• Search

The Middle Eastern and African Arbitration Review 2018

United Arab Emirates

Following the announcement by the UAE’s Federal National Council on 27 February 2018 that the long-awaited federal arbitration law had been approved, 2018 promises to be a momentous year for arbitration in the UAE. This is great news for the UAE’s arbitration community, reaffirming the country’s pro-­arbitration outlook.

Arbitration is still the preferred dispute resolution mechanism in the UAE for complex projects and disputes, particularly for those involving an international party and, while a few recent events have threatened to undermine the pro-arbitration trend in the UAE, these have been outweighed by the number of arbitration-friendly developments, now capped by the announcement of a new federal law. The result will make access to arbitration more accessible and appealing to a wider number of users both within the UAE and the wider region.

Aside from the new federal law, significant progress has been made in laying the foundation for the Abu Dhabi Global Market (ADGM) to be an attractive seat for offshore arbitration to rival the Dubai International Finance Centre (DIFC). The imminent introduction of new rules from the Dubai International Arbitration Centre (DIAC) is another positive development.

However, despite this progress, parties continue to face challenges obtaining and enforcing arbitral awards and judgments from the Judicial Tribunal in Dubai – established to resolve jurisdictional conflicts between the DIFC courts and ‘onshore’ Dubai courts – have halted attempts by the DIFC courts to act as a ‘conduit’ for arbitral enforcement. This has been seen by many as a backwards step, delaying the enforcement of arbitral awards. However, the recent tension between the DIFC courts and the Dubai courts may be subdued by the introduction of the new federal arbitration law which, it is expected, will simplify and clarify the enforcement of arbitral awards.

This article reviews the key developments outlined above and also explores a couple of other issues that caught the attention of the UAE arbitration community during the last year.

New federal arbitration law

At the time of writing (March 2018), a copy of the law approved by the Federal National Council has not been made publicly available. However, when the new law is enacted (expected to be in the second half of 2018), it is unlikely to contain too many surprises from previous drafts that have been circulated.

A federal arbitration law for the UAE has been mooted and said to be ‘in progress’ for almost a decade. In the meantime, arbitration in the UAE continues to be governed by just 16 articles in the Civil Procedure Code that have long been considered outdated and proved a significant barrier to the development of arbitration in the UAE.

The often-cited reason for the delay has been the possible tension between enacting a law that reflects modern best practice rules and methods while maintaining a degree of control over public policy concerns. In past consultations, draft arbitration laws have been criticised by members of the UAE arbitration community for diverting too far from the UNCITRAL Model Law – the bedrock of many arbitration laws around the world.

It remains to be seen what (if anything) has changed from previous drafts of the arbitration law that has now prompted the Federal National Council to sign off on the new law. However, the new law is expected to introduce the following:

  • a comprehensive procedural framework that will limit opportunities for parties to seek to derail arbitrations or introduce spurious challenges to an award. It is also expected to reduce the administrative burden on arbitrators, such as the necessity of having to sign the award within the UAE; and
  • the concept that arbitral awards have the same force as court judgments. This will remove the need to have an award ratified by the court before going to the Court of Execution, dramatically speeding up the process of enforcing an award in the UAE.

The recently approved arbitration law is expected to be considerably longer than the UNCITRAL Model Law. While not surprising, it is the additional articles that will be of keen interest to the UAE arbitration community. It is expected that, among these, will be some form of protection against the enforceability of awards that might be said to contravene public policy considerations. It will be very interesting to see how far such protection will stretch as this will likely form the basis for award challenges for years to come. The content of the other additional articles is unknown at the time of writing, but it is hoped that among them will be a provision negating the impact of article 257 of the Penal Code (discussed further below).

The introduction of a federal arbitration law will enhance the UAE’s reputation as the region’s leading destination for dispute resolution. The increased certainty it will offer should provide reassurance to businesses already investing or contracting in the UAE and entice new businesses to begin working in the UAE, benefitting the wider UAE economy.

Similarly, whereas in the past parties may have been put off holding arbitrations in the UAE due to the perceived procedural uncertainty, the new law is likely to encourage parties from the wider region to choose the UAE as the seat of their arbitration. Currently, a significant number of arbitrations from the wider Middle East region and Africa are seated in the major arbitral hubs of London, Paris, Singapore and Hong Kong. The UAE is perhaps more conveniently placed to hold arbitrations (from both a logistical and cultural point of view) and it will be interesting to see whether the new federal arbitration law acts as a springboard for the UAE to become the most attractive arbitral hub for regional disputes that are currently being held outside the region.

