There were two significant developments in arbitration in the UAE in 2018, both of which will have a positive impact on arbitration throughout the UAE.
We have previously written in Issue 21 about Article 257 of the Penal Code, and the possibility that arbitrators might be exposed to criminal liability. This change, introduced in October 2016, head lead many arbitrators and experts to decide that they are not prepared to accept appointments. On 27 November 2018, an amendment was published excluding arbitrators from the scope of application. We will provide further details in our second IQ of 2019.
In addition, on 16 June 2018, the Federal Arbitration Acct (“FAA”) came into effect in the UAE. The FAA had been long-anticipated and it undoubtedly serves to bring arbitration in the UAE in line with modern global arbitral practice. Indeed, the FAA is broadly based upon the UNCITRAL Model Law and therefore confirms the application of well-established arbitration procedures that are now adopted into law in more than 111 jurisdictions worldwide.
Applying to ongoing as well as new arbitrations, the FAA sets out the procedural law for arbitrations in the UAE. In doing so, it replaces Articles 203–218 of the UAE Civil Procedure Code (“CPC”). By Article 2, it applies to:
- Any arbitration seated in the UAE, unless the Parties have agreed that another law apply, provided there is no conflict with the public order and morality of the State.
- Any international commercial arbitration seated outside the UAE, provided the Parties have chosen the FAA to apply.
- Any arbitration arising from a dispute governed by UAE law.
It therefore does not apply to the DIFC and ADGM, financial free zones in Dubai and Abu Dhabi which have their own rules governing arbitrations which are based in those jurisdictions.
Formalities of the arbitration agreement
By Article 7 of the FAA, an arbitration agreement must be in writing. This can include where the agreement is part of a document signed by the parties or where the agreement is contained in an exchange of correspondence, which can include an exchange by way of email. Article 5(3) permits incorporation of the arbitration agreement by reference to any other document containing an arbitration clause; this will constitute an agreement to arbitrate provided that reference is clear both in its meaning and in stating that it forms part of the agreement.
By Article 4(1), when the arbitration agreement relates to a company, it can only be concluded by an authorised representative who has authority to arbitrate. This is important because one of the grounds for challenging an arbitral award, set out in Article 53(c), is that the party to the arbitration does not have the legal capacity to enter into the arbitration. For a UAE LLC, this usually means being either the General Manager or a person having the authority to act on behalf of the General Manager.
There has been a long debate as to whether this authority should be express or “apparent” authority should suffice. The position in light of the old law was the same in terms of requiring the arbitration agreement be executed by the General Manager something confirmed in numerous decisions by the court of cassation. Until 2014, UAE courts did not recognize the apparent authority concept in concluding an arbitration agreement. However in 2014, the Dubai Court of Cassation in case number stated:
“The manager may vest in any person all or part of his powers unless the same is prevented under the Company’s memorandum of Association. In such case the second agent shall be the representative of the company and his acts shall be valid towards the company. It is also established that in legal precedence of this Court that if the name of a certain company is mentioned in an agreement and another person signed such agreement, this shall constitute a legal presumption affirming that the person who signed it did so for and on behalf of the company. Hence the effects of such agreement shall be added to the company’s rights and obligations, as the person who is delegated in such case shall be considered to be the company’s representative.” [emphasis added]
In that judgment1, the following two-pronged test establishes the authority of an individual to enter into an agreement (which includes an arbitration clause) on behalf of a company as a matter of UAE law:
- The company is required to be named as a contracting party in the agreement; and
- The individual signing the agreement does so in their capacity as representative of the company.
In our view, the new FAA does not change the position of apparent authority as developed by Dubai Courts.
For companies not incorporated in the UAE, the wording of Article 53(c) suggests that when deciding whether the signatory has the necessary authority, what matters is whether that signatory has the legal capacity or authority “to dispose of the disputed right”. This suggests that, where a company is incorporated in England and Wales, any dispute as to whether or not the party had that authority will be determined under English law.
The default number of arbitrators is three. By Article 10, when approached a potential arbitrator must disclose in writing anything which relates to their possible independence and/or impartiality. This is entirely in keeping with international practice and, for example, Article 9 .1 of the DIAC rules.2
The Tribunal does have power to rule on its own jurisdiction.3 If a party wishes to object to any ruling, by Article 19, it must do so within 15 days. The court must then issue a decision on the matter within 30 days.
The arbitration process
As noted above, the FAA applies to all ongoing arbitrations. That said, it is not thought that the FAA will have a significant impact on the procedures of any arbitrations that are already under way. For example, the FAA does not change the Tribunal’s general powers to determine the procedure of the arbitration or would not impact upon, say, the parties’ choice of the DIAC Rules as the applicable procedural rules or any agreement to follow the IBA Rules for the giving of evidence. Article 23(1) provides that parties may agree on the procedures to be followed by the Arbitral Tribunal, including making these procedures subject to the effective rules in any arbitration institution. Further, the FAA confirms the continued applicability of certain provisions from the now superseded Civil Procedure Code, including that the law must not conflict with notions of public order or morals (Article 2(1)).
