2025 in Review: Pakistan

In 2025, the Kluwer Arbitration Blog published two Pakistan-focused posts. Whilst this was in direct contrast to 2024, which saw a flurry of commentary on arbitration reform in Pakistan, the limited commentary in 2025 should not be mistaken for a lack of substance. The posts addressed issues that sit at the heart of Pakistan’s arbitration framework and that are likely to have an effect on practice in the coming years.

2025 was expected to be the year in which Pakistan would undergo major arbitral reform by way of the promulgation of the Draft Arbitration Act 2024 (“Draft Act”). But it did not. This might well have been the result of major constitutional shifts in Pakistan, with the advancement of the 26^th and 27^th constitutional amendments, potentially putting arbitral reform at the bottom of the Government’s priority.

This year-end review post thus considers and comments on three broad themes. First, the evolving role of public policy in arbitration-related court proceedings in Pakistan. In doing so, the post addresses the proposed scope of public policy under the Draft Act. Second, the debate around enforcement following the Lahore High Court’s decision in SpaceCom v Wateen, including whether that decision reflects a pro- or anti-enforcement stance. Third, and more fundamentally, the implications of the Draft Act’s apparent standstill for Pakistan’s reform trajectory going into 2026.

Public Policy

Public policy has been a hotly-debated (and some would argue, misapplied) ground for judicial intervention in Pakistan’s arbitration jurisprudence. Under the Arbitration Act 1940, and in enforcement proceedings under the New York Convention framework (implemented through the Recognition and Enforcement (Arbitration Agreement and Foreign Arbitral Awards) Act 2011), public policy has been used as a gateway for extensive review of awards. In certain cases, the superior courts of Pakistan have scrutinised the merits of the underlying disputes under the guise of public policy, to set-aside arbitral awards or refuse their enforcement in Pakistan.

One of the most infamous cases, of which those familiar with practice in Pakistan will undoubtedly be aware, is the case of Hub Power Company Ltd. v. Pakistan WAPDA through Chairman PLD 2000 SC 841 (also more commonly referred to as the HUBCO case). Put simply, the Supreme Court of Pakistan deemed it appropriate to invalidate the arbitration agreement between the parties on the basis that (unsubstantiated) allegations of fraud and corruption referable to the underlying substantive agreement could not be arbitrated. Another well-known example is the Reko Diq case, in which the Supreme Court’s decision “would appear to go against” the separability doctrine. 

Against that background, it is therefore not surprising that commentators have lauded the reforms proposed by the Draft Act (for example, see here). In particular, the proposal to define (and limit) the scope of public policy has been considered to be a welcome change.

To this end, in 2025, the Blog published a post entitled “From Fluidity to Clarity? Pakistan’s Arbitration Act of 2024 and the Future of Public Policy” (authored by Ali Shouzab), which engaged directly with Pakistan’s troubled history with public policy in arbitration context and the attempts that have been made at course correction to align Pakistan with international standards.

The most notable shift in the Draft Act is to limit the meaning and scope of public policy. Whether or not this would result in any meaningful change in practice will only be observed in due course, but as a matter of principle, the proposed change has been much needed to reduce open-ended judicial construction of public policy, by prescribing specific categories under which an award may be said to conflict with the public policy of Pakistan. It also states expressly that a public policy review should not entail a review on the merits of the underlying dispute.

Pausing there, an important point of principle arises based on the recent constitutional developments in Pakistan. Through the 27^th Constitutional Amendment, the Federal Constitutional Court (“FCC”) has been established. The FCC exercises jurisdiction on matters of constitutional interpretation, including appellate jurisdiction where “the High Court certifies that the case involves a substantial question of law as to the interpretation of the Constitution”. From an arbitration perspective, this could potentially be relevant in matters where it is argued that a public policy ground or challenge involves matters of constitutional interpretation. In that case, it may be possible that any appeal from a High Court’s decision lies directly with the FCC (as opposed to the Supreme Court of Pakistan). Alternatively, it may also be possible that the FCC may on its own motion, if it considers that the case involves a substantial question of law as to the interpretation of the Constitution, “call for the record of any case pending before any court and make such order in the case as it thinks fit”. That said, it might well be that where constitutional matters are considered incidental to public policy challenges, the FCC’s jurisdiction may not be triggered. The FCC is still in its infancy, and the author is not aware of any reported cases where a set-aside (or other arbitration-related) application has been elevated to the FCC on constitutional grounds.

Returning to the substance of the Draft Act, and notwithstanding any amendments that may be required to the Draft Act in light of the recent constitutional overhaul, the limited categories of public policy identified in the Draft Act include fraud, corruption, material breach of natural justice, and conflict with fundamental norms of morality and justice. These largely mirror formulations found in other Model Law jurisdictions. At least at the level of drafting, it is clear that the intention is to narrow judicial intervention.

