The rapid growth of the United Arab Emirates’ (UAE’s) economy brought with it tourism, mass infrastructural projects, construction, commerce and international investment. The UAE’s exceptional growth also highlighted the need for a modern legal and judicial framework capable of instilling confidence into the growing market, and to further attract more inward investment. Most foreign investors were accustomed to operating in common law environments (as opposed to the civil law system in the UAE), which have a historical and sophisticated body of binding legal precedents and therefore offer certainty for those doing business in a market economy.
Foreign investors were reluctant to use the domestic courts to settle disputes, as both:
- Proceedings in the local courts are conducted in Arabic.
- Although the decisions of the UAE Court of Cassation have a persuasive effect on lower courts, there is no system of binding precedent, which can result in some instances in unpredictable judicial decisions.
An efficient, transparent and modern legal system is vital to the efficacy of any economy, but particularly in a new and rapidly expanding economy such as the UAE. The need for a modern legal framework led to the development of not only new legal and judicial platforms that are modelled on common law, but also the growth of arbitration in the UAE as the preferred option for dispute resolution.
This article analyses the options for arbitration in the UAE, including the Dubai International Financial Centre (DIFC). It analyses the advantages and disadvantages of using the UAE or the DIFC as a seat of arbitration, including issues relating to applicable law, formalities, interim measures, confidentiality, costs, and ratification of local and foreign awards.[1]
OPTIONS FOR ARBITRATION
There are three separate legal systems in the UAE:
- The domestic UAE legal system.
- The DIFC legal system. The DIFC is a free zone in the Emirate of Dubai, created in 2004, that has its own civil and commercial laws and its own courts. It is modelled on international best practice and largely follows the English common law approach. It has been designed to appeal to the international business community and attract further foreign investment in the region. The DIFC also has its own arbitration law based on the UNCITRAL Model Law on International Commercial Arbitration 1985 (UNCITRAL Model Arbitration Law), which represents international best practice. Arbitration seated in the DIFC is subject to the procedural framework set out in the DIFC Arbitration Law 2008.
- The Abu Dhabi Global Market (ADGM) legal system. The ADGM is a free zone in the Emirate of Abu Dhabi, established in 2013, that also has its own civil and commercial laws, and its own English-language common law courts. In common with the DIFC, the ADGM has been designed to attract international investment into Abu Dhabi. The ADGM also has its own arbitration law based on the UNCITRAL Model Arbitration Law. The ADGM has very recently announced a landmark new arbitration hearing centre for the capital, namely the ADGM Arbitration Centre, alongside an agreement with the International Chamber of Commerce (ICC). The ADGM Arbitration Centre will be accompanied by a representative office of the ICC Court. It is scheduled to open in early 2018 and will undoubtedly make a significant addition to the UAE’s legal infrastructure. The ADGM is a recent addition to the UAE’s legal system. Therefore, very little jurisprudence has emerged from this fledgling jurisdiction and this article only makes limited reference to the ADGM.
As the popularity of arbitration has grown as a method for resolving disputes, so too has the number of arbitration institutions offering arbitration. Today, separate arbitration institutions are located in each of the Emirates of Dubai and Abu Dhabi:
- The Dubai International Arbitration Centre (DIAC) is located in mainland Dubai and very recently opened a branch office within the DIFC. In August 2016, the DIAC issued for public consultation a draft of amended arbitration rules (Draft DIAC Rules) that are, once finalised, intended to replace the existing DIAC Rules. Sources confirm that the DIAC is in the final process of amending its rules to reflect international best practices and ensure that DIAC arbitrations are more efficient and its awards are easily enforced before the DIFC courts. This would allow bypassing the formalistic and lengthy procedural hurdle of enforcement before the inland Dubai Courts, while awaiting for a Federal arbitration law. This is not the only step taken by the DIAC to attempt to overcome the process of ratification of domestic awards. Earlier in 2017, the DIAC has opened an office in the DIFC; a move that permits arbitration parties to resort to the DIFC courts to enforce their awards. The Draft DIAC Rules introduce the following changes:
- the DIFC as a default seat of arbitration;
- a DIAC Secretariat (the role of which includes the scrutiny of awards);
- a procedure for appointing an emergency arbitrator;
- a procedure for the consolidation of multi-party disputes;
- a procedure for joinder of non-signatory parties to the arbitration proceedings;
- measures to increase efficiency and avoid delays; and
- sanctions to punish counsel for poor conduct.
