Arbitration process in Bangladesh
Arbitration has increasingly become the more suitable method of dispute resolution in Bangladesh for corporate persons. Keeping in mind how time consuming litigation can be in Bangladesh, it is advisable for corporate entities to resolve their disputes by arbitration. However, there are certain practical factors that must be kept in mind.
Arbitration in Bangladesh is primarily governed by Arbitration Act 2001. The Act is based on UNCITRAL Model Law. As per Section 3(1) of the Arbitration Act 2001, the Act applies whenever the place of arbitration is in Bangladesh. It must be noted, however, that the 2001 Act is not the first Act related to arbitration in Bangladesh. Previously, arbitration in Bangladesh was governed by Arbitration Act 1940.
How does arbitration occur?
- Legal requirements
Arbitration agreement: The Court would only allow the parties to resolve their dispute by arbitration if it is satisfied that an arbitration agreement exists (Section 10(2) of Arbitration Act 2001). As per Section 9 of the Arbitration Act 2001, an arbitration agreement must be in writing and it may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
When arbitration agreement is void: If the Court finds that the arbitration agreement is void, inoperative or incapable of determination by arbitration, then it will not refer the parties to arbitration (Section 10(2) of Arbitration Act 2001). As a reference, an arbitration clause should look something like-“All claims and disputes arising under or relating to this Agreement shall be settled by arbitration”.
Severability of the arbitration agreement/clause: Section 18 of the 2001 Act states that an arbitration agreement which forms part of another agreement shall be deemed to constitute a separate agreement when ruling upon the validity of that arbitration agreement. This means that an arbitration clause in an agreement may be considered as valid even if the rest of the agreement has been deemed invalid or void.
- Procedural requirements
- General procedural requirements
Arbitration starts after receiving notice: As per Section 27 of the 2001 Act, the arbitral proceedings shall be deemed to have been commenced if a dispute arises which is applicable to arbitration as per the arbitration agreement, and if a party has received an arbitration notice from the other party.
When jurisdiction of the arbitral tribunal questioned: In practice, what often happens is that the parties do not include a clear and unambiguous arbitration clause/agreement. For instance, if parties mention in their agreement that “a dispute ‘may’ be resolved by arbitration” instead of “a dispute ‘shall’ be resolved by arbitration”, then questions could be raised as to the jurisdiction of the arbitral tribunal. This question can be resolved by referring the matter to the High Court Division. Section 20(1) of the 2001 Act states that the High Court Division, may on the application of any of the parties to the arbitration agreement, after serving notice upon all other parties, determine any question as to the jurisdiction of the arbitral tribunal.
Submission of facts supporting claim: Section 29(1) states that within the period of time determined by the tribunal, the claimant shall state the facts supporting his claim, the points at issue and the relief or remedy sought, and the respondent shall state his defense in respect of these particulars, unless the parties have otherwise agreed.
Interim award: As per Section 27(1), unless a different intention appears in the arbitration agreement, the arbitrators may, if they think fit, make an interim or temporary award.
- Procedural requirements related to selection and composition of arbitrators
Freedom to choose arbitrators: Parties have a great deal of freedom in the composition of the arbitral tribunal. Section 11(1) of the 2001 Act gives them the ability to determine the number of arbitrators. Moreover, the parties are not required to follow a set procedure for appointing the arbitrators. Section 12(1) states that the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
Appointment of arbitrator by District Judge: In case of a failure to reach upon such an agreement, Section 12(3) states that in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitration within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made upon request of a party by the District Judge. Further, Section 12(7) states that Where, under an appointment procedure agreed upon by the parties – (a) a party fails to act as required under such procedure; or (b) the parties, or the arbitrators, fail to reach an agreement under the same procedure; or (c) a person or any third party fails to perform any function assigned to him under that procedure, unless the agreement on the appointment procedure provides other means to take the necessary measure for securing the appointment a party may apply to- (d) the District Judge and the District Judge shall appoint the Chairman of the tribunal along with the other arbitrators.
Place of arbitration: The parties are free to agree on a place of arbitration. Failing such agreement, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.
Challenging the appointment of an arbitrator: There are certain grounds on which an arbitrator may be challenged. As per Section 13(3), an arbitrator may be challenged if circumstances exist that gives rise to justifiable doubts as to his independence or impartiality, or he does not possess the qualifications agreed to by the parties. Further, Section 14 provides the procedure for challenging the appointment of an arbitrator.
Rules of procedure of the arbitration: The arbitral tribunal shall follow the rules of procedure to be agreed by the parties. In the absence of any agreement as to the procedure, the arbitral tribunal shall decide procedural matters in conducting its proceedings.
