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UNITED ARAB EMIRATES

Andrew Mackenzie, Sally Kotb and Marina Baher Gaballah

A. LEGISLATION AND RULES

A.1       Legislation

International arbitration in onshore United Arab Emirates (UAE) continues to be governed by the UAE Federal Law No. 6 of 2018, to which no legislative amendment has been made since its promulgation.

International arbitration in the offshore Dubai International Financial Center (DIFC) continues to be governed by the DIFC Law No. 1 of 2008. The DIFC-LCIA Arbitration Centre has released updated mediation and arbitration rules, which will be discussed under A.2 below.

International arbitration in offshore Abu Dhabi Global Market (ADGM) continues to be governed by the ADGM Arbitration Regulations 2015. ADGM, Abu Dhabi’s financial free zone, made amendments to its founding law by enacting Law No 12 of 2020, which will be discussed under A.2 below.

On 5 January 2021, the UAE, Kingdom of Saudi Arabia, Bahrain and the rest of the Gulf Cooperation Council (GCC) member states, along with Egypt, signed the “Al-Ula Declaration” at the 41st GCC Summit held in the city of Al-Ula, paving the way for the re-establishment of political and economic ties with the State of Qatar. This marks the end of a three-year dispute which began on 5 June 2017 and reinforces the commitment of the GCC member states to the political and economic stability of the region. Based on the AL-Ula Declaration, we would expect to see an increase of regional and international arbitration disputes in various industry sectors with the return of travel and commercial dealings with Qatar.

A.2       Institutions, rules and infrastructure

A.2.1    DIFC-LCIA updated mediation and arbitration rules

The updated DIFC-LCIA Mediation and Arbitration Rules 2021 (“Rules”) entered into force from 1 January 2021. The Rules seek to provide clarity to mediators, arbitrators, and parties. The amendments provided by the Rules introduce an explicit possibility of early dismissal determination on claims that are outside the jurisdiction of the arbitral tribunal, inadmissible, or without merit. Further, the Rules give the arbitral tribunal power to order that two or more arbitrations may be conducted concurrently where the same arbitral tribunal is constituted in respect of each arbitration. The tribunal can also consolidate one or more arbitrations into a single arbitration where the arbitrations arise out of the same transaction or series of related transactions.

Further, the Rules confirm the primacy of electronic communication and introduce provisions that facilitate conducting virtual hearings and electronically signing awards to accommodate the current circumstances of travel suspensions and working remotely. The DIFC-LCIA requires a claimant to file its Request for Arbitration electronically instead of filing physical copies with the DIFC-LCIA Centre. If the parties wish to serve submissions via alternative means, the parties should seek the permission of the DIFC-LCIA court.

The parties can also amend or supplement their Request for Arbitration or Response before the appointment of the tribunal provided that these amendments are limited to correct minor errors, ambiguities, or simple mistakes. The new Rules also enshrine specific data protection rules under article 30A, requiring compliance with applicable data protection legislation and the DIFC-LCIA’s Arbitration Centre’s data protection notice.

A.2.2    ADGM Arbitration Centre

On 27 May 2020, the ADGM enacted Law No 12 of 2020 amending the provisions of Law No. 4 of 2013 concerning the ADGM (“Amended Law“).

The Amended Law has introduced key provisions on the jurisdiction of the ADGM Courts. The ADGM Courts are courts of the Abu Dhabi judicial system and its judgments are issued in the name of the Ruler of Abu Dhabi. The ADGM Courts have exclusive jurisdiction over certain civil and commercial claims and disputes, which are disputes with nexus to the ADGM, any appeal against a decision or a procedure issued by any of the ADGM, or any issues as to the interpretation of any articles of the ADGM regulations. The Amended Law provides that cases involving the interpretation of the ADGM regulations are to be decided first by the ADGM Court of First Instance instead of by the ADGM Court of Appeal.

The Amended Law introduced an “Opt-In” option to parties without any connection to the ADGM (for example companies and individuals not registered in the ADGM). These parties can explicitly agree to choose the jurisdiction of the ADGM to determine their disputes.  Further, the ADGM Courts cannot be used as an impermissible device for enforcement of non-ADGM judgments and arbitral awards in other jurisdictions. The limited exception to this rule is if the originating judgment comes from another court within the Emirate of Abu Dhabi.

Another key provision that was introduced by the Amended Law is the protection of “Netting Agreements” in the enforcement of non-ADGM judgments, orders, decisions, and awards.

