The United Arab Emirates (UAE) is a federation of seven emirates – Abu Dhabi, Dubai, Sharjah, Fujairah, Ajman, Umm Al Quwain and Ras Al Khaimah – each with its own set of laws and court systems under the umbrella of the Constitution and certain Federal laws. The law finds its origins in the civil law that emanated from the old Napoleonic code as customised in Egypt to take into account Arabic traditions. The law is codified with no system of binding precedent, although the decisions of the higher courts have significant persuasive effect when compared to decisions of lower courts. Three of the emirates – Abu Dhabi, Dubai and Ras Al Khaimah – have their own ‘supreme’ court (the Courts of Cassation) – while appeals from the Courts of Appeal of the other four emirates are heard in the Federal Supreme Court.
Yet, amidst this geographic civil law jurisdiction, exists two ‘fictional’ jurisdictions based on English common law. In 2004, the Dubai International Financial Centre (DIFC) was formed as a legal ‘free zone’. In 2013, following on the success of the DIFC, the Abu Dhabi Global Market (ADGM) was formed. The applicable laws in the DIFC and ADGM, though modelled on the English common law, are slightly different.1 Today, there are three separate systems of law applicable in the UAE. This diversity – which is fairly unique in the international sphere2 – ought to be borne in mind when it comes to drafting UAE arbitration clauses and in the administration of arbitrations pursuant to those clauses. In this update, we look at five key aspects of arbitration in the UAE that are worthy of consideration.
The first, and most important, element of any agreement to arbitrate is the seat of the arbitration. A ‘seat’ is the legal home of the arbitration, which is particularly important in international arbitration (where one or both parties have their closest connection outside of the land where the arbitration is seated). It is the law of the seat that will govern the procedures in the arbitration. It is only in the courts of the seat that an application can be made to set aside or annul the arbitration award. It is the legal nationality conferred on an award by the seat that governs whether the award can be enforced under the New York Convention3 or other bilateral or multilateral treaty.
The UAE provides a choice of three seats: the UAE itself (whether the place of arbitration is stipulated to be Dubai, Abu Dhabi or any of the other emirates matters not), the DIFC and the ADGM. An arbitration seated in the UAE will be subject to the UAE law on arbitration,4 that seated in the DIFC by the DIFC law on arbitration5 and that seated in ADGM by the ADGM law on arbitration.6 Many a bottle of ink has been spent in comparing and contrasting the arbitration laws of the three seats, but it will assure those reading this update that, since 16 June 2018, when the new UAE law of arbitration came into effect, there is relatively little to choose between the three sets of laws given that they are all based on the UNCITRAL Model Law.
The court that will supervise an arbitration seated in each seat is different. If the arbitration is seated in Dubai, the courts of Dubai will be the supervisory court; if in Abu Dhabi, the courts of Abu Dhabi will supervise. Both DIFC and ADGM have their own courts, although it ought to be noted that the arbitration law in the DIFC (and consequently, the jurisdiction of the DIFC Courts) is much more permissive than that in the ADGM; in the latter, one can only properly arbitrate if there is a nexus of the contract or the dispute to ADGM.
The UAE acceded to the GCC Convention in 1996, the Riyadh Convention in 1999 and the New York Convention in 2006. It is also party to several bilateral treaties for the mutual enforcement of awards (for instance, with India). Therefore, an arbitration which is stipulated to be seated in the United Arab Emirates, or in Dubai or Abu Dhabi, is enforceable as a UAE award under the various treaties. When the DIFC was first formed, there was some uncertainty as to whether a DIFC court judgement or award would be accorded the nationality of the UAE for the purposes of cross-border enforcement under the various Conventions; that issue has been put to rest and awards from all three seats are treated as UAE awards for the purposes of cross-border enforcement.
2. Rules of arbitration
While it is not critical for an arbitration agreement to stipulate rules according to which the arbitration will be governed, it is often useful to do so, particularly because rules of arbitration help orientate parties as to their options and course of conduct prior to the tribunal being appointed and taking charge of proceedings. The adoption of rules is by no means universal, though. In India, for instance, most of the arbitrations are conducted under the Arbitration and Conciliation Act of India, which sets out some basic rules for the conduct of the arbitration, with the details to be filled in by agreement of the parties or directions of the tribunal once appointed. Similarly, the UAE Federal Law 6 of 2018 sets out basic procedural matters (for instance, relating to service of pleadings,7 default position on appointment of arbitrators where parties cannot agree8 and challenge to arbitrators,9 etc.), and therefore an arbitration agreement that simply refers to arbitration in the UAE without more can still be conducted effectively.
