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The European, Middle Eastern and African Arbitration Review 2013

United Arab Emirates

Historically, parties in the United Arab Emirates (UAE), particularly local entities, have preferred to use the courts to settle disputes. The court process is conducted in Arabic and is familiar to the local parties. Arbitration was considered to be more expensive, and arbitral awards were considered to be more difficult to enforce. However, as the UAE has continued to develop as a major financial centre, attracting major international investors, and as property and construction projects continued to increase, attracting international developers, contractors and consultants, there has been an upward trend in the use of arbitration. International companies are more comfortable with arbitration as the forum to resolve disputes: the official language of arbitral proceedings need not be Arabic, a specialist tribunal can be appointed (as opposed to the more generalist UAE courts) and, of course, the private nature of arbitration is attractive. The result is that parties in the UAE have increasingly opted to insert arbitration clauses into their contracts. Aligned with this, the downturn in market conditions over the past few years has resulted in an increase in disputes in general. Parties are less easily persuaded that they will recover their losses on ‘the next project’, and are more likely to issue formal proceedings.

Arbitration as a means of dispute resolution has therefore experienced significant growth over the last three to four years within the UAE, particularly for complex large-scale disputes. To take the Dubai International Arbitration Centre’s (DIAC) caseload as an example: in 2007, 77 cases were registered at the DIAC and in 2008, there were 100. However, by 2010, the number of registered claims had increased to 429 and in 2011, there were 440 registered cases in the DIAC.1

The region has reacted to this increase with recent reforms to arbitration laws and with further reforms pending. This chapter provides commentary on the recent and proposed reforms and seeks to put this commentary into context. It therefore sets out the procedural framework for arbitration in the UAE (noting potential pitfalls for unwary practitioners) and comments on proposed changes to it; distinguishes the DIFC as a seat of arbitration and discusses the developments and reforms in the DIFC Arbitration Law; and seeks to draw some conclusions concerning the possible impact of the reforms and proposed reforms on the arbitration landscape in the UAE.

UAE Federal Law

The UAE does not have a separate legislative framework for arbitration and there are no specialist arbitration courts. The primary source of law governing domestic arbitral proceedings in the UAE is set out in articles 203 to 218 of Federal Law No. 11 of 1992, the UAE Civil Procedure Code (CPC). The requirements for enforcement and recognition of arbitration judgments in the UAE are set out in article 215 (with respect to domestic judgments) and articles 235 to 237 of the CPC (with respect to foreign judgments). These provisions of the CPC are often criticised as lacking the necessary detail for modern complex arbitral proceedings. We highlight below a number of criticisms that are often levelled at the arbitral legislation contained in the CPC and the resulting potential procedural pitfalls.

Arbitration agreement

For an arbitration agreement to be enforceable in the UAE, the arbitration agreement must be in writing and can either be contained in the main contract or a separate arbitration agreement.2 The CPC does not allow a third party to be bound or joined to an arbitration, nor does it contain provisions for consolidation of arbitrations. Furthermore, should a party commence court proceedings as an alternative to following contractual arbitration provisions, and the party seeking to rely on the arbitration clause fails to raise its existence at the first hearing before the court, the UAE court will deem that the parties have waived their right to consider arbitration as a means of dispute resolution.3

The Tribunal

The arbitration provisions of the CPC contains mandatory provisions concerning the appointment of the Tribunal. There must be an odd number of arbitrators4 (although there is no limit set on the number of arbitrators) who must not: be a minor; have a criminal conviction or have been bankrupt (without having been rehabilitated) or be legally incapacitated (such as being placed under guardianship).5 If the parties fail to agree on the number or identity of the arbitrators, the UAE courts are tasked with making the appointments, which will be final and not be capable of appeal.6 Should a party wish to challenge and potentially dismiss an arbitrator, it can only do so after the appointment has been made and for the same reasons a public judge can be challenged and dismissed, namely under the grounds of independence or impartiality7, or if the arbitrator has deliberately neglected to act in accordance with the arbitration agreement.8 However, a party’s application to remove an arbitrator must be made within five days of either the arbitrator’s appointment or the date on which the ground(s) for dismissal became known.9

