Hadef & Partners analyses the recent decision by the Dubai Court of Cassation on Case 484/2017 that has provided some clarity on arbitrators’ liability in civil cases.
It has been over one year since the amendment of Article 257 of the UAE Federal Penal Code No. 3 of 1987 (“Penal Code”) introduced by the UAE legislature on September 18, 2016 through Federal Decree-Law No. 7 of 2016.
This introduced a new criminal element to the potential liability of arbitrators by exposing them to the risk of temporary imprisonment for acting in breach of their duty of fairness and impartiality. Whilst this measure undoubtedly caused concern for arbitrators there have only been one or two unverified reports of applications being filed against arbitrators and it is understood they have not been successful. Further specific clarification regarding Article 257 by the UAE legislature is awaited.
In the context of an arbitrator’s potential liability in “civil” cases, a recent decision by the Dubai Court of Cassation issued in December 2017 has provided welcome clarification. It makes clear that establishing any such liability will require meeting an onerous threshold, which is a positive development for arbitration in the UAE.
Cassation No. 484/2017, Dubai Court of Cassation
This matter concerned a dispute over two arbitration awards rendered by the tribunal in a Dubai International Arbitration Centre (“DIAC”) dispute against a real estate investments company (the “Petitioner”).
The Petitioner sold 149 units located at Sulafa Tower, Dubai Marina to a number of purchasers who assigned their entitlements to a leading real estate finance company by way of tripartite agreements. The finance company then commenced arbitration proceedings against the Petitioner before DIAC, alleging that the unit areas were not in conformity with the sale and purchase agreements.
On July 12, 2012, the Second Respondent was appointed as the sole arbitrator by DIAC. However, he resigned following his delivery of a partial award on jurisdictional issues dated November 26, 2013.
Subsequently, the Third Respondent was appointed as the sole arbitrator and rendered a final award which ordered the Petitioner to pay a sum of AED46,522,337 plus interest and costs to the finance company. Thereafter, a supplemental award was delivered by the Third Respondent to rectify some calculation errors in the final award. The final award sum was amended to AED42,705,955 (over USD11 million) to be paid by the Petitioner to the finance company.
The Petitioner filed a claim in the Dubai Court of First Instance and contended the following:
- The Second Respondent failed to recognise the separate legal entity of a company when delivering its partial award;
- The Third Respondent similarly made an error by approving and adopting the terms of the partial award;
- The Third Respondent altered the terminology in the sale and purchase agreement, altered the unit areas in the architect’s report and misrepresented the data when delivering his supplemental award;
- The Third Respondent disregarded relevant Land Department documents; and
- Both arbitrators lacked capacity to decide the dispute.
In summary, the Petitioner alleged that both arbitrators committed major errors and should therefore be jointly and severally liable for the sum of AED42,705,955.
The Dubai Court of First Instance dismissed the claim and the decision was also upheld by the Court of Appeal. Nonetheless, the Petitioner proceeded to file an appeal to the Dubai Court of Cassation.
In the public hearing held on December 21, 2017, the Dubai Court of Cassation dismissed the application of the Petitioner. Despite recognising that the Petitioner’s allegations were entirely refutable, the Court of Cassation went on further to establish that for an arbitrator to be liable to the arbitrating parties, three elements must be satisfied:
- Evidence which shows the arbitrator has committed a detrimental act;
- The presence of harm incurred by a party; and
- Causative relationship between the act by the arbitrator and the harm caused to the party.
More importantly, the Court of Cassation clarified the meaning of “detrimental act” as follows:
“The detrimental act means the act which obligates the arbitrator to secure the damage which is the major error that is vitiated by cheating, deception, collusion with the adversary or refraining from the arbitration without a justifiable excuse; however, the normal error or negligence whether in estimation or procedures shall not be a sufficient cause to hold the arbitrator liable so long as it is not a major error or cheating. The aggrieved party bears the burden of proof (onus probandi) to prove the presence of the liability elements on the part of the arbitrator, given that if the same failed to prove the perpetration of any major error, cheating or deception by the arbitrator, the latter would not be held liable even if the aggrieved party could prove the damaged sustained thereby.”
This standard of civil liability appears to be more in line with and arguably even a higher threshold than in offshore jurisdictions in the UAE. Where the seat of arbitration is in the Dubai International Financial Centre (“DIFC”), for example, the arbitrator will be subject to Article 22 of the DIFC Arbitration Law No. 1 of 2008, which provides:
No arbitrator, employee or agent of an arbitrator, arbitral institution, officer of an arbitral institution or appointing authority shall be liable to any person for any act or omission in connection with an Arbitration unless they are shown to have caused damage by conscious and deliberate wrongdoing.”
It is also notable that Article 31 of the DIFC-LCIA Arbitration Rules provides:
None of the LCIA (including its officers, members and employees), the DIFC-LCIA Arbitration Centre, the LCIA Court (including its President, Vice-Presidents, Honourary Vice-Presidents and members), the Registrar (including any deputy Registrar), any arbitrator, any Emergency Arbitrator and any expert to the Arbitral Tribunal shall be liable to any party howsoever for any act or omission in connection with any arbitration, save: (i) where the act or omission is shown by that party to constitute conscious and deliberate wrongdoing committed by the body or person alleged to be liable to that party; or (ii) to the extent that any part of this provision is shown to be prohibited by any applicable law.”
Whereas this makes reference to any “act or omission”, the Dubai Court of Cassation in its recent decision has arguably gone even further by stating that it has to be a “major error” vitiated by cheating, deception or collusion with the opponent in order to trigger liability for an arbitrator. A mere mistake or negligence is insufficient to establish liability even if harm may have been caused.
Although the findings of this case related to a civil matter and therefore do not directly impact on the approach to Article 257 of the Penal Code, it is good news that the Dubai Court of Cassation has set a high standard for establishing the liability of arbitrators in civil matters (compared to other civil wrongdoings), and may itself denote the high threshold of evidence that would be required by the criminal courts to satisfy Article 257. Whilst the repeal of or specific clarification regarding the future of Article 257 is still anticipated, this recent court decision is nevertheless a positive development for the arbitration landscape in the UAE.
(Recently published in The Oath magazine)