The United Arab Emirates (“UAE”) has experienced decades of economic growth and has emerged as a leading regional commercial hub, attracting large and numerous cross-border transactions. This has lead investors and parties into contracts in the UAE to commonly elect a foreign law, in particular English law, to govern the contractual relationship and to opt for a foreign jurisdiction or for arbitration as an alternative to litigation. Looking at the legal framework of the UAE, a civil law jurisdiction with a strong presence of financial free zones modelled on the common law, is of immense importance and we are pleased to offer a simple but comprehensive guide to assist in understanding the key features of choice of law, litigating and arbitrating in the UAE.
A very relevant distinction must be drawn between the aspects of the choice of foreign law, litigating and arbitrating in:
- mainland UAE – governed by federal and Emirate level laws and having a number of local courts, referred to hereinafter as “UAE courts” ; and
- the financial free zones, particularly, Dubai International Financial Centre (“DIFC“) – a financial free zone in the Emirate of Dubai constituting an autonomous jurisdiction within the UAE, modelled on the common law, applying its own set of civil and commercial laws and regulations and in which an independent court has been set up the Dubai International Financial Centre Courts.
Choice of foreign law and available dispute resolution forums
Do UAE courts upheld the choice made by parties into a contract to apply a foreign law?
In principle, electing a foreign governing law is permissible.This choice will be upheld by UAE courts to the extent the foreign law provisions do not contradict Islamic Shari’a, public order or morals of the UAE and the relationship does not revolve around a number of matters for public order consideration such as in rem rights, employment, registered commercial agency, and contracts concluded with UAE government entities. Domestic public order, as interpreted in the UAE, is very broad and includes, among other things, matters of personal status, freedom of trade, circulation of wealth and rules of individual ownership, to the extent that these matters do not contravene the imperative provisions and the essential principles of Islamic Shari’a.
What are the risks associated with the choice of a foreign law to govern a contract in the mainland UAE?
There are a number of risks associated with the choice of a foreign law to govern a contract that has strong tights “nexus” with mainland UAE:
- If the dispute is viewed by a UAE court, the party invoking the foreign law has the burden of proving the existence and the content of such foreign law to the UAE courts. If the party seeking the application of the foreign law fails to prove such foreign law and to determine its effects, the court, at its discretion, may likely apply UAE law irrespective of the parties’ agreement.
- The UAE courts have ruled in several instances that the UAE laws will apply and not the selected foreign law (e.g. English law) on the basis that the parties have either failed to present satisfactory and tangible evidence as to the existence of the foreign law or failed to determine its effects. In these instances, the UAE courts disregards the parties’ agreement and assesses the merits of the case in accordance with UAE laws.
- Fortuitously, this complexity does not arise if the dispute is referred to arbitration, as the UAE court looking at enforcing the award in the UAE will not assess the merits of the case and will apply the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ( the “New York Convention“) to international arbitration or the streamlined enforcement process afforded to domestic arbitration prescribed under the UAE Civil Procedures Code.
- Opting for the application of a foreign law to a contract does not safeguard the contract from being subject to certain key notions of UAE laws in particular the broad notion of public order. This notion may be advanced by a UAE court if the matter is brought before it i.e. if it is the competent court to rule on a dispute or if it is the competent court entrusted with the enforcement of a foreign judgment or an arbitral award.
The DIFC Courts, however, recognize a foreign law and should in principle apply it to the dispute at hand.
What are the dispute resolution forums that parties may contractually agree to in the UAE?
Selecting the appropriate dispute resolution forum is made on a case-by-case basis, depending on the nationality of the parties, the nature of the contract and the location of the assets of the parties, among other things. Parties may freely agree to refer the disputes to the following forums:
- Domestic courts which proceedings are generally comprised of three levels first instance, appeal and cassation. Court proceedings are often time-consuming.
- The DIFC Courts being the courts responsible for the independent administration and enforcement of justice in the DIFC and DIFC courts have only two levels first instance and court of appeal which makes the court proceedings relatively quicker than in the UAE courts. DIFC has its own set of civil and commercial laws and regulations
- Arbitration − domestic or international, institutional or ad hoc − except for the matters deemed of public order nature as set forth in the above section.
