Middle East

Middle East

Sami Tannous and Amr Omran

Freshfields Bruckhaus Deringer LLP

Arbitration in the Middle East has a long, if complicated, heritage. Historically a favoured means of resolving disputes, its image was tainted and development stunted for decades following a string of decisions against states and state-owned entities throughout the 1950s and 1960s, epitomised by the infamous decision in Petroleum Development (Trucial Coast) Ltd v Ruler of Abu Dhabi.1

However, the Middle East has moved on. Recent years have seen significant developments in arbitration legislation, jurisprudence and practice across the Middle East, particularly in the Gulf region. Looking forward, the lifting of many international sanctions against Iran, and Iraq’s ratification of the International Centre for Settlement of Investment Disputes (ICSID) Convention (and its recent steps towards acceding to the New York Convention), as well as Sudan’s accession to the New York Convention in March 2018, bodes well for the development of arbitration in the region.

The positive by-product of these developments is a greater degree of certainty and predictability for users and an increase in trust in the region’s ability to deliver world-class arbitration services. Even where the developments have been inconsistent or too recent to judge, they are nonetheless encouraging. That said, certain UAE developments in the latter part of 2016 have left some practitioners calling into question the country’s commitment to arbitration. Nevertheless, overall, from the modernisation of arbitration legislation to the decreasing intervention of local courts, the future appears bright for arbitration in the Middle East.

This article considers some of the most noteworthy recent developments and what they mean for arbitration in the Middle East.

United Arab Emirates

The UAE has for decades sought to position itself as a hub for global business, trade and finance. Instrumental to that ambition has been a gradual development of sophisticated mechanisms for international dispute resolution, be it via the establishment and promotion of international arbitration, the promulgation of new procedural rules or the creation of novel avenues for enforcement.

At the same time, the continued delay in repealing article 257 of the Federal Penal Code – which exposes arbitrators and technical experts, among others, to potential criminal sanctions – has stunted the attractiveness and growth potential of Dubai, Abu Dhabi and other emirates as international arbitration centres. However, the approval in March 2018 of a new draft law on arbitration by the Federal National Council (FNC) promises a new era for arbitration in the UAE, and the potential transformation of the UAE into a global arbitration centre on a par with the likes of London, Paris or Singapore.

Arbitration in the UAE

Onshore (ie, outside the DIFC and ADGM)

Arbitration in the UAE is governed by articles 203 to 218 of the Federal Civil Procedure Code No 11 of 1992 (CPC).2 Other than these articles, there is currently no dedicated arbitration law in force in the UAE, whether based on the UNCITRAL Model Law or otherwise. It is expected that this will change soon after the FNC approved on 1 March 2018 the latest version of the draft federal law on arbitration (Draft Arbitration Law), which now awaits the final steps of approval by the UAE Supreme Council and signature into law by the president of the UAE. The FNC’s approval of the Draft Arbitration Law is undoubtedly the most important development in the UAE in respect of arbitration over the past year.

Recent versions of the Draft Arbitration Law reveal significant changes to the current arbitral regime, including an expansion of the scope of arbitrable disputes to include tort claims, distinguishing between domestic and international arbitrations, express recognition of the separability of the arbitration clause, a more detailed process for challenging arbitrators, providing for court- and tribunal-ordered provisional measures before or in the course of arbitral proceedings, express recognition of the doctrine of competence-competence, a time limit for raising objections to the tribunal’s jurisdiction, the ability to join third parties to an arbitration, providing criteria for determining the seat of arbitration, providing for the confidentiality of arbitral proceedings and arbitral awards, a more flexible procedure for giving witness testimony, wider scope for tribunals to obtain court assistance in compelling the production of evidence, and the tribunal’s power to render consent awards.

The new arbitration regime has been long awaited by the arbitration and business communities in the UAE. It is hoped that the new law will rectify the weaknesses of the current arbitration regime, particularly the perceived hostility of some domestic judges towards arbitration, which is treated as an exception to the natural jurisdiction of the courts, and the practice of setting aside arbitral awards on minor procedural technicalities as well as broad interpretations of public policy.

The latter has been a particularly uncertain and unpredictable area in UAE arbitration jurisprudence. In the 2012 decision Baiti Real Estate Development v Dynasty Zarooni Inc, the Dubai Court of Cassation nullified a Dubai International Arbitration Centre (DIAC) award on the basis that registration of off-plan property units in the Real Estate Register involved ‘rules of private ownership and the circulation of wealth’, and therefore violated public policy as defined in article 3 of the UAE Civil Transactions Code.3 The decision and the reasoning of the Court of Cassation was met with dismay by arbitration practitioners concerned with its potentially broad scope of application. Subsequent decisions in this area, however, have adopted a narrower interpretation of public policy, limiting the Baiti decision to the issue of registration of off-plan property units and explicitly confirming that disputes over breaches of private contracts and recovery of damages, even where real property is involved, do not encroach upon matters of public policy.4

Considering that the majority of onshore UAE arbitrations take place in Dubai, an important step towards enhancing Dubai-based arbitrations is the review of the new draft arbitration rules of the Dubai International Arbitration Centre (the Draft DIAC Rules). The consideration of the Draft DIAC Rules, which is currently under way, promises to bring DIAC arbitrations in line with international best practice. Highlights of the proposed amendments to the 2007 DIAC Arbitration Rules currently in place include dispensing with the requirement that an arbitration agreement be made in writing, confirming the principle of competence-competence, introducing the power of arbitral tribunals to impose sanctions for counsel misconduct, proposing a mechanism for expedited proceedings and emergency arbitrators, permitting the joinder of third parties, allowing for the recoverability of legal fees, recognising third-party funding arrangements, removing the requirement to sign arbitral awards in Dubai and instituting a system for review of awards by the secretariat before dispatch to the parties. Remarkably, the Draft DIAC Rules provide that the DIFC shall be the default seat of arbitration when the parties’ agreement is silent on the choice of seat. This means wider application of the DIFC Arbitration Law No. 1 of 2008, as amended, and recourse to the DIFC Courts in lieu of the onshore Dubai legal system. The Draft DIAC Rules were first launched in August 2016 for consultation and an updated version was issued in November 2017. The Draft DIAC Rules are expected to be finally released in the first quarter of 2018.

