By the end of Q4 2017, the United Arab Emirates is expected to enact a new federal arbitration law based on the UNCITRAL Model Law and associated international standards.

The draft law, which is in its final stages of approval, is understood to have been passed by the UAE’s National Assembly and Cabinet of Ministers and is currently being submitted to Sheikh Khalifa bin Zayed bin Sultan Al Nahyan, President of the UAE, for his signature. The new law is likely to be enacted before the end of the year.

Issues with the current law

To date, the UAE does not have a modern, dedicated, formal arbitration code in place and currently addresses arbitration matters under Articles 203 - 218 of Chapter 3 of the UAE Civil Procedure Law (Federal Law No 11 of 1992, as amended) which do not conform to the United Nations Commission on International Trade Law (UNCITRAL) Model Law. The primary purpose of the Civil Procedure Law is the governing of court proceedings, and accordingly, only a small number of its articles relate to arbitral proceedings. As a consequence of this, together with the lack of certainty about how those provisions are to be applied, the lengthiness of the enforcement process and the fact that in many cases, arbitration proceedings are subject to the intervention and supervision of the UAE courts, the current law is widely considered in need of updating.

Highlights of the draft new law

Following its accession to the New York Convention in 2006, the key outstanding requirement for the UAE to modernise its arbitration framework is the introduction of a stand-alone arbitration law to replace the provisions of the Civil Procedure Law. The new draft arbitration law, which would govern all aspects of arbitration in the UAE at both local and federal level, has been designed as a specific law on arbitration which would repeal and replace Articles 203 - 218 of Chapter 3 of the UAE Civil Procedure Law. The latest draft law is understood to contain 61 articles covering both domestic and international arbitration and is designed to provide a swift and flexible arbitral process, vesting power in the arbitrator or tribunal to determine any challenges arising during the arbitration.

The draft law includes a number of important changes to the existing arbitration regime, for example:

  • providing a comprehensive procedural framework with defined conditions under which parties may apply to challenge the arbitration award, thereby limiting the scope for challenging awards on technicalities;

  • giving arbitration awards the status of court judgements, such that a party can immediately apply to the UAE courts for execution following ratification of their award, whereas previously enforcement of awards was a lengthy process, often taking up to two to three years; and

  • providing that where an arbitral award is set aside, the arbitration agreement remains valid and therefore unlike with the previous regime, the setting aside of an arbitral award will not be regarded as automatically invalidating the arbitration clause and consequently giving exclusive jurisdiction to the UAE courts to determine the matter. Instead, in such circumstances the parties must commence another arbitration to resolve their dispute, unless the challenge was in relation to the invalidity of the arbitration clause itself.

Gaps in the new law

While undoubtedly a move in the right direction, the draft new law is understood to lack provisions granting immunity to arbitrators, which will no doubt be a source of concern for UAE arbitrators following the amendment of Article 257 of the Penal Code by Federal Law No. 7 of 2016 last year to provide that arbitrators found to be in contravention of the duty of neutrality and integrity shall be punished by imprisonment. Article 257 is, however, understood to be under the process of amendment and repeal.

Conclusion

The lack of a stand-alone federal arbitration law is presently no doubt one of the biggest challenges to arbitration in the UAE. Whilst drafts of the arbitration law have been circulating since 2008, these have generally attracted criticism due to their non-conformance with the UNCITRAL Model Law and international arbitration best practice. This criticism has been specifically addressed with the current draft of the law on arbitration which, alike to the DIFC Arbitration Law (Law No.1 of 2008, as amended) and the ADGM Arbitration Regulations (Arbitration Regulations 2015), is specifically based on the Model Law. Accordingly, the new, harmonised law is expected to bolster confidence in the arbitration process in the UAE and address the risks and ambiguities that currently exist due to the absence of a modern and comprehensive arbitration system. It is hoped that the adoption of a modern and internationally recognised arbitration law in the UAE will encourage foreign investment and establish the UAE as a regional international arbitration hub, a move which will support the UAE Government’s plan to diversify sources of income outside of the oil industry.