Known

New arbitration options in Bahrain
BAHRAIN
The start of this year saw the launch of the Bahrain Chamber for Dispute Resolution – a joint
venture between the Bahrain Ministry of Justice and the American Arbitration Association. Phillip
Landolt, a partner at Charles Russell in Geneva, explains the two forms of arbitration the centre
will offer, and considers the unique circumstances in which it excludes review of awards (with
thanks to Hassan Ali Radhi for his invaluable input and Reem Al Mahroos of Charles Russell’s
Bahrain office for additional research)
Known as the BCDR-AAA, the new
centre builds upon Bahrain’s history
of arbitration extending back to the
19th century. Bahrain was one of the
first Gulf countries to adhere to the New York
Convention, and since 1994 has had an arbitration
law based on the (1985) UNCITRAL Model
Law.
Under a memorandum of understanding
signed with the Bahraini government in
December 2008, the AAA said it will “provide
technical advice, administrative and systems
know-how and staff training to the Bahrain
Ministry of Justice, as well as […] neutralskills
training to Bahraini arbitrators and
mediators”.
It will also help design a programme to
impart ADR knowledge to the Bahraini judiciary,
and business and legal communities throughout
the region.
The memorandum of understanding also
provides for the BCDR-AAA board of trustees to
issue its own set of arbitration rules – the BCDR-
AAA rules.
Statutory arbitration
A legislative decree (number 30 for the year 2009)
was passed on 29 June 2009, establishing that
the BCDR-AAA will administer not just classic
arbitrations by agreement but what was orginally
referred to as “statutory arbitration” (although the
final draft if the decree refers instead to “judicial
discipline resolution proceedings” to comply with
an opinion of the Bahrain Constitutional Court).
“Statutory arbitration” establishes a unique
system for resolving high-value international
commercial disputes – which amounts to a fusion
Left to right: Ali Al Aradi (chief registrar for mediation), BCDR-AAA board members Yousif Khalaf, Richard Naimark
and Hassan Radhi, Shaikha Haya Al Khalifa (chair of board of trustees), BCDR-AAA board members Khalid Al Khalifa,
William Slate and Abdulla Al Boainain, CEO James McPherson and Ahmed Husain (chief registrar for arbitration)
Global Arbitration Review 25

BAHRAIN
between classic arbitration by agreement and
ordinary court proceedings.
Under this system, tribunals have compulsory
jurisdiction over all international commercial
claims exceeding 500,000 Bahraini dinars (about
US$1.3 million at current exchange rates). A
dispute is considered international if one of the
parties, or the place where a substantial part of the
obligations under the contract is to be performed,
is outside Bahrain, or if the location most closely
connected with the dispute is outside Bahrain.
It is considered commercial if its subject matter
concerns relationships of a commercial nature,
whether contractual or non-contractual.
The legislative decree provides that a number
of specifics in its application to statutory arbitration
are to be settled by a regulation similar to those
issued in relation to procedural matters before the
courts. On 17 December 2009, this procedural
regulation came into force.
The legislative decree states that, in statutory
arbitration cases, the BCDR-AAA will appoint the
members of the tribunal – the majority of which
must be Bahraini judges from a panel selected by
the Bahraini judicial authorities. The procedural
regulation goes a step further towards traditional
arbitration, in providing that, if the parties so
agree within two months, they may each appoint
a member of the tribunal but that the chairman
must be a member of the Bahraini judiciary.
There is no requirement for the one or two
party-appointed arbitrators to hold judicial office
– they may be academics, lawyers, former judges or
professionals of other backgrounds.
Although non-Bahraini counsel may represent
the parties, they must be accompanied by a Bahraini
lawyer admitted to the Bahrain Court of Cassation.
The default language of proceedings is Arabic – the
language of the ordinary Bahraini courts – but,
as in other arbitrations, the parties may agree to
use another language. Since, however, the chair of
the tribunal will be a Bahraini judge, the parties
choice of an alternative language may be restricted
– although English is likely to be an option.
Like the courts, the tribunals will apply a
conflict of laws regime; this one resulting in the
application of Bahraini substantive law unless
the parties agree otherwise. The procedure will
be that of the ordinary courts, except when it is
incompatible with the nature of the BCDR-AAA.
As in classic arbitration, the tribunal’s fees will
ordinarily be payable in advance. They will be
calculated as a percentage of the amount in dispute
(to be set by the government but not exceeding 5
per cent).