By Article 33 of the FAA, the Tribunal is empowered to decide the procedures and methods of putting forward evidence. This is provided that, in compliance with Article 26, each party is given an equal opportunity to present its case. Article 33 includes specifying time limits or the method for exchanging evidence. Giving this type of authority to the Tribunal is entirely in keeping with the current international drive to ensure that arbitration provides for a proportionate and efficient means of dispute resolution. Articles 28, 33(3) and 35 make it clear that hearings can be held through what are termed “modern means of communication” without the need for “the physical presence” of the parties, thereby confirming that the use of video-conferencing or maybe telephone hearings is permitted, a potentially cost-saving measure when Tribunals, parties and witnesses are often spread across the globe. Article 28 seems to go further and enables the Tribunal to hold arbitration hearings in any venue that the Tribunal considers appropriate, taking into account the circumstances of the case. As there is no restriction on the venue selection, this in theory means that the Tribunal may decide to hold hearings outside of the UAE. However, until this is tested by UAE courts, it would be safer to select the venue within the UAE, or to obtain the parties’ consent to hold the hearing outside the UAE.
Article 33(3) also confirms that the hearing, unless agreed otherwise, is to be held in private, a reminder of the confidentiality of the arbitration process. Parties should, however, be aware that the FAA does not provide that the ratification process in the local courts must be kept confidential.
The Tribunal, by Article 32(3), may choose to proceed with the arbitration where one party fails to comply with any agreed or ordered procedure and to draw such conclusions from that failure as it deems appropriate. This is entirely in keeping with Article 32.4 of the DIAC Rules.
However, if something does go wrong during the arbitration, watch out for Article 25 which says that if a party does not object to a breach of the arbitration rules and procedures within seven days of becoming aware of the issue, they may find that they have lost the right to object later on.
The CPC made no reference to the ability of the Tribunal to award interim measures. This has been addressed in the FAA. The Tribunal may issue temporary or preservative measures in the instances set out in Article 21, including to maintain evidence that may be deemed essential to resolving the dispute, to prevent damage or prejudice to the arbitration process, or ordering either party to abstain from doing anything that can damage or prejudice the arbitration. If either party disagrees with an order made by the Tribunal then it may choose to seek direction from the court, although any such court application will not require the suspension of the arbitration.
Further, Article 39 confirms that the Tribunal may issue temporary judgments before the issue of the final award. These temporary judgments are enforceable before the courts. Again, this provides certainty in an area not previously covered by the CPC.
The parties’ ability to enforce interim measures or temporary awards is a very helpful development. This is particularly important in construction cases where there might be a need to preserve evidence, compel a contractor to leave a site or to stop calling the bank guarantees. Further, it encourages Tribunals to bifurcate the proceedings to deal with jurisdictional and admissibility questions as a preliminary issue. These are also common questions in construction disputes given the common use of standard forms that usually provide for notification periods, and multi-tier dispute resolution process, the non-compliance with which might give rise to admissibility and jurisdictional questions. The parties will be able to challenge or enforce Tribunal’s decisions in this respect.
The award must be in writing and signed by the arbitrators. By Article 41 (6), the award can be signed electronically and outside the place of the arbitration, so arbitrators no longer have to be physically present in the UAE when they sign the award.
By Article 42(1), the Tribunal shall issue the award by the date agreed upon by the parties and if no date is agreed upon the award shall be issued within six months from the date of the first arbitration hearing. The six-month time limit to issue the award can be extended with the agreement of the parties or by making a request to the court to extend the period. This is similar to the wording of Article 210 of the CPC which required tribunals to render awards within six months from the first arbitration hearing unless otherwise agreed.
The FAA also introduces a slip rule, with Article 50 empowering the Tribunal, either on its own initiative or upon the request of one of the parties, to correct clerical or mathematical errors in its award. Article 51 goes further and gives the parties the right to ask the Tribunal to deal with issues they believe have been omitted from the award. The slip rule is not designed to enable the parties to have a second chance and seek to persuade the Tribunal to change its mind about the substantive decision. Any request and/or correction must be made within 30 days.4
Enforcement of arbitration awards
There has been no change to the requirement that arbitration awards must be ratified. Article 52 confirms that to be enforced a decision confirming the award must first be obtained. The documents that need to be submitted have not changed, namely the original award (or a certified copy), a copy of the arbitration agreement, an Arabic translation of the award if needed,5 and a copy of the minutes of deposit of the award at court. However, the identity of the court has changed, with applications being made to the Court of Appeal. This is a positive step which should improve the speed of ratification and help ensure that arbitration matters are heard before those with specialist knowledge. The Court of Appeal then has 60 days to respond to the request for ratification.
Under Article 54(2), if a party wishes to challenge an award, it must do so within 30 days of the date of notification of the award. However, presumably that would not stop a party from opposing an application to ratify the award, made after the 30-day period had expired.
The grounds for refusing ratification include that the arbitration agreement was not valid, that the award was not made within the time limit and if there were procedural “irregularities”, the same phrase as used in the CPC. It is very difficult to make a successful challenge on the grounds of serious procedural irregularity in England and Wales under section 68 of the Arbitration Act 1999 and the courts have made it clear that applications to set aside for misconduct should not become a backdoor means of appeal on questions of fact or law.
A step in the right direction
Whilst with any law, it may take some time, by which we mean judicial interpretation, before its full extent is known, the FAA stands as an expression of intent to modernise and bring the arbitration law in line with international best practice. As such it should help increase confidence in the arbitration process within the UAE, something to be welcomed.