Security Agreement-Generally
The IFC nominated transferee is not going to go through the tender process that AES went through. Nor shall the government have any say in the identity of the transferee so long as the transferee satisfies the requirements laid down by the agreements. As long as the transferee performs the contract upon the same terms and condition, we do not envisage such a security arrangement creating any problems. However, if the transferee is given greater indulgence than was given in the original terms and conditions of the agreement or the tender documents to AES, then this may create problems in the form of public interest litigation or litigation from those losing out to AES in the tender for the project.
Arbitration-Generally
Do the ICSID Rules apply? As far as we can infer, all the contracting parties in this instance are domiciles of Bangladesh (AES Haripur (Private) Limited is a Bangladesh incorporated company- its investors may be foreign, but there is no contractual nexus between them and any of the “Bangladeshi” contracting parties). ICSID Rules are designed for situation for the resolution of disputes between a contracting state and a foreign investor. Even where IFC purports to act as Agent of AES, the principals of the contracts shall all be Bangladeshi. There shall be a foreign party only for the interim period when there is an assignment of the contracts to IFC and when IFC re-assigns the contracts to its nominated transferee. As such there is likelihood that arbitration shall have to be governed by the ICC Rules.
If the seat of arbitration is in Dhaka, we see no problems with enforcement. Section 17 of the Bangladesh Arbitration Act 1940 allows the Arbitration Court (a court of the subordinate judge level) to pass a decree in accordance with an arbitral award upon application from the award holder. Section 17 applies irrespective of whether or not the arbitration clause in the Agreement between the parties expressly provided that the Arbitration would be governed in accordance with the provisions of the Bangladesh Arbitration Act 1940.
If, however, the seat of arbitration is not in Dhaka, but in Singapore, there is a problem. Bangladesh is one of the signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention”) 1958. However, the New York Convention has not been given statutory effect in Bangladesh. Our Law Commission has presented a Bill before the Government in this regard, but it is uncertain as to when it would become law. Until such time, there is no procedure for enforcing foreign arbitral awards through the courts in Bangladesh.
In such situation, any arbitral award in Singapore shall have to be converted to a decree in Singapore before it becomes enforceable in Bangladesh. A decree of a Singaporean Court is enforceable in Bangladesh through a suit for a debt.
There was an enforcement regime under the earlier Geneva Convention and Protocol, which did have statutory effect in Bangladesh. However, that regime was superceded once Bangladesh acceded to the New York Convention, and it is not possible to resort to that regime anymore.
Guarantee
Refer to the form Guarantee included in Schedule 3 of the Implementation Agreement:
The governing law of the guarantee is stated to be English law. Nevertheless, the discussion that follows shall refer to the Bangladesh Contract Act 1872 for reasons that shall become apparent.
Clause 1.2 of the guarantee includes waiver of defenses.
Clause 1.2.2 provides that the guarantor’s obligation under the guarantee shall survive amendments to the contracts that have been guaranteed. This is contrary to Section 133 of the Contract Act, which provides that “any variance, made without the surety’s consent, in the terms of the contract between the principal [debtor] and the creditor, discharges the surety as to transactions subsequent to the variance.” The question is whether Section 133 can be excluded by a contract to the contrary, i.e. such as the guarantee? There are no decisions on this point in Bangladeshi law. However, judicial opinion in India, which applies the same Contract Act, is divided. Some decisions have stated that Section 133 is not subject to agreement to the contrary, i.e. even if the guarantor expressly states that his liability shall survive variation to the contract, variation will discharge his liability (Union of India, Ministry of Food and Agriculture vs. Pearl Hosiery Mills Ltd. & Others: AIR 1961 Punjab 281). The rationale of such decision includes the policy argument that if such variation is allowed, it is possible for the parties to the contract to bind the guarantor to variations of the contract that are altogether different to that which might have been contemplated by the guarantor at the time of issuance of the guarantee. Other decisions have stated that it is open for the parties of a contract of guarantee to exclude the effect of Section 133 (T. Raju Setty vs. Bank of Baroda: AIR 1992 Karnataka 108 where AIR 1961 Punjab 281 was expressly dissented from). The problem is that the decisions have been given by the High Courts of different states of India, which are not competent to overrule each other but can only dissent from one another. The matter has not come before the Supreme Court of India, so the point remains unresolved.
As stated above, English law governs the guarantee in this case. However, if the rationale in the first line of cases is followed, then it is possible that Section 133 of the Contract Act may be construed as a mandatory provision of law, which cannot be excluded by agreement to the contrary by the parties. Alternatively, the enforcement of any arbitral award that may be forthcoming in case of dispute regarding the guarantee may be resisted on the policy grounds stated above.
We shall not suggest deletion of the clause. However, we suggest that whenever there is variation to the contracts guaranteed, the guarantor must at least be intimated in writing, though obtaining the guarantor’s consent would be better.
Land Lease Agreement
Article-IX
Depending on the nature of the particular dispute, having arbitration in Singapore is potentially problematic where the subject matter of the contract is immovable property. It is doubtful whether it is possible to enforce a foreign arbitral decree about the legality or enforceability of the lease agreement.