The norm, however, is for contracting parties to agree to some rules of arbitration. Unlike in China, where parties cannot choose ad hoc rules to govern their arbitration, the UAE allows parties free choice of ad hoc rules (such as UNCITRAL Rules) or institutional rules (such as ICC Rules, or any of the local institutional rules of arbitration).
Each of the three legal jurisdictions within the UAE has one or more arbitration institution based in it. Several of the emirates have their own ‘onshore’ arbitration institution – the Abu Dhabi Commercial Conciliation and Arbitration Centre,10 the Dubai International Arbitration Centre11 and Tahkeem12 – and so do the DIFC (based on the London Centre for International Arbitration13 and, as of a couple of years ago, a branch of the DIAC) and ADGM (based on the International Chamber of Commerce.14) The rules of each institution are slightly different, and based on the circumstances of the contract, which rules may be most appropriate bears further analysis.15 It should be noted that the Dubai International Arbitration Centre has been proposing to issue a new set of rules for almost the last 12 months but, to date, those new rules have still not been issued.
3. Choice of representation
The ability for a party to be able to choose its legal representative is fairly fundamental to the confidence that party can have in its case being properly presented. However, rarely do the courts of a country allow lawyers from a foreign jurisdiction to appear before it.16 This is one of the reasons why arbitration gained prominence, particularly in commercial disputes.
But not every country allows parties free choice in legal representation in arbitrations either. The major centres of arbitration internationally – London, Paris, Singapore, Hong Kong – give parties free choice as to their representatives in an arbitration.17 India has historically not allowed foreign lawyers to appear in international arbitrations in that country, but a recent decision by the Supreme Court may have started to change that.18
In the UAE, however, there has been relatively little controversy as to who a client can instruct to represent it in legal proceedings. If the matter is before the UAE courts, only locally licensed lawyers may appear (usually Emirati, but some more senior lawyers from other countries who have been practising in the UAE for some time also have the licence to appear). In arbitrations, it was always considered that both foreign lawyers practising in the UAE, as well as foreign lawyers practising elsewhere and appearing on a fly-in fly-out basis could properly appear in arbitrations (subject to the usual requirements as to proof of authority evidenced by a power of attorney).
However, in September 2017, a Ministerial Resolution was issued in the UAE,19 which stated that “arbitration tribunals and judicial and administrative committees may not accept a person to act as a lawyer on behalf of another person unless his name is registered in the Roll of Practising Lawyers”. This put many tribunals and practitioners in a bit of a tailspin, particularly in ongoing arbitrations, as parties in numerous arbitrations had non-UAE court lawyers appearing as their legal representatives. This was primarily an issue for arbitrations seated outside the DIFC and ADGM, as the arbitration law of these two jurisdictions did not restrict parties free choice of representatives in an arbitration.
The Ministerial Resolution was perhaps subject to some misinterpretation in terms of its applicability. It is likely that it was aimed at ‘lawyers’ practising in the UAE as local UAE lawyers,20 rather than to the wider legal profession based in, and coming to appear in arbitrations in, the UAE. However, to put any doubts at rest, the Ministerial Resolution was fairly promptly followed by a clarification by the Dubai Legal Affair Department, with whom all resident legal practitioners in Dubai must be registered, that there was no bar to foreign lawyers (whether based in the UAE or in other countries) appearing as representatives for parties in arbitrations. While this clarification came only from the Dubai authorities, it is likely that the Ministerial Resolution was not to be interpreted as a bar in the first place; hence the lack of clarification from the other emirates is not an issue. This storm has therefore now blown over.
4. Recovery of legal costs
While there is a lot to be commended in the new UAE arbitration law that came into force on 16 June 2018, one issue remains unclear. It is whether the Arbitral Tribunal has the power to award the successful party its legal costs.
In most common law jurisdictions, the normal rule is that ‘costs follow the event’. This is taken to include both the arbitration costs (the fees paid to the tribunal, to the arbitral institution etc.) and parties’ legal costs. For instance, the DIFC law of arbitration expressly provides for parties’ legal costs to be included in the definition of ‘costs’ awardable by the tribunal,21 as does the ADGM law.22
The previous arbitration law applicable in the UAE was contained in around 16 articles of the Civil Procedure Code. Article 218 dealt with ‘arbitration costs’ and the tribunal’s power to award such costs as they thought appropriate, but was silent as to legal costs. This uncertainty was made worse by ambiguity in the Dubai International Arbitration Centre provisions in relation to the award of costs which were the subject of debate before the Dubai Courts.
