The Arbitration Act 2001 (the Arbitration Act) predominantly governs domestic and international commercial arbitration in Bangladesh. The legislature adopted the UNICITRAL Model Law on Arbitration while enacting the Arbitration Act with a view to modernising the then-current Arbitration Act of 1940 (the 1940 Act). But even adoption and importation of much of the Model Law in the Bangladeshi regime is not without difficulties and is to an extent failing to live up to the expectations of the litigants, especially businessman and investors, who want the fast resolution of disputes. The Arbitration Act resolved some of the lacunae in the 1940 Act, but enforcement of national and foreign arbitral awards in the domestic courts and complete disposal of the proceedings in a short time remained the key challenges. One of the most awkward features that is yet to be amended by the legislature is the unavailability of interim measures in the local courts for foreign-seated arbitrations.
The Bangladesh Energy Regulatory Commission hosts an arbitral tribunal for adjudicating disputes between the licensee and consumer with regard to energy. Section 40 of the Bangladesh Energy Regulatory Commission Act 2003 empowers the Bangladesh Energy Regulatory Commission to have exclusive jurisdiction on disputes relating to energy.
i Distinction between international and domestic arbitration
The Bangladeshi legal system distinguishes between international and domestic arbitration. If one of the parties to the dispute is a foreign entity, the arbitration in question would be treated as international commercial arbitration. On the other hand, if the disputing parties originate from Bangladesh, the arbitration in question would be treated as domestic arbitration. Section 2(c) of the Arbitration Act defines 'international commercial arbitration' as an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in Bangladesh and where at least one of the parties is:
- an individual who is a national of or habitually resident in, any country other than Bangladesh;
- a body corporate that is incorporated in any country other than Bangladesh;
- a company or an association or a body of individuals whose central management and control is exercised in any country other than Bangladesh; or
- the government of a foreign country.
Each part of the definition clearly provides that individual or body corporate or company or association originates from any country other than Bangladesh would be deemed as a foreign entity and would essentially come within the purview of the definition for international commercial arbitration. Interestingly, plain interpretation of the definition of international commercial arbitration suggest that commercial dispute between two Bangladeshi nationals having places of business even in different states can not be considered the subject matter of international arbitration under the Act. Thus, the nationality of the disputing parties is the determining factor to determine the nature of arbitration.
If any dispute is categorised as international commercial arbitration because of the involvement of a foreign entity, then all pre- and post-arbitration proceedings would be initiated and commenced in the High Court Division. For example, for international commercial arbitration, if any party is in need of an interim relief say injunction, proceedings will have to be initiated in the High Court Division. Whereas, in cases of domestic arbitration, proceedings will have to be initiated in the District Judge Court of Dhaka. There are no major procedural differences, but interim proceedings for domestic arbitrations get one extra tier of appeal, first to the High Court Division and then to the appellate division as the proceedings starts at the district courts. Probably the legislature may have viewed international commercial arbitration to be involved with complex legal issues and for that the High Court is better suited to adjudicate the complexities of international arbitrations.
ii Structure of the courts, including specialists tribunals
The current Bangladesh judicial system is the offspring of the colonial common law system. The existent civil cases are administered under the provisions of the Code of Civil Procedure 1908 including proceedings of commercial arbitration awards in the formal court system. Apart from the tribunals and special courts established by special laws, for example, the Cyber Tribunal, the Bangladeshi legal system has two tiers of courts for managing civil disputes. Courts of first instance (the district courts) are placed in the first tier where the majority of civil disputes are instituted. The second tier is the appellate tier – the Supreme Court of Bangladesh comprising two branches, one being High Court Division and the other being the Appellate Division.