The Draft DIAC Rules include a clear provision excluding the liability of members of the Arbitral Tribunal, the DIAC Executive Committee, the DIAC and its employees for any omission or act. This provision will hopefully help arbitrators regaining some trust in the legal system following the latest changes to the Federal Penal Code No. 3 of 1987 (Penal Code) by Federal Decree Law No. 7 of 2016. The changes to be introduced in the DIAC Rules, which reflect international best practices, are designed to ensure that DIAC arbitrations are more efficient at the arbitration and enforcement stages.
- The DIFC-LCIA Arbitration Centre (a joint venture between the DIFC and the London Court of International Arbitration) is located in the Emirate of Dubai but is situated within the DIFC. The DIFC-LCIA Arbitration Centre issued new rules that apply to all arbitrations commenced on or after 1 October 2016. The primary objective of the DIFC-LCIA is to administer cost-effective and efficient arbitrations. To this end, the 2016 rules introduce:
- a procedure for appointing an emergency arbitrator;
- a procedure for consolidation of multi-party disputes;
- measures to increase efficiency and avoid delays; and
- sanctions to punish counsel for poor conduct.
These changes reflect recent amendments to the LCIA Rules and the ICC Rules, as well as international best practices. The 2016 rules provide that, in the absence of agreement between the parties, the default seat of arbitration is the DIFC. However, once the tribunal is constituted, it can consult with the parties and order that a different seat of arbitration applies.
- The Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) is located in the Emirate of Abu Dhabi.
- The ADGM can seat arbitrations within its separate common law jurisdiction in Abu Dhabi.
All of these arbitral institutions offer their own procedural rules and regulations for the resolution of disputes. There are also other domestic arbitration centres, such as in Sharjah and Ras Al Khaimah, and the new Emirates Maritime Arbitration Centre, the focus of which is to deal with specialist maritime disputes.
LEGAL FRAMEWORK
The UAE does not have a federal or national arbitration law. Arbitration in the UAE is governed by a small number of provisions set out in the UAE Civil Procedure Code, Federal Law No. (11) of 1992 (as amended in 2014) (CPC). For example, Articles 203 to 218 regulate the framework for arbitrations, Articles 235 to 238 regulate the execution of foreign judgments and awards, and Articles 239 to 243 regulate the execution procedures. This is not ideal, given the popularity of arbitration in the UAE, and particularly given that the main purpose of the CPC is to govern domestic legal proceedings in the UAE rather than arbitration proceedings (and even less so, international arbitration).
Arbitration in the UAE would therefore undoubtedly benefit from the introduction of a federal law on arbitration. The Ministry of the Economy has circulated several draft federal laws, but nothing has been enacted yet. The intended purpose of a federal law on arbitration is to repeal the sections of the CPC that deal with arbitration, and modernise the arbitration framework within the UAE legal regime and bring it in line with international best practice. The federal law has been mooted for some time. Sources confirm that the long awaited arbitration law is in the final stages of its promulgation and that the UAE will soon follow the path of a number of its neighbouring Arab countries, and will hopefully promulgate a modern arbitration law modelled on the UNCITRAL Model Law.
In contrast, arbitration seated in the DIFC or the ADGM benefit from specialist arbitration laws that are based on the UNCITRAL Model Law, and are not subject to the CPC arbitration provisions.
