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

The Law implies certain conditions in arbitration agreements, which may be excluded by express statements to contrary. These include following conditions: reference to arbitration will be deemed to be sole arbitrator; where even number of arbitrators are appointed by parties, umpire must be appointed by those arbitrators within a month of their own appointment; Award by arbitrators will be made within four months of reference whereas umpire must announce his Award within two months of entering on reference; Award shall be final and binding on all parties; and, awarding cost of reference shall be within discretion of arbitrators.

§ 13 of the Act defines powers of arbitrators, but makes them subject to any agreement to contrary between parties. These include, inter alia: 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. The Civil Procedure Code of Pakistan does not apply to these proceedings, but arbitrators are under duty to observe common principles of equity and justice. The Authority of arbitrator may be revoked if power is given by arbitration agreement itself, on such grounds as are specified therein, or it may be revoked with leave of court. The Court will grant leave where arbitrator has personal interest in matter, or he is indebted to one of 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 mind of arbitrator which may unfairly prejudice interest of any of parties, § 5 of Act.

The Arbitration Award may be modified or corrected by court where it is necessary to do so for removing any ambiguity, confusion or obvious mistake etc. as long as such modification or correction does not change Award materially. The Court may not, however, change Award merely because it takes different view as to what is fair and what is not. It cannot, therefore, go into merits of case or try to incorporate its own decision into Award. Further, § 26A of Act, inserted by Arbitration (Amendment) Act 1981, allows parties to be notified of any irrelevant or extraneous considerations or erroneous view of law or material facts and evidence etc. taken by arbitrators, so that they may, if aggrieved by Award, challenge same in court.

The Arbitration Award may be set aside by court on any of following grounds: that arbitrator or umpire has committed some misconduct (which includes not following common rules of justice); that Award has been made after issue of order by court superseding arbitration or after arbitration proceedings have become invalid; or that Award has been improperly procured or is otherwise invalid.

The New York Convention was ratified through Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Award Ordinance, 2005). This Ordinance lapsed after four months as per terms of Constitution of Pakistan but has been subsequently re-enacted several times. It is anticipated that Act of Parliament will be enacted to place New York Convention on more permanent statutory footings.

In international contracts, the jurisdiction to arbitrate is often agreed to be conferred upon International Court of Arbitration, International Chamber of Commerce and London Court of International Arbitration by parties. Alternative methods of dispute resolution, such as Mediation, Conciliation, Fact Finding, Med-Arb, Early Neutral Evaluation and Multi-door Courthouses are still at early inceptive stages in Pakistan.