“Arbitration is an agreement between two or more parties to try to resolve a dispute outside the courts” Discuss

Introduction

In this modern world, dispute between two parties always take place in a contract. It happens due to different reasons but most of the time it happens for violating the contract by one party. Two parties make a contract for doing business or doing other things. When any rule of that contract becomes violated, dispute takes places. So for solving the dispute, there is a system called “Arbitration”. Arbitration is an agreement between two or more parties to try to resolve a dispute outside the courts.[1] It is a legal technique for solving disputes between two or more parties. In arbitration system, parties can choose their own tribunal. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides.[2]

In today’s economy, business people and lawyer will go for arbitration. Arbitration must be chosen as the method for solving the disputes under the agreement. If there is no agreement in advance, parties may create an agreement based on the disputes which has created already.

A contract bearing arbitration clause is the contract where arbitration clause have been included for solving the dispute.[3] So if any dispute occurs even if there is no agreement about arbitration, parties can submit the dispute to arbitration. Arbitration clauses are not only enforceable in legal contract only, but also enforceable for illegal contracts.[4]  So if any dispute takes place, parties can solve it through arbitration for both legal and illegal contract.

 Arbitration as a form of ADR

When two parties want to do business or other things, for making that thing legal, they make a contract. Parties make contract for protecting both parties’ interests. In the contract both mention the terms and condition which will protect the rights of the parties and give a direction about how to do business. But as time changes, there may be a dispute rise. Parties can make an arrangement for solving the disputes. They can mention it on the contract. Alternative Dispute Resolution (ADR) is the way to solve disputes.

Arbitration is a form of alternative dispute resolution (ADR), which is a concept that includes an array of procedure for private solving of disputes which has created because of violation of the contract. There is a law of contract. When parties make a contract, they follow the law. Even if dispute takes place, there is a way for solving that. That is ADR. It has various forms, procedure and various laws followed by different organizations. But the common thing is all are followed for private dispute resolution. Arbitration is a form of ADR where an arbitrator or panel of arbitrators conducts an information gathering process which includes document exchange, briefing and testimony of witnesses. [5]Arbitrator’s decision is compulsory on the parties, subject to limited review by a court.

Reason behind go for Arbitration

People choose to go for arbitration rather than any other method because of some facilities.[6] Those are-

Privacy: Arbitration proceeding is generally private. Pledgings are not publicly filed. Arbitration sessions are closed and decisions are not released to anyone other than the parties. But when one party challenges the authority to arbitrate or challenges the award at the conclusion, it generally breeds litigation which will generally be open.

Choice of decision maker: The parties to an arbitration have significant say in choosing the person who will serve as arbitrators. The parties may simply agree on arbitrator. The ability to choose an arbitrator is especially important for certain kinds of complex or technical matters, where most judges and juries will have no expertise in the area.

Vacating, Modifying or Correcting an award: In arbitration, if one party does not agree with the award, they can apply for vacating, modifying or correcting the award. The process is very easy compare to other facilities available for resolution of disputes between parties.

Benefits of Arbitration:

There are some benefits of using Arbitration for resolution of disputes instead of other ways.[7] Those are –

• It serves as a forum to resolve disputes outside of the judicial system. Arbitration can be easy, quick and fast, whereas lawsuits can drag on for years and years.
• It tends to be less expensive than pursuing a lawsuit and more flexible. Parties just have to pay arbitrators fees which are lesser than attorney’s fees.
• Arbitration meetings tend to be less formal than court. So parties may feel more confident and contented to speak.
• The parties, not the court calendar, decide when and how much time the arbitrator spends on their case.
• Arbitration can also bring conclusiveness. Sometimes for the better, a decision on a binding arbitration cannot be appealed in the absence of a showing of extraordinary circumstances.

Drawbacks of Arbitration

There are also some drawbacks of Arbitration for people who wants to go for this instead of others.[8] Those are –

• Arbitration may not always be faster, less expensive and less formal. It may be more expensive and time consuming than other choice if the arbitration agreement, choice, procedure or award is challenged.[9]
• A final decision of an arbitrator is hard to shake. If the arbitrator’s award is illogical, one party will have to stick with it and disqualified forever from airing the underlying claim in court.
• Arbitration hearings are generally held in private rather than in an open courtroom, and decisions are usually not publicly accessible, is considered a benefit by some people in some situations.
• Another concern is that the process of choosing an arbitrator is not an objective one, particularly when the decision-maker is picked by an agency from a pool list, where those who become favorites may get assigned cases more often.

