The Bahamas Arbitration Act

The Arbitration Act, 2009

On the 31^st of December, 2009, the Bahamas enacted a new Arbitration Act, No. 42 of 2009 (“the Act”), which repeals arbitration legislation formerly governing the area which took effect in the Seventeenth Century. The Act reflects the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration, as promulgated in 1985 and revised and adopted in 2006. It also reflects the 1996 British Arbitration law. The Act adopts well-known international arbitration standards and discusses the fundamentals of an arbitration agreement; the extent of court intervention; the recognition and enforcement of arbitral awards, and the composition and jurisdiction of an arbitral tribunal.

Separability of the Arbitration Agreement

The fundamental legal principle governing international arbitration agreements is that of their autonomy, also referred to as the doctrine of “separability” The doctrine of separability ensures that the arbitration agreement will remain effective despite any allegations that the underlying or principal contract failed to come into existence. Therefore, if a contract contained a validly binding arbitration agreement, the subsequent determination that the contract is invalid will not render the arbitration agreement void. Section 7 of the Act affirms this general principle of arbitration, and provides:

“Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective and it shall for that purpose be treated as a distinct agreement.”

This section accords with Article 16 of the UNCITRAL Model Law on International Commercial Arbitration which mandates that any arbitration clause forming part of a contract shall be treated as an agreement independent of all other terms of the contract. Article 16 goes further to provide that a decision that the contract is null and void “shall not entail ipso jure the invalidity of the arbitration clause.” Therefore, the arbitration agreement, whether such agreement is concluded separately or incorporated within the contract to which it relates has full legal autonomy and is not affected by any subsequent event or fact that the related contract is invalid.

Jurisdiction of the Arbitral Tribunal

An integral aspect of the arbitral process is the ability of the tribunal to be the judge of its own jurisdiction. This ability is embraced in the well-known competence-competence principle, the most important rule of arbitration. The competence-competence principle is a rule of chronological antecedence that states that the arbitral tribunal has the first right to hear any and all challenges relating to its jurisdiction. Section 41 of the Act codifies this well-known principle:

“(1) Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to –

(a) whether there is a valid arbitration agreement;

(b) whether the tribunal is properly constituted, and

(c) what matters have been submitted to arbitration in accordance with the arbitration agreement.”

A Bahamian court must, therefore, abstain from hearing any substantive argument as to the arbitrators’ jurisdiction, until such time as the arbitrators themselves have had an opportunity to do so. The practical advantage of such a rule is to ensure that a party does not prevail in putting off the arbitral proceedings by their mere allegation that the arbitration agreement is invalid or non-existent, and therefore, the arbitrators have no jurisdiction. Therefore, the Act appropriately conjugates the doctrine of the autonomy of the arbitration agreement with the competence of the arbitral tribunal to rule on its own jurisdiction.

Location of Arbitral Tribunal

Arbitration clauses should always identify the place where the arbitration is to be conducted. Arbitration will be compelled in the manner and location described in the arbitration agreement. This gives the parties the ability to predetermine the place and forum in which their disputes will be resolved. A valid arbitration clause must make clear that the parties intend all disputes shall be resolved by arbitration in a specific location. All of the provisions of the Act will apply where the seat of the arbitration is in The Bahamas. The provisions of the Act relating to whether legal proceedings in the Bahamas will be stayed pending arbitral proceedings, and the recognition and enforcement of arbitral awards and interim measures will still apply even if the seat of the arbitration is outside The Bahamas or no seat has been designated or determined.

Governing Law

The parties may agree to arbitrate their claims under whatever rules they choose, irrespective of the agreed seat of the arbitration. A choice-of-law provision in an arbitration agreement would evidence the intent by the parties for arbitration to be conducted according to a chosen jurisdiction’s laws. Where the arbitral agreement names the seat of the arbitration to be a jurisdiction outside of The Bahamas, but the parties have chosen Bahamian law to govern, the provisions on the validity and separability of an arbitration agreement set forth in the Act will be the only provisions applicable to the proceedings.