Despite the inherent challenges and uncertainties, the domestic arbitration scene in the UAE, and particularly in Dubai, remains buoyant, and seasoned practitioners have learned to navigate the potential procedural pitfalls. Once the Draft Arbitration Law is finally enacted, it will only reinforce the position of Dubai as the Middle East’s arbitration hub.

DIFC

The Dubai International Financial Centre (DIFC) is an economic free zone created in 2004 as part of Dubai’s long-standing effort to establish itself as a global financial capital. The DIFC boasts a modern, bespoke legal and regulatory framework governing activities within its territory and its own autonomous courts modelled on the systems of several common law countries, a marked contrast with the civil law system that applies outside the DIFC’s half-a-square-kilometre geographical borders. The DIFC also benefits from a modern arbitration law based on the UNCITRAL Model Law and its own arbitration centre, the DIFC-LCIA Arbitration Centre, and offers itself as a credible modern alternative to a seat located in ‘onshore’ UAE.

The DIFC-LCIA Arbitration Centre was relaunched in November 2015 to address concerns expressed by certain practitioners in Dubai regarding the jurisdictional reach and constitutionality of the centre and, therefore, the enforceability of awards issued under the DIFC-LCIA Rules.

The relaunch follows on from a wider restructuring of the DIFC in Dubai Law No. 7 of 2014 amending certain provisions of Dubai Law No. 9 of 2004, which established the DIFC Arbitration Institute and the DIFC Dispute Resolution Authority, both of which operate independently of the DIFC Courts.

Now into its second decade, the DIFC promotes itself as a leading arbitration hub and its courts have not shied away from adopting a strongly pro-arbitration stance. Indeed, as further explored below, the DIFC has recently confirmed jurisdiction over the ratification of foreign and domestic arbitral awards whether or not the DIFC has a nexus to the dispute, thus agreeing to act as a conduit for jurisdiction for enforcement in onshore Dubai,5 and developed a novel (if somewhat unusual) mechanism by which its court judgments may be converted into arbitral awards that would, in theory at least, render them readily enforceable under the New York Convention.6

Most recently, in October 2016, the DIFC-LCIA Arbitration Centre released its new DIFC-LCIA Arbitration Rules 2016, which substantially reflect the LCIA Arbitration Rules and have introduced measures intended to promote efficiency and cost-effectiveness, including new provisions in relation to: the appointment and decision-making time frame of emergency arbitrators; consolidation of multiparty disputes; and sanctions for poor conduct by legal representatives.7

ADGM

Following in the footsteps of the successful DIFC project, the Abu Dhabi Global Market (ADGM) is a financial free zone that began operating in 2014. Like the DIFC, ADGM is an English language, common law jurisdiction. In December 2015, the ADGM enacted new arbitration regulations based on the UNCITRAL Model Law. The ADGM does not have its own international arbitral institution. However, parties can choose the ADGM as the seat of arbitration, with the arbitration administered by an institution, such as the ICC or the LCIA. It is worth mentioning two notable developments in this regard that took place in 2017. On 26 July 2017, the ADGM announced the establishment of the ADGM Arbitration Centre (ADGM Centre). The ADGM Centre will not operate as an arbitral institution, but will be a hearing venue offering state-of-the-art facilities to arbitrating and mediating parties. The ADGM Centre is expected to come into full operation by the end of the first quarter of 2018. The ADGM Centre will no doubt increase the attractiveness of the ADGM and Abu Dhabi as a hub for arbitration, especially since the ADGM Centre can host arbitrations that are not necessarily seated in the ADGM.

The other important development was the announcement by the International Court of Arbitration of the International Chamber of Commerce (ICC) concerning the establishment of its MENA Representative Office in Abu Dhabi. The Representative Office will be located within the ADGM Centre on Al Maryah Island and will provide parties with world-class arbitration services by dedicated on-site staff. This recent development will add to the momentum of the ADGM and boost the confidence of potential users in the ADGM arbitration system. Like the ADGM Centre, the Representative Office is expected to become fully operational by the end of the first quarter of 2018.

The ADGM courts, which consist of a court of first instance and a court of appeal and are modelled on the English judicial system, have supervisory authority over ADGM arbitrations. Pursuant to the English Law Regulations 2015, English common law (including the rules and principles of equity) is directly applicable in the ADGM, the first jurisdiction in the Middle East to adopt this approach. In late 2017, the ADGM Court of First Instance rendered its first judgment in respect of an application for interim relief made by Afkar Capital Ltd on the basis of the ADGM Companies Regulations 2015.8

Enforcement of arbitral awards in the UAE

The New York Convention, procedure and public policy

The UAE ratified the New York Convention in 2006 without making any reservations. However, UAE courts continued for several years to apply the outdated (and, more importantly, irrelevant) conditions for enforcement listed in the CPC to enforcement actions, disregarding the pro-enforcement bias enshrined in the New York Convention. All that changed through a series of decisions commencing in 2010 and culminating in the Court of Cassation’s Decision No. 132/2012 in Airmech Dubai LLC v Macsteel International LLC, which affirmed the primacy of the New York Convention to enforcement of foreign awards and lack of relevance of the CPC.

There was something of a setback in 2013 following the Dubai Court of Cassation’s decision in Construction Company International (CCI) v Republic of Sudan in which it upheld a decision refusing jurisdiction over an action to enforce three ICC arbitral awards against the Republic of Sudan on the basis that neither party was domiciled in or connected with the UAE, a requirement contained in the UAE CPC.9 Nevertheless, the decision was perceived to be an outlier, decided on its own facts, with a somewhat clumsy application of the forum non conveniens doctrine by the court.

Since then, the primacy of the New York Convention has been reaffirmed by all levels of the Dubai judiciary, up to the Court of Cassation, in the case of Al Reyami Group LLC v BTI Befestigungstechnik GmbH & Co KG, which concerned the enforcement of an ICC award seated in Stuttgart.10 The Dubai Court of Cassation endorsed the view of the Court of Appeal that the New York Convention was embedded in UAE domestic law by Federal Decree No. 43 of 2006 and article 125 of the UAE Constitution, and rejected any grounds for challenge that fell outside the scope of article V of the New York Convention.

