Bangladesh

Introduction

Economic growth in emerging countries like Bangladesh depends on a number of factors. One such important factor is the growth of foreign investments, which leads to foreign parties engaging in business ventures in Bangladesh. In the course of business, when disputes arise, these foreign parties do not necessarily want to submit their disputes to the local courts in Bangladesh. There are several reasons for this choice. One of the main reasons for this is the unacceptable delay in getting a dispute resolved through courts. Generally, local courts in Bangladesh are overburdened with cases and marred with delays. As a result, parties prefer to resolve their disputes through arbitration.

Arbitrations in Bangladesh are not new. However, the development of arbitration laws and the positive shift in the general attitude of the judiciary with respect to arbitrations in Bangladesh is a welcome change for the inexorably running litigants. Arbitrations in Bangladesh are governed by the Arbitration Act 2001 (the Act), which came into force on 10 April 2001. Before the Act, arbitrations in Bangladesh were governed by the Arbitration Act 1940 (the 1940 Act). The 1940 Act allowed the arbitration parties to seek the help of the courts at almost every stage of the arbitration causing enormous delay to the dispute resolution process, thereby defeating the very purpose of arbitration. In order to stop this interventionist approach of the local courts and to expedite the arbitral process, the legislature enacted the Act in an effort to modernise the outdated 1940 Act.

The Act attempts to synchronise Bangladesh’s existing arbitration laws with the 1985 UNCITRAL Model Law on International Commercial Arbitration (the Model Law), which is widely used across the globe. To that effect, the Act’s sections pertaining to the definition of arbitration agreements, arbitrator numbers, time limits and party autonomy are similar, often verbatim, from the Model Law. However, not all of the Model Law’s provisions were adopted. The Act is still a work in progress and it is hoped that the legislature will make some changes in order to modernise the law even further and in line with the developed arbitral jurisdictions. This chapter purports to try and highlight some of the important points for foreign parties with respect to arbitrations in Bangladesh. Due to space restrictions, it is not possible to highlight all the sections of the Act. The author has used his own discretion to select certain areas for discussion which, from a practical point of view, foreign parties must know.

Application of the Arbitration Act 2001

Though the Act applies to both domestic and foreign arbitrations, it was enacted with the specific objective of addressing international commercial arbitration and recognising and enforcing foreign arbitral awards. It is noteworthy that, for an arbitral proceeding to be defined as an ‘international commercial arbitration’, one of the parties of the dispute must be one of the following:

• 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

It is therefore apparent from the wording of the statute that the Act relies on the nationality of the parties in order to give it the status of an international arbitration, as opposed to the international seat or nature of the dispute, as stated in article 1(3) of the Model Law. Therefore, while disputes between a Singaporean company and a company in Bangladesh may fall within the purview of the Act, a dispute between two Bangladeshi companies operating in London may not. It is also interesting to note that, for a dispute to come under the ambit of this provision, it must be considered to be a ‘commercial dispute’ under the laws of Bangladesh, which may be a more restrictive definition than that employed by the Model Law, where it is stated that the term ‘commercial’ must be given a wide interpretation so as to cover all matters of a commercial nature.

Moreover, the meaning of international commercial arbitration under the Act is further circumscribed by section 3(1) of the Act, which states that the Act ‘shall apply where the place of arbitration is in Bangladesh’. Recognition and enforcement of foreign awards – ie, awards rendered in jurisdictions outside of Bangladesh – provides the only exception to this. Section 3 of the Act embodies a restrictive ‘territorial principle’, whereby only arbitration that is considered to take place in Bangladesh falls within the purview of the Act. This has caused considerable confusion as to what ‘place... in Bangladesh’ means. The High Court Division of the Supreme Court of Bangladesh, in the case of HRC Shipping Ltd v MVX-Press Manaslu and Others (HRC Shipping),² opted for a wide interpretation of the term. The reasoning behind the Court’s view was that the Act was prepared, in the spirit of establishing an uniform legal framework, for the fair and efficient settlement of disputes arising in international commercial arbitration, as embodied in the Model Law. Drawing upon the reasoning used in the landmark Indian case, Bhatia International v Bulk Trading SA,³ the Court held that the Act itself did not state that it will not apply if the place of arbitration is ‘not’ in Bangladesh or that it would apply ‘only’ if the place of arbitration is in Bangladesh. On a similar note, the Court further observed that a distinction had not been drawn between international commercial arbitration taking place in Bangladesh and that taking place outside Bangladesh. As a result, the Court gave a liberal interpretation to the scope of the Act.

