Foreign courts and foreign seats: the clause that decides your dispute before it starts

The dispute resolution clause is usually negotiated last, by people who are tired, on the assumption that it will never be used. In cross-border contracts with Bangladeshi counterparties it deserves considerably more attention than it gets, because the two most common drafting choices both carry enforcement risk that is invisible at signature.

The foreign court problem

A clause submitting disputes to the exclusive jurisdiction of a foreign court feels protective to a foreign party. It is frequently the weaker option. Bangladesh is not party to a general treaty on the reciprocal enforcement of foreign judgments with most commercial jurisdictions. Where reciprocity is not established, a foreign judgment is not directly executable; the claimant must sue afresh in Bangladesh on the underlying cause of action, with the foreign judgment serving as evidence rather than as an enforceable decree.

In practice that means winning twice, years apart, with the second contest fought on a defendant's home ground after assets have had ample time to move.

The arbitration alternative

Bangladesh is a party to the New York Convention, and the Arbitration Act 2001 provides for the recognition and enforcement of foreign arbitral awards. An award made in a Convention state is therefore in a materially stronger position than a foreign judgment. Enforcement is not automatic — the Act preserves the Convention's grounds for refusal, and public policy objections are raised — but the route exists and has been used.

• Choose a seat in a New York Convention state, and confirm it is one Bangladesh recognises for reciprocity purposes.
• Name the institution and the rules. An ad hoc clause with no appointing authority is an invitation to a year of procedural litigation.
• Specify the number of arbitrators, the language and the governing law of the arbitration agreement separately from the governing law of the contract.
• Think about where the assets are. An award is only as good as the jurisdiction in which you will enforce it.
• Consider whether interim relief will be needed from the Bangladeshi courts, and preserve the ability to seek it.

When local courts are the right answer

For contracts where the realistic remedy is injunctive — possession, delivery up, restraint of a distributor or a licensee — the Bangladeshi courts are often the better forum, because they are the only forum that can grant and enforce the order quickly. Splitting the clause, so that injunctive relief is available locally while substantive disputes go to arbitration, is usually the more workable structure.