The system is also close to arbitration in
allowing challenges to the tribunal’s decision on
the merits on only a limited number of specified
grounds, similar to the New York Convention
grounds for refusing enforcement. They include
the characteristic arbitration ground of ultra petita.
Interestingly, challenges may also be brought
on grounds traditionally associated with the
revision of arbitral awards, for example evidence
of fraud or the emergence of new facts that have
been suppressed by the other side. The remedy,
annulment of the award, is the same in all cases.
The tribunals will be supervised by the
government body supervising the activities of
the ordinary courts. Tribunals have the power
to determine their own jurisdiction – although
the Bahrain Court of Cassation can review their
decisions. As under the UNCITRAL Model
Law, tribunals are also empowered to continue
proceedings and issue decisions even if their
jurisdiction is challenged.
Arbitration by agreement
The legislative decree also lays down basic rules
for arbitration by agreement, although most of
the procedure is contained in the BCDR-AAA
arbitration rules.
Arbitration agreements under this system must
be in writing. Parties can choose the substantive
law to govern their case and the language of the
arbitration – with the tribunal deciding both issues
in default. Non-Bahraini counsel can represent the
parties, unaccompanied by Bahraini lawyers.
As has been indicated, the BCDR-AAA
arbitration rules govern the procedure for classic
arbitrations by agreement. They apply both when a
party selects the BCDR-AAA rules explicitly and
when the parties choose arbitration administered
by the BCDR-AAA.
The rules are in virtually all regards identical in
substance to the International Arbitration Rules of
the American Arbitration Association/International
Centre for Dispute Resolution – except that the
administrator is the BCDR-AAA. Unlike the
AAA-ICDR rules, however, the BCDR-AAA
rules do not expressly indicate that they apply
only to “international arbitrations”. It would
appear that, unlike statutory arbitrations under the
legislative decree, classic arbitrations need not be
“international” or “commercial”.
The one way in which the BCDR-AAA rules
depart from the AAA rules is in requiring awards
to be registered at the BCDR-AAA and any place
of arbitration where it is required by the lex arbitrii.
Challenges to the arbitral award are permitted
on limited grounds, all of which are grounds
for refusing enforcement in the New York
Convention. It is interesting to see that lack of
arbitrability and the improper composition of
the arbitral tribunal are not express grounds for
challenging a decision.
When it comes to decisions on jurisdiction,
the same system of review applies as in statutory
arbitration. So there is both positive Kompetenz-
Kompetenz, and limited negative Kompetenz-
Kompetenz, in that the arbitral tribunal may
continue its procedure while a review is pending
before the court that will ultimately decide
jurisdiction.
Importantly, in a classic arbitration by
agreement all recourse against awards set out in
the legislative decree can be excluded if the parties
choose non-Bahraini law “to govern the dispute”.
This will be discussed in greater detail later.
26 Volume 5 • Issue 1

BAHRAIN
COMMENTARY
STATUTORY ARBITRATION
Is “statutory arbitration” international arbitration?
It has been widely claimed that the statutory arbitration created by the
legislative decree is “the world’s first statutory arbitration”. It may be more
precise to say that it appears to be the world’s first “statutory arbitration”
applying widely to “commercial” matters. Certainly there already exist a
multitude of instances of “statutory arbitration”
in specific legal relationships (eg, employment
relationships and investor protection) and business
sectors (eg, sports).
The question arises whether statutory arbitration
under the legislative decree is international arbitration
at all, a question that is particularly pertinent given
the formal change of its name to Judicial Dispute
Resolution Proceedings. Whatever it is called,
the process does present a number of important
arbitration features – such as stringently limited
challenges and a general exclusion of appeals on the
merits. But it would appear that statutory arbitration
is not international arbitration at all when it comes to
the crucial area of enforcing arbitration awards under
the New York Convention.
If the New York Convention is interpreted as
extending only to arbitration awards arising from
arbitration agreements (as seems to be correct),
Bahrain’s system of statutory arbitration obviously
cannot engender a New York Convention award.
Indeed, a number of the grounds for refusing recognition of an award under
the New York Convention presuppose that the arbitration took place upon
party agreement.
On the other hand, each country that is signatory to the New York
Convention is free to interpret the instrument as it sees fit within the limits
of good faith.
If a country refuses to enforce a Bahraini statutory arbitration award
under the New York Convention, however, it is doubtful whether Bahrain
could punish it by treating it as a non-contracting state, despite having
entered the reciprocity reservation relating to application of the convention.