In contrast, in a later judgment delivered in STX Corporation Ltd v Meghna Group of Industries Limited (STX Corporation),⁴ another Bench of the High Court Division adopted a literal construction of section 3(1) of the Act. In support of such an interpretation, the Court cited the case of Unicol Bangladesh v Maxwell,⁵ where the Appellate Division of the Bangladesh Supreme Court stated in unequivocal terms that ‘the law in section 3(1)… is limited in application as to the arbitration being held in Bangladesh’.Thus, it can be seen that the Bangladeshi courts have come to conflicting decisions on the very same provision (ie, the scope of the Act). This has caused considerable consternation for the legal community and, in particular, foreign parties involved in foreign arbitration proceedings with Bangladeshi companies, as it is unclear what assistance the Bangladeshi courts may give to such proceedings.

The construction of section 3 of the Act in the STX Corporation case is regressive in terms of the development of arbitration laws in Bangladesh, as it leaves open the possibility that the innocent party, after undertaking expensive arbitration proceedings, is left with little more than a paper award. To allow for such a result would be against the spirit of the New York Convention, to which Bangladesh is a party. These judgments have left a lurking danger for the international community as they may see themselves in a situation where they have successfully contested, or are contesting, an expensive international arbitration, but have no access to assets of the losing Bangladeshi party, as they have been transferred or sold before the award is enforced in Bangladesh. The issue is most prominent in the case of interim remedies and will be briefly described in ‘Interim measures’, below.⁶

Court’s power to intervene in arbitrations

The 1940 Act allowed the Bangladeshi courts to have an interventionist role in arbitration proceedings but the Act curbed much of these powers in order to give the local courts a more supervisory role to facilitate arbitrations in Bangladesh. Section 7 of the Act restricts the court to decide matters where one of the parties to an arbitration agreement files the court proceeding. In the case of Bangladesh Jute Mills Corporation v Maico Jute and Bag Corporation & Others,⁷ this principle was upheld. A caveat to this section has been inserted through section 7A of the Act, which empowers the local courts to make interim orders in respect of certain matters, such as, inter alia, interim injunctions to restrain the transfer of property which is likely to create an impediment to the enforcement of the arbitral award.

Section 10 of the Act complements section 7 of the Act and is closely modelled on article II (3) of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Section 10 ensures that no Bangladeshi court shall interfere with a matter that is subject to an arbitration agreement between the contending parties. If a party to an arbitration agreement commences litigation in a Bangladeshi court over a certain matter and the other party objects to this before the filing of the statement of defence, then the Bangladeshi court shall, unless convinced that the agreement is void, inoperative or incapable of determination, stay the proceedings and refer the parties to arbitration. This section affirms the widely accepted principle that the right to seek arbitration is a contractual right and a contract cannot be unilaterally abrogated in order to bypass the arbitration clause. It is important to note here that the use of the term ‘shall’ implies that the local court is under a positive obligation to refer the parties to arbitration and not merely a discretion, which is to be exercised sparingly by the court. This positive obligation under section 10 of the Act reinforces the spirit and letter of the New York Convention.

