Arbitration in Pakistan A Detailed Case Study of HUBCO vs. WAPDA

Introduction: Imagine resolving disputes without the lengthy court battles. Arbitration offers a streamlined, efficient alternative, and in Pakistan, it’s evolving rapidly. One landmark case that highlights the complexities and potential of arbitration in Pakistan is the dispute between Hub Power Company Limited (HUBCO) and the Pakistan Water and Power Development Authority (WAPDA). Let’s delve into this case to understand its significance and implications.

What We Will Cover:

1. Background of the HUBCO vs. WAPDA Case
2. Key Issues in the Dispute
3. Arbitration Tribunal Constitution
4. Arbitral Proceedings and Award
5. Challenges and Judicial Intervention
6. Conclusion

Background of the HUBCO vs. WAPDA Case

The HUBCO vs. WAPDA case revolves around a dispute over a Power Purchase Agreement (PPA) signed in the 1990s. HUBCO, a major independent power producer, entered into a PPA with WAPDA to supply electricity. However, disagreements arose over the interpretation and enforcement of the agreement, leading to arbitration under the International Chamber of Commerce (ICC) rules¹.

Key Issues in the Dispute

Several key issues were at the heart of the HUBCO vs. WAPDA dispute:

• Power Purchase Agreement (PPA) Dispute: HUBCO claimed that WAPDA had breached the terms of the PPA, particularly regarding payment obligations.
• Tariff Adjustments: Disagreements over the calculation and application of tariff adjustments were significant, with HUBCO arguing that WAPDA failed to honor the agreed-upon adjustments.
• Payment Delays: HUBCO alleged that WAPDA’s delayed payments for the power supplied caused significant financial strain.
• Jurisdiction and Arbitration: Issues related to the jurisdiction of the arbitration tribunal and the applicability of international arbitration rules added complexity to the proceedings².

Arbitration Tribunal Constitution

The arbitration tribunal was constituted under the ICC rules, typically involving three arbitrators. Each party selected one arbitrator, and the two selected arbitrators agreed on a third arbitrator, who acted as the presiding arbitrator. This ensured neutrality and expertise in the relevant field².

Arbitral Proceedings and Award

The arbitration proceedings were conducted under the ICC rules, providing a structured and efficient process. The tribunal ultimately ruled in favor of HUBCO, awarding them compensation for the breaches of the PPA by WAPDA. This award highlighted the effectiveness of international arbitration in resolving complex commercial disputes².

Challenges and Judicial Intervention

Despite the arbitral award, the case faced significant challenges, particularly judicial intervention. The Supreme Court of Pakistan refused to enforce the arbitration agreement, citing allegations of corruption and illegality in the revised terms of the commercial contract¹. This decision underscored the difficulties in enforcing arbitral awards in Pakistan and highlighted the need for a more supportive legal framework for arbitration.

How did HUBCO and WAPDA select their arbitrators?

In the HUBCO vs. WAPDA case, the selection of arbitrators followed the standard procedure under the International Chamber of Commerce (ICC) rules:

1. Party-Appointed Arbitrators: Each party, HUBCO and WAPDA, selected one arbitrator. This allowed both parties to choose individuals they trusted and who had the necessary expertise in the relevant field.

2. Presiding Arbitrator: The two party-appointed arbitrators then agreed on a third arbitrator, who served as the presiding arbitrator or chairperson of the tribunal. This third arbitrator was chosen for their neutrality and ability to lead the arbitration process impartially.

3. ICC Oversight: The ICC Court of Arbitration oversaw the entire process to ensure fairness and compliance with the ICC rules. This included confirming the appointments and addressing any challenges to the arbitrators’ impartiality or independence¹².

This structured approach ensured that the arbitration tribunal was composed of experts who could handle the complexities of the dispute effectively and impartially.

How does the presiding arbitrator manage the proceedings?

The presiding arbitrator plays a crucial role in managing arbitration proceedings. Here are the key responsibilities and actions they undertake:

1. Organizing Preliminary Meetings: The presiding arbitrator arranges preliminary meetings to discuss procedural matters, set timelines, and address any initial concerns of the parties. This helps establish a clear roadmap for the arbitration process.

2. Ensuring Fairness and Impartiality: They ensure that the proceedings are conducted fairly and impartially, giving both parties equal opportunities to present their cases. This includes managing the conduct of hearings and ensuring that all procedural rules are followed.

3. Managing Hearings: During hearings, the presiding arbitrator oversees the presentation of evidence, witness testimonies, and legal arguments. They ensure that the hearings are conducted efficiently and that the parties adhere to the agreed-upon schedule.

4. Facilitating Communication: The presiding arbitrator acts as the main point of contact between the tribunal and the parties. They facilitate communication, issue procedural orders, and provide guidance on procedural matters.

5. Decision-Making: While all arbitrators contribute to the decision-making process, the presiding arbitrator often leads discussions and helps the tribunal reach a consensus on the final award. They ensure that the award is well-reasoned and based on the evidence and arguments presented.

6. Drafting the Award: The presiding arbitrator typically takes the lead in drafting the final arbitral award. They ensure that the award is clear, comprehensive, and addresses all the issues raised during the proceedings.

7. Handling Procedural Challenges: If any procedural challenges or disputes arise during the arbitration, the presiding arbitrator addresses them promptly to keep the process on track.

By effectively managing these aspects, the presiding arbitrator ensures that the arbitration process is conducted smoothly, fairly, and efficiently, leading to a timely and just resolution of the dispute.

How does the presiding arbitrator handle conflicts of interest?

The presiding arbitrator plays a crucial role in managing conflicts of interest to ensure the integrity and fairness of the arbitration process. Here are the key steps they take:

1. Disclosure: The presiding arbitrator must disclose any potential conflicts of interest as soon as they are aware of them. This includes any relationships or circumstances that might reasonably raise doubts about their impartiality or independence¹.

2. Adherence to Guidelines: They follow established guidelines, such as the International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration. These guidelines provide a framework for identifying and managing conflicts of interest, including what must be disclosed and how to handle different types of conflicts¹.

3. Objective Assessment: The presiding arbitrator assesses conflicts of interest using an objective standard. This involves considering whether a reasonable third party would have justifiable doubts about their impartiality or independence¹.

4. Managing Challenges: If a conflict of interest is identified, the presiding arbitrator must decide whether to continue in their role or step down. If a party challenges the arbitrator’s impartiality, the presiding arbitrator must address the challenge promptly and transparently, often with the oversight of the arbitration institution².

5. Ensuring Fairness: Throughout the proceedings, the presiding arbitrator ensures that all parties are treated fairly and that any potential biases are managed effectively. This includes making procedural decisions that maintain the balance and fairness of the arbitration process².

By following these steps, the presiding arbitrator helps maintain the credibility and effectiveness of the arbitration process, ensuring that it remains a trusted method for resolving disputes.

¹: Conflicts of Interest in International Arbitration: new IBA Guidelines ²: Conflicts of Interest in International Commercial Arbitration

Conclusion: Will the ongoing reforms in Pakistan’s arbitration framework address the challenges highlighted by the HUBCO vs. WAPDA case and make arbitration a more reliable option for dispute resolution? Only time will tell, but the future certainly looks promising.