Role of Arbitration in Resolving Business Disputes

In F.A.O. No. 88 of 2023, the Lahore High Court dealt with the appeal of Waqas Yaqub against the order of the Civil Judge, Rawalpindi, dismissing his application under Section 34 of the Arbitration Act, 1940. The application sought to stay legal proceedings and refer the dispute to arbitration as stipulated in a partnership agreement.

Key Areas:

Background of the Case: The appellant and respondent, being real brothers and business partners, had a dispute regarding the dissolution of their partnership and related financial claims. The partnership agreement included an arbitration clause for resolving disputes. The appellant filed an application under Section 34 of the Arbitration Act to stay the civil proceedings and refer the matter to arbitration, which the trial court dismissed.

Legal Framework and Arbitration Clause: Section 34 of the Arbitration Act allows a party to request a stay of legal proceedings if an arbitration agreement exists, provided no steps have been taken in the proceedings indicating an intention to proceed with the suit. The court emphasized the importance of adhering to arbitration clauses to promote alternative dispute resolution (ADR), as supported by precedents like Pakistan International Airlines Corporation vs. Messrs Pak Saaf Dry Cleaners (PLD 1981 SC 553) and Karachi Dock Labour Board vs. Messrs Quality Builders Ltd. (PLD 2016 SC 121).

Appellant's Conduct and Court's Interpretation: The appellant argued that he did not step into the proceedings by merely seeking adjournments for filing the written statement and promptly filed the application for arbitration at the earliest opportunity. The trial court's dismissal was based on the view that seeking adjournments constituted stepping into the proceedings. However, the Lahore High Court, referencing Messrs SGEC-AMC JV vs. National Highway Authority (2024 CLD 301) and BNP (Pvt.) Limited vs. Collier International Pakistan (Pvt.) Limited (2016 CLC 1772), concluded that a single adjournment does not amount to stepping into the proceedings.

Court's Determination and Decision: The High Court found that the trial court misinterpreted the law and failed to consider the arbitration clause and the appellant's right to arbitration. The appeal was allowed, the impugned order was set aside, and the trial court was directed to reconsider the application under Section 34 of the Arbitration Act in light of the principles discussed.

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