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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
Page 1: New arbitration options in Bahrain
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