Meaning of Arbitration

Courts are over bounded with a large number of cases and their disposal takes long time. Therefore a need was felt for a faster dispute resolving mechanism. That’s why â€Å"Arbitration Act† was provided with a view to give speedy justice to the people and also to avoid unnecessary court case expenses. It is an informal dispute settlement mechanism. Bangladesh has recently enacted a new arbitration law, known as â€Å"The Arbitration Act, 2001. The Act came into force on April 10, 2001. The Act has repealed The Arbitration (Protocol and Convention) Act, 1937 and The Arbitration Act, 1940. With this new enactment Bangladesh has kept pace with the recent trends in the field of international arbitration in the rest of the world. According to the topic of this assignment, I also agree that although arbitration was introduced for settling dispute but it is not serving it purpose entirely and precisely. Now I’m going to discuss about the reasons which are making difficulty for arbitration to serve its purpose completely. Meaning of Arbitration: Before discussing about the ineffectuality’s of arbitration, first we should briefly know what Arbitration really means. The word â€Å"Arbitration† means mediation, negotiation, adjudication etc. This means settlement of arguments, disagreement, and clash between two parties. It is a process in which a disagreement between two or more parties is resolved by impartial individuals, called arbitrators, in order to avoid costly and lengthy court case or legal actions. Arbitration is the most traditional form of dispute resolution. Arbitration is a binding procedure. It is often administered by a private organization that maintains lists of available arbitrators and provides rules under which the arbitration will be conducted. Such organizations can also manage the arbitration in whole or in part. Parties often select arbitrators on the basis of substantive expertise. Arbitration is adjudicatory, as opposed to advisory, because of the fact that the arbitrator (usually a retired judge or attorney) renders a decision at the end of an arbitration hearing, and that decision is final and binding, subject only to a very limited court review. Arbitration is sometimes referred to as â€Å"non-binding† if the parties agree to make it so, but that is really a misnomer. Think of arbitration as a binding, adjudicatory process. Arbitration is a process of resolving a dispute or a grievance outside a court system by presenting it for decision to a neutral third party. Both sides in the dispute usually must agree in advance to the choice of arbitrator and certify that they will agree to the arbitrator's decision. The Arbitration procedures differ from the procedures of courts, especially presentation of evidence. Arbitration avoids costly litigation and offers a relatively speedy resolution as well as privacy for the disputants. The main disadvantage is that setting guidelines is difficult therefore the outcome is often less predictable than a court decision. The reasons for selecting Arbitration rather than Court: * Speedier resolution; however, there can be exceptions due to multiple parties, arbitrators, lawyers and litigation strategy. * Less costly; however, there can be exceptions due to multiple parties, lawyers, arbitrators and litigation strategy. Not a public hearing; there is no public record of the proceedings. Confidentiality is required of the arbitrator and by agreement the whole dispute and the resolution of it can be subject to confidentiality imposed on the parties, their experts and attorneys by so providing in the arbitration agreement. * From defense point of view, there is less exposure to punitive damages and run away juries. * Limited discovery because it is controlled by what the parties have agreed upon and it is all controlled by the arbitrator. Often, the arbitration process is less adversarial than litigation which helps to maintain business relationships between the parties. * The arbitration is more informal than litigation. * The finality of the arbitration award and the fact that normally there is no right of appeal to the courts to change the award. So after the discussion we can say that, arbitration is a dispute resolution processes in which the disputing parties present their case to a third party intermediary (or a panel of arbitrators) that examine all the evidence and then make a decision for the parties. This decision is usually binding. Like court-based adjudication, arbitration is adversarial. The presentations are made to prove one side right, the other wrong. Thus the parties assume they are working against each other, not cooperatively. Arbitration is generally not as formal as court adjudication, however, and the rules can be altered to some extent to meet the parties’ needs. Why arbitration as dispute settlement mechanism is not effective: Now let’s discuss the about the chapters of arbitration which are making Arbitration less effective. Although settling dispute through arbitration is one of the most traditionally approved to methods for resolving disputes between individuals and parties, there are some lacking. Some disputes may not prove best resolved through arbitration either. Arbitration, itself, is a process of two parties mutually agreeing to allow a third, impartial party make a decision regarding an outstanding dispute. The