07 Aug 2018

The New Arbitration Law

Authored by: Adrian Chadwick and Wesley Wood

In brief:

  • The issuance of Federal Law No. 6 of 2018, the new Arbitration Law, is a long awaited and welcome development in the UAE.
  • We expect that the new Arbitration Law will strengthen the UAE’s position as the preferred choice for arbitration in the MENA region as it becomes more globally competitive as an arbitral seat.
  • In this article, we summarise some of the key provisions of the new Arbitration Law and comment on issues which may affect the recognition and enforcement of foreign arbitral awards in the future.

The issuance of Federal Law No. 6 of 2018 (the “New Arbitration Law”) by the United Arab Emirates (the “UAE”) is a long awaited and welcome development. The New Arbitration Law, repeals the Arbitration Chapter (Articles 203 to 218) contained in Federal Law No.11 of 1992 (the Civil Procedure Code) and is mostly based on the UNCITRAL Model Law.  We expect that the New Arbitration Law will strengthen the UAE’s position as the preferred choice for arbitration in the MENA region as it becomes more globally competitive as an arbitral seat.  However, although the New Arbitration Law has generally been positively received and has resolved some of the problematic issues that existed under the now repealed Arbitration Chapter of the Civil Procedure Law (the “Old Law”), some of the issues have survived and some potential new issues have also emerged. So what does the New Arbitration Law provide for and how does it differ from the provisions in the Old Law? A brief summary of some of the key points is set out below as well as some comments on issues which may affect the recognition and enforcement of foreign arbitral awards in the future.

 

The Scope of Application (Article 2)

The New Arbitration Law which came into force on 16 June 2018 applies to:

  1. arbitrations conducted in the UAE unless the parties have agreed that another law will apply, provided such law doesn’t contravene public order or public morality of the UAE;
  2. international commercial arbitrations conducted outside the UAE, if the parties have agreed to apply the provisions of the New Arbitration Law; and
  3. an arbitration arising out of a legal relationship (whether contractual or non-contractual) governed by the laws of the UAE, save for cases which are excluded by a private law.

The New Arbitration Law will also apply to arbitrations falling within the above categories which are underway at the time the New Arbitration Law came into force.

The New Arbitration Law does not apply to arbitrations where the parties have agreed that the Dubai International Financial Centre (“DIFC”) laws or the Abu Dhabi Global Market (“ADGM”) laws will apply as these jurisdictions both have their own arbitration laws. The New Arbitration Law will apply if the seat is in the DIFC or the ADGM but the parties have agreed that UAE law will apply to any arbitration.  We discuss below some issues that may arise in respect of recognition and enforcement in the UAE of international arbitral awards seated outside the UAE.

 

Capacity to Conclude an Arbitration Agreement (Article 4)

Only natural persons or the representative of a juristic person duly authorised to dispose of the rights of such a juristic person are eligible to enter into an arbitration agreement. Therefore, it will still be necessary to consider whether or not a person has capacity/authority to bind a company to an arbitration agreement and this issue will continue to cause delay and expense. However, this issue is not as potent as was previously the case as the UAE courts appear to now be more sympathetic to the concept of apparent authority in respect of arbitration agreements.

 

Types of Arbitration Agreements (Article 5)

It is permissible to conclude an arbitration agreement prior to or after a dispute has arisen and the agreement may take the form of a separate standalone agreement or as a clause within a contract.  It is also permissible to conclude an arbitration agreement by reference within a contract or other document containing an arbitration agreement if the reference is clear in considering such clause to be part of the contract.

 

Independence and Severability of the Arbitration Clause (Article 6)

The arbitration clause is independent from all other terms of the contract and so the invalidity, dissolution or termination of the contract shall not have a bearing on the arbitration clause, provided that the arbitration clause is itself valid.  The arbitration panel (the “Panel”) is empowered to determine whether the original contract is valid and pleading the invalidity of the contract does not result in arbitration procedures ceasing.

 

Form of the Arbitration Agreement (Article 7)

The arbitration agreement must be in writing. Failure to comply means the arbitration agreement is null and void.  However, it is now expressly provided that written correspondence and email exchanges (which comply with the UAE’s laws regarding electronic transactions) will suffice.

