UNITED ARAB EMIRATES
Andrew Mackenzie, Lina Bugaighis and Nour Sabbah
A. LEGISLATION AND RULES
International arbitration in onshore UAE continues to be governed by the UAE Federal Law No. 6 of 2018, to which no legislative amendment has been made since.
International arbitration in the offshore Dubai International Financial Center (DIFC) continues to be governed by the DIFC Law No. 1 of 2008, to which no legislative amendment has been made since.
International arbitration in offshore Abu Dhabi Global Market (ADGM) continues to be governed by the ADGM Arbitration Regulations 2015, to which no legislative amendment has been made since.
2018 saw one of the major legislative developments in the field of arbitration in the UAE. Indeed, the UAE’s first stand-alone Arbitration Law was enacted (UAE Federal Law No. 6 of 2018) and entered into force on 14 June 2018. This law embodies a more modern and favorable approach to arbitration, with fewer restrictions imposed on the arbitral parties and the arbitral tribunal.
In 2019, two new Dubai arbitration-related laws were enacted: Decree No. 17 of 2019 approving the new statute of the Dubai International Arbitration Center (DIAC) and Decree no. 31 of 2019 forming the board of trustees of the DIAC.
The new DIAC statute (which is annexed to the law) (“Statute”) has repealed and replaced the previous DIAC statute adopted by a 2009 Decree (No. 58 of 2009). Important changes were made in Statute which are outlined in Section A.2 below.
A.2 Institutions, Rules and Infrastructure
A.2.1 Main Arbitration Institutions
The three main arbitration institutions in the UAE are (i) the DIAC based in onshore Dubai, (ii) the DIFC-LCIA Arbitration Center based in the DIFC, an offshore free zone in Dubai, and (iii) the Abu Dhabi Commercial, Conciliation and Arbitration Centre (ADCCAC) based in onshore Abu Dhabi. Their respective arbitration rules currently in force are (i) the DIAC Arbitration Rules of 2007, (ii) the DIFC-LCIA Arbitration Rules of 2016 and (iii) the ADCCAC Rules of 2013.
A.2.2 ADGM Arbitration Center
The ADGM (offshore Abu Dhabi) has also launched an arbitration center in 2018, however, the term is somewhat misleading as it is presently only a hearing facility equipped with advanced technology rather than an arbitral institution. The hearing rooms can be booked for arbitration cases or mediations by everyone, irrespective of the seat of arbitration and the arbitration institution which is administering the arbitration.
On 8 September 2019, the ADGM Arbitration Centre and Emirates Maritime Arbitration Centre (EMAC) signed a Memorandum of Understanding to advance arbitration and mediation services across the UAE maritime industry.
On 17 September 2019, the ADGM Arbitration Centre published a set of Arbitration Guidelines setting out best practice procedures. They are structured in “modules” which each deal with different aspects of the procedure. The Guidelines’ goals are to (i) ensure fairness, equality and due process are upheld throughout proceedings, (ii) promote greater certainty and efficiency in particular in terms of time and cost and (iii) address some concerns and needs parties to an arbitration sometimes have. The Guidelines can be referred to at any stage of arbitration. They can be used in any type of proceedings whether ad hoc or institutional. The Guidelines are designed to complement the institutions’ arbitration rules and not replace or override neither the institutional rules that the parties have chosen for their arbitration nor the procedural law governing the arbitration by virtue of the parties’ chosen arbitral seat.
A.2.3 ICC Representative Office in the ADGM
The International Court of Arbitration of the ICC maintains its Middle East representative office in the ADGM since 2018.
A.2.4 DIAC office in the DIFC
Moreover, since September 2016, the DIAC has an office in the DIFC. The opening of this office followed the signing of a memorandum of understanding by the now-former Chair of DIAC, Dr. Habib Al Mulla and the Head of the DIFC’s Dispute Resolution Authority, Michael Hwang SC, on 21 September 2016. This confirmed the DIFC courts’ jurisdiction over enforcement proceedings related to DIAC arbitral awards and thus its power to enforce awards arising from disputes that have no connection to the free zone. Prior to this agreement, parties to a DIAC arbitration were compelled to bring enforcement proceedings before the Dubai courts, even if they believed that the DIFC courts were a more appropriate forum.