It was hoped that the new arbitration law would expressly provide arbitrators with the power to award legal costs. Perhaps that was a futile hope as UAE is a civil law jurisdiction, where the usual practice is for courts to not award parties legal costs (save for nominal amounts). The new arbitration law seems to have left this position unlegislated. Article 33(5) of Federal Law No. 6 of 2018 states that parties “may, at their own expense, avail of experts and attorneys, whether lawyers or otherwise, to represent them before the Arbitral Tribunal”. The reference to “at their own expense” suggests that the tribunal is not to contemplate awarding the successful party such costs in its award. This impression is enforced by Article 46(1), which provides that “unless otherwise provided by the agreement of the Parties, the Arbitral Tribunal shall assess the costs of arbitration which shall include: the fees and expenses incurred by any member of the Arbitral Tribunal in the exercise of his duties and the costs for experts appointed by the Arbitral Tribunal” and (under Article 46(2)) “may order that any or all of the costs referred to in section 1 of this article be borne by one of the Parties”. There is no mention of parties’ legal or expert costs.
The best solution to this uncertainty is to confer power on the Arbitral Tribunal for it to be able to award legal costs. This can be done in the arbitration clause (ideal case), or post commencement of dispute if both parties are minded to claim legal costs if they are successful. Alternatively, parties could seat their arbitration in the DIFC or ADGM and take advantage of the more permissive regime for recovery of legal costs under those applicable laws.
5. Enforcement of awards
There are two aspects to the enforcement of UAE arbitration awards (whether issued in ‘onshore’ or in the ‘offshore’ free zones). First, the possibility of an application to set aside that award in the seat. Secondly, the possibility of enforcement of that award being resisted outside the seat.
The arbitration laws of DIFC and ADGM follow the UNCITRAL Model Law and the grounds for setting aside largely mirror those. Similarly, the grounds for challenges to enforcement are similar to those under the New York Convention. In short, very few opportunities exist for a party to mount a wholesale challenge to the award seeking a revisiting of the merits.
With the introduction of the new arbitration law in the UAE, the ‘onshore’ position is, from a legal perspective, now regularised with that in the DIFC and ADGM. Article 53 of Federal Law 6 of 2018 broadly follows the UNCITRAL Model Law in setting out the grounds on which an application for setting aside can be brought, save that there are some additional grounds such as the award being issued outside the specified time frame23 and if the subject matter of the dispute is not capable of being settled by arbitration.24 However, unlike the position under the UNCITRAL Model Law that allows parties three months from the date of notification of the award to make an application to set aside the award, the UAE arbitration law limits the period to a third of this and time-bars any application to set aside not brought within 30 days of the date of notification of the award.25 In our view, this is an onerously short period, particularly in complex arbitrations, and parties anticipating unfavourable awards will need to equip themselves accordingly in order to make an assessment and frame a setting aside application within this short time frame.
Regarding the enforcement of awards from the three seats within the UAE, some interesting issues have arisen over the past few years. As mentioned earlier in this article, the DIFC Courts take a more liberal view as to the exercise of their jurisdiction on arbitration-related matters referred to them. This meant that when a party that was successful in a Dubai ‘onshore’ arbitration brought an action before the DIFC Court for enforcement, the DIFC Courts proceeded to recognise the award for onward enforcement in ‘onshore’ Dubai despite there being no connection between the award and the DIFC.26 The party seeking enforcement in the DIFC wanted to take advantage of Article 42(4) of the DIFC law of arbitration, which provides that awards recognised by the DIFC Court may be enforced outside the DIFC in accordance with the Judicial Authority Law. The Judicial Authority Law, at Article 7, sets out certain (formalistic) conditions under which a DIFC Court recognised award may be enforced in Dubai as if it was an order of court. Thus far, we are not aware of a similar situation in the ADGM, and we do not foresee it happening given the more restrictive approach of the ADGM courts to taking jurisdiction if the subject matter has no relation to ADGM.
The Banyan Tree v. Meydan case led to the coining of the DIFC as a ‘conduit’ jurisdiction where UAE onshore awards could choose to route their UAE onshore awards through the DIFC. However, this caused a problem if the onshore award was subject to setting aside in the UAE courts (since the seat was ‘onshore’, only the onshore courts would have jurisdiction to set aside), while the successful party was seeking to enforce the award in the ‘offshore’ DIFC jurisdiction. The Ruler of Dubai therefore set up a Joint Judicial Committee between the DIFC and Dubai courts to scrutinise such cross-jurisdiction matters.27 The Joint Judicial Committee’s decision is final and binding and, since the Banyan Tree v. Meydan case, there have been several decisions according primacy of jurisdiction to the Dubai courts over that of the DIFC Court.
