On 11 January 2010 the Bahrain Chamber for Dispute Resolution (BCDR-AAA) was officially launched. This is a significant step in a joint venture between the Bahrain Ministry of Justice (BMoJ) and the American Arbitration Association (AAA).
This new development builds significantly upon Bahrain's distinguished history of arbitration which extends back to the nineteenth century. Bahrain was one of the first Gulf countries to adhere to the New York Convention, and since 1994 its international commercial arbitration law has been based on the (1985) UNCITRAL Model Law.
In December 2008 the AAA signed a memorandum of understanding with the BMoJ in view of their joint development of the BCDR-AAA. Moreover, by this memorandum of understanding, as communicated by the AAA, the AAA "will provide technical advice, administrative and systems know-how, and staff training to the BMoJ, as well as provide neutral-skills training to Bahraini arbitrators and mediators. The AAA will also provide program design assistance to impart enhanced ADR knowledge to the judiciary and to the business and legal communities in Bahrain and the region. In addition, the AAA's international branch, the ICDR, will establish offices in Bahrain, to be known as ICDRBahrain."
A Bahraini legislative decree of 29 June 2009 foresaw the creation of an institution such as the BCDR-AAA. It also foresaw the promulgation of a set of arbitration rules, and this has occurred in the form of the newly issued BCDR-AAA Arbitration Rules.
The Legislative Decree (Legislative Degree No (30) for the year 2009 with respect to the Bahrain Chamber of Economic Financial and Investment Dispute Resolution) which establishes the BCDR-AAA relates not just to classic arbitration by agreement, but also to what is being referred to as the first so-called "statutory arbitration".
Although the Bahrain Constitutional Court took issue with the name of "statutory arbitration" in the first draft of the Legislative Decree, requiring instead the appellation "judicial dispute resolution proceedings", there is no doubt that there is established a unique hybrid system for the resolution of high-value "international commercial disputes".
Tribunals operating under this system have jurisdiction in respect of claims exceeding BHD 500,000 (about USD 1,320,000 at current exchange rates). A dispute is international if one of the parties or the place where a substantial part of the obligations is to be performed is outside Bahrain, or the location most closely connected with the dispute is outside Bahrain. A dispute is commercial if its subject matter concerns relationships of a commercial nature, whether contractual or non-contractual.
A number of specifics have been settled by an implementing regulation passed under the Legislative Decree. The Legislative Decree provides that the implementing regulation must be based on the statute governing procedural matters before the ordinary courts, and may only depart from the latter where otherwise there would be a contradiction with the nature of the BCDR-AAA's jurisdiction.
This statutory arbitration presents a fusion between classic arbitration by agreement and ordinary court proceedings. The Legislative Decree provides that a majority of any tribunal must be composed of Bahraini judges from a panel selected by the Bahraini judicial authorities. It is the BCDR-AAA which appoints the members of the tribunal. Bahrain's tradition of including foreign judges amongst its roster, including a number of western judges, may suggest that distinguished foreign commercial judges may be empanelled to round off the tribunal. The implementing regulation goes one step further towards the classic model of arbitration in permitting the parties by agreement to choose two of a three person tribunal. There are no qualifications requirement in respect of such appointees. They may, for example, be retired judges, law professors, lawyers, or other professionals.
Non-Bahraini counsel may represent the parties, but they must be accompanied by a Bahraini lawyer admitted before the Bahrain Court of Cassation. The default language of proceedings is Arabic, thus the language of the ordinary Bahraini courts, but, as in arbitration, the parties may agree that any other language will be used in proceedings before the tribunal. Since, however, a majority of the members of the tribunal will come from the Bahraini judiciary, for practical reasons, any agreed language will need to be one well known in commercial circles in the region. English would seem the obvious candidate. As before courts, tribunals must apply a certain conflict of laws regime, indeed, in this case, one favouring the application of Bahraini substantive law. Unless the parties agree otherwise, Bahraini law applies. The procedure will be that of the ordinary courts except where incompatible with the nature of the BCDR-AAA. As in classic arbitration, the tribunal's fees will ordinarily be payable in advance. The fees are calculated ad valorem of the amount in dispute, at a rate not exceeding 5% to be set by the Government. As with arbitration, challenges to the "award" are on a limited number of specified grounds, which are very similar to the New York Convention grounds for refusing enforcement, including the characteristic arbitration ground of ultra petita. Interestingly, challenges may also be brought on grounds traditionally associated with revision of arbitral awards, i.e. fraud or new facts (suppressed by the other side). The remedy, annulment, is the same in all cases. The government body supervising the activities of the ordinary courts is to supervise the activities of these statutory arbitration tribunals. The Bahrain Court of Cassation has jurisdiction to review decisions of tribunals on jurisdiction. But the tribunals have jurisdiction to determine their own jurisdiction, and, as in the UNCITRAL Model Law (unchanged under the 2006 amendments), these tribunals are expressly empowered to continue with their procedure, and, it is thought, make decisions including on the merits.
