08 Jul 2019

A Comprehensive Discussion on Arbitration in the UAE

Authored by: Zarghona Fazal, Maria Lezala and Sara Berger

1. Relevant international treaties

The UAE is a party to the following treaties on the recognition and enforcement of arbitral awards:

  • the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965;
  • the Riyadh Convention on Judicial Cooperation between States of the Arab League of 1983; and
  • the GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications of 1996.

The UAE has also entered into bilateral treaties relating to judicial cooperation, such as:

  • The Convention on Judicial Cooperation, Execution of Judgments and Extradition of Criminals between the UAE and the Tunisian Republic (1975);
  • The Convention on Judicial Assistance between the UAE and the government of the People's Democratic Republic of Algeria (1984);
  • The Convention on Judicial Assistance, Recognition and Enforcement of Judgments in Civil and Commercial Matters between the UAE and France ('the Paris Convention' 1992);
  • Treaty between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates on judicial assistance in civil and commercial matters (2007);
  • The Convention on Judicial Assistance in Civil and Commercial Matters between the UAE and the Republic of China (2004);
  • Treaty with Afghanistan pursuant to Federal Decree No. 23 of 2009;
  • the Treaty on Judicial Cooperation in Criminal Matters, Extradition of Offenders, Cooperation in Civil, Commercial and Personal Matters with Morocco (2006);
  • The Convention on Mutual Legal Assistance in Criminal Matters, Extradition of Criminals, Cooperation in Civil and Commercial Matters, Recognition and Enforcement of Judgments and Arbitration Awards between the UAE and the Republic of the Sudan (2005);
  • The Convention on Extradition of Criminals, Recognition and Enforcement of Judgments in Civil and Commercial Matters between UAE and the Islamic Republic of Pakistan (2005);
  • The Legal and Judicial Cooperation Agreement between the UAE and the Syrian Arab Republic (2002);
  • The Convention on Recognition and Enforcement of Judgments in Civil and Commercial matters between the UAE and the government of the Republic of Armenia (2003);
  • The Legal and Judicial Cooperation Agreement between the UAE and the Arab Republic of Egypt (2000);
  • The Agreement on Juridical Cooperation in Civil and Commercial Matters with India (2000);
  • The Legal and Judicial Cooperation Convention between the UAE and the Hashemite Kingdom of Jordan (1999);
  • the Agreement on Legal and Judicial Cooperation with Somalia (1982);
  • Agreement between the Republic of Tajikistan and the State of United Arab Emirates on Legal and Judicial Assistance in Civil and Commercial Matters (2007); and

In 2006, the UAE acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, pursuant to Federal Decree No. 43 of 2006 (New York Convention). The NY Convention provides common standards for court recognition and enforcement of foreign arbitral awards.

2. The Arbitration process in the UAE compared to other international jurisdictions

The arbitration process (particularly the enforcement process) in the UAE differs from other international jurisdictions, depending on whether the arbitration is a domestic arbitration (and if so, whether it is onshore or offshore) or a foreign arbitration. We discuss the differences in further detail below.

  1. Domestic Arbitrations and Awards

The UAE has recently enacted its first stand-alone Arbitration Law. The issuance of Federal Law No. 6 of 2018 (the Arbitration Law) repealed the previous Arbitration Chapter (Articles 203 to 218) contained in UAE Federal Law No. 11 of 1992 (the Civil Procedure Code). The Arbitration Law is therefore the primary guide which sets out the procedures for domestic arbitrations (including enforcement), which are conducted and ratified in the UAE (but excluding the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) Free Zones).

The Arbitration Law is mainly an adaptation of the UNCITRAL Model Law. The arbitration process in the UAE is therefore in line with international standards and can be comparable to other international jurisdictions.

  1. Free Zones in the UAE

There are numerous free zones in the UAE. These are economic free zones established for particular purpose and often have tax or customs exemptions. As mentioned above, there are two free zones in the UAE, each with separate legal jurisdictions, being the DIFC and the ADGM. The DIFC and ADGM each have their own laws based on English law, in respect of civil and commercial matters and their own Courts, which have rules based on the English Civil Procedure Rules.

The Arbitration Law will not apply to arbitrations seated in the DIFC or the ADGM, as these jurisdictions both have their own arbitration laws, as discussed in more detail in Question 3 below.

  1. Foreign Arbitrations and Awards

The Arbitration Law will generally not apply to foreign arbitrations and awards unless one of the conditions stated in Article 2 of the Arbitration Law are met.

Until recently, (if the conditions stated in Article 2 of the Arbitration Law did not apply), foreign arbitral awards were enforced in the UAE pursuant to the provisions of the New York Convention and the Civil Procedure Code. The position has now changed, as on 16 February 2019, Cabinet Resolution No. (57) of 2018 (Concerning the UAE Civil Procedure Law) (the Cabinet Regulations) came into force. The Cabinet Regulations go beyond mere clarifications of existing laws but have in fact amended and repealed certain provisions relating to arbitration in the Civil Procedures Law. The Cabinet Regulations provide the current procedure pursuant to which foreign arbitral awards are to be enforced in the UAE (excluding the DIFC and the ADGM jurisdictions), which we discuss in Question 5 below.

