The United Arab Emirates (the “UAE”), as a financial and business hub of the Middle East, with dynamic economy development and a pleasant business environment, attracts many international investors.
The tremendous flow of investment gives rise to a great number of transactions between the investors and the development of trade relationships both with and within the UAE.
However, in practice, there are many breaches of contractual obligations, which create disputes between the parties. Referring these disputes to local courts is often time-consuming and unpredictable decisions are made. Arbitration is often more favourable to parties in trade relationships, than traditional court proceedings.
The UAE Government strives to encourage investors, as well as to create an efficient legislative system. Accordingly, it seeks to react to loopholes in the legislation system and it recently issued Federal Law No.6 of 2018 on Arbitration (the “New Arbitration Law”) on 3rd of May of 2018, and it is already in force across the UAE.
The New Arbitration Law has superseded the Civil Procedure Code’s clauses, which previously regulated arbitration procedures in the UAE. The New Arbitration Law is based upon the UNICITRAL Model Law of Commercial Arbitration.
By adopting a new, separate arbitration law, the UAE has taken a big step towards modernizing its laws and adopting best international arbitration practices.
SCOPE OF APPLICATION OF THE NEW ARBITRATION LAW
The New Arbitration Law applies to:
- Any Arbitration conducted in the UAE, unless the Parties have agreed that another law should govern the Arbitration, (but note that the choice of another Law must not conflict with the public order and morality of the State)
- Any international commercial arbitration conducted abroad, if the Parties have chosen this law to govern such Arbitration.
- Any arbitration arising from a dispute in respect of a legal relationship, whether contractual or not, governed by UAE law, save as excepted by special provision.
The New Arbitration Law envisages that the parties enter into an arbitration agreement before any dispute arises, by either incorporating an arbitration clause within the agreement governing their relationship, or as a separate arbitration agreement. This agreement, whichever form it may take, must be in writing, otherwise it shall be considered null and void.
An arbitration agreement may also be concluded even if the dispute has already arisen and action has been brought before the court, in which case the parties must agree to refer the dispute to arbitration in writing before the relevant court.
One of the important requirements in relation to the arbitration agreement is that the agreement shall be signed by the respective and duly authorized person, who is entitled to sign an arbitration agreement or arbitration clause on behalf of parties. Our advice to clients is always to ensure the capacity of the counter-party’s representative, because apparent authority creates a number of issues in the UAE.
Arbitration clauses shall be deemed as separate independent agreements, and shall not be subject to invalidity and nullity, even if another part or the whole of the containing agreement is considered null and void.
CHALLENGING ARBITRAL AWARDS
Article 53 of the New Arbitration Law sets out the procedure to challenge an arbitration award and lists the circumstances where it may be challenged.
An interested party may challenge an arbitration award before the Court either by filing a case to nullify the award or by contesting the process when the application is already submitted to enforce the award.
The following circumstances may lead to an order to set aside or nullify an award
- Where there is no arbitration agreement entered into by the parties or such agreement is nullified, or it was lapsed.
- Where one of the parties in the moment of signing the arbitration agreement, was not duly authorized to do so or under some incapacity.
- Where the representative of a party had no legal capacity to sign an arbitration agreement or arbitration clause. Signatories to an arbitration agreement/clause must have direct authorization to do so.
- Where a party did not comply with required procedure of notification on arbitration process or appointment of Arbitrator or the Arbitral Tribunal breached due process or for any other reason beyond his control.
- Where the arbitral award excludes the application of the Parties’ choice of law for the dispute.
- Where the arbitral tribunal or arbitrator was appointed in breach of law or of the arbitration agreement/clause.
- Where the arbitral proceedings were marred by irregularities that affected the award or the arbitral award was not issued within determinate time frame.
- Where the award contains decisions on matters not falling within the terms of the submission to arbitration or beyond its scope, provided that, if the decisions on matters submitted to Arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to Arbitration may be set aside.
The award issued in compliance with the New Arbitration Law will be binding on the parties and no longer subject to appeal, and the award shall be enforced by the Court.