B. CASES

B.1       Dubai Court of Appeal decision on the admissibility of the claim

B.1.1    Facts

The dispute arose out of a construction contract presumably based on the FIDIC Contract 1987 (4th Edition), which led to the commencement of arbitration. The tribunal issued a jurisdictional award accepting the jurisdiction. The respondent in the arbitration (the claimant in the court case) challenged the award before the Dubai Court of Appeal under article 19(2) of the Federal Arbitration Law. The respondent argued that clause 67 of the contract requires the dispute to be submitted to the Engineer before moving on to arbitration and such requirement was not satisfied, which is why the tribunal’s jurisdictional award must be annulled. The claimant (the respondent in the court case) argued that the respondent did not raise any jurisdictional objections either in the signed terms of reference or the statement of defense, which means that the respondent had waived their right to object to jurisdiction. Furthermore, the claimant argued that they had commenced a reference to the Engineer to satisfy the pre-condition.

B.1.2    Decision

The court concluded that the reference to the Engineer was a contractual pre-condition and must be enforced as such. The court found that the evidence submitted by the claimant to the effect that it had commenced reference to the Engineer is insufficient, which means that the dispute is pre-mature. Therefore, the court annulled the jurisdictional award of the tribunal.

B.1.3    Significance

Although  UAE Arbitration Law recognizes the concept of Kompetenz Kompetenz, it defeats this very concept by allowing a recalcitrant party to challenge the tribunal’s award on jurisdiction before the courts. This judgment is among a series of UAE court judgments that do not clarify the difference between admissibility vis-a-vis jurisdiction. All judgments dealing with non-compliance with conditions precedent have ruled against the jurisdiction of the tribunal without considering the nature of the challenge and its proper characterization as an issue of admissibility of the claim as opposed to an issue relating to the jurisdiction of the tribunal. There is a considerable chance that this decision would be overturned at the Court of Cassation stage.

B.2       DIFC Courts issue the first anti-suit injunction

B.2.1    Facts

A construction company and an MEP contracting company entered into a contract containing an arbitration agreement which provided for the application of the DIFC-LCIA arbitration rules and arbitration seated in the DIFC. A dispute arose between the parties and the claimant commenced a DIFC-LCIA arbitration. The respondent in the DIFC-LCIA arbitration commenced proceedings in the onshore Dubai courts. The claimant applied to the DIFC courts for an anti-suit injunction restraining the respondent from taking any further steps in the onshore Dubai courts and discontinuing the proceedings already started there.

B.2.2    Decision

The DIFC courts accepted the application of the claimant and issued the anti-suit injunction restraining the respondent from pursuing their claim in onshore Dubai courts. The DIFC courts have confirmed the validity of the arbitration agreement and found that the onshore court proceedings are invalid and in breach of the arbitration agreement.

B.2.3    Significance

This judgment provides arbitrating parties with the reassurance that DIFC courts would uphold an existing arbitration agreement in circumstances where the parties have expressly opted in to choosing the DIFC as the seat of arbitration.

B.3       UAE Court of Cassation judgment on the waiver of the arbitration clause

B.3.1    Facts

A subcontractor sued the main contractor in a construction dispute for AED 75 million before the Abu Dhabi Court. The main contractor challenged the jurisdiction of the courts to hear the dispute on the grounds that the contract was subject to an arbitration agreement between the parties. The court found it had no jurisdiction over the dispute as the underlying contract contained an arbitration agreement. Despite the finding of the court, the court had appointed an expert to review the contract, powers of attorney, and other matters related to the merits of the dispute.

B.3.2    Decision

The Abu Dhabi Cassation Court determined that the courts had jurisdiction to hear the case. The reason being that the engagement of the parties with the court and expert procedures must be considered in deciding whether the party challenging the jurisdiction of the court had waived their right in doing so by engaging substantively in the merits of the dispute during proceedings.

B.3.3    Significance

This judgment creates a novel precedent and establishes that the determining factor to ascertain whether or not the parties’ challenge of the court’s jurisdiction has been waived would be made by reference to the extent of the parties’ deliberation and/or contribution to the substantive matters of the dispute before the court.