- Foreign courts may also be selected by the parties noting that technically, a UAE court may declare its competency to view a dispute if deemed to fall within its jurisdiction and if a legal nexus exists in the UAE on the basis that the rules attributing jurisdiction to the UAE court are of a public order nature, irrespective of the parties’ express agreement to refer a dispute to a foreign court.
Arbitration in the UAE
Which arbitration forums are frequently selected by parties in the UAE?
Arbitration as a private alternative dispute resolution mechanism has undergone significant growth in the UAE. In recent years, the UAE has been modernizing its approach towards arbitration to meet international standards and best practice.
At a domestic level, there is a number of well-established domestic arbitration institutions, including the Dubai International Arbitration Centre (DIAC), the Abu Dhabi Commercial Conciliation Arbitration Centre (ADCCAC), and the DIFC- LCIA Arbitration Centre (DIFC-LCIA).
DIAC is one of the most prominent institutions in the UAE and has proven to be very efficient; its rules are modelled on the ICC Rules.
The DIFC-LCIA is an arbitration center founded in strategic partnership between the DIFC and the London Court of International Arbitration.
Parties may also elect foreign arbitration forums such as the International Court of Arbitration of the International Chamber of Commerce, the United Nations Commission on International Trade Law and the LCIA or an ad hoc arbitration conducted abroad.
What legislation governs the enforcement of arbitration proceedings in the UAE?
The proceedings of domestic arbitration (in the mainland UAE, but outside DIFC) are subject to the arbitration chapter of the UAE Civil Procedure Code in addition to relevant arbitration rules selected by the parties for the appointment of the institution overseeing that arbitration proceedings and the conduct of the arbitration, while the recognition and enforcement of foreign arbitral award is subject to the New York Convention.
Equally, the choice of mainland UAE as a seat of arbitration triggers the application of UAE Civil Procedure Code.
The choice of the DIFC as a seat of arbitration triggers the application of DIFC Arbitration Law No. 1 of 2008 and the curial intervention of the DIFC Courts.
What are the steps required to ratify and enforce a domestic arbitral award in the UAE? Are parties entitled to challenge a domestic arbitral award?
The enforcement of domestic arbitral awards (issued in the UAE, but outside the DIFC) is subject to judicial scrutiny in the UAE and may only be enforced following ratification by the competent UAE court.
This ratification process does not decode into reviewing the merits of the award and there are no rights of appeal in relation to arbitration awards.
In order for a UAE court to ratify a domestic arbitral award, the UAE court reviews the award and ensures that the following requirements are met:
- the award does not contravene public order considerations;
- the presence of a written and signed arbitration agreement;
- the signatories of the arbitration agreement have the capacity to enter into such agreement;
- terms of reference or equivalent documents setting out the mandate of the tribunal have been signed by the authorized parties;
- the award was issued within the six-month timeframe prescribed in the UAE Civil Procedures Code (in the absence of any valid extension agreement);
- each page of the award, and more recently, each page setting out the decision of the tribunal, has been properly initialed by all the arbitrators; and
- the arbitrator has not ruled in an extra petita, i.e. beyond the scope of the matters submitted to arbitration, or infra petita i.e. failing to consider part or all of the matters submitted to arbitration.
If the UAE court refuses to ratify an arbitral award and rules for the annulment on the grounds of the non-satisfaction of any of the above conditions, the UAE court becomes competent to examine the merits of the case.
While the requirements set out in the UAE Civil Procedure Code are formalistic, and deemed rather cumbersome, in more recent years, the UAE has demonstrated a liberal approach in the application and the interpretation of the ratification requirements and enforcement of arbitral awards.
What are the steps required to recognize and enforce a DIFC-LCIA arbitral award, mainland in the Emirate of Dubai, but outside DIFC?
DIFC LCIA awards are mutually recognized and enforced through a DIFC Court order in accordance with the DIFC Judicial Authority Law No. 12 of 2004 (the “DIFC Judicial Authority Law“) and the Memorandum of Understanding between the Dubai courts and the DIFC Courts of 2009 and the related Protocol of Enforcement.
