The scope of the Arbitration Act 2001

The Arbitration Act 2001 (the AA 2001) is the governing arbitration legislation in Bangladesh which was formulated on the basis of the United Nations Commission on International Trade Law (UNCITRAL) Model Law of 1985 (the Model Law). Although the Model Law has been revised in line with the progressive developments of arbitrations globally, the AA 2001 did not undergo similar developments. The rapid development in the global arbitration community has caused the lapses of the AA 2001 to be vividly apparent. In fact, it is currently one of the most heavily criticised legislation of Bangladesh. One of the most controversial aspects of the AA 2001 is its scope of application. As per Section 3(1) of the AA 2001, AA 2001 applies only to those arbitrations which take place in Bangladesh. A plain reading of this provision suggests that the AA 2001 cannot be applied to arbitrations taking place outside Bangladesh. The problem with this limited application is that interim measures cannot be obtained from the courts of Bangladesh if arbitration does not take place in Bangladesh.

Furthermore, Section 3(1) of the AA 2001 has received conflicting interpretations from two different benches of the High Court Division of the Supreme Court of Bangladesh (the High Court) and this had made the situation worse with AA 2001 causing a great deal of confusion in relation to the actual scope of the AA 2001.

The two cases which had shed confusion on the arbitration community in relation to the issue of the ambit of the AA 2001 are HRC Shipping Ltd vs. M.V.X-Press Manaslu and Others (HRC)[1]STX Corporation vs. Meghna Group of Industries Ltd (STX)[2].

The HRC case stemmed from a dispute appertaining shipment of goods governed by a charter agreement.  HRC performed its contractual obligation under the agreement by shipping cargos in 53 containers to Sir Lanka from Bangladesh.  Unfortunately, the ship was struck by a tsunami causing some of the cargos to be washed away as they fell into the sea. It was submitted by HRC that tsunami was not the only cause of the loss as the damages also resulted from the negligence of the ship’s crew. On the basis of this, HRC instituted an Admiralty Suit (“the Suit”) in the Bangladeshi courts claiming compensation and damages. Nevertheless, the inclusion of an arbitration clause within the charter agreement enabled Defendant Nos 5 and 6 to commence arbitration in London and apply for the Suitto be stayed under Section 10 of the AA 2001.

The principal issue that was required to be dealt by the High Court was whether local proceedings ought to have stayed in favour of the arbitration in London. This had put the High Court under considerable stress as a strict interpretation of Section 3 of AA 2001 would mean that the High Court is barred from staying the proceedings in favour of arbitration seated outside.Arbitration Bangladesh

The High Courts deliberated over the content of Section 10 of the AA 2001 and opined that unlike the previous Arbitration legislation, the Arbitration Act 1940, which gave discretionary power to the local courts in relation to granting a stay, Section 10 of AA 2001 requires the courts in Bangladesh to stay the local proceedings in favour of arbitration unless the relevant arbitration agreement is void, inoperative or is incapable of determination by arbitration. In relation to the implication of Section 3 of the AA 2001, the High Court sought to provide an inconclusive interpretation in order “to establish a uniform legal framework for the fair and efficient settlement of disputes arising in international commercial arbitration.[3]

The High Court, taking note of the fact that the AA 2001 was largely based on the UNCITRAL Model Law and that the harmonization and flexibility of the UNCITRAL Model Law has been enshrined in the AA 2001, along with the decision of the case of M/s Strains Construction v Government of Bangladesh[4], where it was held that: “The Salish Ain, 2001 [AA 2001], repealing the earlier Arbitration Act, 1940, is prepared on that [UNCITRAL] model.[5] stated that “It is evident that Section 3(1) provides that 2001 Act would apply where the place of arbitration is in Bangladesh. It does not state that it would not apply where the place of arbitration is not in Bangladesh. Neither does it state that the 2001 Act would ‘only’ apply if the place of arbitration is Bangladesh.[6]

The omission within the AA 2001 was interpreted by the High Court to be an indication that it was not the intention of the Parliament of Bangladesh to limit the application of AA 2001 to arbitrations occurring in Bangladesh. Furthermore, the High Court took note of the fact that no differentiation was carried out in within the AA 2001 between “International Commercial Arbitration which takes place in Bangladesh and International Commercial Arbitration which takes place outside Bangladesh”. Furthermore, the High Court relied heavily on the Indian case of Bhatia v Bulk Trading[7], to stress that the applicability of a national arbitration statute is not restricted to arbitration taking place in that State.