3. The main Arbitration bodies in the UAE and the laws they operate under

As financial centres, both the ADGM and the DIFC have welcomed representative offices of internationally recognised arbitration centers, the London Court of International Arbitration (LCIA) and the International Chamber of Commerce (ICC).

The DIFC established the DIFC-LCIA Arbitration Centre in 2008 and the ADGM recently followed suit by welcoming the first representative office of the ICC in the Middle East in October 2018. In 1994 Dubai also set up the Dubai International Arbitration Center (DIAC) and in 1993 Abu Dhabi formed the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC), evidencing a long standing practice of resolving disputes by parties seeking arbitral remedies in the UAE. Other prominent arbitration bodies include the Sharjah International Commercial Arbitration Centre, the Ras Al-Khaimah Commercial and Arbitration Centre; and the Emirates Maritime Arbitration Centre (EMAC).

As discussed in Question 2 above, arbitration in the UAE is distinguished between arbitrations which have theirs seats in: (i) the UAE proper but excluding the DIFC or ADGM (Onshore Arbitrations) or (ii) in one of the major free zones, such as the DIFC or the ADGM (the Offshore Arbitrations). The Onshore Arbitrations operate under the Arbitration Law and Offshore Arbitrations operate under the respective free zone’s own arbitration laws. In the DIFC, the DIFC Arbitration Law No. 1 of 2008, as amended by the Arbitration Law Amendment Law No. 6 of 2013 (DIFC Arbitration Law) applies. In the ADGM, the Arbitration Regulations 2015 (ADGM Arbitration Regulations) apply.

4. The use of local arbitration bodies compared to foreign arbitration bodies

Parties in the UAE generally prefer using local arbitration bodies such as DIAC (particularly in Dubai seated arbitrations) or the DIFC-LCIA (particularly in DIFC seated arbitrations). We have also observed an increase in ICC and LCIA arbitration clauses in construction and/or commercial contracts. Certain parties prefer using the DIFC-LCIA Arbitration Rules, given that they are modelled on the LCIA Arbitration Rules (which are well known international rules).

In respect of Onshore Arbitrations, Article 23 of the Arbitration Law for example provides that the parties to an arbitration 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 arbitral tribunal 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.

5. Recognition of foreign awards in the UAE

There are three ways in which a foreign arbitration award can be recognised and enforced in the UAE, which we discuss below.

  1. Recognition and Enforcement through the UAE Courts

As discussed above, if the Arbitration Law does not apply (as the requirements stated in Article 2 of the Arbitration Law are not met), foreign arbitral awards can be enforced pursuant to the Cabinet Regulations. Enforcement through the UAE Courts may be the best option if the judgment debtor’s assets are located for example onshore (excluding the DIFC or ADGM).

Article 86 of the Cabinet Regulations states that the requirements set out in Article 85 (regarding the recognition and enforcement of foreign judgments in the UAE) are also applicable to foreign arbitral awards and that “the arbitration award must have been issued on a matter for which arbitration is permissible in accordance with the Law of the State and is enforceable in the State wherein it has been issued”.

Article 85 of the Cabinet Regulations sets out the requirements for a foreign award to be recognized and enforced in the UAE Courts:

“1. Judgments and orders issued in a foreign state may be ordered to be enforced in the State under the same conditions prescribed in the Law of that foreign state for the enforcement of judgments and orders issued in the State.

2. The order for enforcement shall be applied for by a Petition to be submitted by the party concerned, and containing the data identified in Article (16) hereof, to the Enforcement Judge, and the latter shall issue an order no later than three days of the submission date thereof. The order so issued may be appealed according to the rules and procedures prescribed for appealing judgments. The enforcement may be ordered only after the following is verified:

  1. That the UAE Courts do not have exclusive jurisdiction over the dispute on which the judgment or order has been issued, and that the Foreign Courts that issued the same have jurisdiction according to the rules of International Jurisdiction prescribed in its Law.
  2. That the judgment or order has been issued by a Court in accordance with the Law of the State in which the judgment or order has been issued and duly certified.
  3. That the Parties to the Lawsuit on which the foreign judgment is issued had been required to appear and were properly represented.
  4. That the judgment or order has acquired the legal effect of res judicata according to the Law of the issuing Court, provided that a certificate shall be furnished indicating that the judgment has acquired the legal effect of res judicata, or where the same is already stated in the judgment itself.
  5. That the judgment neither conflicts with a judgment or an order previously issued by a UAE Court nor involves anything that violates the public order or morality of the UAE.
  6. The Enforcement Judge shall have the authority to demand documents that support the application before his decision is made.”

Therefore, in order to bring a claim for recognition and enforcement of a foreign arbitral award in the Dubai Court, an ex-parte petition or application for recognition and enforcement of the foreign arbitral award should be filed directly with the Dubai execution court. The execution judge should render a decision within 3 days from submission of the petition.  Once the application to enforce the foreign arbitral award is granted, the application will most likely need to be served on the respondent, in order to afford the respondent an opportunity to contest/appeal the order. In the interim, the claimant may proceed to apply for executory measures, such as making an application for executory attachment over the respondent’s assets to secure the judgment debt, which the respondent can appeal and try to set aside.

Given that the Cabinet Regulations have only recently come into force, the mechanisms for the enforcement of a foreign arbitral award through the UAE courts are untested and there may be challenges going forward, until the exact process for enforcement has been clarified by the UAE courts.

