The Abu Dhabi Global Market (ADGM) was established in February 2013 and opened its doors for business in October 2015. It is an offshore financial free zone for local, regional and international institutions, consisting of three authorities:
- the Registration Authority;
- the Financial Services Regulatory Authority; and
- the ADGM courts.
These authorities operate independently of the UAE financial, administrative and legal system,(1) with the aim of creating an attractive business environment for investments and, in turn, developing the Abu Dhabi economy.(2)
The ADGM also marks the arrival of another common law island in the Middle East's civil law ocean. With a common law-inspired court system, a new arbitration law and, in contrast with its older brother the Dubai International Financial Centre (DIFC), direct application of English law, the ADGM marks another ground-breaking development which seeks to give investors in Abu Dhabi and the wider United Arab Emirates confidence through a stable and tried and tested legal framework.
Arbitration in ADGM
The ADGM has taken steps to put itself on the arbitration map through the enactment of the ADGM Arbitration Regulations 2015. The regulations are based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, including the 2006 amendments, but contain a number of modifications and enhancements to reflect international arbitration best practice and address areas where the UNCITRAL Model Law is silent. Many of these modifications and enhancements are closely based on the English Arbitration Act.
Key features of the regulations include the following:
- Confidentiality and privacy – the regulations provide that, unless otherwise agreed by the parties, no party may publish, disclose or communicate any 'confidential information' (defined as any information relating to the arbitral proceedings or award).(3) The regulations further mandate that all arbitration-related court proceedings must be heard in closed court unless either:
- all parties agree that the proceedings may be heard in open court; or
- in any particular case, the court is satisfied that the proceedings should be heard in open court.(4)
- Waiver and loss of the right to object – the regulations provide that a party which, knowingly and without a legitimate reason, fails to object to an irregularity before the arbitral tribunal in a timely manner or within any applicable prescribed timeframe will be deemed to have waived its right to object.(5) For the purposes of this provision, 'irregularity' is defined broadly to include any irregularity affecting the tribunal or the proceedings.(6) This section appears to be loosely based on a combination of Article 4 of the UNCITRAL Model Law, Section 73 of the English Arbitration Act and Section 1466 of the French Code of Civil Procedure.
- Stay of legal proceedings – the regulations contain detailed provisions based on Section 9 of the English Arbitration Act in respect of the stay of legal proceedings in favour of arbitration.(7) The regulations mandate that the court must grant an application for stay unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.(8)
- Jurisdiction – Sections 24 to 26 of the regulations address the well-known principle of competence-competence. However, the regulations depart from the UNCITRAL Model Law and instead substantially reflect the wording of Sections 30 to 32 of the English Arbitration Act.
- Joinder and consolidation – the regulations address the issues of both joinder and consolidation. They provide the arbitral institution administering the arbitration (or, where there is no institution, the court) with the power to order the joinder of one or more third parties to the arbitration on request of a party to the arbitral proceedings, provided that each third party is either a party to the arbitration or has consented to be joined.(9) However, the regulations clarify that no party may be joined after the confirmation or appointment of any arbitral tribunal, unless all parties, including the additional party, agree to the joinder.(10) Further, the tribunal has the power to order consolidation of multiple arbitral proceedings only where the parties agree to confer such power.(11)
- Appointment of arbitrators and arbitrator liability – the regulations make a number of amendments to the process for appointing arbitrators, including changes to appointment in cases concerning multiple claimants and respondents.(12) In addition, the regulations provide arbitrators with certain immunity from liability, largely reflecting Section 29 of the English Arbitration Act.(13)
- Setting aside and enforcement – the grounds on which a party may apply for an award to be set aside or challenge an application for enforcement of an award are almost identical to those contained in Article V of the New York Convention. The regulations aim to limit applications to set aside an award by:
Further, the regulations expressly prohibit a party from challenging the enforcement of an award if it has made or could have made an application to set aside the award.
