Law And Lex-Arbitri Provisions In International Commercial

International Commercial Arbitration in Bangladesh

Discuss about the Law and Lex-Arbitri Provisions in International Commercial.

The legal system existing in Bangladesh considers arbitration as a tradition which was previously used for the purpose of resolution of dispute and was administrated by the Arbitration Act, 1940. Most of the provisions of the Arbitration Act, 1940 were outdated as compared to the contemporary arbitration regulations existing in various parts of the world. Under the Arbitration Act, 1940, the extensive use of arbitration procedures involved the role of courts in the arbitration procedure, its regulation as well as implementation of arbitral awards as well. However, the implementation of arbitral award has been demonstrated to be slow and burdensome as for its implementation, order could be obtained from the District Court. After the implementation of the new Arbitration Act, 2001, the utilization of arbitration in the form of alternative to the resolution of dispute related procedures has increased. Bangladesh has started taking the initiatives for reform and it is predictable that the new Arbitration Act, 2001 would make changes in the execution of international arbitral awards as declared in the New York Convention, of which Bangladesh is also a member. Both business community as well as government has positively reacted to the enactment of the 2001 Act. The Division of the High Court has established a specific bench with the jurisdiction of nomination of arbitrators regarding international arbitration. The research will explore and emphasize upon jurisdictional issues, choice of law and lex arbitri provisions as major points.

For the purpose of effective dispute resolution in international trade as well as commerce, the arbitration is considered as a significant process. The reason behind business community to believe on arbitral process is for the expansion of whole trade system instead of challenges across the world. Lack of arbitration might even threaten the stability of safe international business as well as commercial structure of trade. In order to achieve the international obligations with the New York Convention and UNICITRAL, Bangladesh enacted the arbitration law known as Arbitration Act, 2001 and annulled the Arbitration Act of 1937 as well as the Arbitration Act of 1940. The country has implemented various policies in order to increase the foreign investment. Bangladesh realizes its obligation for the defense of foreign private investment in the country by ratifying the 1965 Conventions on the Settlement of Investment Dispute between States as well as Nationals of other States (ICSID Convention) which is also known as Washington Convention. Bangladesh is also a member of 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), as well as the UNCITRAL Model Law regarding International Commercial Arbitration of 1985 that has been amended in 2006. Despite offering effective dispute resolution, international commercial arbitration had to face serious challenges such as employing arbitrators, implementing minimal standards and proficiency, cost related issues in arbitration, implementation of arbitral awards, authority of arbitrators, institutional bias, and ability of control and supervision of national courts upon international commercial arbitration.        

Jurisdictional Objections to Arbitral Tribunal

The competence-competence principle provides the authority to the arbitral tribunal in order to govern its authority and relevant oppositions regarding the disputed entitlements. This principle was introduced in the English law by the Arbitration Act of 1996 and stated that except if not consented by the related parties, and subjected to challenges by arbitral procedure of appeal or review or alliance with the provisions of Part I of the 1996 Act, an arbitral tribunal might rule upon its own fundamental authority regarding if there is lawful arbitration agreement, if tribunal has been appropriately established and if the issues have been given to arbitration consistent with the arbitration agreement. The ability of the arbitral tribunal in inducing jurisdictional objections require various terms and conditions to be fulfilled such as presence of legalized arbitration agreement amongst the parties, the prospect of the arbitration agreement should include the matter of dispute as well as the arbitral tribunal is required to be aptly established.  

There are certain restrictions of the 2001 Act such as Section 17 has mentioned five jurisdictional questions upon which arbitral tribunal might apply its power of competence-competence. The five questions are whether there is presence of lawful arbitration agreement, whether arbitration agreement is incompetent to be executed, the issues have been provided for arbitration according to the arbitration agreement. The arbitral tribunal deals with the issue of competence if applied by either of the parties. Section 18 has discussed about the amendments in the arbitration clause and explains that arbitration agreement which is a part of another agreement is considered as separate agreement at the time of decision making for defining the jurisdictional authority of arbitral tribunal. Thus, without taking into consideration that the fundamental or parent contract might be void, it becomes completely possible to have a binding arbitration agreement emerging from the same contract.

