Is the UAE arbitration friendly?

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Summary: This article deals with three recent cases concerning the enforcement of arbitration awards in the UAE. A Court of Cassation case reaffirms the UAE’s commitment to the New York Convention and the recognition of foreign awards. In relation to domestic awards, local courts are still prepared to annul domestic awards for what many would see as mere technicalities. It is therefore imperative that you fully comply with all local procedural requirements. BLP recently handled an arbitration and subsequent enforcement proceedings in which procedural challenges were dismissed by all three tiers of the Dubai Courts.

This article deals with three recent cases concerning the enforcement of arbitration awards in the UAE. A Court of Cassation case reaffirms the UAE’s commitment to the New York Convention and the recognition of foreign awards. In relation to domestic awards, local courts are still prepared to annul domestic awards for what many would see as mere technicalities. It is therefore imperative that you fully comply with all local procedural requirements. BLP recently handled an arbitration and subsequent enforcement proceedings in which procedural challenges were dismissed by all three tiers of the Dubai Courts.

What has happened?

The enforcement of foreign awards

The UAE ratified the New York Convention in 2006. Since then, the provisions in the Convention for recognition of foreign awards have become mandatory laws in the UAE and override the provisions in the UAE Civil Procedures Code relating to enforcement of arbitral awards (Articles 235 and 236). However, although in the majority of cases foreign awards have been successfully enforced under the Convention, in a 2013 judgment, a foreign award was denied recognition on the basis of Article 235 (as the court considered it lacked jurisdiction as the Respondent was not domiciled or resident in the UAE – not a recognised challenge under the Convention). Therefore, some uncertainty remained as to the UAE’s commitment to the Convention. However, a Dubai Court of Cassation case from November last year (No 434/2014) has indicated that the Courts will continue to apply the provisions of the Convention and that the 2013 case was an exception to their standard approach.

The dispute arose between a German company and a UAE company in relation to a distribution agreement. The agreement provided for ICC arbitration with a seat in Stuttgart, Germany. The German company succeeded in the arbitration and sought to enforce the resulting award in the UAE. The Dubai Court of Cassation upheld the decisions of both the Court of First Instance and the Court of Appeal and recognised that the only grounds for challenge were those under Article V of the Convention.

The enforcement of domestic awards

The UAE arbitration law is contained in Articles 203 to 218 of the UAE Civil Procedures Code and some local courts take a strict view as to compliance as illustrated in a recent Dubai Court of Appeal case (Case No 371-203, dated 14 May 2014).

The case involved a dispute over a sale and purchase agreement for a plot of land. Following a Dubai International Arbitration Centre arbitration, the Tribunal made an award in the Claimant’s favour, with one arbitrator dissenting. The Claimant sought to enforce the award through the Dubai courts. The First Instance court annulled the award and the Court of Appeal upheld the annulment for three reasons:

  1. the signatory of the Respondent did not have authority to bind the company to arbitration;
  2. the Tribunal members had not signed both the reasoning and dispositive sections of the award; and
  3. the dissenting arbitrator had refused to sign the award.

In contrast, BLP recently acted on a matter where the application to annul the arbitration award was rejected by all three levels of the local Dubai courts.

The Respondent appealed the award on three grounds:

  1. the arbitration was conducted by a sole arbitrator (the arbitration agreement stipulated a Tribunal of three);
  2. there was no valid arbitration agreement between the parties as, inter alia, the signatory did not have the power to sign such an agreement; and
  3. the award was produced outside the prescribed time period (6 months).

Both the Court of First Instance and the Court of Appeal held that:

  1. the parties had executed a valid agreement to amend the number of arbitrators from three to one;
  2. the signatory had sufficient power to sign the arbitration agreement and it was therefore valid; and
  3. the parties had authorised the arbitrator to extend the arbitration period as necessary under the Arbitration Deed and, in any event, had continued to participate in arbitral proceedings following the expiry of the original 6 month time period and raised no objections; this was considered ‘implicit approval’ of the extension.

The decisions of the Court of First Instance and the Court of Appeal were recently (June 2015) upheld by the Court of Cassation confirming that, if all relevant procedural law is strictly adhered to, the UAE Courts will not allow spurious procedural challenges to prevent the enforcement of a domestic award.

What are the key points?

In relation to foreign awards:

  1. distribution agreements can be arbitrable (despite previous decisions to the contrary);
  2. the fact that the hearing was held in Paris did not change the seat which remained in Stuttgart; and
  3. the Convention is deemed an “applicable domestic law” in the UAE and should be applied when considering the execution of foreign awards.

Therefore the only challenges that can be made to the enforcement of a foreign award are those under Article V of the Convention.

The position in relation to domestic awards is more varied and technical difficulties can lead to annulment:

  1. the person who signs the arbitration award must have specific authority to do so;
  2. a failure by the arbitrators to sign all sections of the award can lead to annulment (arbitrators therefore often simply sign all pages); and
  3. the majority award must explain why one of the arbitrators has failed to sign the award; the issuance of a dissenting award by the dissenting arbitrator is not enough.

However, it remains the position that, if the relevant procedure is followed diligently and all UAE arbitration provisions complied with, the Courts will not allow spurious challenges to succeed.

How will this affect me?

As regards the enforcement of foreign awards under the Convention, the UAE has further consolidated its commitment to the Convention even as against a UAE national award debtor. This recent case indicates that the 2013 judgment (in which the foreign award was not recognised) was an exception to the common approach. Therefore parties who may need to enforce a foreign award in the UAE, whether against a UAE national or not, can be more confident in the UAE’s courts’ approach.

However, the UAE’s position on domestic arbitration is mixed. Common law lawyers will find it surprising that some courts take such an overly technical approach to compliance with the local arbitration law, even allowing a respondent to rely on its own failings to annul an award. However, there are signs that some local courts are taking a more sensible approach and are taking into account the parties' subsequent actions following any “technical” breach in a manner akin to estoppel under English law. However, the lesson for parties thinking of arbitrating in the UAE remains to make sure that the local arbitration law is followed to the letter so as to avoid nasty surprises at the enforcement stage.

BLP Perspective

Slowly but surely, the UAE is building a track record for successful enforcement of foreign arbitration awards under the Convention. Parties can therefore be more confident in taking action against UAE companies or other companies with assets in the UAE.

However, care still needs to be taken when arbitrating with a seat in the UAE. All agreements which contain an arbitration clause should only be signed by those who have express authority to do so and the provisions of the UAE Civil Procedures Code should be followed to the letter.

To help you through this maze, BLP has recent experience in relation to both foreign and domestic arbitration enforcement in the UAE and in particular the pitfalls that can surprise the unwary in relation to the local arbitration law.

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