B.4       DIFC Courts as a conduit jurisdiction for enforcement of awards

B.4.1    Facts

A subcontractor entered into a subcontract agreement with a company for the supply, manufacture, installation, operation, and testing of mechanical and electrical works and the plumbing for New York University in Abu Dhabi. The subcontract contained an arbitration clause providing for any disputes between the parties to be referred to arbitration under the Arbitration Regulations of the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC), to be held in Abu Dhabi before a sole arbitrator. The arbitration clause was subsequently amended, shifting the arbitral forum from ADCCAC to the DIFC-LCIA and providing for a three-member panel to conduct any arbitration under the rules of DIFC-LCIA arbitration rules and the DIFC Arbitration Law. In addition, the subcontract provided for the exclusive jurisdiction of the DIFC Courts in relation to any dispute arising between the Parties with respect to the Arbitration Agreement. A dispute arose between the parties and was referred to DIFC-LCIA arbitration under the DIFC Arbitration Law. The arbitral proceedings were conducted in the Dubai Marina, which is in onshore Dubai, i.e., outside the DIFC. The tribunal rendered an award in favor of the respondent. The respondent as award creditor filed for recognition and enforcement before the DIFC Court of First Instance. Around the same time, the appellant in their capacity as award debtor applied for the nullification of the award to the onshore Dubai Courts on the basis of invalidity of the award and exclusive jurisdiction of the Dubai Courts given the fact that the arbitral proceedings had been conducted in mainland Dubai and hence outside the DIFC.

B.4.2    Decision

The judicial committee upheld the apparent agreement between the parties to arbitration in the terms set out in the arbitration agreement, including in particular the DIFC Courts’ competence to hear actions for recognition and nullification of awards under the DIFC Arbitration Law. The judicial committee further confirmed that a DIFC-LCIA tribunal is empowered to hold meetings and hearings outside the legal place or the seat of the arbitration.

B.4.3    Significance

This judgment establishes a new precedent confirming the use of the DIFC Courts as a conduit jurisdiction in situations where the parties have expressly opted into the jurisdiction of the DIFC courts by electing their arbitration to be seated in the DIFC notwithstanding the fact that the physical hearings were held onshore Dubai.  Judgments of this nature may hopefully end the ongoing debate in relation to the use of the DIFC as a conduit jurisdiction and may potentially reduce cases relating to conflicts of jurisdiction between the DIFC courts and the Dubai courts

B.5       Prevalence of the jurisdiction of the mainland court over arbitration

B.5.1    Facts

A company entered into a contract with another company for the purpose of withdrawal of a rig from Oman to Abu Dhabi by a tugboat. A third party was appointed as a surveyor to inspect the excavator and tug to ensure the connection process between them and to take all measures to ensure their safety before and during the pulling process. During the tugging process, the doors of the rig were left open, which led to the leakage of water inside it and its arrival at the Hamriyah port in Dubai upside down.

B.5.2    Decision

The court has found that there were several parties involved in this dispute through different agreements but all of them are connected to the same incident. The terms of the arbitration agreement are only binding to the parties that had agreed to it, and therefore it does not apply to other parties. If the lawsuit was filed against several litigants and only one of these parties had agreed to arbitration in their contract and the claim is related to this contract, the proper course of justice requires that the dispute must be reviewed before the same forum, which is the court, as it is the holder of general jurisdiction in considering any lawsuit according to the origin, and that arbitration is an exceptional way to settle the litigations.

B.5.3    Significance

This judgment has considered the UAE courts as the courts of natural jurisdiction and upheld that they shall be competent to hear claims brought against several parties on the basis of different agreements which do not all contain an arbitration clause. This judgment, therefore, confirms in line with established case law that arbitration is considered an exceptional means of dispute resolution as opposed to the ordinary means of filing a court claim.

Author

Andrew is a partner and Head of Baker McKenzie Habib Al Mulla's Arbitration and Construction practice. He has been based in Dubai since 2009. He is a solicitor advocate and arbitration law specialist. He works extensively across the Middle East, Africa and Asia, acting for governments and international corporations on complex commercial disputes under a variety of civil and common law systems. He is ranked in Chambers Global, Legal 500 and is listed in Who’s Who Legal as one of the world’s leading construction lawyers. Andrew has a commercial focus and is particularly adept at partnering with his clients and understanding their business. Clients state that he “impresses with his command of potential issues” and he has "relentless tenacity and absolute client focus" (Chambers Global). Who's Who Legal says: "Rising star" Andrew Mackenzie has "an exceptional knowledge" and "a strong commitment to his clients."

Author

Sally Kotb is a counsel in Baker McKenzie's Dubai office. She has been practising in the Middle East for over 11 years. Sally has wide-ranging experience in all types of international commercial arbitration, having acted as advising counsel and arbitrator under most leading institutional arbitration rules including the ICC, DIAC, CRCICA, ADCCAC, DIFC-LCIA in both English and Arabic.

Author

Marina Gaballah is an associate in the Dispute Resolution Practice Group, based in Dubai, with a focus on real estate, construction and civil and commercial litigation matters. Marina has been involved in various complex disputes that were reviewed before the courts and other judicial entities, such as the Rental Committee in Dubai and the Dispute Resolution Centre in Dubai. Marina was also seconded to act as a junior legal consultant in a real estate subsidiary company that manages and leases shopping centers and malls. Marina can be reached at [email protected] and + 971 4 423 0016.