“Arbitration is a settlement of dispute by an unbiased third party it can be one or more arbitrators who can make an obligatory decision on the dispute” Discuss.


A contract is a specific terms or condition between two or more parties who construct a deal under a legal binding agreement. For example, if you purchase any goods, buy a house; engage a builder to carry out work on your house, order goods or machinery from a manufacturer these are all types of contracts.[1] A business contract, lease or other written contract may contain an arbitration clause. By using such a clause; the parties to the contract agree to arbitrate any future disputes. As with any clause, all parties must agree to its use in the contract before the contract is signed.[2]Arbitration is a settlement of dispute by an unbiased third party it can be one or more arbitrators who can make an obligatory decision on the dispute.[3]It allows arguing parties to have a neutral party known as the arbitrator, to help them in arriving at a solution. [4]An arbitration clause states that all disputes arising out of the contract will be resolved by arbitration rather than state or federal court litigation. With growing court obstruction, delayed discovery, and proposal practice driving up the cost of lawsuit, arbitration has become an increasingly popular form of alternative dispute resolution.  In arbitration, the parties are each allowed to present their case, including offering evidence and witness testimony, to the arbitrator. The arbitrator then makes a decision adjudicating the legal claims between the parties. Absent of an agreement to do so, parties to a contract are not required to submit disputes to arbitration.  The contract must contain a specific and detailed arbitration clause, unless the parties later agree to submit their dispute to arbitration prior to instituting legal proceedings.[5]


The Federal Arbitration Act was enacted in 1925 to reserve historic judicial hostility towards arbitration, and “embodies a ‘liberal federal policy favoring arbitration agreements.”’[6]

Arbitration is one of the oldest forms of dispute resolution in the history of the world. There are many forms of arbitration. Like: International arbitration, is used to settle disputes between different countries, arguably prevents war and it helps to promote world peace. Commercial arbitration is a very old and much relied upon practice of dispute resolution between national and international companies and corporations. Grievance arbitration is the widely accepted means of conflict resolution in the workplace in unionized settings and is becoming more accepted in the nonunion settings. In fact, by 1944 the Bureau of Labor statistics showed that 73% of all labor contracts in America contained arbitration clauses and by the early 1980’s that figure had grown to 95%. Today, 98% of all collective bargaining agreements in the United States contain arbitration clauses. Arbitration as a means of dispute resolution has not only been a preferred method by business and labor but has also been supported by the federal government for over a century. An example of governmental support for arbitration can be found in the Interstate Commerce Act, passed in 1887, which had a voluntary for workers in the Railroad industry. Another example of governmental support for arbitration was in 1925 when Congress passed the Federal Arbitration Act (FAA) which further enhanced the credibility of arbitration and later in the 1991 Civil Rights Act Congress encouraged the use of arbitration in the interpretation of antidiscrimination laws. Arbitration is not limited to labor management relations and may ease the burden of the overcrowded court docket problem in United States in the very near future.[7]


In Bangladesh, the present law of arbitration is contained mainly in the Arbitration Act, 1940, there being separate Acts dealing with the enforcement of foreign awards.  There are also stray provisions as to arbitration, scattered in special Acts.  Three types of arbitration are contemplated by the Arbitration Act of 1940, namely

(i) Arbitration in the course of a suit,

(ii) Arbitration with the intervention of the court, and

(iii) Arbitration otherwise than in the course of a suit and without the intervention of the court.

 In practice, the last category attracts the maximum number of cases.

 Under the Act of 1940, an arbitration agreement must be in writing, though it need not be registered. The agreement might make a reference about present or future differences. The arbitrator may be named in the agreement, or left to be designated later, either by consent of the parties or in some other manner specified in the agreement. Very often, the rules of prestigious commercial bodies lay down that a person who becomes a member of the association must accept the machinery of arbitration created or recognized by the rules of the association.  This also amounts to an “arbitration agreement” for the purposes of the Arbitration Act, 1940.[8]

American Arbitration Association International Arbitration Rules

In 1976, the United Nations Commission on International Trade Law (UNCITRAL) promulgated rules for use in ad hoc international arbitrations. The rules are widely accepted. Some arbitration institutions have adopted the UNCITRAL Rules as their institutional rules and other institutions will administer arbitrations under the UNCITRAL Rules, if requested.[9]

Any dispute or difference whatsoever arising out of or in connection with international contract shall be submitted to arbitration in accordance with, and subject to, the UNCITRAL Arbitration Rules. There shall be one arbitrator, the language of the arbitration shall be English, and the place of the arbitration shall be decided by both parties.’