Article 88 of the Cabinet Regulations states that “the rules set out in this Chapter shall not prejudice the provisions of treaties and agreements between the State and other States on the enforcement of foreign judgments, orders and instruments.” The requirements for enforcement of a foreign arbitral award stated in the New York Convention are therefore still applicable in the UAE, given that the UAE acceded to the New York Convention. Therefore, if a conflict had to arise in relation to the requirements for enforcement under the Cabinet Regulations and in the New York Convention, a party can invoke the provisions of the New York Convention, if those are more favorable to that party’s position.

As discussed above, the Arbitration Law repealed Articles 203 to 218 of the UAE Civil Procedures Law regarding arbitration. Article 236 of the Civil Procedure Code (which was not repealed) further states 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”.

The failure to repeal Article 236 creates a level of potential uncertainty as to its current purpose and utility. One may argue that the failure to repeal Article 236 is intended to maintain the position that under UAE law the court may find grounds to nullify an award outside those found in the Arbitration Law and the New York Convention.

Article 238 of the Civil Procedures Law (which has also not been repealed by the Arbitration Law) provides that, inter alia, Article 236 is without prejudice to provisions of international treaties to which the UAE is a party. This indicates that legislators do not wish to circumvent treaties, such as the New York Convention.

  1. Recognition and Enforcement through the DIFC or ADGM Court

The DIFC Courts and the ADGM Courts are alternative options for the enforcement of a foreign arbitral award in the UAE, particularly where the judgment debtor’s assets are located in the DIFC or the ADGM.

  1. The DIFC Courts

Part 4 of the DIFC Law No. 1 of 2008 (the DIFC Arbitration Law) sets out the procedure for the enforcement of a foreign arbitration award in the DIFC Court. Part 4 of the Arbitration Law is modelled on the New York Convention, particularly Article 44, (which is modelled on Article V of the New York Convention), which sets out the grounds for refusing the recognition or enforcement of a foreign arbitral award. The DIFC Court will apply the grounds in Article 44 of the DIFC Arbitration Law when determining whether or not to recognise and enforce a foreign arbitral award.

It is also currently possible to use the DIFC Court as a conduit court for the enforcement of a foreign arbitral award in Dubai proper (i.e. onshore). The DIFC Court of Appeal rendered a judgment on 25 February 2016, stating that the DIFC Court could be used as a conduit court to recognise and enforce foreign judgments and awards (even where there is no connection to the DIFC) and that a party can then use the DIFC Court to enforce against assets Dubai proper. This paved the way for parties seeking to use the DIFC Courts as a conduit         court for enforcement against a party’s assets in Dubai outside the DIFC.

There may have been a preference by a party (prior to the enactment of the Cabinet Regulations), to enforce a foreign arbitral award through the DIFC Court rather than through the UAE Courts, as the process for enforcement was less onerous than under the procedure stated in the UAE Civil Procedure Code (now amended by the Cabinet Regulations). This option may become obsolete in future given: (i) the procedure for enforcement now set out in the Cabinet Regulations now appears to be faster and cheaper and (ii) the DIFC Court’s jurisdiction as a conduit court may be removed in future. Further, the introduction by the Government of Dubai of a Joint Judicial Committee [1] has in any event diverted a number of cases to the onshore Dubai courts on jurisdictional grounds, leaving affected parties with a dilemma regarding how to proceed with awards. It is possible that the Joint Judicial Committee may be abolished once the use of the DIFC Courts as a conduit court has been removed.

  1. The ADGM Courts

Articles 56 to 57 of the ADGM Arbitration Regulations provide a list of procedures to enforce an arbitral award and the grounds for refusing such recognition and enforcement.

6. Differences in the way in which foreign arbitration awards and foreign court judgments are recognized in the UAE

As with recognition and enforcement of foreign arbitral awards, foreign court judgments can be enforced through the UAE Courts, the DIFC Courts or the ADGM Courts.

Foreign court judgments can be enforced through the UAE Courts, in accordance with the same procedure for foreign arbitral awards, discussed in Question 5 above. There is no injunctive relief available from the UAE courts save for a precautionary attachment. Accordingly, it would be difficult to enforce a foreign judgment granting non-monetary relief in the UAE Courts.

Pursuant to Article 7(6) of DIFC Law No. 12 of 2004 (the Judicial Authority Law) and Article 24(1)(a) of DIFC Law No. 10 of 2004 (the DIFC Court Law), the DIFC Court has jurisdiction to ratify foreign court judgments. Foreign court judgments can be enforced through the DIFC Court, if the assets of the judgment debtor are located in the DIFC or by using the DIFC Court as a conduit court, to eventually seek recovery of assets in the UAE outside the DIFC, as discussed in Question 5. As mentioned above, the DIFC Court’s conduit jurisdiction is under scrutiny and this option may no longer be available in future.

If assets of a judgment debtor are located in the ADGM, it is possible to enforce a foreign court judgment by way of application to the ADGM Court of First Instance in accordance with Article 173(2) of the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015 (as amended) (the ADGM Court Regulations), assuming that the conditions for the registration of a foreign judgment contained in Article 172 of the ADGM Court Regulations have been satisfied.

7. Specific situations where awards are not enforceable

  1. Situations where domestic awards subject to the Arbitration Law are not enforceable

Article 53 of the Arbitration Law sets out a list of grounds on which nullification can be obtained in respect of a domestic arbitral award that is subject to the Arbitration Law.

