Pakistan’s exposure to international arbitration is a recent phenomenon but the number of arbitration cases has quickly registered a phenomenal growth.

The state is now heavily engaged in international arbitrations under public and private international laws.

Here is a random list of cases for which Pakistan is paying law firms through the nose for with varying outcomes; which have not been satisfactory to say the least. Karkey Rental, Rekodiq Mining, Kishanganga Hydropower, Progas LPG, Hubco Power, Sapphhire Electric, Halmore Energy, Liberty Power, Nishat Chunian, Atlas Power, Orient Power, Saif Power and Nishat Power.

There is no uniform law that prescribes standardisation and predictability in choosing arbitral framework

In one case for example, the government paid over Rs1bn to the English Law Firm M/s Allen & Overy in the Karkey Case. The law firm failed to protect the Pakistan’s interests and the Karkey ship, which was under restraint of the National Accountability Bureau and a Supreme Court order, was allowed to sail for inspection purposes. It was later agreed that the ship would not return to Pakistan.

This writer sat down for an informal discussion with Barrister Asghar Khan, who has a long experience of working on power sector contracts, to find out the reasons behind the dramatic rise in international arbitrations against Pakistan.

He explained that the rise in the number of arbitration cases stemmed from a variety of reasons such as weak contractual enforcement, reneging on promises by the parties, non-transparency in award of contracts and a liberal selection of jurisdiction of governing law and courts. Moreover, there is no uniform law that prescribes standardisation and predictability in the choosing of an arbitral framework. Most importantly, there is no preparatory work done for the selection of the arbitrators of one’s choice, or choice of law firms, which are all left to ad-hoc decision making and individuals rather than institutional preferences.

More often than not Pakistan lands itself in trouble before international tribunals of arbitration due to a lack of understanding of the arbitration process, tribunals psyche and applicable laws and their requirements. This is augmented by a lack of timely decision making, non-existence of professional advice and fear of retribution in case of losing.

Another reason, according to Barrister Asghar, is the willingness of the federal and provincial governments and their entities to readily give in to investors in the matter of foreign laws and the jurisdiction of foreign courts. This is mainly due to weak negotiation strategies.

Negotiations are rarely structured with input from all key stakeholders, consultations are run through for the pleasure of the proverbial boss and professional advance is few and far between.

In such a situation, the state ultimately finds itself bending backwards to accommodate the demands of investors. Pakistan is made to waive its claims of sovereign immunity in relation to international forum proceedings as well as to the enforcement of arbitral awards. Hence the jurisdictions of local courts are ousted even in the substantive subject matters of water, land, natural resources etc.

An equally disturbing spectre is the haphazard execution of Bilateral Investment Treaties (BITs). Although BITs protect foreign investment it exposes Pakistan to a number of claims, both in terms of enforcement of rights and obligations and compensation for loss and damages.

The instruments of arbitration agreement and BITs are fairly standard around the world. In Pakistan, however, where corruption is rampant and collusion of public officials is not a far cry, odds are heavily stacked against the country as there is no record of omission and defaults, breach of contract by the investor, and willful delays on the part of public functionaries that confer advantages and benefits on investors.

In the majority of cases, contracts are awarded without bidding and therefore, there is no particularised pattern of contractual terms and conditions.

In some cases the signatory is unaware of the consequences of entering into a huge liability, which he has been directed to sign.

Mostly, contracts are skewed in favour of the sponsors and the plain reading of the contract by a layman will lead him to conclude that there is a bias against the government.

Subsequently, when the government comes out of its state of inertia and tries to minimise its obligations under the contract, it is faced with multiple claims by the investors. Failing to find the redress within the system of the host country, investors invoke international arbitration.

At this stage, public officials are again seen dragging their feet in the essential run up to the constitution of the tribunal, submissions and evidencing. In order to cover their delays or inefficacies top arbitration law firms are hired who charge millions of dollars and pounds. With negligible local support and skeletons to hide Pakistan’s case is made to suffer at the outset.

International law firms, after charging hefty remunerations, advise the government to have out of arbitration settlement or lose the case which they term as weak given the lack of evidence. In exceptional circumstances Pakistan has won international arbitration based on technical grounds and rarely has it won on merit and substantive issues.

Arbitration is a proceeding supposed to be less formal so that parties can put forward their respective positions in a free and candid manner without going through the rigidity of normal court procedures. However by engaging foreign law firms with little check and balances, the state suffers both on account of expenses, and loss and damage from the arbitral award.

Mr Asghar argued that Pakistan should be confident in sending its own lawyers and counsels for foreign arbitration, not only to reduce expenses but also to ensure protection of its sovereign rights. The selection of lawyers and counsels should be through a transparent procurement process and foreign counsels should only be engaged and appointed for a legal opinion on limited issues rather than given carte blanche.

This is important when seen in the back drop of expert mediation, arbitration with India over water disputes under the Indus Water Treaty, commercial arbitration with the IPPs or arbitrations in mineral and mines as well as petroleum and natural resources.

In the ongoing arbitration between the IPPs and NTDC / CPPA-G the selection of the law firm has not been transparent. There is no professional home grown-legal support that can assist the arbitration tribunal to arrive at a fair and just determination in light of the contract clauses and the scheme of arrangement under the power purchase agreements.

Published in Dawn, Business & Finance weekly, July 11th, 2016