 

It also opined that Section 3 of AA 2001 required an inclusive interpretation albeit the UNCITRAL Model Law, through Articles 1(2) and 8, have accorded an exclusive definition by permitting proceedings to be stayed “only” if it is within the territory of a State.

Further references were made to the Indian case of Olex Focas v Skoda Export[8], where Dalveer Bhandari, J stated that: “There is always a time-lag between pronouncement of the award and its enforcement. If during that interregnum period, the property/funds in question are not saved, preserved or protected, then in some cases the award itself may become only a paper award or decree.” Building upon the assertion that the courts have the power to grant interim relief for arbitration seated abroad, the High Court submitted that in the absence of a liberal interpretation, applications from parties seeking interim relief would be adversely affected even if their assets are situated in Bangladesh.

As far as the contentions disfavouring the application to stay the Suit is concerned, the High Court stated that if the stay is not allowed: “then the provision for enforcement of foreign arbitral award will become redundant as prior to completion of the foreign proceedings, one of the party is free to obtain an order injuncting the foreign arbitration proceedings and as such there would not be any foreign arbitral award to enforce.[9] On the basis of the aforementioned justifications, the High Court stayed the Suit in HRC in favour of the arbitration seated outside of Bangladesh.

The reasoning provided in HRC indicate that the High Court while taking note of the fact that AA 2001 was modeled largely on the UNCITRAL Model Law, adopted a purposive interpretation of Section 3 of AA 2001 in order enable aggrieved parties’ arbitrating their disputes outside of Bangladesh to seek interim remedies in Bangladesh.

Although HRC established a precedence, a different Bench of the High Court arrived at the opposition decision to HRC on the issue of granting interim remedies to parties arbitrating their disputes abroad, i.e. outside of Bangladesh.

The dispute in STX appertained a supply contract between STX Corporation Ltd., a foreign company, and Meghna Group of Industries Limited in Bangladesh. An arbitration agreement was contained in the supply contract where disputes were to resolved through arbitration in Singapore.

The dispute led to the commencement of arbitration and amidst the arbitration proceedings, an interim order was filed in the Bangladeshi High Court by STX against some of the Respondents under Section 7A of the AA2001in order to restrict those Respondents from transferring or selling off their assets so that those Respondents are not able to escape their obligations under the anticipated arbitral award. The principal issue to be dealt with the High Court was whether in cases of foreign arbitration, interim remedies can be granted under AA 2001.

It was the submission of STX that the High Court ought to adopt an apurposive approach in interpreting the AA 2001 and had made reliance on several authorities in order to underpin its arguments. This included Article 6(4) of the European Convention on International Commercial Arbitration of 1961[10] and Article 9 of the UNCITRAL Model Law[11] which strengthened the notion that the High Court’s vested with the power to order interim measures. STX  had also relied on the judgment of the Third Circuit Court of Appeals in Stephen Blumenthal v Merrill Lynch, which stated: “the pro-arbitration policies reflected in the … Supreme Court decisions are furthered, not weakened, by a rule permitting a district court to preserve the meaningfulness of the arbitration through a preliminary injunction. Arbitration can become a ‘hollow formality’ if parties are able to alter irreversibly the status quo before the arbitrators are able to render a decision in the dispute. A district court must ensure that the parties get what they bargained for—a meaningful arbitration of the dispute.[12]

However, STX admitted to the fact that there existed conflicting judgments in India with regards to granting interim relief. Nevertheless, it stressed that as per Bhatia case, High Court could order interim measures in such instances. Additionally, STX emphasized on the obligations under vested in it as a result of being a signatory of the NewYork Convention and so theHigh Court should be mindful of such obligations when considering Section 3 of the AA 2001.

