Roundtable on Creating an Investment Friendly Access to Justice: Can ADR be an Effective Remedy in Commercial Disputes?

Bangladesh International Arbitration Centre (BIAC) and International Financial Corporation (IFC), World Bank Group, jointly organised a Roundtable Discussion on “Creating an Investment Friendly Access to Justice: Can ADR be an Effective Remedy in Commercial Disputes?” on February 17, 2018 in Dhaka. The Financial Express was the Media Partner. The purpose of the Roundtable was to raise awareness and identify how the relevant stakeholders can make a difference by joining forces. Mahbubur Rahman, Chairman, BIAC, moderated the Session. The esteemed group of experts and luminaries present at the Roundtable provided their valuable recommendations conducive to Investment Friendly Access to Justice especially in Commercial Disputes. We publish a compilation of these recommendations followed by a summary of the discussion in a chronological order.

1. ADR is included in many of our legislations, however, the law must be amended to provide for pre-litigation ADR in order to serve the intended purpose.

2. ADR provisions in our legislation only envisage what can be done in the event a dispute arises, however, the rules for their implementation have not been enacted to lay down the process, thus impeding implementation. For expedited dispute resolution there should be an exclusive institution for ADR, such as BIAC which can offer its rules and be an appointing authority as an accredited institution.

3. The Artha Rin Adalat Ain 2003 needs amendment to include the provision of Arbitration within the ambit of the definition of ‘Adalat’. This will mitigate to an extent the loss arising from non-performance of contract. Legislation amendments should incorporate arbitration clauses into the sanction advice in order to help financial institutions implement these clauses and bring down the number of pending cases.

4. Public Private Partnership in the area of ADR will help tremendously improve the quality of enforcement of contracts in Bangladesh. We have about 10 judges per million which is insufficient. Our judges and legal professionals have a negative impression about ADR. This can be changed through awareness, training and appreciation of the merits of ADR.

5. For ADR to be successful there should be a balance of power between the parties involved. Penalty provisions for stalling dispute resolution through ADR can effectively expand adherence to ADR methods.

6. Strong ADR provision can be a means to ensure access to justice for all and increase investor confidence at home and abroad, eventually increasing the level of investment into the country.

7. BIAC may be utilised as the third party institutional platform on a pilot basis to deal with ADR outside the court system. Arbitration rules may be formed by the Law and Justice Division. All organisations should incorporate ADR Clause in the commercial contracts with the provision of both Mediation and Arbitration under an institutional framework with Rules to administer these processes like BIAC.

8. It is legally valid to have an ADR Clause in Loan agreements and is compatible with the Artha Rin Adalat Ain.

Muhammad A. (Rumee) Ali, CEO, Bangladesh International Arbitration Centre (BIAC)

Alternative Dispute Resolution (ADR) can be a key enabler in creating greater Access to Justice, one of the Sustainable Development Goals (SDGs). Justice Delayed is Justice Denied and Delayed Justice is the reason why we were rated 189th out of 190 economies in Enforcement of Contracts Index in the World Bank Doing Business 2018 Report. BIAC is working with the business community, legal professionals, concerned citizens and the Government to embed the use of ADR in the justice delivery eco-system to help achieve this SDG by reducing the workload of our overstretched judicial system. As the cost of this delay in our judicial system because of the lack of effective ADR, Bangladesh is paying confirmation fees higher than Pakistan because of the risk of non performance of contracts when opening L/Cs. Whenever anybody bids for an international tender in Bangladesh, this risk premium is included in the costing. We wonder why something costs less in India, Pakistan or Sri Lanka, but more in Bangladesh.

Keynote paper co-authored by:

Summary of the Keynote:

Access to Justice in relation to ADR is related to an investment perspective where. If an access to justice by way of ADR is provided to investors, this leads to economic growth of the country. Mediation was included in the Civil Procedure Code (CPC) in 2003, and later made mandatory in 2012. Mediation has also been included in the Artha Rin Adalat where the vital issue raised is: at what stage is this mediation included? The law is made for recovery, so once a case is filed there is no effective mediation between a borrower and a bank because it does not click on. Some amendments need to be made so that it can be brought forward to pre-case facility.

