In a recent General Assembly of the Dubai Court of Cassation (“Cassation Court”) case,[1] the Cassation Court has expressly reversed its previous position regarding the effects of a party’s failure to pay arbitration costs on the validity of the arbitration agreement. In accordance with Article 20 of Dubai Law No. 13 of 2016 on the Judicial Authority in the Emirate of Dubai, the General Assembly (which comprises the Head of the Cassation Court and at least eight judges appointed pursuant to a resolution of the Chairman) has the power to consider and determine, inter alia, the issues concerning a complex point of law, the reversal by the Cassation Court of a legal principle adopted by the same Court in a previous judgment, and disputes arising from conflicting judgments rendered by the Cassation Court (Article 20(a)(1),(2)&(4)).
The Decision of the Cassation Court
In a unanimous judgment, the Cassation Court found that, in cases where an arbitration center closes a case due to non-payment of arbitration costs, and provided that there has been no award or ruling by the tribunal that brings an end to the dispute, the arbitration clause will remain valid.
This decision reverses the established legal principle adopted by the Cassation Court in previous rulings, prior to the enactment of the Federal Arbitration Law No. 6 of 2018 (“UAE Arbitration Law“). According to previous practice, a decision by the Dubai International Arbitration Centre (DIAC) to close a case file due to failure to pay the advance on costs resulted in the arbitration clause being declared invalid on the basis that the purpose of the arbitration clause had expired when the proceedings were discontinued. The default position was therefore that the Dubai Courts maintained jurisdiction over the dispute, despite the parties’ agreement to arbitrate.
For example, in the Dubai Court of Cassation Case No. 215/2019, the Court found that it had the relevant default jurisdiction to hear a matter, notwithstanding the parties agreement to arbitrate. In that case, neither party paid its share of the advance on costs and DIAC accordingly closed the case file and considered the claims to be withdrawn. The Cassation Court found that given the parties’ respective failures to pay the advance on costs, the arbitration clause was considered to be void and therefore the claimant’s recourse was to the relevant Dubai Courts.
Likewise, in the Dubai Court of First Instance Case No. 678/2020, the claimant filed arbitration proceedings, but did not pay its share of the advance on costs. The respondent was invited to pay both parties’ share of the advance on costs, but declined to do so, and subsequently, the tribunal terminated the proceedings. The claimant thereafter elected to bring the claim before the Dubai Courts. The Court found that where the arbitration clause is not capable of being performed, and the purpose of the arbitration clause is extinguished, the Court retains the default jurisdiction to hear the dispute. In reversing the previous position, the Cassation Court relied on:
- Article 45(1) of the UAE Arbitration Law which provides that arbitral proceedings shall end with the issuance of an award of the arbitral tribunal bringing an end to the whole dispute.
- Article 54(4) of the UAE Arbitration Law, which provides that the arbitration agreement remains valid even after the arbitration award is set aside (provided the arbitration agreement is valid and enforceable).
The Cassation Court further held that the decision to close the case file for non-payment of arbitration costs:
- Does not result in a failure (for invalidity or otherwise) of the arbitration agreement, as long as no arbitral award is issued;
- Does not mean that the arbitration clause was waived;
- Does not prevent either party from resubmitting the claims to DIAC; and
- Does not deprive a party of a right to invoke the arbitration clause before the courts.
Therefore, the state court’s jurisdiction remains excluded as long as the arbitration agreement is valid and enforceable notwithstanding a party’s failure to pay its share of the advance on costs.
Conclusion and Key Takeaway
This is a welcome decision by the Cassation Court and one that is in line with international best practice, which will no doubt deter parties seeking to frustrate arbitral proceedings or seek to bring a case under the state court’s jurisdiction in violation of the parties’ agreement to arbitration. The decision also reinforces the arbitration friendly landscape in the UAE.
[1] Decision of the General Authority of the Cassation Court. Appeal no. 10 of 2023.