Domestic cases have evinced the local court’s intention to apply such principles strictly. For example, in the case of Civil Engineering Company v Mahkuta Technology & Others,8 it has been held that the court shall not interfere with a matter covered by an arbitration agreement and those who agree to settle their disputes through arbitration must be encouraged to follow that route. However, a limitation to this provision, as illustrated by Seafarers Insurance Co v Province of East Pakistan,⁸ is that the party contending the suit must raise its objection with respect to the arbitration before the filing of the statement of defence. After that stage, there is no scope for referring the dispute to arbitration and the local court becomes vested with the jurisdiction for adjudicating the dispute. This is because, once the written statement has been submitted, the local court infers that the contending parties have agreed to supersede or abandon the arbitration agreement. However, a significant development in this respect is the amendment and the introduction of section 89B of the Code of Civil Procedure 1908. Under this section, if the parties to a suit, at any stage of the proceeding, apply to the court for withdrawal of the suit on the ground that they will refer the dispute to arbitration, then the local court shall allow the suit to be withdrawn and thereafter the dispute shall be settled in accordance with the Act. This has been a recent welcome change by the legislature in order to promote the use of arbitrations in Bangladesh.

The New York Convention and the recognition and enforcement of foreign arbitral awards

An important yardstick for any country, in order to assess how developed its arbitration laws are, is the application of the New York Convention. This is an important question on the minds of many foreign investors and parties in arbitration agreements with their Bangladeshi counterpart. As many cross-border commercial disputes relating to Bangladesh are resolved through commercial arbitration in a foreign jurisdiction, it is necessary to consider and understand the enforcement regime of foreign awards in Bangladesh. Bangladesh ratified the New York Convention on 6 May 1992 and the Convention entered into force on 4 August 1992. This was a noteworthy step towards aligning Bangladesh’s arbitration regime with that of the rest of the world.

The Arbitration (Protocol and Convention) Act 1937 and the Arbitration Act 1940, which were in force at the time when Bangladesh acceded to the New York Convention, were not designed to keep pace with the rapid strides that had been made in the international arbitration world since their enactment. Under such dated legislation, there were no mechanisms for enforcing foreign arbitral awards in Bangladesh. Also, there was no domestic statute which incorporated the New York Convention in municipal law, so as to create a scope for foreign arbitral awards to be enforced in Bangladesh. As a result of such legal lacunae, courts, such as the one in Bangladesh Air Service (PVT) v British Airways PLC,⁹ did not show much inclination towards applying the New York Convention to the issues of recognition and enforcement of foreign arbitral awards.

To resolve such an impasse, the legislature incorporated most of the terms of the New York Convention into the Act. Section 45 of the Act embodies Article III of the New York Convention, in that, it makes a foreign arbitral award binding for all purposes on parties to the arbitration agreement and such an award can be executed by the local court as if it was a decree of the local court. This principle has been upheld in the case of Canada Shipping and Trading SA v TT Katikaayu and another (Admiralty Jurisdiction),¹⁰ where it was held that, ‘Once an arbitration proceeding in a foreign country is completed, the Arbitral Award, on an application by any party, will be enforced by a court of this country under the Civil Procedure Code in the same manner as if it were a decree of the court.’ Thus, there is no requirement to obtain a separate permission from the local court for enforcement.

In terms similar to that in article V of the New York Convention, there are grounds on which local courts may refuse the recognition and enforcement of a foreign arbitral award. Under section 46 of the Act, the court may refuse to execute a foreign arbitral award if a party against whom such award is invoked is able to provide evidence that:

• they were not given proper notice of the appointment of the arbitrator or the arbitral proceedings;
• they were unable to present their case for reasonable causes;
• a party to the arbitration agreement was acting under some incapacity;
• the agreement is not valid under the law to which the parties have subjected it;
• the award contains decisions on matters beyond the scope of the issue(s) submitted to arbitration;
• the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the arbitration agreement or in the absence of such an agreement, the law of the country where the arbitration took place;
• the award had not yet become binding on the parties; or
• it had been set aside by a competent authority of the country in which, or under the law of which, the award was made.