The contradiction of arbitration is that it examines the support of the public authorities to remain free which requires relationship between the courts and arbitral processes. In various situations, the influence of national systems appears to be normal, expected, and welcomed, though other times, it might appear troublesome and unjustified. The knowledge of these characteristics is beneficial for assessing the possibility of party independence and the way topmost parties should take benefit of international arbitration and identify drawbacks and possible consequences and remedies as well. The courts should identify the reasons slowly in order to undertake authority over an issue that the parties have contracted to consider for the purpose of arbitration. It should also be kept in mind that the International Arbitration Act was aimed to reduce the contribution of courts in the issues that are decided by the parties to be taken for arbitration. 

Court and Arbitration Tribunal

The existing arbitration and court actions should be avoided except if it is regarding offering of essential support for the arbitral process. In addition, jurisdictional challenges must also be handled quickly and decisively as the preparedness of the courts to deal with jurisdictional challenges or use supervisory role regarding arbitration proceedings, it will inspire the parties to stall the proceedings of arbitration, which in sequence, reduce the pace of arbitrations and enhance the overall costs of proceedings. Thus, the role of the court is to provide backing the arbitral process instead of displacing it.   

The involvement of the court has been anticipated by the Arbitration Act 2001in various sections of the Act which are Section 8 (arbitration agreement as well as practical claim before Court for stay on proceedings), Section 7A (temporary measures), Section 12 (employment of arbitrators), Section 14 (challenge processes), Section 15 (termination of arbitrator’s mandate), Section 17 (capability of arbitral tribunal to regulate its jurisdiction), Section 33 (assistance of court in taking evidence), Section 42 (setting aside an award) and Section 44 and Section 45 (appreciation and implementation of awards). In this manner, the Arbitration Act 2001 enables the national courts of Bangladesh to play significant role in assisting the arbitration tribunal and provides them the authority to intervene in some cases by not providing the awards in case of breach of basic rights of parties or when arbitral tribunal has acted beyond its jurisdiction powers. However, arbitration is described by flexibility and autonomy from the procedures of litigation which is not a substitute of the court but interconnected to each other and both can perform together in order to reduce the accumulation of cases.  

Previously, the English Courts did not prefer arbitration and used to consider arbitrators as their opponents. In middle of the 20^th century, the English Courts started changing their attitudes concerning to the arbitration proceedings and commercial courts started identifying the self-sufficiency of the arbitration process. However, the courts continued supervising the arbitration process through case-stated method and arbitrators were required to state cases on a question of law for the judgement of the court regarding the issue. In Bangladesh, there were provisions in the Arbitration Act 1940 which permit the courts for intervening in the arbitration proceedings. However, Act 2001 aims to restrict it despite holding the supervisory role of the courts in a restricted manner. Section 7 of the Act 2001 limits the court to decide the matters in which either of the parties in the procedures of the arbitration initiates for the procedures of the court.  In Bangladesh Jute Mills Corporation v Maico Jute and Bag Corporation & Others, it was stated that the court cannot try the case which is already pending to the arbitral tribunal. Section 7A of the Act authorizes the local courts to make interim or temporary orders regarding matters such as for temporary orders to confine the transfer of property about to create obstruction to the enactment of arbitral award. Similar to Section 7 of the Act, the courts in Bangladesh shall not intervene in the matter exposed to arbitration agreement existing between the opposing parties under Section 10 of the Act.  If a party under arbitration agreement initiates trial to a court in Bangladesh while the other party has objection to it before the filing of the statement of defense, then the court should halt the proceedings and advise the parties for arbitration until they are convinced that the agreement is annulled, out of action or unable to be resolved by arbitration. This section is in line with the commonly conventional principle that authority to search for arbitration is a predetermined right and a contract cannot be individually repealed for the purpose of avoiding the arbitration clause. Under Section 10 of the Act, any party or person under arbitration agreement appealing commences legal actions against any other party or person to the agreement appealing any issue to be raised for the arbitration, any party to such legal actions might appeal to the court any time before filing statement, before which, the actions are awaiting to raise the issue to the arbitration. Then, there is no chance for raising the dispute to the arbitration and local court are assigned with the jurisdiction for resolving the dispute. The introduction of Section 89B of the CPC 1908 which states that if parties apply to the court for drawing back the case at any stage of proceedings based on stating the dispute for the arbitration, then the local court will permit the case to be taken back and subsequently, the dispute can be considered for settlement according to the Act. 

