The practice of settling disputes through arbitration or other avenues of alternative dispute resolution is an emerging phenomenon in Bangladesh. The Arbitration Act 2001 (Act of 2001), which is substantially based on the 1985 UN Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, governs arbitration in Bangladesh. The sections of the Act dealing with the definition of arbitration agreements, the number of arbitrators, party autonomy, and other topics are nearly identical to those found in the Model Law. The legislation governing domestic and international commercial arbitration is consolidated by the Act. As a result, Bangladesh has a single and unified legislative framework for arbitration. This modernization in 2001 had given Bangladesh a new lease on life as a desirable location for international trade, commerce, and investment dispute resolution.
The Act, however, does not include all of the provisions of the Model Law. Furthermore, Bangladesh is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which was established in 1958. (the New York Convention). Despite it being a signatory to the Convention and having incorporated some, if not all provisions verbatim, even the implementation or adoption of much of the Model Law into the Bangladeshi legal system has been challenging, and it has fallen short of the expectations of litigants, particularly businesses and investors, who demand rapid settlement of disputes.
Legal Framework
An arbitration will be classified as an international commercial arbitration, if one of the conflicting parties is a foreign entity and the underlying transaction is a commercial one. The arbitration in question, on the other hand, would be considered as a domestic arbitration if the conflicting parties were from Bangladesh. Despite the fact that the Act applies to both domestic and international arbitrations, it was adopted with the express purpose of addressing international commercial arbitration and the recognition and enforcement of foreign arbitral awards. One of the parties to the dispute must be one of the following in order for an arbitral proceeding to be classified as “international commercial arbitration.”:
- a national of, or habitual resident, of any country other than Bangladesh;
- a body incorporated in a country other than Bangladesh;
- a company whose central management and control is exercised in a country other than Bangladesh; or
- the government of a foreign country.[1]
The Act of 2001 allows for flexibility in the following areas: the method for appointing and challenging the appointment of an arbitrator; the selection of the rules and standards of procedure to be followed in arbitral proceedings; the competence or capacity of an arbitral tribunal to rule on its jurisdiction; and general provisions on setting aside and enforcing arbitral awards. It also includes a mandatory stay of court proceedings, as well as the authority for the court to provide interim measures in different forms, recognise and enforce international arbitral awards, and provide grounds for declining to recognise or execute such awards.
Development
Interim orders
Section 3 of the Act of 2001 states that:
“(1) This Act shall apply where the place of Arbitration is in Bangladesh.
(2) Notwithstanding anything contained in sub-section (1) of this section, the provisions of sections 45, 46, and 47 shall also apply to the arbitration if the place of that arbitration is outside Bangladesh.
(3) This Act shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.
(4) Where any arbitration agreement is entered into before or after the commencement of this Act, the provisions thereof shall apply to the arbitration proceedings in Bangladesh relating to the dispute arising out of that agreement.”[2]
The meaning and implementation of Section 3 of the Arbitration Act have been a point of controversy particularly in the question of whether the Bangladeshi court had jurisdiction to pass an interim order when the seat of the arbitration is outside Bangladesh.
The High Court Division addressed the function of Bangladeshi courts in arbitrations held outside of Bangladesh in two of its cases, HRC Shipping Limited v. M.V. X-Press Manaslu and others[3]; and STX Corporation Ltd v. Meghna Group[4], both from separate benches. In both of these cases, Bangladeshi courts reached somewhat contradictory conclusions. The decision in the STX case established that Bangladeshi courts are unable to grant any interim remedy, including assistance for the arbitration procedure, if the arbitration takes place outside of Bangladesh. The decision in the HRC case, on the other hand, had previously taken a more permissive interpretation of Section 3 of the Arbitration Act, holding that it applied even if the arbitration took place outside of Bangladesh.
In terms of the evolution of arbitration rules in Bangladesh, the interpretation of Section 3 of the Act in the STX Corporation case was considered regressive, as it drove the prospect that the innocent party would be left with little more than a paper award after lengthy arbitration processes and put the international parties in a situation contesting an expensive arbitration with no access to the Bangladeshi Party’s holdings or investments. Allowing such a situation to arise would be contrary to the spirit of the New York Convention, to which Bangladesh is a signatory.[5]
Development – However, in the case of Southern Solar Power and others v. Bangladesh Power Development Board and others[6], the High Court Division reverted to the position taken in the HRC case and ruled that the High Court is well within its jurisdiction and is competent enough to entertain an application under Section 7A of the Act of 2001 even in relation to an arbitration taking place outside Bangladesh.
The language of section 3 does not intend to oust the High Court Division’s jurisdiction over foreign-seated arbitrations, according to the High Court Division. The relevant sections of the legislation may be applied even if no prohibitory wording is used. The observations in the Southern Solar case appear to be a bold, modern but conventional development from the STX Corporation case’s more controversial and constrained interpretation.
Setting aside awards
As a general rule, awards passed in arbitration are not appealable. However, in the landmark case of Oram Limited v. Reckitt Benckiser (Bangladesh) Limited, a Division Bench of the High Court Division upheld the judgment of the District Judge in setting aside an arbitral award principally on the premise that the majority arbitrators have dealt with disputes not contemplated by or not falling within the terms of the arbitration and in addition, one of the arbitrators was not a part of the deliberations. Recently, the High Court Division in Jalalabad Gas Transmission and Distribution System Limited v. Lafarge Surma Cement Limited Bangladesh 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.
Conclusion – Potential
The Act of 2001 has opened Bangladesh’s gates to international commercial arbitration, modernising arbitration law in Bangladesh and potentially making it an attractive place for international commerce and investment. However, the enforcement of foreign arbitral awards in Bangladesh still faces some difficulties due to undue interference into the merit of the award and general delays. When a foreign party attempts enforcement against a local party, the challenge escalates.
In addition, the Act’s provisions on the definition of arbitration agreements, arbitrator numbers, time restrictions, and party autonomy comparable to the Model Law, are frequently verbatim. However, not all of the requirements of the Model Law have been implemented in the Act of 2001. Although the Courts in the Southern Solar Power Case took a liberal view of Section 3 of the Act of 2001, it is still a work in progress. Presenting itself as a investment-friendly destination has been a priority for Bangladesh in recent years and several legal and procedural reforms have been carried out to that effect. It is hoped and expected that the legislature would make revisions to bring the legislation up to date and also in accordance with established and well-developed arbitral jurisdictions of other countries particularly in the Asia-Pacific region.
From
the Dispute Resolution Team at Mahbub & Company
[1] Section 2(c) of the Arbitration Act 2001.
[2] Section 3 of the Arbitration Act 2001.
[3] HRC Shipping Limited v. M.V. X-Press Manaslu and others 58 DLR 185.
[4] STX Corporation Ltd v. Meghna Group 64 DLR 550.
[5] S Sattar, ‘Bangladeshi courts at odds in respect of its powers in relation to arbitrations seated outside of Bangladesh’ [2013] IntALR, Issue 1, p.20.
[6] Southern Solar Power and another v. Bangladesh Power Development Board and others, 2019 (2) 16 ALR (HCD) 91.