Recognition and Enforcement of arbitral award
Arbitral award final and binding: As mentioned in Section 39(1) of the 2001 Act, an arbitral award made by an arbitral tribunal pursuant to an arbitration agreement shall be final and binding on both the parties and on any persons claiming through or under them.
Interest on awards: Where and insofar as an award is for payment of money, the enforcing Court may in the decree order interest, from the date of the decree at such rate as the Court thinks reasonable, to be paid on the principal sum as adjudged buy the award and confirmed by the decree.
Appeal against the arbitral award: There are certain recourses that may be taken against the arbitral award. According to Section 42, the Court, upon application of a party within sixty days from the receipt of the award, has the authority to set aside an arbitral award. However, as mentioned under Section 40, the application for challenging an arbitral award has to be made within sixty days. Once this time period expires, or if such an application has been refused, the award shall be enforced under the Code of Civil Procedure, in the same manner as if it were a decree of the Court. Therefore, the arbitral award has the status of a Court decision, and is binding to the extent a Court decision is.
Recognition and Enforcement of foreign arbitral award
According to Section 45(1)(b) of the 2001 Act, a foreign arbitral award shall on the application being made to it by any party, be enforced by execution by the Court in the same manner as if it were a decree of the Court. Therefore, a foreign arbitral award is recognized in Bangladesh in the same respect as a national arbitral award.
What documents must be presented: It must be noted that under Section 45(2), an application for the execution of a foreign arbitral award shall be accompanied by the original or a copy of the arbitral award; the original or a certified copy of the arbitration agreement; and such evidence as may be necessary to prove that the award is a foreign award.
Grounds for refusal of recognition: Further, Section 46(1) provides various grounds upon which a foreign arbitral award may be refused by the Court. For example, 46(1)(a)(i) states that recognition of the foreign arbitral award could be refused by the Court if a party to the arbitration agreement was under some incapacity.
Bangladesh is also a Contracting State of the New York Convention. Under Article 3 of the New York Convention, each Contracting State shall recognize foreign arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon. Under Article 4, to obtain the recognition and enforcement, the party applying for recognition and enforcement shall, at the time of the application, supply:
(a) The duly authenticated original award or a duly certified copy thereof;
(b) The original agreement referred to in article II or a duly certified copy thereof
Setting aside the arbitral award
As per Section 43, an award may be set aside if any one of the following grounds is satisfied-
- 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 causes to present his case;
- The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decision on matters beyond the scope of the submission to arbitration;
- The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with the provisions of this Act, or, in the absence of such agreement, was not in accordance with the Arbitration Act 2001.
In addition, the High Court Division must be satisfied that:
- The subject matter of the dispute is not capable of settlement by the arbitration under the law for the time being in force in Bangladesh; or
- The arbitral award is opposed to the law for the time being in force in Bangladesh; or
- The arbitral award is in conflict with the public policy of Bangladesh; or
- The arbitral award is induced or affected by fraud or corruption.
Companies and persons in Bangladesh have the complete freedom to select a mediator and resolve their dispute through mediation. Since litigation and arbitration are expensive and time consuming, many people in Bangladesh have started resolving their dispute through mediation. There are no strict rules about the procedures of mediation and therefore, it is slowly gaining popularity in the Bangladeshi corporate field.
Mediation usually takes place between two persons in a dispute who unanimously choose a mediator. The mediator must be a neutral person and must not be biased towards any party to the mediation. The mediator hears the allegations and arguments from both sides and provides a decision based on applicable rules and regulations as well as his own sense of justice. Both sides try to negotiate with each other and finally reach a conclusion under the instructions provided by the mediator. Thereafter, a Settlement Agreement is drafted that provides the terms of the settlement between the parties to the mediation. Since the Settlement Agreement is a contract, it is enforceable by law. Therefore, there is no such thing as a mediation award, however the terms in the Settlement Agreement becomes enforceable by law.
Arbitration practice at CLP
The Barristers, Advocates, and lawyers at CLP in Gulshan, Dhaka, Bangladesh are highly experienced at dealing with arbitration. In addition to handling various issues related to arbitration and mediation amongst domestic clients on a regular basis, it also has experience at consulting and assisting numerous international clients with arbitration and mediation. For queries or legal assistance, please reach us at:
E-mail: [email protected]
Phone: +8801700920980 | +8801947470606
Address: House 39, Road 126 (3rd Floor) Islam Mansion, Gulshan 1, Dhaka.