Insurance & Reinsurance
It is now 18 months since the UAE enacted a bespoke arbitration law that replaced the provisions of the Civil Procedure Law (Federal Law 11 of 1992) that had until then governed UAE law arbitration agreements and UAE seated arbitrations. Over the next few weeks Alfred Thornton and Michael Morris will post a series of short articles relating specifically to insurance arbitrations in the UAE and what impact (if any) the Arbitration Law (Federal Law 6 of 2018) has had on insurance disputes, related local court proceedings and arbitrations (excluding regulatory matters).
Following the publication of the Arbitration Law, we have acted as counsel in a number of insurance coverage disputes being resolved through arbitration and have also been involved in more than 15 separate UAE Court proceedings where aspects of the Arbitration Law have been considered or were relevant.
In this article we consider the relationship and interplay between the Civil Code (Federal Law 5 of 1985), the Commercial Code (Federal Law 18 of 1993) and the Arbitration Law. Specifically, based on our experience over the last 18 months, we consider what effect (if any) the Arbitration Law has had on what can constitute a valid arbitration agreement in an insurance policy between an insurer and its commercial clients.
This article also considers our experience of how the UAE courts are approaching instances where a policyholder commences proceedings in the UAE courts, against its insurer, in breach of an arbitration agreement contained within the general conditions of the policy. In such circumstances, the insurer will often seek to challenge the court's jurisdiction by relying on the arbitration clause. Typically, its policyholder will then seek to argue that the arbitration agreement is void pursuant to Article 1028(d) of the Civil Code, which provides that an arbitration agreement in an insurance contract is void unless contained in a special agreement separate from the general printed conditions of the policy.
Our recent experience is that in commercial insurance disputes the courts do not consider it necessary to specifically rely on the Arbitration Law to confirm the validity of the arbitration agreement in an insurance contract. The courts are however now perhaps more willing to recognise that insurance is a 'commercial activity' and apply the terms of the Commercial Code over the provisions of the Civil Code. In our opinion the Court's approach is undoubtedly correct as a matter of law and the approach bodes well for the UAE as an arbitration friendly jurisdiction and brings it in line with jurisdictions such as the Kingdom of Saudi Arabia where the insurance regulator has traditionally been very supportive of arbitration for the resolution of insurance coverage disputes.
The Arbitration Law states that an arbitration agreement will be deemed to be valid if it is made in writing and entered into by duly authorised representatives. It is also permissible for an arbitration agreement to be contained in a clause within a contract, there being no requirement for it to be contained within an agreement separate from the contract. The Arbitration Law further expressly recognises that a contract referring to a document containing an arbitration clause constitutes a valid arbitration agreement.
Far greater specificity regarding what constitutes a valid arbitration agreement has therefore been introduced. However, there are circumstances where the requirements of the Arbitration Law may have been met, but where it can be suggested that the arbitration agreement does not also satisfy the requirements of Article 1028(d) of the Civil Code and is therefore arguably void.
The Arbitration Law contains two provisions that would appear to be relevant in such circumstances to address the typical arguments that the requirements of Article 1028(d) should also be satisfied. In particular:
Over the years, we have been involved in many jurisdictional fights with commercial insurance policyholders regarding the enforceability of arbitration agreements contained within the general terms and conditions of their policies. The question that arises is whether the Arbitration Law will assist in such jurisdictional disputes as in the past the UAE courts have issued a number of conflicting decisions in relation to the application of Article 1028(d) and the commercial policyholders' ability to rely on it.
Recently, we have been involved in case identical to the scenario outlined above and in which the insured commenced proceedings against its insurer in breach of an arbitration clause, which it argued was void pursuant to Article 1028(d). Insurers in turn argued that (i) the policy in question was a commercial contract and that as such primacy should be given to the parties' agreement to arbitrate, rather than to the provisions of the Civil Code; and (ii) pursuant to the Arbitration Law there was a valid arbitration agreement and that the Arbitration Law had in any event repealed any provisions that were contrary to it.
The Dubai Court of Appeal upheld the arbitration agreement and unequivocally found that Article 1028(d) of the Civil Code has no application to a commercial insurance contract. In a lucidly reasoned decision, the Dubai Court of Appeal found that:
The insured was accordingly bound by the arbitration agreement in the policy and its claim before the court was therefore dismissed in favor of arbitration.
In its judgment the Court of Appeal did not deal with the question as to whether Article 1028(d) had been repealed by the Arbitration Law. However, it is apparent from the Court of Appeal's reasoning that entering into such debate was academic as the Court was firmly of the view that, following the coming into effect of the Commercial Code and the express recognition of insurance as a commercial activity, Article 1028(d) does not apply to commercial insurance policies in any event. In the circumstances, there was no reason for the Court of Appeal to consider whether the Arbitration Law had repealed the provisions of the Civil Code.
While there is no concept of binding precedent in the UAE, Commercial insurers who have incorporated arbitration agreements into their general terms and conditions have strong arguments that that those agreements should be upheld by both the UAE Courts and the newly constituted Insurance Disputes Settlement and Resolution Committees. The Dubai Courts are also receptive to such arguments and are continuing to demonstrate that the Courts are supportive of arbitration in the UAE.
That said, and notwithstanding a significant number of judgments that have confirmed and reiterated that Article 1028(d) of the Civil Code does not apply to commercial contracts, unless insurers comply with this provision, policyholders may continue to be tempted to repudiate their arbitration agreements. A breach of such nature may, in turn, lead to costly and protracted litigation that could have been avoided by simply satisfying the formal requirements provided for in Article 1028(d).