The Legislative Decree lays down certain basic rules for arbitration by agreement thereunder, but provides that the BCDR-AAA Board of Trustees will promulgate procedural rules for such arbitrations. As will be seen, the BCDR-AAA Arbitration Rules once finalized will comprise these procedural rules.
Arbitration agreements under this system must be in writing. Unlike with the procedural rules applying to statutory arbitration, the procedural rules governing classic arbitrations (by agreement) are to be promulgated by the BCDR-AAA Board of Trustees, a private body, which is, however, constituted by government decree. The applicable substantive law is in accordance with party choice, in default of which, by the conflict rules the tribunal chooses to apply. The parties are free to choose the language of their dispute, and if they do not the tribunal is to choose it. Non-Bahraini lawyers can represent the parties in the arbitration, unaccompanied by Bahraini lawyers.
Challenges to the arbitral award are upon a limited number of grounds, all of which feature in the list of grounds in the New York Convention for refusing enforcement. It is interesting to see that lack of arbitrability and the improper composition of the arbitral tribunal do not expressly figure among the grounds for challenging an arbitral award of this type. The same system of review of jurisdiction that applies to statutory arbitration under the legislative degree applies here to classic 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 whose decision is ultimately dispositive of the matter of jurisdiction, at the location of the arbitration. As will be further commented on below, all recourse against an award issuing from a classic arbitration under the Legislative Decree can be excluded by virtue of the choice of non-Bahraini law "concerning the dispute".
As was indicated above, the BCDR-AAA Arbitration Rules are the procedural order for classic arbitration contemplated under the Legislative Decree. This is clear from the fact that the BCDR-AAA Arbitration Rules state that they apply not just where the arbitration clause explicitly chooses them ("arbitration under the BCDR-AAA Arbitration Rules") but also by virtue alone of a choice of arbitration administered by the BCDR-AAA ("arbitration of a dispute by the BCDR-AAA"). The Legislative Decree expressly foresees that the Board of Trustees has power to issue "special procedural rules and procedures" to be applicable in certain types of disputes.
The BCDR-AAA Arbitration Rules are in virtually all regards substantially identical to the International Arbitration Rules of the American Arbitration Association/International Centre for Dispute Resolution (ICDR). Instead of the ICDR being administrator, of course, the administrator of the BCDR-AAA Arbitration Rules and arbitrations thereunder is the BCDR-AAA. Unlike the International Arbitration Rules of the AAA, the BCDR-AAA Arbitration 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" within the meaning of Legislative Decree.
The one substantive departure in the BCDR-AAA Rules from that of the AAA International Arbitration Rules is that the former require awards to be registered in the BCDR-AAA and in any place of the arbitration whose lex arbitrii requires such registration.
The relation between and potential coexistence of the Legislative Decree and the enactment by which Bahrain adopted the 1985 UNCITRAL Model Law in 1994 (Legislative Decree No. (9) for the year 1994 with respect to promulgating international commercial law) has not been specified in any detail. The Legislative Decree states without more that any text that contradicts it is revoked. Statutory arbitration under the Legislative Decree is at all events unaffected by the 1985 Model Law enacted in Bahrain, since the latter deals only with international commercial arbitration by agreement.
There is a question as to the relation between the 1985 Model Law and the BCDR-AAA Arbitration Rules, at least a theoretical one. It is clear that the latter takes precedence over the former as party agreement, where the former admits so, and it may be that this precedence also obtains insofar as the BCDR-AAA Arbitration Rules are characterized as rules implementing the Legislative Decree.
It has been widely claimed that the statutory arbitration under the Legislative Decree is "the world's first statutory arbitration". It is, however, more precise to say that it may be world's first "statutory arbitration" applying widely to qualifying "commercial" matters. Certainly there already exist a multitude of instances of "statutory arbitration" in specific legal relationships (for example employment relationships and investor protection) and business sectors (for example sports).