Procedure

Once the Tribunal has been appointed, it must, within 30 days of accepting the appointment, inform the parties of the date and venue of the first hearing.10 Generally, the parties will agree in the arbitration agreement the procedures that are to be followed in the arbitration.11

Award

The Tribunal must issue the arbitration award within six months after the date of the first hearing.12 The parties can agree an extension to this time limit in the arbitration agreement itself or the court can extend this time limit upon application by either the Tribunal or one of the parties.13

Further mandatory provisions of the CPC

In addition to the mandatory provisions governing the appointment of the Tribunal, the CPC contains further mandatory rules that govern the conduct of the arbitration. Witnesses of fact or expert witnesses must present their respective evidence under oath14 and the arbitration proceedings must not violate UAE ‘public policy’.15 The procedural requirements set out in the above paragraphs can amount to barriers to enforcement of awards if they are not complied with and so must not be treated lightly. We discuss below how arbitral awards have been challenged in the UAE courts on grounds of procedural irregularity, such as witnesses not being properly sworn-in or if time limits are not strictly adhered to.

Enforcement of domestic arbitral awards in UAE (non-DIFC)

The CPC also sets out the procedures for enforcing a domestic arbitral award in the UAE. There is no right to appeal an arbitral award under UAE law.16 However, before a domestic arbitral award can be enforced by the successful party, the award must be ratified by a UAE court.17 Parties seeking to apply to the UAE court to ratify an award are required to follow the same steps as if they were bringing an action in the Court of First Instance in the appropriate local or federal court (ie, issuing a claim form and supporting documents). Once the claim is filed, it is up to the court to either ratify or annul the award. Essentially, therefore, new proceedings must be commenced.

It is very common for the losing party to an arbitration to apply for an annulment application in the form of a defence to the action for ratification. Such annulment application should only be made on the limited grounds set out in the CPC.18 The provisions of the CPC do not permit the courts to reconsider the merits of the Tribunal’s findings, but just allow examination on procedural grounds. Nevertheless, historically, successful challenges to awards on grounds which, to those unfamiliar with the CPC may appear technicalities only, were common. For example, we are aware of awards being annulled because the award was not issued within six months from the initial arbitral hearing, even though it is standard practice for parties to agree that this time is automatically extended and also, in relation to a case with which regional practitioners will be very familiar, because the Tribunal failed to require the witnesses to swear an oath to the requirements as prescribed by the UAE courts.19 The UAE courts have also ruled that domestic public order must be taken into consideration.20

In an attempt by the UAE courts to alleviate the perceived complaints of it overturning arbitration awards on technicalities, the Dubai Court of Cassation21has confirmed the narrow grounds for nullification and categorised the CPC grounds for challenges as:

  • grounds linked to the arbitration agreement, such as:
  • the non-existence or invalidity of the arbitration agreement;
  • the award having been made outside of the time limits recognised in the arbitration provision or agreed to by the parties of the arbitration agreement;
  • an arbitrator having exceeded the terms of reference (all contained in article 216 CPC); and
  • the infringement of a public order rule (not contained in article 216 CPC); and
  • grounds linked to the arbitral proceeding, such as: the arbitrator having not been appointed according to law; irregular composition of the Tribunal and the issue of the award by a Tribunal with no authority to do so; the arbitration agreement having been executed by a person not having the legal capacity to do so; if there is any invalidity in the procedures leading up to the ruling (all contained in article 216 CPC); and if there are procedural violations concerning the Tribunal issuing the award (as set out in article 212 CPC) such as the award having to be written in Arabic unless otherwise agreed by the parties, in which case an official translation into Arabic is to be appended to the award.22

Nevertheless, despite this confirmation, the fact remains that the enforcement of awards through UAE Courts can be a lengthy process. The new proceedings which must be commenced is subject to the ordinary channels of appeal; the Court of First Instance’s ruling is open to appeal by the losing party23 to the Court of Appeal and, subsequently, the Court of Cassation. Only once the Court of Appeal or Cassation has ratified the award can the award then be recognised and enforced by the UAE courts. The process may take up to 18 months depending on the intricacies and complexity of the case and if the party against whom the enforcement is sought resists.24

Enforcement of foreign arbitral awards in UAE (non-DIFC)