The pros and cons
While it remains to be seen how statutory arbitration will work in
practice, certain of its essential features appear, on the face of it, to be most
attractive to business. For example, the possibility of having international
commercial judges, academics, or legal or other practitioners as part of the
panel of adjudicators promises to import significant expertise, and would be
particularly useful in cases where the substantive law is not Bahraini law, but
some foreign law.
The fact that the parties can agree on the language of the dispute is
also an important pro-business feature. Such an advantage is rare in civil
proceedings around the world, although it is not infrequent that parties are
spared having to translate documents in English or another widely used
language in the country.
The limited grounds of challenge, and the exclusion of appeals on the
merits, also make statutory arbitration decisions, at least on paper, a good
deal more final than most first instance decisions in legal systems around
the world. The requirement that challenges are decided by the Court of
Cassation, Bahrain’s last-instance court, would indicate that such decisions
are very final indeed.
One might criticise as unduly conservative, however, the provision in
the legislative decree stating that Bahraini law applies on the merits unless
the parties agree otherwise. Still, since the BCDR-AAA’s jurisdiction is
The immediate
attractiveness of
statutory arbitration
will promote an
accretion of
commercial law
decisions under
Bahraini law
limited to high-value disputes, one can expect the parties will have the
foresight to stipulate any preference they have regarding the applicable law.
Moreover, there may be a vital functional reason for the provision.
If, as seems to be the case, the Bahraini legislator is seeking to harmonise
commercial litigation and arbitration, upon the model of the latter, it is
necessary to foster the development of Bahraini commercial law in a public
forum before it starts being used in private and perhaps even confidential
dispute settlement.
An evolving concept?
Nominally, statutory arbitration falls under the
jurisdiction of the BCDR-AAA. But the reality
is that it will be overseen by the ordinary judicial
authorities in Bahrain, and it is not altogether clear
from the legislative decree what role the BCDR-
AAA will have beyond appointing the panel of
arbitrators.
Since, however, the system is being presented as
arbitration – and especially if the BCDR-AAA has
significant powers over the process – it may be that in
time statutory arbitration will evolve to share features
of classic arbitration under the legislative decree. Is
this the Bahraini legislator’s far-sighted intention? The
proposition is not impossible. Certainly the essential
structure of the legislative decree would support
this and, practically speaking, this evolution could
be translated into binding law merely by amending
the implementing regulation. The administrative
fee structure – ad valorem up to 5 per cent of the
amount in dispute – is distinctly reminiscent of
arbitration and appears to portend such a development.
In the meantime, the immediate attractiveness of statutory arbitration
will promote an accretion of commercial law decisions under Bahraini law,
since, as seen above, Bahraini law will apply in the absence of any party
stipulation to the contrary.
ARBITRATION BY AGREEMENT
Advantages, and some questions
Classic arbitration under the legislative decree and the BCDR-AAA
Arbitration Rules is as modern as one might hope. Since the BCDR-
AAA Arbitration Rules are a virtual carbon copy of the AAA International
Arbitration Rules, they present the advantages of proven effectiveness and
high predictability. Predictability in particular is assured since the AAA is
advising the Bahrain Ministry of Justice, and the BCDR-AAA board of
trustees and its secretariat include persons familiar with the workings of the
AAA and its international arbitration rules.
There is a question as to whether the material jurisdictional limitations
applying to statutory arbitration apply to classic arbitration upon agreement
of the parties under the legislative decree. Those limitations are enunciated
in the chapter applying, exclusively it would appear, to statutory arbitration
– confining it to commercial and international matters of a certain value.
Certainly there are no such restrictions on arbitrations by agreement under
the BCDR-AAA rules (an absence that is particularly conspicuous in light
of the fact that the AAA International Arbitration Rules themselves limit
their application to “international disputes”).
The remarkably broad possibility of excluding all recourse against such
awards before the Bahraini courts (discussed below) perhaps supports the
idea that they should relate to a limited category of parties and subject
matters. It would, however, appear the better view that the legislative decree
and the BCDR-AAA rules should apply to all arbitrations by agreement,
irrespective of the amount in dispute and of whether or not the dispute is
commercial or international.
Global Arbitration Review 27

BAHRAIN
If, however, as is provided for under the legislative decree, another set
of arbitration rules or other sets of arbitration rules are promulgated, the
material scope of the BCDR-AAA rules will be constricted.