Please note:

The parties may designate different rules to the UNCITRAL Arbitration Rules.

The parties may provide for 3 arbitrators.

The parties may designate a language other than English.[10]

Unless parties select an arbitration institution that requires use of its own rules, parties may use any of the following rules:

Arbitration Rules of the United Nations Commission on International Trade Law


Agreement Must Be Supported By Consideration

 To be binding, a contract requires an exchange of promises or “consideration.”[11]An arbitration agreement will be supported by consideration if the employer agrees to do something in exchange for the employee’s agreement to arbitrate. An employer’s agreement to be bound by the arbitration process is sufficient consideration to support an arbitration agreement [12] at least at the inception of the employment relationship.

The modification of an existing contract requires additional consideration.[13] In some states, continued at-will employment may constitute sufficient consideration for an employee to impose unilateral changes in the terms and conditions of employment, including a requirement that the employee arbitrate dispute.[14]

Agreement Must Be Entered Into “Knowingly”

In Prudential Insurance Co. of America v. Lai, the Ninth Circuit held that employment arbitration agreements are enforceable only if employees “knowingly agree to submit such disputes to arbitration.” In other words, employees must be put on notice that they are agreeing to arbitrate employment-related claims.[15]

Procedures Afforded In Arbitration Must Be Fair

Some courts have held that arbitration agreements must include specific procedural safeguards for arbitration to be consistent with federal civil rights statutes. In Gilmer v. Interstate/Johnson Lane Corp.,[16] the U.S. Supreme Court considered a plaintiff’s arguments that his arbitration agreement was not enforceable because

 (1) It did not ensure a neutral arbitrator,

(2) It did not allow for more than minimal discovery,

(3) It did not guarantee a written award,

(4) It did not allow the plaintiff to recover all remedies that would have been available in court, and

(5) There was a requirement that the employee pay unreasonable costs. While the Court ultimately upheld the arbitration agreement, some courts have interpreted Gilmer as requiring minimum due process standards in connection with arbitration of employment-related claims.[17]


 Choice of Decision Maker – For example, parties can choose a technical person as arbitrator if the dispute is of a technical nature so that the evidence will be more readily understood.

Privacy – Arbitration hearings are confidential, private meetings in which the media and members of the public are not able to attend.

Convenience Hearings are arranged at times and places to suit the parties, arbitrators and witnesses.

Finality There is in general, no right of appeal in arbitration. (Although, the court has limited powers to set aside or remit an award).[18]


In context to advantages of arbitration there are some commonly perceived drawbacks of arbitration. They are:

Cost – One or both of the parties will have to pay for the arbitrator’s services, while the court system provides an adjudicator who does not charge a fee. The fees for an arbitrator can be hefty. To give an example, for an amount of claims up to $100,000, the minimum fee for a single arbitrator is $2,000. The maximum fee can reach ten percent of the claim.

‘Splitting the Baby’ Thomas Crowley states that because of the relaxation of rules of evidence in arbitration, and the power of the arbitrator to ‘do equity’ (make decisions based on fairness), the arbitrator may provide an award that, rather than granting complete relief to one side, splits the baby by giving each side part of what they requested. Thus both parties are leave the table feeling that justice was not served.

No Appeal – Unless there is evidence of outright corruption or fraud, the award is binding and usually not appealable. Thus if the arbitrator makes a mistake, or is simply an idiot, the losing party usually has no remedy.

Chilling Effects The chilling effects occurs when neither party is willing to compromise during negotiations in anticipation of an arbitrated settlement. It measures most commonly used to weigh this effect are: the number of issues settled during negotiations versus the amount of issues left for arbitration, and a comparison with the management’s and union’s initial offers (chilling takes place when the two parties take extreme positions and are not willing to move).[19]


The process of arbitration differs among cases. The following is a list of the main steps in arbitration;

Initiating the Arbitration – A request is sent by one party for a dispute to be referred to arbitration.

Appointment of Arbitrator – Arbitrators may be appointed by one of three ways:

 (1) Directly by the disputing parties,

(2) By existing tribunal members (For example, each, each side appoints one arbitrator and then the arbitrators appoint a third),

 (3) By an external party (For example, the court or an individual or institution nominated by the parties).