Arbitration in Bangladesh

Like any other country, Bangladesh also has arbitration system. Bangladesh Arbitration is a dispute resolution process in which a neutral Bangladesh Arbitrator is selected and empowered to make a decision between parties having complaints or dispute. The Bangladesh Arbitrator hears the disagreement and evidence presented by each party. After careful review considering all relevant information, the Bangladesh Arbitrator will issue an award to the party having the stronger case. Bangladesh Arbitration decisions may be either binding or non-binding, depending on the terms of the arbitration clause agreement. Binding arbitration decisions have the same significance as a court judgment. The Bangladesh Arbitrator award cannot be reviewed by a court, and there cannot be an appeal of the Bangladesh Arbitrator’s decision.[10]

Bangladesh Arbitration is considered less expensive and a quicker dispute resolution alternative than through Court litigation.  Bangladesh Arbitration can resolve disputes confidentially. Generally, an Arbitration Clause is inserted into an agreement contract between the parties which will specify Bangladesh Arbitration instead of resolving disputes in Bangladesh Court. Arbitration Clause should be reviewed by an attorney. If an Arbitration Clause does not exist, both parties can mutually agree to have their dispute resolved by Bangladesh Arbitration.[11]

Bangladesh Arbitration is considered less expensive and a quicker dispute resolution alternative than through Court litigation.  Bangladesh Arbitration can resolve disputes confidentially. Generally, an Arbitration Clause is inserted into an agreement contract between the parties which will specify Bangladesh Arbitration instead of resolving disputes in Bangladesh Court. Arbitration Clause should be reviewed by an attorney. If an Arbitration Clause does not exist, both parties can mutually agree to have their dispute resolved by Bangladesh Arbitration.

Any type of disagreement can be arbitrated, including disputes involving businesses and consumers, employment claims, real estate and construction issues. Bangladesh Arbitration is utilized when there is an adversarial situation and the parties wish to resolve the dispute in private without court litigation.

Bangladesh Arbitration Act

In Bangladesh, arbitration is contained mainly in the Arbitration Act, 2001.[12] At the first time of establishment of arbitration in Bangladesh, Arbitration Act, 1940 were used. [13] Bangladesh Arbitration Act, 2001 came into form into force on April 10, 2001. The Act has repealed The Arbitration (Protocol and Convention) Act, 1937 and The Arbitration Act, 1940. With this new enactment Bangladesh has kept pace with the recent trends in the field of international commercial arbitration in the rest of the world. Such a legislative step was urgent in the face of increasing foreign investment in various sectors, especially in the natural gas and power sectors in Bangladesh, and her ever-growing export trade with the rest of the world. The new Act, principally based on the UNCITRAL Model Law on International Commercial Arbitration (1985), consolidates the law relating both to domestic and international commercial arbitration. In the context of international commercial arbitration, the Act has specific prescriptions which are not applicable to domestic arbitration. In certain respects it has drawn on the Indian Arbitration and Conciliation Act, 1996. The new Act represents a significant improvement over its predecessor, the Arbitration Act (X of 1940), a legacy of the British Raj in the Indian subcontinent.

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has introduced the Bangladesh Council of Arbitration (BCA) for the resolution of commercial disputes through a simple, harmonious, cost effective and speedy process as one of its services to the business community. The BCA serves as a means to resolve the aforementioned problems. One of the main objectives of BCA is to promote amicable and speedy settlement of commercial disputes by arbitration.[14]

Procedure in Arbitration

For making a contract bearing arbitration clause, parties must have to follow some procedures.[15]

The arbitration process is governed by the rules to which the parties refer in the agreement.  In the absence of specific legal rules, the procedure will be determined by the arbitrators.  The arbitration proceeding must be so conducted as to afford the parties a fair hearing on the basis of equality.  The arbitrator generally has the authority to request the parties and third persons to produce documents and books and to enforce such a request by issuing subpoenas through court.  If a party fails to appear at a properly convened hearing, without showing a legitimate cause, the arbitrator in most instances will proceed in the absence of the party and then render an award after investigation of the matter in dispute. The technical rules of evidence do not apply to arbitrations.[16]

The Arbitration Act adopts the approach, that in the working of an arbitration agreement, the parties are free to lay down provisions regarding various matters of procedure.  But in the absence of an agreement, the rules contained in the First Schedule to the Arbitration Act, 2001, apply.

An arbitrator can be removed for misconduct.  In applying this provision courts generally follow the wide construction adopted in most commonwealth countries, so that, it is not merely misconduct involving moral turpitude that attracts this power, but also misconduct of a technical nature, for example, a breach of the rules of natural justice.

Detailed provision exists for settling the problems that might arise where two or more arbitrators are contemplated by the arbitration agreement and a difference of opinion arises between them.

A Case Study of Bangladesh Arbitration (Saipem V. Bangladesh)

Background

In 1990, Bangladeshi state-owned energy company Petrobangla entered into a gas pipeline construction contract with Saipem. The parties agreed that disputes would be settled through arbitration under the ICC Rules in Dhaka, Bangladesh.[17]

In 1993, disputes arose between the parties, and Saipem initiated ICC arbitration. After the ICC tribunal rejected several of Petrobangla’s procedural requests, Petrobangla turned to the Bangladeshi courts. Citing the ICC tribunal’s procedural orders as evidence of misconduct, Petrobangla successfully persuaded a court to enjoin the arbitration. It then convinced the High Court Division of the Supreme Court of Bangladesh to revoke the ICC tribunal’s authority outright. Saipem did not appeal because it perceived that Petrobangla was colluding with the national courts.

