2025 in Review: Pakistan

Key Takeaways

• Draft Arbitration Act 2024 remains unenacted, reform stalled
• Proposed public policy limits aim to curb judicial overreach
• SpaceCom decision highlights nuanced pro‑enforcement stance
• New Federal Constitutional Court may hear arbitration constitutional issues
• Uncertainty hampers practitioners and foreign investors in Pakistan

Summary

In 2025 the Kluwer Arbitration Blog published two Pakistan‑focused posts despite the Draft Arbitration Act 2024 never being promulgated, a delay linked to sweeping constitutional amendments. The articles dissected the Draft Act’s attempt to narrowly define public policy, analysed the Lahore High Court’s *SpaceCom v Wateen* enforcement ruling, and highlighted the standstill of reform. While the Draft Act proposes limited public‑policy categories to curb judicial overreach, its postponement leaves practitioners navigating an uncertain legal landscape. The newly created Federal Constitutional Court adds another layer of complexity to future arbitration appeals.

Pulse Analysis

Pakistan’s arbitration framework has long been anchored by the 1940 Arbitration Act and the 2011 Recognition and Enforcement Act, which together implement the New York Convention. The 2024 Draft Arbitration Act was hailed as a watershed, promising to align domestic law with the UNCITRAL Model Law by tightening the public‑policy exception. However, the 26th and 27th constitutional amendments, which introduced the Federal Constitutional Court, shifted legislative priorities, leaving the Draft Act in limbo and creating a regulatory vacuum that practitioners must now navigate.

The Draft Act’s most consequential reform targets the public‑policy ground, restricting it to fraud, corruption, material breaches of natural justice, and violations of fundamental moral norms. By mirroring Model Law language, the proposal seeks to eliminate the expansive judicial scrutiny that previously allowed courts to re‑evaluate award merits. Yet the inclusion of vague concepts such as “material breach of natural justice” leaves room for divergent interpretations. The nascent Federal Constitutional Court could become the appellate forum for constitutional challenges to public‑policy defenses, potentially reshaping the balance between judicial oversight and party autonomy.

Enforcement dynamics were thrust into the spotlight by the Lahore High Court’s *SpaceCom v Wateen* ruling, which refused enforcement on the basis of an incorrectly designated seat of arbitration. While some labeled the decision anti‑enforcement, the judgment underscored a principled approach: enforcement remains the default, but refusals must be grounded in narrowly defined, well‑articulated grounds. Consistency in applying Article V of the New York Convention will be pivotal for investor confidence. Looking ahead to 2026, the formal adoption of the Draft Act could revitalize Pakistan’s arbitration market, whereas continued stagnation risks entrenching uncertainty and deterring cross‑border dispute resolution.