Additionally, the local court may also refuse to execute the arbitral award if the subject matter of the dispute cannot be settled under the existing laws of Bangladesh or is in conflict with the public policy of Bangladesh.¹¹

Though the new Act embodies a concerted effort by Bangladesh to keep pace with the recent trends in international commercial arbitration, there are some respects in which the Act does not meet the standards of the New York Convention. For instance, the evidence required for filing an application under the Act to execute a foreign arbitral award is more onerous, whereby the applicant has to submit to the court ‘such evidence as may be necessary to prove that the award is a foreign award’,¹² in addition to filing the original or authenticated copy of the arbitral award, an original or certified copy of the arbitration agreement and duly certified translations of such documents, if required.

Under section 47 of the Act, foreign arbitral awards are defined as being awards made in pursuance of an arbitration agreement in the territory of any state other than Bangladesh, except such states specified by the government of Bangladesh through a gazette notification. Therefore, as the Act only considers the territoriality of the arbitral award rather than the lex arbitri under which the award was rendered, the scope of the Act is much narrower than either the Model Law or the New York Convention. Furthermore, the provision that the government of Bangladesh will be able to specifically exclude the foreign arbitral awards delivered in certain states means that courts will be able to disrupt the enforcement of foreign awards by finding that the arbitration has taken place on the territory of a specified state. If a member state of the New York Convention is so specified, then that will run contrary to the spirit of the New York Convention whereby arbitral awards rendered in a member state are enforceable in the jurisdictions of all other New York Convention member states.

Interim measures

Another interesting – and fairly topical – matter is that of interim remedies, and whether local courts in Bangladesh may issue them in order to aid or support an arbitration taking place outside of Bangladesh. As discussed above, Bangladeshi courts have come to conflicting decisions in respect of the scope of its powers over arbitration seated outside of Bangladesh. The two relevant decisions, HRC Shipping and STX Corporation, dealt with the role of Bangladeshi courts in arbitrations seated outside of Bangladesh. In both these cases, the Bangladeshi courts have reached decisions starkly different to one another. The controversy appears to have stemmed from the meaning of section 3 of the Act.

The HRC Shipping case arose out of a dispute in relation to the shipment of goods under a charter agreement. Under the relevant agreement, HRC shipped certain cargo in 53 containers to Sri Lanka from Bangladesh. However, much of the cargo was dropped into the sea and washed away when the ship was hit by a tsunami. HRC submitted that the loss was not only due to the tsunami but also due to the negligence of the ship’s crew. As a result, HRC claimed compensation and damages, through the Bangladeshi courts, by instituting an admiralty suit. However, since the charter agreement contained an arbitration clause, the defendant Nos. 5 and 6 commenced arbitral proceedings in London and applied for the suit to be stayed under section 10 of the Act. The issue before the Bangladeshi court in the suit was whether it should stay the local proceedings in favour of the arbitration in London. The defendant Nos. 5 and 6 argued that section 10 of the Act requires the suit to be stayed in favour of arbitration, whereas HRC argued that, since the arbitration proceedings were taking place in London, section 3 of the Act did not allow the court to stay the proceedings in favour of a foreign arbitration, seated outside of Bangladesh. Upon hearing submissions from both parties, the court concluded that section 10 of the Act requires the courts in Bangladesh to stay the local proceedings in favour of arbitration unless it finds that the arbitration agreement is void, inoperative or is incapable of determination by arbitration.