ACTION TO SET ASIDE AWARD –
The Arbitration award is final, however it may be challenged by virtue of action to set aside the award in whole or in part To set aside an award means to “declare the award to be disregarded in whole or in part”.
The Courts decision to set aside the award is final. Nevertheless, the Law allows a decision to set aside to be appealed in the Court of Cassation
The law in Article 54 determines the time limit for the seeking party to file an action to set aside the award as:
“An action to set aside an arbitral award shall be time barred after 30 days from the date of notification of the award by the party seeking to set it aside.”
The Court may suspend the setting aside process for 60 days, in order to give the Arbitral Tribunal an opportunity to take any action or amend the form of the award which may then eliminate the grounds for setting aside without affecting the substance of the award.
ENFORCEMENT OF AN ARBITRATION AWARD
The most crucial issue for the winning party of the arbitration is to enforce the award once issued. The Arbitral award is final and binding on parties once it is issued, and if the parties do not comply with the award, then further steps can be taken to enforce the award in the UAE.
Previously, to enforce an arbitration award, the winning party had to file a case in the local courts to ratify it. The enforcement process in the local courts was a time-consuming process due to lack of the legislation system regulating arbitration.
The New Arbitration Law contains a new, less complicated, procedure of enforcement. Article 55 of the New Arbitration Law sets out the following requirements to enforce the award:
The parties to the dispute must submit a request for the confirmation and enforcement of the arbitration award with the Chief Justice of the Court, supported by the following documents:
- The original award or a certified copy
- A copy of the Arbitration Agreement
- An Arabic translation of the arbitral award, attested by a competent authority, if the award is not issued in Arabic
- A copy of the minutes of deposit of the award in Court
Within sixty days upon submission of the request, the Chief Justice of Court and any other judges delegated by the Chief Justice of Court, shall order the arbitral award to be confirmed and enforced, unless it finds one or more grounds for setting aside the award under section 1 of Article 53.
However, we must highlight that the Chief Justice of Court has not yet issued any order confirming awards and no delegation has been granted to another judge. From a practical point view, it would seem that this provision is currently not applicable because the court system is currently under technical development.
STAY OF ENFORCEMENT OF AWARD
Article 56 states that a action to set aside an arbitral award does not stay its enforcement. Nevertheless, the Court seized of the action to set aside the award may order a stay of enforcement if so requested by a Party showing good cause.
The interested party shall provide a security or monetary guarantee, if the court orders a stay of enforcement. The court shall decide, within 60 days from the date of the order, what action to take.
The Law does not specify what grounds can defined as a good reason for the court to order a stay of enforcement.
RECOURSE AGAINST ENFORCEMENT OF AWARD
The seeking party may file an appeal to the competent Court of Appeal within the 30 days from the date following notification of the Court’s decision to grant or deny enforcement of an arbitral award.
Before the New Arbitration Law came into place, arbitrations were governed by Civil Procedure Code in Articles 203 to 218. Such a lack of developed arbitration legislation framework often led to complications with enforcing arbitration awards.
Although many uncertainties remain from a procedural point of view, (i.e. as the practical application of the law yet remains to be seen) and the Court system still has not launched the option to submit the above-mentioned request for enforcement of an arbitration award, it is understood that this shall take place in the near future.
We believe that New Arbitration Law will shed light on existing ambiguities in arbitration procedures. Enforcement will facilitate solutions to current problems of the framework which will, hopefully, in turn result in an efficient and explicit legal framework governing arbitration proceeding, as well as the enforcement of arbitration awards.
In more simplified terms, a claiming party can now directly enforce an arbitration award in the UAE rather than having to file a case to ratify the award first.
 Redfern, A., Hunter, M., Blackaby, N. and Partasides, C., Law and Practice of International Commercial Arbitration, London 2004, Sweet & Maxwell
Al Dahbashi Gray– Malika Kashagonova – 28 August 2018
Al Dahbashi Gray is a full-service UAE firm that provides an unparalleled legal service, connecting international clients and partners seamlessly with the region, and promoting a better understanding of the Middle East internationally.