Last month we considered issues of UAE law surrounding the incorporation and enforceability of arbitration clauses in contracts of insurance. This month we look at the landscape for enforcement of arbitration awards in the UAE and how recent developments are paving the way for greater certainty and confidence in the process.
Arbitration in the UAE in recent years has experienced significant growth, among both domestic and international users. There are upwards of 500 arbitrations per year in the three main arbitration centres in the UAE, many of which are international in the sense of that at least one party is based outside of the UAE.
Insurers and reinsurers alike are significant and regular users of arbitration. UAE-based insurers that issue policies containing arbitration clauses commonly provide for arbitration in the UAE (typically in a given Emirate) while reinsurance contracts (particularly those issued by international reinsurers) often favour arbitration outside the UAE.
While there is undoubtedly a positive trend in the use of arbitration as a dispute resolution mechanism in the UAE, the incidence of arbitration for disputes arising in relation to UAE insurance policies is considerably less pronounced than in the more established (re)insurance markets of Europe and Asia. One of the main reasons for this (which is not limited to insurance-related disputes) is a perception amongst (re)insurers that the process for enforcement of awards in the UAE, whether domestic or foreign, is fraught with difficulty and uncertainty. Unfortunately, that perception has a basis in historical fact, as will be seen below. However, a wind of change is in the air that makes choosing arbitration for disputes under UAE insurance policies or related reinsurance contracts considerably more attractive than it has previously been.
The issue of enforcement of awards is clearly important both in the UAE and overseas. This article will examine both domestic and foreign enforcement of UAE arbitration awards, as well as the enforcement of foreign arbitration awards in the UAE.
Any arbitration user with experience in the UAE will be familiar with the local enforcement “war-stories”, as epitomised by the case of International Bechtel Co., Ltd. v. Department of Civil Aviation of the Government of Dubai, which will be discussed shortly. First however, we must determine the current enforcement landscape in the UAE, particularly since its accession to the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) in December 2006.
UAE Arbitral Institutions
Before delving deep into this discussion it is worth noting the arbitration institutions in the UAE. There are three main arbitration centres in the UAE:
- The Dubai International Arbitration Centre (“DIAC”), which started life as an arbitration off-shoot of the Dubai Chamber of Commerce and since 2007 has had new rules drawn up by its trustees, the majority of whom are eminent foreign international arbitrators.
- The DIFC-LCIA Arbitration Centre is newer on the scene, a joint venture between the London Court of International Arbitration (“LCIA”) and the Dubai International Financial Centre (“DIFC”), a financial free zone in the UAE with its own civil and commercial laws (including an UNCITRAL-based arbitration law, which is entirely different from the arbitration legislation applicable in the rest of the UAE, which exists outside the DIFC, and is found in the UAE Civil Procedure Code).
- The Abu Dhabi Commercial Conciliation and Arbitration Centre ("ADCCAC"), which is part of the Abu Dhabi Chamber of Commerce.
Parties choosing the UAE as the seat of an arbitration in fact have two avenues to choose from: (i) to opt for one of the Emirates as the seat; or (ii) to specify the "DIFC". We consider below how DIFC arbitration awards have a different route for domestic enforcement than an 'onshore' UAE award, seated outside the DIFC in the wider Emirate of Dubai or the UAE.
Domestic Enforcement of a UAE arbitration award seated outside the DIFC
Under Article 215 of the UAE Civil Procedure Code, before a domestic award can be enforced in the UAE, the award must be ratified by the UAE courts. Once ratified, the award becomes equivalent to a UAE court judgment and can be enforced by application to the execution department of the relevant UAE court.
The application to the UAE court to ratify an award is almost identical to the procedure for making a ‘regular’ claim in the courts: it is commenced by the enforcing party issuing a claim form, accompanied by supporting documents, which the courts serve on the other party. Just as the winning party may apply to ratify the award, the losing party may petition the court to annul an award (this can be done even before any application is made to ratify the award). In practice, it is common for the losing party, once served with notice of the ratification proceedings, to make a counter application for the annulment of the award. Once the defendant has been served, the court will then hear arguments and submissions of the parties and, over several hearings, will review the evidence that the parties submit before the case is reserved for judgment.
