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“All Citizens are Equal before Law and are Entitled to Equal Protection of Law”-Article 27 of the Constitution of the People’s Republic of Bangladesh

Issue No: 204
August 27, 2005

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Developing International arbitration culture in Asia

Professor Dr A F M Maniruzzaman

In many Asian countries, the settlement of international commercial disputes and enforcement of arbitral awards remain as grave a cause for concern for foreign investors as ever. This may be attributed to a number of factors which include the following:

(i) A tendency for local courts to be non-cooperative and to have an anti-arbitration bias. In the context of international energy project contracts, there are a number of instances of local project participants and government agencies having employed local court orders as a means of delaying and even halting international arbitration proceedings completely. These follow claims that project deals were made through corruption and thus were invalid or unenforceable. Such court orders have been made in relation to the Himpurna and Patuha projects (Mid American Holdings), the Karaha Bodas project(EPL and Caithness Energy), and the Paiton project in Indonesia (Edison Mission Energy, Mitsui and General Electric), the HubCo project in Pakistan and the Dabhol project in India (Enron).

(ii) The inability of local courts to appreciate the ethos of international private dispute settlement.

(iii) The inefficiency of local courts in enforcing awards.

(iv) A serious lack of understanding by local courts of international arbitration rules and conventions, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 ('the New York Convention').

(v) Local protectionism.
(vi) Manipulation of the system by a local disputing party.
(vii) Occasionally, corruption.

Specific problems affecting arbitration in Asia
Difficulties in enforcing awards

Commentators have found particularly acute problems in relation to the enforcement of arbitral awards in some Asian countries. In this regard, arbitration often faces stumbling blocks on grounds not usually found elsewhere. These include the following:

(i) Failure by a signatory State to the New York Convention to ratify the Convention by way of enabling legislation. An illustrative case is the decision of the Supreme Court of Bangladesh (Appellate Division) in Bangladesh Air Service (Pvt) Ltd v British Airways PLC [(1997) 49 Dhaka Law Reports 187]. A summary of this case in the Yearbook Commercial Arbitration contains the following statement:

"It was pointed out that though Bangladesh had acceded to the New York Convention, it had not passed implementing legislation. Thus the New York Convention could not be relied upon to enforce a foreign award in Bangladesh" [YB Comm Arb XXIII (1998) 624 at 625].

(ii) Failure by a State party to ratify a bilateral investment protection treaty providing for ICSID arbitration.
(iii) The absence of mechanism or guidance for courts on the enforcement of foreign arbitral awards, coupled with adverse judicial attitude to enforcement.
(iv) Judicial interference with arbitration on public policy grounds. An illustrative case is the decision of the Supreme Court of Pakistan in Hubco v. WAPDA [Civil Appeal Nos. 1398 & 1399 of 1999], where the court refused to enforce an arbitration agreement providing for ICC arbitration in London and upheld the jurisdiction of the Pakistan courts to determine a major dispute. The central issue was whether allegations of fraud, illegality and corruption raised by one party (a government party) against the other (project company / foreign investors) precluded the resolution of disputes by arbitration as a matter of public policy and, as such, rendered them non-arbitrable.

Another relevant case is Saipem SpA v Bangladesh Oil Gas and Mineral Corporation [MLR (2000) (AD) 245]. In this case, the High Court Division of the Supreme Court of Bangladesh, acting under 5 of the Arbitration Act 1940, revoked the authority of an ICC arbitral tribunal constituted under the ICC Rules (ICC Arbitration case no. 7934/CK) at the request of one of the parties. The lower court held that the tribunal had conducted the arbitration proceedings improperly by refusing to determine the question of admissibility of evidence and the exclusion of certain documents from the record. Accordingly, the tribunal had acted in manifest disregard of law and the arbitral proceedings were likely to result in a miscarriage of justice.

The Appellate Division of the Supreme Court declined to interfere with this order in the interests of justice. The decision caused some clamour in the international community. For example, the Editor of the ASA (Swiss Arbitration Association) Bulletin described it as "in stark contrast with a number of principles of international arbitration" such as Kompetenz-Kompetenz. The commentary maintained that there was nothing improper in the conduct of the arbitral tribunal. Its conduct was -- "completely in line with public policy as well as with standard arbitration practice. The facts reported do not show that the Arbitral Tribunal has overstepped its discretion to freely assess and weigh the evidence ..."

(v) Misinterpretation by the courts of the New York Convention.
(vi) Occasionally, ambiguities in a country's arbitration law.