These grounds include that the arbitration is unenforceable, that a party lacked capacity to enter into the relevant arbitration agreement; and that the arbitral tribunal exceeded its jurisdiction or the arbitral proceedings were marred by irregularities. In addition, if the subject matter is not arbitrable or if the award contravenes public order or public morality of the UAE, then the Court of Appeal may of its own motion determine that the award is null and void.

An application for nullification 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 Court of Appeal is considering an application for ratification.

  1. Situations where foreign awards are not enforceable

While practitioners in the UAE await further interpretation of the Cabinet Regulations by the courts and legislators, in reading the Cabinet Regulations, it is perceived that overturning the ratified award on appeal will be limited to the specific grounds set forth in Article 85 of the Cabinet Regulations.

As discussed in Question 5 above, these grounds include that UAE Courts have exclusive jurisdiction, the correct governing law was applied, proper service was effectuated, the opposing party was provided an opportunity to be represented, the award or judgment does not conflict with an existing UAE judgment, and the award does not violate public policy.

The Cabinet Regulations do not provide the power to nullify the foreign award to the UAE Courts thus leaving the nullification process to the courts of the seat of the arbitration. Presumably, this was done so that UAE law remains in line with the New York Convention, that expressly delegates the nullification of awards to the “competent court of the country which, or under the law of which, that award was made.”

  1. The DIFC and ADGM Courts

The DIFC Court will apply the grounds in Article 44 of the DIFC Arbitration Law when determining whether or not to recognise and enforce a foreign arbitral award.

Articles 56 to 57 of the ADGM Arbitration Regulations provide a list of procedures to enforce an arbitral award and the grounds for refusing such recognition and enforcement.

8. Types of dispute that cannot use arbitration as a vehicle

Article 2(3) of the Arbitration Law states that the Arbitration Law will apply to an arbitration arising out of a legal relationship (whether contractual or non-contractual), which is governed by the laws of the UAE, save for cases which are excluded by a private law/special provision. This includes Federal Law No 8 of 1980 (as amended) (the Employment Law), Federal Law No. 18 of 1981 (as amended) (the UAE Agency Law) regulating commercial agencies in the UAE, UAE laws applicable to ownership of real estate in the UAE, UAE laws relating to marriage, inheritance and rules of private ownership, and UAE criminal laws. Regarding the arbitrability of real estate disputes, recent Cassation Court judgments have clarified and re-affirmed the arbitrability of such disputes, so long as they do not concern registration of ownership, as that will be a matter of public policy.

Article 41(2)(b) of the DIFC Arbitration Law and Article 53(2)(b) of the ADGM Arbitration Regulations permit an award to be set aside if: (i) the subject matter of the dispute is not capable of being settled by arbitration or (ii) is contrary to the public policy of the UAE.

9. Mandatory procedures that have to be followed under the Arbitration Law

The Arbitration Law sets out the mandatory procedures that have to be followed including the provisions in Section II – The Arbitration Agreement i.e. the formation of a valid arbitration agreement, and Section III – The Arbitral Tribunal. Failure to comply with these requirements would invalidate the arbitration agreement and risk the arbitral award being set aside.

Nevertheless, Article 33 of the Arbitration Law provides the arbitral tribunal with a discretion to determine the rules of evidence to be followed in the arbitration proceedings.

10. Requirements for a valid arbitration agreement

As mentioned above, Section II of the Arbitration Law sets out the requirements for a valid arbitration agreement. 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 UAE laws regarding electronic transactions) will suffice. Pursuant to Article 7 of the Arbitration Law, 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.

However, only natural persons or the duly authorised representative or a juristic person, are permitted to enter into an arbitration agreement. Therefore, it is necessary to consider whether or not a person had the necessary capacity/authority to bind a company to an arbitration agreement.

Article 12 of the DIFC Arbitration Law and Article 13 of the ADGM regulations set out the requirements for a valid arbitration agreement.

11. Third parties and arbitration agreements

As a general rule, arbitration agreements bind only the parties that have expressly agreed in writing to arbitrate.

Pursuant to Article 22 of DIFC-LCIA Arbitration Rules 2016, the arbitral tribunal may permit third parties to be joined to the arbitration proceedings, provided they have consented to the same in writing. The ADGM Arbitration Regulations also permit third-party joinder, provided that the third party has consented to the joinder in writing.

12. The domestically binding nature of arbitration decisions

Pursuant to Article 52 of the Arbitration Law, an arbitral award will have executory force as if it were a judgment of the Court of Appeal but in order for an award to be executed, the Court of Appeal will have to ratify the award.

Article 55 of the Arbitration Law further states that unless there are reasons to render the award null and void, the chief justice of the Appeal Court must issue an order for ratification and execution within sixty days of the date on which the application was submitted. In order for a foreign arbitration award to become domestically binding, it will need to be recognised and enforced by the relevant court, as discussed in Question 5 above.

