There have been a number of negative reports in the press in the last few weeks stating that a recent Dubai Court of Cassation judgment nullifying a Dubai International Arbitration Centre (DIAC) arbitration award will have far reaching implications and jeopardise Dubai's position as an international arbitration hub.
Clyde & Co does not share that view. We do not consider that the judgment has any international bearing and it should not affect Dubai's standing as a reputable arbitration centre.
Earlier this year, we reported that the Dubai Court of Cassation had nullified three DIAC arbitral awards on the basis that those awards ran contrary to public policy within the meaning of the Civil Code (Federal Law No. 5 of 1985) and Civil Procedure Code (Federal Law No. 11 of 1992) of the United Arab Emirates.
The judgments nullified DIAC awards in which the arbitrator (it was the same sole arbitrator in all three cases) applied Article 3 of Law No. 13 of 2008 Regulating the Interim Real Estate Register in the Emirate of Dubai (the Property Law) and concluded that the off-plan sale and purchase agreements in dispute were void despite being registered in the Interim Real Estate Register maintained by the Dubai Department of Lands and Properties (albeit after the 60 day deadline set out in Article 3). In arriving at the conclusion that the DIAC awards should be set aside, the Court considered that the application of Article 3 of the Property Law is a matter of public policy which cannot be resolved through arbitration.
Clyde & Co advised the property developer in each of the three DIAC arbitrations as well as in the proceedings before the Dubai Courts seeking to set aside the ensuing arbitral awards. For this reason, we feel that we are able to provide noteworthy insight into the specific context in which the Dubai Court of Cassation concluded to the annulment of the awards. In our view, by concluding as it did, the Dubai Court of Cassation has not provided (as others have suggested recently) that any arbitration disputes relating to the disposition of property or, generally, arbitration disputes involving an element of public policy are liable to be invalidated by the Dubai Courts. In context, the Dubai Court of Cassation merely held that parties cannot validly agree to submit disputes concerning the registration of off-plan sales within the meaning of Article 3 of the Property Law to arbitration to the exclusion of the Dubai Courts because the application of Article 3 of the Law is a matter of public policy. The Court arrived at this conclusion in circumstances where the property developer argued that the arbitral tribunal misapplied a provision which was enacted for the protection of the public (Article 3 of the Property Law) in a manner which is inconsistent with:
(i) the Dubai Department of Lands and Properties' decision to accept the registration of each of the sale and purchase agreements which were in dispute;
(ii) the legal principles previously set out by the Dubai Court of Cassation holding that the registration of off-plan sale and purchase agreements after the 60 day deadline provided in Article 3 of the Property Law is valid; and
(iii) the purpose of Article 3 of the Property Law which is to ensure that a purchaser of off-plan property located in Dubai has the means of verifying that the property purchased is accounted for in the register maintained by the Dubai Department of Lands and Properties and not, for example, the fraudulent sale of a property which does not exist.
The principles set out in the Dubai Court of Cassation judgments we reported were recently echoed by another Dubai Court of Cassation judgment (Case No. 14 of 2012) dealing with the application of Article 3 of the Property Law. It is noteworthy that in rendering its judgment, the Court acknowledged that it is not for the Court to review the merits of an arbitral award but indicated that it would take exception where the arbitral tribunal has exceeded its jurisdiction and "resolved a matter of public policy":
"Whilst it is not for the Court to investigate the subject matter of an arbitral award, if it is shown that an arbitrator exceeded the limits of [his/her] jurisdiction and resolved a matter of public policy, the Court shall intervene by investigating and scrutinizing this contravention of the law in light of the applicable provisions." (unofficial English translation)
In our view, contrary to what others have suggested recently, the Court is not opening the floodgates to review arbitral awards every time that a provision of public policy is interpreted. The Court is not, as others have suggested, instructing that property disputes cannot be validly submitted to arbitration. In context, the Court has determined a particular type of property dispute - relating to the registration of off-plan sales - and found, in the context only of that particular type of dispute, that an arbitral tribunal's decision will be subject to the Court's review (and set aside if the award concludes that an off-plan sale and purchase agreement subject to registration under Article 3 of the Property Law is invalid despite the agreement being validly registered with the Dubai Department of Lands and Properties).
There is no wide-reaching analogy to be drawn from the judgments with an eye on challenging the validity of arbitral awards at large, particularly in a civil law jurisdiction such as the UAE where the doctrine of binding case-law precedent does not apply.
The judgments should not affect the ratification and enforcement in the UAE of foreign awards. The judgments deal only with ratification of domestic awards, applying conditions for ratification set out in the Civil Procedure Code and the notion of public policy in domestic UAE law. The provisions of UAE law applied by the Dubai Court of Cassation are separate and distinct from the provisions of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the notion of international public policy within the meaning of the Convention and as developed in accordance with international obligations.
The floodgates for challenges to arbitration awards in Dubai have not opened merely because certain domestic DIAC arbitration awards dealing with the registration of off-plan sales were (in our view correctly) invalidated. The lesson to be drawn from these recent judgments is not that Dubai has compromised its reputation as a hub for international arbitration.
On the contrary, the lesson to be drawn here is a positive one: investors, property developers and purchasers alike can take comfort in the fact that the Dubai judiciary has adopted a consistent approach and that they can expect registered off-plan sale and purchase agreements to continue to be legally binding.
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