FORMALITIES
Clear and unequivocal intention to arbitrate
On the whole, the UAE courts construe agreements to arbitrate narrowly. This is because the UAE courts still view arbitration agreements as a usurpation of their judicial authority and as an exceptional method of dispute resolution. The wording of the arbitration agreement should therefore be clear and unequivocal, and reflect the fact that the parties understand and intend that any dispute which may arise should be referred to arbitration.
The parties to a contract can refer a dispute that may arise between them to arbitration either:
- Through a clause in the main contract providing for arbitration or a separate arbitration agreement.
- By reference to an express exchange of correspondence by the parties authorising them to agree to arbitration or in some specific commercial transactions by reference (for example, construction contracts subject to the FIDIC general conditions of contracts).
The CPC does not require any special wording for the content of the arbitration agreement. However, most arbitration institutions provide model arbitration clauses, which contracting parties would be wise to adopt. To be effective, the arbitration agreement should be unequivocal to ensure that no potential problems arise concerning jurisdiction.
Broad interpretation of “in writing”
The DIFC legal system follows the UNCITRAL Model Law provisions regarding compliance with certain formalities for a binding arbitration agreement. The DIFC Arbitration Law provides that an arbitration agreement must be in writing. However, the concept of “writing” is broad and the arbitration agreement is considered to be in writing if its content is recorded in any form. Further, the DIFC Arbitration Law explicitly confirms that an arbitration agreement can be concluded by the conduct of the parties, without an actual written document. In addition, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other. In light of this, in the absence of an arbitration agreement, care should be taken when served with a statement of claim asserting the existence of an arbitration agreement.
Validity
Parties often overlook the importance of the dispute resolution provisions of their contract. However, it is vitally important to consider the dispute resolution clause, specifically where arbitration is contemplated as the parties’ preferred method of dispute resolution. To be valid, an arbitration agreement or clause in a contract must comply with a number of formalities. These formalities may differ depending on whether the arbitration is seated in the domestic UAE legal system or in the DIFC.
The CPC provides for mandatory requirements for the enforceability of arbitration agreements. For example, an arbitration agreement must:
- Be in writing (Article 203(2), CPC).
- Specify the subject matter of the dispute (Article 203(3), CPC).
- Not include irreconcilable matters that are excluded from arbitration (Article 203(4), CPC).
Where a legal person (corporate entity) is the party to be bound by the arbitration agreement, the agreement must be signed by a person authorised to bind the company to arbitration. In limited liability companies governed by Federal Law No. 8 of 1984 concerning Commercial Companies (CCL) prior to its amendment in 2015, the UAE courts consistently ruled that this authority is presumed to be with the company’s general manager. In this respect, a copy of the company’s trade licence should be obtained to ensure the manager’s identity is correct. The arbitration agreement is invalid if it is signed by someone lacking the appropriate authority. Where someone other than the company’s general manager signs the agreement or where another type of company is involved, it was necessary to obtain a specific power of attorney or company authority (such as a board resolution) to confirm that the person signing the arbitration agreement was duly authorised to do so and could bind the company to arbitration proceedings. However, the Dubai courts have recently confirmed, with reference to the overarching principles of good faith and apparent authority, that a company may be bound by an arbitration agreement even if the arbitration agreement was not signed by the general manager. This means that a person representing himself or herself to a third party as a company’s authorised representative will be able to bind that company to arbitration, even if he or she was not the general manager. It is however always recommended to ensure that signatories of an arbitration agreement have express authority to bind the companies to arbitration.
Federal Law No. 2 of 2015 (New Companies Law) (entered into force on 1 July 2015, replacing the CCL) reinforces the restrictive approach relating to how a UAE public joint stock company (PJSC) binds itself to an arbitration clause. The power of a PJSC’s board to agree to arbitration as a means of resolving disputes must be explicitly stated in the company’s articles of association (New Companies Law). Alternatively, an agreement to arbitrate must be considered as one of the company’s objectives (which in practice will not be the case), or the general assembly must issue a special resolution. This restrictive approach reinforces the provisions of Article 58(2) of the CPC, which provides for a general restriction under which the power to agree to arbitration cannot be delegated to others without a special resolution to that effect.
