International Commercial Arbitration at Bhutan
International commercial arbitration in Bhutan is still in a developing stage, but it is gradually gaining traction as Bhutan opens up to more foreign investment and international commercial activities. Here's a detailed overview:
1. Legal Framework
a. Arbitration Act
Bhutan does not yet have a dedicated standalone Arbitration Act modeled closely on international standards such as the UNCITRAL Model Law. However, arbitration is recognized and permitted under the Civil and Commercial Code of Bhutan 2000 and related legislation.
b. Contract Act of Bhutan 2013
This act provides some guidance on dispute resolution, including clauses that can enforce arbitration agreements.
c. International Law
As of now, Bhutan is not a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). This is a significant consideration for international arbitration, as it affects the enforceability of foreign arbitral awards in Bhutan and Bhutanese awards abroad.
2. Arbitration Institutions
There is currently no major domestic arbitration institution in Bhutan akin to the SIAC (Singapore), HKIAC (Hong Kong), or LCIA (London). However, parties can choose foreign arbitral institutions for resolving disputes involving Bhutanese entities, especially in cross-border contracts.
3. Government Policy and Reforms
Bhutan has been slowly reforming its legal and economic infrastructure to make the country more investment-friendly. The Bhutan Alternative Dispute Resolution Centre (BADRC) was established to promote ADR methods, including arbitration, mediation, and negotiation.
BADRC handles domestic disputes primarily, but it also indicates Bhutan’s increasing openness to formalize and structure ADR mechanisms.
4. Arbitration Practice in Bhutan
a. Ad Hoc Arbitration
Arbitration clauses in contracts often specify ad hoc arbitration, where the rules are agreed upon by the parties without institutional support.
b. Foreign Arbitration Clauses
International contracts with Bhutanese parties often include arbitration clauses that specify foreign arbitral institutions (e.g., ICC, SIAC, or LCIA) and jurisdictions for seat and enforcement, due to Bhutan's limited arbitration framework.
5. Challenges and Limitations
Lack of a robust arbitration law aligned with global standards.
Not party to the New York Convention, making international enforcement challenging.
Limited legal expertise and institutional infrastructure for international arbitration.
Judicial capacity constraints in handling complex commercial disputes.
6. Opportunities and Outlook
Bhutan’s unique approach to development, based on Gross National Happiness, emphasizes stability and legal reforms that could eventually support a more robust arbitration regime.
The expansion of foreign direct investment (FDI) and cross-border trade (especially with India and Bangladesh) may push for clearer arbitration laws.
There is room for capacity building and international cooperation to modernize Bhutan’s arbitration system.
Conclusion
While Bhutan currently has a nascent and evolving arbitration landscape, it shows potential for development, especially as international business with Bhutanese entities grows. For now, parties entering into international commercial agreements involving Bhutanese interests are advised to:
Include clear arbitration clauses, possibly choosing a neutral and well-established foreign seat.
Be cautious about enforceability due to Bhutan not being a New York Convention member.
Monitor ongoing legal developments and institutional progress in Bhutan’s ADR framework.
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