After the court has delivered its decision, be it ratifying or annulling the award, the losing party automatically has the automatic right to appeal to the Court of Appeal. Subsequently, there is a final right of appeal to Cassation. It is not possible for the parties to contract out of the right to challenge the award, so a party may raise objections even if it has waived its rights to do so in either the agreement to arbitrate or during the arbitral process.
In assessing whether to ratify or annul the award, the law does not permit the courts to reconsider the merits of the tribunal’s findings but rather to make a decision purely on procedural grounds. The bases for nullifying an award are set out in Article 216 of the Civil Procedure Code (referred to below in an unofficial translation). These exist if an award:
“(a) is given without an agreement to arbitrate or is based on an invalid agreement to arbitrate, or if it is void because a time limit has been exceeded, or if the arbitrators have exceeded the limits of the agreement to arbitrate;
(b) if the ruling has been given by arbitrators not appointed according to the law, or if given by some of them without being so empowered in the absence of the others, or if given under an agreement to arbitrate in which the subject of the dispute is not stated, or if given by someone not competent to agree to arbitration or by an arbitrator who does not fill the legal requirements; or
(c) if there is something invalid in the ruling or in the procedures affecting the ruling”
It is the vagueness of the last provision which broadens the scope for arguments concerning ratification.
Since an application to ratify (or to annul) an award is made to the courts using the usual court procedures, ratification or annulment of an award in the UAE becomes the subject of a separate legal action. While the courts are not permitted to re-examine the merits of the underlying dispute, in practice defendants take the opportunity presented by ratification proceedings to raise the same arguments before the courts that were previously made during the arbitration, and to challenge the validity of the award on sometimes spurious procedural grounds.
Historic treatment of enforcement
In the past, awards have been overturned by the courts for apparently insignificant errors such as the tribunal’s failure to sign each page of the award in full, instead simply initialling each page. In the Bechtel case, the Dubai Court of Cassation overturned an arbitration Award because the oath used to swear in witnesses during the arbitration did not follow a formula prescribed for UAE court hearings to the letter. Technicalities which are peculiar to UAE law include the requirements that: a UAE award must be physically signed within the UAE; the legal representative of each party possesses a valid power of attorney to act in the proceedings; and witnesses should not be present in the evidentiary hearing except when they are giving evidence (though this is often relaxed by agreement of the parties allowing witnesses to attend the hearing after they have given evidence).
Understandably, owing to the grounds for nullifying awards and the technical requirements referred to above, both arbitration practitioners and arbitrators in the UAE are mindful throughout the arbitration process of any technical flaws that may give rise to challenges against awards. In order to avoid UAE arbitrations that are technically flawed, it is invaluable to know which pitfalls can arise, and to have at least one arbitrator on a tribunal who is well versed in UAE arbitration law and practice. Indeed, this can assist in ensuring that the tribunal fulfils its obligations under both the DIAC and the DIFC-LCIA rules to make reasonable efforts to ensure its award is legally enforceable.
While the above might paint a difficult picture for domestic enforcement, the welcome fact is that there is a general trend away from cases in which arbitration awards are overturned by the UAE courts on such pure technicalities. One or two exceptions remain, however: for example, a case we are handling a case in which the Court of Appeal recently declined to ratify an arbitration award because a dissenting opinion, although attached to the majority opinion, was not referred to in it. Despite such instances, the current arbitration enforcement decisions emanating from all levels of the UAE courts, appear to herald a more arbitration-friendly landscape. This is encouraging for arbitration in the UAE generally and should increase the confidence of parties to arbitration in their belief that enforcing awards successfully in the UAE is becoming more achievable.
Domestic enforcement of a DIFC award
How different is the process of enforcement of a DIFC award, rather than a domestic 'onshore' UAE award, in the UAE? In 2011, the local (onshore) Dubai courts enforced a DIFC-LCIA award for the first time, confirming what was until then merely legal theory that such awards would be enforceable. This is a most welcome development.
