CIArb Features

A New Era For Arbritration in the UAE

12 Jun 2018

Leonora Riesenburg FCIArb, Chair of the UAE Branch of the Chartered Institute of Arbitrators, International Arbitrator, Certified Commercial Mediator talks about the New UAE Federal Arbitration Law.

In a long awaited and widely celebrated step, on 3 May 2018 the UAE issued a new comprehensive Federal Law influenced by the UNCITRAL Model Law on International Commercial Arbitration 1985 (as amended in 2006) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. UAE Federal Law No. 6 of 2018 promulgating the Arbitration Law (the “New Arbitration Law”), comprises of 61 articles, and replaces the previous body of law housed in Articles 203–218 within Chapter 3 of UAE Federal Law No. 11 of 1992 promulgating the Civil Procedures Law.   

The New Arbitration Law will come into effect one month after its publication in the Official Gazette, and, unless parties have agreed that another law should govern the arbitration, apply to all local arbitrations taking place in the UAE (Article 2(1)). The new law also applies to international commercial arbitrations conducted abroad and to which parties have chosen the new law to apply, and generally any arbitrations arising out of a dispute in respect of a legal relationship (contractual or otherwise) governed by UAE law capable of settlement in arbitration (Article 2(2)-(3)).

A Harmonious and Modern Approach 

The New Arbitration Law addresses a number of hotly debated issues rehearsed before Arbitral Tribunals and local Courts alike, bringing about desirable clarity to boost foreign investor confidence. At the outset, the treatment of the arbitration agreement is harmonized with the importation of the “Doctrine of Separability” by which an arbitration agreement is treated as an autonomous agreement separate from the rest of the contract in which it is housed (Article 6). The effect and consequence is that (i) the arbitration clause and (ii) the arbitration procedure will not be affected by the nullity, rescission or termination of the contract containing the arbitration clause unless there is an issue related to the incapacity amongst the parties. Incapacity is dealt with in Article 4(1) prescribing that an arbitration agreement can only validly be concluded by authorized persons having legal capacity to make the disposition (for which a special authorization is to be demonstrated). 

Making for a significant change, Article 7 of the New Arbitration Law introduces a softening of the “written condition” by which the arbitration agreement is required to be evidenced in writing in order to be valid. It is no longer the case that the arbitration agreement needs to be written out in a physical document to be signed and stamped by the parties with fresh ink. The “written condition” can equally be met in circumstances where the arbitration agreement is contained in an exchange of correspondences or made by other written means of communication including modern communication methods such as electronic messages or emails (Article 7(2)(a)), or by reference to a document containing an arbitration clause in it (Article 7(2)(b)). The acceptance of alternative ways by which parties can document their consent also extends to parties’ agreements documented during Court proceedings or parties’ exchanges of written statements in arbitral proceedings or at Court (Article 7(2)(c)-(d)). The move towards the outward recognition of the validity of modern methods of doing business is further marked with the introduction of Article 33(3) stating that hearings may be held through modern means of communication and Article 35 providing that the examination and cross-examination of witnesses (factual or expert) may also be conducted by modern means of communication. Effectively, under the new law, neither the parties nor their witnesses need to be physically present at hearing. 

In support of enforcement of validly executed arbitration agreements which are capable of performance, Courts are mandated to decline jurisdiction over an action brought to it where the responding party pleads the existence an arbitration agreement before the filing of any request or plea on the merits of the case (Article 8(1)). As clarified in Article 8(2), the filing of a Court action will not affect the commencement or continuance of arbitral proceedings or prevent the Tribunal from continuing its duties or issuing an arbitral award. This falls in line with Article 19 recognising the competence of the Tribunal to rule on its own jurisdiction (“Competence-Competence Principle”) and ability to continue to review the merits of a dispute even in circumstances where a complaint of forgery or of another criminal nature is made subject that the outcome of the complaint is found not indispensable for issuing the award on the merits of the dispute (Article 43). 

Facilitating multiple party disputes where appropriate, Tribunals are also given the power, on party application or application of the interested third party, to intervene or join the third party in arbitration; provided that the party in question is also party to the arbitration agreement (Article 22). 