Another aspect is: having an institution for dispute resolution. Throughout the world there are institutions for expedited dispute resolution. BIAC has its own Arbitration and Mediation Rules and the structured resolution of disputes from an institutional point of view is extremely important. I would request the front-runners of investments and all the authorities which are attracting investment to take BIAC in their portfolio and promote it to investors.

In relation to enforcement of award, when a foreign award comes to Bangladesh, Arbitration Act specifically says that the foreign award can only be enforced in district courts. This creates delay in the process, because from the district court, it goes to the High Court Division, from there to the Appellate Division and frustrates the arbitration procedure. It is essential that once you include a provision for mediation, conciliation or arbitration, you have to enact the rules. Without the rules, you can’t implement the effect of that provision. Without the rules, it is difficult for courts, lawyers and parties to implement these provisions. The Arbitration Act was enacted in 2001; we still do not have any rules. The mediation has been included since 2003 and made mandatory in 2012. And we still need mediation rules. The structure should suggest amicable settlement, arbitration and then court which means you have to settle the dispute at first amicably by ADR, otherwise you can’t go to the court. Access to justice, rule of law and ADR are compatible and they have the same intention for effective resolution.

The Artha Rin Adalat Ain is the exclusive jurisdiction for recovery of loan. Nonetheless, ADR is still possible at any stage of the dispute because recovery of loan is when you are extracting but dispute can arise at any stage. Even if ADR is included in the sanction advice, that will not conflict with Artha Rin Ain and the award obtained can be taken to Artha Rin Adalat for execution, no need to go through the entire process.

Nasreen Begum, Additional Secretary, Legislative and Parliamentary Affairs Division

Incorporation of ADR has little impact on effective disposal of civil suits; although ADR is independent of the court system, a judge can recommend the parties involved in a litigation to enter into it. ADR has been made compulsory for every civil court, by incorporation of Sections 89 and 86 of CP Code, through the amendment of 2012. Apart from the Artha Rin Adalat Ain and the CP Code, ADR provisions have also been incorporated in many laws including Company Act, Labour Law, Customs Act, Income Tax Ordinance, Muslim Family Laws Ordinances, Village Courts Act, Public Private Partnership Act, Legal Aid Act, etc. The court-based ADR especially in commercial disputes can be transformed not only to aid the earlier resolution of litigation but also be used as a tool for the case management.

Syed Mahbubur Rahman, Chairman, Association of Bankers Bangladesh (ABB)

We need more investment both at international and domestic levels, but we want to see enforcement of contracts, same as investors. Statistics say that over 55,000 cases worth Taka 75 billion (default loans) were lying pending with the Artha Rin Adalats as of June 2017. In Chittagong, from 2016 to 2017, there were no judges for the Artha Rin Adalat in two years. We don’t have any other option but to go for ADR. There is a provision for the court which provides for ADR, immediately after the cases filed in Artha Rin Adalat, there you can go for 60 days’ mediation. To recognise arbitration, definition of “Adalat” could be amended. Pre-litigation mediation should be tried first, before filing a case at the court. And it has to be enforced by amending the 2003 Act. Mediation should be conducted with a third and neutral institution, having thorough understanding of the process. BIAC would be one of such institutions.

ADR should be included in the University Curriculum for future lawyers. Bank officials, particularly in Risk Management, need to be well trained in ADR and achieve the best practices out of it. At the same time the rules need to be changed so that we can incorporate it into the sanction advice and implement arbitration clauses. In the process, we can help people have access to justice. Unless we do that, we can’t reach the 16th SDG, that as a developing nation we want to achieve by 2021.

Dr. M. Masrur Reaz, Senior Economist, IFC, World Bank Group

For economic growth or improving enforcement of contracts through inclusion of ADR, absence of efficient court systems or speedy, effective, efficient judicial decisions has a greater negative impact on different countries, their ability to capture quality investment and the right quantity of investment. ADR is strongly related to the enforcement of contract. SDGs 8,9,10 are directly linked to private sector growth and the goal 16 is about institutions, the investment ratio needs to go up from current 20.5 per cent to 29 per cent. Bangladesh needs to tap into greater investment, greater private sector growth.

