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Enforcing Foreign Arbitration Awards in Bangladesh

A Step Backward?

by Barrister Khaled Hamid Chowdhury
***. . . why no action has been taken for 5 long years. Despite being urged by some renowned lawyers and informed by some other ministries who sought clarification, those in charge of the Ministry of Law and Justice and that of Foreign Affairs appear to have done nothing on their part to address this extremely important issue and to date every such attempt has gone unheeded. Why do we ratify a Convention to which 109 other states are participants if our courts can emphatically declare that a foreign award is not enforceable in Bangladesh?
ONE of the vexed questions concerning commercial litigation in Bangladesh that has mesme-rised lawyers, litigants and the business community alike in recent years lias been whether a foreign arbitration award can be enforceable in our country. The reasons for this are manifold. But first in the interest of the lay readers let me put the matter in its context. Instead of resorting to litigation which may be time consuming and expensive. parties to contracts often try to resolve their disputes amicably. In any modern international contract, therefore, a choice of arbitration clause is almost indispensable. This may take the following form. "Any disputes arising between the parties out of this contract shall be referred to arbitration in London.” Thus the parties are free to choose a place for conducting arbitration and it is not uncommon for a foreign contracting party to insist on its Bangladeshi counterpart to put a clause in the above terms. Such a clause gives the foreign investors more confidence as places like London. Zurich. Paris are well reputed in the international business community for commercial arbitration. After hearing the disputing parties to the contract, the arbitrator may pronounce an award and for our purposes an award made in another country is called foreign award. However. that is just the dawning of the problem. Once such an award is given, then if necessary (this may be because the party against whom the award is made has some connection with the foreign country, for example it may be his place of business, or has bank accounts or other assets etc.), the party in whose favour-the award is made may have to seek enforcement in another country (in our case, that country is Bangladesh) to obtain the benefit of the award provided that other country's court has Jurisdiction.
So far everything seems to be in order. Suppose, a foreign contracting party obtains an award in an arbitration proceeding held In Zurich, Switzerland according to contractual terms against their Bangladeshi counterpart to the contract and now seeks recognition and enforcement of their award in Bangladesh. An advocate unaware of the real nature of the problem may look up the Bangladesh Code (this is where our Acts are printed with the authority of Ministry of Law and Justice) Volume XI. as modified upto 31st December 1988. and find the Arbitration (Protocol and Convention) Act 1937
in page 374 and bottafuie advise the foreign client to file the award pursuant to section 5 of the Act as section 4 (1) of the said Act declares. "A foreign award shall, subject to the provisions of this Act. be enforceable in Bangladesh as if It were an award made on a matter referred to arbitration in Bangladesh.” He may have very little doubt about the enforceability of the said Act as the opening words of the preface to Volume XI of the Code signed by Justice M A Quddus Chowdhury, the then Secretary of Ministry of Law and Justice reads, "The Bangladesh Code seeks to present in handy volumes the amended, adapted and authentic version of all enacted laws in force in Bangladesh....The inherited laws are existing laws within the meaning of our Constitution." Our Advocate should feel even more comfortable when he finds out that Bangladesh, after having deposited an instrument of accession with the Secretary General of the United Nations on 6 May 1992. have ratified the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. This means that Bangladesh is now internationally bound along with 110 other nations to recognise and enforce a foreign award according to its municipal procedural laws.
All this, however, to the utter surprise of our Advocate friend and dismay to the client seeking enforcement of the foreign award may prove futile because of judgement of our Hon’ble High Court Division in the case of M/s Haji Azam v Singleton Binda & Co Involving an arbitration award obtained in London, reported at, 27 DLR 383 in 1975 which Held that the 1937 Act which was in force in Pakistan has not continued in force under the provisions of Laws Continuance Enforcement Order 1971 and is not operative in Bangladesh as Bangladesh could not be internationally bound to accept any obligation made or undertaken by Pakistan or any other state, which was exercising control over ter-ritories, now forming Bangladesh without Its express consent. It was also held that even if such Act was deemed to have continued in force in Bangladesh, in the absence of notification contemplated in section 2 (1) of the said Act. its provisions could not be enforced. Hence the Judgment made it clear that laws that require specific acceptance by Bangladesh for them to continue to be in force after our independence in 26 March 1971 are only those laws that in-
volved some international obligation undertaken by the Governments of India or Pakistan. This was said to be in accord with the entrenched practice in the field of state succession in international law that international treaties of a parent do not bind the seceding state. In other words. Arbitration (Protocol and Convention) Act 1937 was not an Act that was consistent with our Proclamation of Independence so as to continue to be in force under the Laws Continuance Enforcement Order 1971 without express consent.
In short, it can be observed from the above judgement that the obstacles in enforcing a foreign award under the 1937 Act are threefold. First, that Bangladesh was not a signatory state to the Protocol and Convention as promulgated in the First and Second Schedule of the Act; secondly, that the 1937 Act required specific acceptance by the Government of Bangladesh for its continuance as it involved some international obligation undertaken by the Governments of India and Pakistan and finally, even if that Act continued to be in force after 1971, Its provisions could not be enforceable in the absence of notification issued by the Government of the People's Republic of Bangladesh because a notification issued by the Central Government of Pakistan on the same provision cannot have such effect. It should be noted that the Judgment followed the case of Yangtze (London) Ltd v M/s Bar-las Brothers Ltd. a decision of the Pakistan Supreme Court reported in 14 DLR 151 in 1962 which was also relied upon by the High Court of then East Pakistan in the case of M/s A R Bhuiyan & Co Ltd v M/s Centrotex reported in 18 DLR 31 in 1966.
it is doubtful whether the judgement in Haji Azam's case above, although sound at the time of its pronouncement may continue to be supported as the reasoning may not hold water due to our accession to the New York Convention in May. 1992. At this juncture a fleeting glance at the past is necessary.
The first major treaty in relation J.0 recognition and enforcement of international arbitration agreements and awards was the Geneva Protocol of 1923 which takes form of the First Schedule to our Act of 1937. It had numerous difficulties and the most severe being Article 3 under which each contracting state undertook only to execute awards made in its own territory, pursuant to an arbitration agreement which was covered by the protocol. Obviously, this did nothing for the international enforceability to awards. Then came the Geneva Convention of 1927 which was an improvement in some respect as it provided that an award would be recognised as binding and would be enforced internationally in the territory of any of the contracting states, subject to certain conditions. These Include that the' award was made pursuant to an agreement to which the 1923 Protocol applied; that it was made in the territory of one of the contracting states and that the parties were subject to the jurisdiction of one of the contracting states (Article 1). There were five further conditions as stated in Article 1 which needed to be satisfied — one of these related to public policy and the other related to finality. In any case, the Convention provisions had their difficulties and are promulgated in the Second Schedule to the Arbitration (Protocol and Convention) Act 1937.
Then came with what we are
or should be concerned with — The New York Convention of 1958. This is a considerable improvement upon the Geneva Convention of 1927 as it provides for a simple and effective method of obtaining recognition and enforcement of foreign awards. One must note that the New York Convention replaces the Geneva Convention ot 1927 and gives much wider effect to the validity of arbitration agreements than that given under the Protocol of 1923. In a renowned International Journal it has been described as "the single most important pillar on which the edifice of international arbitration rests.” Article 1.1 appears to make an arbitral award made in any state (even a state which is not a party to the Convention) recognisable and enforceable in a Convention state so long as the award satisfied the basic conditions set down in the Convention. Article 1.3. however, provides for the Convention states to make two reservations — the first of these is as to reciprocity under which a state when signing, ratifying or acceding to the Convention may declare that it will apply the Convention as to awards made only in the territory of another contracting state. The second reservation entitled a contracting state to declare that it will only apply the Convention to differences arising out of the legal relationships which are considered as commercial under the national law of the state making such declaration. This reservation is similar to the one permitted by the Protocol of 1923. To this date 110 states have adhered to the New York Convention: of these 35 have entered the commercial relationship reservation and 57 have done so on the basis of reciprocity requirements and Bangladesh has not entered ei-
ther of the two reservations. This shows the wide recognition this Convention enjoys in relation to international commercial arbitration. In any case, it is not difficult to understand that with the increase in the number of Convention states the implication of the reciprocity reservation is being gradually diminished. As has been said, the 1958 Convention provides for both recognition and enforcement of awards to which the Convention applies. Thus, a Convention state not only undertakes to respect the binding effect of awards to which the Convention applies but also undertakes to enforce such awards in accordance with its local procedural rules. There are seven different grounds for refusal to recognise and enforce a foreign award as laid down in Articles V. 1(a) to (e) and V. 2(a) and (b). It may be pointed out that in connection to one of the grounds of refusal concerning public policy, it has been held by the District Court of New York that Convention's public policy defence should be construed narrowly; and that enforcement of foreign arbitral awards should only be denied on this basis where enforcement would violate the forum state's most basic notions of morality and justice. (508 F. 2d 969, 1974).
