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.