It will also suffice for there to be reference in a written contract to the provisions of a model contract or international agreement or any other instrument containing an arbitration clause, provided the reference was clearly considered part of the contract. This was always uncertain under the Old Law, so this clarification is welcome.

 

Dispute regarding whether there is an Arbitration Agreement (Article 8)

If court proceedings are commenced in the UAE by a party who has chosen to ignore an arbitration agreement and a Defendant then pleads that there is an arbitration agreement before he/she has either made any demand or has filed a defence on the merits, the court is required to dismiss the proceedings unless it determines that the arbitration agreement is invalid. This is welcome reform as under the Old Law a Defendant had to raise the issue of an arbitration agreement at the first hearing. However, in our view the sooner a Defendant raises the issue the better to prevent any accidental waiver of the arbitration agreement and in practice Defendants may still prefer to raise the issue at the first hearing.

 

General Jurisdiction for Arbitration Cases (Article 18)

The New Arbitration Law provides that a competent court in the UAE will have jurisdiction to hear arbitration issues referred to it. The court is defined as being a federal or local court of appeal (the “Appeal Court”). This means that all proceedings relating to arbitrations bypass the Court of First Instance and are made to the relevant Appeal Court. The Chairman of the Appeal Court may, at the request of one of the parties or the Panel, issue an order for taking precautionary or interim measures and such an order can be requested and made prior to, or during, the arbitration.  It is expressly provided that no such measures will result in the cessation of the arbitration or be deemed as a waiver of the arbitration agreement.

 

The Arbitration Panel (Articles 9 & 10)

The Panel must consist of one or more arbitrators (always an odd number), being natural persons of either gender or any nationality, unless the law provides or the parties agree otherwise. The default is three arbitrators unless the Appeal Court or the entity authorised to conduct the arbitration determines otherwise.

Arbitrators nominated for an arbitration are required to disclose any circumstances which might give rise to doubts over his or her independence or impartiality and this duty of disclosure continues after his or her appointment.

 

Kompetenz-Kompetenz (Articles 19 & 20)

The Panel has the power to determine, whether by way of a preliminary or final award, its own jurisdiction as well as the existence/invalidity of the arbitration agreement, or whether the arbitration agreement covers the subject matter of the dispute.  The parties are entitled to approach the Appeal Court to challenge, within 15 days, the Panel’s preliminary decision confirming its jurisdiction. The Appeal Court’s decision, to be rendered within 30 days of registration, is final.  The arbitration will be suspended pending the Appeal Court’s decision, unless the Panel decides otherwise and the party requesting the continuation of the arbitration will bear the arbitration costs if the Appeal Court rules that the Panel lacked jurisdiction. Hopefully, this new procedure will reduce the scope for delay and post final award challenges that existed under the Old Law.

 

Interim and Precautionary Measures (Articles 21 & 36)

The Panel is empowered to order a party to take any interim or precautionary measure deemed necessary, including preserving evidence, preserving or selling goods or depositing them with a third party.  In fact, the Panel has the power to order a party to keep and preserve assets against which execution can be levied in the event that an award is made against that party.  The Panel even has the power to order that the status quo be maintained, or the original position restored, pending determination of the dispute.  It is also permissible for the Panel to order that a measure be taken to prevent any present or imminent damage or prejudice or to order that a party refrain from taking a measure that could lead to such consequence. The Panel is also entitled to order the applicant seeking interim or precautionary measures to provide security to cover the costs of such measures. It will be interesting to see how arbitrators choose to exercise this power to preserve evidence etc. and how often security is required from the applicant.

A party in whose favour the Panel has issued an order for an interim measure may, with written permission from the Panel, apply to the Appeal Court to issue an order for execution of the Panel’s order within 15 days of receipt of the request.

The Old Law did not include any provisions for the Panel to make interim or precautionary measures and it was always uncertain if a Panel would be willing to make such orders or if they did whether an Appeal Court would recognise and enforce such an order. The New Arbitration Law therefore brings UAE arbitration practice more into line with global arbitration practice.

