How to Start Commercial Arbitration from Islamabad & Peshawar — Step-by-Step Guide?

Commercial arbitration serves as an efficient mechanism for resolving business disputes outside traditional court systems, offering confidentiality, expertise, and speed. In Pakistan, this process is primarily governed by the Arbitration Act, 1940, which applies nationwide, including in Islamabad (the federal capital) and Peshawar (the capital of Khyber Pakhtunkhwa province). While the Act focuses on domestic arbitration, international aspects are handled under the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011, aligning with the New York Convention. Recent developments, such as the draft Arbitration Bill 2024, aim to modernize the framework by incorporating elements of the UNCITRAL Model Law, but as of 2025, the 1940 Act remains in force.

For parties in Islamabad and Peshawar, arbitration is particularly advantageous in commercial matters like contract breaches, joint ventures, or trade disputes, where local institutions like the Islamabad Chamber of Commerce and Industry (ICCI) Arbitration Centre or the Peshawar High Court’s ADR initiatives can facilitate proceedings. Nouman Muhib Kakakhel – Lawyer & Legal Consultant highlights the importance of tailoring arbitration to regional nuances for optimal outcomes.

Legal Framework Governing Commercial Arbitration

The cornerstone of commercial arbitration in Pakistan is the Arbitration Act, 1940, which consolidates laws on agreements, proceedings, and enforcement. It defines an arbitration agreement as a written pact to submit present or future differences to arbitration, applicable to civil commercial disputes but excluding matters like criminal cases or those under special tribunals (e.g., banking or rent disputes). The Act emphasizes party autonomy in procedure, though courts retain supervisory roles for appointments and challenges.

In Islamabad, the Islamabad Capital Territory (ICT) benefits from the Alternative Dispute Resolution Act, 2017, which integrates arbitration into notified ADR centers, promoting expeditious justice. Peshawar operates under the same federal Act, supplemented by the Khyber Pakhtunkhwa Alternative Dispute Resolution Act, 2020, which encourages institutional arbitration for commercial matters. Both regions recognize foreign awards via the 2011 Act, ensuring enforceability without re-litigating merits.

Parties must ensure arbitrability; for instance, commercial contracts involving public policy issues may face scrutiny. Consulting experts in commercial arbitration is vital to navigate these provisions effectively.

Step-by-Step Guide to Initiating Commercial Arbitration

Initiating commercial arbitration requires careful adherence to contractual terms and statutory procedures. Below is a detailed, sequential guide applicable in Islamabad and Peshawar, assuming a valid underlying commercial dispute.

1. Verify the Arbitration Agreement: Review the contract for a clause mandating arbitration. Under Section 2(a) of the 1940 Act, it must be written and specify the scope of disputes. If absent, parties can execute a submission agreement post-dispute. In multi-tier clauses (common in construction), exhaust pre-arbitration steps like negotiation or expert determination, as non-compliance may bar proceedings (per Islamabad High Court precedents).
2. Attempt Amicable Settlement: Though not mandatory, send a formal notice demanding resolution. This aligns with ADR principles in both regions and may lead to mediation under the 2017 ICT Act or KPK 2020 Act, potentially avoiding full arbitration.
3. Serve Notice of Arbitration: The claimant issues a written notice to the respondent, invoking the agreement and outlining the dispute, claims, and relief sought. This notice, under Section 8 of the Act, commences arbitration. Delivery via registered post or email suffices; in Islamabad, use secure methods to comply with ICT rules.
4. Appoint Arbitrator(s): Parties nominate arbitrators as per the agreement—typically one or three for commercial cases. If consensus fails within 15 days (Section 9), apply to the relevant court (District Court in Peshawar or ICT courts in Islamabad) for appointment. Institutional rules, like those from ICCI, streamline this. Challenges for bias must be raised early (Section 12).
5. File Statement of Claim and Defense: Within the tribunal’s timeline (often 30-60 days), submit detailed claims with evidence. Respondent files defenses similarly. This phase sets the arbitral timetable, usually concluding proceedings within 6-12 months.
6. Conduct Proceedings: The tribunal holds hearings, gathers evidence, and applies Pakistani law unless otherwise specified. Confidentiality is inherent, with limited court intervention except for interim relief (Section 20). In high-value commercial cases, expert witnesses may be involved.
7. Obtain the Arbitral Award: The tribunal delivers a reasoned, signed award (Section 14), which is final unless remitted for errors. For domestic awards, file in court for it to become a “rule of the court” under Section 17.

These steps ensure a structured start, but regional variations—like Peshawar’s emphasis on local neutrals under KPK laws—require adaptation. Engaging arbitration lawyers early mitigates risks.