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Disputes across the horizon: arbitration in the United Arab Emirates

This post is the first part of a series covering issues that frequently arise in international arbitration, each with a specific regional focus. This post addresses issues in the United Arab Emirates (UAE) and looks at two issues that frequently arise in construction arbitrations conducted in the UAE:

Disputes in the UAE

The UAE has experienced significant activity in the construction sector in recent years. The UAE saw contracts worth over USD 53.8 billion awarded in 2019. As a whole, the construction market in the Middle East and Africa was projected to be the fastest growing construction market in the world between 2018 and 2022. Inevitably, however, with the growth in projects there has also been a growth in disputes, and in the number of arbitrations used to resolve them.

Enforcement of arbitral awards

Historically, there had been some difficulty enforcing arbitral awards in the UAE, as a result of some uncertainty created by seemingly inconsistent rulings of the UAE courts. The problem is illustrated by comparing the decisions of the Dubai Court of Cassation in its 2013 decision in Construction Company International v Republic of Sudan (petition 156/2013), to its 2014 ruling in Al Reyami Group LLC v BTI Befestigungstechnik GmbH & Co KG (petition 434/2014):

  • In the former case, the Court of Cassation refused jurisdiction over an application to enforce arbitral awards against the Republic of Sudan, on the basis that neither party had any connections to the UAE: a condition to enforcement previously found in the UAE Civil Procedure Code, but which appeared incompatible with the requirements of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which the UAE became a member in 2006.
  • By contrast, in Al Reyami, the same court supported the enforcement of an ICC award from a tribunal seated in Germany, holding that the New York Convention was part of UAE domestic law and the UAE Constitution, and rejecting any challenge to an award on grounds that were not included in Article V of the New York Convention.

However, the Dubai Court of Cassation’s decisions largely adopt a friendly approach to enforcement, and demonstrate a commitment to recognise arbitral awards in accordance with the New York Convention. For example, in Maxtel International FZE v Airmec Dubai LLC (petition 268/2010), the court upheld both lower courts’ decisions to enforce two foreign awards on the ground that there was no evidence to suggest that the arbitral proceedings had not been conducted in accordance with or otherwise had not fulfilled the conditions of the New York Convention, and so the court should proceed to enforce the awards. The Abu Dhabi Court of Cassation’s rulings adopt the same approach (for example, see petition 679-2010).

The UAE has recently made some key legislative changes in an effort to better facilitate the enforcement of arbitration awards. Primary among these was the implementation of:

  • Federal Law No. 6 of 2018 on Arbitration (UAE Arbitration Law), modelled on the UNCITRAL Model Law, which replaced the previous arbitration provisions of the UAE Civil Procedure Code.
  • Cabinet Resolution No. 57 of 2018, which streamlined the procedures for enforcing foreign arbitral awards in the UAE. In particular, under the Cabinet Resolution, applications for enforcement of a foreign award are now made to a judge in the Execution Court, who must rule on the enforcement application within three days, although the ruling may still be subject to appeal. This now differs from domestic arbitration awards, which are subject to the UAE Arbitration Law and where enforcement may take up to 60 days. The criteria for enforcement are largely similar to the New York Convention, whose application is further reinforced by the Cabinet Resolution and by the UAE courts, which give it primacy over the local laws.

The UAE Arbitration Law applies to both future and pending arbitration proceedings, even if they are based on pre-existing arbitration agreements. However, the UAE Arbitration Law does not apply to the Dubai International Financial Centre (DIFC), which continues to be subject to its own arbitration laws pursuant to Federal Law No. 8 of 2004 on the Financial Free Zones, Arbitration Law No.1 of 2008. Similarly, the Abu Dhabi Global Market (ADGM) has its own Arbitration Regulations.

The UAE Arbitration Law will hopefully introduce greater uniformity to the UAE courts’ approach to arbitration awards, and so bolster the attractiveness of international arbitration for resolving disputes with a UAE component.

Potential liability for arbitrators and experts

In recent years, attention has been drawn to a significant risk for arbitrators who accept appointments in the UAE, of potential personal liability or even criminal prosecution. It was feared that this would lead arbitrators to refuse nominations, or to approach their duties and produce awards more conservatively.

