Interesting times for dispute resolution in the emirate

The global financial crisis threw much of Dubai’s property development industry into disarray. Many overseas purchasers who had bought properties off-plan found that the relevant development had been cancelled, shelved or subjected to an indefinite go-slow.

Inevitably, this led to a wave of disputes as purchasers attempted to recoup their investments. In the case of the government-owned DP World and its affiliates, the Dubai administration went so far as to create a Special Tribunal to deal with the large number of claims being brought against it. However, this mechanism was not available to those who bought from private developers.

In most of these cases, the contracts contained arbitration clauses - usually naming the Dubai International Arbitration Centre (DIAC) as the body whose rules would govern the arbitration. It is therefore not surprising that a large number of arbitrations have been launched in the DIAC, often by property owners seeking redress in circumstances where the property they had bought off-plan had still not been delivered several years after the due date.

Enforcing awards

While arbitration proceedings are private, it is widely understood that a great many of these claims have succeeded. The failures have largely been claims started before the "drop dead" date, when, under the contract, the purchaser became entitled to cancel the contract, or where the developer has succeeded in extending that date because of a force majeure event.

So far, so good. But where a respondent opts not to perform the terms of an award, the claimant is left with the task of enforcing it through the courts. This is much the same in all jurisdictions except that, in the Middle East, enforcement tends to be necessary rather more often than in other parts of the world. Historically, there has been a perception that courts in the Middle East are prepared to search for reasons not to enforce awards.

Recent developments

Two recent and seemingly inconsistent developments have given cause for thought. The first is the decision of the Dubai Court of Cassation - Dubai’s highest court - to ratify an overseas award so that it could be enforced against assets owned in the emirate. This has rightly been heralded as a sign that the United Arab Emirates regards its obligations under the New York Convention on Enforcement of Arbitral Awards seriously and is attempting to send a clear signal that the UAE is indeed an international hub for arbitration.

However, the Court of Cassation has also recently handed down Decision No 14 of 2012. This concerned an application to ratify the decision of an arbitrator in a domestic arbitration. The claim concerned a part of the Waterfront development, where one of the phases of the Palm Jebel Ali has seemingly been mothballed. The purchaser of a property in that development complained that it had not been handed over in accordance with the contract and that his title had not been registered with the Real Estate Regulatory Agency (the equivalent of the English Land Registry), contrary to the relevant statutory rules. The claimant wanted an order cancelling the contract and ordering repayment of the sums he had paid to date, together with damages.

The arbitrator ruled in favour of the purchaser. The Dubai Court of First Instance and Court of Appeal gave leave for the award to be enforced. However, before the Court of Cassation, the developer argued that the decision of the arbitrator breached public policy. Since the issue concerned the distribution of wealth, that made it a matter of public policy, said the court, and consequently something that could only be dealt with by judges.

Strong reactions

The decision has provoked strong reactions. Some commentators say that it calls into doubt the availability of arbitration as a remedy in any property-based dispute. Others believe that the decision should be regarded as particular to its own facts and, in large measure, the result of a very restrictive interpretation of the registration regulations.

Another line of argument is that since the UAE has a civil law system with no doctrine of precedent, the case is necessarily a one-off. Conversely, it has been said that subsequent benches of the Court of Cassation are in fact likely to follow this case out of intellectual consistency. Interestingly, the lawyers who advanced the public policy argument - members of the Dubai office of an English law firm - have gone so far as to issue a press release in which they say that suggestions that they have undermined the basis for arbitrations in Dubai are greatly exaggerated.

Where this might leave us

The courts of Dubai are unpredictable. It may be that legislation will be introduced to prevent an over-zealous adherence to Decision No 14. But until that happens, there is a risk that this case will be used to argue that parties cannot pursue arbitration. However, at the same time, the Dubai courts are being encouraged to uphold arbitration clauses. The danger is that the resulting dilemma may result in parties being deprived of any remedy at all. That fact alone may be enough to ensure that the case is not widely followed.

Read other items in The Key - Winter 2012