The enforcement of commences with the recognition/ratification of the award by the DIFC Courts:
- Following the issuance of the award, the party seeking enforcement of the arbitral award must submit an application to the DIFC Court of First Instance for the recognition of the arbitral award in accordance with Section 43 of the DIFC Arbitration Law.
- When the DIFC Court of First Instance issues a judgment recognizing the award (and unless an appeal against this judgment is made before the DIFC Court of Appeal), the Execution Judge in the DIFC Courts stamps the recognized award and confirms that the award is “execution ready”.
In order to enforce the award in Dubai, subsequent to its recognition by DIFC Courts and bears the stamp “execution ready”, a direct enforcement process is initiated before the Dubai courts:
- The enforcing party requests an execution letter from the DIFC Courts. This letter is issued to the Chief Justice of the Dubai courts, setting out the procedures required for the execution of the award.
- The enforcing party submits an execution application to the Execution Judge of Dubai Courts, accompanied by the execution letter and an official Arabic translation of the award.
- The Execution Judge of Dubai courts reviews the submitted documentation and ascertains that award is final and executory and affixes the executory formula on the ratified award and the enforcement will be conducted in accordance with the UAE Civil Procedure Code.
Although the volume of enforcement of DIFC-LCIA arbitral awards by the Dubai courts has been limited to date, the process is widely viewed as being reliable and efficient.
Is there a difference in terms of the steps required to recognize and enforce a DIFC-LCIA arbitral award locally in other Emirates i.e. outside Dubai and DIFC?
Unlike the Emirate of Dubai, there are no special laws and/or memoranda of mutual recognition between the DIFC Courts and the courts of the other Emirates, including Abu Dhabi.
Therefore, arbitral awards issued by the DIFC- LCIA Arbitration Centre are enforceable in other Emirates by virtue of the Federal Law No. 11 of 1973 regulating Judicial Relations between member Emirates in the Federation (the “Judicial Relations Law“) stipulating that arbitral awards issued in one of the emirates are enforceable in other Emirates, without considering the merits of the case.
However, as a matter of practice, this direct enforcement route of a DIFC-LCIA arbitral award in other Emirates has not been tested.
The tested and tried enforcement route is through obtaining a ratification/recognition order from the Dubai courts for the enforcement in Dubai as indicated above, and subsequently to apply to the court of the relevant Emirate to enforce the ratification/recognition order of the Dubai courts on the basis of the Judicial Relations Law.
To the best of our knowledge, and based on recent discussions with the DIFC Enforcement Department, to date, there are no precedents on the enforcement of DIFC-LCIA awards in Abu Dhabi through direct enforcement. However, there is currently an ongoing case before the Abu Dhabi courts where the direct route of enforcement from DIFC to the Abu Dhabi courts is under review. The outcome of this case is not yet known.
Strictly speaking, there is a view that Abu Dhabi courts do not have grounds for rejecting the direct enforcement of an arbitral award issued by a DIFC-LCIA ratified by the DIFC Courts. This view is supported by the fact that DIFC Courts, pursuant to DIFC Judicial Authority Law, is an independent, domestic judicial authority in the Emirate of Dubai and is an integral part of the Emirate’s judicial system, a view recently expressed in an opinion issued by the Dubai Supreme Legislative Committee.
Are the DIFC- LCIA arbitral award widely recognizable and enforceable at an international level?
The DIFC Courts are an integral part of Dubai judicial system. Hence, a DIFC-LCIA arbitral award recognized and ratified by DIFC Courts is regarded as an award issued by the Emirate of Dubai, a DIFC-LCIA award is enforceable in any jurisdiction that has acceded to the New York Convention since the UAE is a contracting state to the New York Convention and in other jurisdiction party to a bilateral or multilateral treaty with the UAE.
What are the steps required to recognise and enforce a foreign arbitral award in the UAE? Are parties entitled to challenge a foreign arbitral award?
Enforcement of a foreign arbitral award in the UAE is achieved through UAE courts and has proven, to a certain extent, to be effective. The UAE courts guided by the bilateral and multilateral treaties it is party to, including, most importantly, the New York Convention.
UAE courts should in actual fact recognize and enforce all foreign awards including those rendered in countries non-signatories of the New York Convention since the UAE has not entered into a reciprocity reservation.