Balanced Judicial Supervision and Support 

The New Arbitration Law strikes a welcome balance between empowerment of Arbitral Tribunals and a desirable degree of judicial supervision and support. This can be seen for example in Article 19(2) whereby a party dissatisfied with a ruling on jurisdiction can apply to the Court to render a subsequent decision on jurisdiction which is final and binding. 

As provided in Article 21, an Arbitral Tribunal may (either on party request or of its own direction) take provisional or precautionary measures (amend, suspend or cancel the same) and order appropriate security to cover the costs of such measures. Measures contemplated by Article 21 include orders for the preservation of evidence, goods, assets, funds (Article 21(1)(a)-(c)), orders required to maintain or restore the status quo pending determination of a dispute (Article 21(1)(d)), and orders preventing an the taking of an action likely to cause, current or imminent harm or prejudice to the arbitration process (Article 21(1)(e)). Accounting for a general rebalancing of power in favour of Tribunals, interim or conservatory orders may during the course of the arbitral proceedings only be enforced in Court after securing the Tribunal’s prior permission (Article 21(4)). 

Unless parties have agreed otherwise, the Arbitral Tribunal’s is in default authorized to decide costs of the arbitration and the allocation of such costs between the parties (to include dealing with fees and expenses of the Tribunal and any experts appointed by it) (Article 46), making it necessary for parties who wish to “opt out” to evidence an alternative agreement. Judicial interference is limited to the making of any necessary adjustments to arbitrator’s estimates on fees or expenses, commensurately with their efforts taking into account the nature of the dispute and the arbitrator’s experience (Article 46(2)) in the event that costs are not fixed by party agreement (Article 46(3)).

Promoting Business Confidence and Business Efficacy 

In recent years, arbitration has been criticized for being comparatively slow and costly, and failing to provide the level of certainty and finality desired for business sustainability. The new law provides for an aggressive time and cost efficient process for award issuance, and the recognition and enforcement of awards. Under Article 42(1), an Arbitral Tribunal is required to issue the award within the timeframe determined by the parties, and in default within 6 months from the date of the first hearing. Unless parties agree to a more generous extension, this timeframe can be extended by an additional 6 months. The inability to issue the award within the permitted time period may result in an application under Article 42(2) (whether on the Tribunal’s or party’s election) for the Court to rule on a new deadline or to terminate the arbitration procedures altogether. 

In respect of enforcement, a party seeing to set aside an award must establish one or more of the 8 procedural grounds identified in Article 53 of the New Arbitration Law. This compares to 6 procedural grounds in the UNCITRAL Model Law and 5 procedural grounds in the New York Convention. A party who fails to apply to set aside an arbitral award within 30 days from receipt of notification of the award will later be time barred from doing so (Article 54(2)). When asked to set aside an award, the Court may suspend proceedings for up to 60 days to give the Tribunal an opportunity to eliminate grounds for setting aside the award where appropriate (Article 54(6)). As part of a faster tracked process, challenges to arbitral awards in the UAE are to be directed to the Court of Appeal (bypassing the First Court of Instance), with a single round of appeal provisioned in Article 54(1) to the Court of Cassation. In the event Article 53 is not invoked or found to apply, an arbitral award will be confirmed and enforced at speed within 60 days from submission of a request for its recognition and enforcement (Article 55(2)). 

Litigants will generally find it harder to avoid awards, with (i) Article 25 introducing a waiver of rights if objections are not raised within the prescribed timeframe for issues related to non-compliance with provisions of the law which the parties may derogate from or non-compliance with requirements under the arbitration agreement, and (ii) Article 52 cementing the position on the binding force of arbitral awards made in accordance with the law. Such awards shall have res judicata effect and be enforceable as judicial rulings following their confirmation.  

Closing Remarks 

The New Arbitration Law makes for a refreshing legislative change, providing desirable harmony with accepted international norms and the developing needs of modern business commerce. The application of the new law is yet to be tested, making for exciting times ahead.