Given that the regulations draw heavily on the UNCITRAL Model Law and the English Arbitration Act, many provisions therein are familiar and have been tested elsewhere, equipping parties to, and arbitrators in, ADGM-seated arbitrations with a wealth of precedents despite the infancy of the ADGM itself. For the time being, the ADGM has not set up its own arbitration institution and is reliant on parties selecting a suitable well-known institution or set of rules. While the absence of a dedicated arbitral institution should not put parties off of choosing to arbitrate in the ADGM, the unintended impact of this absence may well be that ADGM arbitration does not receive the attention it deserves.
Onshore enforcement of ADGM court judgments and arbitral awards
On May 15 2016 the ADGM courts signed a memorandum of understanding with the Ministry of Justice in order to strengthen judicial cooperation between the ADGM courts and the onshore courts of the United Arab Emirates.(16) In particular, the memorandum provides for the development and implementation of procedures for the recognition and enforcement of ADGM court judgments in onshore United Arab Emirates and across countries that have entered into enforcement treaties with the United Arab Emirates.(17) It also provides for the recognition and enforcement onshore of arbitral awards rendered in ADGM-seated arbitrations without any examination by the UAE courts of the substance of the dispute.(18) It is understood that the recognition and enforcement procedure will take place in accordance with Articles 219 to 234 of Federal Law 11/1992 concerning civil procedure, which require that judgments and arbitral awards be ratified by the UAE courts before they can be enforced.(19) However, the memorandum contemplates that further legislation, protocols and guidelines will be implemented for the requirements of reciprocal recognition and enforcement.(20)
The establishment of a second offshore common law jurisdiction in the United Arab Emirates (the first being the DIFC) will no doubt be a welcome development for businesses investing and operating in the United Arab Emirates. The use of English law as the foundation for the ADGM legal and judicial framework, coupled with its implementation of court and arbitral regulations that have a high degree of familiarity to many users and reflect international best practice, stands the ADGM in good stead for becoming a popular dispute resolution forum. Moreover, the principles of mutual recognition and enforcement between the ADGM courts and the UAE courts established under the memorandum will no doubt play an important role in the promotion of the ADGM as a forum for dispute resolution and, in particular, as a seat of arbitration in the United Arab Emirates.
For further information on this topic please contact Sami Tannous or Samantha Lord at Freshfields Bruckhaus Deringer LLP by telephone (+971 4 5099 100) or email (firstname.lastname@example.org or email@example.com). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
(1) Section 10 of Law 4/2013 concerning Abu Dhabi Global Market.
(2) Section 3 of Law 4/2013 concerning Abu Dhabi Global Market.
(3) Section 40 of the ADGM Arbitration Regulations 2015 and Section 3 of Schedule 1.
(4) Section 30 of the ADGM Arbitration Regulations 2015.
(5) Section 10(1) of the ADGM Arbitration Regulations 2015.
(6) Section 10(2) of the ADGM Arbitration Regulations 2015.
(7) Section 15 of the ADGM Arbitration Regulations 2015.
(8) Section 15(2) of the ADGM Arbitration Regulations 2015.
(9) Section 36(2) of the ADGM Arbitration Regulations 2015.
(10) Section 36(2) of the ADGM Arbitration Regulations 2015.
(11) Section 35 of the ADGM Arbitration Regulations 2015.
(12) Sections 17-22 of the ADGM Arbitration Regulations 2015.
(13) Section 23 of the ADGM Arbitration Regulations 2015.
(14) Section 53(2)(c) of the ADGM Arbitration Regulations 2015.
(15) Section 54 of the ADGM Arbitration Regulations 2015. Although where the parties have waived their rights to seek set aside an award, this does not preclude an application for denial of recognition and enforcement pursuant to Section 57.
(16) Memorandum of understanding between the Ministry of Justice and the ADGM courts, Preamble A.
(17) Clause 2(4) of the memorandum of understanding between the Ministry of Justice and the ADGM courts.
(18) Clauses 2(5), 3(3) and (4) of the memorandum of understanding between the Ministry of Justice and the ADGM courts.
(19) Clause 2(5) of the memorandum of understanding between the Ministry of Justice and the ADGM courts.
(20) Clause 3(3) of the memorandum of understanding between the Ministry of Justice and the ADGM courts.
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