Additionally, the New Arbitration Law allows the Panel, either of its accord or pursuant to a request from one of the parties, to request the Appeal Court’s assistance to obtain evidence.  The Appeal Court may order witnesses to appear before it or order a party to submit documents or other evidence.  The Chairman of the Appeal Court can also (a) punish any witness who fails to appear or abstains from answering questions directed at him; (b) instruct third parties to present any documents in their possession which are necessary for settling the dispute; or (c) issue orders to request judicial assistance from a foreign court (letters rogatory).  What punishment the Appeal Court will impose is unclear and it will be interesting to see how the Appeal Courts deal with this.

Under these provisions, the weapons in the armoury of arbitration practitioners has been substantially increased compared to what was available to them under the Old Law.

 

Joinder (Article 22)

The Panel can join parties to an arbitration, at the request of one of the existing parties or the party to be joined, provided that such party is a party to the arbitration agreement. However, the New Arbitration Law does not provide for consolidation of multiple arbitration proceedings and if this is desired it should be included in the arbitration agreement either expressly or by incorporation through arbitral rules, such as the ICC (which does provide for this).

 

Applicable Procedures (Articles 23)

The parties are at liberty to elect the procedures to apply in the arbitration and may agree that the rules of any arbitration institution shall apply.  If the parties do not agree on the procedures to be applied then the Panel may do so, provided that the procedures do not offend the basic principles of litigation or an international agreement to which the UAE is a party.

There is no requirement under the New Arbitration Law for the Panel to hold a preliminary meeting with the parties. However, some arbitral rules, including DIAC, do include such a requirement.

 

Waiver of Right of Opposition (Article 25)

If a party continues with the arbitration procedures and fails to oppose any violations of the arbitration agreement or any provisions of the New Arbitration Law within seven days from the date of becoming aware of such violation, or within such other period as the parties may have agreed, then such party shall be deemed to have waived its right to do so.

Under the Old Law, a guerilla tactic that was sometimes used at the enforcement stage, well after an award had been issued, was to raise an allegation that the award should be nullified due to a procedural irregularity which the party making the nullification request knew about at the time but kept in reserve for use at the enforcement stage. Indeed, sometimes a party deliberately tried to engineer such an opportunity. It is to be hoped that this Article may reduce the frequency and effectiveness of such tactics.

 

Commencement of Arbitration Procedures (Article 27)

The New Arbitration Law provides that the arbitration will commence on the day following the constitution of the Panel, unless the parties have agreed otherwise.

This may become extremely important when a claim is close to becoming time-barred. It can take a considerable period between a party sending its request for arbitration and the Panel being constituted and the length of this period is not within the control of the party that made the request. Indeed, a party receiving a request for arbitration may deliberately try to delay the Panel being constituted until after the time-bar period has expired. Some institutional arbitral rules expressly provide when an arbitration is commenced and if those rules are incorporated into the arbitration agreement, then that provision will apply. The DIAC Rules at Article 4.1 set out what a party must do to commence an arbitration. However, it is unclear if the sending of a request for arbitration does actually commence the arbitration or if the arbitration is commenced only later after the constitution of the Panel. To be on the safe side, pending judicial review, we suggest any party wishing to commence DIAC arbitration proceedings does so on the basis that the commencement will be the day following the constitution of the Panel and to make sure this occurs before any time-bar period expires.

 

Arbitration Seat and Language (Articles 28 & 29)

The parties are free to agree on the arbitration language and seat/place.  If the parties fail to reach agreement then the arbitration will be conducted in the Arabic language and the Panel will choose the seat, taking into account the circumstances of the dispute and convenience of the parties. The Panel may hold hearings at any place it considers appropriate and may use modern communication technologies for the hearing.

 

Submissions (Articles 30 – 32)

The Statement of Claim, which must contain specific information including the parties’ details as well the facts and issues in dispute, must, unless otherwise agreed, be served within 14 days of the Panel being constituted.  If a Claimant fails to submit its Statement of Claim, and the Panel considers that there has been undue and unjustified delay on a Claimant’s part that would make it impossible to reach a fair resolution or would prejudice a Respondent, then the Panel may terminate the arbitration.  A Respondent’s Reply, which must contain any interlocutory claims or counterclaims, must, unless otherwise agreed, be served within 14 days from the day following service of the Statement of Claim.  The failure by a Respondent to submit a Reply shall not be deemed to have been an admission of a Claimant’s allegations.

