Discuss the concept of “Arbitration Procedure” in Light of Law of Contract and Other Laws


As the world is becoming over populated, disputes and conflicts between people has surged up to a new level. The society has a huge role to play when it comes to justice. When people seek for justice, most of them are unaware of the laws and are often deprived from justice. Therefore, the establishment of the Courts all over the globe has been taken into account to ensure justice for the citizens of every nation. In reality access to courts are difficult, time consuming and in some cases can be expensive; limiting the access of people who are not financially solvent or lack the knowledge of procedures. In such cases, arbitration procedures are taken into account for the victims of the society who seek for justice.

What is Arbitration Clause?

An arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process. Although such a clause may or may not specify that arbitration occur within a specific jurisdiction, it always binds the parties to a type of resolution outside of the courts, and is therefore considered a kind of forum selection clause.


Types and Application of Arbitration

Arbitration can be practiced through various ways. But the forms of arbitration are classified into four categories, they are:

  • Arbitration: It is a procedure whereby both sides to a dispute agree to let a third party, the arbitrator, decide and judge on the matter of dispute. The arbitrator may be a lawyer, or an expert in the field of dispute. He will make a decision according to the law and the decision is legally binding. Arbitration is used in highly complex and formal disputes that mainly arise in large corporation or communities.

  • Negotiation: One of the simplest forms of arbitration. In a negotiation system an informal negotiation takes place between the parties in dispute with or without the help of a legal person. This has the advantage of being completely private and also quickest and cheapest method of settling disputes. Negotiation is mostly used in settlement of less complex and small scale disputes that require privacy, such as minor family disputes or settlement of disputes between buyers and sellers in a small company.

  • Mediation: Mediation involves the appointment of a mediator to help the parties in a dispute to reach an agreement which each considers acceptable. The role of mediator is to consult with each party and see how much common ground there is between them. When an agreement is reached, it is written down and forms a legally binding contract. Mediation is mostly used for settling disputes that are complex, such as family problems like division of property or wealth, community based disputes.

  • Conciliation: Conciliation is similar to mediation but the conciliator takes a more interventionist role than the mediator in bringing two parties together. Conciliator is expected to suggest ground for compromise, and the possible basis for a settlement. Conciliation is mainly used for settlement of family disputes such as divorces that are complex at the same time require counseling.

In general, arbitration can be broadly divided into two types, Binding and Non-binding. Negotiation, Mediation and Conciliation are considered non-binding, as it depends upon the willingness of the parties to reach a voluntary agreement. Whereas arbitration may be either binding or non-binding, in a binding system the Arbitrator’s decision acts like a judicial decision and both the parties have to accept it even if they disagree. However, in a nonbinding form of arbitration the parties can reject the decision made by the arbitrat

 Advantages of Arbitration Procedure

Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings:

  • When the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed (as one cannot “choose the judge” in litigation)
  • Arbitration is often faster than litigation in court
  • Arbitration can be cheaper and more flexible for businesses
  • Arbitral proceedings and an arbitral award are generally non-public, and can be made confidential
  • In arbitral proceedings the language of arbitration may be chosen, whereas in judicial proceedings the official language of the country of the competent court will be automatically applied

Disadvantages of Arbitration Procedure

  • Arbitration may become highly complex
  • Arbitration may be subject to pressures from powerful law firms representing the stronger and wealthier party
  • Arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, and consumers and employees often do not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job
  • If the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case
  • In some arbitration agreements, the parties are required to pay for the arbitrators, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes

 Arbitration Procedures in Bangladesh

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.

Once an arbitration agreement is entered into for submitting future differences to arbitration, it is not, necessary to obtain the fresh consent of all the parties for a reference to arbitration at the time when the dispute actually arises.

 Arbitration Procedures in U.S.A

The growth of arbitration is taken as a healthy sign by many legal commentators. It eases the load on a constantly overworked judicial system, while providing disputants with a relatively informal, inexpensive means to solve their problems. One major boost to arbitration came from the U.S. Supreme Court, which held in 1991 that Age Discrimination claims in employment are arbitrable (Gilmer v. Inter-state/Johnson Lane Corp., 500 U.S. 20, 111 S. Ct. 1647, 114 L. Ed. 2d 26). Writing for the majority, Justice Byron R. White concluded that arbitration is as effective as a trial for resolving employment disputes. Gilmer led several major employers to treat all employment claims through binding arbitration, sometimes as a condition of employment.

Arbitration clauses have become a standard feature of many employment contracts. This has led to conflicts concerning the applicability of these clauses when an employee seeks to sue an employer for a Civil Rights violation under Title VII of the Civil Rights Act of 1964, as amended by the civil rights act of 1991. A provision of this law addressed, for the first time, the arbitration of Title VII claims. Section 118 of the act states that the parties could, “where appropriate and to the extent authorized by law,” choose to pursue alternative dispute resolution, including arbitration, to resolve their Title VII disputes.


Arbitration systems are highly gaining popularity all over the world, especially in developing countries. Low cost, easy access and protection of privacy are attracting people towards its use. In context of Bangladesh where limited number of courts deprives citizens to the access of justice and law, arbitration system is for surety a sign of hope. However, with the gradual breakdown of the more traditional values of the social fabric, the traditional system of resolving disputes now stands virtually extinct and has been replaced by police cases, legal procedures and other methods. In order to make the system of arbitration stronger in Bangladesh requires adequate political support for institutionalizing arbitration and trainable arbitrators and staff.

However, in the light of law of contracts arbitration has become more complex. Therefore, in villages people are more in favor of alternative dispute resolutions which do not shed light on the laws of contract.


 Siddiqur Rahman Mia,The Arbitration Act, 2001 (2007), 2nd edition, Bangladesh Law book    company, Dhaka

The Constitution of the People’s Republic of Bangladesh, 2000

 Muslim Arbitration, Problems with court hearing (2005), retrieved on 02 December 2011, from             http://www.matribunal.com

Deye, James, and Lesly Britton. 1994. “Arbitration by the American Arbitration Association.” North Dakota Law Review (spring).