On 29 October 2016, the UAE introduced Article 257 of Federal Decree No. 7 of 2016 into the Penal Code (Federal Law No. 3 of 1987). This amendment allowed for the criminal prosecution of arbitrators for bias, stating that:

“Anyone who issues a decision, expresses an opinion, submits a report, presents a case or proves an incident in favour of or against a person, in contravention of the requirements of the duty of neutrality and integrity, while acting in his capacity as an arbitrator, expert, translator or fact finder appointed by an administrative or judicial authority or selected by the parties, shall be punished by temporary imprisonment [i.e. 3 – 15 years].”

The Federal Penal Code applies to all the Emirates, including the DIFC and the ADGM free zones.

Article 257 caused much controversy in the international arbitration community. It put arbitrators at risk of being subject to criminal proceedings in the UAE should the national courts find they had not acted with complete neutrality, and created a perceived risk that parties unhappy with the result of an arbitration could try to institute criminal proceedings against the arbitrators.

However, in October 2018 the UAE amended Article 257 of its Penal Code. The new wording states that:

“The expert appointed by a judicial authority in a civil or criminal lawsuit, who knowingly asserts a matter which is contrary to the truth or gives it an untrue meaning, shall be sentenced to detention for a minimum term of one year and shall be prohibited to practice his profession in future. In case the assignment of the expert concerns a felony, he shall be sentenced to term imprisonment. The provisions of the two preceding paragraphs shall apply on the translator who deliberately gives a wrong translation in a civil or criminal case. The provisions of Article (255) shall apply to the expert and translator.”

This change removed the criminal liability that arbitrators had potentially faced, and was a welcome development. Potential liability remains for expert witnesses appointed by courts or arbitral tribunals and translators, but the offence now requires the expert or translator knowingly to make a false statement, which hopefully will be a rare occurrence.

Therefore, the chilling effect on arbitration that was feared when the 2016 change was implemented appears now to be abated. Between 2016 and 2018, no single prosecution of an arbitrator on the basis of Article 257 took place, and the UAE authorities did not entertain any abusive complaint based on Article 257.

With respect to the civil liability of arbitrators, the UAE courts have affirmed a general rule that liability is limited to cases of fundamental error by the arbitrator. A “fundamental error” is defined as:

“… failure to comply with unambiguous legal principles or ignore clear-cut facts while the judgement is left to the arbitrator’s own consideration.”

This type of error is tantamount to fraud or intentional gross fault, and excludes decisions that the arbitrator renders after consideration of the facts and law, even if the decision ultimately reached is actually incorrect.

UAE courts therefore apply a qualified immunity of arbitrators, which means that arbitrators have a large margin of freedom in the conduct of the proceedings and their liability will be limited to the case of intentional fundamental error.

This is confirmed by rulings of the UAE courts. For example:

  • The Dubai Court of Cassation rejected a damages claim for AED 7 million against a DIAC sole arbitrator, finding that the arbitrator did not commit an intentional error, and that he may not be held liable for an unintentional one (see Dubai Court of Cassation, petition 212/2014).
  • More recently, the Dubai Court of Cassation rejected a claim for civil liability of an arbitrator for material error in the exercise of his function where it confirmed that an ordinary fault would not suffice to trigger liability, and that there must be a grossly serious mistake or fraud (see Dubai Court of Cassation, petition 484/2017).

Similar standards apply to offshore DIFC and ADGM arbitrations, where the DIFC and ADGM laws and regulations on arbitration exclude liability of arbitrators except in cases of damage caused by a conscious or deliberate wrongdoing (see article 22 of the DIFC arbitration law no.1 of 2008 and article 23 of the ADGM Arbitration Regulations respectively).

The UAE Arbitration Law also repealed an old provision of the UAE Civil Procedures Code, which made an arbitrator liable to the parties for damages resulting from an unjustifiable resignation. The removal of this rule is in line with the general shift towards arbitrator immunity.

For this post, Debevoise collaborated with Zulficar & Partners LLP, a leading firm based in Cairo, Egypt.

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