The New Companies Law also introduces a new Article 104 (regulating limited liability companies), which provides that, unless otherwise provided by the New Companies Law, the provisions concerning joint stock companies (JSCs) apply to limited liability companies (LLCs). The introduction of Article 104 raised a controversy as to whether a general manager of an LLC must now be specifically empowered to agree to arbitration (either by the articles of association or a special resolution of the shareholders), based on a combined reading of Articles 104 and 154. This approach contradicts the principle that the UAE courts have established that general managers of an LLC are presumed to have the power to sign an arbitration clause.
The CCL and the New Companies Law both state that a director of a JSCs can only agree to arbitration if expressly authorised to do so by the shareholders or in the company’s articles of association. Additionally, Article 58(2) of the CPC provides that a special authorisation is required to validly agree to arbitrate or to delegate this power.
This has resulted in discussions in the legal profession and uncertainty over the correct interpretation and application of certain provisions of the New Companies Law to LLCs. Given that the New Companies Law has only recently been promulgated, there is currently no case law that deals with this issue.
On 28 April 2016, Ministerial Resolution No. (272) of 2016 was introduced to clarify the position, by expressly excluding the application of certain provisions of the New Companies Law regarding PJSCs to LLCs, including those requiring PJSCs’ directors to have express powers to enter into arbitration agreements.
It is however always prudent to expressly give directors express powers (in the articles of association or in a shareholders’ resolution) to avoid any challenge during an arbitration or at the stage of enforcement that the relevant directors lacked the authority and capacity to agree to arbitration on behalf of the relevant company.
Arbitrability
In addition to the “in writing” and “capacity” requirements, parties should consider whether the subject matter of any potential dispute can be referred to arbitration in the chosen seat of the arbitration.
Arbitration is not permissible in matters that are not capable of being reconciled (Article 203(4), CPC). Matters of public order cannot be reconciled. There are also some specific areas where the UAE courts hold exclusive jurisdiction, such as in criminal matters and matters of personal statute. These matters cannot be referred to arbitration. Further, matters relating to commercial agency and labour disputes cannot be dealt with by arbitration.
The issue of arbitrability must also be considered in light of some decisions of the Dubai Court of Cassation, which held that some matters relating to off-plan real estate transactions are of a public order nature and therefore not capable of resolution by arbitration. Public order is deemed to include matters relating to, among others, personal status such as marriage, inheritance and lineage, systems of government, freedom of trade, the circulation of wealth, rules of individual ownership and the other rules and foundations on which society is based, to the extent that these matters do not conflict with the definitive provisions and fundamental principles of the Islamic Sharia (Article 3, UAE Civil Transactions Law).
In this respect, in 2012, the Court of Cassation overturned an arbitration award on the basis of public order considerations under Article 3 of the UAE Civil Transactions Law (Case No. 180/2011 of 12 February 2012). The arbitration award declared that the sale and purchase agreement for an off-plan property purchase was null and void on the basis that the agreement violated Article 3 of Law No. 13 of 2008 Regulating the Interim Real Estate Register in Dubai (Law No. 13 of 2008). Article 3 provides for the mandatory registration of any sale and purchase of off-plan properties in Dubai in the Interim Real Estate Register through the Dubai Land Department. The sale and purchase agreement was not registered. The Court of Cassation overturned the arbitration award on the basis that the arbitrator did not have the power to adjudicate on a matter relating to registration of off-plan property, as this was a public order matter under Article 3 of the UAE Civil Transaction Law.
Following this decision, there were fears that the UAE courts may find any real estate contract to be void for violating public order. However, this decision and the public policy exemption it relates to is recognised as being limited to cases involving specific issues (in this case the particular provision requiring the registration of off-plan transactions with the Dubai Land Department), as opposed to all real estate matters.