In the absence of a multilateral or bilateral treaty, foreign awards25 may be refused enforcement in the UAE courts for the reasons set out in article 235 CPC. This article lists reasons such as the contradiction of the foreign award with a previous UAE judgment.26 There have been several examples where the UAE courts have applied the strict provisions of domestic legislation resulting in the setting aside of foreign awards.27

However, in 2006, the UAE became a party to the New York Convention on the Recognition and Enforcement of Arbitral Awards 1958 (the New York Convention).28 It is also party to a number of other multilateral treaties relating to recognition and enforcement of foreign arbitral awards.29 Article 238 CPC provides that the rules set out in article 235 CPC do not prejudice treaties between the UAE and other states. Recognition and enforcement of foreign arbitral awards should therefore be dependent on the requirement of the relevant treaty and it was hoped that, given the New York Convention’s principal aim is to remove discrimination of foreign awards so that awards are recognised and enforced in their jurisdiction the same way as domestic awards,30 it would provide certainty that foreign arbitral awards would be more readily and easily enforced in the UAE.

Recent examples of the UAE courts strictly enforcing foreign arbitral awards under the terms of the New York Convention and not raising barriers to enforcement of awards on the procedural grounds set out in the CPC have therefore come as a welcome relief. For example, the judgment of the Fujairah Federal Court of First Instance on 27 April 201031 enforced an award issued in London, expressly recognising the enforcement criteria of the New York Convention and the obligations of international treaties and conventions. This ruling has not been contested and remains unchallenged. Similarly, the judgment of the Dubai Court of First Instance on 12 January 201132 enforced an award issued in London involving two Dubai-based companies. The court recognised that the application of articles 235 and 236 CPC on enforcing foreign arbitral awards should be disregarded in favour of the New York Convention. The court held that ‘the court’s supervisory role when looking to recognise and enforce a foreign arbitral award is strictly to ensure that it does not conflict with the Federal Decree under which the UAE acceded to the New York Convention on the recognition and enforcement of foreign arbitral awards and that it satisfied the requirements of Articles IV and V of the Decree in terms of being duly authenticated’. This ruling was contested but was recently affirmed by the Dubai Court of Appeal.33

These recent judgments are a positive and encouraging demonstration of the UAE courts’ commitment to the principals of the New York Convention. There remains, however, a potential stumbling block to enforcement which is often debated: if enforcement of a foreign judgment or arbitral award would be against the ‘public policy’ of the UAE, the UAE courts are entitled to refuse to recognise and/or enforce the award. This has caused concern amongst commentators as the CPC does not provide guidelines as to what constitutes ‘public policy’. The interpretation and practical application of the ‘public policy’ exception in the UAE is often much wider than in other jurisdictions. There remains a concern that the public policy exemption may be interpreted broadly by the UAE courts and prevent an otherwise valid award from being enforced.

It is also the position that the UAE courts’ approach concerning enforcement of foreign arbitral awards is not always aligned (perhaps partly due to there being no system of binding precedent in the UAE courts). The Dubai Court of First Instance recently refused to enforce an award issued in Singapore.34 This decision has been referred to the Dubai Court of Appeal.

Draft UAE Arbitration Law

There would be greater certainty, and hence comfort for the local arbitration community, if the UAE introduced a stand-alone arbitration law which differentiated between international and domestic arbitration and which codified the UAE’s obligations under the New York Convention. This has been expected since 2008 when the UAE government released the Draft Federal Law on Arbitration and the Enforcement of Arbitral Awards (the Draft Arbitration Law). The most recent iteration of the Draft Arbitration Law was released on 16 February 2012 and, as with previous drafts, it would repeal the sections of the CPC relating to arbitration and would appear to be based on (but not import directly) the UNCITRAL Model Law. Although a positive sign, it is still unclear when the draft arbitration law will be finalised and implemented into federal law.

The uncertainties relating to arbitration within the UAE, specifically concerning the potential problems faced with enforcement of awards (domestic and foreign) has led to debate concerning whether the DIFC may serve as a realistic and viable alternative as a seat of arbitration. As discussed below, the DIFC is seen as an ‘offshore’ jurisdiction, separate from Dubai in which it is located. It therefore applies its own laws, distinct from Dubai or the UAE Federal Laws, including its own Arbitration Law. We therefore examine below the applicable arbitral law in the DIFC and comment on enforcement of DIFC arbitral awards elsewhere in the UAE and the process of enforcing foreign arbitral awards in the DIFC.

DIFC Arbitration Law and arbitral awards

The Dubai International Financial Centre (the DIFC) is a financial free zone within Dubai35 which is governed by its own autonomous and independent judicial system. The DIFC court system is based on the common law system and has jurisdiction over civil and commercial (but not criminal) matters.

The DIFC passed the DIFC Arbitration Law in September 200836 (the DIFC Arbitration Law) which largely adopted the UNCITRAL Model Law as the basis of its arbitration law.

Arbitration Law and agreement

The DIFC Arbitration Law of 2008 repealed DIFC Law No. 8 of 2004. One of the key developments is that, since the 2008 law was introduced, any party can choose the DIFC as its seat of arbitration (whereas previously only parties physically located in the DIFC could arbitrate there). The parties may submit to arbitration disputes that have arisen or may arise between them in respect of a defined legal relationship, either contractual or otherwise. An arbitration agreement is to be in writing37 and may be in the form of an arbitration clause or a separate agreement.38 The DIFC courts are required to stay court proceedings upon the request of a party if an action is brought before the DIFC courts which is subject to an arbitration agreement. Such request, however, must be received by the DIFC courts no later than the point at which it files its first substantive statement on the case.39

The Tribunal

The parties are free to determine the number of arbitrators and, in the absence of such agreement, the default position is that there will be one.40 If the parties are unable to agree on the identity of an arbitrator, the DIFC court will make the appointment within 30 days of a request by a party,41 and the appointment is not subject to appeal. An arbitrator can only be challenged if there are justifiable doubts as to his impartiality or independence or if he does not possess the qualifications agreed to by the parties.42

Procedure

The parties are free to determine the rules that will govern the arbitration and, if no agreement can be made, the Arbitral Tribunal shall determine the procedures.43 Similarly, the parties are free to agree the seat of the arbitration and if no agreement is made, the seat of the arbitration shall be the DIFC.44

Award

Under the DIFC Arbitration Law, the arbitral award must be in writing and signed by the arbitrators. Pursuant to article 41 of the DIFC Arbitration Law, recourse to a court against an arbitral award made in the seat of the DIFC may be made only by an application for setting aside in accordance with article 41(2) and (3) of the DIFC Arbitration Law. Paragraphs (2) and (3) of article 41 provide that an arbitral award may be set aside by the DIFC court only if: the party making the application provides proof that a party was under some incapacity; the arbitration agreement was invalid; the party making the application was not given proper notice; the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration; the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties; the subject matter of the dispute was not capable of settlement by arbitration under DIFC law; or the award conflicts with public policy in the UAE.

Enforcement of foreign arbitral awards in the DIFC

The DIFC Court of First Instance has jurisdiction to ratify a recognised arbitral award,45 which applies to DIFC awards and to foreign awards where the UAE has entered into an applicable treaty for the mutual enforcement of judgments, orders or awards, such as the New York Convention. Further, article 42 of the DIFC Arbitration Law established that the DIFC courts must recognise foreign arbitral awards46 and must comply with the terms of any treaty which the UAE has entered into for the mutual enforcement of judgments, orders or awards. Upon recognition of a foreign arbitral award by the DIFC courts, which should be a formality, the DIFC courts will issue an Order which can be directly enforced in the DIFC.47

Enforcement of DIFC arbitral awards in Dubai and other Emirates of the UAE

A key component to the DIFC’s credibility as an arbitral seat and whether or not it can be considered a viable alternative to the more commonly opted-for ‘onshore’ UAE arbitral seats, relates to the ease at which a DIFC arbitral award could be enforced in Dubai (outside the DIFC) or elsewhere in the UAE.

Regulations relating to enforcement of a DIFC arbitral award outside of the DIFC, but within the UAE, have steadily improved. In 2009 a Protocol of Enforcement (the Protocol) was entered into between the DIFC courts and the Dubai courts. The Protocol set out the procedure by which enforcement was to take place and emphasised that the Dubai courts were to enforce a DIFC judgment without reviewing the merits of the case.

