In a recent decision, the Dubai Court of Cassation (CoC) has confirmed that an award debtor is not entitled to apply to set aside an onshore Dubai arbitral award unless the award creditor has first applied to ratify and/or enforce the award in the same courts. This decision has significant implications for the efficacy of onshore arbitration in Dubai, and for businesses arbitrating in the Emirate.
A Dubai Airport Free Zone Authority (DAFZA) company obtained a DIAC award in its favour for a monetary sum (plus costs and interest) for breach of contract, against a company incorporated outside of the Middle East. The award debtor applied to the Dubai Court of First Instance (CoFI) seeking to annul the award on various grounds, said to be based on Article 216 of the Civil Procedure Code (CPC), which presently constitutes the applicable arbitration law in the UAE.
The award creditor raised a number of defences to the annulment application, including that the application to set aside the award was premature, since Article 216 of the CPC only permits an award debtor to bring an application to annul an arbitral award once the award creditor has filed a claim to ratify the award. As the award creditor had not, in this case, commenced enforcement proceedings in the UAE (and was, in fact, pursuing enforcement proceedings overseas under the New York Convention), the annulment application should be dismissed.
The CoFI rejected this argument, but set aside the award on the ground that the Tribunal's reliance, in its award, on the testimony of the award creditor's director was a serious procedural irregularity.
The Dubai Court of Appeal (CoA) subsequently overruled the CoFI decision, finding that (i) the CoFI had acted beyond its authority by looking into the merits and facts of the case, which was not permissible, and (ii) the ground which the CoFI relied upon was not contained in Article 216 of the CPC, which exhaustively set out the grounds on which an award debtor could apply to set aside an award. The CoA acknowledged that the award creditor had not sought to ratify the award, but made no findings on this issue - and concluded that the CoFI's judgment should be overruled and the award debtor's annulment application should be rejected.
Court of Cassation Decision
The award debtor appealed the CoA decision to the Dubai Court of Cassation, maintaining that the ground on which the CoFI decision had been based (that the Tribunal had not been permitted to rely upon the testimony of the award creditor's director) was correct, and that the CoA had erred in its judgment by not addressing the other grounds for nullity raised by the award debtor in the CoFI.
The CoC upheld the arbitral award, finding that, whilst Article 216 of the CPC permitted an award debtor to apply to set aside an arbitral award, Article 216(1) of the CPC made clear that such an application could only be made in response to an application by the award creditor to ratify and/or enforce the award. Consequently, an application to set aside an award which is brought before a ratification and/or enforcement application is made, is premature and therefore inadmissible.
One of the interesting features of this judgment is that the CoC reviewed and expressly referred to numerous previous CoC judgments rendered on this issue, many of which had reached the opposite conclusion, and expressly stated its view that these cases had been wrongly decided.
The CoC's decision highlights the UAE's present lack of a federal arbitration law based on the UNCITRAL Model Law. While recognising that there is no system of binding precedent in the UAE, this decision has resulted in a highly unusual situation for award debtors in Dubai. In short, unless and until award creditors apply to ratify or enforce the award, award debtors simply have no right to challenge the award before the courts with supervisory jurisdiction over the arbitration.
In practice, this would usually have little impact where the award creditor is seeking to enforce the relevant award within the Middle East, as onshore courts generally want to see that the award has been ratified by the court of the seat before they will enforce it.
However, where a successful party wishes to enforce the award outside the region (or arguably offshore, within the region), it will not need to have the award ratified by the Dubai courts, but can apply for enforcement under the New York Convention in the relevant jurisdiction, without having had to make any application. As a result, at least on the basis of the logic of this decision, the award debtor will remain unable to challenge the award while enforcement is proceeding abroad.