The Judicial Tribunal and the DIFC

The major talking points over the last 18 months in relation to the DIFC have revolved around the establishment and subsequent decisions of the Judicial Tribunal.

Background

The ‘offshore’ DIFC courts were already the natural forum for a dispute or enforcement proceedings where there was some connection to the DIFC; for example, if one party was registered in the DIFC, there were assets within the DIFC, or the parties had agreed to submit to the DIFC’s jurisdiction.

However, under the principle of mutual recognition, the DIFC subsequently modelled itself as a ‘conduit’ through which a party with an arbitral award but with no nexus to the DIFC could obtain a DIFC court judgment that could be executed in ‘onshore’ Dubai; the benefit being that an award creditor could avoid the perceived difficulties of enforcing arbitral awards in the ‘onshore’ Dubai courts.

The DIFC courts developed two separate and independent principles, which provided the foundation that would allow it to act as a conduit jurisdiction. In cases where an award had no connection with the DIFC, the DIFC court determined:

  • it had jurisdiction to recognise and enforce foreign arbitral awards (X1 and X2 v Y1 and Y2) and foreign court judgments (DNB Bank ASA v Gulf Eyadah); and
  • it had jurisdiction to consider enforcement applications where the arbitral award was rendered in onshore Dubai (Meydan Group LLC v Banyan Tree Corporate Pte Ltd).

These decisions by the DIFC courts were welcomed by many in the UAE legal community, but others considered them to be a clear encroachment into the jurisdiction of the onshore Dubai courts. In what is widely seen as a response to the jurisdictional overreach of the DIFC courts, the Judicial Tribunal was established under Dubai Decree No. 19 of 2016 with the remit to preside over cases where conflicts of jurisdiction between the Dubai courts and the DIFC courts exist.

The Judicial Tribunal is made up of three judges from each of the DIFC courts and Dubai courts, with a casting vote held by the seventh member of the tribunal, the president of the Dubai Court of Cassation.

DIFC enforcement of domestic awards

From the outset, the Judicial Tribunal made it clear that it considers the onshore Dubai courts to have the ‘general jurisdiction’ and that, where there are parallel proceedings in the Dubai courts and the DIFC courts, the latter should ‘cease from entertaining the case’. At the end of 2016, in the first case heard by the Judicial Tribunal, it determined that this was the case, even where the award debtor had assets in the DIFC.

These early decisions have been reinforced by the Judicial Tribunal’s decisions in 2017, in which it has reaffirmed its position that the Dubai courts have a ‘general jurisdiction’ and that, where there are conflicting proceedings, the DIFC courts should cease to act in deference to the Dubai court proceedings.

These judgments, dissented to by the DIFC court members of the Judicial Tribunal, made it clear that the DIFC’s role as a conduit jurisdiction for domestic awards was, if not over, then severely curtailed. It appeared that an award debtor could essentially obstruct the attempted enforcement of an award against it in the DIFC courts by initiating parallel proceedings in the Dubai courts and making an application to the Judicial Tribunal on the basis that the Judicial Tribunal would likely find in favour of the Dubai courts, potentially buying the award debtor time to fight the award through annulment proceedings in the onshore Dubai courts. In short, the Judicial Tribunal has made it clear that award creditors should seek enforcement in the Dubai courts, which are regarded as less ‘arbitration-friendly’ than the ‘offshore’ DIFC courts.

Is there any positive news?

These cases are damaging for the future of the DIFC as a conduit jurisdiction. However, two recent cases may offer a glimmer of hope to those supporting the DIFC courts. In Cassation No. 6 of 2017 (JT), an award creditor sought to execute the award in both the DIFC court and Dubai court. The Judicial Tribunal determined that there was no conflict of jurisdiction on the basis that the award creditor was ‘entitled to pursue the award debtor for execution of the award in whatever jurisdiction that the award is recognised for enforcement’. Reassuringly, the Judicial Tribunal confirmed that ‘it is indisputable that awards from the DIFC will be recognised in mainland Dubai. There is simply no reason in principle or law why multiplicity of execution proceedings cannot proceed simultaneously and/or cumulatively’.