The UAE is also a party to further multilateral conventions, including: the Riyadh Convention on Judicial Cooperation; the GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications; and the ICSID Convention i.e. the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States.
Yet, enforcement of foreign arbitral awards before the UAE Court through the New York Convention remains open to challenge for potential violations of the public policy as understood in the UAE.
While in theory, the enforcement of a foreign arbitral award in mainland in Dubai is achievable only through the UAE courts, in a significant development, the DIFC Courts have expanded its scope and accepted jurisdiction in a few cases to ratify foreign arbitral awards seeking enforcement mainland in Dubai with no geographical nexus to DIFC on the basis of the mutual recognition regime between the Emirate of Dubai and DIFC Courts.
Litigation in the UAE
What is the enforcement process of a domestic court judgment in the UAE?
A final and binding judgment issued by a domestic court in the UAE – excluding the DIFC Courts – is not subject to any further judicial consideration or supervision, and execution proceedings may be initiated by the judgment creditor as soon as the judgment becomes final and binding (i.e., has res judicata effect).
Local judgments issued by local or federal UAE courts – excluding the DIFC courts – are executable upon the finalization of the appeal and the issuance of the affirmative judgment pending cassation proceedings.
In other words, execution procedures can be initiated by the judgment creditor before the execution judge in the UAE upon finalization of the appeal and the issuance of the affirmative judgment even if the matter is still pending before the Court of Cassation.
Execution proceedings may, however, be suspended at the discretion of the competent judge in the event that the judgment creditor raises valid “procedural objections to execution” to suspend the execution proceedings.
Note, however, that the execution judge may not re-open the merits of the case.
What is the enforcement process of a DIFC Court judgment domestically in the UAE and internationally?
DIFC Court judgments or orders must be certified by the DIFC Courts for execution and must bear a formula of execution affixed by the DIFC Courts prior to initiating any execution proceeding.
Subsequently, and if the parties desire to enforce the judgment outside DIFC, the enforcement process described in under the response to the recognition of the DIFC-LCIA arbitral award applies.
Generally, the recognition and enforcement of court judgments in foreign jurisdictions which have not signed bilateral or multilateral treaties with the UAE has been proven difficult.
In a recent development aiming to aid the enforcement of the DIFC Courts in foreign jurisdiction, the DIFC Court has issued a Practice Direction No. 2 of 2015 on the Referral of Payment Judgment Disputes to Arbitration (“Practice Direction”) envisaging a process whereby parties may contractually agree that DIFC Court monetary judgment, partially or fully un-enforced/executed, could be converted into an arbitral awards and take advantage of simplified enforcement procedures attributed under a number of treaties and protocols internationally such as the New York Convention. The implementation of this Practice Direction has not yet been tested and is subject to observing a number of requirements stipulated therein.
Are foreign judgments easily enforceable in the UAE?
The enforcement of a judgment issued by a foreign court is governed by Article 235 of the UAE Civil Procedure Code and applies de facto in the absence of a bilateral or multilateral treaty or convention on the recognition and enforcement of foreign judgments.
Judgments issued by a foreign court may be ordered for execution within the UAE pursuant to the same conditions provided for in the law of the foreign state. This general provision applies, subject to certain qualifications, including that a petition for an execution order must be filed before the competent Court of First Instance in the UAE and provided that the following conditions are met:
- UAE courts have no jurisdiction over the dispute and the respective foreign courts have such jurisdiction.
- The judgment or order was passed by the competent court according to the law of the respective foreign country.
- Adversaries in the lawsuit on which the foreign judgment was passed were summoned and duly represented.
- The judgment or order had obtained the absolute degree (i.e., final and binding) in accordance with the law of the issuing foreign country.
- The judgment or order does not conflict with or contradict a judgment or order previously passed by another court in the UAE.
- The judgment does not violate the concepts of public morals or public order.
In practice, the UAE courts are unlikely to enforce a foreign court judgment unless “reciprocity of treatment” has been proved by the party requesting enforcement. Establishing reciprocity is very burdensome and often leads to the inability to enforce a foreign judgment in the UAE.