The 14 day default time limit is quite short and many Arbitral Rules, such as DIAC, provide for a longer period of 30 days. The express power given to the Panel to terminate the arbitration should the Claimant fail to submit its Statement of Claim will be a useful weapon for the Panel.

Under the Old Law, it was not uncommon for a party to seek to amend its pleadings very late in the day with a deliberate intent to cause delay. Under the New Arbitration Law the Panel, applying principles of due process, is entitled to refuse to accept any such amendment for the purpose of avoiding delay or if it considers the amendment falls outside its jurisdiction.

 

Hearings (Article 33 and 35)

Unless otherwise agreed, the Panel can elect to determine the matter on the basis of the submissions and documents submitted by the parties or it may hold an oral hearing (in camera), which includes modern communication technologies, excusing the parties from being physically present. Therefore, if the parties wish to retain a right to require an oral hearing it should be included in the arbitration agreement, either expressly or by incorporation through arbitral rules.

The parties are permitted to avail the assistance of lawyers, experts or others to represent them at the hearing and the Panel is entitled to request that any party submit proof of the authority granted to its representative.  We expect most Panels will continue to require lawyers to provide a notarised Power of Attorney.

The Panel may hear witness testimony (both of fact and expert) via modern communication technologies without the physical presence of the witness.

 

Panel Appointed Experts (Article 34)

The Panel may appoint an independent and impartial expert(s) to submit a report(s) and the parties shall have an opportunity to submit a response to the contents of the report(s) or to appoint their own expert to give an opinion in respect of the matters addressed by the Panel appointed expert.  The Panel will determine the responsibility for payment of the Panel appointed expert’s fees.

 

Rules to be applied (Article 37)

If the parties have agreed that a foreign law will apply then the substantive rules of such law, but not the rules relating to conflict of laws, shall be applied, unless the parties agree otherwise and provided there is no conflict with the public order or public morality of the UAE.

If the parties have agreed that the legal relationship between them shall be governed by the provisions of a model contract or an international convention or other document then such provisions will apply, including any arbitration-related provisions contained therein (again, so long as there is no conflict with the public order or public morality of the UAE).

The Panel will apply the substantive rules of the law which it considers most appropriate to the subject matter of the dispute in the event that the parties have not agreed on the rules.

 

Interim and Partial Awards (Article 39)

The New Arbitration Law permits the Panel to render interim or partial arbitral awards in relation to a specific part of the claim.  An interim award is expressly executable before the Appeal Courts by order of the Chairman of the Court. This raises the issue of whether a partial award is also meant to be executable. It is arguable that it should be executable as it is a final award on the part of the arbitration claim it has determined. However, it would have been ideal if the New Arbitration Law expressly stated this in the same way it has in respect of interim awards.

 

The Arbitral Award (Articles 41, 42, 44 - 52)

Under the New Arbitration Law, the arbitral award can be signed by each of the arbitrators, outside the UAE and can even be signed by electronic means, unless otherwise agreed. This has dispensed with one of the grounds of challenges that could be made under the Old Law which resulted in delay and expense as it caused arbitrators to have to fly into UAE solely for the purpose of signing the arbitral award.

The award must be rendered within the agreed time limit but in the event that no time limit has been agreed, then the award must be rendered within six months from the date of the first session of the arbitration procedures. However, the Panel and the parties are both empowered to extend that period by a further six months. If this extra period lapses then the Panel or one of the parties may request the Appeal Court to extend the time or to terminate the arbitration. The Appeal Court may impose conditions it deems fit in connection with any extension it grants. If the arbitration is terminated then either party can file proceedings before a competent court.

The Panel must provide the parties with an original or a signed copy of the arbitral award within 15 days of the date of issuance of the award which is the date on which the sole arbitrator signs the award or if there is more than one arbitrator, then on the date the last arbitrator signs the award. However, if the parties have not paid the arbitration costs in full, the Panel is entitled to refrain from providing the parties with the final award.

Unless the parties have consented in writing, the arbitral award is confidential and may not be published, although the publication of judicial judgments referencing arbitral awards would not be considered to be a breach of confidentiality.