HRC was also referred by STX, in particular, the portion of the judgment which specifically stated that: “It is to be noted that the definition of international commercial arbitration makes no distinction between international commercial arbitration which takes place in Bangladesh and international commercial arbitration which takes place outside of Bangladesh. If the proposition of the plaintiff [that national court proceedings cannot stay for arbitration proceedings abroad] is correct then the provision for enforcement of foreign arbitral award will become redundant as prior to completion of the foreign proceedings, one of the party is free to obtain an order injuncting the foreign arbitration proceedings and as such there would not be any foreign arbitral award-to-enforce ….[13] The final submission of STX was that the High Court should adopt the approach followed in HRC in order to facilitate commerce through a liberal interpretation of Section 3 of AA 2001.

On the contrary, the Respondents argued that a literal interpretation of AA 2001 should be exercised and reading Sections 3(1) and (2) of the AA 2001 would insinuate that AA 2001 is not applicable in case of arbitration outside of Bangladesh. In order to support this contention, the Respondents relied on M/s. Stratus Construction Company Government of Bangladesh,[14] which held that: “a Court of law … cannot create new right or remedy or give itself a jurisdiction which is not given in the Act itself.[15] Additionally, references were made to Unicol Bangladesh v Maxwell,[16] Uzbekistan Airways v Air Spain Limited,[17] and Canada Shipping v TT Katikaayu.[18] They also made arguments based on the public policy of refusing to grant interim orders and focused that the aim of arbitration to settle disputes promptly and with minimum interference by the courts.

After the submissions by both the parties, the High Court made a plain reading of Section 3 of the AA 2001 and opined that the legislature intended for the AA 2001 to apply only when the arbitration proceeding is in Bangladesh: “from a combined reading of sections 2(ga) [2(c)], 2(ta) [2(k)] and 3 of the Act it is apparent that the intention of the legislature is that the scope of the Act of 2001 is limited within the territory of Bangladesh, except that there is a scope to enforce an award passed in a foreign arbitration, pursuant to section 3(2) read with sections 45, 46 and 47 of the said Act of 2001.[19] Furthermore, the High Court considered “the golden rule of construction” to be literal interpretation and submitted that in case of clear and unambiguous statute, the interpretation should be carried out upholding the tenor and meaning of the statute in order to clearly reflect the intention of the legislature. The High Court further observed that unless the Parliament enacts an explicit provision allowing interim orders to be granted in cases of arbitrations outside Bangladesh, such measures cannot be granted even though interim measures for foreigner arbitration were provided for in other jurisdictions.

The High Court was more convinced by the authorities relied on the Respondents. The Appellate Division of the Supreme Court of Bangladesh (the “Appellate Division”) in Unicol held that: “the law as in Sections 3(1) and 3(4) of the Act … is limited in application as to the arbitration being held in Bangladesh, but not as to matter restraining a particular party from proceeding with arbitration in foreign country in respect of a contract signed in Bangladesh.[20] Likewise, the Appellate Division in Uzbekistan Airways opined that: “on a careful scrutiny of the scheme and the relevant provisions of the Act, both the Divisions have taken the view that Section 10 of the Act has no manner of application with regard to foreign arbitral proceeding… 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 in the aforesaid two cases that Section 10 of the Act does not apply to foreign arbitral proceedings.[21] Additionally, in Canada Shipping where arbitration was to be held in London, it was ruled that: “section 10 of this Act is not applicable and the application to stay the proceeding before this Court should not be entertained considering the facts that it involves arbitration proceeding in a foreign country and not in Bangladesh.

The High Court also took Bhatia and HRC into consideration and opined that it had no scope for it to depart from the decisions of the Appellate Division[22] on the basis of the concept of binding precedent incorporated in Article 111 of the Constitution ofPeople’s Republic of Bangladesh. In reaching the conclusion that the interim orders cannot be granted in cases of arbitration taking place outside of Bangladesh, the High Court drew an analogy with the Indian case of Dozco India Pvt. Ltd. v Doosan Infracore Co. Ltd[23], where the relevant contract explicitly ousted national jurisdiction through an express statement which stated that the Indian Arbitration Act 1996 shall not be applicable to any disputes arising out of the contract. In the opinion of the High Court, the jurisdiction of the Bangladesh courts was excluded in a similar manner since the laws of Singapore was stated to be the governing law by the contract.