According to the Doing Business Index, the lower court takes 1442 days and 66.2 per cent of the claim value of a commercial dispute goes into litigation. So, that is not going to help Bangladesh, either in getting more domestic investment or FDI, this will be critical for adoption of technology and better business practices as well as export diversification.

CPC amendment in November 2012 where mediation for commercial and all civil cases was made mandatory by personal initiative of the Government lacks implementation after 5.5 years because the administering rules have not been made. ADR which could have taken a stronger foot in the commercial dispute cases, through mandatory mediation, has not really taken effect. Role of institutions like BIAC is going to be critical. We need the Government to set the enabling environment but we need the private sector or public-private platforms such as BIAC to actually provide a structured platform. We are hugely encouraged by the recent initiative of the Government under the leadership of BIDA, to improve the Doing Business ranking of the country through serious efforts and very strong foundations for all 10 indicators.

Naser Ezaz Bijoy, CEO, Standard Chartered Bank Bangladesh

With growing complexities in trade and commerce, the implementation of justice and strong institutions is becoming increasingly important.

Sanctity of contracts and agreements are more important than ever and then the progress along with economic development. As banks we arrange financing for projects and businesses. Based on the backlog of the cases in the courts of Bangladesh, to the investors’ perception of the effectiveness of our judicial system, we are at the bottom of specifically in enforcing the contract and Doing Business ranking.

The legal system in Bangladesh recognizes settlement of disputes through Arbitration Act 2001. There is a much broader potential of ADR to become the first choice in resolving commercial disputes. For making ADR voluntary, judges should take steps for mediation. Inadequate role played by legal professionals, absence of trained lawyers and judges regarding mediation and negative impression among the lawyers regarding ADR are in place. In the laws applicable for ADR under section 89A, CPC, mediation and arbitration are optional. I think that limitation imposed by the Section 23 of Artha Rin Adalat Ain should be revisited and removed to make resolution possible. BIAC, having experience and expertise, can be one of the entities which can support ADR, and its values will be evident, once its procedures become established.

Dr. Debapriya Bhattacharya, Distinguished Fellow, Centre for Policy Dialogue (CPD)

In economic literature ADR is coercive harmony. Lack of supply of justice on time at a reasonable cost is a failure. ADR becomes relevant, when there is business and network failure. A person gains more by failing to comply with a contract than by compliance. ADR works well only when there is a power balance between the two parties, it requires a minimum level of trust in the public institutions. It is related to the trust that integrity has a price too.

What is important to understand is how we are going to deal with ADR in the national, trade and investment policies. Whether it is European Union, NAFTA, whatever is left of it or ASEAN, this is a mandatory provision. I think within the investment and trade issues, BIDA and other agencies can really look into it. Even if you can’t do it in the country in a full-fledged way, we should not spoil our name by failing to do it in our international regime.

Ummey Kulsum, Joint Secretary, Law and Justice Division

Goal 16 of the SDGs is specifically related with Access to Justice and ADR. The District Legal Aid officers are doing well by settling the disputes related to family matters, claims and counterclaims, which is related with money and some petty offences of criminal essence by pre-case filing system. We can introduce this system for commercial disputes and the Law and Justice Division has already prepared a plan of SDGs being shared with BIDA.

Dr. SK Golam Mahbub, Director, Judicial Administration Training Institute (JATI)

Under the present provisions of Civil Procedure Code, ADR is not mandatory, but referral to ADR is mandatory. Disputes may be handled by organisations have expertise in ADR like BIAC. If we want to introduce a pre-case ADR process in our dispute resolution system, then we have to consider other aspects i.e., what would be that organisation, who would be in the management, how they would be accredited. Provision for imposing penalty for unreasonable reluctance in mitigating disputes through ADR can effectively expand adherence to ADR methods.

