United Arab Emirates: Drafting Arbitration Clauses In International Contracts: The Impact Of The UAE's New Arbitration Law (Federal Law No. 6 Of 2018)

The UAE's new Arbitration Law (Federal Law No. 6 of 2018 on Arbitration, the "Arbitration Law") came into force on 16 June 2018. It was inspired by the UNCITRAL Model Law on International Commercial Arbitration and replaced the UAE Code of Civil Procedure's chapter on arbitration. The new law modernised the UAE's legal regime for arbitrations conducted in the UAE to bring it in line with international standards and norms. Notwithstanding, pitfalls remain that parties ought to be aware when drafting arbitration clauses.

This client alert discusses key issues a party must consider carefully before consenting to an arbitration clause in a contract relating to the UAE.

Scope of Application

The UAE's Arbitration Law applies to arbitrations conducted in the UAE – that is, where the parties agreed that the juridical seat of arbitration shall be the UAE – or, albeit less likely, where the parties agreed that UAE law shall apply to arbitral proceedings conducted outside the UAE (Art. 2).

It also applies to the enforcement of a foreign arbitral award in the UAE under the New York Convention and other multilateral conventions concerning recognition and enforcement of foreign arbitral awards,1 in which instance a UAE court may apply UAE law to determine questions, such as the validity of an arbitration agreement or whether the dispute between the parties is capable of being referred to arbitration.

The UAE's Arbitration Law may thus be relevant to all contracts that, in one way or another, relate to the UAE; however, it will not apply to the conduct of arbitrations seated in the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM) free zones, as both free zone jurisdictions within the UAE have their own arbitration laws.

Arbitration Agreement

An arbitration clause must contain a clear and unambiguous agreement that refers future or existing disputes between the parties to resolution by arbitration (Art. 1). Standard arbitration clauses of modern arbitral institutions, such as the ICC, DIAC, DIFC-LCIA, DIS or CRCICA (and others) meet the requirements. For example, the ICC recommends the following standard clause: "All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. ..."

In the context, it is not entirely clear whether UAE law permits so-called one-sided or asymmetric arbitration clauses allowing one party the option to choose the method of resolving disputes between the parties. Such optional right to the advantage of one party only is common practice in finance and some trade agreements. A typical clause in finance agreements would read: "The arbitration clause shall be for the benefit of the Finance Parties only." UAE case law suggests that the parties' agreement to arbitrate their disputes must be unconditional. This might be interpreted to mean that UAE law does not allow one-sided arbitration clauses. With that in mind, we advise parties to exercise caution when including a one-sided arbitration clause in an agreement.

Form of the Arbitration Agreement

In the past, an arbitration agreement could only be evidenced through a formal written document that was executed by both parties which requirement made it difficult in practice to prove that the parties had agreed to arbitration.

The new Arbitration Law significantly softens the formal writing requirement under the old law and allows, amongst others, for an arbitration agreement to be concluded through (i) an exchange of correspondence, including email or fax, (ii) a reference in a written contract to an arbitration agreement contained in another document, model contract or international agreement, or (iii) to be concluded by either party submitting to arbitral proceedings commenced by the other party without raising an objection (Art. 7).

It is uncertain whether an arbitration agreement can be established by a general reference to other contract documentation, such as standard terms and conditions of sale that contain an arbitration clause. Because a reference to an arbitration clause must be explicit, there is risk that a general rather than specific reference may not meet the requirements under the law. The contract should therefore provide for an express reference to an arbitration clause set out in another document (e.g., "Disputes...shall be settled in accordance with the Arbitration Clause set out in Section [] of the attached Standard Terms and Conditions of Sale.")

Arbitrability of Disputes

The new Arbitration Law provides for a broad definition of arbitrability covering virtually any dispute that the parties have capacity to settle (Art. 4 (2)). Specific classes of disputes are barred from arbitration and subject to resolution by the courts. In principle, any dispute should be capable of being resolved by a private arbitral tribunal, yet it is precisely because arbitration is a private proceeding with public consequences that some types of dispute are reserved for national courts or other authorities, the proceedings of which are in the public domain.

Most relevant, these include certain employment law and commercial agency disputes, in relation to which the UAE courts retain exclusive jurisdiction to hear such disputes. It is thus important to consider the types of dispute that the parties may be looking to resolve through arbitration when drafting an arbitration clause.

Capacity to Enter into Arbitration Agreements

Parties to a contract must have legal capacity to enter into that contract, otherwise it is invalid. The position is no different if the contract happens to be an arbitration agreement. The general rule is that any natural or legal person who has the capacity to enter into a valid contract has the capacity to enter into an arbitration agreement. If an arbitration agreement is entered into by a party who does not have the capacity to do so, the provisions of the Arbitration Law (or the New York Convention) may be relied upon, either at the beginning of the arbitral proceedings to stop the arbitral process on the basis that the arbitration agreement is void or at the end of the arbitral process when the competent court may be asked to refuse recognition and enforcement of the award.

Significantly, UAE law requires that the representative of a company holds a specific authority to agree an arbitration clause on behalf of that company (Art. 4(1)). Such specific authority can either be included in a company's articles of association, shareholder resolution or power of attorney. When the representative enters into an arbitration agreement without such express authority, there is a risk that the arbitration agreement will be found to be invalid (although the UAE courts have recently assisted parties through the fairly generous application of a principle of "apparent authority", pursuant to which it was held that the conduct of a party may cause the other party to believe that the signatory was fully authorized to sign an agreement, including the arbitration clause).