Given the new UAE arbitration law’s strict timeline of 30 days for the launching of a setting aside application,28 and the harmonisation of the arbitration laws across DIFC, ADGM and the UAE (based on the UNCITRAL Model Law), there may be fewer opportunities for cross-jurisdictional conflict. This issue of conduit jurisdiction may therefore end up being an incident of history rather than of any significant practical consequence. It does, of course, remain to be seen as to how the local courts implement the provisions of the new Arbitration Law in practice.
Finally, there had been some concern that the unsuccessful party in an arbitration could make use of Article 257 of the Federal Decree Law No. 7 of 2016, a provision that introduced criminal liability for arbitrators who are found to have failed to maintain standards of integrity and impartiality (regardless of whether such conduct was negligent or intentional), to create a further line of attack on the enforceability of an award. This anachronistic piece of legislation had sought to extend the liability previously attendant only upon experts appearing in court proceedings to arbitrators operating in the commercial field. Thankfully, that concern appears to have been unfounded since, as far as we are aware, there have not been any prosecutions under Article 257, and the arbitration industry has now come to accept that it is a matter of time before this feature of the law is removed from the books, though, for the present, it remains in force.
The UAE remains by far the most attractive and frequently used seat for arbitration in the Gulf. In Reed Smith’s offices in Abu Dhabi and Dubai, we are also seeing the increasing use of UAE-based arbitration (both onshore and free-zone) in contracts from the wider Middle East region. The commitment shown by internationally recognised institutions (such as LCIA and ICC) in establishing bases in Dubai and Abu Dhabi is a signal of the growing trend of the UAE becoming a major centre for the arbitration of regional disputes. The new arbitration law has simplified many issues that had arisen under the old law, and while some minor issues still remain (which can be addressed at the contract drafting stage), international companies can take a lot of confidence in choosing or agreeing to any of the emirates within the UAE, or the DIFC or ADGM, as a seat for their arbitrations.
- The ADGM has adopted English case law and statutory law more wholesale than has DIFC, by reference to English law.
- Save, perhaps, for Qatar, which has modelled a financial centre based on English common law following in the footsteps of the DIFC, though it is not technically a free zone.
- Convention on Recognition and Enforcement of Foreign Arbitral Award (10 June 1958) signed in New York.
- Federal Law No. 6 of 2018, in force from 16 June 2018, replacing the previous code on arbitration set out in Articles 203 to 218 of the UAE Civil Procedure Code and applicable to all present and future arbitrations.
- DIFC Law No. 1 of 2008.
- ADGM Arbitration Regulations of 2015.
- Article 30.
- Article 11.
- Article 15.
- Rather a mouthful at ADCCAC.
- A relatively easier sounding DIAC.
- The arbitration institution in Sharjah.
- DIFC-LCIA Centre.
- ADGM-ICC Centre.
- For instance, the DIFC-LCIA Rules do not have an ‘expedited procedure’ option that the ICC Rules provide.
- A notable exception is the International Commercial Court in Singapore, which has the same status as the High Court of Singapore but allows foreign lawyers to register and appear before it on ‘international’ disputes referred to the Singapore courts.
- This was not always the case in Singapore. In the 1990s, a foreign lawyer could appear in arbitrations only if accompanied by a local lawyer. That rule has since been abolished.
- Bar Council of India v AK Balaji & Ors et al (Judgment dated 13 March 2018) where the Supreme Court said that foreign lawyers cannot be barred from appearing in international commercial arbitrations in India but also that the Bar Council of India must promulgate rules governing such appearance.
- Ministerial Resolution No. 972 of 2017 issued on 25 September 2017.
- Foreign lawyers practising in the UAE have work visas to practice as ‘Legal Consultants’, not as ‘Lawyers’.
- DIFC Arbitration Law Article 38(5)(f).
- ADGM Arbitration Regulations Article 50(5)(f).
- See Article 53(1)(g). Article 42 provides a default position of six months from the date of the first hearing for the issuance of the award, unless the parties agree otherwise, or by application to the UAE Courts.
- See Article 53(2). The most prominent of such kinds of disputes are those relating to Commercial Agencies, which the law provides can only be adjudicated by the UAE Courts (Federal Law No. 18 of 1981). An arbitration award relating to a matter falling within the ambit of the Commercial Agencies Law could arguably be set aside on this basis.
- Article 54(2).
- Banyan Tree Corporate PTE Ltd v. Meydan Group LLC (DIFC Court of First Instance decision dated 27 May 2014, affirmed by the DIFC Court of Appeal on 3 November 2014).
- Decree 19 of 2016, dated 9 June 2016.
- Federal Law No. 6 of 2018, Article 54(2).
Client Alert 18-213