The DIFC Arbitration Law does not explicitly state that certain disputes are non-arbitral. However, as the DIFC Arbitration Law only covers civil and commercial matters, it is inferred that the scope of arbitrability within the DIFC does not extend to criminal and family matters. The DIFC Arbitration Law states that consumer contracts and employment disputes can only be arbitrated if, among other things, consent is given by the employee or consumer after the dispute has arisen. The public policy considerations set out in Article 3 of the UAE Civil Transactions Law are likely to apply in the DIFC. The DIFC forms part of the Emirate of Dubai, so it is expected to follow the same principles and rules of public order that are designed to fulfill the public, political, social or economic interests of the UAE that are related to the higher governance of society.
LIABILITY OF ARBITRATORS
On 18 September 2016, Federal Law Decree No. 7 was issued, amending certain provisions of the Penal Code. The key amendment that attracted wide attention and commentary is Article 257, which was previously directed only at court-appointed experts and translators. This new amendment now exposes arbitrators to the risk of temporary imprisonment if they are found to be acting contrary to their duty of fairness and impartiality.
Article 257 applies to all arbitrators conducting arbitrations, whether in mainland Dubai or offshore. This is reflected in the broad wording of Article 257, which refers to any arbitrator appointed by the court, an administrative body (for example, the DIAC or the DIFC-LCIA) or elected by the parties.
It remains to be seen how this new and unexpected amendment will be applied. There is uncertainty as to how the public prosecutor will deal with allegations advanced on the basis of the newly amended Article 257. To this end, it should be noted that proving criminal intent in the context of lack of impartiality is cumbersome. The public prosecutor will only refer a potential claim to the criminal court if there is conclusive evidence that a crime has been committed.
It is also unclear how existing or potential arbitrators will react to this new amendment. Some evidence suggests that arbitrators are becoming more reluctant to accept new mandates or continue with their arbitration mandates. However, it is worth noting that retiring from existing appointments is not without risk. Article 207(2) of the DIAC Rules provides an arbitrator who, after having accepted his or her appointment, withdraws without good reason, may be held liable for compensation. It is doubtful that a change in the law would be a good reason.
An arbitrator who acts unfairly or is biased must face adverse inferences. An appropriate penalty could be the termination of the arbitrator’s mandate or removal from the register of arbitration institutions. However, including temporary imprisonment as a form of penalty in this case appears to be extreme and also contradicts existing international arbitration rules. For example, the DIFC Arbitration Law and the regulations of the ADGM hold arbitrators liable for intentional wrongdoing, but do not go as far as exposing arbitrators to temporary imprisonment.
Given the uncertainties relating to the application of this new law, clarification would be certainly welcomed by the arbitration community.
SEAT OF ARBITRATION
In most jurisdictions, it is an accepted principle that the designated seat of arbitration determines both the:
- Law governing the arbitration agreement and the conduct of the proceedings.
- Court that will have supervisory jurisdiction over the arbitration. This has caused conflicts in Dubai and Abu Dhabi, as both Emirates have common law and civil law jurisdictions. In Dubai, this has led to conflicts concerning the applicable supervisory jurisdiction even where the seat is explicitly stated (see below).
In the DIFC Court of First Instance judgment in Amarjeet Singh Dhir v Waterfront Property Investment Limited and Linarus FZE CFI 011/2009, Justice Hwang summarised the importance of accurately identifying the seat of arbitration as follows: “The moral of this case is that, if parties want the DIFC Arbitration Law to apply and the DIFC Court to have jurisdiction over an arbitration, they should expressly select the DIFC as the seat in their arbitration agreement“. The words “Emirate of Dubai” were not sufficiently precise to identify the DIFC as the seat. It is therefore advisable for contracting parties to agree in advance to the jurisdiction of either the DIFC courts or the local Dubai courts as their preferred option as the supervisory court of arbitration. Contracting parties need to understand the advantages and disadvantages of seating an arbitration under the UAE legal regime as opposed to the DIFC legal regime. Arguably, seating an arbitration in the DIFC is more advantageous, as the DIFC Arbitration Law will apply to the arbitration. The DIFC Arbitration Law provides for a modern and comprehensive framework for arbitration proceedings, as opposed to the CPC’s more limited provisions that apply to an arbitration seated in the UAE (outside the ADGM).