One way of ensuring, albeit limited, protection is to include a representation in the contract confirming that the parties are authorized to enter into arbitration agreements.

In addition, any UAE federal government department entering into a contract including an arbitration clause must obtain the prior consent from the UAE Council of Ministers, to the extent the contract qualifies as an "administrative contract" (Council of Minister Decision No 406/2 of 2003, dated 15 September 2003). Further restrictions and approval requirements may have to be observed in each Emirate (for example, the Dubai Government Contracts Law No. 6 of 1997).

Governing Law

Under the Arbitration Law, parties are free to choose the law applicable to the subject matter of their dispute (Art. 37). The parties' choice of law however may be subject to UAE public policy rules, including mandatory provisions of UAE law and Islamic Sharia in circumstances where the arbitration is conducted in the UAE or an arbitral award is enforced in the UAE.

Examples of UAE public policy and mandatory rules include commercial agency law, protection of local shareholdings, interest rates, mandatory employment law rules, and decennial liability in respect of construction works.

Seat and Language of the Arbitration

The law allows that parties determine the seat of arbitration to be within or outside the UAE (Art. 28(1)).

The parties may also agree the language (or several languages) in which the proceedings shall be conducted (Art. 29). In the absence of an agreement, the default language is Arabic.

The Arbitration Rules of Arbitral Institutions

Parties ought to consider incorporating in their arbitration agreements the rules of arbitration of a suitable arbitral institution, such as the ICC, DIAC, DIFC-LCIA, DIS, or CRCICA, to govern the arbitral process. We would generally recommend that parties make good use of that possibility.

Commencement of the Arbitration and Time Limits

The commencement of an arbitration is an important step in the proceedings, not only in terms of procedure, but also in terms of compliance with any limitation period for the presentation of claims. In order to stop time running, arbitration proceedings must be commenced in accordance with the contract or relevant applicable law, or both.

UAE law permits that the parties modify rules for commencement of arbitration by agreement, either through the agreement of relevant institutional rules (or rules set out in the arbitration clause itself). By way of an example, the ICC Rules determine that the date of the commencement of the arbitration is deemed to be the date of receipt by the ICC Secretariat of a request for arbitration (which must contain, amongst others, a description of the nature and circumstances of the dispute, details of the relief sought, and particulars concerning the number and choice of arbitrators).

The new Arbitration Law provides that "arbitration proceedings commence on the day following the day on which the establishment of the arbitral tribunal has been completed, unless the parties have agreed otherwise." (Art. 27(1))

As a consequence, unless the parties have agreed otherwise in the manner suggested above, a statutory or contractual time limitation for claims will not stop running, unless and until the arbitral tribunal has been fully constituted. That of course might allow recalcitrant respondent parties to delay the constitution of a tribunal with a view to allowing claims to become time-barred in circumstances where the time left under the applicable limitation period allows such "guerilla" strategy by the respondent party. It is therefore important that parties either make provision through the agreement of institutional arbitration rules or by including in the arbitration agreement a clause that determines, for example, that the arbitration commences upon the submission or receipt of the request for arbitration.

Separately, the Arbitration Law requires that the arbitral tribunal render its award within six months but allows the tribunal to extend the time limit by a period of up to six months only (Art. 42(1)). Once this time period ends, the arbitration agreement expires, unless it is extended by the competent court or by agreement of the parties. Parties are therefore well-advised to exclude or extend time limits by agreement, either through incorporating institutional rules of arbitration allowing more flexible time limits or by setting out appropriate rules in the arbitration clause itself.

Arbitration Costs

Parties may agree which party shall bear the costs of the arbitration. In the absence of an agreement, the Arbitration Law authorizes arbitral tribunals to determine and allocate the costs of the arbitration as they deem fit (Art. 46(1)). The usual practice for arbitral tribunals is to apply the principle that costs follow the event and award the prevailing party in the arbitration the costs of the arbitration, including its legal fees, i.e. the party's costs of legal representation.

The wording of the Arbitration Law (set out in Article 46(1)) however, does not expressly mention the parties' costs of legal representation. It merely refers to "the fees and expenses incurred by any member of the Arbitral Tribunal in the exercise of his duties and the costs for experts appointed by the Arbitral Tribunal."

As a consequence, in the absence of clear wording in the arbitration agreement and/or institutional arbitration rules authorizing the tribunal to award a party's costs of legal representation, courts and arbitral tribunals alike may conclude that arbitral tribunals have no power to award the parties' costs of legal representation. Indeed in 2013, the Dubai Court of Cassation took a restrictive approach concerning the cost provisions of the DIAC Arbitration Rules finding (in our view wrongly) that the DIAC Rules do not allow an arbitral tribunal to award counsel fees or other costs of legal representation, unless the parties agreed otherwise.

If parties wish to allow counsel fees to be awarded, they should make provision in the arbitration agreement either expressly or by incorporation of institutional arbitration rules, such as the ICC Rules or the DIFC-LCIA Rules that allow tribunals to award counsel fees; note that the DIAC Rules currently do not contain express terms that allow the tribunal to award counsel fees.

Footnote

1. The UAE is party to a number of multilateral treaties for enforcement of foreign arbitral awards, including the New York Convention (since 2006), the Riyadh Convention (since 1999) and the GCC Convention (since 1995), as well as numerous bi-lateral treaties. 

Originally published 20 March 2019

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
James Berry and Associates Legal Consultants
 
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
James Berry and Associates Legal Consultants
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions