Arbitration in the UAE is continuing to develop as a key method of resolving commercial disputes between contracting parties. While the roots of arbitration lie in Sharia law,1 the modern practice of arbitration in the UAE is increasingly grounded in western principles and rules, providing both certainty and familiarity to those participating in its processes. The development of arbitration in the UAE has also been precipitated by the unprecedented number of disputes arising out of the global economic crisis, and in particular the increased number of disputes in the construction industry. Arbitration in the UAE now faces further development with the publication of a draft federal law, which will entirely replace the statutory provisions in force at present.
This article provides an overview of the current legislative schemes governing arbitration in the UAE, and addresses federal laws (including the proposed changes to the statutory regime) as well as the laws of the Dubai International Financial Centre, the region's principal financial hub. It also aims to provide a snapshot of the current arbitration landscape in the UAE, and therefore includes a section on the principal arbitration centres operating in the UAE and their procedural rules, as well as addressing the key topic of enforcement of arbitral awards.
UAE federal law
The arbitration law of the UAE is currently contained in a chapter of the UAE Civil Procedure Code, and is not based upon the UNCITRAL Model Law. However, it looks likely that this will change in the future if the draft of the Federal Arbitration Law (draft law) which has been released for consultation comes into force. While it is expected that the draft law will become law, the timing as to when enactment might take place is as yet unconfirmed.
The draft law will replace the existing provisions in the Civil Procedure Code as the arbitration law of the UAE, and will apply to all arbitrations in the UAE with the exception of those within the DIFC, which will continue to apply its own arbitration law.
Although the draft law does not fully adopt all of the provisions of the UNCITRAL Model Law, if the draft law is enacted as drafted at present, it would be instrumental in providing for, and further facilitating arbitration in the UAE.
Below is a summary of the key provisions of UAE federal law under the present regime, and where relevant, how they will be affected by the implementation of the draft law.
Relationship of the parties
Under the current arbitration law of the UAE, parties may submit to arbitration disputes that have arisen or may arise between them in respect of a defined legal relationship. In the case of UAE law, the dispute must arise from a contractual relationship, whereas DIFC law does not impose this restriction. Similarly, the draft law proposes removing the requirement for a contractual relationship to exist between the parties, instead merely requiring a legal relationship between the parties, whether contractual or not.
Intervention of the court
Parties may agree upon the procedure to be followed in the arbitration, but at present the UAE arbitration law allows the court with supervisory jurisdiction over the arbitration to intervene in certain circumstances. For example, the court can appoint the arbitral tribunal in the absence of agreement between the parties, and it can also hear a joint challenge by the parties as to the suitability or impartiality of an arbitrator following appointment. The court's appointment is not subject to appeal.
The draft law contains some important provisions regarding the role of the court. It is proposed that jurisdiction to settle arbitration issues shall be the concern of the court that is substantially competent to hear the dispute. Where the arbitration relates to international trade (eg, where the head offices of both parties are located in different countries), then the Abu Dhabi Federal Court of Appeal shall have jurisdiction, unless the parties agree on jurisdiction of another court of appeal overseas.
As is presently the case, the court will have power to appoint the arbitral tribunal in certain circumstances, and may also intervene during the arbitral proceedings upon application by the tribunal by way of:
- imposing the penalty prescribed by law on any witness who has been summoned to attend an arbitral hearing and who refuses to do so; and
- ordering a third party to disclose certain documents.
The court may intervene in relation to procurement of evidence on application by either the tribunal or the parties.
Rendering of the award
Article 210 of the UAE Civil Procedure Code provides that where the parties have not stipulated a time limit within the arbitration agreement for the arbitral tribunal to render its award, the tribunal shall render its award within six months of the date of the first hearing. The local court may extend this time limit upon the request of the tribunal or application of one of the parties. However, some arbitration rules which impose no time limit within which a tribunal must render its award may be inconsistent with this provision of the UAE Civil Procedure Code. It is not clear whether an agreement to use such rules is an agreement to extend the six-month time limit for the purposes of article 210. Unfortunately, this has not been clarified under the terms of the draft law, which essentially provides for the same time limit of six months for the rendering of an award unless otherwise agreed between the parties.
The arbitral award must be in writing and must attach a copy of the arbitration agreement, contain a summary of each party's case and the documents they have relied upon, the reasons on which the award is based, the date and place of the award and the signatures of the arbitrators. The award will be valid so long as it is signed by a majority of the arbitrators comprising the tribunal. Finally, the arbitrators must lodge the award, together with the arbitration agreement and any other relevant documents, with the court within 15 days of making the award. Again, the draft law does not depart from these procedures.
Although an arbitral award is not subject to an appeal on any grounds under UAE federal law, the parties may apply to invalidate the award on the following grounds (at the stage when it has been submitted to the local court for certification prior to enforcement):
- there is no valid arbitration agreement between the parties;
- the time limit for the tribunal to render the award has been exceeded;
- there was a flaw in the appointment of the arbitral tribunal; or
- there is a procedural irregularity in the award.
In the past, there have been instances in which the UAE courts have invalidated awards for relatively trivial reasons, but there are signs that this is changing (see further the section on enforcement below).
In any event, however, the annulment of arbitration awards is an area of change under the draft law. Although there will continue to be no right of appeal of an arbitral award, it is proposed that the grounds for annulment will also include circumstances where the award is contrary to UAE public policy. The court can make such a finding even if the party seeking annulment does not rely on that particular ground in support of its case.
The arbitration law of the DIFC was enacted in September 2008.2 It is closely based on the UNCITRAL Model Law and covers all stages of the arbitration from the conclusion of the arbitration agreement to the recognition and enforcement of awards. An arbitration agreement must be in writing and may be in the form of an arbitration clause or a separate agreement. Parties may submit to arbitration disputes that have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not. It is therefore possible that consumer issues may be submitted to arbitration under DIFC law, where there is no direct contracting nexus between the parties, but a defined legal relationship can be said to exist.
In the absence of an express agreement by the parties, DIFC law provides for one arbitrator. Where the parties are unable to agree on the identity of that arbitrator, within 30 days of receipt of a request by a party, the DIFC court will make the appointment. Where such an appointment is made, the appointment is not subject to appeal. An arbitrator can be challenged on the grounds of justifiable doubts as to his impartiality or independence, or if he or she does not possess the qualifications agreed on by the parties.
The parties are free to determine the rules applicable to the substance of the dispute, and may do so before a dispute has occurred by reference to a governing law clause contained in a contractual document, or may do so after the dispute has arisen. In the event that there is no agreement between the parties as to the governing law of the dispute, the parties are entitled to agree (in writing) that the tribunal may apply the law or rules of law that it considers most appropriate to the facts and circumstances of the dispute, failing which the arbitral tribunal will apply the law determined by the conflict of laws rules that it deems applicable. The arbitral tribunal will make its determinations in accordance with the terms of the contract and applicable law and will take into account the usages of the trade applicable to the transaction. The principles of equity and good conscience apply only if the parties expressly agree.
The DIFC arbitration law provides for a generally non-interventionist approach by the court. The general provisions of the arbitration law contain the statement that "in matters governed by this law, no DIFC Court shall intervene except to the extent so provided in this law". The circumstances in which the DIFC court can intervene of its own volition are therefore finite and limited. Such intervention is permitted where:
- a party challenges the decision made by the arbitral tribunal in respect of an arbitrator;
- a party appeals the jurisdiction of the arbitral tribunal;
- a party requests an order for the enforcement of an arbitral tribunal's order for an interim measure; or
- it has received a request to assist in taking evidence.
With the agreement of the parties, the DIFC court may intervene where:
- there is no agreement between the parties as to the appointment of an arbitrator or arbitrators;
- a party or the arbitrator fails to act as expected under the agreed appointment procedure;
- an arbitrator, as a result of a matter of fact or law, becomes unable to perform his or her functions and withdraws from office or his or her mandate is terminated;
- the parties agree to revoke the mandate of the arbitrator and the arbitrator applies to the court to relieve them of their liability; or
- the court is asked to determine the extent of the fees payable to an arbitrator who is refusing to deliver an award until his or her fees are paid.
Under the DIFC Arbitration law, an arbitrator may grant such interim measures as he or she considers necessary and may require a party to provide appropriate security in connection with such a measure. An interim measure can include the preservation of assets out of which a subsequent award may be satisfied, or the preservation of evidence that may be relevant and material to the resolution of the dispute.
The award must be in writing and signed by the arbitrators. Unless the parties have agreed that no reasons need be given, the award shall state the reasons on which it is based. The award shall state the date and the seat of the arbitration. After the award is made, a copy signed by the arbitrators will be delivered to the parties.
An award may be appealed if:
- a party to the arbitration agreement was under an incapacity;
- the arbitration agreement was invalid under the governing law or under the law of the DIFC;
- a party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or a party was unable to present his or her case;
- the award falls outside the terms of the submission to arbitration, provided that where the matters beyond those submitted to arbitration can be separated, only that part of the award can be set aside;
- the composition of the arbitral tribunal was not in accordance with the agreement of the parties, provided such agreement does not conflict with the governing law or the DIFC law; or
- the DIFC court finds that the subject matter of the dispute is not capable of resolution by arbitration, the dispute is expressly referred to a different body or tribunal for resolution under the DIFC law, or the award is contrary to the public policy of the UAE.
In order to enforce a DIFC or foreign award within the DIFC, a party must apply for ratification in writing. The DIFC will then issue a ratification decree in English and in Arabic, unless one of the grounds of appeal listed above applies, or the award has not yet become binding on the parties, or has been set aside or suspended by a court in the jurisdiction in which that award was made. The provisions of the New York Convention or Riyadh Convention may also be utilised in respect of a DIFC arbitral Award in the same manner as Awards made under the auspices of federal law.
The processes surrounding enforcement of arbitral awards, and the issues that can arise, are discussed in further detail below.
Arbitration centres in the UAE
Dubai International Arbitration Centre
The Dubai International Arbitration Centre (DIAC) was first established in 1994 as the "Centre for Commercial Conciliation and Arbitration" (DCCI). The current set of institutional rules, based on international best practice, were published in May 2007, replacing the DCCI's Rules of Commercial Conciliation and Arbitration. DIAC is administered by 21 trustees drawn from the international arbitration community and has developed its own pool of arbitrators who are experienced in international arbitration, as well as being familiar with regional attitudes and approaches. DIAC's caseload more than doubled between 2008 and 2009 and it has seen an influx of higher value claims in which the amount in dispute can reach anything up to AED 10 billion (approximately US$2.7 billion), with the majority of such claims being construction related.
The time limit for making the award is six months. However, the arbitral tribunal can extend this time limit by a further six months of its own initiative. In practice, most cases referred to arbitration under the DIAC rules are resolved within six to nine months of the claimant's request for arbitration.
A registration fee is payable for making a claim (or counterclaim), but not for a defence. The fee is currently AED 2,500 plus the costs of the tribunal and administrative costs (which are fixed by the centre by reference to the value of the claim). One arbitrator is appointed unless the parties agree, or the Centre decides, otherwise. Where the parties have different nationalities, a sole arbitrator must come from a neutral state. It is possible to have the seat of the arbitration outside Dubai, but in practice the seat of arbitrations administered under DIAC rules tends to be Dubai due to a provision in the rules that unless the parties expressly agree otherwise, the default place of arbitration is Dubai. If Dubai is the seat, it is important to bear in mind that the local courts will have supervisory jurisdiction and will apply the federal law in their supervisory role.
DIFC-LCIA Arbitration Centre
The DIFC-LCIA Arbitration Centre was launched in February 2008 to administer local and international commercial disputes through arbitration and mediation. Two immediate advantages afforded to parties choosing to arbitrate disputes under the auspices of the DIFC-LCIA Centre are firstly that the DIFC-LCIA Arbitration Rules are very similar to the LCIA Rules, and secondly, the DIFC-LCIA Arbitration Centre has access to the LCIA's database of arbitrators. The LCIA Court, which is the supervisory authority of the application of the LCIA Rules, maintains the same supervisory role in relation to the application of the DIFC-LCIA Rules. This will include in respect of matters concerning the selection and appointment of tribunals, determining challenges to arbitrators and controlling costs.
The grounds contained in the DIFC Arbitration Law upon which a party may seek to appeal against an arbitral award made in the seat of the DIFC are set out in detail above. Since the same requirements apply in respect of arbitral awards issued under the rules of the DIFC-LCIA Arbitration Centre, an application for setting aside may only be made to the DIFC Court. Under Article 26(2) of the DIFC Court Law (Law No.10 of 2004), the DIFC Court of Appeal may exercise its appellate jurisdiction in order to:
- make or give any order that could have been made or given by the Court of First Instance or tribunal from which the appeal is made;
- attach terms of conditions to an order it makes;
- annul or set aside a decision;
- require or prohibit the taking of a specific action or of action of a specified class;
- make a declaration of facts; or
- make any other order that the Court of Appeal considers appropriate or just.
Abu Dhabi Chamber of Commerce and Industry Arbitration Centre
The Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) was established in 1993 in order to provide a dispute resolution facility for domestic and international trade disputes with a connection to the region. The ADCCAC Rules are often used in contracts with Abu Dhabi government entities, and provide for the conciliators or arbitrators to be appointed jointly by the parties in order to ensure neutrality and fairness. ADCCAC maintains a sizeable database of four panels containing the names of conciliators, arbitrators, experts and translators of various areas of expertise and nationalities. This database is open to the use of parties who agree to arbitrate their disputes under ADCCAC Rules. In addition, upon the request of the parties, or from the court with supervisory jurisdiction, ADCCAC is able to nominate national and international arbitrators or experts engaged in such areas of technical, commercial or industrial practice that are relevant to the dispute. Arbitrations conducted under the rules of ADCCAC take place in Arabic unless the parties agree otherwise, or if the parties or an arbitrator does not speak Arabic.
Enforcement of arbitration awards in the UAE has not always been straightforward. In 2004, for example, the UAE Court of Cassation annulled an arbitration award made in the UAE on the basis that the witnesses who appeared before the tribunal had not been sworn.
Enforcing domestic arbitration awards in the UAE (other than the DIFC)
Enforcement of local arbitration awards in the UAE is governed by the UAE's Civil Procedure Code. The Civil Procedure Code provides that awards must be ratified by the courts and sets out the procedure through which an execution order can then be obtained in respect of the award.
During the ratification process, the court can correct errors in the award and has the power to refer the award back to the tribunal if it is too unclear to be enforced. The award is vulnerable at that stage to an application by the unsuccessful party to invalidate the award, although in principle the award is directly enforceable and the local enforcing Court cannot seek to re-examine the award on its merits.
Enforcing foreign arbitration awards in the UAE
The New York Convention
On 21 August 2006, the UAE ratified its accession to the New York Convention and the Convention obtained force of law on 19 November 2006. However, the UAE does not yet have an arbitration law based on the UNCITRAL Model Law which is fully consistent with its obligations under the New York Convention.
As matters currently stand, therefore, parties seeking to enforce foreign arbitration awards in the UAE - under the New York Convention or otherwise - must satisfy the requirements in the UAE Civil Procedure Code. Under the Civil Procedure Code, the party seeking to enforce the award must show that:
- the UAE courts do not have jurisdiction over the dispute;
- the award was issued by a tribunal which was competent to hear the dispute in the country in which the award was made;
- the parties were duly summoned and represented in the arbitration proceedings;
- the award does not contradict a judgment or order previously made by a UAE court; and
- the award is not contrary to public policy.
It is unclear whether the draft law applies to New York Convention awards. We await confirmation when the new arbitration law is enacted.
As well as being a party to the New York Convention, the UAE is party to a number of regional treaties on the enforcement and recognition of judgments and arbitral awards. For example, the 1983 Riyadh Convention on Judicial Co-operation, which has been ratified by a number of Arab states, provides for mutual recognition and enforcement of judgments and arbitration awards. This may be useful to a party seeking to enforce a UAE Award in an Arab state that is not a party to the New York Convention (for example, Yemen).