There is no specialist arbitration tribunal available under the Bangladeshi legal system to adjudicate commercial arbitration cases except the arbitral tribunal hosted by the Bangladesh Energy Regulatory Commission to adjudicate disputes with regard to energy. Most of the time, parties form private arbitral tribunals comprising retired justices of the Appellate Division and the High Court Division to resolve their disputes provided there is an arbitration clause in the agreement. Once the arbitral tribunal passes award, the aggrieved party has the option to initiate proceedings to set aside the award. One or two single benches of the High Court Division are provided with the jurisdiction to try international commercial arbitration cases filed under the provisions of the Arbitration Act, for example, the application for setting aside an arbitral award. All other cases involving provisions of the Arbitration Act are being tried by the District Judge, Dhaka.
iii Local institutions
Bangladesh International Arbitration Centre (BIAC) is a privately owned arbitration centre that has the facility to facilitate arbitrations. The functions of BIAC is similar to any other modern arbitration centres, for example, SIAC as it has its pool of arbitrators and own rules to govern arbitration proceedings. Aside BIAC, Bangladesh Regulatory Commission has an arbitration unit to deal arbitration involving energy dispute.
iv Trends or statistics relating to arbitration
Unfortunately, commercial arbitration proceedings are not managed centrally. Parties administer and mange arbitration proceedings at their choices. If any arbitration award is challenged, it is only then the existence of any proceedings comes to official record. However, according to BIAC officials, since BIAC's inception from 2011, 54 arbitration cases with over 259 hearings had been commenced there from energy sector, non-banking financial institutions and NGOs. Only two international arbitrations have been commenced at BIAC.
II THE YEAR IN REVIEW
i Developments affecting international arbitration
The Arbitration Act is the primary statute for governing commercial arbitrations and is divided into 14 chapters with statutory provisions stipulating life cycle of arbitrations including grounds to challenge an award. A chronological discussion touching the important features of the Act and their significance are below.
One of the important and notable features of the Act is the ouster of the Act where the seat of arbitration has been determined by the parties to be outside of Bangladesh. Section 3 of the Act has set out the scope of the Act to be applicable on arbitrations seated in Bangladesh. This ouster clause has far reaching implications on the foreign investors as well as on domestic parties who prefer to seat their arbitration to be outside Bangladesh. Section 7Ka of the Act allows invoking interim measures in the local court to protect the subject matter of arbitration before even commencement of any arbitration proceedings. Due to the positive bar imposed by Section 3 of the Act, if seat of arbitration is outside Bangladesh, interim measures, for example, injunction or attachment before judgment of local assets would not be available. For arbitration seated outside Bangladesh, an arbitral tribunal would to be constituted first, speedily, in order to seek interim measure.
In order to invoke arbitration, there has to be an arbitration agreement in place. Under the Act, arbitration agreement must be in writing signed by the parties that may form part of a contract or in the form of a separate contract. Various forms of written instruments are acceptable as arbitration agreement under the Act, for example a document signed by the parties, exchange of letters, telex, telegrams, fax, email or other means of telecommunications, which provide a record of the agreement.
Appointment of arbitrators is liberally viewed under the Act. Unless otherwise agreed by the parties, a person of any nationality may be an arbitrator. In the event of default, courts can appoint an arbitrator under Section 12 of the Act, but must give due regard to any agreement of the parties as to the qualifications required of the arbitrator and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator (Section 12(9)). In case of appointment of a sole arbitrator or third arbitrator in an international commercial arbitration, the chief justice or the judge of the Supreme Court designated by the chief justice, may appoint an arbitrator of a nationality other than the nationalities of the parties, where the parties belong to different nationalities (Section 12(10)). It is important to note that if any party fails to cooperate in appointing arbitrators, proceedings under Section 12 of the Arbitration Act can be initiated in the domestic courts for appointing arbitrator.
The Arbitration Act also allows the appointment of an arbitrator to be challenged on the grounds of (1) impartiality, (2) independence, and (3) the arbitrator's qualifications agreed by the parties (Section 13). In the absence of an agreed procedure for challenge, the party intending to challenge an arbitrator shall, in the first instance, approach the arbitral tribunal itself. The party aggrieved by the decision of the arbitral tribunal on the matter, has the option to appeal such decision to the High Court Division of the Supreme Court, which has the final word on the challenge issue.