Arbitral awards rendered in terms of the New Arbitration Law will have executory force as if it is a judgment of the Appeal Court but in order for an award to be executed the Appeal Court will have to ratify the decision.

Under the New Arbitration Law, the Panel may be requested by a party within 30 days of receiving the award to (i) interpret any ambiguous parts of its award; (ii) correct any material mistakes in its award; and (iii) render an additional award in respect of demands made in the arbitration that have been omitted in its award.

 

Costs (Articles 33 & 46)

The Panel is empowered to award arbitration costs which are the fees and expenses of the Panel and the costs of any experts appointed by the Panel. It would appear that, unless the parties have agreed otherwise, the Panel cannot award the parties their legal costs. The New Arbitration Law allows parties to be represented by lawyers, experts or others but it provides the parties do so at their own expense. If the parties want to allow legal costs to be awarded, this should be included in the arbitration agreement either expressly or by incorporation through arbitral rules, such as that DIFC/LCIA Rules that do so allow.

 

Challenging an Arbitral Award (Article 53 & 54)

An application for nullification of an arbitral award must be brought within 30 days of the date on which the award was served on the party seeking nullification.  The arbitral award may also be challenged at the time the Appeal Court is considering an application for ratification.  Article 53 of the New Arbitration Law sets out a list of grounds on which nullification can be obtained. These include that the arbitration is unenforceable, that a party lacked capacity to enter into the relevant arbitration agreement; and that the Panel exceeded its jurisdiction. In addition, if the subject matter of the dispute is non-arbitral or if the award contravenes public order or public morality of the UAE, then the Appeal Court may of its own accord determine that the award is null and void.

The Appeal Court’s judgment regarding the nullity of an award is final and can only be appealed to the Court of Cassation.

Notwithstanding the nullity of an award, the arbitration agreement will remain valid unless the nullity was based on the non-existence, lapse, invalidity or unenforceability of the arbitration agreement. It should therefore be possible to recommence new arbitration proceedings. Under the Old Law, it was uncertain if the arbitration agreement itself remained valid if an award was made and then nullified.

A party’s agreement to waive a right to challenge an award prior to it being issued will not be upheld. Some arbitral rules provide that the parties have agreed that awards cannot be challenged. Under the New Arbitration Law, it is clear that this provision is ineffective.

 

Execution of an Arbitral Award (Articles 55)

The Appeal Court seized with an application for nullification of an arbitral award may stay the nullification procedures for up to 60 days in order to permit the Panel to amend the form of the award so as to eliminate the grounds of nullification so long as the amendment does not affect the purport of the award.

A party wishing to execute an arbitral award must with supporting documents make an application to the Chairman of the Appeal Court for ratification and execution of the award.  Unless there are reasons to render the award null, the Chairman of the Appeal Court must issue an order for ratification and execution within 60 days of the date on which the application was submitted.

 

Stay of Execution of the Arbitral Award (Article 56 & 57)

The execution of an arbitral award will not necessarily be stayed simply because an action for the nullification of the award has been filed but a party may make an application on serious grounds for the stay of the execution and the Appeal Court must determine the application within 15 days from the date of the first hearing.  If the Appeal Court issues an order for the stay of the execution then it may also order the applicant to provide security, and in those circumstances, the Appeal Court must determine the nullification action within 60 days from the date of the order.  What constitutes serious grounds is unclear and it will be interesting to see how the courts determine this. A grievance may be filed against the Appeal Court’s decision to grant or refuse enforcement of an arbitral award within 30 days from the date of service of the Appeal Court’s decision.

 

Foreign Arbitral Awards

The UAE has acceded to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).  The New York Convention was brought into effect by UAE Federal Decree No. 43 of 2006, and entered into force in the UAE on 19 November 2006.  Foreign arbitral awards from New York Convention signatory countries other than the UAE should be enforceable under the provisions of the New York Convention.  Article V of the New York Convention sets out the grounds on which a court in a signatory country can refuse to recognise and enforce a foreign arbitral award.  The UAE courts have applied these grounds when determining whether or not to recognise and enforce a foreign arbitral award in the UAE. 