Stay of Legal Proceedings

Section 9 of the Act is a mandatory provision, excluding the right of the parties to contract to the contrary and governing a court’s power to stay legal proceedings when the parties have concluded an arbitration agreement. This provision empowers the court to stay legal proceedings if satisfied that the arbitration agreement concluded between the parties was not null and void, inoperative, or incapable of being performed. Any party to an arbitration agreement against whom legal proceedings are brought may, after giving notice to the other party, apply to the court to stay the proceedings if the matter before the court is one that should have been referred to arbitration under the agreement.

Composition of Arbitral Tribunal

An arbitral tribunal usually consists of three members, who have professional experience in the area of the dispute. However, the parties are free to agree on the number of arbitrators to form the tribunal and whether there is to be a chairman or umpire. Section 26(3) of the Act provides that, in the absence of agreement by the parties, the tribunal shall consist of a sole arbitrator. Section 26(2) Act also states that, unless otherwise agreed by the parties, an agreement that the number of arbitrators shall be two or any other even number shall be understood as requiring the appointment by the parties of an additional arbitrator as chairman of the tribunal. Although the parties are permitted to name their own arbitrators, the arbitrators are expected to be neutral and to exercise their powers fairly and impartially as between the parties, giving each party a reasonable opportunity of advancing his case. The parties are free to agree on the procedure for appointing the arbitrator or arbitrators, as well as the qualifications required of the arbitrators. The parties are also free to agree in what circumstances the authority of an arbitrator may be revoked or the basis upon which an arbitrator may be removed from the tribunal.

Arbitral Proceedings

Parties are not required to be represented in the arbitral proceedings by an attorney, but may be represented by any person chosen by him. The parties also have the power to agree on the powers exercisable by the arbitral tribunal for the purposes of and in relation to the arbitral proceedings.

Right of Appeal

Practically speaking, there is no review or appeal of an award made by an arbitral tribunal, although under narrow circumstances application may be made to the court for review of an award. Sections 89 & 90 of the Act provide that a party to arbitral proceedings may, after giving notice to the other party and the tribunal, apply to the court to challenge an award made by the arbitral tribunal on the basis that the tribunal lacked substantive jurisdiction or that there was a ground of serious irregularity affecting the tribunal. Pursuant to section 91, parties may also appeal to the court from an arbitral award on the basis of a question of law so long as all parties to the proceedings consent to the appeal. The parties can agree to exclude any appeals on this basis in their arbitration agreement. It is important to state that if the arbitration agreement provides for an appeal of the arbitration tribunal’s decision, then this gives the parties the right of an appeal. An arbitration agreement will be enforced, according to its terms, manner, and operation, because it effectuates the intent of the parties.

Recognition and Enforcement of Arbitral Awards

An award made by an arbitral tribunal pursuant to an arbitration agreement may, by leave of court, be enforced in the same manner as a judgment or order of the court to the same effect. The Bahamian Parliament has also recently enacted the Arbitration (Foreign Arbitral Awards) Act, 2009 that relates to the recognition and enforcement of awards under the New York Convention, which provides for the enforcement and recognition of arbitral awards. The New York Convention was adopted by the United Nations Conference on International Commercial Arbitration on the 10^th June, 1958, and acceded to by The Bahamas and entered into force on the 20^th March, 2007. This means that an arbitral award made in The Bahamas is enforceable in any of the approximately 140 countries, which are signatories to the

The Bahamas: the Arbitral Jurisdiction of Choice

The Bahamas, with its close proximity to major financial markets, is considered a gateway into international markets. As one of the top offshore jurisdictions of choice, it is only befitting that The Bahamas could naturally evolve into an international arbitration jurisdiction as well. Along with the enactment of a new Arbitration Act, the Bahamas’ strong governance, wealth of human capital, sound legal system, and prosperous financial markets, The Bahamas is surely to be considered as an ideal arbitration facility for international businessmen, merchants, and commercial partners around the globe.