The ability of selecting an entirely neutral position without any association to the parties under argument is beneficial for international arbitration over litigation. In general, in litigations, it becomes hardly possible for the parties to choose court to resolve their disputes. On the basis of rules of that particular court, the connection between the court and parties or dispute is essential for the acceptance of jurisdiction by court. Actually, there is requirement of laws and courts promoting international arbitration. The position should be member to the New York Convention countries as most of the jurisdictions have executed the New York Convention with mutually beneficial reservations. The arbitration rule of the position should provide for the preferred level of judicial intervention and control. The trends in contemporary international arbitration laws include Model Law jurisdictions for the purpose of restricted judicial control or extremely delocalized proceedings of arbitration. Generally, the parties are free to decide the position at any time which is done by arbitration agreement, however, it might be agreed upon later as well. The liberty to select the seat of arbitration is extremely significant under institutional arbitration rules and is known as lex arbitri of majority countries thus ensuring the preeminence to party independence and liberty of parties for the purpose of choosing the seat of arbitration.

Rarely, the arbitration rules deny parties any kind of freedom to select the seat, however, Section 3 (1) of 2001 Act of Bangladesh appears to be an exclusion which describes that the arbitration act is applicable where the arbitration place is Bangladesh. However, if either or both the parties are not from Bangladesh, the seat can be outside the country. Previously, the courts of Bangladesh were involved in contradictory decisions regarding the scope of powers over arbitration to be seated outside Bangladesh. In STX Corporation Ltd. case, the High Court of Bangladesh rejected to provide an interim remedy when the arbitration proceedings were seated out of the country which affected the international business community as they had no opportunity to appeal in Bangladesh regarding arbitration to be conducted outside Bangladesh. The arbitral tribunals have been gifted with the authority to pass an interim award which is enforceable as final award to be provided by the Court. Under section 21, the arbitral tribunal possesses the authority to order a party to take any temporary defense at the appeal of a party as the arbitral tribunal considers essential regarding dispute and such awards are not appealable. It is essential for the Parliament of Bangladesh to amend the 2001 Act to specifically include provisions requiring that the courts of Bangladesh possess the authority to issue interim remedies in arbitrations seated in foreign countries and accept international arbitral awards without overruling. 

The decision of the arbitration award by the Arbitral Tribunal is based on terms and conditions of contract and the evidences provided by the parties during the arbitration process on the basis of rule of law as chosen by the parties. Under Section 36(2) of 2001 Act, if parties fail to designate the rules, the rule of law is practiced by the Arbitral Tribunal. The arbitration award should be in text and verdict should be made by the majority of members in case there is more than one arbitrator. The arbitration award is lawfully implemented in the court of the state or country having jurisdiction regarding dispute and challenged only under certain restricted conditions. Section 45 represents Article III of the New York Convention, which makes foreign arbitral award mandatory on parties concerning the arbitration agreement and can be executed by the local court as its own verdict.

There are certain aspects in which, 2001Act does not match with the standards of the New York Convention. The evidences required for the application under the Act for the purpose of executing foreign arbitral award is more time-consuming as applicants are required to submit evidences to prove it as foreign award in the court. Furthermore, along with original document of arbitral award, actual or certified copy of arbitration agreement and certified conversions of all the documents are required.

The Act only takes into consideration, the territorial aspect of the arbitral award, instead of lex arbitri under which the award was extracted. The issue of implementation of arbitral awards in Bangladesh is a serious problem which should be resolved quickly.     

• The implementation of arbitral award was identified to be slow and complicated and a doubt exists whether to implement arbitral awards when the Bangladesh settled to the New York Convention.
• The courts are destined to raise the parties to arbitration in case of existence of arbitration agreement.
• The law of Bangladesh permits the contracts to raise dispute settlement to third country forums for the purpose of resolution.
• Bangladesh is already a party to the SAARC Agreement for establishing Arbitration Council, which intends to launch a permanent center for alternative dispute resolution in one of the SAARC member countries.

Conclusion

The 2001 Act has been found to be varying as compared to the New York Convention as well as the Model Law regarding appreciation and application of foreign arbitral awards. The new Arbitration Act deals wholly with the foreign awards in undertaking an arbitration agreement in any other territory but does not include award being provided in the region of a specific state. Thus, the possibility of rules regarding the appreciation and execution of foreign arbitral awards under new Act is contracted as compared to Model Law as well as New York Convention. However, there is not any point in ratification in the New York Convention unless the related State prefers to honor such obligations and do not implement and follow the provisions in an appropriate manner. However, the issue can be addressed effectively through advanced education and proper training along with regular judicial encounters or contracts regarding this area of law. In order to resolve the issues related to ambiguity in legal matters, it is imperative to make the mechanism dynamic, efficient and acceptable to the parties regarding choice of law and foreign arbitral awards.

