The International Arbitration Review: Bangladesh
The Arbitration Act 2001 (Arbitration Act or Act) predominantly governs domestic and international commercial arbitration in Bangladesh. The legislature adopted the UNCITRAL Model Law on Arbitration (Model Law) while enacting the Arbitration Act with a view to modernising the then-current Arbitration Act of 1940 (1940 Act). However, even the adoption and importation of much of the Model Law into the Bangladeshi regime is not without difficulties, and is to an extent failing to live up to the expectations of litigants, especially businesspeople 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 the complete disposal of proceedings in a short time remain 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.
Apart from the Arbitration Act itself, which comes into force by virtue of an arbitration agreement, the Code of Civil Procedure, 1908 and the Money Loan Court Act, 2003 (MLCA) provide provisions for arbitration at a certain stage of a dispute even if there is no arbitration agreement.
Another place where arbitration is mandatory for resolving disputes is the Bangladesh Energy Regulatory Commission, which hosts an arbitral tribunal for adjudicating disputes between licensees and consumers with regard to energy. Section 40 of the Bangladesh Energy Regulatory Commission Act 2003 empowers the Bangladesh Energy Regulatory Commission to have exclusive jurisdiction over disputes relating to energy, and parties are obliged to resort to that arbitration forum even if there is an arbitration clause for commencing proceedings under the Arbitration Act.
i Distinction between international and domestic arbitration
The Bangladeshi legal system distinguishes between international and domestic arbitration. If one of the parties to a dispute is a foreign entity, the arbitration in question would be treated as an 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 an 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 corporates, companies or associations originating from any country other than Bangladesh would be deemed as a foreign entity and would essentially come within the purview of the definition of international commercial arbitration. Interestingly, a plain interpretation of the definition of international commercial arbitration suggests that commercial disputes between two Bangladeshi nationals having places of business even in different states cannot be considered the subject matter of an international arbitration under the Arbitration Act. Thus, the nationality of the disputing parties is the determining factor to establish the nature of an arbitration.
If any dispute is categorised as an 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 an international commercial arbitration, if any party is in need of interim relief, such as an injunction, proceedings will have to be initiated in the High Court Division, whereas in domestic arbitration cases, 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 proceedings start at the district courts. The legislature may have believed international commercial arbitrations involve complicated legal issues, and for that reason 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. Existent civil cases are administered under the provisions of the Code of Civil Procedure, 1908, including proceedings for the execution 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 the 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, apart from the arbitral tribunal hosted by the Bangladesh Energy Regulatory Commission, for adjudicating 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 their agreement. Once an arbitral tribunal passes an 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, an application for setting aside an arbitral award. All other cases involving provisions of the Arbitration Act are tried by the District Judge, Dhaka.
iii Local institutions
The Bangladesh International Arbitration Centre (BIAC) is a privately owned arbitration centre with the facility to facilitate arbitrations. The functions of BIAC are similar to any other modern arbitration centres, for example, SIAC, as it has a pool of arbitrators and its own rules to govern arbitration proceedings. Aside from BIAC, and as previously mentioned, the Bangladesh Regulatory Commission has an arbitration unit to deal with arbitrations involving energy disputes.
iv Trends or statistics relating to arbitration
Unfortunately, commercial arbitration proceedings are not managed centrally. Parties administer and manage arbitration proceedings at their choice of venue. If any arbitration award is challenged, it is only then that the existence of any proceedings comes on the official record. However, according to BIAC officials, since BIAC's inception in 2011, 54 arbitration cases with over 294 hearings have been commenced there by parties from the energy sector, non-banking financial institutions and non-governmental organisations.
Only two international arbitrations have ever been commenced at BIAC.
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 the life cycle of arbitrations and including grounds to challenge an award. A chronological discussion touching the important features of the Act and their significance can be found below.
One important and notable feature 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 foreign investors as well as on domestic parties who prefer to seat their arbitration outside Bangladesh. Section 7Ka of the Act allows the invocation of interim measures in the local courts to protect the subject matter of an arbitration even before the commencement of any arbitration proceedings. Due to the positive bar imposed by Section 3 of the Act, if the seat of arbitration is outside Bangladesh, interim measures such as an injunction or attachment before the judgment of local assets would not be available. For arbitrations seated outside Bangladesh, an arbitral tribunal would have to be constituted first, and speedily, in order to seek interim measures.