The Arbitration Act is also liberal in the sense that the parties are allowed to choose any rule of law, not necessarily the law or the legal system of the country whose law is applicable to the substance of the dispute. For example, any party may select Bangladeshi law as the substantive law and the ICC Arbitration rules for the commencement of arbitration proceedings. However, the Act allows the arbitral tribunal, in the absence of the parties' choice of applicable substantive law, the freedom to apply any rule of law it objectively deems appropriate in the circumstances of the dispute.
Interest can be claimed and accordingly may be included in the award in respect of the sum for which the award is made at such rate as the arbitral tribunal deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. Subject to what is specified in the award, interest on the sum directed to be paid by the arbitral award, at the rate of 2 per cent per year more than the current Bangladesh Bank rate, is payable for the period between the date of the award and the date of payment (Section 38(6)).
Court rules or practices
While there are special courts that hear money recovery suits established by the Money Loan Court Act 2003, there are no fast-track courts for trying commercial disputes. There is no pretrial mandatory mediation or dispute resolution process in the current legal system. Parties are at liberty to institute suits in formal courts except for agreements where parties particularly stipulate to resolve disputes through arbitration. There is no obligation under Bangladeshi law to opt for arbitration for settling disputes; it is only mandatory where the contracting parties inserts an arbitration clause in their agreement. If there is an arbitration clause, Bangladeshi court will hold the dispute instituted in formal court system and will send the parties for arbitration (Section 7 read with Section 10 of the Arbitration Act). However, the parties to a suit can apply at any stage of the proceedings to the court under Section 89B of the Code of Civil Procedure for withdrawal of the suit on the ground that they will refer the dispute or disputes to arbitration for settlement.
There are only few options available for alternative dispute resolution, for example, mediation, arbitration. Under Section 89A of the Code of Civil Procedure, the court has a discretionary power to mediate between the contesting parties or to refer the disputes to the pleaders of the parties, or to the parties where no pleaders have been engaged or to a mediator from the panel of mediators. Informal private arbitration proceedings are one of the most frequently used alternative dispute resolution procedures, and are governed by the Arbitration Act. There is no special procedure to dispose and enforce an arbitration award that has been challenged in a formal court system on a fast-track basis. If any award is challenged in the formal court system, the rules of civil administration system will apply, that is to say, the Code of Civil Procedure with all its idiosyncrasies, and the proceedings may end up at the apex court to be finally decided.
Arbitration institution rules or practices
The government is yet to frame rules for commencing arbitration proceedings initiated under the Arbitration Act. The parties are at liberty to follow and adopt their own rules or resort to any internationally recognised rules (i.e., the ICC rules when commencing arbitration proceedings under the Arbitration Act). The BIAC has developed comprehensive rules of arbitration available on its website. In the absence of any hard and fast rules on arbitration institutions, interested parties may insert a particular arbitration clause selecting the BIAC rules as their preferred rules. However, common practice is to set the parties' own rules in both international and domestic arbitrations.
ii Arbitration developments in local courts
Interpretation and enforcement of arbitration clauses
One of the important features of the Arbitration Act is its ability to protect the subject matter of arbitration through interim measures under Section 7Ka of the Act where domestic courts are invested with wide powers to order almost anything to save the subject matter. In an appropriate case, this statutory power is important to protect an innocent or a comparatively weaker party from a possible arbitration. However, this important power has one serious limitation, as it is only available if the seat of arbitration is in Bangladesh. Section 3 of the Arbitration Act limits the scope and applicability of the Act for arbitrations seated in Bangladesh. The effect of such limitation can be fatal for small entrepreneurs and may ruin their business if the subject matter of arbitration is expropriated even before the commencement of arbitration.
A common example of such cases are bank guarantees deposited by contractors or importers to employers in construction or a supply contract where if contractual terms are not respected, the first thing an employer will do is to cash the deposited bank guarantee. The defaulting contractor may have the opportunity to retrieve the bank guarantee if an arbitration award goes in its favour, and this may be after the completion of the arbitration proceedings and possibly after review by the apex court if the award is challenged in the formal court system. In the meantime, the contractor or supplier is deprived of his or her money because of the unavailability of interim measures for preferring the seat of arbitration to be outside of Bangladesh.