References

Ahmed, Rajin, “International Commercial Arbitration in Bangladesh” (2014) 21(107) The Financial Express

Al-Baharna, Husain M., “International Commercial Arbitration in Perspective” (1988) 3(1) Arab Law Quarterly

Berger, Klaus Peter, “Integration of Mediation Elements into Arbitration: ‘Hybrid’ Procedures and ‘Intuitive’ Mediation by International Arbitrators” in Arbitration International, Volume 19, Issue 3 (3rd ed, 2003) <https://academic.oup.com/arbitration/article-abstract/19/3/387/215569?redirectedFrom=PDF>

Bergin, P A, “Meeting Challenges Posed by Modern International Commercial Litigation” in Fifth Judicial Seminar on Commercial Litigation (2016) <https://www.supremecourt.justice.nsw.gov.au/Documents/Publications/Speeches/2016%20Speeches/Bergin_20161020.pdf>

Böckstiegel, Karl-Heinz, “Role of the State on Protecting the System of Arbitration” in Ciarb Centenary Conference (2015) <https://www.ciarb.org/docs/default-source/ciarbdocuments/london/b%C3%B6ckstiegel.pdf?sfvrsn=0>

Cobb, M. B., “Domestic Courts’ Obligation to Refer Parties to Arbitration” (2001) 17(3) Arbitration International

Goode, R., “The Role of the Lex Loci Arbitri in International Commercial Arbitration” (2001) 17(1) Arbitration International

Khan, Maimul Ahsan, “Issues of Jurisdiction, Choice of Law and Enforcement in International Commercial Arbitration: A Bangladesh Perspective” [2018] Private International Law <https://link.springer.com/chapter/10.1007/978-981-10-3458-9_14>

Maniruzzaman, Professor Dr A F. M., “The New Law of International Commercial Arbitration in Bangladesh: A Comparative Perspective” (2003) 14 American Review of International Arbitration <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1342329>

Williams QC, Professor David A R, “Defining the Role of the Court in Modern International Commercial Arbitration” (Lecture, Singapore, 2012)

Wood, John, “Opening the Door to Justice: Amending the Federal Arbitration Act to Remedy the Unjust Use of Predispute Arbitration Agreements” [2012] SSRN Electronic Journal

Bhuiyan, Kamal Uddin and Md. Jahangir Alam, Niko Case and the Prospect of Foreign Investment in Bangladesh (2015) Thedailystar.net <https://www.thedailystar.net/niko-case-and-the-prospect-of-foreign-investment-in-bangladesh-50667>

Carbonneau, Thomas E., The Rise in Judicial Hostility to Arbitration: Revisiting Hall Street Associates (2013) Elibrary.law.psu.edu <https://elibrary.law.psu.edu/cgi/viewcontent.cgi?referer=https://www.google.co.in/&httpsredir=1&article=1258&context=fac_works>

ITC, Rules of Arbitration of the Bangladesh Council of Arbitration (2018) Intracen.org <https://www.intracen.org/Rules-of-Arbitration-of-the-Bangladesh-Council-of-Arbitration/>

Radicati di Brozolo, Luca G., The Relation between Courts and Arbitration: Support or Hostility (2012) Papers.ssrn.com <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2125445>

Rahmans, International Arbitration – Law Firm in Dhaka, Bangladesh (2018) Rahmansc.com <https://rahmansc.com/international-arbitration/>

Casella, Alessandra, “On Market Integration and the Development of Institutions: The Case of International Commercial Arbitration” (1996) 40(1) European Economic Review

Heidemann, Maren, “Methods of Integration through Commercial Arbitration” in Methodology of Uniform Contract Law (Springer, 2018)

Jones, Doug, “Factors to Consider in the Choice of Procedural and Substantive Law in International Arbitration” (2014) <https://journalsonline.academypublishing.org.sg/Journals/Singapore-Academy-of-Law-Journal-Special-Issue/e-Archive/ctl/eFirstSALPDFJournalView/mid/513/ArticleId/332/Citation/JournalsOnlinePDF>

Leroy, Michael H. and Peter Feuille, “Judicial Enforcement of Predispute Arbitration Agreements: Back to the Future” (2003) 18(2) Ohio State Journal on Dispute Resolution

Park, William W., “The Lex Loci Arbitri and International Commercial Arbitration” (1983) 32(1) International and Comparative Law Quarterly

STX Corporation Ltd v Meghna Group of Industries Limited and others (2012) 2 Arbitration Application No.16 of 2009