Commentary on New Federal UAE Arbitration Law

Abstract:

The most significant development in dispute resolution in the UAE, without a doubt, is the recent promulgation of the UAE’s standalone Arbitration Law. Federal Law No 6/2018 which was Gazetted on 15 May 2018, officially brings into place a UNCITRAL modelled law which significantly improves the UAE legal regime on arbitration and formally repeals the previous provisions on arbitration in the UAE Civil Procedure Code.

Analysis

Practitioners of dispute resolution in the UAE will welcome the new law, as many of the ambiguities of the former arbitration regime have been ameliorated.

With the announcement of this new law, it is clear that the UAE has improved its process for legislative reform.

Prior to the new law being enacted, the law on arbitration was restricted to scant articles of the UAE Civil Procedure Code, Federal Law No. 11/1992. With the new law however, we see the introduction of a comprehensive framework for arbitration which is in line with international norms and best practices.

The new law has adopted the UNCITRAL-based model for arbitration legislation (United Nations Commission on International Trade Law). This means that the legal framework for arbitration in the UAE has been significantly modernised and now UAE seated arbitrations can be seen to be very much in line with international best standards, in the following ways:

Applicability

Unlike its predecessor, the new arbitration law distinguishes between domestic and international arbitrations.

Article 2(1) states that any arbitration conducted in the UAE will be subject to this arbitration law, unless the arbitrating parties agree that their dispute be subject to a different provision of law, such as the DIFC Arbitration Law.

Article 3 outlines the circumstances in which onshore arbitration can be considered international. For example, if the arbitrating parties have their head office in two or more countries at the time of conclusion of the arbitration agreement. In this situation, consideration has to be made to the parties’ domiciles and the country which has most relevance to the subject matter of the arbitration agreement.

In relation to arbitration proceedings conducted outside the UAE, the new arbitration law can apply to their dispute as per article 2(2), if all parties agree.

The new law confirms that it applies to any arbitration relating to a legal relationship which is governed by UAE law, unless another provision of law states otherwise (article 2(3)). For instance, disputes relating to employment issues or criminal activity cannot be arbitrated and accordingly, are governed by UAE Labour Law and the Penal Code.

Arbitration Agreement

It is still a mandatory requirement for an arbitration agreement to be in writing. However, now the law clearly expands on the criteria which will satisfy the written component of an arbitration agreement. For instance, article 7(2)(a) provides that an arbitration agreement will be considered to be in writing and therefore valid, if it is contained in a document signed by both parties, or it is noted within a written or electronic correspondence exchanged between the parties.

Consequently, the written requirement for an arbitration agreement has become less prohibitory as it now encompasses electronic correspondence, which in turn illustrates the legislature’s acknowledgement of modern business practices. This is further exemplified by the new law permitting correspondence to be sent via fax or email (article 24(1)(b)), and hearings or deliberations by Arbitral Tribunal’s, to be performed via telephone or other modern means of communication (article 28(2)(b)).

The concept of separability has now been introduced within the law in article 6(1). Meaning, an arbitration agreement contained in the main body of a contract will be considered as independent. As a result, any revocation or termination of the main contract will not affect the arbitration agreement, subject to the main contract being valid.

Arbitral Tribunal

The formation, obligations and nomination process concerning arbitral tribunals are examples of some of the developments arising out of the new law, which will be discussed in turn below. However, it is important to note that there are two additional changes to the law which relate to new powers being invested in arbitral tribunals and due to their significance, these will be explained under their own subheadings below; judicial competence and interim precautionary measures.

In relation to formation, the previous arbitration law stated; if more than one arbitrator is appointed, their number should always be uneven. Whereas now the default position is that if the arbitration agreement is silent on appointment, the arbitral tribunal should be made up of three arbitrators, not only one, unless the relevant onshore arbitration centre decides otherwise. This is noted in article 9(1).

The new law contains a non-discrimination clause in article 10(2), unseen in the former arbitration legislation. Confirming that unless it has already been agreed upon between the parties, or provided for by law, an arbitrator is not required to be of any given gender or nationality.

