In this Part 3 of our 3 part series on dispute resolution in Abu Dhabi, we look at arbitration as a means of resolving commercial disputes in Abu Dhabi.
In Part 1 of our series on dispute resolution in Abu Dhabi, we considered mediation as an alternative means of dispute resolutions. In Part 2, we explored the advantages and disadvantages of litigation in the Abu Dhabi courts.
In Part 3 of our series on dispute resolution, we examine another commonly used form of dispute resolution in Abu Dhabi: commercial arbitration. The purpose of this article is to give an overview of what arbitration is, describe the different types of arbitration, and discuss arbitration proceedings administered by the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC).
What is arbitration?
Generally speaking, arbitration is a form of private dispute resolution where the parties agree to resolve their dispute before a Tribunal comprising either a sole arbitrator, or multiple arbitrators (most often three arbitrators). The Tribunal’s decision—known as an Award—is usually final and binding on the parties.
Arbitration is a private means of dispute resolution in the sense that it is detached from a State’s court system. The parties will agree on the framework of the proceeding, including the applicable law, the procedural rules, the language of the arbitration and so on.
The parties can agree to keep the matter confidential. Accordingly, the proceedings and the Tribunal’s decision will not be made known to the public by way, for example, of a publication in a court report or a public court hearing. In this sense, parties who are concerned in safeguarding their commercial interests, may find arbitration more appealing than court proceedings.
Arbitration is founded on the principal that the parties have consented to arbitrate the dispute that has arisen between them. Accordingly, a dispute can only be referred to arbitration if the parties agree. This agreement is usually recorded in an arbitration clause in the main contract or can be provided for in a subsequent agreement. The implication of such an agreement is that the Tribunal may only decide on the issues that the parties have expressly agreed to submit to arbitration. Should the Tribunal decide on any other issues, the Tribunal’s Award may be challenged at a later stage on the grounds that the Tribunal has exceeded its scope of competence.
The key advantages of arbitration are:
- Expertise of the Tribunal: in most cases, the parties will have a say as to who is appointed to the Tribunal. For disputes involving issues specific to a trade practice or industry, parties may find that having a Tribunal with the knowledge and experience in the same area will be helpful in identifying the issues in dispute.
- Awards are binding: in most cases, once the Tribunal renders its Award; the parties are bound by the decision and may not appeal it, except in very limited circumstances.
- Enforcement: Arbitral Awards can be enforced in a number of ways. Under the 1958 New York Convention on the Recognition and Enforcement of Arbitration Awards of 1958 (the New York Convention) which has over 140 signatories, arbitral Awards can be enforced in any of the states that are party to the Convention. A State court may only refuse to recognize and enforce an arbitration Award on a limited number of grounds—which can be summarized as amounting to a violation of public policy or due process or, as mentioned above, when the arbitrators have exceeded the scope of the arbitration agreement. In the Middle East, arbitral Awards can also be enforced in 20 Arab states under the Riyadh Arab Agreement for Judicial Cooperation.
- Flexibility: in arbitration, the parties can agree on the timing of the procedural steps in the proceeding including the fixing of a hearing date. This gives the parties significant flexibility to fit the proceeding around their commercial commitments.
Different types of Arbitration
In commercial arbitration, the parties may agree to submit their dispute either to an arbitration institution or proceed without an institution, in which case it is referred to as an “ad hoc” arbitration.
- Institutional arbitration
An institutional arbitration is where the parties agree to refer their dispute to a specialised arbitration centre who will oversee the administration of the arbitration process. The most widely used arbitration institutions in the UAE include the London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC) in Paris, the DIFC/LCIA Arbitration Centre in the Dubai International Financial Centre and the Dubai International Arbitration Centre (DIAC) in Dubai. Each arbitration institution has its own sets of rules which set out the procedures for the commencement of the arbitration, the appointment of the Tribunal, the conduct of the proceedings and the issue of the Award.
One of the reasons contracting parties may prefer an institutional arbitration over an ad hoc arbitration is that in an institutional arbitration the institution will provide administrative assistance to help keep the proceedings on track. The institution will also ensure that the procedural rules of the arbitration will be observed by the parties throughout the course of the proceeding.
- Ad hoc arbitration
As opposed to institutional arbitration, ad hoc arbitration is a proceeding whereby the parties will not be assisted by any institution. The parties will therefore have to agree on all aspects of the arbitration proceeding including the applicable procedural rules, the appointment of the Tribunal, the applicable law, etc. Ad hoc arbitration can potentially be faster than institutional arbitration as the parties have more flexibility in determining the conduct of the proceedings. It can also be cheaper as the parties are not subject to the payment of administrative fees applicable to institutional arbitrations.