However, as also discussed on the Blog by other authors previously, the real test will lie in judicial application of these principles. In particular, there appears to be a sufficient lacuna in the law to give rise to innovative judicial interpretations, by the introduction of vague concepts as ‘material breach of natural justice’ and ‘fundamental norms’. These are broad terms. They can be interpreted narrowly; but at the same time, they can be applied expansively and be used as a gateway for substantive review. All of this will be put to test (if and) when the Draft Act is formally enacted (in respect of which public visibility is currently limited).

Enforcement and the SpaceCom case

Closely allied to the principle of public policy is the broader notion of enforcement. Indeed, the broad interpretation of public policy and the increased willingness of courts to intervene in arbitral proceedings have resulted in Pakistan’s pro-enforcement position being questioned.

To this end, therefore, the second Pakistan-focused post in 2025 on the Blog (co-authored by Umer Akram Chaudhry and Aneesa Agha) was intriguing. That post discussed enforcement under the New York Convention with reference to the Lahore High Court’s decision in SpaceCom v Wateen. The Lahore High Court’s refusal to enforce an award under Article V(1)(d), on the basis that the arbitral tribunal had incorrectly designated the seat of arbitration, triggered debate because Pakistan has in recent years shown a strong pro-enforcement stance (for example, through the Orient Power and Taisei judgments).

The post, however, (correctly) resisted the characterisation of SpaceCom as anti-enforcement. Instead, it sought to explain the decision within the framework of Pakistan law and the New York Convention. In short, the primary legal question that the Lahore High Court was asked to decide was this: “should a court, in its enforcement jurisdiction, recognise and enforce an arbitral award where it is persuaded that the arbitral tribunal wrongly designated the seat of arbitration?”

This analysis rightly raised an important point that is perhaps overlooked when the focus is on whether an award should have been enforced. A principled pro-enforcement policy does not mean automatically enforcing every arbitral award that comes through the door of the courts. Rather, it means that whilst enforcement is the default position, refusal should only be granted on clear, established and narrowly construed principles.

In SpaceCom, the Lahore High Court reviewed the arbitral tribunal’s decision on jurisdiction and essentially found it to have been wrongly decided. Whilst the Lahore High Court was well within its powers to refuse enforcement on the basis that “the arbitral procedure was not in accordance with the agreement of the parties”, the other side of the argument would suggest that, where an arbitral tribunal has decided the issue of jurisdiction, then, further to the principle of competence-competence, such a decision should not be reviewed by a foreign court during enforcement proceedings.

Regardless of whichever side of the fence one might be on, from a Pakistan arbitration perspective, the debate surrounding SpaceCom, particularly where thorough and detailed arguments were made with earlier commentary, reflects maturity of the legal fraternity and the healthy discourse surrounding arbitration-related issues. More particularly, decisions are not being accepted or criticised in broad terms; rather, they are being examined through the lens of proper principles, which is indeed an encouraging development for a jurisdiction that is (and has been) on the cusp of seismic arbitral reform.

Whilst we await formal reform, under the existing regime, consistency in the application of the New York Convention grounds of challenge will be an important issue going forward. Whether the Article V grounds are applied narrowly or sparingly, consistency in approach will likely instil confidence in arbitration users.

The Standstill of the Draft Act and Looking on to 2026

As discussed above, the Draft Act appears to be at a standstill. Its formal promulgation has not materialised, and public visibility on this issue has also reduced. This pause may have substantive implications.

First, reform momentum is a delicate matter. And the Draft Act is not the first time that arbitral reform has been proposed in Pakistan. In 2016, a draft Arbitration and Conciliation Act was also moved in the Houses of Parliament. But that did not yield any result. The apprehension therefore is that delay to the Draft Act will result in reducing momentum: the longer the Draft Act remains pending, the greater the risk that reform will keep getting pushed to the back burner.

Second, and perhaps more importantly, the Draft Act created a positive sentiment amongst arbitration users. But the uncertainty now presents a real challenge for practitioners as parties must proceed and assess enforcement risk on the basis of the existing regime.

Third, as time lingers on, jurisprudence will continue to develop under the existing regime. This is compounded by the uncertainty that the introduction of the FCC poses in principle.

From the author’s perspective as the assistant editor overseeing Pakistan coverage, the standstill to the Draft Act is the defining feature of 2025. The narrative of reform that dominated 2024 morphed into a period of waiting and uncertainty last year. That period may well be temporary, but there has not been any substantial movement in Pakistan to present a more optimistic outlook.

This makes 2026 all the more critical. If the formal passage and implementation of the Draft Act finally takes place, that would re-ignite the spirit of reform and confidence in Pakistan’s moving forward as jurisdiction with a modern arbitration regime. If, however, reform is not forthcoming, it might well be that the Draft Act may be destined to face the same fate as its predecessors.