decisions from an arbitrator are legally binding, and are enforceable in the court of law per the Arbitration Act, as well as numerous state and local laws following the federal legislation. Unless in cases of corruption, fraud, or other circumstances that would affect an arbitrator’s ability to remain neutral, almost all arbitration rulings are final. Additionally, the courts may rule against the decision and rulings of an arbitrator if the decision is against one party without basis. Arbitration also leaves no room for an appeals process in the vast majority of instances. This is a risk parties and individuals should seriously assess prior to engaging in arbitration, as well as when considering the methods for resolving their disputes. Following are some limitation which makes arbitration less effective: * There is no right of appeal even if the arbitrator makes a mistake of fact or law. However, there are some limitations on that rule, the exact limitations are difficult to define, except in general terms, and are fact driven. * There is no right of discovery unless the arbitration agreement so provides or the parties stipulate to allow discovery or the arbitrator permits discovery. * The arbitration process may not be fast and it may not be inexpensive, particularly when there is a panel of arbitrators. An arbitration award cannot be the basis of a claim for malicious prosecution. * Except in certain circumstances, non-signatories of the arbitration agreement cannot be compelled to arbitrate. * The large cost of legal fees in litigating a dispute. * The ability of parties to appeal to a higher court after losing at the trial court level and the lack of finality. * The fact that neither the jury or the judge may not have any knowledge nor experience with the subject matter of the dispute between the parties which results in the parties having to educate the judge as to the law and custom and practice. The ability to appeal to higher court adverse rulings on procedural. * Unknown bias and competency of the arbitrator unless the arbitration agreement set up the qualifications or the organization that administers the arbitration, has pre-qualified the arbitrator. Also, in the arbitration process, there is a limited period of discovery, which can lead to surprise evidence or testimony occurring during an arbitration process, which a party may or may not be able to effectively refute at the time of their arbitration hearing. Likewise, there is no jury to decide the outcome of a dispute, but rather, the decision rests solely in the hands of the arbitrators, whom usually consist of one individual or a panel of three persons, that may or may not be able to remain entirely impartial during all proceedings regarding all matters. Why â€Å"Arbitration Act 2001† is not fully serving according to its purpose? Arbitration in Bangladesh is governed by the Arbitration Act 2001. This Act repealed both the Arbitration (Protocol and Convention) Act 1937 and the Arbitration Act of 1940 and consolidates the domestic and international arbitration regime in Bangladesh. In mid-2004, the Bangladesh Council of Arbitration (BCA) was established as an arbitral body. The BCA rules have not yet been finalized. Arbitration in Bangladesh is governed by the Arbitration Act 2001. This is based on the UNCITRAL model law. Here are some reason for which Arbitration Act 2001 is failing to serve the purpose for which it was enacted: * There are difficulties in enforcing arbitration awards in Bangladesh. The difficulty is greater if it is a foreign party seeking to enforce an award against a local party. Where the arbitration is convened abroad, there have been instances where the Bangladeshi courts have allowed legal proceedings which interfered with the issues raised in the foreign arbitration. The Act provides that an international arbitral award can be enforced as if it were a decree of the domestic court. * Arbitration varies on the subject matters that mean weather parties will go for arbitration or not it depends on the context of arbitration contract. That contract has to be a written contract. Moreover, only those disputes on which parties has agreed previously will be considered as arbitration context. So, if someone wants to add another context which is far more important as well can’t do it as it was not mentioned before. * In case of cost it also may be huge sometimes. Although it is considered that parties goes for arbitration for lowering the cost of court case still some arbitrator may ask for big amount of money from the parties. So fee of the arbitrator is both expensive and inexpensive. As for the parties who does not want to give huge amount of money faces difficulties for going for arbitration. Generally, costs are not awarded to the winning party, although there is no law preventing the tribunal from doing so. * Thus, according to the new Bangladesh Act, a party to international commercial arbitration has to qualify as: (i) an individual who is a national of, or habitually resident in, any country other than Bangladesh; (ii) A body corporate which is incorporated in any country other than Bangladesh; (iii) A company or an association or a body of individuals whose central management and control is exercised in any country other than Bangladesh; or (iv) The government of a foreign country. This means that a commercial dispute