The dicta of both the cases discussed above are clearly contradictory: whereas HRC states that the Courts of Bangladesh are vested with the necessary powers in cases of foreign arbitration, arbitrations taking place outside of Bangladesh, STX held that the same powers are not accorded to Courts of Bangladesh in case of foreign arbitration. The conflicting decisions raised eyebrows of the international arbitration community and international lawyers in relation to invoking the Bangladeshi Courts to seek remedies to support the arbitral process.

Despite the alarming situation, we are yet to witness a statutory intervention clarifying the situation. However, recently, High Court in the case of Project Builders Ltd. (PBL) v China National Technical Import and Export Corporation and others (“Project Builders”)[24] opted to adopt the approach of STX. In that particular case, Syed Refaat Ahmed J stated that: “This Court reiterates that such grant of interim measures is not within the purview of the Bangladeshi courts and any decision to the contrary would render the plain words of section 3(1) to be superfluous and redundant[25].

The fact that the High Court in Project Builders followed the decision of STX suggests that the approach undertaken in STX is likely to prevail. However, if this happens to be the actual case, then it is nothing but a matter of regret for Bangladesh. It has been stated earlier that AA 2001 has been drafted on the basis of the Model Law and that the Model Law has been subjected to revisions in order to reflect the needs of the global arbitration community. The most significant change that has been brought about is the scope of the Model Law: Article 1 of the revised Model Law enables provisions relating to interim measures to apply irrespective of the fact that the place of arbitration is situated outside of country concerned. Unfortunately, despite the fact that the Model Law has been the basis of the AA 2001, its amendments have not been reflected in the AA 2001 causing AA 2001 to be incapable of reflecting the progressive developments of the global arbitration community.

[1] [2006] HCD [2012] 2 LCLR 207

[2] [2011] HCD [2012] 2 LCLR 159

[3]HRC [5]

[4]M/s Stratus Construction Company v Government of Bangladesh represented by Chief Engineer, Roads and Highways Departments[2002] HCD[2002] BLD236.

[5]HRC [30]

[6]HRC [32]

[7]Bhatia International v Bulk Trading SA [2002] Supreme Court of India [2002] AIR (SC) 1432.

[8]OlexFocas Pvt. Ltd v Skoda Export Co. Ltd. [1999] Delhi High Court [2000] AIR Delhi 161.

[9]HRC [40]

[10]Article VI(4) states: “4. A request for interim measures or measures of conservation addressed to a judicial authority shall not be deemed incompatible with the arbitration agreement, or regarded as a submission of the substance of the case to the court.”

[11]Article 9 states: “Arbitration agreement and interim measures by court: It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.”

[12]Stephen Blumenthal v Merrill Lynch Pierce, Frenner& Smith Inc , 910 F2d 1049 (2nd Cir 1990), Fed. Sec. L. Rep. P 95, 417.

[13]HRC [46]

[14][2002] HCD[2002] BLD236

[15]Stratus Construction Company[9]

[16][2004] AD [2004] DLR 166

[17][2005]HCD[2005] BLC 614

[18][2001] HCD [2002] DLR 93

[19]STX [22]

[20]Unicol[15]

[21]Uzbekistan Airways [5]

[22]Article 111 states: “The law declared by the Appellate Division shall be binding on the High Court Division and the law declared by either division of the Supreme Court shall be binding on all courts subordinate to it.”

[23]Dozco India P. Ltd. v Doosan Infracore Co. Ltd [2010] Supreme Court of India[2010] (9) UJ 4521 (SC) Manu/SC/08/2010.

[24] [2016] HCD [2017] DLR 290

[25]Project Builders [31]

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Mohammad Taqi Yasir

Mohammad Taqi Yasir is a LLB graduate of the University of London International Programmes. He is one of the 15 students around the world who was awarded first class in 2017 by the University of London. After completing his LLB in 2017, he commenced his legal career at a leading law firm in Dhaka and is currently practicing in civil law, more specifically in the areas of company law. He is also an entrepreneur holding board position at a digital marketing and event management company, Planet X Incorporated. His interests extend to the field of philanthropy as well and he current performs the role of an advisor for a charity called Born To Smile and holds the position of Vice President of a social enterprise named, Footsteps Foundation.

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