09 Jan 2018

The Differences Between Arbitration and Litigation In The UAE

09 Jan 2018

When entering into any written transaction, there is often a provision regarding the method of dispute resolution – usually either arbitration or litigation. If you have not had much experience with disputes you may not afford much attention to this, and you may be unlikely to object to whatever dispute resolution method is proposed. Also, it does not help that most lawyers don’t tend to explain the differences between the methods of dispute resolution and the significance of choosing one over the other, unless specifically asked.

The purpose of this article is to give the reader, who may be about to enter into an agreement relating to the UAE (for example, the agreement will be executed in UAE or the reader resides in UAE), a short general guide on the differences between arbitration and litigation, with a focus on the arbitration centres and local courts of Dubai (and we note that, due to significant differences about which a whole new article could be written, this article does not cover the Dubai International Financial Centre courts).

This article is only intended as an overview, and should not replace seeking appropriate legal advice relating to the choice of dispute resolution for your particular situation, as many exceptions exist, and each agreement is unique. Therefore, we would strongly recommend seeking the advice of a competent UAE lawyer before you take any decision relating to the choice of a dispute resolution method.

Before getting into the detail of the differences between arbitration and litigation, it is important to touch upon the basics of each dispute resolution method. Litigation is considered as the standard dispute resolution method. The UAE is a federation of seven Emirates and each Emirate has a Court of First Instance and a Court of Appeal. Further, there are three Courts of Cassation in the UAE – one for Emirate of Dubai, one for the Emirate of Abu Dhabi, and one for the other five emirates.  The UAE is a civil law country whereby the constitution and the laws are the primary source of law. While judgments of the higher courts can act as source of guidance to the lower courts, the latter are not bound by them. Further, judgments are rendered through judges and not juries. On the other hand, arbitration is where two (or more) parties agree to seek resolution of civil disputes by an arbitral tribunal. That tribunal is made of one or more arbitrators who render an award (decision). There are several arbitration centres in UAE. The arbitration centres in Dubai are the Dubai International Financial Centre Arbitration Centre (DIFC-LCIA) and the Dubai International Arbitration Centre (DIAC).

This article will shed some light on the eight main differences between arbitration and litigation. Those differences are: (1) Right to Appeal; (2) Timeframe; (3) Influence on the Proceedings; (4) Costs; (5) Experience of the arbitrators and judges; (6) Enforcement; (7) Privacy; and (8) Language.

(1) The Right To Appeal

Litigation allows each party to a dispute to appeal any judgment rendered by a local court. The option to appeal a judgment is not only granted to the party that received an unfavourable judgment, but also to the party that received a favourable judgment if they are not satisfied with the outcome. Furthermore, the parties to a dispute may appeal more than once throughout the duration of a lawsuit until a final judgment is rendered. On the other hand, once an arbitral award is rendered, the parties may not challenge its merits, only on procedural grounds. In other words, they may not challenge the reasoning of the award, but may claim that the procedure did not comply with the arbitration centre’s rules for example.

Therefore, choosing between arbitration and litigation can be influenced by whether the parties to a written transaction wish to have the option to appeal a decision.

(2) Timeframe

Local courts are not required to render a final judgment within a limited timeframe. At every stage of litigation, whether it is the court of first instance, court of appeal or court of cassation, lawsuits may be adjourned if judges find themselves burdened by a heavy load of cases to allow them to prioritize their caseload, which contributes to the time-consuming nature of litigation.

Arbitration can also be quicker for three main reasons.

First, as stated above, arbitration does not allow for appeals based on merit, which necessarily extends the process.

Next, each arbitration centre must follow its own rules and usually (depending on the arbitration centre) those rules impose a certain time frame for the conclusion of a case. Whilst some rules do permit an extension to said period, in practice only cases that are highly technical or complex extend beyond the original period.

Finally, arbitrators are usually not as busy as judges. While judges in the UAE may handle dozens of lawsuits at any given time, arbitrators usually handle far fewer cases and so can deal with them with more speed.

(3) Influence on the Proceedings

Parties to a dispute have more influence over arbitration proceedings.

It is possible for parties in an arbitration case to choose their arbitrator(s). Usually arbitration cases are handled by a tribunal of one or three arbitrators. If parties decide that only one arbitrator is required, such an arbitrator is usually chosen and appointed by the arbitration centre to assure neutrality, but either party may object to proposed arbitrator (depending on the rules of the arbitration centre). In the event the parties wish to have three arbitrators resolve a dispute between them, usually each party would choose an arbitrator by its sole discretion and then the two chosen arbitrators would then select the third arbitrator. In litigation, parties do not have the power to appoint judges. Only in very limited circumstances may a party in a lawsuit demand the change of the judge.

Secondly, parties in an arbitration may agree the time limit for an award to be rendered, and this time limit would be acknowledged by the arbitration centre (before adding this term in their agreement, the parties should make sure that the rules of the arbitration centre chosen comply with this).  This option is not granted by law in litigation.