between two Bangladeshi nationals having places of business even in different States cannot be considered the subject matter of international commercial arbitration under the new Act, which would be otherwise possible under the Model Law * In section 3 of Arbitration Act 2001, it says that this act will be only applied if the place of arbitration is in Bangladesh. * The Arbitration Act does not make provision for confidentiality in arbitration proceedings. If this is important to the parties then this should be dealt with in the arbitration clause. They are bound to maintain confidentiality. But they don’t maintain it properly. * There are no available institutional rules specific to Bangladesh. Parties are free to agree on the rules to govern the arbitration. In the absence of an agreement, and where the rules selected by the parties do not cover a particular circumstance, the Act sets certain default rules. * Under the Act, no judicial authority (including the courts) is allowed to hear any legal proceedings commenced by any of the parties to an arbitration agreement. However, section 7A of the Act contains an exception to this general rule. Under section 7A, the High Court Division, before or during arbitration may, inter alia, take interim protective measures in respect of goods or property included in arbitration agreement. * Under the Act, the only grounds for challenge are if: (i) circumstances exist that give rise to justifiable doubts as to their independence and impartiality (ii) The arbitrator does not possess the qualifications agreed by the parties. Where international commercial arbitration is concerned, a challenge against an arbitrator must first be made to the arbitral tribunal. An appeal against the decision of the tribunal goes to the High Court Division of the Supreme Court. The procedure for challenge may be modified by agreement. * As in court-based adjudication, arbitration outcomes are typically win-lose, not win-win. Thus, the arbitrator usually decides that one side was right and the other wrong. They do not often go out of their way to develop new approaches for meeting the interests of both sides simultaneously, as a mediator would do, though if a win-win solution is apparent, the arbitrator would probably recommend it. Conclusion and recommendation: The prior examination of the new Bangladesh Act, 2001 from a comparative perspective shows that the Bangladesh legal regime has embraced the fundamental tenets of modernization of international arbitration such as (i) party autonomy; (ii) minimal judicial intervention in arbitration; (iii) independence of the arbitral tribunal; (iv) fair, expeditious and economical resolution of disputes and (v) effective enforcement of arbitral awards. This modernization has also been brought about in the context of domestic arbitration. As the new Act is now about ten years old, it will be more mature to express any judgment on its efficacy as an arbitral legal regime and the impact it will have in the future for Bangladesh as a place for settlement of international commercial and investment disputes by arbitration. Certainly, Bangladesh, being a prospective destination for increasing foreign investment in the future, has made a positive step in the right direction by enacting the new law on arbitration. No doubt, there is still room for improvement in the Act itself as indicated above. It must be appreciated that in order to make Bangladesh an attractive place for much-needed foreign investment, for economic growth and development, and for alternative dispute resolution. Bangladesh needs more than a mere piece of legislation on arbitration at the present time. The Government and the judiciary, as well as the legal profession, must take initiatives and make constant efforts towards the development of legal infrastructure and institution building in the field of alternative dispute resolution, including arbitration. In this respect the following tentative suggestions may be worth considering: * When interpreting the new Act Bangladesh courts should not be detracted from the spirit of modernization of arbitration as a global phenomenon. * The members of the judiciary as well as the legal profession must appreciate the reality that in this era of globalization 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 have to be open to absorbing international values, norms and principles while performing their professional functions in the field of international dispute settlement. * The need to create a specialist arbitration bench in the High Court Division may arise for the purpose of dealing with international arbitration matters more effectively and professionally. * Specialist bench may be constituted by appointing a certain number of judges in the High Court Division with the appropriate expertise and background in the field of arbitration. The Government, the Bar and the Bench must attend to the development of the culture of arbitration in Bangladesh. Judges and lawyers must be aware of the value of alternative dispute resolution when the courts are heavily overburdened with caseloads. They must actively promote arbitration. * The Government and professional organizations should promote arbitration and ADR and enhance the understanding of them by sponsoring and conducting educational and training programs for both the bar and the bench and for arbitration.