When it comes to challenging awards arising from classic BCDR-AAA
arbitrations, it is noteworthy that the list of grounds is so short that it does
not expressly include lack of arbitrability and the improper composition of
the arbitral tribunal. The explanation is probably that these two grounds are
nonetheless bases upon which a challenge can be made, but they are simply
assimilated to aspects of jurisdiction. As has been noted, the arbitral tribunal’s
jurisdiction can be challenged before the Bahrain Court of Cassation. It
seems clear that this includes post-award challenges to jurisdiction.
It is also possible that the composition of the arbitral tribunal is treated
as a matter of jurisdiction, as under English
arbitration law, whereas arbitrability is treated as
a matter of public policy. An award’s repugnance
to public policy is indeed a stipulated ground of
challenge. Much the better approach, practically if
not conceptually, is to treat lack of arbitrability as a
matter of jurisdiction and not public policy, so that
it can be raised at an early stage, and there is no
need to wait till the award to attack it.
The exclusion of challenges: how does it
work?
Perhaps the most important issue arising from
the legislative decree is how its exclusion of all
challenges to the award in an agreed (classic)
arbitration functions. The English translation of
the relevant provision (article 25 of the legislative
decree) says the exclusion applies when “the parties
have agreed in writing to choose a foreign law
concerning the dispute”. The question is what
law is being referred to: the law applying to the
arbitration clause, the substantive law, the procedural
law, or even the lex arbitrii more broadly?
The original Arabic is apparently of no greater
determinacy, by accident or design.
The law applicable to an arbitration agreement is of little significance in
attaching an arbitration to a legal order. Moreover, it serves the precise and
circumscribed purpose of aiding the interpretation of the arbitration clause.
It therefore seems unlikely that the choice of a foreign law to govern the
arbitration clause determines whether or not the right to challenge an award
is excluded.
As for the law of the contract – that is, the law applicable to substantive
matters – this is functionally distinct and isolated from aspects of the award
which might cause a state to make a challenge available. In arbitration there
is notably little concern with the substantive accuracy of the award, which is
why appeals on the merits are almost universally excluded. This too, then, is
unlikely to be the law referenced in the exclusion clause.
It would be incoherent to read the provision as referring to a choice
of lex arbitrii in a broad sense – since, if none of the Bahraini lex arbitrii
applies then the legislative decree, with its exclusionary rule, does not itself
apply.
Götaverken
What the legislator may be contemplating in excluding parties’ jurisdiction
to review arbitral awards in this way is the Paris Court of Appeal’s line of
thinking in the famous Götaverken decision of 21 February 1980. In that
decision the Paris court refused to accept jurisdiction to review an ICC
award rendered in Paris on the basis that there was nothing linking the
arbitration to France (the stipulated place of arbitration being insufficient for
these purposes). According to the court, it is only when French law is the
law of the arbitration proceedings (la loi de la procédure arbitrale) that French
Perhaps the most
important issue
arising from the
legislative decree is
how its exclusion of
all challenges to the
award in an agreed
arbitration functions
courts will accept jurisdiction to review arbitral awards. The mere choice
of France as the place of arbitration creates no more than a rebuttable
presumption that French law is the law of the arbitration proceedings.
It is true that it does not necessarily follow from the parties’ choice of
place of arbitration that they have selected the law of that place to govern
the arbitration. Indeed, the text of the New York Convention (article
V(e)) seems to make a distinction between the two. To admit and apply
this distinction, however, sacrifices the legal predictability that comes from
equating the place of arbitration and the law governing the proceedings.
If the law excluding review has been understood correctly in this
article, Bahrain appears not to be plagued by this concern. Unless the
parties expressly stipulate a foreign law to govern their arbitration, then it is
assumed, from their choice of Bahrain as the place of
arbitration, that Bahraini law governs the procedure.
Therefore actions for review of the award lie with
the Bahraini court.
Review available somewhere else?
Götaverken raises a second concern relating to
the Bahraini exclusion of review of awards. If a
foreign law may be chosen to govern an arbitration
proceeding taking place in Bahrain, how much
Bahraini arbitration law will continue to apply? And
at what point do you cease to apply one and start to
apply the other?
Because only the (written) choice of a foreign
law to govern the arbitral proceedings will exclude
Bahraini review of the award, it will almost always
be the case that review will be available at the place
of that foreign law, as well as at the enforcement
stage. Consequently, this provision of the legislative
decree does not appear straightforwardly to exclude
all review of arbitration awards as Belgian law
automatically did for a time, and as parties to Swiss
arbitration can still do by unambiguous agreement.