13. Who can act as an arbitrator

Article 10 of the Arbitration Law provides the qualifications which arbitrators must have in order to preside over arbitration proceedings, which are the following:

  1. An arbitrator must be a natural person of either gender or any nationality;
  1. An arbitrator must not be a minor or under court interdiction order or without civil rights by reason of bankruptcy (unless he has been discharged);
  1. An arbitrator must not be someone who has committed a felony or misdemeanor involving moral turpitude or breach of trust (even is he has been rehabilitated);
  1. An arbitrator cannot be on the board of trustees or the administrative body of the arbitration institution responsible for administering the arbitration in the UAE; and
  1. The arbitrator must disclose in writing anything that is likely to give rise to doubts as to his impartiality or independence.

Article 18 of the DIFC Arbitration Law requires an arbitrator to be independent and impartial and that he/she must possess qualifications agreed to by the parties. The arbitrator must also disclose any circumstances that are likely to give rise to doubts as to his impartiality or independence. This requirement applies from the time of appointment and throughout the arbitral proceedings.

Article 18 of the ADGM Regulations contains the same requirements as Article 18 of the DIFC Arbitration Law.

14. Circumstances where an existing arbitrator can lose their status

As discussed in Question 14 above, Article 10 of the Arbitration Law imposes specific requirements on an arbitrator. An arbitrator can lose their status by failing to comply with these requirements. Generally, an arbitrator can lose their status if he or she lacks independence, is biased and/or is not impartial.

Article 18 of the DIFC Arbitration Law provides that an arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. Article 20 of the DIFC Arbitration Law sets out further circumstances under which an arbitrator can lose his or her status.

Articles 18 and 20 of the ADGM Arbitration Regulations list the same grounds as  in Articles 18 and 20 of the DIFC Arbitration Law, in relation to when an arbitrator can lose their status.

15. Arbitrators and potential liabilities

In furtherance of the UAE’s goal of becoming a recognized hub for international arbitration, legislators have repealed Article 257 of the UAE Penal Code (as amended in 2016), pursuant to which arbitrators and party appointed experts were at risk of potentially being found to be criminally liable if their decisions or opinions were considered to be lacking “neutrality” and/or “integrity.”

Arbitrators and experts previously had concerns regarding potential criminal prosecution during arbitral proceedings in the UAE or after the completion of the same, which could be commenced, by for example, by a disgruntled party. However, Federal Decree Law No. 24 of 2018 came into force on 8 October 2018 and amended Article 257 of the Penal Code to specifically exclude criminal liability of arbitrators and party appointed experts. The UAE Minister of Economy has stated that he plans to coordinate with the arbitration institutions in the UAE, with a view to issuing a code of professional conduct for arbitrators.

Article 22 of the DIFC Arbitration Law provides that: No arbitrator, employee or agent of an arbitrator, arbitral institution, officer of an arbitral institution or appointing authority shall be liable to any person for any act or omission in connection with an Arbitration unless they are shown to have caused damage by conscious and deliberate wrongdoing. This Article does not affect any liability incurred by an arbitrator by reason of his resigning”.

Article 22 of the ADGM Arbitration Regulations provides similar grounds for liability as listed in Article 22 of the DIFC Arbitration Law.

16. The cost of arbitration compared to other jurisdictions

Local arbitration centre costs are generally in line with major international centre’s, depending on the complexity of the case; however, the ways in which costs are dealt with vary between on-shore seated arbitrations, and offshore DIFC and ADGM seated arbitrations.

17. The cost of arbitration compared to the cost of litigation in the UAE

The costs of arbitration and litigation vary depending on various factors including the complexity of the case and the parties involved. For smaller valued claims, arbitration can be more expensive than litigation.

For litigation, the court fees will vary depending on the court and the Emirate the claim is commenced in. The costs of commencing claims in various UAE Courts are set out below:

  • Abu Dhabi Court: 3% of the case, up to AED 40,000.
  • Dubai Court: 6% of the case, up to AED 40,000.
  • DIFC Court: the DIFC Court fees are calculated in accordance with the value of the claim, with the minimum court fee being USD 1,500 and the maximum court fee being USD 130,000.

In the UAE, a party can only generally recover nominal amounts for legal costs in the onshore UAE courts. However, a party can recover legal costs in arbitration, if the parties have expressly agreed to the recovery of legal costs in their arbitration agreement or in the terms of reference. Article 46(1) of the Arbitration Law authorises a Tribunal to assess the costs of arbitration including the fees and expenses incurred by a member of the Tribunal and the costs of tribunal appointed experts. The Arbitration Law is however, still silent on the treatment of legal costs and it is not clear how the meaning of “fees and expenses” should be construed.

Unlike DIFC and ADGM, it would appear that for on-shore arbitrations, unless otherwise agreed by the parties in the arbitration agreement or in the terms of reference, a Tribunal cannot award the parties their legal costs.  The arbitration agreement can incorporate arbitration rules (eg: the DIFC-LCIA Arbitration Rules) which provide for the award of costs but not all arbitration rules do so. The issue of costs has been considered by the the Dubai Court of Cassation which has held that the DIAC Arbitration Rules do not inherently empower Tribunals to award legal costs and therefore the Tribunal is not permitted to award legal costs in arbitrations commenced under such rules, unless the power to do so has been expressly conferred in the arbitration agreement or in the terms of reference.

