On 19 February 2013 the Constitutional panel of the UAE Federal Supreme Court (FSC) rendered a judgment in case 4/2012, declining to rule on a constitutional challenge that was raised during arbitration proceedings as there is no procedure that permits constitutional challenges to be brought from arbitration proceedings.

In brief

The FSC held that courts, as an emanation of the state, must operate in a manner consistent with the UAE Constitution and, accordingly, courts and litigants have been given the right by the Federal Supreme Court Law to refer a constitutional challenge to the FSC for a ruling. Arbitral tribunals and parties to arbitration have not been granted the same right because arbitration operates not as part of the state apparatus but, instead, by private agreement of the parties.

Background

In 2005 a joint venture (JV), comprising three contractors, entered into a construction contract with a government department in Dubai.  The contract provided for disputes to be resolved by a three member arbitral tribunal under the Dubai International Arbitration Centre (DIAC) Rules. The contract was subject to the laws of Dubai and the UAE.

In 2007 the rights and liabilities of the government department were transferred by a Dubai law (the 2007 Dubai Law) to a newly formed statutory corporation as part of a restructuring and corporatisation of the relevant part of the public sector in the Emirate of Dubai.

A dispute arose over the amount due to the JV and in 2010, some three years after the 2007 Dubai Law came into effect, the JV commenced arbitration against the government department. An issue arose as to whether the government department was the proper respondent and whether the arbitration could continue as constituted notwithstanding that the rights and liabilities of the government department had been passed to the new statutory corporation.

The JV argued that the 2007 Dubai Law, by changing the parties to the contract, was in conflict with the UAE Constitution which provides, in general, that laws should not operate retrospectively. The claimants added that the 2007 Dubai Law was also in conflict with the Federal Civil Code, which by virtue of the UAE Constitution is a superior law to the 2007 Dubai Law, as a valid assignment requires consent from the JV which was not given. In consequence, the 2007 Dubai Law should not be given effect.

Federal Supreme Court

The Tribunal concluded that these were constitutional challenges over which the FSC has exclusive jurisdiction. In relation to constitutional challenges Article 33(4) of the Federal Supreme Court Law provides:

“The Supreme Court has exclusive jurisdiction to look into the following matters:

(4)       Examine the constitutionality of Laws, legislation, and regulations in general if such petition is referred to the Supreme Court by any court of the Federation or of any of the Emirate members during an action processed before said courts.”

The Tribunal ordered a stay of the arbitration to allow the JV to bring the constitutional challenges before the FSC. The JV proceeded to the FSC for a decision on the constitutional challenges, relying on Article 58 of the Federal Supreme Court Law which provides that:

“Requests for consideration of constitutionality arising during a case before the courts shall be referred to the Supreme Court by virtue of a reasoned decision from the court…”

The article goes on to provide that either a court or a litigant in a lawsuit may raise a question of constitutionality for a ruling by the FSC.

Before examining the merits of the constitutional challenge, the FSC found that it had to be satisfied that the plea had been properly referred to it. In that regard, the FSC held that Article 58 of the Federal Supreme Court Law provides for specific procedures which must be strictly followed in order to refer a matter to the constitutional court. The relevant procedures provide that a constitutional challenge can be referred to the FSC by a federal or local court or a litigant in such courts. An arbitral tribunal is not a court for this purpose.

The JV was not entitled to refer the constitutional challenge arising in the arbitration proceedings directly to the FSC as this was not contemplated under the terms of Article 58 of the Federal Supreme Court Law and the case was accordingly dismissed.   

Analysis

The FSC’s judgment is consistent with the wording of Articles 33(4) and 58 of the Federal Supreme Court Law.  These Articles expressly provide that referrals can be made by “courts” and must arise from an “action” or “case”before [the] courts”. Furthermore, Article 58 refers to constitutional challenges raised by “litigants in the lawsuit”. The decision makes it clear that these terms will be narrowly construed and do not permit referrals to the FSC from decision making bodies under alternative dispute resolution procedures.

A distinction is drawn between the function of courts which, as part of the apparatus of state, must operate within the UAE Constitution and arbitral tribunals which are a private means of dispute resolution, in which the institutions of state and, therefore, the UAE Constitution are not directly engaged. The judgment is clear in its justification of why the power to refer constitutional challenges rests with the courts:

“The objective intended by the legislator of Article 58 of the Union Supreme Court is to protect the presumption of constitutionality attached to all legislative provisions, and to ensure stability of such legislative provisions so that they perform their social function.”

The opportunities for the UAE Constitution to be used to mount challenges to federal and local laws are purposely circumscribed in order to protect that presumption of constitutionality and to permit legislation to perform its intended social function. The FSC reinforced its reasoning in the context of arbitration:

“Arbitration is a consensual process operating within the scope of relationships established by private law. These relationships make parties comply with the provisions of a law even if they have doubts about the unconstitutionality of these provisions because the private interest dominates these relationships.”

As these passages highlight, there is a presumption that the laws of the UAE are constitutional. Accordingly, parties to arbitration are bound by the laws to which they have submitted by agreement, notwithstanding any doubts they may have as to the constitutionality of such laws.