‘Clear intention must to determine step in proceedings’

RAWALPINDI: Lahore High Court’s (LHC) Justice Jawad Hassan has clarified what constitutes a “step in proceedings”, stating that it requires an “unequivocal intention” by either party to proceed with the suit.

The matter pertained to the definition of Section 34 of the Arbitration Act, 1940, which states that in cases where arbitration agreements exist between two parties if one of them initiates legal proceedings, the other party “at any time before filing a written statement or taking any other steps in the proceedings” can file an application for a stay order to halt the case. If it is satisfied, the court can stay the proceedings to allow settlement through arbitration.

In this case, the LHC judgement noted the applicant and respondent — two brothers who jointly owned a furniture business — had a partnership deed which also carried a dispute settlement clause.

In May 2023, a dispute arose between the two brothers, and one of them filed a lawsuit to dissolve the partnership deed.

In the third hearing, the respondent’s counsel filed an application with the trial court to adjourn the case so that they could file a written statement. The plea was allowed.

On the next hearing, the respondent submitted an application under Section 34 of the Arbitration Act to stay the proceedings to allow for alternate dispute resolution.

The trial court, on July 22, 2023, dismissed the application and held that the defendant should have “filed application under Section 34 of the Arbitration Act, 1940 at the earliest or at first opportunity”.

The decision was challenged before the LHC Rawalpindi bench.

Justice Hassan noted Section 34 clearly states that “step in proceedings” required “unequivocal intention to proceed with the suit and to abdicate the right to have matter disposed of through arbitration”.

He cited a past Supreme Court order in “Pakistan International Airlines Corporation v. Messrs Pak Saaf Dry Cleaners” case where the three-members bench laid down a set of parameters to decide whether filing a written statement could be considered “a step in the proceedings”.

Justice Hassan overturned the civil judge’s order of July 22, 2023, and said the application filed under Section 34 “shall be deemed to be pending” and to be decided by the trial court.

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