BSA LAW recently secured rulings from both the Dubai Court of First Instance and the Court of Appeal dismissing claims against our client based on the existence of an arbitration clause. We note that the courts upheld our procedural objection raised under Article 8 of Federal Law No. 6 of 2018 on Arbitration, before any defence was presented.
The opposing party argued, at both levels, that the arbitration seat identified in the clause does not exist in the named country, rendering the clause invalid. However, the Court of Appeal rejected this, clarifying when an arbitration agreement may be unenforceable due to impossibility:
- First, under Article 129 of the Civil Transactions Law, the subject matter of a contract (or a specific clause) must be possible; otherwise, the contract (or clause) is void.
- Second, under Article 472, obligation that was validly undertaken may later become impossible in fact or in law due to an external cause.
In both scenarios, impossibility must be absolute. Mere difficulty or burden does not suffice while performance remains possible.
The Court also referred to the preparatory works to Article II of the 1958 New York Convention, effective in the UAE since 19 November 2006. These emphasize that arbitration cannot proceed where the agreement is so unclear that it cannot be implemented or where the parties name a non-existent arbitral institution or appointing authority. Even then, the focus remains on whether arbitration can still practically be pursued.
On examining the contract, the Court of Appeal found that the parties clearly intended to resolve all disputes by arbitration under the procedures and laws of the identified foreign country. An inaccuracy in the name of the arbitral institution did not defeat that intention or render the clause incapable of performance. The parties' agreement to arbitrate, attached to a legal framework in the designated country, remained enforceable.
This decision reflects a settled judicial trend: courts prioritize the parties' clear intention to arbitrate and will uphold arbitration clauses unless enforcement is absolutely impossible. Naming a non-existent foreign arbitration center does not prevent the recourse to arbitration before an appropriate, existing institution in that jurisdiction or under its procedural law.
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