The ICC arbitration proceeded despite the orders of the Bangladeshi courts. In 2003, the ICC tribunal found Petrobangla to be in breach of the construction contract, and awarded damages to Saipem. Saipem could not enforce this award in Bangladesh, the only state in which Petrobangla had assets, because Bangladeshi courts ruled that the ICC award was “a nullity”. In 2004, Saipem requested ICSID arbitration under the Italy-Bangladesh bilateral investment treaty (BIT). In the ICSID proceedings, Saipem argued that the Bangladeshi courts had indirectly expropriated its right to arbitration and to payment under the contract as determined by the ICC award.

Decision

The ICSID tribunal interpreted this clause as permitting it to determine not only the amount of compensation payable in the event of an established expropriation, but also whether or not an expropriation had occurred.[18]

In Saipem’s case, the tribunal found that the ICC award had crystallized Saipem’s “residual contractual rights under the investment.” In the tribunal’s view, actions by Bangladesh that substantially deprived a party of the value of its contractual right to arbitration could have an expropriatory effect.

The tribunal found that the actions of a state’s domestic courts could constitute expropriation. With respect to the Bangladeshi court’s annulment of the ICC award, the ICSID tribunal found that the mere fact of the annulment itself could not be deemed direct expropriation.[19]

Ultimately, the tribunal held that the Bangladeshi courts’ actions amounted to expropriation. Neither party disputed that the Bangladeshi courts had authority to supervise the ICC arbitration. However, the ICSID tribunal agreed with Saipem that the courts had abused that authority. In the tribunal’s view, the courts’ actions were “grossly unfair” and inconsistent with international law, in that the courts “simply took as granted what Petrobangla falsely presented,” did not rely on testimony from members of the ICC tribunal, and were unjustified. The ICSID tribunal also found that the court had disregarded its obligation to recognize arbitration agreements under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. [20]

Termination of Contract

Termination of contract means cancelling the contract. If any dispute takes place, parties want to go for resolution and if it won’t work, then they want to terminate the contract. If the contract has an arbitration clause, then termination process is different from termination process of other contracts. If any dispute arises, parties have to follow certain procedure. If party is not happy with verdict, they can again apply for resolution. From the above case, we have seen the same thing.

Conclusion

In this modern word, millions of peoples are doing business. For doing business, people always make a contract. If arbitration clauses are being included in contract, parties do not have to go to court for resolution of disputes. If disputes arise, parties will to arbitrator. It is less expensive and more flexible way to solve disputes. Parties also can set the time about how much time an arbitrator can take for solving disputes. So this system is one of the best ways for solving disputes. But if any disputes arise, parties have to certain procedure for solving this. If parties are not satisfied with verdict, they can apply within a certain time.

References

Books and Articles

• Esward, H, Flemming, R, Howlett, R, McKelvey, H, Rehmus, C…(2005). Arbitration in practice.pp. xxv. ISBN 0-87546-108.
• Born, G. (2003). International Commercial Arbitration, Volume 2. pp.125. Kluwar Law International, Netherland.
• Schafer, E, and Verbist, H. (2008). ICC Arbitration in Practice. Kluwer Law International, Netherland.
• Greenberg, S, Kee, C, and Weeramantry, R. (2011). International Commercial Arbitration: An Asis-Pacific perspective, pp. 139.
• Muniruzzaman, R. (2011). Bangladesh gets arbitration centre for commercial disputes. Retrieved from http://www.southasianews.com/647396/Bangladesh gets arbitration centre for commercial disputes.htm.
• Smith, D. (2011). Historical background of the arbitration act,2001. Retrieved from http://www.lawyers.blogspot.com/historical-background-of-arbitration.html.
• Dispute Resolution Journal, vol 60-61. (2005). American Arbitration Associaltion.
• Bennet, S. (2002). Arbitration:essential concepts. pp – 62 ALM Publication.
• John, H. (2008). Arbitration clauses are enforceable even in illegal contracts. Retrieved from http://www. karlbayer.com/blog/?p=46
• Weintraub, H. (2003). International Litigation and Arbitration. Carolina Academic Press.

Websites

• Definition of Arbitration., Retrieved from http://dictionary.reference.com/Arbitration.
• Bangladesh Arbitration. Retrieved from http://www.locate-a –arbitrator.com/Bangladesh Arbitration.
• Advantages of Arbitration. Retrieved from http://www. beckerlegalgroup.com/a-d-arbitration.
  • Arbitration of Bangladesh. Retrieved from http://www.icsidlawyers.bangladesh arbitration.htm.
  • Bangladesh council for arbitration arbitral proceeding. Retrieved from http://www.jurisint.org/doc/html/reg/en.
  • Arbitration. Retrieved from http://alternative-dispute-resolution.lawyers.com/arbitration
  • The New Law of International Commercial Arbitration in Bangladesh: A Comparative Perspective. Retrieved from http://www. port.academia.edu/MunirManiruzzaman/Papers.
  • Law and our rights. Retrieved from http://www.thedailystar.net/law.
  • See “Saipem SPA v The People’s Republic of Bangladesh (ICSID Case No ARB/05/7)
  • Alternative dispute resolution: is it worth it. Retrieved from http://www.findlaw.com.au.
  • Arbitration clauses are enforceable even in illegal contracts.retrieved from http://www.karlbayer.