The UAE Federal Supreme Court has recently issued a judgment that tackles the ambiguity of an arbitration clause and the discrepancies between the English and Arabic translation of it.
In the case in question, the arbitration clause was drafted in English and the issue arose as to whether or not the clause was explicit in commanding the parties to refer to arbitration as the agreed dispute resolution forum.
The arbitration clause stated in case the parties could not reach an amicable settlement in relation to any dispute within 30 days, either party may commence arbitration proceedings to be seated in Abu Dhabi, conducted in English and subject to the rules of the Abu Dhabi Commercial Conciliation & Arbitration Centre.
The Court of First Instance ruled that the original language used in the arbitration clause did not obligate the parties to resort to arbitration. The court interpreted the word “may” as mentioned in the text of the clause to mean that arbitration was chosen as an optional means for dispute resolution. This judgement was confirmed at the Court of Appeal level.
However, a further challenge was filed before the Federal Supreme Court. At that stage, the appellant submitted an Arabic translation of the arbitration clause, which the court had found, includes affirmative language that the parties have agreed on arbitration as the means for settlement of disputes.
The judgment of the Federal Supreme Court provided that if the terms of the contract do not clearly reflect the intention of the parties, the substantive court should investigate the intention of the parties. The Federal Supreme Court further asserted that the substantive court should have investigated the true intentions of the parties by appointing an expert on the language to ascertain the meaning of the text of the arbitration clause. The court could have also allowed the party advocating for the local courts’ jurisdiction to submit a translation evidencing that the arbitration clause was optional. The judgment of the Federal Supreme Court found that the substantive court had failed to observe the above and on this basis overturned the Court of Appeal judgment.
The Federal Supreme Court has further acknowledged a number of well-established principles pertaining to arbitration agreements in the UAE. More particularly, it confirmed that arbitration is regarded as an exceptional means of dispute resolution as opposed to ordinary court proceedings. As such, it confirmed that an arbitration agreement would be regarded as null and void if it was signed by a person lacking capacity to enter into an arbitration agreement. In this context, the Federal Supreme Court ruled that it is presumed that a signature placed on the arbitration clause is made by an authorized representative if the contract includes the name of that legal representative of the company. In the event that the name of the legal representative is not stipulated in the agreement, the signatory shall be considered to have capacity to sign the arbitration agreement, even if his signature was illegible.
Given the risks associated with the application of arbitration clauses in the UAE, we highly recommend consulting arbitration specialists when drafting and negotiating arbitration clauses to avoid any potential challenges as regards the enforceability at the time a dispute arises.