Pakistan's Draft Arbitration Bill 2024: Replacing an 84-Year-Old Law with a Modern Framework

Pakistan's primary arbitration statute, the Arbitration Act 1940, is now over eighty years old. Drafted during British colonial rule and modelled on the English Arbitration Act 1934, the 1940 Act was never designed for a world of cross-border commerce, international investment treaties, or institutional arbitration. Courts in Pakistan have long exercised broad supervisory jurisdiction over arbitral proceedings under this law, including the power to modify awards on questions of fact, appoint and remove arbitrators at will, and stay arbitral proceedings on procedural grounds. The result has been an arbitration regime that foreign investors and domestic businesses alike view with scepticism. Pakistan's standing as a seat of arbitration is, to put it plainly, poor.

In May 2024, the Arbitration Law Review Committee (ALRC), constituted by the Federal Government under the chairmanship of Justice (Retd.) Syed Mansoor Ali Shah, finalized a draft Arbitration Bill and presented it to the Federal Minister for Law and Justice. The Bill proposes to repeal the 1940 Act in its entirety and replace it with a modern statute based on the UNCITRAL Model Law on International Commercial Arbitration 1985, as amended in 2006. If enacted, it would represent the single most significant reform of dispute resolution law in Pakistan since independence.

Why the 1940 Act No Longer Works

The shortcomings of the Arbitration Act 1940 are well documented. First, the Act allows courts to intervene at virtually every stage of the arbitral process. Under Sections 5, 8, 11, and 30, courts can appoint arbitrators, remove them, set aside awards on broad grounds including "errors of law apparent on the face of the record," and even modify awards on factual findings. This level of intervention defeats the purpose of arbitration as a private, efficient alternative to litigation.

Second, the 1940 Act does not distinguish between domestic and international arbitration. A dispute between two Pakistani companies over a supply contract is treated identically, in procedural terms, to a dispute between a Pakistani state entity and a foreign investor under a bilateral investment treaty. This one-size-fits-all approach ignores the very different needs of these two categories of dispute.

Third, the Act contains no provisions for emergency relief, interim measures by tribunals, or the enforceability of arbitral orders. Parties who need urgent interim protection must approach the courts, which in practice can take weeks or months to grant relief. There is no mechanism for an emergency arbitrator to issue binding orders before the full tribunal is constituted.

Fourth, the grounds for setting aside an arbitral award under the 1940 Act are considerably broader than those found in the UNCITRAL Model Law or the New York Convention. This uncertainty about the finality of awards is perhaps the most damaging feature of the current regime. Foreign parties will not agree to seat arbitration in Pakistan if there is a realistic prospect that a court will reopen the merits of the award.

Structure of the Draft Bill

The ALRC's Draft Bill is organized into twelve chapters covering all major aspects of arbitral proceedings. Importantly, the Bill treats international commercial arbitration and domestic arbitration separately. For international arbitrations, the Bill closely tracks the UNCITRAL Model Law, providing maximum party autonomy, minimal court intervention, and modern enforcement mechanisms. For domestic arbitrations, the Bill retains a somewhat higher degree of court supervision, recognizing that domestic parties in Pakistan may not always have equal bargaining power or access to legal counsel.

To address the constitutional division of powers between the Federation and the Provinces, the ALRC recommended that the Bill be enacted as a federal statute under a resolution passed by provincial assemblies delegating their legislative authority on domestic arbitration to Parliament. This approach avoids the problem of separate provincial arbitration laws with potentially conflicting provisions.

Key Reforms: Party Autonomy and Arbitrator Appointment

The Draft Bill significantly expands party autonomy. Parties are free to agree on the seat of arbitration, the number of arbitrators, the procedural rules governing the proceedings, and the language of the arbitration. Under Sections 12 and 13, parties can also choose their own arbitrators without court interference, subject only to challenges based on lack of independence or impartiality.

On the question of arbitrator numbers, the Bill departs from the 1940 Act's permissive approach. Unless the parties agree to a panel of three or more arbitrators, the default is a sole arbitrator. An even number of arbitrators is not permitted. The Bill also includes a detailed First Schedule, inspired by the International Bar Association's Guidelines on Conflicts of Interest in International Arbitration 2014, setting out circumstances that may give rise to justifiable doubts about an arbitrator's independence and impartiality. This is a welcome innovation that should reduce the frequency of challenges and delays.

Emergency Arbitrators and Interim Measures

One of the most notable features of the Draft Bill is its introduction of provisions for emergency arbitrators. In international commercial arbitrations where the parties have adopted institutional rules that provide for emergency arbitration, the Bill empowers courts to recognize and enforce interim orders made by emergency arbitrators. This fills a significant gap in the current law, where parties requiring urgent relief before the constitution of a tribunal have no option but to approach the courts.