Nevertheless, there continue to be judicial setbacks. In its 2016 decision Fluor Transworld Services v Petrixo Oil & Gas, the Dubai Court of Appeal refused to enforce a London-seated arbitral award on the basis that it was not satisfied that the United Kingdom was a signatory to the New York Convention.11 Leaving aside that the basis of the decision was factually incorrect, it also demonstrated a misunderstanding of the UAE’s treaty obligations as the UAE did not make a reciprocity reservation when ratifying the New York Convention. The Court of Cassation has since overturned the decision, holding that the United Kingdom was, as a matter of fact, a signatory and remitted the case to the Court of Appeal, which then confirmed the arbitral award.12

Notwithstanding the occasional setbacks, the UAE judiciary has come a long way in its willingness to embrace and uphold the UAE’s treaty obligations under the New York Convention. While exceptions may arise, Dubai (and probably other emirates as well) can now be considered a relatively safe jurisdiction in which to enforce a foreign arbitral award. The irony remains that, until the Draft Arbitration Law is enacted, the greatest enforcement risk lies with domestic awards, a risk that innovative practitioners have tried to address using the DIFC Courts.

DIFC as a ‘host’ for onshore enforcement

Beginning in 2013, the DIFC Courts began confirming its willingness to act as a ‘host’ or ‘conduit’ jurisdiction for the enforcement of arbitral awards.

The first decision, (1) X1 (2) X2 v (1) Y1 (2) Y2, concerned efforts by two award creditors incorporated outside Dubai to enforce a foreign arbitral award through the DIFC Courts against two award debtors incorporated in onshore Dubai.13 The award debtors objected to the DIFC Court’s jurisdiction to recognise and grant leave to enforce the foreign award, there being no nexus between the dispute or the parties and the DIFC, including no assets within the DIFC.

The DIFC Court of First Instance upheld its jurisdiction, relying principally on article 42 of the DIFC Arbitration Law, which provides 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 be enforced subject to the provisions of this Article and of Articles 43 and 44.

However, the court drew a line between recognition and enforcement where there were no assets located in the DIFC. In such cases, the DIFC Court’s jurisdiction extended only to recognition of the award, with enforcement in ‘onshore’ Dubai being within the jurisdiction of the Dubai enforcement judge who, pursuant to article 7(3) of the Judicial Authority Law,14 is required to enforce the recognition order without reconsidering ‘the merits of the judgment, decision or order’. A party looking to enforce a DIFC Court order recognising an award in onshore Dubai may also rely on the 2009 Protocol of Enforcement between the Dubai courts and the DIFC Courts, which clarifies certain requirements for enforcement.

The DIFC Court of Appeal reaffirmed and expanded the approach taken in (1) X1 (2) X2 v (1) Y1 (2) Y2 in the case of Meydan Group LLC v Banyan Tree Corporate PTE Ltd,15 which involved a DIAC award rendered in Dubai. The DIFC Court of First Instance (here presided over by HE Justice Omar Al Muhairi, a UAE national resident judge of the DIFC Courts) found that it had jurisdiction on similar grounds as the court had decided upon in the X1 case. Meydan appealed and lost. The DIFC Court of Appeal found unequivocally that there was no subject matter or in personam jurisdictional requirement for a DIFC Court to hear an application for recognition and enforcement of an onshore Dubai award. To the contrary, the court found that article 42 of the DIFC Arbitration Law imposed an outright obligation upon the DIFC Courts ‘to recognise and enforce an award irrespective of the state or jurisdiction in which it was made’. While Meydan argued that this interpretation of article 42, coupled with article 7(2) of the Judicial Authority Law, should not be permitted as it would allow Banyan to circumvent a merits review by the onshore Dubai Court, the DIFC Court of Appeal was unconvinced.

More recently, in DNB Bank ASA v Gulf Eyadah Corporation & Gulf Navigation Holding PJSC, on an application from an English court judgment holder for recognition in the DIFC Courts, the DIFC Court of Appeal confirmed its willingness to act as a ‘conduit jurisdiction’ for the enforcement of foreign court judgments via the DIFC.16 Nevertheless, the Court of Appeal warned that it was not concerned with what would happen in the Dubai Courts and that the holder of a DIFC Court’s judgment recognising a foreign judgment would seek enforcement of the former at its own risk.17 The judgment debtor in that case later sought relief from the newly constituted Dubai Judicial Tribunal, discussed in the next section.

Judicial tribunal for conflicts of jurisdiction between the Dubai courts and the DIFC courts

In a move that many practitioners have interpreted as a direct reaction to the ‘conduit’ cases referred to above, in June 2016 HH The Ruler of Dubai passed Decree No. 19 of 2016 (Decree 19). Decree 19 established a judicial tribunal for the Dubai courts and the DIFC Courts, whose objectives include, among other things, resolving conflicts of jurisdiction between the Dubai Courts and the DIFC Courts (Judicial Tribunal).18 The Judicial Tribunal is composed of three members of the Dubai judiciary and three members of the DIFC judiciary, as well as the secretary-general of the Dubai Judicial Council.19 All decisions are to be made by a majority vote with the head of the Dubai Court of Cassation having a casting vote.20 Applications to the Judicial Tribunal may be made by either party or by the Attorney General of Dubai. Once an application is made, the underlying judicial proceedings are stayed pending the Judicial Tribunal’s decision, which must be made within 30 days.21 The Judicial Tribunal is empowered, among other things, to:

• • where both the Dubai courts and the DIFC courts seize jurisdiction or decline jurisdiction, determine which has jurisdiction; and

In January 2017, the Judicial Tribunal rendered its first decision in Daman Real Capital Partners Company LLC v Oger Dubai LLC.23 In that case, the award holder applied to the DIFC Courts for recognition and enforcement of an arbitral award, while the award debtor applied to the Dubai Courts for annulment of the same award. The award debtor was unsuccessful in its application before the Dubai Court of First Instance and the Court of Appeal and then applied to the Judicial Tribunal on the basis that a jurisdictional conflict had arisen between the Dubai Courts and the DIFC Court.24 The Judicial Tribunal agreed that there was a conflict of jurisdiction since the award debtor could still bring an appeal to the Dubai Court of Cassation and decided that:

The decision appears to have been rendered by six members of the Judicial Tribunal.25 The three DIFC Court members dissented, and so it would appear that the president of the Dubai Court of Cassation cast the deciding vote.26

The same position was subsequently upheld in Dubai Water Front LLC v Chenshan Liu27 and Ramadan Mousa Mishmish v Sweet Homes Real Estate LLC.28 The Judicial Tribunal dismissed two other challenges to the jurisdiction of the DIFC courts to hear applications for the enforcement of a foreign arbitral award in Marine Logistics Solutions LLC & others v Wadi Woraya LLC & others.29 The Judicial Tribunal ruled that no conflict of jurisdiction had arisen, because no parallel proceedings were sought before the onshore Dubai Courts. A similar conclusion was reached in Gulf Navigation Holding PJSC v DNB Bank ASA30 where an application for enforcement of a foreign court judgment was at stake. The judgment debtor applied to the Judicial Tribunal to annul the DIFC Court’s judgment, arguing that the DIFC Court did not have jurisdiction to recognise the foreign judgment.31 In a unanimous decision, the Judicial Tribunal rejected the application, expressing that it did not have jurisdiction to grant the request under its constituting decree since it could only determine cases ‘if neither of the two courts has abandoned its jurisdiction for handling the case or if both courts have not abandoned their jurisdiction or if they issued conflicting judgments.’32 That was not the case before the Judicial Tribunal.

Accordingly, in its early days, the Judicial Tribunal appears to have clearly – and perhaps narrowly – defined its role to cases of obvious conflict in accordance with its constituting statute. For now at least, it has not entirely dismissed the notion of using the DIFC Courts as a ‘conduit jurisdiction’ for enforcement.

In yet another surprising twist, on 15 February 2017, the Dubai Court of First Instance declared null the DIFC Court’s decision in Banyan Tree.33 The court held that the Dubai Courts were the ‘ordinary courts’ of default jurisdiction and, referring to the DIFC Courts’ constituting law, commented that the DIFC courts’ jurisdiction was limited to roughly four categories of cases, including:

The Dubai Court also held that, if a case falls within the jurisdiction of the Dubai Courts, and the DIFC Courts render a judgment in that case, that judgment shall be null.35 As a result, the Dubai Court found that the judgments of the DIFC Court of First Instance and the DIFC Court of Appeal in the Banyan Tree case were null.36 The authors understand that the nullifying decision of the Dubai Court of First Instance may be appealed, which means that further guidance from the Dubai Court of Appeal (and, potentially, the Dubai Court of Cassation) in respect of the DIFC Courts’ ability to recognise and enforce arbitral awards may be forthcoming.

Article 257 of the UAE Penal Code

In October 2016, Federal Decree Law No. 7 of 2016 was passed to amend article 257 of the UAE Federal Penal Code No. 3 of 1987. The amended article 257 provides for the potential imprisonment of arbitrators and experts (as well as translators and fact finders) ‘failing to maintain the requirements of integrity and impartiality’.37 The sudden amendment has caused a great deal of concern within the arbitral community, including around:

While some have called into question whether article 257 is likely to apply in practice, its effects are already being seen on arbitration in the UAE. For example, a number of arbitrators and experts have resigned from ongoing appointments or indicated their unwillingness to take on new appointments within the UAE (including where the seat is the DIFC or the ADGM as both are subject to the provisions of the UAE Penal Code). Moreover, some businesses are no longer designating the UAE as the seat in their arbitration clauses while others have amended their existing clauses to change the seat. The UAE arbitration community is taking active steps to have the UAE Cabinet repeal or amend article 257. As of the writing of this article, there are positive suggestions that an amendment may be forthcoming, although the precise timing remains unclear.

Bahrain

July 2015 saw substantial revisions to Bahrain’s International Commercial Arbitration Act (ICAL) of 1994, including full incorporation of the UNCITRAL Model Law.38 Additional provisions:

The 2015 law reflects Bahrain’s trend of modern legislative responses to the needs of the international arbitration community and signals a commitment to establishing itself as a major arbitration centre.

Indeed, Bahrain has long been among the Middle Eastern and North African jurisdictions friendliest to arbitration, having acceded to the New York Convention in 1988 and adopted much of the UNCITRAL Model Law in the original ICAL of 1994. In 2009, through an initiative of the Bahrain Chamber for Dispute Resolution and the American Arbitration Association (BCDR-AAA), launched under a 2009 revision to ICAL,42 Bahrain designated a specialist tribunal comprised of two judges from Bahrain’s highest jurisdiction and a third member chosen from the BCDR-AAA’s roster of neutrals, rather than trial by its local courts, as the primary dispute resolution mechanism in large cases (valued above 500,000 Bahraini dinar) involving licensed financial institutions or international commercial disputes involving either foreign parties or a significant foreign nexus.

In October 2017, the BCDR-AAA launched its updated arbitration rules (BCDR Rules 2017). The BCDR Rules 2017 came into effect on 1 October 2017 and are drafted in three languages (English, French and Arabic) which are equally authoritative. The BCDR Rules 2017 replace the 2010 version which was modelled substantially after those of the AAA’s International Centre for Dispute Resolution. They aim to facilitate arbitration procedures for parties and bring the BCDR in line with international best practice. Key amendments introduced in the BCDR Rules 2017 include new filing requirements, additional safeguards in respect of the appointment and challenge of arbitrators, a system for summary procedures before arbitral tribunals, guidelines for party representation and counsel conduct, providing for the application of the most protective rule when different rules of privilege are involved in the same proceeding, and new rules on the role of tribunal secretaries. The BCDR Rules 2017 are expected to bolster confidence in the BCDR and increase reliance on Bahrain as a centre for the settlement of regional and international disputes.

Bahrain’s proximity and close relationship with Saudi Arabia also means that it is perceived to be a safe alternative venue for arbitration and a means of increasing the prospects of enforcement there. As economic and political troubles dissipate in years to come, Bahrain’s increasing role as a regional arbitration centre may well surprise its competitors in the Gulf.