Conflicts of jurisdiction between the DIFC courts and the Dubai courts
Conflicts of jurisdiction between the DIFC and Dubai Courts often arise in cases dealing with the enforcement of domestic and foreign arbitral awards. In a number of recent judgments, most notably the decisions in the Banyan Tree cases, the DIFC courts confirmed that DIFC law allows the DIFC courts to be used as a “conduit jurisdiction” for the purposes of enforcing both foreign and domestic arbitral awards, as well as foreign court judgments, against award/judgment debtors located in onshore Dubai, even where the award/judgment debtor has no connection with the DIFC (see Banyan Tree Corporate Pte Ltd v Meydan Group LLC (Case ARB 003/2013 judgment 2 April 2015); XX (1) X1 (2) X2 v (1) Y1 (2) Y2 (judgment 29 July 2015); A v B ARB 002/2014, (judgment 22 January 2015)).
Two recent factors have cast serious doubts on whether the DIFC courts can still be used as a conduit jurisdiction for the recognition of arbitral awards:
- Decisions from the Judicial Tribunal for the Dubai courts and the DIFC courts (JT).The purpose of the JT is to rule on conflicts of jurisdiction and conflicts of judgments between the DIFC courts and the Dubai courts. The JT has issued a number of decisions confirming that where an award creditor initiates proceedings in the DIFC courts seeking recognition and enforcement of an award and the award debtor brings parallel annulment proceedings before the Dubai courts, a conflict of jurisdiction arises between the Dubai courts and the DIFC courts (see Daman Real Capital Partners LLC v Oger Dubai (Cassation No. 1/2016) and Dubai Waterfront LLC v Chenshan Liu (Cassation No.2/2016)). In these circumstances, the JT has determined that the Dubai courts are competent to entertain the case, that the case should be remitted for trial to the Dubai courts and that the DIFC courts should cease from entertaining the case-
- Dubai Court of First Instance (CFI) decision in Banyan Tree Corporate Pte Ltd. v Meydan Group LLC, Case No. 1619 of 2016. The Dubai CFI decision effectively seeks to nullify the DIFC courts’ decisions in Banyan Tree on the grounds that, the DIFC courts in ruling to enforce against an onshore Dubai based entity, had exceeded their “exceptional” jurisdiction, encroaching on that of the Dubai courts. The DIFC courts’ decisions should therefore be cancelled and rendered void.
Interim remedies
The DIFC Arbitration Law enables the tribunal to order a range of interim remedies that are not available in arbitrations seated in the UAE. For example, a party in an arbitration seated in the DIFC can apply for injunctive relief such as security of costs. Additionally, in DIFC seated arbitrations, the DIFC courts can issue interim relief in the same manner as it would in cases in the DIFC courts. However, this should also be achievable for arbitration proceedings seated in mainland Dubai, in light of the latest position adopted by the DIFC courts extending its scope beyond the DIFC to mainland Dubai (given that the DIFC forms part of the Dubai judicial system). The UAE courts can grant interim reliefs in support of arbitration, but these are not as sophisticated and varied as those available before the DIFC courts.
The DIAC opened an office in the DIFC and is in the process of amending its Rules, under which the default seat of arbitration will be the DIFC. This move will permit parties who agreed to apply the DIAC Rules to both:
- Seat their arbitration in the DIFC.
- Apply to the DIFC courts for interim remedies in support of their arbitrations and to enforce their awards.
Confidentiality
The DIFC Arbitration Law provides that proceedings are confidential. Under UAE law, proceedings are not by default considered to be confidential (apart from institutional arbitrations where confidentiality is provided for in the respective rules). Therefore, parties that want their proceedings to be confidential should ensure that confidentiality is explicitly stated as a condition applicable to the proceedings in the arbitration agreement or terms of reference.