The judiciary in Bangladesh has previously held conflicting views regarding the applicability of the Arbitration Act by dint of Section 3 in cases where the seat of arbitration has emphatically been stipulated by the parties to be outside of Bangladesh. In HRC Shipping Ltd v. MV X-Press Manaslu reported in 58 DLR 185 (the HRC case), the High Court following Bhatia International v. Bulk Trading SA reported in 2002 AIR (SC) 1432 was of the view that the court can order interim measures where the seat of arbitration is outside Bangladesh. On the other hand, in STX Corporation Ltd Meghna Group of Industries Limited reported in 64 DLR 550 (the STX case) the High Court adopted a completely different view and held that the provision of the Arbitration Act is not applicable to a foreign arbitration except as provided in Section 3(2) of the Act itself, meaning interim measures would not be available in foreign-seated arbitrations. Recently the High Court Division has revisited the ratio of both the HRC and STX cases in Project Builders Ltd (PBL) v. China National Technical Import and Export Corporation and others reported in 69 DLR 290 and confirmed that there is no scope to deviate from the provisions of Section 3 of the Arbitration Act. As a result, interim measures cannot be granted by Bangladeshi courts for foreign-seated arbitration.
Generally an award is enforceable unless the award is challenged in the court of law under Section 42 of the Arbitration Act. The grounds for challenging an arbitral award has been mentioned in Section 43 of the Act and none of them allow challenging an award on merit. The grounds mentioned in Section 43 are generally grounds to challenge an award on procedural issues. Arbitration award cannot be challenged in a civil suit except by filing an application under Section 42 of the Arbitration Act within 60 days of the receipt of the award. This view has been recently confirmed by the Supreme Court in Bangladesh in Nurul Abser (Md) v. Golam Rabbani reported in 68 DLR (AD) expressing its view that the Arbitration Act is a special law and it has been enacted with the sole purpose of resolving the dispute between the parties through arbitration and after an award is given by the arbitrators, if it is allowed to be challenged in a civil suit, then arbitration proceedings shall become a mockery and the whole purpose of the arbitration scheme as envisaged in the act shall fail. If arbitral awards are allowed to be challenged in the civil courts, lengthy court processes would further have to have been exhausted for the resolution of a dispute. The view expressed by the Supreme Court in this case is welcome, especially from an investors' perspective.
One of the important questions in the context of commercial arbitration is whether an arbitration clause can survive and be enforceable even the agreement itself is terminated or expires. The High Court Division in Drilltee-Maxwell Joint Venture v. Gas Transmission Company Limited reported in 21 BLC (2016) 122 and in Lita Sama Samad Chowdhury v. Md. Hossain Bhuiyan, Managing Partner, Valley Classic Builders and another reported in 20 BLC (2015) 72 held that unless otherwise agreed by the parties, the arbitration agreement may survive as a distinct agreement even if the contract in which it is contained is regarded as invalid, non-existent or ineffective. This confirmation by the court on the survival of the arbitration clause is significant in the commercial context as now parties, especially investors, may resort to arbitration with their claims if they suffer damages after the expiry of the contract.
The Arbitration Act is a marked improvement on the 1940 Act in terms of efficiency; for example, the Arbitration Act allows the enforcement of foreign arbitral awards. However, despite adopting the Model Law, some peculiar features remain that require revision to address modern-day needs. One of the areas where urgent amendment is required is the removal of the ouster prescribed by Section 3 of the Arbitration Act. The Indian Arbitration Act contained the same ouster clauses, but India did not move forward in this regard when it amended its Arbitration Act 2015, and arbitration users may seek the help of national courts in India for interim measures regardless of the seat of arbitration.
Another feature that the current Arbitration Act lacks is the availability of fast-track arbitration procedures and the fast-track enforcement of arbitral awards or a statutory time limit for completing arbitration proceedings. The BIAC provides rules for commencing arbitration including fast-track proceedings, but enforcement of an award may be delayed as it would involve the civil court process for executing an award.
Qualifications of or challenges to arbitrators
The majority of the commercial arbitration in Bangladesh are presided over by the retired Appellate Division or High Court justices. Apart from justices from the senior judiciary, retired district judges and senior lawyers also act as arbitrators in both domestic and international arbitrations. The selection of arbitrators depends on parties and their counsels, and to an extent on the court if any party fails to cooperate in appointing an arbitrator.