Qatar

Over the past 15 years, Qatar has opened significantly to international arbitration. In 2002, Qatar acceded to the New York Convention without declarations or notifications. In 2005, it established the Qatar Financial Centre (QFC),43 a separate jurisdiction along the lines of the DIFC, and in 2006 it launched the International Centre for Conciliation and Arbitration (QICCA).44

Until recently, both domestic and international arbitrations were subject to the Civil and Commercial Procedure Code, which provided for appellate review of arbitral awards on the merits45 and nullification on procedural grounds.46 This proved challenging for parties seeking enforcement of their awards in Qatar, whether domestic or foreign.

For example, in the well-known decision in International Trading and Industrial Investment v DynCorp Aerospace Technology, the Qatar Court of Cassation set aside a Paris-seated ICC award on the merits as if sitting in direct appeal from the arbitral tribunal rather than as an enforcement proceeding.47

Further, decisions of the Qatari courts often attract criticism for applying a broad notion of public policy to either set aside or refuse the enforcement of arbitral awards. For example, a series of decisions that came out of the Qatari courts justified the annulment of arbitral awards on the basis that they were not rendered in the name of His Highness the Emir of Qatar, and thus offended Qatari public policy. This was the case in respect of an ICC award rendered in Paris which was set aside by the Qatar Court of First Instance in 2013.48 The Qatar Court of Cassation adopted the same view for quite some time, thus treating arbitral awards as indistinguishable from, and so subject to the same procedural requirements as, national court judgments.49

However, in 2014, the Court of Cassation reversed several lower court decisions in which similar findings had been made, on the ground that they had improperly applied Qatari law.50 Of particular interest are Qatar Court of Cassation Petitions Nos. 45/2014 and 49/2014, which found that, while Qatari law would normally require a domestic arbitral award to be issued in the name of His Highness the Emir of Qatar, the Doha-seated award in that case should be treated as foreign and thus subject to the New York Convention owing to the parties’ choice of the ICC rules. Those cases stirred debate as they caused some confusion over the criteria for distinguishing between domestic and foreign arbitral awards. Further clarification came from the Qatar Court of Cassation in early 2017 when it backtracked on its treatment of ICC awards rendered in Qatar. Specifically, the court held that an ICC award issued in Qatar should be treated as a domestic award.51

In February 2017, Law No. 2 of 2017 regarding arbitration in commercial and civil matters was promulgated. Based largely on the UNCITRAL Model Law, the new law repeals and replaces the previous arbitration regime found in articles 190 to 210 of the Code of Civil and Commercial Procedure.52 The law applies to both the public and private sector and not only to cases taking place in Qatar, but also to those abroad where the parties have agreed that the law will apply to their dispute.53 In a positive signal that Qatar is serious about changing its image, the new law requires that an application to annul an arbitral award be commenced no later than one month after the award is issued to the parties (in contrast to the Model Law, which allows for up to three months).54 Moreover, parties may no longer challenge awards on the merits, but rather are limited to grounds similar to those in the UNCITRAL Model Law.55 Of course, time will tell how the new arbitration law will be applied in practice, particularly when enforcement concerns entities with links to the government. Nevertheless, the law is a positive step for arbitration in Qatar and signals an intention to catch up with its Dubai neighbour, which has successfully managed to develop itself as a regional arbitration centre in the absence of a modern arbitral legislative framework.

Saudi Arabia

Saudi Arabia has been slower to warm to arbitration. Most famously, in 1958, after the tribunal in Saudi Arabia v Arabian American Oil Co refused to apply shariah law to a dispute over Aramco’s exclusive oil concession in Saudi Arabia and decided in Aramco’s favour, the Saudi government prohibited its ministries and agencies from agreeing to arbitration without the prior approval of the president of the Council of Ministers or permission by a legal enactment. Eventually, Saudi Arabia adopted an arbitration law in 1983 and acceded to the New York Convention in 1994, but for decades its arbitration law permitted Saudi courts wide oversight authority over merits, procedure and enforcement, including a requirement that arbitration agreements be judicially approved prior to the commencement of arbitral proceedings.56 It further imposed strict requirements, founded in Islamic law, for the appointment of arbitrators, including that they be Saudi citizens or non-Saudi Muslims, conversant with Saudi rules and traditions and, at least in domestic arbitrations, male.

In 2012, however, the Saudi government appeared to shift its policy, enacting a new arbitration law based in part upon the UNCITRAL Model Law.57 Among other developments, the new law eliminates the requirement of judicial pre-approval, offers guidance for determining the validity of an arbitration agreement (ie, it must be in writing, but may be created via correspondence or reference to other documents), loosens the arbitrator qualifications and permits parties to choose procedures, substantive law and seat, provided they do not violate the public policy of Saudi Arabia or shariah law. Perhaps most critically, the new law circumscribes the supervisory powers of the Saudi courts over enforcement of arbitral awards. Where previously a court could, and frequently did, reconsider the merits during enforcement proceedings, the new law prohibits inspection of the facts and subject matter of the dispute.

The Council of Ministers issued a resolution in April 2014 establishing Saudi Arabia’s first centre for commercial arbitration, the Saudi Centre for Commercial Arbitration (SCCA). The SCCA was formally launched in October 2016, with an aim ‘to be the preferred ADR choice in the region by 2030’.58 The SCCA Rules are broadly based on the UNCITRAL Rules and were drafted in coordination with the AAA-ICDR.

It will take time for both the government and the courts to signal how broadly the public policy and shariah exceptions in the new law will be applied. Nevertheless, these developments indicate that Saudi Arabia has taken serious interest in international arbitration, a positive sign for the international companies doing business within its borders.

Indeed, there are some positive signals. Despite having been a signatory to the New York Convention since 1994, there had been no reported case of a foreign arbitral award being recognised, let alone enforced, in Saudi Arabia. This changed in 2016, with details emerging of the enforcement of a London-seated ICC award. Moreover, most recently, a team from Freshfields successfully enforced a foreign arbitral award against a Saudi debtor. While too early to make any definitive statements, this is a ground-breaking development in a country that has traditionally been deeply sceptical of arbitration.