Costs
In the DIFC, the common law approach to legal costs applies (that is, the losing party is usually ordered to pay some or all of the successful party’s legal costs). In contrast, UAE law does not empower the arbitral tribunal to award legal costs from its own motion. The Dubai courts recently ruled that the DIAC rules do not empower a tribunal operating under the auspices of those rules to award legal costs. Therefore, where arbitration proceedings are subject to the DIAC rules, it is important for the parties to record in the arbitration agreement or the terms of reference the arbitral tribunal’s power to award legal costs.
The DIFC courts confirmed their pro-arbitration stance with the issuance of Practice Direction No. 1 of 2017 (Practice Direction) on 27 February 2017. The primary purpose of the Practice Direction is to discourage unmeritorious challenges to arbitral awards. The discouragement comes in the form of the courts power to penalise a party with cost sanctions for challenging an arbitration award. The Practice Direction does not provide the DIFC courts with any new powers with respect to the award of costs and is a confirmation of Part 38 of the DIFC Court Rules, which deals with cost orders.
Under the Practice Direction, the DIFC courts can order a party challenging the ratification of an arbitral award to pay the amount of the award into court as security. The Practice Direction also empowers the DIFC courts to award indemnity costs where a party brings other unsuccessful applications relating to the arbitration (such as unsuccessful applications for setting aside arbitral awards and unmeritorious challenges to remove arbitrators).
Indemnity costs differ with costs awarded on a standard basis, as indemnity costs allow for the recovery of a higher amount of costs. Accordingly, indemnity costs are ordinarily only awarded in circumstances involving misconduct.
While the Practice Direction does not introduce any substantive amendments to the courts’ powers under Part 38 of the DIFC Court Rules, its issuance is a reminder of the DIFC courts’ pro-arbitration stance.
RATIFICATION OF ARBITRAL AWARDS
Local awards
In the UAE, an award must be ratified by the courts and “converted” into a court judgment, before the successful party can seek to execute and enforce it in the UAE against the losing party.
The ratification process adds another layer of complexity to arbitration proceedings, and adds to time and expense for the parties involved. The unsuccessful party in the arbitral proceedings usually resists the ratification application in the UAE courts and seeks to have the application annulled by submitting a defence to the action for ratification. The ratification procedure can take up to two years, depending on the complexity of the issues involved and whether the unsuccessful party remains resolute and decides to exhaust all avenues of appeal. An award can only be recognised and enforced when the Court of Appeal or Court of Cassation has ratified it.
However, historically, the process of ratifying and enforcing a final arbitral award was problematic. In some cases, the UAE courts refused to ratify awards based on the grounds for annulment of arbitration awards in Article 216(1) of the CPC. For example, in International Bechtel Co. Ltd. v Department of Civil Aviation of the Government of Dubai, Dubai Court of Cassation, Petition No. 503/2003 (judgment dated 15 May 2005), the Dubai Court of Cassation ruled that a US$25 million arbitral award in favour of the claimant should be set aside on the grounds that the arbitrator had failed to swear in witnesses in the manner prescribed by UAE law for court hearings. However, despite decisions like Bechtel, the UAE courts on the whole adopt a pro-arbitration approach to ratification and enforcement.
An alternative to ratifying awards in the UAE courts has recently emerged. Parties can now seek to ratify their UAE awards in the DIFC, which avoids the UAE courts’ sometimes erratic ratification process (except in instances where a conflict of jurisdiction arises (see above, Seat of arbitration, Conflicts of jurisdiction between the DIFC courts and the Dubai courts). The DIFC courts have jurisdiction to recognise and enforce arbitral awards, including those made in the UAE (Article 42(1), DIFC Arbitration Law). Importantly, in recognising and enforcing an award, the DIFC courts do not have to consider the provisions of the CPC. Further, once ratified, an award can be sent for execution within the UAE (that is, outside the DIFC). Judgments and orders made by the DIFC courts, including arbitral awards, can be converted into a Dubai court judgment through a fairly straightforward procedure (Protocol of Enforcement between the DIFC courts and Dubai courts and Dubai Law 12 of 2014 (Judicial Authority Law)). In contrast to the UAE system, the grounds on which the DIFC courts can refuse to recognise an award are limited and largely follow those provided by the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention). However, parties should be mindful of the possible conflict of jurisdictions.