In contrast, the court in the STX Corporation case came to the exact opposite decision on the very same point. The STX case arose out of a supply contract between STX Corporation Ltd, a foreign company, and Meghna Group of Industries Limited, in Bangladesh. The contract contained an arbitration agreement under which any dispute in relation to the contract was to be resolved through arbitration in Singapore. Disputes arose under the contract and arbitration was thus commenced in Singapore. While the arbitration proceedings were pending, STX filed for an interim order in the Bangladeshi court against some of the respondents under section 7A of the Act to restrain those respondents from transferring or selling off their assets so as to prevent them from avoiding their obligations under the forthcoming arbitral award. The main issue for the court was whether interim remedies could be provided in cases of foreign arbitration, seated outside of Bangladesh, under the Act. In this case, STX argued that the court should adopt a purposive approach towards interpreting the Act. After hearing the parties, the court started with a plain reading of section 3 of the Act and held that the legislature intended for the Act to apply only when the arbitration proceeding is in Bangladesh. In relation to the interpretation of statutes, the court held that the literal construction of a statute is ‘the golden rule of construction’ and that when words in a statute are clear and unambiguous, they should be construed according to their tenor and meaning, as this most clearly reflects the intention of the legislature. The court further explained that, while interim measures for foreign arbitration were provided for in other jurisdictions, until and unless parliament enacts such a provision explicitly in the Act, such measures cannot be granted in Bangladesh. The court relied on the case of Uzbekistan Airways v Air Spain Limited, where the appellate division held that:

In that view of the matter, it appears that the scope of section 10 of the Act is well settled and it has been decided more than once by the Appellate Division... that section 10 of the Act does not apply to foreign arbitral proceedings.¹³

As a result, the court held that since the Appellate Division had categorically ruled on this issue, there was no further scope for the High Court to depart from their findings in light of the binding precedent rule enshrined in article 111 of the Constitution of the People’s Republic of Bangladesh.

This stark difference in the court’s approach is most important in the case of interim remedies as parties are unable to seek the protection of Bangladeshi courts if, for example, the losing party decides to transfer or sell their assets in order to frustrate the whole arbitral process, the very issue in the STX Corporation case. The importance of interim remedies cannot be understated. The purpose of such remedies is generally to uphold and support the arbitral process and prevent any steps from being taken by the losing party which may cause irreparable harm to the process by making the enforcement of the award impossible. While arbitral tribunals can order interim relief, it is an accepted fact that there may be a number of situations where only local courts can effectively address the potential harm to the arbitral process.

Conclusion

This chapter considered some of the interesting key provisions of the Act and tried to show, along with the problems, how the Bangladeshi arbitration landscape has evolved over the years in line with the spirit of the New York Convention. Bangladesh is not the only South Asian state with problems relating to arbitration laws. In most cases, it is not the arbitration law itself but the interpretation of it by the judiciary which poses a threat to the development of arbitrations in South Asia. Ratifying the New York Convention is one thing; its efficient implementation by the local courts is quite another. There is no point in ratifying the New York Convention unless the concerned state is willing to honour the obligations thereof. The only way to deal with this is through advanced education and more regular judicial contacts with this area of law.

Nonetheless, Bangladesh is making excellent strides in the field of arbitration. We only hear of problem cases, since they provide for a more interesting read, and scholars tend to concentrate more on the pathological issues. In the vast majority of cases arbitrated in Bangladesh, awards are not regularly refused enforcement or set aside and local courts have been successful in keeping up the letter and spirit of the New York Convention.

The author would like to thank Morshed Mannan, a research assistant at Sattar&Co, for his assistance with this chapter.

1. Section 2(c) of the Act.
2. 1 LCLR [2012], Vol. 2, pp. 207-22.
3. 2002 AIR (SC) 1432.
4. 1 LCLR [2012] Vol. 2, pp. 159-178.
5. 56 DLR (AD) (2004) 166 at 171.
6. For a thorough discussion on interim remedies, please see 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.
7. 22 BLD (HCD) (2002) 320.
8. 14 BLT (HCD) (2006) 103.
9. 20 DLR (SC) (1968) 225 at 228.
10. 49 DLR (AD) (1997) 187 at 196.
11. 54 DLR (2002) 93 at 94.
12. For a thorough discussion on public policy in the Indian context (which carries persuasive authority in Bangladesh), please see S Sattar, ‘Enforcement of arbitral awards and public policy: Same concept, different approach?’, [2011] Vol. 8(5) Transnational Dispute Management Journal.
13. Section 45(2)(c) of the Act.
14. 10 BLC (2005) 614 at 616.