Regarding the arbitrators’ obligations, the updated law affirms that they must disclose any doubts of their impartiality or conflicts of interests to all parties and the Arbitral Tribunal at the point of acceptance and throughout the arbitral proceedings, in line with article 10(3). The previous arbitration chapter did not explicitly state this responsibility and instead this principle was developed through case law.

Article 11 sets out the method for nomination if the parties have not otherwise agreed on the procedure within the arbitration agreement. Contrasting the Civil Procedure Code, the new law helpfully explains how the nomination process will operate in different scenarios, for instance if a sole arbitrator or several arbitrators are being appointed to an arbitration.

Jurisdictional Competence

Arbitral Tribunals now have the capacity to decide on their own jurisdiction which includes hearing challenges made on the grounds that an arbitration agreement is unenforceable (article 6(2)), or that the subject matter of the dispute is not covered by the same, as per article 19(1). The same provision goes on to elucidate that Arbitral Tribunals can decide on any plea to the jurisdiction either in a preliminary decision or in the final arbitral award.

In the event the Arbitral Tribunal considers they can competently hear the dispute within a preliminary decision, article 19(2) sets out the time periods in which either party can request the competent court to rule on that matter and when the court should issue their decision. The time limits in which parties have to file a plea to the jurisdiction of the Arbitral Tribunal are set out at article 20.

Having these unequivocal deadlines when an Arbitral Tribunal makes a determination, undoubtedly provides more certainty to parties and their representatives about when these challenges will be heard and ruled upon. Although, article 19(2) states that the proceedings will be stopped until the court makes a decision on jurisdiction, unless the Arbitral Tribunal is inclined to continue at the request of one of the parties. In light of the efficiency of the new law, it is assumed that the exception in article 19(2) will be exercised by both the parties and Arbitral Tribunals.

Interim and Precautionary Measures

The old arbitration chapter did not provide for any interim measures. However now, at the request of either party or at the discretion of the Arbitral Tribunal, such measures can be awarded. Article 21(1) advances an extensive list of the types of interim relief and precautionary measures available to arbitrating parties, which include:

i. Preserving evidence that may be material to the resolution of the dispute – article 21(1)(a);

ii. Preventing the dissipation of assets or property which a subsequent award may be satisfied – article 21(1)(c). This is the most common precautionary measures sought by parties during arbitral proceedings;

iii. Maintaining the status quo pending determination of the dispute – Article 21(1)(d). For instance, an order which upholds the contracting parties’ relationship until the arbitral proceedings have been completed.

After an interim measure has been issued by the Arbitral Tribunal and after obtaining written permission, the party to whom an order has been successfully granted may request that the competent court enforce the order. The competent court then must enforce the order within 15 days of the request being received. Article 21(4) also states that the successful party must serve their request on all parties involved.

The provisions concerning enforcement of interim orders by the competent court are held in article 18. Article 18(2) confirms that the President of the competent court can order appropriate provisional or precautionary measures, at any time prior to or during arbitral proceedings, regardless of whether they are potential or current.

Recognition and Enforcement

Previously, the process of recognising and enforcing both domestic and foreign arbitral awards within the onshore courts was infamous for unmeritorious challenges being advanced by award debtors. An example being, award debtors could nullify awards on the grounds that not all of the pages of a final award had been signed by every member of an Arbitral Tribunal or because an arbitrator had failed to legitimately swear in witnesses for a hearing. As a result these types of procedural challenges created lengthy and costly battles between the arbitrating parties.

However, the new law positively provides that the party who wishes to enforce the arbitral award, namely the award creditor, must submit an application to the competent court confirming the award and requesting its enforcement. Article 55(1) outlines all the accompanying documentation which must be submitted with the enforcement request.

The competent court then has 60 days from receipt of the award creditor’s application to enforce the arbitral award. However, this cannot be undertaken by the court if any of the subsections of article 53(1) are met.

Nullification

Previously, case judgements were all that lawyers could rely upon when assessing whether their clients arbitral award was at risk of being nullified, meaning the nullification procedure was unpredictable. As the doctrine of stare decisis is not followed within the UAE onshore courts since they operate under a civil system, case judgments in reality provide little security. This is because they do not create binding precedents, which leaves room for inconsistency.