As stated above, the DIAC recently opened a representative office in the DIFC. Accordingly, parties to arbitration disputes governed by the DIAC Rules will have the further option of resorting to the DIFC courts to seek recognition and enforcement of their awards. This also means that parties have the choice of applying to the DIFC courts for support, including filing applications for interim remedies during a DIAC arbitration.
On 21 September 2016, the DIAC and the Dispute Resolution Authority in the DIFC signed a co-operation agreement that paves the way for faster enforcement of arbitral awards in the future.
Foreign awards
Enforcing foreign arbitration awards is a relatively straightforward process both in the UAE and the DIFC. Foreign arbitral awards can be recognised and enforced within the DIFC (Article 42(1), DIFC Arbitration Law). An order for recognition can only be challenged under the grounds set out in Article 42 of the DIFC Arbitration Law, which mirror the defences to enforcement found in Article V of the New York Convention. As outlined above, the DIFC courts confirmed their role as a potential conduit jurisdiction for the enforcement of foreign arbitral awards, even if the award debtor’s assets are located outside of the DIFC. However, the use of the DIFC courts as a conduit jurisdiction has been brought into doubt. Where the DIFC courts successful ratify an award , the award creditor can execute the DIFC-recognised award before the Dubai courts. This makes the DIFC an even more attractive option for ratification.
Additionally, the UAE (and the DIFC, as constitutionally the DIFC courts form part of the Dubai court system) is a signatory to the New York Convention. The New York Convention allows a party to enforce an arbitral award made in one country in another country that is a signatory to the New York Convention. Accordingly, the UAE courts should enforce foreign arbitral awards unless the limited grounds to resist enforcement in the New York Convention have been proved by the party seeking to resist an enforcement application (Article V, New York Convention).
The UAE courts have generally confirmed the UAE’s obligations under the New York Convention by enforcing foreign awards. However, on very rare occasions, the UAE courts have shown reluctance to enforce foreign awards under the New York Convention. In a judgment of 30 March 2016 in the case of Fluor v Petrixo Oil & Gas, the Dubai Court of Appeal refused to enforce a foreign award that was issued in an ICC International Court of Arbitration proceeding with a London seat. The court reasoned that no evidence had been submitted to establish that the UK had signed and ratified the New York Convention. This decision shocked the UAE legal community. However, this decision was appealed to the Court of Cassation and has been overturned on the basis that the UAE courts are bound by international treaties and the New York Convention.
CURRENT CLIMATE AND FUTURE OUTLOOK
The growth of arbitration as the preferred choice of dispute resolution in the UAE has resulted in a unique blend of innovative options available to those contemplating arbitration in the UAE. The UAE’s three legal systems offer a number of separate arbitral institutions, each with their own institutional rules. There are pros and cons associated with seating an arbitration in each jurisdiction. The DIFC courts’ latest move in extending their jurisdiction beyond the DIFC and within Dubai eases a number of concerns in terms of ensuring a smooth and swift ratification and execution process. The DIAC’s move into the DIFC and its proposed draft Rules are a signal that the applicable law of the DIFC is much sought after, particularly with regard to the availability of interim remedies, ratification and enforcement. However, if the much anticipated Federal Arbitration Law is finally introduced, this may level the playing field between arbitrations seated in the UAE and the DIFC, and make any difference negligible.
[1] This article is an updated version of last years article (cf. https://www.globalarbitrationnews.com/comparison-uae-difc-seated-arbitrations-20161012/) considering the latest developments in UAE’s arbitration law.