Moreover it does not appear possible, under
this Bahraini provision, to exclude some but not
all grounds of review – unless, for example, the parties chose Swiss law to
govern their arbitration and then expressly excluded certain grounds of
review under Swiss arbitration law.
BCDR-AAA: THE ENDURING IMPACT?
What is most striking about the new Bahraini instruments relating to
arbitration is how confidently and maturely they embrace the quintessential
non-interventionism of modern arbitration. Comparisons will certainly be
made with the DIFC-LCIA system, and it is true that there are similarities.
In both cases, Gulf states have created structures which will deliver expertise
on the practical workings of state-of-the-art modern arbitration. In Dubai,
there is the immediate advantage of the finest judicial supervision of
arbitrations and review of arbitration awards available around the globe.
In Bahrain, on the other hand, experienced local judges will continue to
supervise classic arbitrations by agreement, and will only review awards
proceeding from them if there is no exclusion of all review at the place of
arbitration because of a certain detachment of the award from the Bahraini
legal order.
Local Bahraini judges will also benefit from deciding substantive
commercial matters alongside leading international lawyers. And it appears
that, in reviewing statutory arbitration awards, they will also gain familiarity
with the process of reviewing arbitral awards – because of the similarities
between this procedure and modern review of arbitration awards upon
agreement. Perhaps, ultimately, it will be this that has the most enduring
constructive impact in the country.
28 Volume 5 • Issue 1

Brazil breaks traditional stance on BITs
BRAZILIAN BITS
In its recent Brazil focus (Volume 4, issue 6 ) GAR explained how Brazil has traditionally given
investment treaties a wide berth. Since then, we’ve learnt that Brazil has started negotiations
with Chile for a treaty to protect and promote mutual investments. Alison Ross reports
Brazil hasn’t signed a BIT in nearly 20
years. But, early in 2010, that changed.
In an interview for Global Arbitration
Review, Welber Barral, foreign trade
secretary at Brazil’s Ministry of Development,
Industry and Foreign Trade, confirmed that
meetings have taken place between Brazilian
and Chilean officials to discuss something that
very much resembles a BIT, as part of a series of
negotiations on expanding Chile’s engagement
with the Mercosur free-trade agreement and
guaranteeing social security benefits for those
who cross the border to work.
Barral said that the “precise contours”
of the treaty are yet to be agreed but it will
ensure “stable and predictable rules” to govern
investments. In other words, it will work like a
BIT.
Change in attitude
Suzana Medeiros Blades, an associate in the
international arbitration group of Arnold & Porter
LLP in Washington, DC, who closely follows
Brazil’s stance on BITs and has co-written an
article with partner Jean Engelmayer Kalicki on
the topic, is enthusiastic about the development.
But, she says, it remains to be seen whether Brazil
will abandon its traditional reluctance towards
investment arbitration and accept an investorstate
arbitration clause, or insist on a state-state
arbitration clause following Mercosur’s dispute
settlement model.
A state-state clause would mean that
disgruntled investors in either country must rely
on their government to bring a claim on their
behalf – a system that does not differ greatly
from looking to the government for diplomatic
protection.
Nevertheless, Blades says the negotiations
mark a positive change in Brazil’s traditional
attitude to BITs that coincides with increased
investment flows between the two countries and
President Lula’s drive to strengthen ties with other
Latin American countries. As a country that has a
good record of complying with treaty obligations,
she says, Brazil no doubt sees Chile as the perfect
partner for a treaty.
Brazil’s state-run energy producer Petrobras,
in particular, has made significant investments in
Chile in the past year – including the acquisition
of ExxonMobil’s stakes in Esso Chile Petrolera
and associated companies. Brazil also reportedly
wants Chile to invest more in the ethanol industry
and Brazilian technology companies.
Chile, for its part, has investments in Brazil
worth some US$8.4 billion.
Brazil’s BIT record
Although Brazil signed BITs with several
countries – including Chile – in the early 1990s,
it has yet to ratify any of them. Brazil is also one
of the few countries in Latin America that has still
to sign the ICSID Convention. Chile, in contrast,
has signed and ratified both the convention and
some 50 BITs containing investor-state arbitration
provisions.
BITs: which way will Brazil go?
Global Arbitration Review 29