A.2.5 New DIAC Statute of 2019
The arbitration community in the UAE is still waiting on the long-awaited new DIAC Arbitration Rules, a draft of which has been widely circulated. However, as explained in the previous section, changes have been made to the DIAC statute of 2009 and the latter has been repealed and replaced by the new DIAC Statute approved by Decree (Dubai Decree No. 17 of 2019) issued by the ruler of Dubai, Mohammed Bin Rashid Al Maktoum, on 23 April 2019. Significant changes were made in the Statute, specifically with respect to the structure of the DIAC, the functions of various bodies within the DIAC (mentioned in the next paragraph), and the procedure for implementing new DIAC Arbitration Rules.
article 3 of the Statute sets out the organizational structure of the DIAC and its composition, as follows: (i) Board of Trustees, (ii) Executive Committee (EC), and the (iii) Administrative Body, which is supervised by an appointed Manager (who was previously designated as Director).
A.2.6 Composition and Formation of the Bodies
The new Chairman of the Board of Trustees is Mr. Ahmed Hassan Mohammed bin Al-Sheikh, with Dr. Ahmed Saeed Bin Hezeem Al Suwaidi as the Vice Chairman and Chairman of the EC. The Board of Trustees is currently composed of 11 members and the EC is composed of 5 members. The Statute now specifically states that the members of the Board of Trustees shall not exceed more than 15 members (the Board previously had 20 members).
The Statute now specifically states that the Board of Trustees members should be proposed by the Board of Directors of the Dubai Chamber of Commerce (DCC) to the Ruler of Dubai for appointment by decree for a period of 3 years (the same term as in the previous statute).
The members of the EC are appointed by the Chairperson of the Board of Trustees following consultation with the other members of the Board of Trustees.
The Manager must be nominated by the Board of Trustees and ultimately appointed by the Board of Directors of the DCC (as opposed to being directly appointed by the Board of Trustees as was the case under the previous statute). As at the date of writing this chapter, the position of Manager remains vacant.
A.2.7 Functions of the Bodies
The Board of Trustees is responsible for the overall management of the DIAC. Its functions consist, among others, of (i) adopting the DIAC’s general policies and strategy plan, (ii) proposing amendments to the DIAC Statute and the DIAC Rules; (iii) approving the DIAC’s organizational structure, regulations and by-laws, and (iv) approving the regulation on fees of arbitrators, mediators and experts appointed by the DIAC. The Board of Trustees can also delegate any of its powers to the Manager or the EC as long as such delegation is specific and in writing.
The EC is responsible for giving instructions for and supervising, the implementation and application of the Statute, the Arbitration and Conciliation Rules and the regulations related to the DIAC’s duties. Its functions include (i) the appointment of arbitral tribunals and conciliation mediators in accordance with the center’s rules, (ii) proposing amendments to the arbitration and conciliation rules, and (iii) considering and deciding on applications for registration in the list of arbitrators, mediators and experts.
The Administrative Body is responsible for ensuring the DIAC is operating in accordance with the DIAC rules and regulations. It is also responsible for the smooth and efficient conduct of arbitration proceedings under the aegis of the DIAC. The Case Managers and other administrative staff within this body are supervised by the Manager.
A.2.8 Independence of the DIAC
The Statute expressly provides that the DCC’s Board of Directors shall be responsible for submitting a proposal of the members of the Board of Trustees to the Ruler of Dubai for appointment by the latter. In addition, the Statute now specifies that the Board of Directors of the DCC shall ultimately appoint the Manager, after nomination by the Board of Directors (whereas under the previous statute the Board of Trustees could itself appoint the Manager). The Statute also gives the power to the Board of Directors of the DCC to propose amendments to this Statute and the arbitration rules and procedures, in consultation with the Board of Directors of the DCC, which shall submit them to the competent authorities in the Emirate of Dubai for consideration in order to be approved and issued under a decree passed by the Ruler of Dubai. In practice, the DCC Board of Directors does not get involved in handling cases, which remains the responsibility of the DIAC only.