India was a party to the Protocol and Convention of 1923 and 1927 respectively and gave effect to it by incorporating these provisions in the Arbitration (Protocol and Convention) Act 1937 and a gazette notification was published on 8 June 1938 pursuant to which the 1937 Act became operative in the territories then comprising British India. Subsequently, after the cessation of British reign in 1947. section 18 (3) of the Indian Independence Act 1947 provided that the law
existing in British India before the appointed day i.e. 15th August. 1947. shall continue, with necessary adaptations, as the law of Pakistan until repealed or altered by a competent authority. This provision was relied upon in the case of Yangtze (14 DLR 151) as mentioned above to contend that the 1937 Act continued to be in force in Pakistan and that the notification of 1938 obviated any need for a further notification by Pakistan. It was. however, held that despite the continuance of the 1937 Act in Pakistan by virtue of the Independence Act of 1947, this by itself was not sufficient to make the Act operative in Pakistan as in the absence of notification an award made in a foreign state could not be treated as a foreign award within the meaning of the 1937 Act. This decision produced considerable upheaval and the Government of Pakistan promptly promulgated the Foreign Award and Maintenance Orders Enforcement (Amendment) Ordinance. 1962 (Ordinance 53) which expressly adopted the notification by the Government of India under the Act to be notification of the Central Government of Pakistan. In the case reported at 18 DLR 31. it was held that the ordinance brought about a change in the law subsequent to the judgement delivered in the Yangtze case and in the absence of such new legislation, the J 937 Act could not be operative in Pakistan. As has been seen, similar line of reasoning was undertaken in the Haji Azam's case in 1975 to hold that there must be a notification or a new piece of legislation promulgated by the Government of Bangladesh before the 1937 Act could become Operative in our country.
If the above decisions represent the present law. what then is the implication of our accession to the New York Convention? As we are now internationally obliged to recognise and enforce a foreign award made in any state, which may even include a non-contracting state (as no reciprocity reservation have been made by Bangladesh), then if there is any further requirement of legislation to give effect to the 1958 Convention, I wonder why no action has been taken for 5 long years. Despite being urged by some renowned lawyers and informed by some other ministries who sought clarification. those in charge of the Ministry of Law and Justice and that of Foreign Affairs appear to have done nothing on their part to address this extremely important issue and to date ev-
ery such attempt has gone un-heeded. Why do we ratify a Convention to which 109 other states are participants if our courts can emphatically declare that a foreign award is not enforceable in Bangladesh? A somewhat sarcastic view may be that those who represented Bangladesh while depositing the instrument of accession had no clue as to the contents of the 1958 Convention and may have had some other more important matters to take care of'while visiting the States! In fact the concerned personnel at the UN office have already expressed their surprise and dismay on being informed that a foreign award may not be enforceable in Bangladesh despite our accession to it in 1992. The decisions as discussed above have no doubt taken us aback and may have prevented many foreign interested parties from entering into multi-million dollar contracts with local companies. Very few countries involved in modern commerce can do without such a stipulation in an international contract and such an embargo is clearly opposed to the fundamental notion of freedom of contract under which parties are free to choose whatever terms they prefer in order to give effect to their contractual intentions. It seems that even if the 1937 Act would have been in force, it would need a complete revision as the First and Second Schedules should now be devoid of any effect as the 1923 Protocol and 1927 Convention have been replaced by the New York Convention of 1958. Reference should be made to the Foreign Awards (Recognition and Enforcement) Act, 1961 of India which was enacted by the then Indian Government to give effect to the 1958 Convention within one year of India’s ratification of the Convention. The point of keeping an Act in our Code after 13 years of a judgment saying that its provisions are not operative also defies logic. Such dullness on the part of those concerned has misguided almost every novice to this hapless saga.
In conclusion, it is hoped that this point will be raised and guidance given by our Honourable Appellate Division in the near future as it appears that in the absence of a proper direction coming from our highest court of law. thpse responsible individuals glorifying those important chairs may remain inert for an indefinite period of time.
The writer is an advocate of the Supreme Court specialising in International business, company and admiralty law