This article was featured in Jus Mundi‘s 2023 Arbitration Year in Review, in collaboration with VYAPs, a yearly collection of articles from jurisdictions all around the globe updating you on arbitration-related developments from the previous year.
THE AUTHORS:
Farhan Shafi, Associate at Blanke Arbitration
Jahnvi Jhaveri, Associate at DLA Piper
Overview of the Arbitral Landscape of the United Arab Emirates
The United Arab Emirates (“UAE”) legal system comprises a federal judicial system and two financial-free zones with independent legal systems. The federal system operates on a civil law system, drawing upon the principles of Sharia law. On the other hand, the two free zones, the Dubai International Financial Centre (“DIFC”), and the Abu Dhabi Global Market (“ADGM”), are based on common law, each with a court system similar to that of England and Wales. The UAE federal legal system is often called the “onshore” system, with the DIFC and ADGM legal systems referred to as “offshore” systems.
Consequently, if the seat of an arbitration is any onshore city, it would be governed by Federal Law No. 6 of 2018, as amended (“UAE Arbitration Law”). If the seat is the DIFC or the ADGM, DIFC Law No. 1 of 2008 (“DIFC Arbitration Law”) or the ADGM Arbitration Regulations 2015 (“ADGM Arbitration Regulations”) respectively apply. The DIFC and ADGM laws are largely based on the UNCITRAL Model Law on International Commercial Arbitration 2006 (“UNCITRAL Model Law”). English law is directly applicable and binding on ADGM Courts.
Recent Developments to the Laws and Regulatory Framework of the UAE
Federal Law No. 15 of 2023 amending Federal Law No. 6 of 2018 on Arbitration
On 29 September 2023, the amendment to the UAE Arbitration Law came into effect. Significant amendments introduced include:
- Permitting the appointment of an arbitrator where the arbitrator serves on the board of directors/trustees of the arbitration institute under which the arbitration is held. The amendment further protects impartiality through the threat of an annulment of the award and making the arbitral institution and arbitrator liable to the impacted party where a breach of the conditions stipulated under the law takes place.
- The provision of a remote or physical hearing upon party agreement, or by the tribunal in the absence of agreement.
- Requiring arbitral tribunals to prepare minutes of hearings and provide them to the parties after the hearing.
- Allowing a tribunal to conduct an arbitration procedure entirely without hearings, on the basis that written submissions are sufficient for it to make its award.
These amendments bring the UAE Arbitration Law further in line with international standards.
Federal Decree-law no. 14/2023 on Trade Through Modern Technological Means
This law forbids arbitration for any disputes arising from a digital contract (i.e., a virtual contract between a virtual merchant and a consumer) worth less than AED 50,000.
Abu Dhabi International Arbitration Centre or arbitrateAD
In December 2023, the Abu Dhabi Chamber of Commerce and Industry announced the formation of a new center, arbitrateAD. ArbitrateAD will replace the previous Abu Dhabi Commercial Conciliation and Arbitration Centre (“ADCCAC”) from 1 February 2024. ADCCAC will continue to administer the cases currently before it. The introduction of arbitrateAD adds to the expansive list of arbitral institutions with offices in UAE, providing arbitration users a variety of options to administer their disputes.
DIAC Annual Report 2022
Based on its latest report, Dubai International Arbitration Centre (“DIAC”) registered 340 new cases in 2022 with a combined value of AED 11.2 billion (USD 3.1 billion), with 49% of the disputes relating to the construction sector. The surveyed disputes spanned over 48 countries. It is worth bearing in mind that this follows DIAC’s reorganization of, which was undertaken in 2021.
Another important decision was given on March 3, 2023. The arbitral tribunal rendered its award in the Westwater Resources v. Türkiye case, administered under ICSID according to the ICSID Arbitration Rules (2006). The tribunal found that Türkiye breached the BIT with the US by revoking uranium licenses from Adur Madencilik Limited Şirketi, Westwater Resources Inc.’s subsidiary. However, the tribunal found no link between this breach and the claimed profit losses, citing low uranium prices and funding issues. Westwater, therefore, received just $1.3 million for costs, and none of the $36.5 million sought, as the claim for lost profits could not be substantiated.
In 2023, Turkish investors ended the protracted legal dispute as Tekfen Holding and TML successfully settled their case against Libya. The intricate legal saga, originating in 2018 with a partial award that denied jurisdiction over Libya but held the state-owned Libyan Man-Made River Authority (“MMRA”) liable for around USD 40 million, finally reached a resolution. In mid-2023, Tekfen Holding revealed that negotiations with MMRA had commenced following the partial award. These negotiations, which had in fact concluded in 2022, ultimately resulted in MMRA agreeing to pay approximately 35.4 million USD to settle the claims. Tekfen Holding and TML had also pursued a treaty claim under the Libya-Turkey BIT before the ICC, but the tribunal rejected the claim.
Recent Cases Relating to Arbitration in the UAE
As a civil law jurisdiction, onshore UAE Courts are not bound by judicial precedent. Nonetheless, these decisions remain an important tool in understanding the interpretation of UAE laws by judges in the UAE. For this reason, parties in arbitration proceedings in the UAE routinely make reference to domestic case law. The below updates are limited to the onshore Courts.