In order for an ad hoc arbitration to run smoothly, a certain degree of co-operation between the parties is required. Where this co-operation is not present, problems can arise. If one party employs delaying tactics or challenges to the arbitration Tribunal’s jurisdiction, then there will be no institution to assist in moving the proceeding forward, and the parties’ only recourse would be to seek the intervention of a national court. It is therefore not uncommon in practice for parties in an ad hoc arbitration to find it difficult to have the proceedings commence and progress in an efficient manner.
In Abu Dhabi, parties may choose to have their arbitration administered by the ADCCAC. ADCCAC was established in 1993 by the Abu Dhabi Chamber of Commerce and Industry as a specialized body whose purpose is to deal with matters “relating to local and international commercial conciliation and arbitration”. Over the course of the last few years, ADCCAC has gained more importance as a number of government contracts require for any dispute arising out of or in relation to the contract to be settled via an ADCCAC conciliation proceeding and/or arbitration. Individuals and companies who are looking to do business in Abu Dhabi should therefore be mindful of this requirement and the risks involved in conducting an arbitration in the UAE.
Although the Centre is the oldest arbitration institution in the UAE, its own procedural rules do not resemble the rules of other well-established institutions. The rules are closely aligned to the UAE procedural rules on arbitration provided under Articles 208 to 218 of the UAE Civil Procedure Code, which themselves do not necessarily reflect modern arbitration practice. Despite the fact that arbitration is an increasingly popular and accepted form of dispute resolution in the UAE, we have seen UAE courts continue to rely on the requirements set out in the Civil Procedure Code to annul arbitration Awards. In many cases, Awards have been annulled on simple procedural grounds. Therefore, in order for parties to ensure that an ADCCAC Award is enforceable under UAE law, it is advisable to follow these rules closely as a failure to follow the rules may lead to the Award being annulled. We highlight below a few rules specific to an arbitration proceeding administered by ADCCAC under UAE law:
- There must be an Arbitration Deed: Article 216(a) of the UAE Civil Procedure Code provides that a request to annul an arbitration Award may be brought “if it has been rendered without an arbitration deed.” Article 36(b) of the ADCCAC rule sets forth the required form and content of the arbitration deed, which includes the subject of the dispute, a summary of each party’s position and the time period for the arbitration.
- The arbitrators must administer the oath to the witnesses: Under Article 211 of the UAE Civil Procedure Code, arbitrators must administer the oath to the witnesses before they present their oral testimony at a hearing.
- Each member of the Tribunal is required to sign the minutes of each day during the arbitration hearing. This requirement is set forth in Article 6 of the ADCCAC Rules which provides that minutes of the proceeding must be signed to be registered with the Center.
- The Award must be delivered within 6 months of the date of the assignment: Article 7 of the ADCCAC Rules provides that in the absence of an agreement by the parties the arbitration Tribunal must dispose of the case within six months following the assignment. It is unclear from the ADCCAC Rules what is meant by “assignment” but this is generally taken to mean when the Tribunal accepts its appointment. Any action taken after the expiry of the six month period will not be binding on the parties unless there is an agreement in writing to extend the fixed time.
- The Award must be in Arabic in addition to any other language: Under Article 3 of the ADCCAC rules, all Awards rendered under the ADCCAC rules must be in Arabic in addition to any other language adopted during the proceedings. In practical terms, this means that if the Award has been drafted in a language than other Arabic, then it must be translated by a certified translator before it can be registered at ADCCAC.
- The Tribunal must sign every page of the Award: Article 212(5) of the UAE Civil Procedure Code specifies that the Award must contain a copy of the arbitration agreement, a summary of the parties’ position and the documents referred to, the grounds for the Award, the pronouncement and date and place of issue of the Award. More particularly, the Award’s validity is subject to it being signed by all the arbitrators on every page of the Award.
When resorting to arbitration as a means to resolve commercial disputes in the UAE, parties may well find advantages in favouring arbitration over other means of dispute resolution. However, in the UAE, parties must be mindful of the procedural issues they may face in the course of an arbitration proceedings and the possible challenges to the Award that may lie at the enforcement stage. A careful observation of the applicable procedural rules will secure the best chances of having the arbitration Award challenged at the enforcement stage.