In another case before the Judicial Tribunal, it held that, while proceedings existed in both the Dubai courts and the DIFC Court, the injunction issued by the DIFC court was interlocutory in nature. As a result, proceedings in the Dubai court were not affected as the injunction was preservatory only and would fall away once the Dubai court issued its judgment. Therefore, no conflict existed.

These later cases do not undo the damage to the DIFC’s role as a conduit jurisdiction created by the earlier ones. However, they do show that the Judicial Tribunal will not allow parties to abuse its remit as a means to gain an advantage, that it will consider the nature of the hearings in both courts, and that, where there are assets in the DIFC, parties are free to seek and execute an award in both the DIFC and ‘onshore’ Dubai.

Enforcement of foreign awards and judgments

As with the cases concerning domestic awards, the Judicial Tribunal’s early decisions in relation to foreign awards were damaging to the DIFC’s reputation as a conduit jurisdiction. Although in both Cassation No. 3 of 2016 (JT) and Cassation No. 5 of 2016 (JT) the Judicial Tribunal ruled that enforcement could take place in the DIFC, it only did so on the basis that there was no real conflict between the Dubai court and DIFC court so it did not have jurisdiction to make a decision.

This changed in the first case of 2017 where the award creditor held an award from the London International Maritime Arbitrators Association and had already defended an application for it to be set aside in English courts, which was dismissed as ‘unarguable’. The award, therefore, became incontestable in the country where the arbitration was seated and, in accordance with article III of the New York Convention, contracting states are obliged to recognise and enforce such an award.

After the DIFC court had issued the enforcement order to the award creditor, the award debtor appealed to the Judicial Tribunal on the grounds that the DIFC courts lacked jurisdiction because it had started parallel proceedings in the Dubai Centre for Amicable Settlement of Disputes (the ‘Centre’).

The majority of the Judicial Tribunal (the DIFC members dissented) held that there was a jurisdictional conflict since the Centre is an integral part of the Dubai courts. Therefore, as in the cases concerning domestic awards considered above, it decided that the Dubai courts had ‘the general jurisdiction’ and that the DIFC courts should cease from entertaining the case.

The implication of this decision is significant. As the DIFC members of the Judicial Tribunal noted in their dissenting opinion:

  • the award debtor had submitted to the jurisdiction of the DIFC court;
  • the matters raised before the Centre included matters of res judicata (they had been heard and decided finally by a competent court/tribunal) so could not be retried; and
  • if the DIFC court was to be prevented from enforcing this foreign award, it may place the UAE in breach of its obligations under article III of the New York Convention.

Nonetheless, the majority of the Judicial Tribunal ruled in favour of the Dubai court taking jurisdiction.

If the decision above signalled the end of the DIFC as a conduit jurisdiction for foreign awards and judgments, the decision in Cassation No. 4 of 2017 (JT) arguably delivered the fatal blow.

The successful party in an English court case sought to enforce that judgment in the DIFC court despite the parties having no nexus to the DIFC. The judgment debtor appealed to the Judicial Tribunal but, at that time, had not initiated parallel proceedings in the Dubai Court. However, before the Judicial Tribunal had delivered its decision, the judgment debtor did file proceedings with the Dubai court. This was deemed to have created a jurisdictional conflict and the Dubai court was determined to be the competent court.

In the author’s opinion, the decision in Cassation No.4 of 2017 signals the end to the use of the DIFC as a conduit jurisdiction for foreign awards with no nexus to the DIFC. Any party seeking to resist the enforcement of a foreign award appears to need only to file proceedings with the Dubai court, at any point before the Judicial Tribunal delivers its judgment, and any DIFC court enforcement proceedings will be stayed until the parallel proceedings in the Dubai court are determined, a process that could potentially take years.

This should be considered a setback for recent pro-arbitration progress in the UAE. However, the new federal arbitration law may make this a moot point. If, as expected, arbitral awards are to be given the same force of law as court judgments, it is possible that awards could be taken straight to the Court of Execution. If that is the case, then the decision in Cassation No. 6 of 2017 will be relevant and an award creditor will be able to start execution proceedings wherever the award debtor has assets in mainland Dubai, the DIFC or both simultaneously.

