Recently, while hearing the Reko Diq matter, the Supreme Court directed the Balochistan government to request the International Chamber of Commerce and the International Centre for Settlement of Investment Disputes to take no further action in the arbitration proceedings while the matter is pending before the Supreme Court. By passing this Order, the Supreme Court affirmed that it has jurisdiction and the power to decide the validity of an agreement between a government entity, the Balochistan government, and a private international party, Tethyan Copper Company (TCC). Furthermore, while passing this order, the SC also seems convinced by the Balochistan government’s arguments that the TCC had committed contempt of court and violated relevant international laws by initiating arbitration proceedings during the pendency of this matter before the Supreme Court. The important question is whether the Court itself was oblivious to international law while passing such an order.
In terms of a domestic court’s power to decide the validity of an agreement and stay arbitration proceedings, the two main laws are Article 8 of the United Nations Commission on International Trade Law’s (UNCITRAL) Model Law on International Commercial Arbitration and Article II.3 of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Article 8.1 of the Model Law and Article II.3 of the New York Convention are almost identical to the extent that they provide that the court is not required to refer parties to arbitration if it finds that the “agreement is null and void, inoperative or incapable of being performed”.
Although the New York Convention does not have any provision regarding the status of the arbitration proceedings while the issue of the agreement’s validity is pending before the court, Article 8.2 of the Model Law addresses this issue in clear and specific terms. It sets out that notwithstanding the pendency of the issue of the agreement’s validity before a court, arbitration proceedings may be initiated and/or continued. Clearly, the primary objective of this particular law is to prevent a party from obstructing or delaying the arbitration proceedings by challenging the agreement’s validity before a domestic court. This is exactly what the Balochistan government seems to be doing by involving Pakistan’s Supreme Court in this matter.
In terms of the Balochistan government’s arguments, not surprisingly, these are primarily based on the New York Convention which does not have any provision regarding initiation and/or continuation of arbitration proceedings while the domestic court is deciding the issue of the agreement’s validity. It is noteworthy though, that the New York Convention that was being recognised and implemented in Pakistan through a series of Presidential Ordinances since July 2005, was finally enacted by the Parliament in July 2011. Was the timing of this enactment carefully calculated by the government or was it simply fortuitous?
In answering this question, it might be helpful to account for the fact that the UNCITRAL Model law bill has been pending in Parliament since April 2009. Why has it not been passed yet? Is it because the Model Law allows arbitration proceedings to be initiated/continued while the domestic court is seized of the matter? It further fuels speculation that the enactment might have been deliberately delayed to have a national legal framework that could enable the governments, both Balochistan and the federal government, to fend off an arbitration challenge on stronger legal grounds.
Undeniably, national interest should be supreme but is our national interest served merely by generating nationalist hysteria to morph a purely legal issue into an issue about selling our natural resources for a pittance? Is our national interest served by covering up the incompetence and corruption of our government officials and putting the blame on the foreign party?
Judges are required to apply their legal minds to the issues before them and not be swayed by patriotic considerations peddled by journalists in the print and electronic media and implicitly relied on by some lawyers.
What is at work behind the scenes is not something I would or should speculate on. From the standpoint of foreign investment in Pakistan, the current legal framework and its apparent abuse would dent both Pakistan’s reputation and foreign investor confidence causing potentially significant loss of foreign investment in the future.
Correction: An earlier version of this post incorrectly stated "International Chamber of Commerce" as "International Criminal Court".
Published in The Express Tribune, February 21st, 2012.
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It is our gold and it is our right to whom we should give contract, to whom not. Who is international court to decide our fate? It is meddling in our internal affairs.
with all due respect to the your views and legal references quoted in your article...it is submitted that the background facts relating to the execution and implementation of the basic document which created the so-called "favorable" foreign investment in to Balochistan and Pakistan have to be kept in juxtaposition when discussing the current scenario as it is today....the reason why the SC is investing so much time and effort into this matter is because the JVA of 1993 was non-transparent, against public policy and the constitution and was a tool to gain a complete monopoly over the mineral wealth located at reko diq...all thanks to the negligence of the GOB at that time, who didnt know what they were really getting into...please do have a look at the facts on the record of the cases pending before the SC with respect to the reko diq matter and maybe then, your perspective may change...
The UNCITRAL Model Bill is no longer pending in Parliament because domestic arbitration is now a provincial subject (after the 18th Amendment)
Quick correction in the first sentence: It should be "International Chamber of Commerce" instead of "International Criminal Court". When I sent the article for publication, I wrote ICC which apparently was misunderstood as an abbreviation for the International Criminal Court.
Well written article.
The sad things is that in the name of ' supreme national interest', the national interest is being hurt. Already there are few investors who want to invest in Pakistan due to the security situation. Add to that the electricity situation. Additionally the returns (at least for the last 2-3 years) in the Pak economy are not commensurate with the high risk frontier market status that Pakistan has.To add contract enforcement issues to the mix simply adds one more nail to the coffin that the investment environment currently is. Who suffers? Pak government does not get the tax? All direct and indirect jobs that investors would create are no longer created.
It would be one thing if mining was considered a strategic area where foreigners are not allowed. Investors understand that. But this simply creates bad blood.