A.2.9 Procedure to implement new DIAC Arbitration Rules
The Statute sets out the process for issuing new DIAC Rules. Essentially, the EC makes the relevant proposal to the Board of Trustees, who then have to approve the new Rules in consultation with the DCC Board of Directors. As mentioned, the DCC Board of Directors also has the authority to propose amendments t for the consideration and approval by the competent governmental authorities of Dubai. Once a final draft is agreed, the competent authority prepares a Decree to be issued by the Ruler, who then issues a new Decree amending and/or repealing the previous Decree.
B.1 First arbitration-related judgment of the ADGM Courts
The ADGM Court of First Instance issued its first arbitration-related judgment on 4 July 2019 (A3 v B3  ADGMCFI 0004).
Facts: On 25 October 2017, the Parties entered into a Lease Agreement (“Lease”). The governing law and dispute resolution clauses in the Lease provided the following:
- The agreement is governed by and construed in accordance with Applicable Law, which the Lease defines as “any ADGM enactment and Applicable Abu Dhabi Law .”
- Clause 32 “Dispute Resolution”
- Clause 32.1 provides that in the event of “any dispute or difference arising between the [the parties] out of, or relating to, the Lease or any breach of the Lease (a “Dispute”), one of the Parties shall serve notice of such dispute on the other Party (a “Dispute Notice”), and the Parties shall endeavor to settle such Dispute. To this effect they shall consult and negotiate with each other, in good faith and understanding of their mutual interests, to reach a just and equitable solution satisfactory to both Parties .”
- Clause 32.2 is headed “Arbitration”
- Clause 32.2.1 provides that “to the extent permitted by Applicable Law, they [should] adopt the dispute resolution procedures set out in [the other provisions of clause 32.2]; however, otherwise, they [should] accede to the dispute resolution forum with competent jurisdiction .”
- Clause 32.2.2 provides that the parties “agree that should [the ADGM] establish an arbitration center, in advance of the formal commencement of any relevant proceedings, [the claimant] may notify [the defendant] that the arbitration provisions set out in this clause 32 shall be replaced by reasonable alternative provisions in order to provide for jurisdiction by such newly established center within [the ADGM] and [the defendant] shall sign such documentation as may reasonably be required by [the claimant] to give effect to such alternative .”
- Clause 32.2.3 provides that, if the parties do not reach a solution as provided for in clause 32.1 within 20 days of the date of the Dispute Notice, the dispute should be “finally settled under the Arbitration Rules set out in the Proceedings Regulation of the [ADCCAC] .”
- Clause 32.2.6 provides for the seat of the arbitration to be Abu Dhabi.
On 25 November 2018, the claimant wrote a letter to the defendant stating that the ADGM Arbitration Centre had been established and had become fully operational on 17 October 2018 (“Notice”). The letter further stated that the claimant is exercising its right under clause 32.2.2, to replace the existing arbitration provisions. The claimant made the following changes to the Lease stating this shall take effect from the date of the letter: (i) clause 32.2.2 was deleted; (ii) clause 32.2.3 was deleted and replaced with a provision which provides that if the parties do not reach a solution as provided for in clause 32.1 within 20 days of the date of the Dispute Notice, then “the Dispute shall be finally settled under the Rules of Arbitration of the ICC“; (iii) clause 32.2.6 was amended to change the seat of the arbitration from Abu Dhabi to the ADGM. The claimant also requested that the defendant sign and return a copy of the letter to confirm its acceptance of, and agreement to, its terms. The defendant did not return a signed copy of the letter or respond in any way but did not raise any objection to the Notice.
The claimant initiated ICC arbitration proceedings against the defendant, requesting the tribunal to declare the defendant was in breach of the terms of the Lease and that the claimant had validly terminated the Lease, however, the ICC Court decided the arbitration could not proceed.