Abu Dhabi Global Market

The Abu Dhabi Global Market (ADGM), an offshore free-zone established in 2013, is set to host its first arbitrations later in 2018. Much like the more established DIFC, the ADGM has its own civil and commercial legal regime, which is broadly independent from onshore Abu Dhabi. Due to the ADGM Arbitration Regulations, enacted in 2015 and based on the UNCITRAL Model Law, the ADGM became only the second offshore arbitral jurisdiction in the UAE (alongside the DIFC). As a result, the curial law for parties to an arbitration in the ADGM will be the Arbitration Regulations rather than the Civil Procedure Code (or the new federal arbitration law when it is enacted later this year).

In September 2017, the International Chamber of Commerce (ICC) opened a representative office in the ADGM, its first in the region and a welcome show of support for the ADGM. The ICC office in the ADGM will register cases for arbitration under the ICC Rules and, although cases will continue to be administered by its teams in Paris for now, it is expected that the responsibilities of the ADGM office will be expanded in the next couple of years.

A key difference between the ADGM and the DIFC is that the support shown by the ICC to the ADGM has not created a separate arbitral institution in the same vein as the DIFC-LCIA. While the ADGM may seek to tap into the large number of ICC arbitrations in the UAE (the ICC lists the UAE in the top 20 countries worldwide by involvement in arbitrations under its rules) and establish itself as the de facto seat for ICC arbitrations in the region, it remains open to parties to seat their arbitrations in the ADGM under any institutional rules.

The ADGM’s state of the art arbitration centre is expected to open in Q1 of 2018 and could host its first arbitrations later this year. However, it is expected that these will trickle rather than flood in as contracts with ADGM seated arbitration clauses are likely to be fairly rare at this stage. Nonetheless, as with the DIFC, parties can opt to have their dispute settled by an ADGM-seated arbitration and, given that the ADGM Arbitration Regulations provide a thorough curial law, this may be an attractive option for parties looking to begin proceedings before the federal arbitration law is enacted.

Parties with a successful award from an ADGM arbitration can use the ADGM courts to enforce that award. The ADGM has been busy agreeing memorandums of understanding with a number of other jurisdictions so that ADGM awards, enforced in ADGM courts, can be executed in other jurisdictions. Importantly, there is a high-level memorandum of understanding in place with the Abu Dhabi judiciary and a more granular one is currently being discussed, which should ease concerns of parties who may be reluctant to pursue an ADGM arbitration over the fear of not being able to execute an award where the award debtor has assets.

While the memorandums of understanding should alleviate many concerns over the enforcement of ADGM-seated awards, only once a series of these have been tested will parties have greater comfort. However, perhaps the biggest challenge to the ADGM over the next couple of years could be the level of support shown to it by the Abu Dhabi government. Traditionally, public bodies and state-owned companies in Abu Dhabi prefer local court litigation or onshore arbitration seated in the Abu Dhabi Commercial Conciliation and Arbitration Centre. In order to develop quickly, the ADGM will require parties without a physical nexus to the ADGM to ‘opt in’, and it would be a significant fillip if the Abu Dhabi government could be persuaded to allow and encourage its entities to use the ADGM as their preferred arbitral seat. Without such an endorsement, it could be some time before the ADGM can establish itself as a credible arbitral seat.

The relationship with the ICC, the detailed Arbitration Regulations, the work agreeing memorandums of understanding with other jurisdictions, and the existence of a functioning court set-up that will fall back on English common law where its own rules are under-developed, mean that the ADGM is well set to be a successful seat when the first arbitral proceedings in the ADGM take place.

Dubai International Arbitration Centre

International arbitration is a constantly developing field. Changes are led by innovations from arbitral institutions seeking to differentiate themselves from their competitors but are driven also by the parties to arbitration. Regardless of how these changes arise, the net result is that international arbitration has moved on significantly in the last decade and those that fail to adapt risk being left behind.

With this in mind, it was becoming increasingly apparent that the Dubai International Arbitration Centre (DIAC) Rules (last updated in 2007) had fallen behind current arbitral best practice and recent innovations. Therefore, practitioners and participants alike have welcomed the announcement from DIAC that it will be issuing a comprehensively updated set of institutional rules in 2018 (the ‘new DIAC Rules’).