Egypt

Egypt maintains one of the largest arbitration traditions in the Middle East. In addition to its ratification of the New York Convention in 1959 without any reservations or declarations, and the ICSID Convention in 1972, Egypt has ratified several regional arbitration conventions, including: the 1954 Convention on Enforcement of Decisions between the States of the Arab League, the 1974 Convention on the Settlement of Investment Disputes between Host States of Arab Investments and Nationals of Other Arab States, the Amman Arab Convention on Commercial Arbitration of 1987, and the Unified Agreement on the Investments of Capitals in Arab States of 1980. Egypt has also signed 115 BITs, of which 28 have not entered into force and 15 were terminated.

In 1994, the Egyptian Law of Arbitration in Civil and Commercial Matters was enacted by Law No. 27 of 1994 (the Arbitration Law) adopting the UNCITRAL Model Law with limited modifications. The Court of Cassation ruled in Case No. 15912 of JY76 that, pursuant to article III of the New York Convention, the Arbitration Law governs the enforcement of foreign awards. The decisions of Egyptian courts tend to be pro-arbitration, especially since the enactment of the Arbitration Law.

A notable judgment was handed down recently by the Egyptian Court of Cassation in relation to the ability of sitting judges to act as arbitrators.59 The court overturned a decision by the Cairo Court of Appeal which set aside an interim measure ordered by a tribunal comprising a judge who was appointed in breach of the Judicial Authority Law. The latter law prohibits sitting judges from acting as arbitrators without the approval of the Supreme Judicial Council (SJC), which is the higher body supervising the conduct of judges in the ordinary courts. The Court of Cassation held that the requirement to obtain the SJC’s consent before a judge accepts an appointment to act as arbitrator is an obligation in respect of the judge alone, and does not extend to other concerned parties in the proceedings. While failure to observe that requirement may expose the judge to disciplinary action, it does not take away from the validity of the constitution of the arbitral tribunal, nor does it warrant annulment of the tribunal’s orders or awards.

The decision also laid down, perhaps for the first time, a test for applying the catch-all provision of the Arbitration Law (article 53(1)(g)) which permits the annulment of the award if it is tainted by nullity, or, if an arbitral procedure is tainted by nullity in a manner that affects the award. In order to define the limits of this provision, which has often been invoked by parties to broaden the scope of annulment of awards, the court laid down the following two-pronged test:

[T]he annulment of the arbitral award in accordance with article 53(1)(g) is subject to a two-pronged test which assumes (first) that a procedural irregularity has occurred in the course of the arbitration in a manner that leads to nullity of the procedure, and (second) that such a nullity affects the allegedly invalid award, in the sense that the procedural nullity must have had an impact on the arbitral award. Applying the said test, although the selection of arbitrators is an arbitral procedure, the extent of its validity shall be insofar that it accords with the law governing the arbitral proceedings, which is the Egyptian Arbitration Law in the present case; the arbitrating parties’ agreement, whether in the form of an arbitration clause or a submission agreement; the selected arbitration rules, whether institutional or ad hoc; and, finally, with those rules which truly reflect the public policy of Egyptian society. In that sense, the judge’s violation of the Judicial Authority Law by failing to obtain the Supreme Judicial Council’s approval before proceeding with the arbitration cannot be deemed a procedural nullity in the first place. Therefore, such a violation cannot compromise the validity of the arbitral award which the judge renders or participates in rendering. Hence, the requirements for applying the said test have not been met.60

The decision is also noteworthy for seeking to curb the excessive invocation of public policy as a pretext for annulling awards. It reminds judges that a violation should not be elevated to the level of public policy when it does not ‘prejudice the fundamental guarantees of adjudication nor threaten the higher interests of society’. The judgment provides some further guidance on how to distinguish ordinary rules from those that ‘truly reflect the public policy of Egyptian society’.61

In addition to a relatively favourable judicial environment, Egypt is home to the Cairo Regional Centre for International Commercial Arbitration (CRCICA) which was established in 1979 as an independent, non-profit international organisation for the administration of domestic and international arbitral proceedings, and adopted the UNCITRAL Arbitration Rules.

Despite being armed with a solid arbitration law and sophisticated court system, Egypt has struggled in recent years to compete with the emerging hub of Dubai. This is largely due to events following the Arab Spring and subsequent flight of capital investment. As stability returns, it is expected that Egypt will see a resurgence in activity, although too much ground may well have been lost.

Iraq

Although Iraq has not yet acceded to the New York Convention, the Iraqi Cabinet voted on 6 February 2018 in favour of accession to the New York Convention. The next steps are approval by the Iraqi Parliament and ratification by the President. That said, the Iraqi courts have taken the task of fitting international arbitration into Iraqi law upon themselves. In Iraqi Ministry of Finance v Fincantieri-Cantieri Navali Italiani SpA, the Baghdad Commercial Court openly declared that Iraqi law was outdated and vague, and referred to the UNCITRAL Model Law and the New York Convention (despite neither applying in Iraq) in deciding that the Iraqi Civil Procedure Code applied to international arbitrations.62 This permitted the court to stay its proceedings pending the decision of a French court on the validity of an arbitral award, signalling that the Iraqi courts possess a certain degree of discretion in this arena. The decision was upheld by the Iraqi Court of Cassation.

In March 2014, in keeping with the recent creation of specialised commercial courts, the Iraqi government reportedly began organising workshops for senior judges on arbitration and other private dispute resolution mechanisms.63 However, the climate in Iraq remains uncertain as its government struggles to address other priorities.

In November 2015, in an effort to show it was open for business, Iraq ratified the ICSID Convention, giving further comfort to investors looking to invest in Iraq, although for now the small number of BITs in force renders such ratification of lesser significance. Nevertheless, in February 2017, Iraq was hit by its first investment treaty claim at ICSID by a Kuwaiti investor under the Kuwait-Iraq BIT.64 Two months later, the second investment treaty claim against Iraq was filed at ICSID pursuant to the Japan-Iraq BIT as well as the Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organisation of the Islamic Conference.65

Iran – the new frontier

The lifting of many international sanctions against Iran in January 2016 is expected to open Iran to much-needed foreign investment in a variety of industry sectors, including the oil and gas and automotive sectors, as well as the civil aviation industry. Subject to the ‘Trump effect’ on the Iran sanctions deal, an increase in foreign investment will undoubtedly renew interest in arbitration in Iran.

