In the UAE, arbitration is regarded as an exceptional and special dispute forum whereby parties agree to resolve their disputes. Perhaps the most obvious principle, but one which is often overlooked, is the requirement that parties who wish to arbitrate their disputes must have a valid arbitration agreement.

The UAE Civil Code (see Article 203(1)) allows parties to insert an arbitration clause in the main agreement / contract (arbitration clause), or to enter into a subsequent agreement to arbitrate. Other important requirements are that the arbitration agreement must be in writing and signed by a person capable of binding the party to arbitration.

Of course, as with any commercial transaction, the thought that the relationship may deteriorate to the point where a dispute may arise is often not within the parties' contemplation at the time of contract formation. The result of this can be the drafting of an arbitration clause which invalid or impractical (i.e. pathological).

This article does not intend to cover the main ingredients of an arbitration clause or how to successfully draft one. It does, however, intend to cover what happens when one party asserts the invalidity of either the main contract or the arbitration agreement.

Validity of the main contract vs validity of the arbitration agreement
A distinction must be made between whether the issue at hand relates to the validity of the main contract or the validity of the arbitration agreement within that main contract, or both.

Main Contract
A determination as to the validity of the main contract (which contains an arbitration clause) is usually within the jurisdiction of an arbitral tribunal. This is because of the principle of separability. The essence of this principle, which is embodied in the rules of many arbitral institutions, including those of the DIAC and DIFC-LCIA, is that regardless of the validity of the main contract, including whether the main agreement has been terminated or was void from its very beginning, the arbitration clause within that main agreement is to be treated independently.

For example, Article 23.1 of the DIFC-LCIA Arbitration Centre Rules provides as follows:

The Arbitral Tribunal shall have the power to rule on its own jurisdiction, including any objection to the initial or continuing existence, validity or effectiveness of the Arbitration Agreement. For that purpose, an arbitration clause which forms or was intended to form part of another agreement shall be treated as an arbitration agreement independent of that other agreement. A decision by the Arbitral Tribunal that such other agreement is non-existent, invalid or ineffective shall not entail ipso jure the non-existence, invalidity or ineffectiveness of the arbitration clause.

Similarly, Articles 6.1 and 6.2 of the DIAC Rules provide:

6.1 Unless otherwise agreed by the parties, an Arbitration Agreement which forms or was intended to form part of another agreement shall not be regarded as invalid, non-existence or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and the Arbitration Agreement shall for that purpose be treated as a distinct agreement.

6.2 If any party raises one or more pleas concerning the existence, validity, scope or applicability of the arbitration agreement, then the Executive Committee may decide, without prejudice to the admissibility or merits of the plea or pleas, that the arbitration shall proceed if it is prima facie satisfied that an arbitration agreement may exist under the Rules. In such a case, any decision as to the jurisdiction of the Tribunal shall be taken by the Tribunal itself.

The effect of the above is perhaps best demonstrated by an example:

Party A and Party B enter into a main contract, in which they decide via an arbitration clause to resolve any disputes via arbitration. This arbitration clause is valid under UAE Law. Party A terminates the agreement for breach of contract by Party B. There is, however, a dispute between Party A and Party B over the quantum of damages owed by Party B to Party A for Party B's breach of contract. Notwithstanding the fact that the agreement has been terminated, the arbitration clause survives and the dispute over damages owed must be resolved by arbitration in accordance with the clause. Put simply, under the principle of separability the arbitration clause survives termination and provides the parameters by disputes are to be resolved.

Arbitration Agreement
Under a very strict interpretation of the competence-competence theory, even issues as to the validity of an arbitration agreement can be determined by a Tribunal. A quick example of this is as follows: Party A and Party B have an arbitration clause in a main contract. Party A thinks the clause is valid and commences proceedings against Party B, who thinks the clause is invalid. Party B launches a jurisdictional challenge on this basis, and the Tribunal rules accordingly.

The above example does, however, represent a strict application of the competence-competence principle. In some jurisdictions, it is possible to apply for relief from the Courts in this type of situation. This application for relief is sometimes known as an anti-suit injunction. This type of relief is not available in the UAE, although it may be possible to attempt to seek an order from the Court that the arbitration clause was not valid ab initio.

Another option for a respondent in this position is to boycott the arbitration proceedings in their entirety, and, once the award is issued, attempt to have it set aside by the UAE Courts on the grounds outlined in Article 216 of the Civil Procedure Law.

Jurisdiction Generally
Finally, arbitrators are often faced with a partial challenge to their jurisdiction. This may arise in a dispute over termination of the main contract where a party may be making a number of different claims for relief. Often, arbitration clauses contain pre-conditions before being able to arbitrate, such as the initial referral of a dispute to the Engineer for determination (as is often the case in FIDIC type contracts), or notification in writing to an opponent of the existence of a dispute. Pre-conditions to arbitration have been recognised and upheld by the UAE Courts.

In the above case, it often transpires that the party commencing arbitration proceedings has adhered to the pre-conditions to arbitration in the case of six out of 10 claims referred to arbitration. It may, therefore, be open to the responding party to argue that the arbitral tribunal has no jurisdiction to hear the remaining four claims, because the pre-conditions to arbitration were not satisfied. It is open to the arbitrators to rule on their own jurisdiction in such circumstances – i.e. to determine for themselves whether the pre-conditions have been satisfied, and, if not, whether the failure to satisfy them impacts adversely on their jurisdiction to determine the dispute relating to those claims.

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.