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The UAE Federal Arbitration Law: welcome improvements and remaining uncertainties

21 May 2019

In June 2018, the long-awaited United Arab Emirates (UAE) Federal Arbitration Law (Law No 6 of 2018) (the ‘Arbitration Law’) entered into force, repealing the arbitration-specific provisions (‘UAE Arbitration Chapter’) contained in the UAE Civil Procedure Code (Law No 11 of 1992). It contains a number of new provisions that considerably enhance arbitration proceedings seated in the UAE. Unlike the UAE Arbitration Chapter, the Arbitration Law is largely based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. The Arbitration Law is divided into six chapters and contains 61 articles that are intended to provide a modern legislative framework for arbitration in the UAE in line with the international gold standard.

This article considers the important, welcome changes introduced by the Arbitration Law and discusses the remaining grey areas and pitfalls that have emerged.

Chapter I of the Arbitration Law defines its scope of application. It applies to all ongoing arbitrations conducted in the UAE, unless the parties have agreed that another law should apply (Article 2). The Arbitration Law may also apply to any ‘international commercial arbitration’ conducted abroad if the parties to the arbitration have agreed that it should apply. It introduces a distinction between domestic and international arbitration. Even if it is conducted in the UAE, an arbitration may, in specific circumstances, be considered ‘international’ (Article 3).

Chapter II deals with the arbitration agreement. The Arbitration Law maintains the requirement for arbitration agreements to be recorded or evidenced in writing (Article 7). In line with the UNCITRAL Model Law, Article 7 expressly provides that an arbitration agreement may be concluded by an exchange of communications, including through electronic means, such as email. The Arbitration Law also upholds the validity of arbitration agreements incorporated by reference (Article 5). In this context, it is disappointing to note that it maintains the requirement for signatories to an arbitration agreement to have ‘legal capacity to dispose of his or her rights’ (Article 4).

The question of a person’s legal capacity to enter into an arbitration agreement was often disputed under the UAE Arbitration Chapter. Challenges to the validity of arbitration agreements and/or arbitral awards on the basis that a signatory to the underlying contract did not have the requisite authority were routinely brought by award debtors in the UAE in an attempt to resist enforcement. Having ‘special authority’ to commit to arbitration, therefore, remains a mandatory requirement under UAE law. In practice, this means that companies entering into arbitration agreements in the UAE are well-advised to execute specific powers of attorney, expressly granting the signatory the authority to enter into the arbitration agreement.

Chapter III contains provisions concerning the arbitral tribunal, including formation, challenges and replacement of arbitrators and their powers. Key improvements include the express recognition of first, a tribunal’s authority to rule on its own jurisdiction (Article 19); second, a tribunal’s power to order interim or conservatory measures; and, lastly, a tribunal’s power to issue interim or partial awards (Article 21). The list of interim measures that a tribunal may grant mirrors the list in the UNCITRAL Model Law. The Arbitration Law also grants arbitrators the power to order applicants to provide security for the costs of interim and conservatory measures. Time will tell how parties and arbitrators will make use of these provisions in practice. It is also important that parties in whose favour interim, conservatory or interim measures have been granted may apply to the Court of Appeal to enforce the arbitral tribunal’s order within 15 days after receipt of the application.

Chapter IV deals with the arbitration proceedings and contains a number of welcome improvements, including the provisions on joinder in Article 22. The UAE Arbitration Chapter was silent on the possibility of joining third parties. Under the Arbitration Law, arbitrators sitting in the UAE are now empowered to order the joinder of third parties provided they are:

(1) satisfied that an arbitration agreement exists between the original parties and the third parties; and (2) provided they have granted the concerned parties an opportunity to be heard on the application for joinder.

Importantly, Article 22 does not appear to require all concerned parties’ express consent to joinder; it simply requires each party to be given an opportunity to be heard. Article 25 provides for the ‘waiver of right to object’ and may well enhance the efficiency of arbitration   proceedings in the UAE. Under Article 25, if a party proceeds with the arbitration and fails to object to any breach of the arbitration agreement or any provision of the Arbitration Law within seven days from the date of becoming aware of such violation, then such party will be considered as having waived its right to do so. It is to be hoped that this provision will put an end to unwarranted procedural challenges, which are often engineered by a party who has remained silent about a procedural irregularity during the arbitration, only to attempt to resist enforcement of the award later, based on the alleged procedural irregularity.

The Arbitration Law also lays down basic procedural rules for the conduct of an arbitration in line with the UNCITRAL Model Law, which will apply by default if parties have not agreed to a specific set of rules. These provisions deal, in particular, with the language of the arbitration (Article 29), the exchange of written pleadings (Articles 30 and 31), the confidentiality of the proceedings (Article 33.1) and the submission of evidence, including witness testimony (Articles 34 and 35). The Arbitration Law also confirms that hearings may now be held through modern means of communication, which do not require the parties to be personally present at the hearing (Article 33).

Chapter V contains provisions that apply to the arbitral award. Article 39 helpfully allows tribunals to render interim or partial awards. This power was not recognised under the UAE Arbitration Chapter. Whilst Article 39 expressly provides that interim awards are directly enforceable before the Court of Appeal, it is silent on partial awards. It remains uncertain, therefore, whether partial awards are also enforceable under the Arbitration Law. Article 41(6) provides that arbitration awards will be deemed to have been issued at the seat or legal place of the arbitration, regardless of where actual signature takes place.

This is a significant improvement for arbitrators who were previously obliged to be physically present in the UAE in order to validly execute awards. It is disappointing to note that the Arbitration Law has not confirmed the tribunal’s inherent power to award parties’ costs. The Arbitration Law provides that the tribunal ‘shall estimate the expenses of arbitration’, including the fees of the tribunal but does not expressly provide for the recoverability of parties' costs (ie, legal and other costs). This is unsatisfactory in the light of prevailing case law precedent from the UAE courts, which have held that absent express agreement of the parties, arbitrators sitting in the UAE do not have the power to make rulings on parties’ costs.

Finally, yet importantly, the Arbitration Law has significantly improved the procedure for enforcing an award in the UAE. A party that seeks to enforce an award must apply for ratification and enforcement before the President of the Court of Appeal, rather than before the Court of First Instance. The process, therefore, is shortened by one stage. The Court of Appeal is required to issue the order for enforcement within 60 days unless it finds grounds for annulment (Article 55). The limited grounds for annulment are contained in Article 53 and are similar to those found in the UNCITRAL Model Law. A party seeking to set aside an award must submit its request within 30 days from the date of notification of the award. Notably, challenging an award does not automatically stay its enforcement (Article 56).

To conclude, even though the Federal Arbitration Law has not resolved all salient issues relating to arbitration in the UAE, it undoubtedly constitutes a positive development that will contribute to the promotion of the UAE as a credible seat of arbitration in the Middle East and North Africa (MENA) region.

This article first appeared on the website of the Arbitration Committee of the Legal Practice Division of the International Bar Association, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association.

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