Preliminary Meeting – It is a good idea to have a meeting between the arbitrator and the parties, along with their legal council, to look over the dispute in question and discuss an appropriate process and timetable.

Statement of Claim and Response – The claimant sets out a summary of the matters in dispute and the remedy sought in a statement of claim. This is needed to inform the respondent of what needs to be answered. It summarizes the alleged facts, but does not include the evidence through which facts are to be proved.There may also be a counterclaim by the respondent, which in turn requires a reply from the claimant. These statements are called the ‘pleadings’. Their purpose is to identify the issues and avoid surprises.

Discovery and Inspection – These are legal procedures through which the parties investigate background information. Each party is required to list all relevant documents, which are in their control. This is called ‘discovery’. Parties then ‘inspect’ the discovered documents and an agreed upon selection of documents are prepared for the arbitrator.

Interchange of Evidence – The written evidence is exchanged and given to the arbitrator for review prior to the hearing.

Hearing – The hearing is a meeting in which the arbitrator listens to any oral statements, questioning of witnesses and can ask for clarification of any information. Both parties are entitled to put forward their case and be present while the other side states theirs. A hearing may be avoided however, if the issues can be dealt with entirely from the documents.

Legal Submissions – The lawyers of both parties provide the arbitrator with a summary of their evidence and applicable laws. These submissions are made either orally at the hearing, or put in writing as soon as the hearing ends.

Award – The arbitrator considers all the information and makes a decision. An award is written to summarize the proceedings and give the decisions. The award usually includes the arbitrator’s reasons for the decision[20]


The Arbitral Tribunal shall have the power to rule on its own jurisdiction, including any objection to the initial or continuing existence, validity or effectiveness of the Arbitration Agreement. A decision by the Arbitral Tribunal that such other agreement is non-existent, invalid or ineffective shall not entail ipso jure the non-existence, invalidity or ineffectiveness of the arbitration clause. The Arbitral Tribunal may make the granting of any such measure subject to appropriate security being furnished by the requesting party. No order under this section is passed without giving notice to the other parties provided that the Arbitral Tribunal, where it appears that the object of taking interim measure would be defeated by the delay, dispense with such notice.[21]

If an Arbitrator on a three-member Arbitral Tribunal persistently fails to participate in its negotiations, the two other Arbitrators shall have the power, upon their written notice of such refusal or failure to the Council, the parties and the third Arbitrator, to proceed with the arbitration (including the making of any decision, ruling or Award), notwithstanding the absence of the third Arbitrator. In determining whether to continue the arbitration, the two other Arbitrators shall take into account the stage of the arbitration, any explanation made by the third Arbitrator for his non-participation and such other matters as they consider appropriate in the circumstances of the case.

Additional powers of Arbitral Tribunal

The Arbitral Tribunal shall have the power, on the application of any party or of its own motion, but in either case only after giving the parties a reasonable opportunity to state their views:

a) To extend or reduce any time-limit provided by the Arbitration Agreement or these Rules for the conduct of the arbitration or by the Arbitral Tribunal’s own orders;

b) To conduct such enquiries as may appear to the Arbitral Tribunal to be necessary or expedient, including whether and to what extent the Arbitral Tribunal should itself take the initiative in identifying the issues and determining the relevant facts and the law(s) or rule of law applicable to the arbitration.

c) To order any party to make any property, site or thing under its control and relating to the subject matter of the arbitration available for inspection by the Arbitral Tribunal, any other party, or any expert to the Arbitral Tribunal;

d) To allow, only upon the application of a party, one or more third persons to be joined in the arbitration as a party provided any such third person and the applicant party have consented thereto in writing and thereafter to make a single final Award, or separate Awards, in respect of all parties so implicated in the arbitration.[22]

The Arbitral Tribunal may determine the appeal to its jurisdiction or authority in the form of a preliminary order or later in the final Award, as it considers appropriate under the circumstances.[23]


So far we have known that in every country respective arbitration council plays a major role in the legal system. Bangladesh Arbitration council is also doing well in the Bangladesh legal system. But bar council has to be more sincere, more active for the well being of our country. The world is running to globalization so efficiently, everyone is trying to stand out in the huge crowd. So as a trivial recommendation we can recommend that the arbitration council should update their official website regularly with essentials relevant issues.This was a trivial recommendation not directly related to the topic. So in modernizing the existing legal system of Bangladesh we recommend following points-

v     A data resource should be built by the arbitrational council. In that data resource all information about arbitration related issues will be kept.

v     Arbitrational council may do statistical analysis of the data they found as the arbitrational council do not have the statistical analysis protocol right now.

v     Look for any more statistical analysis in modernizing the legal system of Bangladesh.