Dr. Ahsan H Mansur, Executive Director, Policy Research Institute

ADR related to tax issues like VAT, customs and income tax, is not much of a use by the business community or by the taxpayers. When I asked people why ADR on the tax issues does not move forward, one of the things that was pointed out was ‘if I reduce the tax burden, the DUDAK will be after me’. ADR is an out-of-court settlement process and it should be automatically a part of the legal process. Indiscriminate acceptance of cases without regard to the number of hearings prolongs the number of years, the court cases linger on without any limit. We need skilled judges on economic matters. They require special trainings, special focus and experience in dealing with those cases. Our judges need to be neutral, objective and fair to our foreign investors, so that they get justice in Bangladesh. We have to take a very holistic view of the efficiency of the legal system. It can’t change overnight; but we have to start somewhere. And secondly, if we can’t change our legal system from the current state of affairs, we can never be an upper middle income or middle income country.

Shaikh Nazmul Alam, Additional Registrar, Appellate Division, Supreme Court of Bangladesh

The judge-population ratio; in other countries of the world, there are on an average 50 judges per million population in developed countries, whereas there are 10 judges per million in Bangladesh. Pre-suit ADR in Legal Aid cases has been effective. It may be introduced in other business cases, but there must be special scrutiny. We have to think, if Pre-suit ADR consumes another bulk of time, it may not be fruitful.

Justice Shamim Hasnain

The arbitration mechanism as it stands today has mutated into a wild animal, when efforts have been made by all the stakeholders in the process, the lawyers, the parties and other vested interest people, to complicate the process. It is no longer Alternative Dispute Resolution but additional dispute resolution. Dispute settlement through arbitration is a public policy issue of the Government. There is nothing in the Constitution that prevents that process. So every time a party wants to prolong the process, it comes to the Writ jurisdiction under the constitutional law, the court can order arbitration proceeding or settlement procedure immediately. Of course, there is a perception that we can’t go beyond the law. With the public policy dimension in place and the power of the High Court under the Constitution, the CPC mentality can be dispensed with. And even the High Court can direct courts below to introduce ADR in any proceeding. That is why the litigation can proceed without any further amendment of the laws. But having said that, amendment definitely helps.

Mohammed Forrukh Rahman, Barrister at Law

If you go through the Artha Rin Adalat’s court procedure, there are issues of non-availability of judges and delay, we get an Award in three months but it takes 1.5 years to get the Arbitrator’s name. The whole process could have been avoided, if BIAC was made the appointing authority. They could appoint only in seven days. Artha Rin Adalat does not prohibit going into arbitration, because when it is decided to go to arbitration, by agreement, by sanction letter, you are actually waiving all your statutory rights. Deliberately both parties are agreeing to go into arbitration and there is no question of statutory limits.

Kazi M. Aminul Islam, Executive Chairman, Bangladesh Investment Development Authority (BIDA)

We have to understand that whatever development outcome we see in terms of growth or social inclusion, these are the outcome of all the economic activities taken together that takes place within a certain framework. With the kind of infrastructure that we have, it would be very difficult to go forward. In other words, to chase a double-digit growth, we have to have renewed focus on development of legal, economic and physical infrastructure.

When there is a dispute there should be some mechanism, either at the court or outside the court. The statistics alone of the court cases that we have pending are enough to scare any investor, not only foreign but also local. In any transaction of business, I have to have a contract, and if I can’t enforce contract, does the contract have any value? It’s expensive and time-consuming. That doesn’t generate the kind of confidence we need, among the investors.

We need active engagement of the court in settling disputes and developing institutions like BIAC, which we will be able to deliver. ADR provision should be strengthened so that it could be a means of either ensuring access to justice or improving investment in business climate.

Mohammad Shafiul Alam, Cabinet Secretary, Cabinet Division

The World Bank Doing Business Index gives a composite rank to economies in terms of the ease of doing business. In Bangladesh we stand at 189th out of 190 economies which is most alarming in the case of Enforcement of Contracts. SDG16: ‘Peace and Justice and Strong Institutions’ argues that the way to Sustainable Development is through economic growth and development of a country and investment is essential for it, which is why it is just as essential to protect investors’ confidence and provide investors with empowerment conducive to business.

Mahbubur Rahman, Chairman, BIAC

We need to call upon the Ministry of Law, Justice and Parliamentary Affairs for implementation of the recommendations made here today. All of our investors, both local and foreign, would consider that it is one of the most important preconditions for any investment decision at home and abroad as to how contracts are enforced.