Enforcing foreign arbitration awards in DIFC
Article 42 of the DIFC's arbitration law sets out the general principle that:
An arbitral award, irrespective of the State or jurisdiction in which it was made, shall be recognised as binding within the DIFC and, upon application in writing to the DIFC Court, shall [subject to certain limited exceptions] be enforced.
Further, article 42 clarifies that the DIFC courts will comply with any treaty providing for the mutual recognition and enforcement of judgments, orders or awards that the UAE has entered into. As the UAE is party to the New York Convention and a number of other regional treaties providing for mutual recognition and enforcement of arbitration awards, the DIFC courts must enforce awards in accordance with the relevant provisions of those treaties.
Article 44 of the arbitration law sets out the limited grounds on which recognition or enforcement can be refused, including:
- that the arbitration agreement was invalid;
- that the party against whom the award was invoked was unable to present his case;
- that the arbitrators exceeded their jurisdiction;
- that the composition of the tribunal or the arbitral procedure was not in accordance with the agreement of the parties;
- that the subject matter of the dispute was not capable of being settled by arbitration; or
- that the award is contrary to the public policy of the UAE.
Enforcing a DIFC Arbitration Award
Enforcement within the DIFC and in Dubai
Enforcing a DIFC award within the DIFC is relatively straightforward: the award is presented to the DIFC courts where an executive judge is empowered to issue execution orders within the DIFC.
Enforcement of a DIFC arbitral award in Dubai is slightly more complex: in a two-stage process, the award must first be ratified by the DIFC courts and then presented to an executive judge in the Dubai courts for enforcement. A Memorandum of Understanding between the DIFC courts and the Dubai courts published in June 2009 provides that:
- A DIFC court judgment (including a DIFC court judgment in respect of a DIFC arbitration award) will be enforced by the Dubai courts if the award is:
- "final [ie, cannot be appealed or, for orders made during proceedings, is expressed as an "Enforcement Order"] and appropriate for enforcement";
- translated into Arabic by a legal translator and ratified by the DIFC Courts' Registry;
- accompanied by a letter from the DIFC Courts' Registry to the Chief Justice of the Dubai Court of First Instance requesting enforcement; and
- accompanied by the prescribed fee.
- The documents are submitted to the nominated execution judge in the Dubai courts. Importantly, the Memorandum of Understanding emphasises the provision in Law No 12 of 2004 in respect of The Judicial Authority at DIFC which states that the execution judge in the Dubai courts has "no jurisdiction to review the merits of a judgment, award or order of the DIFC courts".
The protocol also sets out the procedure that must be followed in order to enforce in the DIFC an award ratified by the Dubai courts. That process is essentially the reverse of the process described above (for example, the award must be translated into English rather than Arabic and the letter requesting enforcement must be sent from the Dubai Courts' Registry to the Chief Justice of the DIFC Courts).
Enforcement in the wider UAE (outside Dubai)
To enforce a DIFC arbitration award in the wider UAE ie, any of the other six emirates comprising the UAE outside of Dubai, an execution order should be first be obtained from the Dubai courts. The award can then be enforced throughout the UAE under Federal Law 11 of 1973.
Enforcement outside the UAE
Enforcement outside the UAE will be a matter of local law, however it is important to note that a DIFC arbitration award should be treated as a UAE award for the purposes of enforcement in the same way as an award from DIAC or ADCCAC.
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The UAE, and the Emirates of Dubai and Abu Dhabi in particular, have clearly bought into arbitration as a distinct and important dispute resolution service that will benefit investors in the region. Indeed, commercial contracts executed in the UAE now commonly include arbitration clauses, which in itself is likely to lead to increased levels of domestic, as well as international, arbitration.
The draft law is a significant development in the regulation of arbitration in the UAE which will, if enacted as currently drafted, be a positive step forward in developing the UAE's reputation internationally as a leading regional arbitration centre. However, international business should be aware that it has not moved away from domestic court involvement and therefore there will still be an overlap between court and arbitration proceedings in the UAE.
- Commercial Arbitration in the Arab Middle East, 2nd ed, Saleh
2DIFC Law No.1 of 2008
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