18. Important time limits to be aware of in arbitration proceedings

For domestic arbitrations, the Statement of Claim must unless the parties have agreed otherwise, be served within 14 days of the Tribunal being constituted, pursuant to Articles 30-32 of the Arbitration Law. If a Claimant fails to submit its Statement of Claim, and the Tribunal considers that there has been undue and unjustified delay on the Claimant’s part that would make it impossible to reach a fair resolution or would prejudice a Respondent, the Tribunal 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 as an admission of a Claimant’s allegations. The 14 day time limit is quite short and many Arbitral Rules, such as DIAC, provide for a longer period of 30 days.

The arbitral award must pursuant to Article 42 of the Arbitration Law, be rendered within the agreed time limit but in the event that no time limit has been agreed, the award must be rendered within six months from the date of the first session of the arbitration proceedings.

Pursuant to Article 54(2) of the Arbitration law, a party wishing to set aside a domestic arbitration award has 30 days following the notification of the arbitral award to make an application to set it aside.

Pursuant to Article 19(2) of the Arbitration Law, if Tribunal decides in a preliminary decision that it is competent to hear the dispute, any of the parties may, within 15 days from the date of being aware of that decision, request the relevant UAE court to rule on that matter, to challenge an arbitral tribunal’s jurisdiction.

19. The commencement of the arbitration process

As an initial step, it is important to ascertain whether there is a valid agreement to arbitrate in place and whether there are any pre-conditions to commencing arbitration proceedings. If there are any pre-conditions, the parties should endeavour to comply with the same, unless these pre-conditions are waived by all of the parties.

The arbitration agreement should provide the necessary information in relation to the seat, governing rules, language, number and appointment of arbitrators, place etc of the arbitration. After the terms of the arbitration agreement have been considered, the arbitration process begins by filing and serving a Request for Arbitration (in accordance with the relevant arbitration rules stated in the arbitration agreement), with the relevant arbitral institution and on the respondent(s) in the matter.

Article 27 of the Arbitration Law states that arbitral proceedings shall commence from the day following the formation of the Arbitral Tribunal. This can be an important consequence, particularly in circumstances where proceedings need to be commenced prior to any time limitation expiring.

Article 28 of the DIFC Arbitration Law and Article 36 of the ADGM Arbitration Regulations state that arbitral proceedings will (unless otherwise agreed by the parties), commence on the date on which the Request for Arbitration is received by the Respondent.

20. The physical presence of arbitrators

Pursuant to Articles 33 and 35 of the Arbitration Law, unless otherwise agreed, a Tribunal may determine the matter on the papers only, i.e. on the basis of submissions and documents submitted by the parties or it may hold an oral hearing via the use of modern communication technologies which may excuse the parties from being physically present. Therefore, should a party wish to retain the right to an oral hearing, they should expressly include this in their arbitration agreement.

Article 31(1) of the DIFC Arbitration Law and Article 41(1) of the ADGM Regulations also state that unless otherwise agreed, a Tribunal may determine the matter on the papers only.

21. Evidential rules in formal hearings

Formal hearings are usually the norm in the UAE.

  1. Onshore seated arbitrations

Pursuant to the UAE Arbitration Law, it is at the Tribunal's discretion to determine the rules of evidence, admissibility, relevance and weight of evidence to be presented by the parties, whether that be evidence of fact or expert opinion.

A Tribunal may also specify the time limit, method and form of the exchange of evidence. It is usually common practice for the parties to refer to the IBA Rules on the Taking of Evidence in International Arbitration. If the parties have not expressly agreed on the evidential rules to be applied, then pursuant to Article 33(7) of the Arbitration Law, Federal Evidence Law No. 10 of 1992 (which governs civil litigation in the UAE Courts), will be applicable.

  1. DIFC Arbitration

Notwithstanding the mutual agreement of the parties, the Tribunal has the discretion to determine the admissibility, relevance, materiality and weight of any evidence. A Tribunal is not bound by the rules of evidence that apply to DIFC Court; however, a party (with the Tribunal’s consent), may request the DIFC court’s assistance when considering evidence.

  1. ADGM Arbitration

Similar to the DIFC Arbitration Law, the ADGM Arbitration Regulations also permit a Tribunal in an ADGM seated arbitration to determine the admissibility, relevance and materiality of any evidence. The Tribunal is not bound by the rules of evidence of the ADGM courts; however, parties may request the ADGM court’s assistance when considering evidence.

22. Referral of an arbitration to the national courts

There are few circumstances in which an arbitration may be referred to national courts. Such circumstances include; validity or invalidity of an arbitration agreement, enforcement or setting aside an award, incorrectly joining a third party to the arbitration proceedings and extending the time period for issuing an award.

23. Interim measures

Pursuant to the Arbitration Law, the Tribunal can order any interim and/or precautionary measures deemed necessary. For example: Article 39 of the Arbitration Law permits a Tribunal to render interim awards in relation to a specific part of the claim. An interim award is expressly executable before the Court of Appeal by order of the Chairman of the Court.

The Tribunal can also make the following interim orders: an award for preserving evidence, preserving or selling goods or depositing them with a third party, ordering 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 Tribunal further has the power to order that: the status quo be maintained, or the original position be restored pending determination of the dispute, that a party take any measure to prevent any present or imminent damage and to order the applicant seeking interim or precautionary measures to provide security for costs for such measures.

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

Under the previous Arbitration Chapter of the Civil Procedure Code (which has now been repealed), there was no express authority for the Tribunal to make interim or precautionary measures and it was uncertain whether a Tribunal would be willing to make such orders or if the Tribunal did, whether the Court of Appeal would recognise and enforce such an order. The new Arbitration Law therefore brings UAE arbitration practice in line with global arbitration practice.

