Institutional arbitration to facilitate foreign investment

Dhaka,  Mon,  25 September 2017
Published : 04 Aug 2017, 21:05:14

Institutional arbitration to facilitate foreign investment

Aiman R. Khan
As a part of the global village, Bangladesh has always favoured free flow of trade. With foreign investors gathering, Bangladesh has become the fourth fastest growing economy globally. As interest in Bangladesh as an investment destination is increasing, there is the likelihood of commercial disputes arising. Resorting to arbitration as a form of settling such disputes has mostly been preferred by foreign investors, thus making it an imperative concern for Bangladesh. To make the investment atmosphere best suited, the demand for an institutionalised procedure is rising.

As a member of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), and the UNCITRAL Model Law on International Commercial Arbitration 1985 (amended 2006), Bangladesh has given legal coverage to arbitration. It is a form of Alternative Dispute Resolution (ADR) which allows disagreements between two parties to be resolved outside the traditional court system.  As an alternative to time-consuming litigation in court, businessmen and merchants often prefer to refer disputes for arbitration. Between the two types of arbitration ad-hoc arbitration and institutional arbitration, foreign investors are more inclined towards the latter.

An institutional arbitration is one in which a specialised institution intervenes and takes the role of administering the arbitration process. There are approximately 1,200 institutions worldwide which offer arbitration services, and some will deal with a particular trade or industry. Study shows, most foreign investors in countries like the UK or Canada favoured institutionalised arbitration procedure to prevent inconvenience. The growing trend suggests they will prefer to take similar steps in Bangladesh to resolve their disputes.

It has been observed in investment-related disputes that investors try to avoid litigation in Bangladesh. This is mostly because of a backlog of cases in courts, the length of disposal of such cases and the costs that are involved. Time consumed for the final disposal of cases from the date of its institution is too long -- 10-15 years in many instances. Due to this, the investors even avoid judicial arbitration for fear of the same problems. 

In the absence of other arrangements, a dispute between a host State and a foreign investor will normally be settled by a host State's domestic courts. From the investor's perspective, this is not an attractive option. The regular courts often lack technical expertise required to resolve International Investment disputes.  Under an institutional arbitration, arbitrators can seek assistance and advice from institutional staff. Under domestic arrangement (ad hoc arbitration), parties to the arbitration would have to approach the court in order to take the arbitration forward and this would inevitably incur further expenditure.

Each institution has its own set of rules which provide a framework for arbitration and its own form of administration to assist in the process. Some common institutions are the London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), the Dubai International Finance Centre (DIFC) and the Dubai International Arbitration Centre (DIAC). In Bangladesh, there is the Bangladesh International Arbitration Centre (BIAC). 

The BIAC provides a safe haven for investors in Bangladesh due to its institutionalised arbitration proceedings. It introduced its own arbitration rules in April 2012 and mediation rules in 2014 which conform to the Bangladesh Arbitration Act 2001. The availability of its pre-established rules and procedures which help the arbitration proceedings begin and conclude in a timely manner. Under these rules, the parties will get a list of arbitrators to choose from and runs in an established format with a proven record. Understanding the patterns of foreign preference, the BIAC has its own tailor-made rules which help facilitate resolution of investment-related disputes through effective ADR methods in Bangladesh.

Bangladesh is gradually becoming a hub of foreign investment. It has concluded a number of bilateral investment treaties (BIT) with several countries in order to promote foreign investments in its territory. At present, Bangladesh has concluded 29 BITs -- 24 of which have come into force. The Foreign Private Investment (Promotion and Protection) Act 1980 is an investment protection statute in Bangladesh. Prime Minister Sheikh Hasina has encouraged Foreign Direct Investment by saying, "I can assure you that doing business with Bangladesh would be a much attractive choice for you' to US conglomerates at a roundtable discussion in New York, last year.

The BITs have added to the confidence of foreign investors coming to Bangladesh. A country's investment opportunities depend mainly on relevant legal framework. The stability of the legal conditions and the transparency of the system are what boost the confidence of a foreign investor to take the first step. Since disputes are unpreventable regarding foreign investment, these guests demand legal protection. However, due to the indefinite period of court procedures, they seek ADR which has proven to be more fruitful. This is where the BIAC can play a very important role in attracting foreign investment.

Institutional arbitration saves parties and their lawyers the efforts of determining the drafting of an arbitration clause and procedure which is provided by an institution. With a view to making Bangladesh a better choice for foreign investors, the BIAC aims to instil the idea of a straightforward dispute settlement procedure. It has also encouraged domestic corporate institutions to incorporate the BIAC's draft clause into their contract. This way, the companies, which are regularly engaged in international trade, will gain protection. The commencement of institutional arbitration has made foreign investors gain confidence in investing into financial schemes, shares and property in the country. Hence, the emergence of an institutionalised procedure augurs well for future of foreign investment in this country.

The writer is a trainee lawyer, Dhaka Judge Court.

Editor : A.H.M Moazzem Hossain
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