Any dispute or difference whatsoever arising out of or in connection with international contract shall be submitted to arbitration in accordance with, and subject to, the UNCITRAL Arbitration Rules. The arbitration shall be conducted on a confidential basis pursuant to the Commercial Arbitration Rules of the American Arbitration Association.The Arbitral Tribunal shall have the power to rule on its own jurisdiction, including any objection to the initial or continuing existence, validity or effectiveness of the Arbitration Agreement.Last but not least I would like to quote

“Arbitration improves access to justice.  It enhances the likelihood of recovery.  It delivers speedier results.  It keeps costs down.  For many, it is a superior option to the expensive, slow, cumbersome ways that have come to typify our civil justice system.”

Peter B. Rutledge

Catholic University of America, Columbus School of Law

“Arbitration – A Good Deal for Consumers,” 2008

Thus arbitration helps us in our daily business transactions both locally and globally.


(1). Books & Articles                                                                                           

Campbell v. General Dynamics Government Systems Corp., 407 F3d 546 (1st Cir 2005),

Circuit City Stores, Inc. v. Najd, 294 F3d 1104, 1108 (9th Cir 2002)

Circuit City v.Adams, 279 F3d 889, 895 (9th Cir 2002)

Equal Employment Opportunity Commission v. Luce, Forward, Hamilton & Scripps, (9th  Cir 2003)

Hill v. Rent-A-Center, Inc., (11th Cir 2005)

In contrast, the court in Patterson v. Tenet Healthcare, Inc., 113 F3d, 2012 832 (8th Cir 1997)

McPhail v. Milwaukie Lumber Co.,

McPhail, 165(citing Jole v. Bredbenner, 1989)

 (2) Online

Arbitration Clause, available at http://www.usam.com/services/arb_clauses.html, Retrieved on 19th February, 2012

Arbitration Clauses Contracts, available at:

See http://www.nolo.com/legal-encyclopedia/arbitration-clauses-contracts-32644.html, retrieved on 21st February.

Arbitrational Proceedings,available at:

http://www.fbcci-bd.org/BCA/chap 4.htm#Rule%2014%20%20POWER%20OF%20TRIBUNAL, Retrieved on February 26, 2012

Article on Arbitration, available on:

 (http://www.dklaw.com/Articles/PDF/reeval_arbitration.pdf), retrieved on 21st February

Avoiding Litigtation Arising out of employment, available at

http://www.aterwynne.com/files/ERT_%20Avoiding%20Litigtation%20Arising%20out%20of%20employment, Retrieved on 19th February, 2012

Bangladesh Council for Arbitration Arbitral Proceedings, available at:

http://www.jurisint.org/doc/html/reg/en//2006jiregen2.html,Retrieved on February 26, 2012

Clauses Recommended for use in Agreements, available at See  (http://www.iama.org.au/clauses.htm) ,retrieved on 20th February, 2012

Enforceability of an arbitration clause in a contract for the purchase or sale of goods products or services, available at:

http://www.legalmatch.com/law-library/article/enforceability-of-an-arbitration-clause-in-a-contract-for-the-purchase-or-sale-of-goods-products-or-services.html, retrieved on 21st February.

History of Arbitration, available at

 http:// (www.laborstudiesandresearch.ext.wvu.edu/r/download/32003), retrieved on 20th February, 2012

 International Arbitration, Available at:

(http://www.osec.doc.gov/ogc/occic/arb-98.html),Retrieved on 25th February,2012.