Iran has a relatively modern, if untested, arbitration regime already in place. Domestic arbitration is governed by articles 454 to 501 of the Iranian Code of Civil Procedure and international arbitration (defined as arbitration proceedings where at least one of the parties was not Iranian when the arbitration agreement was concluded) is governed by the Law on International Commercial Arbitration of 1997, which is based on the UNCITRAL Model Law.

Iran also boasts two arbitration centres, the Tehran Regional Arbitration Centre (TRAC) and the Arbitration Centre of the Iran Chamber, whose caseloads will likely grow in years to come. In October 2015, TRAC hosted the first ever ‘International Arbitration Day’ in Tehran focusing on Iran as a key strategic seat for arbitration in the region in a post-sanctions world. The stage is set for Iran to make its mark on the MENA arbitration scene.

Iran is a party to the New York Convention with a reservation that if one party is of non-Iranian nationality, pursuant to article 139 of the Iranian Constitution, the submission to arbitration of disputes concerning public and governmental properties requires the approval of the Council of Ministers and of the Consultative Assembly (the parliament of Iran).

Regarding arbitration of investment disputes, Iran ratified 55 BITs to date with 11 more awaiting ratification, including a BIT with Japan in February 2016. The availability of BIT protection is likely to be important for investors considering investing in Iran, particularly considering that the Foreign Investment Promotion and Protection Act, while providing important substantive protections, only provides for resolution of disputes before the Iranian courts.

Conclusion

The Middle East is a diverse and complex region, which is evolving rapidly, albeit not always at the same pace. This is reflected in the evolution of arbitration legislation and jurisprudence across the region. Middle Eastern governments have understood that a modern arbitration regime is a critical component in sending the message to investors that their country is open for business. This is of particular importance in the Gulf states, whose governments are intent on diversifying their economies and ending their dependence on oil and gas revenues, a policy only reinforced by an extended low oil price environment.

There is little doubt that the Middle East has a long road ahead of it to establish one or more truly global arbitration centres. Yet, it is all too easy for practitioners to highlight and criticise unhelpful decisions that occasionally emanate from the region, while forgetting their home state’s approaches to arbitration a mere one or two decades ago. Arbitration in the Middle East is evolving rapidly as part of a wider social, political and cultural revolution. There will undoubtedly be setbacks and mistakes during the journey, but one thing is clear: arbitration in the Middle East has a bright future.

Sami Tannous

Freshfields Bruckhaus Deringer LLP

Sami Tannous is a partner based in the Dubai office of Freshfields Bruckhaus Deringer LLP. He is an international arbitration specialist focusing on international commercial arbitration and investor-state arbitration.

Sami has represented clients in international arbitrations under all major arbitration rules including the ICC, LCIA, ICSID, DIAC, SCC and UNCITRAL rules, with seats in London, Paris, Dubai, Geneva, The Hague and Washington, DC and has also sat as arbitrator.

His practice has a particular focus on matters arising in the oil and gas industry, although he also has experience of arbitrations in the banking, real estate, defence, travel, media and construction sectors. In addition, Sami is a member of Freshfields’ global investigations group, and advises clients in internal corporate and regulatory investigations.

Sami graduated from the London School of Economics and Political Science with a degree in law with French law and a Diplôme d’Etudes Juridiques Françaises from the Université Robert Schumann in Strasbourg. He obtained his Legal Practice Course from the College of Law London.

Before relocating to Dubai, Sami practised law in London and Paris. He is fluent in English, French and Italian.

Amr Omran

Freshfields Bruckhaus Deringer LLP

Amr Omran is an associate in the Middle East dispute resolution practice of Freshfields Bruckhaus Deringer LLP. Prior to moving to Dubai, Amr worked with the Egyptian Public Prosecution Office in Cairo, the World Bank Group in Washington, DC and the International Arbitration Group of Freshfields Bruckhaus Deringer LLP in Paris.

Amr is an attorney-at-law admitted to the Egyptian Bar Association and is a fluent Arabic speaker. He has advised and represented clients in international arbitrations including under the ICSID, ICC, DIAC and UNCITRAL Rules. Amr graduated from Cairo University with a licence de droit (with honours). He also holds a master of laws in comparative law from McGill University, a master of laws in international and comparative law from the American University in Cairo, and a master of laws from Harvard Law School.

Notes

1 The 1952 Petroleum Development case involved a 75-year oil concession between the Sheikh of Abu Dhabi and Petroleum Development (Trucial Coast) Limited, a member of the Iraq Petroleum Company group. In considering the law applicable to the contract, Lord Asquith of Bishopstone held:

This is a contract made in Abu Dhabi and wholly to be performed in that country. If any municipal system of law were applicable, it would prima facie be that of Abu Dhabi. But no such law can reasonably be said to exist. The Sheikh administers a purely discretionary justice with the assistance of the Koran; and it would be fanciful to suggest that in this very primitive region there is any settled body of legal principles applicable to the construction of modern commercial instruments.

He applied English law instead.

2 UAE Law No 11/1992, Chapter III.

3 Dubai Court of Cassation, Petition No. 14/2012.

4 See, eg, Dubai Court of Cassation, Petition No. 282/2012, 3 February 2013; Abu Dhabi Court of Cassation, Petition No. 55/2014.

5 DIFC Courts, Case No ARB 003/2013 (Banyan Tree Corporate PTE LTD v Meydan Group LLC); DIFC Courts, Case No. ARB 002/2013 ((1) X1 (2) X2 v (1) Y1 (2) Y2).