The Arbitration Law permits the Tribunal, either of its own accord or pursuant to a request from one of the parties, to request the Court of Appeal’s assistance to obtain evidence.  The Court of Appeal may for example, order witnesses to appear before it or order a party to submit documents or other evidence.  The Chairman of the Court of Appeal can also (a) punish any witness who fails to appear or abstains from answering questions directed to them; (b) instruct third parties to disclose 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).

24. The majority required for a decision

Article 12 of the Arbitration Law provides that in arbitral proceedings with more than one Arbitrator, any decision of the Tribunal shall be made; unless otherwise agreed by the Parties, by a majority. However, questions of procedure can be decided by one appointed presiding Arbitrator that has been previously agreed by the parties and the Tribunal.

25. The types of award available

  1. Onshore awards

The Arbitration Law distinguishes between interim, partial awards as well as final arbitral awards. Article 39 of the Arbitration Law permits the Tribunal to issue interim awards or awards on certain parts of a party’s claim. Article 40 further permits the Tribunal to make a consent award, should the Parties amicably settle the dispute. Article 51 of the Arbitration Law further permits the Tribunal to make an additional award within 30 days of receipt of the award, a party with notice to the other party requests the Arbitral Tribunal to do so.

The DIAC Arbitration Rules permit the Tribunal to make the following types of award: preliminary, interim, interlocutory, partial or final awards. By contrast, the ADCCAC Arbitration Rules do not recognize such a distinction but rather they permit the Tribunal to issue a ruling on parts of a party’s claim before issuing a final award.

  1. Offshore awards
  1. DIFC arbitration awards

The DIFC Arbitration Law does not expressly differentiate between awards. In our view, the DIFC Courts will grant interim, partial and final awards as appropriate.

The Article 42(1) of the DIFC Arbitration Law permits a party having received permission from the Tribunal, to apply to the DIFC Court of First Instance for an order enforcing the Tribunal’s interim award; however, the law is silent on the procedure for recognition and enforcement of the interim awards.

  1. ADGM arbitration awards

The ADGM Arbitration Regulations do not expressly differentiate between different types of awards. However the Tribunal is permitted to grant interim measures at various stages of the arbitration, which can later be amended or terminated. Article 28 of the ADGM Arbitration Regulations expressly states that an interim measure made by the Tribunal can be enforceable by application to the ADGM Court or any competent authority. The ADGM Court may refuse the interim measure on the same grounds that a partial or final award may be refused; however, the AGM Court is not entitled to review the substance of the award.The Tribunal can also make a final award.

26. The time limit for providing an award

The Tribunal will issue a final award within the “timeframe agreed by the Parties”, pursuant to Article 42 of the Arbitration Law. If the Parties have not agreed on a specific time limit then the award shall be issued within 6 months from the date of the first session of the arbitration proceedings.

The Tribunal may extend the time limit for up to 6 additional months, unless the parties agree for a longer extension. If an arbitral award is not issued within the agreed time period, the Arbitral Tribunal and either party may request the Court of Appeal to issue a decision extending the time period for issuing the arbitral award or to terminate the arbitral proceedings.

The DIFC Arbitration Law and the ADGM Arbitration Regulations do not proscribe any time limits for an arbitral tribunal to issue its award. They provide that the parties can request the arbitral tribunal, within 30 days of the receipt of the award, to interpret the award or issue an additional award.

27. The remedies available when awards are not forthcoming

There are no specific remedies set out in the Arbitration Law when awards are not forthcoming from the Tribunal. In such circumstances, the primary remedy would be to write to the relevant arbitration centre overseeing the arbitration (if any) and request that the award to be expedited.

28. The application of interest for delays

We assume that the above question refers to delays by the judgment debtor in making payment of any sum awarded by an arbitral tribunal. If this is the case, interest can be applied for such delays. Pursuant to Article 55 of the Arbitration Law, a party can apply for interest to be applied, during the process of ratifying the arbitral award in the relevant onshore court.

Article 76 of Federal Law No. 18 of 1993 (the Commercial Transactions Law or (CTL) provides that if an interest rate is not stipulated in the contract, the interest rate shall be calculated according to the rate of interest prevailing in the market at the time of dealing, provided that the interest rate shall not exceed twelve percent (12%) until full settlement.

The Dubai Court of Cassation has iterated in its judgments that the effect of Article 76 of the CTL is that if the subject matter of the commercial obligation is a sum of money of an ascertained amount at the time the obligation arises, and the judgment debtor makes delay in paying it, the judgment debtor will then be obliged to pay the judgment creditor interest at the rate agreed in the contract, provided that it does not exceed twelve percent (12%) per annum. If there is no agreement in the contract for the payment of interest, then the judicial practice in the emirate of Dubai is that interest will be calculated at the rate of nine (9%) per annum, with effect from the date the debt fell due for payment. This is regarded as compensation to the judgment creditor for delay made by the judgment debtor in satisfying his obligation on the date agreed or on the date on which the obligation should have been implemented. According to the Dubai Court of Cassation, it is well settled that a debt will be regarded as being of ascertained amount notwithstanding that the judgment debtor may have disputed the amount thereof, provided that the ascertainment of the amount is not a matter for the discretion of the court.