To invoke an arbitration, there has to be an arbitration agreement in place. Under the Act, the arbitration agreement must be in writing and 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 agreements under the Act – for example, a document signed by the parties, an exchange of letters, or a telex, telegram, fax, email or other means of telecommunications – that provide a record of an agreement. This view was confirmed in Globo Piu, Import and Export ltd v. Bangladesh Chemical Industries Corporation (Civil),2 where it was confirmed by High Court Division of the Supreme Court of Bangladesh that no written agreement has been found for arbitration proceedings, and as such, the District Judge justly and legally passed the judgment and order dismissing the application under Section 12 of the Arbitration Act.
The 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 this regard, it is to be noted from the provision of law that the court has unfettered discretion under Subsection (4) of Section 12 of the Arbitration Act in the matter of the appointment of an arbitrator after hearing the parties.3 In the case of the appointment of a sole arbitrator or third arbitrator in an international commercial arbitration, the chief justice, or a 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 have 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 an arbitrator.
The Arbitration Act also allows the appointment of an arbitrator to be challenged on the grounds of impartiality, independence and the arbitrator's qualifications as agreed by the parties (Section 13). However such challenge can be made by written representation to the arbitral tribunal within 30 days of knowing about the incompetency or partiality of the concerned arbitrator.4 In the absence of an agreed procedure for a challenge, the party intending to challenge an arbitrator shall, in the first instance, approach the arbitral tribunal itself. The party aggrieved by a decision of the arbitral tribunal on a 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 an arbitral tribunal, in the absence of the parties' choice of the applicable substantive law, the freedom to apply any rule of law it objectively deems appropriate in the circumstances of a dispute.
Interest can be claimed, and accordingly may be included in an 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 a 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 and 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 insert an arbitration clause in their agreement. If there is an arbitration clause, Bangladeshi courts will hold that a dispute is instituted in the 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, 1908 for the withdrawal of a suit on the ground that they will refer the dispute or disputes to arbitration for settlement.
There are only a few options available for alternative dispute resolution, such as mediation and arbitration. Under Section 89A of the Code of Civil Procedure, 1908, the court has a discretionary power to mediate between contesting parties or to refer 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 of 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 the civil administration system will apply – that is to say, the Code of Civil Procedure, 1908, with all its idiosyncrasies – and the proceedings may end up at the apex court to be finally decided.
There is no pre-action protocol or mandatory alternative dispute settlement requirement under the Money Loan Court Act before filing a suit for recovery of a loan and interest. After submission of a written statement by the defendants of a money loan recovery suit, notwithstanding the provisions of the Code of Civil Procedure, 1908, under Section 22 of the MLCA, the court shall appoint a designated lawyer for settlement through arbitration. The lawyer cannot be one of the lawyers of the parties, and generally is appointed from a panel reserved at the court. Despite this mandatory process of arbitration during a trial and its failure to settle, the parties have the liberty to settle a dispute at any stage of a suit as empowered by Section 45 of the MLCA.
Arbitration institution rules and practices
The government is yet to frame rules for commencing arbitration proceedings initiated under the Arbitration Act. 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). BIAC has developed comprehensive rules of arbitration, which are 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.
Arbitration proceedings at the Bangladesh Energy Regulatory Commission are governed by the Bangladesh Energy Regulatory Commission Dispute Settlement Regulations, 2014.
ii Arbitration developments in the 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 an arbitration is expropriated even before the commencement of the arbitration.
Common examples of such cases are bank guarantees deposited by contractors or importers to employers in construction, or a supply contract where, if the 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 (HRC case),5 the High Court, following Bhatia International v. Bulk Trading SA,6 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 (STX case),7 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 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,8 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 arbitrations.
While the approach of the court is confirmed, however, in Arbitration Application 1 of 2017, the High Court Division of the Supreme Court of Bangladesh had followed the principal of the HRC case and passed an order of ad interim injunction restraining the respondents from encasing the bank guarantee during pendency of the arbitration proceedings while in this case the seat of arbitration was in Spain. Later on, the parties to the case settled their dispute amicably and withdrew the case before a final hearing. As such, this case was not reported properly.