 

(4) Costs

Costs vary greatly between arbitration and litigation and therefore this is often a deciding factor when choosing between the two. Costs here include but are not limited to the arbitration tribunal/litigation and lawyers’ fees.

Both litigation and arbitration costs are proportional to the value of the claim, but arbitration costs are usually higher than in litigation. For example, if there is a claim in the value of a little more than AED 1,000,000, litigation costs would be up to AED 40,000 while they can be more than AED 100,000 if the claim goes to one of Dubai’s arbitration centres. Accordingly, choosing arbitration for agreements whose value is moderate can incur significant costs. Therefore, when choosing between arbitration and litigation, it is best to consider the value of the agreement.

Moreover, it is important to note that when a court gives a judgment in a matter, it only awards nominal legal fees regardless of the fees that were actually incurred. Such fees rarely exceed AED 2,000. This is, however, not the case when it comes to arbitration as it is common for an arbitral tribunal to require the losing party to pay the legal fees incurred by the winning party.

(5) The experience of the Arbitrators and Judges

Given the fact that the parties in an arbitration case have a say in choosing their arbitrators, such parties usually choose arbitrators who are experienced in resolving disputes similar to theirs. On the other hand, not only do the parties in litigation have no choice regarding the appointment of the judge, the litigation system in UAE is not that of specialization. In other words, any judge may find himself resolving any type of disputes, whether they are civil, criminal, labour or other matters. Accordingly, parties in a litigation can never be certain how experienced the judges will be at resolving their particular dispute.

(6) Enforcement

The enforcement of judgments and awards is arguably the most important factor when choosing between arbitration and litigation. It would make no sense to choose either one if the winning party was unable to benefit from the award or judgment. Therefore, it is important for each party entering into an agreement to consider this issue carefully before taking a decision on their preferred dispute resolution method.

This issue is so considerably vast, we will only touch upon a basic outline of this topic for the purposes of this article. We strongly suggest you seek the advice of a competent UAE lawyer regarding the enforcement of awards and judgments in the UAE to advise you on the best dispute resolution method for the agreement you wish to enter.

On average, enforcing an arbitration award takes little over a year longer than that of a judgment because the party ruled against in an award has the additional right to object and/or delay the enforcement of the award.

However, more important is the location of the other party.

If said party resides, or is located within the UAE, then there should not be any significant problem in enforcing a local judgment or a local arbitral award.

As regards arbitration awards, given that most countries signed or ratified the New York Convention, which requires each contracting country to recognize and enforce awards rendered in other contracting countries, there should not be any significant problem in enforcing a local arbitration award in the country where the other party resides or is located in (please note however that certain irregularities relating to an arbitration case could lead to the unenforceability of an award).

When it comes to enforcing local judgments in other countries, the situation could be much less certain. The enforcement of a local judgment in another country depends mainly on whether the UAE signed a bilateral treaty with that country on the mutual enforceability of judgments. Further, even if a bilateral treaty was signed between the UAE and another country, there usually are certain conditions that should be met before each country begins enforcing the local judgments of the other.

This topic is of the utmost significance, and we would strongly advise that you seek the advice of a UAE lawyer about it before signing the agreement you wish to enter.

(7) Privacy

Arbitration proceedings are usually conducted entirely in private and all documents pertaining to the arbitration remain confidential. Litigation proceedings, on the other hand, form part of the public record. If keeping a potential dispute private is of significant importance to the parties, then arbitration would be the preferable method.

(8) Language

Depending on the rules of the chosen arbitration centre, arbitration proceedings can be conducted in any language chosen by the parties to an agreement.  Litigation procedures in the UAE must be conducted in Arabic. Also, any document submitted to the local courts must be in Arabic. If it is not, then it must be translated into Arabic by an approved translation office.

Conclusion

Perhaps after reading all of the above you would think that arbitration is the better dispute resolution method in all cases. However, this is not necessarily the case. In general, arbitration may be the better option if the agreement you wish to enter is so technical that you would prefer to have (an) experienced arbitrator(s) resolve any dispute. Also, arbitration may be the better option if the value of said agreement justifies paying the significant arbitration costs. On the other hand, if you wish to enter a standard type of agreement (for example, an annual lease agreement), then choosing litigation could be the better option. As mentioned above, enforcement is of tremendous importance. More often than not, choosing between arbitration and litigation comes down to whichever judgment or award would be enforceable after the resolution of a dispute.

We hope you found the above information useful and that it assisted you in learning more about the differences between arbitration and litigation in the UAE. We believe choosing the dispute resolution method is of substantial importance and could save you significant trouble later, in the event a dispute arises with another party to the agreement you entered. In any event, it is strongly advisable to seek the advice of a competent UAE lawyer before making your decision.

Karim Salem and Laura Sperling, Al Dahbashi Gray.

Al Dahbashi Gray is a full-service international law firm based in Dubai. Combining broad international expertise with in-depth local knowledge, ADG provides bespoke legal services to clients in the UAE and beyond. Please call either Karim or Laura (+971 (4) 441 2031) if you wish to discuss your own particular circumstances in more detail.

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