On 27 January 2016, Nassif BouMalhab and John Lewis presented at the Kluwer Law Conference for In-house Counsel on the seat of arbitration.
A summary of the key take-away points from that presentation is set out below together with a quick reference guide highlighting the differences between the procedural framework applicable to arbitration seated in the Dubai International Financial Centre (DIFC) and arbitration seated in Dubai (onshore).
The benefits of electing a DIFC seat and the enforcement of DIFC seated awards internationally
The seat of the arbitration is a fundamental element of any arbitration agreement.
There are at least three reasons why this is the case:
- The seat determines the legal framework that will apply to the proceedings
- The seat determines the court that will supervise the arbitration and provide assistance where requested by the parties and/or Tribunal
- The seat determines the nationality of any arbitration award and, consequently, the rules which shall apply when seeking to enforce the award.
If a party does not give adequate consideration to the seat, the award resolving the dispute may be difficult to enforce or unenforceable. From a business perspective, the parties will have entered into an unenforceable transaction.
When considering which seat to choose, parties should take into account factors such as their location, the nature of the contract (e.g. where it is performed); and the location of assets against which an award is likely to be enforced. There is no right or wrong answer when it comes to determining the seat. Each transaction should be carefully considered, on a case by case basis, and an informed decision should be made.
The procedural framework
- Arbitration seated in the DIFC is subject to the procedural framework set out in the DIFC Arbitration Law 1 of 2008; and
- Arbitration seated in Dubai (i.e. outside of the DIFC) is subject to the procedural framework set out in Articles 203 – 218 of the UAE Civil Procedure Code.
In both cases, the legislation sets out the procedural framework applicable to arbitration, including a varying degree of mandatory requirements affecting the validity and enforceability of the arbitration agreement and/or proceedings.
A quick reference guide to the differences between DIFC seated arbitrations and Dubai seated arbitrations can be found at the back of this Update.
The supervisory court
The seat determines the court that the parties or the Tribunal will approach for assistance.
The DIFC Courts are English speaking, common law courts with an independent judicial system which draws on international best practices and adopts an arbitration friendly approach.
The DIFC Courts would, in supervising an arbitration seated in the DIFC, decide or assist with matters such as:
Click here to view the image.
- Challenges to the appointment of an arbitrator
- Freezing orders
- Search orders
- Security for legal costs
- Summons of witnesses
- Requests to Produce documents/third party disclosure requests
- Applications to set aside awards
The Nationality of the Award
From the outset, parties should consider where they will likely be seeking to enforce an award in their favour. One of the key benefits of a DIFC seated award rests in the ability of parties to enforce that award globally under international conventions.
New York Convention
The UAE is a Contracting State to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention).
Contracting States to the New York Convention agree to enforce arbitral awards rendered in another Contracting State without a review of the underlying merits of the arbitration. There are very limited grounds upon which a party can seek to challenge enforcement under the New York Convention.
There are currently 156 Contracting States to the New York Convention. With minor exceptions, enforcement of a DIFC seated award is possible pursuant to the terms of the New York Convention in each Contracting State.
The UAE is signatory to a number of other multilateral treaties and to bilateral treaties pursuant to which it is also possible to enforce a DIFC seated arbitration award, including the Riyadh Convention.
The following countries are, in addition to the UAE, contracting parties to the Riyadh Convention:
- Middle East: Bahrain, Iraq, Jordan, KSA, Kuwait, Lebanon, Oman, Palestine, Qatar, Syria, UAE and Yemen
- Africa: Algeria, Djibouti, Libya, Mauritania, Morocco, Sudan, Somalia and Tunisia
The countries highlighted in orange on the map on the left show those countries which fall (i) outside the scope of the New York Convention; but (ii) within the scope of the Riyadh Convention, namely the following:
Sudan, Somalia, Iraq, Libya and Yemen
One clear benefit of a DIFC seated arbitration award is the ability to enforce an award pursuant to both the New York Convention and the Riyadh Convention, thus widening the global scope of enforceability.
Efficiency, Transparency, Enforceability
Selecting the right seat of arbitration involves weighing up the advantages and disadvantages of each seat and choosing what is best, on balance, in the context of a given transaction.
The seat of arbitration transcends a legal function and is equally important to the business. The seat is arguably among the single most important elements to concluding an enforceable transaction. An efficient, transparent and modern judicial system is key to providing investor confidence in the ability to secure an investment, in other words, to enforce agreements.
Against that background, the UAE ranks 23rd in the Corruption Perception Index 2015 (climbing two places since 2014)1 tied with France and ranking better than Spain and Portugal, for example. The DIFC, if considered as a separate jurisdiction, would almost certainly rank even higher.
From this perspective, the seat of arbitration and, more broadly, the jurisdiction to which a party exposes the resolution of its disputes, must also rank highly amongst the preventive measures available to enhance compliance and involving compliance officers in the dialogue alongside the legal and business functions is a well advised practice.
Quick reference guide
Differences between DIFC seated arbitrations and Dubai seated arbitrations
Click here to view the table.