Generally, an award is enforceable unless the award is challenged in a court of law under Section 42 of the Arbitration Act. The grounds for challenging an arbitral award are mentioned in Section 43 of the Act, and none of them allow challenging an award on its merits. The grounds mentioned in Section 43 are generally grounds to challenge an award on procedural issues. Arbitration awards 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 was recently confirmed by the Supreme Court in Bangladesh in Nurul Abser (Md) v. Golam Rabbani,9 where it expressed its view that the Arbitration Act is a special law that has been enacted with the sole purpose of resolving a dispute between parties through arbitration and that if, after an award is given by the arbitrators, it is allowed to be challenged in a civil suit, then arbitration proceedings 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 if an agreement itself is terminated or expires. The High Court Division, in Drilltee-Maxwell Joint Venture v. Gas Transmission Company Limited 10 and in Lita Sama Samad Chowdhury v. Md. Hossain Bhuiyan, Managing Partner, Valley Classic Builders and another,11 held that unless otherwise agreed by the parties, an 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 position of law was further confirmed in Khaled Rab and another v. Bangladesh Jute Mills Corporation,12 where the High Court Division was of the view that even if the performance of a contract comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of the resolution of disputes arising under or in connection with the contract. This confirmation by the court on the survival of the arbitration clause is significant in the commercial context because parties, especially investors, may now resort to arbitration for their claims if they suffer damage after the expiry of a 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 area 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, the fast-track enforcement of arbitral awards and a statutory time limit for completing arbitration proceedings. BIAC provides rules for commencing arbitration including fast-track proceedings, but the enforcement of an award may be delayed as it would involve the civil court process for executing an award.
Qualifications of and challenges to arbitrators
The majority of commercial arbitrations in Bangladesh are presided over by 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 the parties and their counsel, 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 a dispute.
Enforcement or annulment of awards
An 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 an award. Section 43 along with Section 42 of the Act provide the grounds for setting aside an arbitral award. Fraud, corruption or conflict with the public policy of Bangladesh, a violation of the 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.
Awards passed in arbitration are not appealable. Recently, the High Court Division in Jalalabad Gas Transmission and Distribution System Limited v. Lafarge Surma Cement Limited Bangladesh13 expressed the view that the legislature did not provide any appeal against an arbitral award, which categorically indicates that the grounds provided in Section 43 of the Arbitration Act are required to be compulsorily followed by the court; even for an appeal sought regarding allegations of injustice not covered by the provided grounds cannot be taken as a ground against an award.
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. To be enforceable in the local courts, the award in question must satisfy the requirements 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, 1908 in the same manner as if it were a decree of the court. An application for its 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.
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 a 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 prospective investors should conduct a thorough legal due diligence of their local business partner beforehand to understand whether an arbitration arrangement in a 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 a proposed commercial contract, to obtain the best benefit from an 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 negotiations and mediation as prerequisites for arbitration. From recent trends, it can be noted that business entities do tend to settle disputes if effective mediation is conducted.
The Arbitration Act was enacted with the aim of modernising arbitration, especially international arbitration, by adopting features of the Model Law, which prefers the autonomy of the parties, minimum judicial intervention, the 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 India's move, interim measures should be available in the domestic courts for foreign-seated arbitrations. It is also time to consider establishing a specialist bench in the High Court Division for the purpose of dealing with international commercial arbitrations and enforcing foreign awards on a fast-track basis. There should also be a timeline to complete arbitration proceedings.
1 Mohammad Hasan Habib is a principal associate at AS & Associates.
2 Reported in 71 DLR 513.
3 Bangladesh Water Development board v. Additional District Judge, 6th Court, Chittagong (Spl Original) 24 BLC 275.
4 Ghulam Mohiuddin (Bhutto) v. Rokeya Din (Spl Statutory) 71 DLR 577.
5 Reported in 58 DLR 185.
6 Reported in 2002 AIR (SC) 1432.
7 Reported in 64 DLR 550.
8 Reported in 69 DLR 290.
9 Reported in 68 DLR (AD).
10 Reported in 21 BLC (2016) 122.
11 Reported in 20 BLC (2015) 72.
12 Reported in 23 BLC 793.
13 Reported in 23 BLC 775.