There are a number of changes in the new DIAC Rules that can be categorised, broadly, as targeting improvements to two key areas; procedural certainty and increased speed and efficiency.

The most striking change in the new DIAC Rules is that the default seat of DIAC arbitrations will be the DIFC. Parties remain free to choose their seat but, if none is not selected, the DIFC will host it. As a result, the governing law of the arbitral proceedings will be the DIFC Arbitration Law, rather than the UAE Civil Procedure Code (or the new federal arbitration law when it is enacted). This will enhance procedural certainty in the short term and allow parties to access the greater array of interim relief available in the DIFC than on the mainland.

Some of the other noteworthy modernisations in the new DIAC Rules, include:

  • a provision that awards are deemed to have been issued at the seat of the arbitration, whether or not they were physically signed at the seat – a procedural frustration currently experienced under the UAE Civil Procedure Code which essentially necessitates arbitrators signing an award only when physically present in the UAE;
  • the introduction of expedited proceedings for cases falling within certain criteria such as those of exceptional urgency, those with a value less than 2 million dirhams, or where the parties expressly agree;
  • the inclusion of a section dedicated to scenarios involving multiple parties and arbitrations – under the new DIAC Rules, it is possible for parties to consolidate multiple arbitrations, join additional parties, and arbitrate on issues involving multiple contracts between the parties; and
  • the express exclusion of criminal liability for Tribunal members under article 257 of the UAE Penal Code.

Finally, the new DIAC Rules specifically provide that legal fees incurred in relation to the arbitral proceedings are a recoverable cost, therefore clarifying the confusion under the existing rules caused by the judgment in Dubai Court of Cassation Case No. 282 of 2012 (which suggested legal fees were not recoverable unless the parties expressly agreed otherwise). This is a welcome addition, especially for parties that may have been forced into arbitration in relation to issues such as simple, non-payment disputes – previously, parties may have found it galling to have to pay a ‘premium’ (their legal costs) in order to recover payment they were patently entitled to.

It is not clear when exactly the new DIAC Rules will be introduced in 2018, but it is understood that they have received all the necessary approvals and that the delay is related to a minor change to provisions relating to litigation funding. It is hoped that this will be quickly resolved and the new DIAC Rules can be implemented later this year.

A barrier to progress or a storm in a teacup?

Early in 2017, considerable consternation was voiced by the legal community in relation to the amendment to article 257 of the Penal Code. The amendment expressly provided that arbitrators and party-appointed experts to arbitrations could be held criminally liable (and temporarily imprisoned) for contravening their duties to act with neutrality and impartiality, penalties that previously only applied to UAE court-appointed experts and judges.

While promoting neutrality and impartiality in arbitrators and experts is laudable, the execution of this amendment was, in this author’s view, ill-conceived and certainly caught the arbitration community off-guard. The initial concern created by this change led to experts resigning from ongoing arbitrations and arbitrators turning down roles and accepting roles only on multi-panel arbitrations. The concern was that an unscrupulous party to an arbitration may file unsubstantiated proceedings under article 257 (perhaps as a means to delay the arbitration or in light of an unfavourable award).

Thankfully, it appears as though the widespread concern this change caused has caught the attention of legislators and it is understood that article 257 will soon be revised again. It is also possible that the new federal arbitration law will include a provision diminishing the effect of article 257 on arbitrators and independent experts.

In time, the amendment to article 257 may be considered a temporary blip with minimal tangible impact to the UAE’s general pro-arbitration trend – no arbitrators or experts have been imprisoned (so far as the authors are aware!). However, the amendment has, frankly, been a short-term PR disaster for the UAE’s efforts to model itself as the region’s most modern and forward-thinking arbitration hub.

Concluding thoughts

As referred to above, the introduction of the new DIAC Rules and the opening of the state-of-the-art ADGM arbitration centre are two of the things to look forward to in 2018. In addition, it is hoped that the current discord between the Dubai courts, DIFC courts and Judicial Tribunal is resolved with clarity and ease of access to justice for arbitration users at the fore.

Finally, and without wanting to fall into the same trap of false hope and expectation that has caught most in the UAE arbitration community over the last decade, the introduction of a federal arbitration law later this year is going to be the most talked about change in UAE legislation and certainly for the arbitration community. Its introduction will enhance the UAE’s continuing reputation as the region’s key arbitration hub.