challenge are deliberately narrow and generally do not allow re-arguing the merits. Arbitration trades appeal rights for finality, which is an advantage if you win and a real exposure if you lose.
Can I get an injunction if there is an arbitration clause?
Urgent interim relief such as injunctions and preservation orders is generally sought from the court, which retains those coercive powers even where the substantive dispute goes to arbitration.
Why do international contracts prefer arbitration?
Because foreign arbitral awards benefit from an established enforcement route under the New York Convention in many countries, whereas foreign court judgments depend on reciprocity and are often much harder to enforce.
Can arbitration proceed if one party simply ignores it?
The court can be asked to appoint an arbitrator where a party refuses, and proceedings can continue, but obstruction adds time and cost. This is why the appointment mechanism in the clause matters so much.
Who pays the arbitrator's fees?
The parties, typically shared during the reference with the final allocation dealt with in the award. This is the structural cost difference from litigation, where the judge costs nothing.
Is arbitration confidential?
Proceedings are private, which is one of its main attractions for commercial parties. Note that the court stage of making an award a rule of the court is a court process.
Sources & official references
- Arbitration Act 1940 - the principal domestic arbitration statute
- New York Convention 1958 - enforcement of foreign arbitral awards
- Code of Civil Procedure 1908 - civil suits and execution