All the unpredictability should dissipate as article 53(1) encompasses very limited circumstances in which an arbitral award can be set aside or nullified, for example:

i. Article 53(1)(b), if one of the parties at the time of enforcement thereof, lacks capacity or is of diminished capacity in accordance with the law;

ii. Article 53(1)(d) if one of the parties is unable to present their case as a result of not being put on notice of the appointment of arbitrators, or of the arbitral proceedings;

iii. Article 53(1)(f) if the composition or appointment of one of the arbitrators does not adhere to the new Arbitration law, or the Arbitration agreement between the parties.

Article 54(2) provides a strict 30 day time limit for a party to commence nullification proceedings once they are notified of the arbitral award being granted by an Arbitral Tribunal.

The only other mechanism available to an award debtor to challenge the enforcement of an arbitral award is by raising a challenge during the award creditor’s application for ratification and enforcement before the competent court, as per article 53(1).

The revised nullification process is headed in the right direction as it not only gives greater certainty to companies and individuals already based in the UAE, but also to those contemplating investment and trade here, which in turn will strengthen the UAE economy.

Continuing Arbitral Proceedings

Permitting electronic communication during arbitral proceedings and providing clearer deadlines and procedures for the enforcement and nullification of arbitral awards are just some of the examples which will help increase the productivity of proceedings. Allied to this, there are numerous subsections throughout the new legislation which confirm that arbitral proceedings should continue notwithstanding:

i. A party contending that an arbitration agreement is invalid, revoked or terminated as per article 6(2);

ii. Action being brought before a court despite a legitimate arbitration agreement existing as noted in article 8(2). Another tactic which was used by award debtors to stall the enforcement of arbitral awards;

iii. Any challenge being made against an arbitrator pursuant to article 15(3);

iv. A competent court considering an application for enforcement of an interim or provisional measure in line with article 18(3).

Conclusion

The significance of this much-anticipated development should not be understated. The UAE has long been a regional hub for international arbitrations, despite the law governing arbitration being underdeveloped. That is now a thing of the past.

The new law will no doubt further bolster confidence in the use of arbitration in the UAE and the UNCITRAL-based arbitration law most certainly brings the UAE’s arbitral framework in line with international standards. The new federal law on arbitration was not a rushed afterthought. Indeed, lawyers in the UAE have been waiting for the enactment of this law for the best part of 11 years.

Thankfully, the new Federal Arbitration Law has greatly improved the uncertainty caused by the previous articles on arbitration within the UAE Civil Procedure Code, and will without a doubt further boost the UAE’s already sterling reputation as a hub for of international arbitration.

The law came into force one month following the date of its publication in the Official Gazette (dated 15 May 2018 – Issue No. 630) as per article 61, and will regulate all current arbitrations. It is essential that all professionals involved in onshore arbitral proceedings which are or could be, subject to the new arbitration law, become well-versed with its modernisation.

International Bechtel Co. Ltd. V. Department of Civil Aviation of the Government of Dubai 300 F. Supp. 2d 112 (DDC. 2004)

Written by Areen Jayousi, Partner.

Horizons & Co Law Firm, UAE

Areen.jayousi@horizlaw.ae

+97150 284 2926

Areen has over a decade of diverse experience in managing commercial disputes in the Middle East, gained through private and in-house legal practice in the region. His particular expertise is the preparation and conduct of arbitrations and dispute resolution for complex development projects, as well as national and international litigation.

Areen has successfully represented clients in high profile and complex cases, including multi-million dollar arbitrations, before the International Chamber of Commerce, Dubai International Arbitration Centre and the London Court of International Arbitration. He is a registered arbitrator with the Dubai International Arbitration Centre and is regularly called upon in this regard.

As head of arbitration his specific focus is arbitration cases related to real estate, property and construction, however he has also been paramount to the success of many litigation cases within the firm. Being familiar with both civil and common law legal systems, Areen often implements his expertise on UAE law by providing legal advice and opinions to large international law firms regarding detailed subject matters.