More broadly, Section 19 of the Bill allows arbitral tribunals to grant interim measures, including orders to preserve evidence, maintain the status quo, or prevent dissipation of assets. Critically, the Bill also permits tribunals to grant interim measures on an ex parte basis where prior disclosure to the opposing party would frustrate the purpose of the measure. Tribunal-ordered interim measures are enforceable through court processes, giving them practical teeth.

The relationship between court-ordered and tribunal-ordered interim measures is carefully managed. Under Section 10, courts may grant interim measures only before the tribunal has been constituted or where the tribunal cannot provide adequate relief. Where a court has granted an interim measure before the commencement of arbitration, the applying party must commence arbitral proceedings within 90 days, failing which the court order lapses. Once the tribunal is constituted, it may pass orders superseding the court's earlier order.

Reduced Judicial Intervention and Narrower Grounds for Setting Aside

The most consequential reform in the Draft Bill is the restriction of judicial intervention to clearly defined circumstances. The broad supervisory powers that courts currently enjoy under the 1940 Act would be abolished. Courts would no longer be able to modify awards, set aside awards for errors of law apparent on the face of the record, or otherwise engage with the merits of an arbitral dispute.

The grounds for setting aside an arbitral award under the Draft Bill are limited to those found in Article 34 of the UNCITRAL Model Law: incapacity of a party, invalidity of the arbitration agreement, failure to give proper notice, the award dealing with matters beyond the scope of the submission, improper composition of the tribunal, or the subject matter not being arbitrable. In addition, the "public policy" ground for setting aside is narrowly defined. The Bill limits public policy challenges to instances of fraud or corruption in the making of the award, material breaches of natural justice, and conflicts with fundamental norms of morality and justice. This is a deliberate effort to prevent the expansive interpretation of "public policy" that has plagued arbitration jurisprudence in Pakistan and elsewhere in South Asia.

Enforcement of Foreign Awards

Pakistan is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, and the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011 provides a statutory framework for enforcement. The Draft Arbitration Bill does not seek to replace the 2011 Act but works alongside it. The narrower public policy grounds under the new Bill should, however, influence the courts' approach to enforcement of foreign awards by reducing the scope for refusal on public policy grounds.

Where Does the Bill Stand Now?

As of early 2026, the Draft Arbitration Bill has not been formally introduced in Parliament. After the ALRC presented it to the Federal Minister for Law and Justice in May 2024, the Bill appears to have entered a period of inactivity. No public hearings have been scheduled, and neither the Ministry of Law nor the National Assembly has announced a timetable for its consideration.

This delay is disappointing but not surprising. Legislative reform in Pakistan routinely takes years, and arbitration law is unlikely to be treated as a political priority. There is also the complicating factor of provincial consent: the Bill requires resolutions from all four provincial assemblies delegating their legislative authority on domestic arbitration to the Federation, and obtaining such resolutions may prove time-consuming.

However, the need for reform is only growing. Pakistan faces large-scale claims under international investment treaties, including proceedings at the International Centre for Settlement of Investment Disputes (ICSID). Domestic commercial disputes continue to languish in overburdened courts. A modern arbitration law would not only improve dispute resolution efficiency but also send a strong signal to foreign investors that Pakistan is serious about the rule of law and the protection of commercial interests.

Practical Implications for Businesses

Businesses operating in Pakistan should keep a close watch on this Bill. If enacted, it will fundamentally change how commercial disputes are resolved in the country. Arbitration clauses in contracts will need to be reviewed and updated to take advantage of the new provisions, particularly the ability to choose a seat of arbitration, the availability of emergency relief, and the enforceability of tribunal-ordered interim measures.

For foreign investors, the Bill would make Pakistan a significantly more attractive seat of arbitration. The alignment with the UNCITRAL Model Law and the narrowing of public policy grounds for setting aside awards bring Pakistan's framework closer to those of India (which reformed its arbitration law in 1996 and again in 2015 and 2019), Singapore, and Hong Kong.

For domestic businesses, the Bill's provisions on domestic arbitration, while retaining a measure of court supervision, still represent a marked improvement over the 1940 Act. The ability to obtain interim relief from the tribunal rather than the courts alone could save parties weeks of delay in urgent matters.

Conclusion

The Draft Arbitration Bill 2024 is a well-crafted piece of legislation that addresses the fundamental deficiencies of the 1940 Act. It balances the need for party autonomy and reduced judicial intervention in international commercial arbitrations with a recognition that domestic arbitration in Pakistan still requires some degree of court oversight. The introduction of emergency arbitrators, enforceable interim measures, and narrowly defined public policy grounds for setting aside awards would bring Pakistan's arbitration framework into the modern era.

The question is not whether the reform is needed. It is whether the political will exists to see it through. Businesses, legal practitioners, and the judiciary all have a role to play in pushing for the Bill's enactment. In the meantime, parties drafting arbitration clauses for Pakistan-related disputes should consider seating their arbitrations in jurisdictions with more developed frameworks, while keeping an eye on developments in Islamabad.