Monthly report based on practical experience of our team of advocates in the courts of the UAE. This month, Michael Dark and Mahmoud Awad discuss foreign arbitration as an option for foreign companies facing disputes in the UAE.

Many foreign companies entering into contracts with local companies in the UAE may naturally be concerned that should a dispute arise, it will end up in the local courts where the foreign company perceives the local company to have an advantage. This perception is true in almost all countries in the world and is not peculiar to the UAE.

One option that is sometimes chosen by foreign companies in these circumstances is to provide for foreign arbitration as a method of dispute resolution, for example, arbitration in a neutral foreign country such as Sweden. If the local UAE company is prepared to agree to such an arrangement, and this may not be a bad choice for the local company, then the next matter that the foreign company must consider is how easy or difficult it will be to enforce a foreign arbitration award in the UAE.

At first blush, the foreign company would be encouraged to know that the UAE signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the "New York Convention") in August 2006. To date, some 142 of the 192 United Nations member states have signed the Convention including in the Middle East, Saudi Arabia, Qatar, Oman and Bahrain.

The Convention came into being in 1958 and has been used extensively and effectively in many countries since then to enforce arbitration awards. Broadly speaking, the intention of the Convention is to ensure that an arbitral award obtained in one of the Convention countries can be enforced in any of the other Convention countries as easily as if it were a domestic arbitration award in the country in which it is being enforced.

In the UAE, and particularly in Dubai, a domestic arbitration award, eg from the Dubai International Arbitration Centre, must first be ratified by the Dubai courts. The ratification process must go through the same steps as any claim that is filed in the court. This means that it must be filed in the Court of First Instance, and that there are two possible stages of appeal, although the court has limited grounds on which to question or review the decision of the arbitrators. It is only once the arbitration award has been ratified in this way that it can be enforced as if it were, as indeed it then is, a judgment of the Dubai courts.

During the ratification process through the Dubai courts, it is very probable that the unsuccessful party in the arbitration will raise whatever arguments it can to challenge the award and the validity of the award. The grounds for such objections can be laid by a wily defendant during the course of the arbitration proceedings itself.

For instance, one of the requirements of which the Dubai courts must be satisfied in order to ratify an arbitration award is that the parties were duly represented in the arbitration proceedings. With this in mind, a defendant in a foreign arbitration will sometimes fail or refuse to comply with the procedural requirements of the arbitration system in the foreign country. This might include failing or refusing to sign the terms of reference, which are considered by the Dubai courts to be one of the most important elements in arbitration proceedings.

In addition, a defendant may choose to file submissions or applications after time limits set by the arbitrators have expired. In such cases, the application or submission is therefore rejected by the arbitrators as being out of time. This apparent injustice can then be used by the defendant to claim before the Dubai courts that their case was not properly "represented" in the foreign arbitration proceedings.

Thus, the outcome of a foreign company pressing for arbitration outside the UAE in another convention country may be that the foreign company ends up with an arbitration award that is time consuming and expensive to enforce in the UAE and, possibly, that will ultimately be rejected by the Dubai courts as unenforceable because of non-conformity with one of the requirements for enforcement under the laws of the UAE.

There are of course other options to consider in addition to submitting disputes to a foreign arbitration system, and each option will have its advantages and disadvantages. The nature of the dispute, the amount involved in the dispute, the particular laws applicable to the subject matter of the dispute, the place where each party has assets, etc. are all usually important considerations.

However, it may be that the foreign arbitration option will soon become more attractive as there is a new UAE arbitration law being drafted which is intended to simplify a number of aspects, including the enforcement of foreign arbitral awards. In the meantime, although initially attractive, foreign arbitration may not in fact be the best dispute resolution method to choose.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.