Lack of expertise in arbitration and ADR and gaps in legal education
Another pertinent issue that haunts the dispute resolution scene in the region is that, despite the recent moves towards the modernisation of arbitration law in many Asian countries, in some of them there is available very little arbitration or any ADR expertise, either at the Bar or on the bench. Legal education in many Asian countries is not geared to this particular specialisation; insufficient resources are in place to educate and train professionals in the field towards the goal of creating a viable and thriving atmosphere for international commercial arbitration. These problems will continue to afflict international commercial arbitration in the region unless effective measures to overcome them are undertaken soon. In the wake of current liberalisation of international trade and investment in an increasingly globalised world, it is not enough to modernise international arbitration laws alone in the Asian region. Rather, there should be developed a proper infrastructure in terms of educated, trained and experienced professionals, specialist judges and judicial officials in the field.

There is also a need to establish more arbitration centres and to make arrangements for regular training programmes to update professionals and judges with knowledge of recent developments in the field. Unfortunately, many Asian countries are still lagging behind in these respects.

Conclusion and suggestions for improvement
These problems and challenges currently facing international commercial arbitration in Asia are, however, just teething troubles that can be overcome over time. Undoubtedly, Asia is gradually emerging from its past and into the present era of globalisation. It has a vision for its future co-existence in the global market place. In order to make Asia an acceptable region for dispute resolution, therefore, the following tentative suggestions are offered.

(i) Most Asian countries are developing countries. In order to enhance education and develop professional skill and knowledge in ADR, including arbitration, both at the Bar and on the bench and beyond, the World Bank and the Asian Development Bank could take the initiative to sponsor courses and training programmes locally. These could be offered by such bodies as the Chartered Institute of Arbitrators (London and its East Asia Branch, based in Hong Kong), the International Development Law Institute (IDLI, Rome), the International Chamber of Commerce (ICC) Institute of World Business Law and other professional bodies and international organizations.

(ii) Furthermore, international development banks, national, regional and international business bodies or multinational energy companies could take similar initiatives. The money would be well spent in the sense that if a congenial atmosphere could be created for ADR by enhancing education and developing professional skills, knowledge and awareness in ADR, the international business community as a whole would reap great benefits in return over time.

Without the enlightenment of its members, no community can expect progress and prosperity. Similarly, without the establishment of sound dispute settlement mechanisms and the enlightenment of the people who deal with them, the international business community cannot be expected to have confidence in a country, especially if it is a developing country. This will, in turn, affect that country's prospects for economic development.

(iii) Once the legal intelligentsia of a country is well groomed in ADR methods by educational activities and training programmes and an appropriate ethos is thereby created, legal and judicial reforms can be effectively carried out. Thus, the seeds of reform must be sown in the fertile legal terrain. Without providing a congenial atmosphere, for change, modernisation of law in tune with the expectations of the international business community cannot be achieved. Undoubtedly, an improved legal system and an efficient judiciary can stimulate the economic development and progress of a country.

If, however, the underlying conditions for legal change are not created in a country, the mere fact of legal change will not bear any fruit there in the long run. In this respect, international development agencies such as the World Bank, the Asian Development Bank, USAID, and other relevant international organisations such as WIPO, WTO and UNCTAD can take the initiative in myriad ways to help build the legal infrastructure of a developing country. Already, work is going on in that direction, thanks to the efforts of a number of development agencies, but more is needed in the future. It has been noted:

"...[M]any developing countries, often with foreign assistance, have undertaken judicial reform programmes to strengthen the independence of the judiciary, improve the training of judges and court personnel, provide courts with the necessary material sources, modernise the judicial procedures, increase access to justice, and develop alternative methods of dispute resolution."

However, more educational activities and training programmes in all forms of ADR are needed for lawyers, judges and dispute settlement professionals in developing countries in order to help them gain positive benefits from globalisation. At present, not enough is being done.

(iv) Donor countries and development agencies could take initiatives and design methods for increasing transparency in national laws and practice concerning foreign investment and dispute settlement in Third World developing countries. Regular publication of information on these matters, together with information and statistics about court activities and actions in connection with foreign investment disputes, information about dilatory tribunals and accounts of the work of other dispute settlement agencies in a particular country could be a means of ensuring or promoting transparency in these respects. The 'rogue state' could be held to account. Donor countries and development agencies could jointly apply a 'carrot and stick' policy to a country in providing development aid and financial assistance.

(v) There is a great need for a change of attitude. The judiciary as well as the legal profession have to appreciate the reality that, in the era of globalisation, dispute settlement by alternative methods is not only a domestic matter but also an increasingly growing international phenomenon in the context of cross-border transactions. They must be prepared to absorb international values, norms and principles while performing their professional functions in the field of international dispute settlement, otherwise their professionalism will prove moribund and will be useless to the international business community.

Much in-depth research is needed to find out how dispute settlement by various ADR methods could be promoted and international commercial disputes effectively and finally resolved in Asia. Various business organisations, international development agencies, national professional organisations and regional organisations in Asia could make valuable contributions in this regard.

Dr A F M Maniruzzaman is Professor of Law, University of Portsmouth, UK, and Advocate, Supreme Court of Bangladesh


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