Article 53 of the New Arbitration Law sets out the grounds on which an application can be made to the Appeal Court to challenge an arbitral award and seek to have it declared null and void.  Where an arbitration is conducted abroad but the New Arbitration Law applies (as the parties have chosen the New Arbitration Law to govern the arbitration) then it would appear that, in theory, an application to challenge the award can be made to the Appeal Court under either or both Article 53 of the New Arbitration Law and Article V of the New York Convention.  However, under Article III of the New York Convention, a court in a signatory country should recognise and enforce a foreign arbitral award under the conditions laid down in the New York Convention and a signatory country should not impose more onerous conditions or higher fees or charges than are imposed on the recognition and enforcement of domestic arbitral awards.  It is arguable that the Appeal Court should refuse to recognise a foreign arbitral award unless it is validly challenged on one of the grounds set out in Article V and the Appeal Court should dismiss any challenge made only on a ground set out in Article 53.  However, this will no doubt be tested before the Appeal Courts in due course.

Article 235 of the Civil Procedure Code sets out various cumulative requirements for a foreign court judgment to be recognised and enforced in the UAE.  Article 236 of the Civil Procedure Code provides, in translation, that “The provisions of the foregoing article shall apply to the awards of arbitrators made in a foreign country; the award of the arbitrators must have been made on an issue which is arbitrable under the law of the UAE, and capable of enforcement in the country in which it was issued.” There were various provisions of the Civil Procedure Code that applied to arbitrations, the terms of which conflicted with the provisions of the New York Convention.  As referred to above, Articles 203 – 218 of the Civil Procedure Code have been repealed by the New Arbitration Law.  However, Article 236 of the Civil Procedure Code has not been repealed and the failure to repeal this Article creates a potential uncertainty over whether or not an Appeal Court, when considering whether to recognise a foreign arbitral award, should apply only the New York Convention or should also apply Article 236 of the Civil Procedure Code.  As mentioned above, under Article III of the New York Convention a court in a signatory country should recognise and enforce a foreign arbitral award under the conditions laid down in the New York Convention and a signatory country should not impose substantially more onerous conditions for recognition and enforcement than apply for domestic arbitral awards. An argument could be made that the Appeal Court should refuse to recognise a foreign arbitral award unless it is validly challenged on one of the grounds set out in Article V and the Appeal Court should dismiss any challenge made only on a ground set out in Article 236.  However, this will no doubt be tested before the Appeal Courts in due course.  Prior to the New Arbitration Law coming into force there were several attempts to challenge the recognition and enforceability of foreign arbitral awards based on the provisions of the Civil Procedure Code.  The Appeal Courts rejected such challenges and stated that the terms of the New York Convention took precedence over the Civil Procedure Code.  It is hoped that the Appeal Courts will continue to adopt this reasoning but the continued existence of Article 236 of the Civil Procedure Code unfortunately does create a potential uncertainty.

The Appeal Courts can and have in the past refused to recognise and enforce a foreign arbitral award based on procedural grounds or public policy grounds.  This is permitted under Article V of the New York Convention, however, the Appeal Courts’ interpretation of these grounds may be more expansive than in some other New York Convention signatory countries.

Under the New Arbitration Law, an application for confirmation or to challenge an arbitration award is made to the Appeal Court, thus by-passing the Court of First Instance.  However, for foreign arbitral awards, the New Arbitration Law does not apply (unless the parties have chosen it to apply).  As mentioned above, under Article III of the New York Convention, a signatory country should not impose substantially more onerous conditions for recognition and enforcement than applies for domestic arbitral awards. Arguably therefore, in respect of foreign arbitral awards, any application for recognition and enforcement should also be made to the Appeal Court.  However, time will tell whether the Appeal Court will permit applications in respect of the recognition and enforcement of foreign arbitral awards to be made directly to the Appeal Court.

 

Conclusion

The New Arbitration Law has brought a positive change to the arbitration practice and procedures in the UAE. Not all the old issues have been fully resolved and some new issues now need to be considered, but on balance the New Arbitration Law has been well drafted. How exactly the New Arbitration Law and the related procedures will be applied by the courts will no doubt emerge over the coming months and years. The real litmus test will be in seeing how much the regional and global business community is now willing to increase its use of arbitration in the UAE. Our expectation is that arbitration in the UAE will benefit greatly from the New Arbitration Law.

 
 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.