Case No. 10/2023, ruling of the General Assembly of the Dubai Court of Cassation
In this case, the General Assembly of the Dubai Court of Cassation (the “DCC”) found that the arbitration agreement remains valid where arbitration proceedings are terminated due to a party’s failure to pay its advance on costs. Consequently, parties can initiate arbitration proceedings once they can pay the advance on costs. The General Assembly of the DCC’s ruling, followed by Dubai courts in practice, is a welcome clarification in light of conflicting past judgments.
Case No. 1514/2022, ruling of the Dubai Court of Cassation
The DCC recently clarified the treatment of condition precedent in arbitration proceedings at post-award stage and cost awards.
Traditionally, under UAE law, non-compliance with conditions precedent was considered an issue of jurisdiction, leading to the courts setting aside awards where it found the conditions precedent had not been satisfied. In this case, however, the DCC found that non-compliance with conditions precedent was an issue of admissibility when examined in an action for recognition or setting aside of an arbitral award. This provides a high degree of discretion to the arbitral tribunal in determining whether the conditions precedent were met, while the court’s focus during post-award scrutiny would be whether a party was denied the right of defence or if the exercise of the arbitral tribunal’s powers led to a breach of public order.
It should be noted that this decision is limited to the DCC’s powers at post-award stage and does not impact arbitral proceedings. The judgment is also silent on whether arbitral tribunals are empowered to suspend proceedings if condition precedents have not been met, so this remains to be seen in future judgments.
The DCC also confirmed that the tribunal’s power to award costs is subject to express party agreement. In absence of such an agreement, a tribunal cannot make an order for legal costs. It is worth noting that the arbitration in question was governed by the DIAC Rules 2007. The DIAC Rules 2022 now expressly empower tribunals to award party costs.
Case No. 585/2023, ruling of the Dubai Court of Cassation
In a surprising development, DCC found that the invalidity of a contract due to public policy reasons extended to the arbitration agreement contained within that contract. The Court referenced the grounds for annulment of an award under Article 53 of the UAE Arbitration Law and found that the underlying contract was void. Therefore, the arbitral award in question could not be enforced as it would violate public policy in the UAE. It is well established that if the subject matter of a dispute relates to public policy, it is non-arbitrable. However, the Court went on to suggest a link between the invalidity of a contract and the arbitration agreement contained within that contract, which contradicts the doctrine of separability and the UAE’s previous case law.
Case No. 1045/2022, ruling of the Abu Dhabi Court of Cassation
In this case, the Abu Dhabi Court of Cassation (the “ADCC”) found that an ICC Arbitration seated in Abu Dhabi was considered seated in the ADGM and subject to the ADGM Arbitration Regulations. It decided so because the ICC regional office was based in the ADGM. The ADCC also clarified that reference to an “Abu Dhabi, UAE” seat is not specific enough as both the onshore Abu Dhabi Courts and the ADGM Courts are courts of Abu Dhabi.
This judgment highlights the importance of distinguishing between onshore and offshore jurisdictions, which the parties should consider while entering arbitration agreements.
Case No. 1078/2023, ruling of the Dubai Court of Cassation
Previously, parties to an arbitration agreement in the UAE would attempt to circumvent the arbitration procedure through the joinder of a third party to proceedings before the onshore UAE Courts. The DCC, however, has put a stop to such an approach, noting that third parties could be joined, and the case brought before the onshore UAE courts, only where there are claims against each third party that would not be covered by the applicable arbitration agreements. If the claims are purely contractual, they must be covered by the arbitration agreement and thus be brought in arbitration only against the proper parties to the contract.
Case No. 828/2023, ruling of the Dubai Court of Cassation Case
In this case, the DCC held that subsequent contracts between the same parties may fall under an arbitration agreement contained in the initial contract where there is a sufficiently close factual connection and no contrary dispute resolution clause in subsequent dealing. Specifically, the dispute arose out of purchase orders that did not contain an arbitration agreement. Nonetheless, the DCC found that the dispute was governed by the arbitration agreement contained in the initial contract.
Case No. 1603/2022, ruling of the Dubai Court of Cassation
The DCC found that an assignment of rights under the contract also transfers the arbitration clause to the third-party assignee, notwithstanding that they have not agreed to or entered into the arbitration agreement themselves. This is significant as it questions the concept of the privity of contract in arbitration agreements for arbitrations seated in the UAE.
The above two cases are welcome developments that ensure that an arbitration agreement can remain valid in subsequent dealings and cases of assignment.
ABOUT THE AUTHORS:
Farhan Shafi is an Associate with Blanke Arbitration, focusing on commercial and construction disputes in the Middle East. He has experience acting in arbitrations under the DIAC, ICC and LCIA rules, as well as ad-hoc arbitration proceedings in Pakistan and Oman. He holds an L.L.M. in International Dispute Resolution from King’s College London and is an alumnus of the Hague Academy of International Law.
Jahnvi Jhaveri is an Associate in the Litigation, Arbitration & Investigations team in the Dubai office of DLA Piper. She has experience acting in arbitrations across a range of industries, including the construction and energy industry sectors and on litigation proceedings before the DIFC and ADGM Courts. She is an alumnus of King’s College London and has previously worked in international law firms in Tokyo and London.
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