Despite concerns, the application of the Protocol seems to have been successful. For example, in March 2011 the Dubai courts approved the execution of a DIFC-LCIA arbitration award that was recognised and ratified by the DIFC courts48 demonstrating that a DIFC award could be enforced effectively and efficiently outside of the DIFC.

In October 2011 an amendment was made to Dubai Law No. 12 of 2004. This amendment is commonly referred to as the DIFC Judicial Law. Article 7(2) of the DIFC Judicial Law confirms that, if a DIFC court judgment is: final and executory; legally translated into Arabic; and certified by the DIFC Courts for execution and has a formula of execution affixed by the Courts, it will be enforced through the Dubai courts and the other Emirates of the UAE.

Commentators are interpreting article 7(2) to suggest that DIFC court judgments, decisions and orders will be able to be sent directly from the DIFC courts for execution by the relevant local ‘competent entity’ within the UAE and hence will be directly enforceable in the other Emirates’ courts, not just the Dubai courts, without the need to first apply to the Dubai execution judge.

Article 7(3) of the DIFC Judicial Law clarifies the procedure for enforcement of a DIFC award in Dubai:

  • the enforcing party must first request an execution letter from the DIFC courts (which is a letter written by the DIFC courts to the Chief Justice of the Dubai courts, setting out the procedures required for the enforcement of judgment);
  • the party seeking enforcement must then present an application for enforcement to the execution judge at the Dubai courts, accompanied by the execution letter and a legal translation into Arabic of the judgment; and
  • the execution judge may not reopen the merits of the case.

Enforcement of DIFC awards internationally and recent White Paper on enforcement

Enforcement of DIFC court judgments and awards outside the UAE should follow the same process as enforcement of a Dubai award which has been executed by the Dubai courts.49 Therefore, where there is a relevant treaty in place between the UAE and the target jurisdiction, enforcement will be governed by the terms of that treaty.50 Where there is not, enforcement will depend on the laws of the state in which the judgment creditor is seeking to enforce.

On 25 March 2012, the DIFC courts issued a White Paper entitled ‘Enforcing DIFC Court Judgments and Orders outside the DIFC’. This includes comments on enforcement of DIFC judgments in Dubai, the other Emirates of the UAE and overseas. This culminated in the final document being produced in June 2012 which was issued as a tool to clarify the enforcement procedures.

Despite the amendments introduced by the DIFC Judicial Law in relation to enforcement in the UAE and overseas, the DIFC confirmed in the June 2012 enforcement guide that parties seeking to enforce judgments from the DIFC courts (including arbitral awards ratified by the DIFC courts) outside Dubai (ie, elsewhere in the UAE as well as overseas) may be better to seek enforcement by first applying to the Dubai courts for an enforcement order, this being the ‘tried and tested’ means. The recent White Paper is a disappointing step back from the DIFC Judicial Law which had sought to streamline the enforcement process for DIFC judgments and awards. This suggestion was no doubt made because the DIFC courts appreciate that some jurisdictions may be slow to recognise the DIFC as being constitutionally part of the Dubai judicial system but, nevertheless, seems to be a step in the wrong direction.

Conclusion

Arbitration is increasingly the preferred method of resolving high value, technically complex disputes which arise in the UAE, particularly if one party is an international company unfamiliar with the local court process. However, as discussed in this chapter, there is a growing feeling that the arbitration provisions contained in the UAE Civil Procedure Code offer an inadequate framework for dealing with the complexities of large-scale, modern domestic and international arbitration. The length of the ratification process of an arbitral award; the fact that there are no specific provisions dealing with the recognition and enforcement of foreign arbitral awards; and conflicting court decisions relating to enforcement cause parties seeking to carry out business in the region understandable concern. The Draft Arbitration Law would go some way to banish the procedural pitfalls and overcome concerns regarding enforcement of awards, domestic and foreign, against debtors in the UAE but, despite calls for its introduction, and a new iteration being produced early this year, there is no sign that its implementation is imminent.

In the meantime, it has become clear that the DIFC is aware of and reacting to the concerns regarding enforcement of arbitral awards and, with recent legislative reforms, particularly concerning enforcement of DIFC awards in the UAE, the DIFC is staking a claim as a viable alternative seat for arbitration in the UAE.