The claimant thus referred the matter to the ADGM Court, on 16 May 2019, pursuant to clause 33 of the Lease and article 6.6. of the ICC Rules. The claimant requested confirmation that the arbitration agreement was valid and binding and that it provided that any dispute arising under the Lease be subject to arbitration in the ADGM Arbitration Center under the ICC Arbitration Rules. Alternatively, the claimant sought a declaration that the disputes arising under the Lease should be referred to ad hoc arbitration in the ADGM Arbitration Center.
Reasoning: The ADGM Court considered and ruled on various questions, including:
- An arbitration agreement could be valid without expressly identifying the disputes that it covers if the intention is clear as to which disputes are covered through the reading of the clause as a whole.
- Clause 32.2.2 which provides for one of two options to resolve disputes is valid, as English common law recognizes options in contractual clauses. This is true even if the clause “imports a unilateral aspect and in that sense an element of imbalance into the dispute resolution provisions .”
- The Court considered whether the claimant’s request for the defendant’s consent to the Notice could mean that the claimant was not purporting to exercise the option unilaterally and thus whether the Notice was valid. The court decided that (1) in light of the wording “the following changes are hereby made to the Lease with effect from the date of this letter ,” the claimant’s request for a returned signed copy could have been for the sole purpose of obtaining a record of an already binding agreement, as such the Notice was valid; and (ii) the defendant was obliged under the terms of the agreement to sign documentation as might be reasonably required by the claimant and since the claimant’s request was reasonable, the defendant breached its contractual obligation, therefore is not entitled to benefit from its own breach.
- The arbitration agreement is considered to be in writing whether the writing was only in the Lease or the Lease and the Notice together.
Decision: The ADGM Court held that “there is a valid and binding arbitration agreement between the claimant and the defendant that disputes arising under a lease between them be subject to arbitration under the Rules of Arbitration of the ICC and that the seat of arbitration is the ADGM .”
B.2 Abu Dhabi Court of Appeal Case No. 1165-2019 – Impact of a request for interpretation of the award on the prescription period to bring annulment proceedings
Facts: On 3 January 2019, the claimant obtained an unfavorable arbitral award in DIAC arbitration No. 6/2016, in which Baker McKenzie Habib Al Mulla acted as counsel to the respondent. Following notification of the award, counsel for the respondent applied within the prescribed time period for the interpretation of a section of the award and the tribunal issued on 4 March 2019 a Supplemental Award. Thereafter, the claimant brought annulment proceedings before the Abu Dhabi Courts seeking the annulment of the DIAC award. The claimant brought the claim more than 30 days after notification of the award, which is the prescription period in accordance with article 54 of the UAE Arbitration Law. Following the Court of First Instance’s ruling that the prescription period for bringing such proceedings had elapsed, the claimant submitted an appeal.
Decision: The Court of Appeal dismissed the appeal and ruled that the prescription period (30 days from the date of receipt of the arbitral award) for bringing the annulment proceedings had elapsed in accordance with article 54 of the UAE Arbitration Law (No. 6 of 2018). It also stated that the prescription period was not affected by the respondent’s application for interpretation of the award (i.e. the prescription period was not suspended) and that the award issued in response to the request for interpretation is not subject to appeal.
Significance: This award affords a degree of certainty to a client who obtains a favorable arbitral award that the client would seek to then enforce. It promotes a speedy trial and prevents an application for interpretation of the award, submitted by either party, being used as a tool to delay the proceedings and give a party more time to bring annulment proceedings in an attempt to set aside the award.
B.3 Grounds for annulment of the award
In Dubai Court of Cassation Judgment No. 1142/2019, the court held that if the amicable settlement procedures set out in the arbitration clause are not followed, neither party shall be entitled to claim the nullification of the award based on such ground, as this claim should be raised at the outset of the arbitral proceedings. The court stated that the submission of a claim on the merit should be construed as a waiver of the right to invoke the amicable settlement procedures.