The question arises, whether this "statutory arbitration" under the Legislative Decree is international arbitration at all. As mentioned above, it does present a number of important arbitration features, such as severely limited recourse and notably a general exclusion of appeals on the merits. But it would appear that this statutory arbitration is not international arbitration for perhaps the most significant purpose, that is, enforcement of arbitration awards under the New York Convention. If the New York Convention is interpreted to extend only to arbitration awards ensuing from arbitration agreements as understood thereunder, this statutory arbitration obviously cannot engender a New York Convention award. Indeed, a number of the grounds to refuse recognition of an award under the New York Convention presuppose that the arbitration proceeded upon party agreement. On the other hand, within the limits of good faith implementation obligations, each New York Convention State is free to interpret the convention as it sees fit. What is more, Bahrain has entered the reciprocity reservation in respect of its application of the New York Convention but it may be doubted that a State which does not accept to enforce a Bahraini statutory arbitration award under the New York Convention may validly be said by Bahrain not to have accepted the New York Convention.
While it remains to be seen how this statutory arbitration will work in practice, certain of its essential features as they appear on the face of the Legislative Decree look most attractive to business. The possibility of having international commercial judges, professors, legal practitioners, or other professionals as part of the panel of adjudicators promises to import significant expertise. This would be particularly useful where the substantive law is not Bahraini law, but some foreign law. Such members of the arbitral tribunal can be selected for their expertise in such foreign law. The fact that the parties can agree on the language of the dispute is also a most significant pro-business feature.
Such an advantage is extremely rare in civil proceedings around the world, although it is not infrequent that parties will be dispensed from translating documents in certain widely used languages, such as English or another national language. The limited grounds of challenge, and the exclusion of appeals on the merits makes decisions in this statutory arbitration system, at least on paper, a good deal more final than most first instance decisions in legal systems around the world. The fact that challenges lie to the Court of Cassation, Bahrain's last instance, would indicate that such decisions are very final indeed.
One might criticize as unduly conservative the provision in the Legislative Decree according to which the law applying on the merits is Bahraini law, unless the parties agree otherwise. Still, since the BCDR-AAA's jurisdiction is limited to large-value disputes, one can expect that the parties to them will have had the foresight to stipulate any preference they might have for their applicable law in derogation to Bahraini law. Moreover, there may be a vital functional reason behind this treatment. If, as conjectured below, the Bahraini legislator is seeking soft harmonization between commercial litigation and arbitration, upon the model of the latter, it will be necessary in the immediate period to foster the development of Bahraini commercial law in a public forum prior to its all becoming subject to private and perhaps even confidential dispute settlement.
The actual virtues of this system of statutory arbitration can only be measured against a future track-record in practice. The system will be overseen by the ordinary high judicial authorities in Bahrain. It is not clear from the Legislative Decree what role the BCDRAAA will have in relation to this system except that the Legislative Decree expressly provides that it is always the BCDR-AAA which appoints the panel of arbitrators, and even statutory arbitrations are designated to be under the "jurisdiction" of the BCDR-AAA. Since, however, the system is being presented as arbitration, and especially if the BCDRAAA has significant powers in relation to statutory arbitration, it may be that over time this statutory arbitration will evolve ever more to share the features of classic arbitration under the Legislative Decree. Is this the Bahraini legislator's farsighted intention? The proposition is not impossible. Certainly the essential structure of the Legislative Decree would admit this, and, practically speaking, this evolution could be translated into binding law by mere amendment of the implementing regulation. Certainly the administrative fee structure, ad valorem up to 5% of the amount in dispute, which is distinctly reminiscent of arbitration, would appear to portend such a development. In the meantime, the immediate attractiveness of this statutory arbitration will promote a build up of commercial law decisions under Bahraini law, since, as seen above, Bahraini law will apply in default of contrary party stipulation.
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. This latter quality is especially ensured in that the AAA is not only advising the BMoJ in arbitration matters, but the BCDR-AAA Board of Trustees and its secretariat (the "administrative and technical apparatus", as referred to in the Legislative Decree) will have been chosen to include persons familiar with the workings of the AAA and its international arbitration rules.