29. The award of costs

With regard to domestic arbitrations, Articles 33 and 46 of the Arbitration Law empower the arbitral tribunal to award costs, which are the fees and expenses of the tribunal and the costs of any experts appointed by the panel. It would appear that, unless the parties have: (i) expressly agreed to costs in their arbitration agreement or (ii) by incorporation through arbitral rules, such as that DIFC-LCIA Rules (which allow legal costs to be awarded), that the tribunal cannot award the parties their legal costs. The Arbitration Law allows parties to be represented by lawyers, experts or others but it provides the parties do so at their own expense.

30. Foreign court judgments and time limits

When a party seeks to enforce a foreign court judgment onshore in the UAE, the general rule, based on Article 473 of Federal Law No 5 of 1985 (the Civil Code)(as amended) is that the onshore courts will only recognise and/or enforce that judgment, provided it is not more than 15 years old.

The position offshore (in the DIFC and ADGM) is unclear.  It is possible that a limitation period of six years may apply to enforce a foreign court judgment in the DIFC in accordance with Article 123(1) of Law No 6 of 2004 (the Contract Law). Article 173(1) of the ADGM Court Regulations seems to suggest that a judgment creditor in respect of a judgment which satisfies the criteria set out in Article 172(1) of the ADGM Court Regulations may apply to the Court of First Instance at any time within six years after the date of the judgment, or where there have been proceedings by way of appeal against the judgment, after the date of the last judgment given in those proceeding, to register the judgment in the ADGM Courts.

31. Islamic law and its impact on the enforcement of foreign court judgments

Article 85(E) of the Cabinet Regulations states that the enforcement of a foreign court judgment may be ordered only after the following is verified by the court: “the judgment neither conflicts with a judgment or an order previously issued by a UAE Court nor involves anything that violates the public order or morality of the UAE”.

Therefore any judgment that contravenes UAE public policy or morality will be held to be invalid, void and unenforceable. Accordingly, a party can invoke such an argument to set aside such a foreign court judgment. An example would be a foreign court judgment awarding a party damages arising from a gambling contract.

32. Enforcement of foreign court judgments and the jurisdiction of the UAE Courts

The Cabinet Regulations have significantly changed the circumstances in which a foreign court judgment may be enforced in the onshore UAE Courts.  Prior to the Cabinet Regulations coming into force, UAE law did not permit a UAE Court to enforce foreign judgments if, inter alia, the UAE Courts had original jurisdiction to try the dispute. Therefore, in circumstances where the foreign court and the UAE court had concurrent jurisdiction to try the dispute, the foreign judgment in respect of that dispute could not be enforced in the UAE Courts, hence why the DIFC Court route, was the more favourable route to enforcement.

However, Article 85 of the Cabinet Regulations has now changed the position. Assuming all the other requirements in Article 85 of the Cabinet Regulations are satisfied, the UAE Courts can only refuse to enforce a foreign judgment in circumstances where the UAE Courts had exclusive jurisdiction over the dispute and not concurrent jurisdiction with one or more foreign courts. Previously, the courts also applied a test of reciprocity and it is not clear under the Cabinet Regulations whether this is still the case.

33. Service on a local judgment debtor

Before a foreign court judgment can be enforceable, a local party would need to be served with a specific notification. Whether one seeks to enforce a foreign court judgment through the Onshore UAE Courts, DIFC Courts or ADGM Courts, the party against whom the judgment is given should be served with the judgment (confirming enforcement) and a certified Arabic translation of the same (if serving the judgment in Dubai proper), in order to afford the respondent an opportunity to appeal the judgment.

34. Judgments from GCC jurisdictions given greater deference

If a judgment has been issued by a court of one of the Gulf Cooperation Council (GCC) countries and a party seeks to enforce that judgment in the UAE, the UAE courts, should not look to the merits of the judgment pursuant to Article 7 of the GCC Convention of 1996, provided that the judgment does not fall within one of the exceptions contained in Article 2 of the GCC Convention 1996.

Subject to exceptions contained in Articles 25(c) and 30 of the Riyadh Convention 1983, each contracting party shall recognise the judgments made by the courts of any other contracting party in civil cases including judgments related to civil rights made by penal courts and in commercial, administrative and personal statute judgements having the force of res judicata and shall implement them in its territory provided the courts of the contracting party which made the said judgements are competent under the provisions of the rules of jurisdiction in force in the requested party, and if the legal system of the requested party does not retain for its courts or the courts of another party the exclusive competence to make such judgments.

35. Payment of damages

The UAE Courts, upon recognition and enforcement of a foreign judgment, will issue an execution order in local currency (the UAE Dirham) equivalent to the judgment amount. There Interest rates awarded by a UAE Court will depend on: (i) the interest rates awarded in the foreign court judgment, and (ii) whether those rates are valid and enforceable under UAE federal law.

 

[1] The Joint Judicial Committee was established by the Government of Dubai by Dubai Decree No. 19 of 2016. The Committee is made up of seven members consisting of four judges from the on-shore Dubai Courts and three judges from the DIFC Courts. The Committee’s mandate is to review and resolve “conflicts of jurisdiction” as they are raised by parties, between the DIFC Courts and the Dubai Courts.

 

(Previously published by LexisNexis Middle East)

 
 

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.