Notes

  1. As of 10 September 2012, there have been 256 arbitrations in the DIAC during 2012.
  2. Article 203 CPC.
  3. Article 203(5) CPC.
  4. Article 206(2) CPC.
  5. Article 206(1) CPC.
  6. Article 204(2) CPC.
  7. Article 207(4) CPC.
  8. Article 207(3) CPC.
  9. Article 207(4) CPC.
  10. Article 208(1) CPC.
  11. Article 212 CPC.
  12. Article 210(1) CPC.
  13. Article 210(2) CPC.
  14. Article 211 CPC.
  15. We refer to ‘public policy’ concerns in the context of enforcement of foreign arbitral awards below but the same point applies concerning compliance with CPC procedures.
  16. Article 217(1) CPC.
  17. Article 215 CPC.
  18. Article 216 CPC.
  19. International Bechtel v Department of Civil Aviation of the Government of Dubai, Dubai Court of Cassation, petition No. 503/2003, judgment dated 15 May 2005.
  20. Dubai Court of Cassation, petition No. 146/2008, judgment dated 9 November 2008.
  21. Petition No. 270/2008, judgment dated 24 March 2009 and petition no. 32/2009, judgment dated 29 March 2009.
  22. Article 212(6) CPC.
  23. Article 217(2) CPC.
  24. K. Nassif, G. Blanke, S. Corm-Bakhos, “Arbitration under UAE law: towards a modern legal framework?” (2010) The In-House Lawyer.
  25. Article 236 CPC applies the article 235 requirements to foreign arbitral awards.
  26. Article 235(2)(e).
  27. See for example, Dubai Court of Cassation, case No. 258/1999, judgment dated 27 November 1999 and Dubai Court of Cassation, case No. 17/2001, judgment dated 10 March 2001.
  28. The UAE acceded to the New York Convention on 21 August 2006, pursuant to the UAE Federal Decree No. 43 of 2006, and then the New York Convention entered into force in the UAE on 19 November 2006.
  29. Such as the International Convention for the settlement of Investment Disputes; the Arab Convention for Judicial Cooperation between states of the Arab League; and the GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications.
  30. United Nations Commission on International Trade Law, 1958-Convention on the Recognition and Enforcement of Arbitral Awards-the ‘New York’ Convention (www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html - accessed 5 September 2012).
  31. Case No. 35 of 2010, dated 27 April 2010.
  32. Maxtel International FZE v Airmec Dubai LLC, Court of First Instance Commercial Action No. 268 dated 12 January 2011.
  33. Dubai Court of Appeal No. 126/2011, judgment dated 22 February 2012.
  34. Dubai Court of First Instance, case No. 531/2011 dated 18 May 2011.
  35. Established in 2004 in accordance with Dubai Law No. 9 of 2004.
  36. DIFC Law No. 1 of 2008.
  37. This now includes electronic communications.
  38. Article 12 of the DIFC Arbitration Law.
  39. Article 13 of the DIFC Arbitration Law.
  40. Article 16 of the DIFC Arbitration Law.
  41. Article 17 of the DIFC Arbitration Law.
  42. Article 18 of the DIFC Arbitration Law.
  43. Article 26 of the DIFC Arbitration Law.
  44. Article 27 of the DIFC Arbitration Law.
  45. Pursuant to Article 24 of DIFC Law No. 10 of 2004.
  46. Subject to the procedural conditions set out in Article 44 of the DIFC Arbitration Law.
  47. Article 43 of the DIFC Arbitration Law.
  48. http://difccourts.complinet.com/en/display/display_main.html?rbid=2725&element_id=4492&record_id=4848 for press release from the DIFC Courts dated 29 March 2011.
  49. The DIFC Court is, constitutionally, part of the Dubai judicial system and so its judgments carry the same weight as Dubai court judgments.
  50. Examples of treaties the UAE has entered into with other countries which govern the reciprocal enforcement of judgments include:
    (i) The GCC Convention (1996);
    (ii) The Riyadh Arab Agreement for Judicial Cooperation (‘the Riyadh Convention’ 1983); and
    (iii) The Convention on Judicial Assistance, Recognition and Enforcement of Judgments in Civil and Commercial Matters signed between France and UAE (the Paris Convention 1992).