 Jurisdiction of Arbitral Tribunal, available at : See http://www.fbcci-bd.org/BCA/chap-3.htm#Rule%2010%C2%A0%C2%A0%C2%A0JURISDICTION%20OF%20ARBITRAL%20TRIBUNAL,Retrieved on February 26, 2012

 Nature of Contract, available at http://www.newagepublishers.com/samplechapter/001048.pdf,retrieved on 19th February, 2012

Reevaluating Arbitration as a way to resolve a construction dispute, available at:

 (http://www.dklaw.com/Articles/PDF/reeval_arbitration.pdf), retrieved on 21st February

Recent-decision-of-the-supreme-court-on-existence-of-an-arbitration,available http://www.wordpress.com%2F2011%2F09%2F09%2Frecent-decision-of-the-supreme-court-on-existence-of-an-arbitration- retrieved on 19th February, 2012

Role of the Arbitrator, available at :

http://http-server.carleton.ca/~mmacneil/345/arb1/slide5.html, Retrieved on 21st February

What is a contract, available at http://www.lawsociety.com.au/community/publicationsandfaqs/legalquestions/Whatisacontract/

index.html, retrieved on 19th February, 2012

[1]See http://www.newagepublishers.com/samplechapter/001048.pdf,retrieved on 19th February, 2012

[2] See http://www.usam.com/services/arb_clause.shtml(www.usam.com/services/arb_clause.shtml),retrieved on 19th February, 2012

[3] See http://www.lawsociety.com.au/community/publicationsandfaqs/legalquestions/Whatisacontract/index.html,retrieved on 19th February, 2012

[4]See http://www.wordpress.com%2F2011%2F09%2F09%2Frecent-decision-of-the-supreme-court-on-existence-of-an-arbitration-agreement%2F&ei=nd5HT7qGDc3nrAeK0dinDw&usg=AFQjCNEHmkQHbiiwPvLrI1G2atg7Q1JnBg&sig2=4CUpXn0QnLCWI4_rqapP0w,retrieved on 19th February, 2012

[5] See http://zoplaw.com/news_article.html?id=26 (http://zoplaw.com/news_article.html?id=26) retrieved on 20th February, 2012

[6] See http://www.aterwynne.com/files/ERT_%20Avoiding%20Litigtation%20Arising%20out%20of%20employment.PDF

retrieved on 20th February, 2012

[7] See http:// (www.laborstudiesandresearch.ext.wvu.edu/r/download/32003), retrieved on 20th February, 2012

[8] See http://www.vakilno1.com/saarclaw/bangladesh/arbitrationlaw/arbitration_law_in_bangladesh.htm retrieved on 29th February, 2012.

[9] See (http://www.osec.doc.gov/ogc/occic/arb-98.html),retrieved on 21st February, 2012

[10] See  (http://www.iama.org.au/clauses.htm),retrieved on 20th February, 2012

 [11] See McPhail v. Milwaukie Lumber Co., 165 Or App 596,

999 P2d 1144 (2000). (McPhail v. Milwaukie Lumber Co.,, 2000), retrieved on 21st February, 2012

[12]See Circuit City Stores, Inc. v. Najd, 294 F3d 1104, 1108 (9th Cir 2002). (Circuit City Stores, Inc. v. Najd, 294 F3d 1104, 1108 (9th Cir 2002)., 2002)

[13] See McPhail, 165 Or App at 601 (citing Jole v. Bredbenner, 95 Or App 193, 196, 768 P2d 433 (1989)), retrieved on 21st February, 2012

[14]See (See Equal Employment Opportunity Commission v. Luce, Forward, Hamilton & Scripps, 2003)

 345 F3d 742, 754 (9th Cir 2003) retrieved on 21st February, 2012

[15] See See, e.g., Campbell v. General Dynamics Government Systems Corp., 407 F3d 546 (1st Cir 2005), retrieved on 21st February, 2012

 [16] See In contrast, the court in Patterson v. Tenet Healthcare, Inc., 113 F3d, 2012832 (8th Cir 1997) (In contrast, the court in Patterson v. Tenet Healthcare, Inc., 113 F3d, 1997), retrieved on 21st February.

[17]See Circuit City v.

Adams, 279 F3d 889, 895 (9th Cir 2002) (Circuit City v., 2002), retrieved on 21st February.

[18] See  (http://www.osec.doc.gov/ogc/occic/arb-98.html)

[19] See (http://www.dklaw.com/Articles/PDF/reeval_arbitration.pdf), retrieved on 21st February.

[20] See http://http-server.carleton.ca/~mmacneil/345/arb1/slide5.html, Retrieved on 21st February.

[21] See http://www.fbcci-bd.org/BCA/chap-4.htm#Rule%2014%20%20POWER%20OF%20TRIBUNAL,Retrieved on February 26, 2012