Juridical assistance in evidence gathering for arbitration proceedings
The Arbitration Act vests wide powers in any arbitral tribunal constituted under the Act. Section 33 of the Act empowers an arbitral tribunal to call for any witness or evidence relevant to the dispute.
Enforcement or annulment of awards
The arbitral award is enforceable like a court decree provided the time period for initiating proceedings for setting aside an award has elapsed. Proceedings for setting aside an arbitral award will have to be initiated under Section 42 within 60 days of receipt of award. Section 43 along with Section 42 of the Act provides the grounds for setting aside an arbitral award. Fraud, corruption or conflict with the public policy of Bangladesh, the violation of principles of natural justice, acting beyond the terms of the submission and deciding on matters that are legally not arbitrable are the grounds on which an award can be set aside.
A party aggrieved by an award may also initiate proceedings to set aside an arbitral award if there is evidence that:
- a party to the arbitration agreement was under some incapacity;
- the arbitration agreement is not valid under the law to which the parties have subjected it;
- the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable due to some reasonable cause to present his or her case; or
- the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains a decision on matters beyond the scope of the submission to the arbitrators.
Foreign arbitral awards are now enforceable under Section 45 of the Arbitration Act, which was not available under the 1940 Act despite the fact that at the time Bangladesh was a party to the New York Convention. A party must apply to the District Court of Dhaka to enforce any foreign arbitral award. In order to be enforceable in the local courts, the award in question must satisfy the requirement set out in Section 45 of the Arbitration. For example, the award must be complete and must not be against the public policy of Bangladesh. Section 45(1)(b) also provides that, on an application made by a party to the award, a foreign arbitral award is enforceable by the court under the Code of Civil Procedure, in the same manner as if it were a decree of the court. Application for the execution must be accompanied by the original arbitral award or an authenticated copy of the award, or the original or authenticated agreement for arbitration and evidence proving that the award is a foreign award. It is worth mentioning that enforcing a foreign award may be time consuming, as it involves the formal court system and resorting to the civil administration of justice delays the overall completion of the arbitral process.
III OUTLOOK AND CONCLUSIONS
The practice of resolving disputes through arbitration is relatively new in Bangladesh compared to other jurisdictions and it is still in the development stage. Therefore, the enforceability of an otherwise enforceable award may be delayed if it is challenged in the court of law, which is often the case. Hence, despite its effectiveness in the commercial context, unless the other party is also willing and sensible, the arbitration process in Bangladesh may result in additional delays and perhaps eventual litigation. Therefore, it is recommended that the prospective investor should conduct a thorough legal due diligence of the local business partner beforehand to understand whether an arbitration arrangement in the contract would in fact be the best course to adopt.
An effective arrangement could be involving jurisdictions where arbitration proceedings are well defined, for example, Singapore as the seat of the arbitration, if that is cost-effective in terms of the proposed commercial contract, to obtain the best benefit from the arrangement. However, the drawback of this option is enforcing the award in Bangladesh and the unavailability of interim measures from the domestic courts.
Another alternative is to insert the requirement of executive negotiation and mediation as a prerequisite for arbitration. From recent trends it has been noticed that business entities do tend to settle disputes if it done through effective mediation.
The Arbitration Act was enacted with the aim of modernising arbitration, especially international arbitration, by adopting features of the Model Law, which prefers autonomy of the parties, minimum judicial intervention, independence of the arbitral tribunal and the most efficient resolution of disputes in a cost-effective manner. As Bangladesh is a prospective destination for increasing foreign investment in the future, it may be time to modernise the Arbitration Act further by removing the existing barriers, for example, following the Indian move, interim measures should be available in the domestic courts for foreign-seated arbitration. It is also time to consider establishing a specialist bench in the High Court Division for the purpose of dealing with international commercial arbitration and enforcing foreign awards on a fast-track basis and there should also be a timeline to complete arbitration proceedings.
1 Mohammad Hasan Habib is a principal associate at AS & Associates.