6 DIFC Courts Practice Direction No. 2/2015.

7 DIFC-LCIA Arbitration Rules 2016, articles 9, 22 and 18.6.

8 Afkar Capital Ltd v Saifallah Mohamed Amin Mahmoud Fikry, [2017] ADGMCFI 1, 26 November 2017.

9 Dubai Court of Cassation, Petition No. 156/2013.

10 Dubai Court of Cassation, Petition No. 434/2014.

11 Dubai Court of Cassation, Petition No. 384/2016 (Fluor Transworld Services v Petrixo Oil & Gas).

12 Dubai Court of Appeal, Appeal No. 52/2016 (Fluor Transworld Services v Petrixo Oil & Gas) (Decision on Remand).

13 (1) X1 (2) X2 v (1) Y1 (2) Y2, DIFC Courts Case No. ARB 002/2013.

14 Dubai Judicial Authority Law, Law No. 12/2004 (as amended by Law No 16/2011), article 7(3).

15 DIFC Court of Appeal, Case No. CA-005-2014 (Meydan Group LLC v Banyan Tree Corporate PTE Ltd).

16 DIFC Court of Appeal, Case No. 007/2015 (DNB Bank ASA v Gulf Eyadah Corporation & Gulf Navigation Holdings PJSC).

17 DNB Bank ASA v Gulf Eyadah Corporation & Gulf Navigation Holdings PJSC, DIFC Court of Appeal, Case No. 007/2015, para 129.

18 Decree 19, 9 June 2016.

19 Decree 19, 9 June 2016, article 1.

20 Decree 19, 9 June 2016, article 3.

21 Decree 19, 9 June 2016, article 3.

22 Decree 19, 9 June 2016, article 2.

23 Judicial Tribunal, Cassation No. 1/2016 (JT) (Daman Real Capital Partners Company LLC v Oger Dubai LLC).

24 Judicial Tribunal, Cassation No. 1/2016 (JT), page 2 (Daman Real Capital Partners Company LLC v Oger Dubai LLC).

25 Judicial Tribunal, Cassation No. 1/2016 (JT), page 1 (Daman Real Capital Partners Company LLC v Oger Dubai LLC).

26 Judicial Tribunal, Cassation No. 1/2016 (JT), page 4 (Daman Real Capital Partners Company LLC v Oger Dubai LLC).

27 Judicial Tribunal, Cassation No. 2/2016 (JT) (Dubai Water Front LLC v Chenshan Liu).

28 Judicial Tribunal, Cassation No. 3/2017 (JT) (Ramadan Mousa Mishmish v Sweet Homes Real Estate LLC).

29 Judicial Tribunal, Cassation No. 3/2016 (JT) (Marine Logistics Solutions LLC and another v Wadi Woraya LLC and others).

30 Judicial Tribunal, Cassation No. 5/2016 (JT) (Gulf Navigation Holding PJSC v DNB Bank ASA).

31 Bahrain Legislative Decree No. 9/2015.

32 Bahrain Legislative Decree No. 9/2015, article 3.

33 Dubai Court of First Instance, Case No. 1619/2016, 15 February 2017 (Meydan Group LLC v Banyan Tree Corporate PTE Ltd).

34 Ibid.

35 Ibid.

36 Ibid.

37 Federal Decree Law No. 7/2016, became effective on 29 October 2016 and amends several provisions of the UAE Penal Code (Federal Law No. 3/1987).

38 Bahrain Legislative Decree No. 9/2015.

39 Bahrain Legislative Decree No. 9/2015, article 3.

40 Bahrain Legislative Decree No. 9/2015, article 7.

41 Bahrain Legislative Decree No. 9/2015, article 6.

42 Bahrain Legislative Decree No. 30/2009.

43 Qatar Law No. 7/2005.

44 Qatar Emiri Decree No. 5/8.

45 Qatar Law No. 13/1990, article 205.

46 Qatar Law No. 13/1990, article 207.

47 Qatar Court of Cassation, Petition No. 33/2008 (Civil) (International Trading and Industrial Investment v DynCorp Aerospace Technology).

48 Qatar Court of First Instance, Case No. 2216/2013. The decision of the Court of First Instance was also upheld on appeal.

49 Qatar Court of Cassation, Petition No. 64/2012.

50 Qatar Court of Cassation, Petitions Nos. 45/2014 and 49/2014; Qatar Court of Cassation, Petition No. 164/2014.

51 Qatar Court of Cassation, Petition No. 344/2016, 10 January 2017.

52 Qatari Code of Civil and Commercial Procedure, Law No. 13/1990.

53 Qatar Law No. 2 of 2017, article 2.

54 Qatar Law No. 2 of 2017, article 33.4.

55 Qatar Law No. 2 of 2017, article 33.2.

56 Saudi Royal Decree No. M/46.

57 Saudi Royal Decree No. M/34.

58 See the SCCA website here: www.sadr.org/detailes.php?module=about_center&id=54.

59 Egyptian Court of Cassation, Petition No. 9968 of JY81 (Commercial), 9 January 2018.

60 Egyptian Court of Cassation, Petition No. 9968 of JY81 (Commercial), 9 January 2018 (unofficial translation).

61 Egyptian Court of Cassation, Petition No. 9968 of JY81 (Commercial), 9 January 2018.

62 Presidency of the Federal Appeal Court of Baghdad, Case No. 288/B/2011.

63 Noor Kadhim, ‘Between Iraq and a Hard Place’, Kluwer Arbitration Blog, March 2014.

64 Agility Public Warehousing Company KSC v Republic of Iraq (ICSID Case No. ARB/17/7).

65 Itisaluna Iraq LLC and others v Republic of Iraq (ICSID Case No. ARB/17/10).

Al Fattan Currency House

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Dubai

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Tel: +971 4 509 9100

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Sami Tannous

[email protected]

Amr Omran

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www.freshfields.com

Freshfields has been advising clients in the Middle East and Africa for over 30 years and is now host to over 45 lawyers in the region, backed by a global network of more than 2,500 lawyers. Freshfields understands what it means for clients doing business in the region, its business culture and etiquette and importantly, the region’s key commercial drivers, legislative frameworks and regulatory authorities. Freshfields’ international arbitration group, and the Middle East and Africa disputes team, is widely recognised as the world’s leading practice, consistently recognised in leading law firm directories, and is dedicated to representing corporations and governments in large-scale and complex international and domestic arbitrations.