There is a question as to whether the material (ratione materiae) jurisdictional limitations applying to statutory arbitration apply to classic arbitration upon agreement of the parties under the Legislative Decree. Those limitations, i.e. value in dispute, commercial and international matters, are enunciated in the chapter applying, exclusively it would appear, to statutory arbitrations. Certainly there are no such restrictions on arbitrations by agreement under the BCDR-AAA Rules. This absence is particularly conspicuous in view of the fact that the AAA International Arbitration Rules themselves limit their application to "international disputes" where the parties have only invoked the AAA or the ICDR and not the rules themselves. It is true that the remarkably broad possibility of excluding all recourse against the award before the Bahraini courts (discussed below) would suggest that such awards should be in respect of a limited category of parties and subject matters, where it is assured that there is nothing like unconscionability in the arbitration or the award and at least some externalities vis-à-vis Bahrain. It would, however, appear the better view that the Legislative Decree and the BCDR-AAA Rules apply to all arbitrations by agreement, irrespective of the amount in dispute, and whether or not the dispute is commercial or international. 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.
It is noteworthy that the list of grounds for challenging arbitration awards under the classic arbitration system of the BCDR is so short as not expressly to include unarbitrability and 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 was seen above, 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, although challenge to jurisdiction does not appear in the list of grounds of challenge to arbitration awards. It is also possibly the case 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 unarbitrability 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.
Perhaps the most important issue arising in relation with the Legislative Decree is the functioning of its exclusion of all challenges to the award based on an agreed (classic) arbitration. The English translation of the relevant provision (Article 25 of the Legislative Decree) speaks of such exclusion where "the parties have agreed in writing to choose a foreign law concerning the dispute". The question arising is of course what law is being referred to, the principal candidates being the law applying to the arbitration clause, the substantive law, the procedural law, and perhaps 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 is attaching an arbitration to a legal order. Moreover, it serves the precise and circumscribed purpose of aiding the interpretation of the arbitration clause notably as to its material and personal scope. It would therefore appear doubtful that the choice of a foreign law to govern the arbitration clause is the determinative factor in exclusions of recourse in Bahrain.
As for the law of the contract, that is, the law applicable to substantive matters, this is functionally distinct and isolated from aspects which might cause a State to wish to review an arbitral award. In arbitration there is notably little concern as to the substantive accuracy of the award, and this is why appeals on the merits are almost universally excluded. Thus this is unlikely to be the intention in the exclusion.
It would moreover be incoherent to read the provision as referring to a choice of lex arbitrii in a broad sense, since if nothing of the Bahraini lex arbitrii applies then the Legislative Decree, with its exclusionary rule, itself does not apply.
What the legislator would appear to be contemplating in this exclusion of jurisdiction to review arbitration awards is essentially the line of thinking in the famous 21 February 1980 decision of the Paris Court of Appeal in the Götaverken case. There the Paris court refused to take 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 not sufficing for these purposes. According to the court, it is only where French law is the law of the arbitration proceedings (la loi de la procédure arbitrale) that French courts will take jurisdiction to review arbitral awards, and 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 the choice of the place of arbitration need not logically necessitate that the parties have chosen the law of that place to govern their arbitration. Moreover, the text of the New York Convention (Art. V(e)) would seem inescapably to presume the existence of such a distinction. Nonetheless, to admit this distinction, and especially to apply it, is to sacrifice the significant legal predictability delivered by equating the place of arbitration with the law governing the arbitration proceedings.
The Bahraini rule so understood is not, however, plagued by this particular concern. Unless the parties expressly stipulate a foreign law to govern their arbitration, then the choice of Bahrain as the place of arbitration can be supposed to entail that Bahraini law governs the arbitral procedure, and that therefore actions for review of the award lie to the Bahraini court.
It is a second problem with Götaverken which is of concern in relation to this Bahraini exclusion of review of awards. If it is envisaged that a foreign law may be chosen to govern the arbitration proceedings with the place of arbitration remaining Bahrain, how much of the Bahraini law will continue to apply, and more specifically, what is the dividing line between Bahraini law as the place of arbitration, and the foreign law governing the proceedings?
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 somewhere else, in addition to review at the enforcement stage. By consequence, this provision of the Legislative Decree cannot be viewed as a straightforward exclusion of all annulment review of arbitration awards as was for a time automatically the case under Belgian law, and today exists by unambiguous party agreement under Swiss law.
Moreover, under this Bahraini provision it does not appear possible to exclude some but not all grounds of review, unless, for example, the parties stipulated for Swiss law to govern their arbitration and then expressly excluded certain grounds of review under Swiss arbitration law.
What is most striking about these 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 them 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 review awards proceeding from them. But local judges will also have the advantage of dealing with substantive commercial matters alongside global experts, and apparently certain matters of arbitration procedure as well, given that the review system for statutory arbitration awards appears to disclose certain characteristic features of review of arbitration awards in the classical sense. This may have the more enduring constructive impact.
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