On 30 October 2018, His Highness Sheikh Khalifa bin Zayed Al Nahyan, issued Decree Law No. (19) of 2018, on Foreign Direct Investment (the “FDI Law”), which sets out national legislation for the promotion and development of UAE’s foreign investment environment. The new legislation sets out provisions including but not limited to who is an investor and what is an investment under the FDI Law, and the type of protections afforded to foreign investors who qualify under the FDI Law.

The new legislation also provides an avenue for recourse if a foreign investor is harmed by the UAE or one of its entities. The dispute resolution provision under the FDI Law provides for Alternative Dispute Resolution (“ADR”) and / or expediated local court process in the UAE.

As part of a 3-part series, we look at dispute resolution under the new FDI Law and its impact for foreign investors, the UAE and the region. In this Part 1, we provide an overview of the dispute resolution mechanism contained in the new legislation and certain important considerations for foreign investors under the new FDI Law.

Dispute Resolution under the New FDI Law

Article 12 of the FDI Law sets out the dispute resolution mechanism under the new legislation. It states:

1. Without prejudice to the right to litigation, disputes or differences which arises from a foreign investment  project may be settled by any ADR.

2. Foreign direct investment claims shall be heard in a competent court in the UAE in an expedited manner.” (Author’s translation).

The dispute resolution provision is very basic in its drafting. However, the provision permits an aggrieved investor to settle its investment dispute with the UAE or its entity through any ADR mechanism which can include conciliation, expert determination, mediation and arbitration.

An investor will also have the option of going to the local courts in the UAE. The provision expressly provides that if the investor elects to proceed to litigate its dispute in the local courts, it will be done so in an expediate manner. However, the provision does not provide details in terms of how it will be expediated. Currently, there is no special court or expediated process set up in the UAE courts to deal with FDI disputes.

Further, under this provision a foreign investor can choose international arbitration (i.e., ad hoc, ICSID, ICC, LCIA, etc.) to settle the dispute. Since the provision does not set out details on how the international arbitration would be structured (such as the number of arbitrators, the seat of arbitration, language, etc.), this will be decided between the parties once the proceedings are commenced. However, for a foreign investor to have their dispute resolve by international arbitration, the UAE would have to provide its consent.

Below, we analyze whether the UAE has provided its consent through the FDI Law and the circumstances surrounding this issue.

Considerations under the Dispute Resolution Provision

There are certain issues a foreign investor should consider before commencing a dispute under the new FDI Law. These include whether the UAE has provided its consent to the dispute resolution mechanism chosen by the foreign investor, and the type of compensation a foreign investor would be entitled under the new FDI Law.


An issue under the new FDI Law is whether the UAE has consented to any form of venue or recourse for the foreign investor. Article 12 does not require any specific method to resolve a dispute but instead provides an “optional” dispute resolution provision for the foreign investor to decide the method. But, does this mean the UAE has consented to whatever the foreign investor has selected to resolve the dispute? In short, the answer is no.

At first glance, an offer to any dispute resolution mechanism at the discretion of a foreign investor contained in a national legislation may appear as consent since it can constitute as an offer to the foreign investment community. However, foreign investment legislations that include an “optional” dispute resolution provision does not mean the state’s consent to arbitration or any other method selected by the foreign investor. It only recommends a certain form (or choice) of recourse to settle the dispute.

Other foreign investment legislation’s have similar provisions where the foreign investor may choose between methods for settlement. For example, Article 5(3), Part II, of the Investment Code of Seychelles (Seychelles Investment Act, 2010) provides that an aggrieved investor may “resort to other methods of resolution of disputes . . .” to settle its dispute if the host state wrongful expropriates or nationalizes its investment. Another example is Article 43 of Jordan’s Investment Law of 2014 which states that an aggrieved investor may “resort to alternative means for resolving disputes . . .”.

In most foreign investment legislation that have an “optional” dispute resolution provision will require a previous agreement (such as an arbitration clause in an investment contract), or a subsequent agreement between the host state and the foreign investor. If there is no agreement in another instrument, then there is no consent by the state to the method decided by the foreign investor.

Under the FDI Law, the UAE has not consented to a specific method of settling any dispute with a foreign investor. The dispute resolution provision only provides the foreign investor with options. A separate agreement will be required for the UAE to consent to international arbitration or another method to settle the dispute. However, the FDI Law does give the option to the foreign investor to seek recourse in the UAE courts.


Another issue under the new FDI Law is the type of compensation a foreign investor will be entitled to if it is harmed by the UAE or one of its entities. The new FDI law does not expressly provide for compensation. The only exception is in the case of expropriation. Article 9 of the FDI Law provides that an investment will not be expropriated except if the taking is for the public benefit and the UAE provides adequate compensation.

The question remains what type of compensation can a foreign investor recover under the new FDI Law if the investment has not been expropriated, and how will the compensation be determined?

Compensation under the new FDI Law will more than likely be determined on principles of compensation based on international law. The UAE has effectively made unilateral undertakings within the framework of the new legislation which could be considered as having “internationalize” or created international obligations in the FDI Law. In other words, if an arbitration is commenced under the FDI Law, the arbitral tribunal seated will more than likely interpret any harmed caused by the UAE or one of its entities to the foreign investor as a breach of international law and award damages in line with international standards of compensation. Principles of compensation under UAE law would more than likely not be considered.

Further, the FDI law contains provisions where it demonstrates the UAE’s intent to incorporate international standards to its legislation. For example, Article 2 of the FDI Law states:

This law aims at developing and promoting the foreign direct investment environment and attaching foreign direct investment by developing the polices of the UAE, particularly:

1. Establishing the UAE as a center for foreign direct investment on both regional and international standards; . . .” (Author’s translation).

Another example is Article 8(1) of the FDI Law which states:

Pursuant to this law, registered foreign direct investment companies shall be treated in the same manner as national companies under UAE law and international treaties that the UAE is a party to.” (Author’s translation).

These provisions are a clear example of the UAE’s intention to “internationalize” the legislation. An arbitral tribunal will more than likely apply international standards when deciding the merits and compensation.

In our Part 2, we will look at how a foreign investor and its investment is defined in the new FDI Law and its implications for other investment treaties entered by the UAE and the region.