The first step in enforcement of a DIFC award is for the DIFC Courts (who have supervisory jurisdiction over DIFC seated arbitrations under the DIFC Arbitration Law) to "recognise" the award. The DIFC Courts may only refuse to recognise an award on limited grounds which essentially mirror those in Article V of the New York Convention. Upon recognition of an award by the DIFC Court, an order will be issued to that effect by the DIFC Court which can then be enforced through the Dubai courts under Dubai law. This enforcement mechanism was reinforced by a formal "protocol of enforcement" between the Dubai and DIFC Courts in 2009, and much more recently by Dubai Law No.16 of 2011 (which amended Dubai Law No.12 of 2004 which establishes, amongst other things, the jurisdiction of the DIFC Courts and their relationship with the wider Dubai courts1).
Dubai law provides that the Executive Judge at the Dubai courts has no jurisdiction to review the merits of a DIFC judgment or order prior to its enforcement. Once enforced, the judgment will have the same status as an order of the Dubai courts and can be enforced in the execution courts of other Emirates under Federal Law (including the Civil Procedure Code) and in the courts of countries that are parties to the Riyadh Convention.
Enforcement of UAE awards outside the UAE
For the purposes of enforcement abroad, a DIFC award is equivalent to a UAE award, since the DIFC is a legal jurisdiction within the UAE and the DIFC Courts are part of the Dubai courts system. Given that the UAE is a signatory to the New York Convention, a UAE award will, in theory, be enforceable in any state which is a party to the New York Convention.
One issue for enforcement of UAE awards abroad, however, is whether an the ratification requirement that applies to domestic UAE award enforcement also applies abroad, such that an award must be ratified in the UAE prior to its enforcement abroad. While the UAE Civil Procedure Code is not absolutely clear on this point, what is certainly true is that the answer depends, to some extent, on the country in which enforcement is being sought. The courts of countries with a track record of robust enforcement of awards, such as France, are likely to be less receptive to arguments that a UAE arbitration award should be ratified prior to enforcement abroad, whereas this argument may get more mileage before the judiciary of a country without such a history. In any event, the more usual construction of the relevant provision of the UAE Civil Procedure Code (Article 215) is that ratification is only a requirement for domestic enforcement.
Enforcement of foreign awards in the UAE
The level of confidence that parties to foreign arbitration have in enforcing foreign awards in the UAE is also of significance for enhancing the UAE’s modern reputation as an arbitration-friendly jurisdiction.
Since the UAE's enactment of the New York Convention into domestic law in 2006, the enforcement of foreign awards in the UAE, to a large extent, has not been scrutinised in practice. The predominant reason for this is that, notwithstanding separate express provision in domestic legislation for the execution of foreign awards, the UAE courts have been predisposed in the past to apply to foreign awards the strict provisions of domestic legislation for ratification of awards generally (considered above) in preference to the more liberal enforcement regime of the New York Convention, which provides only limited grounds for non-enforcement of foreign awards. This has meant that defendants in enforcement actions have been allowed to argue the sort of technical defences to enforcement that are impossible to argue under the New York Convention. It is not part of the UAE courts' approach, however, to strike out hopeless arguments. Consequently, since the courts do not award substantial costs in favour of successful litigants, this discourages enforcement except in larger cases.
More recent developments
For some time now, foreign claimants and local arbitration practitioners alike have been anxious to see decisions from the courts of the UAE that fulfil the UAE's international obligations under the New York Convention, and that do not allow the kind of technical defences for which UAE courts earned some notoriety prior to the enactment of the New York Convention. Recent developments in the UAE courts are compelling claimants who wish to enforce foreign awards in the UAE to take notice of a possible change in the climate of arbitration.
In January 2011 the Dubai Court of First Instance delivered a judgment finding in favour of a large international trading company (represented by Clyde & Co in London and Dubai) ordering the recognition and enforcement of a London award under the New York Convention. In its judgment the Court was clear on the application of the New York Convention (and not the Civil Procedure Code enforcement regime) to the enforcement of foreign awards following its enactment into UAE law. As the defendant had failed to establish the application of any of the limited grounds for non-enforcement, the Court ordered the enforcement of the award in full, including the costs awarded by the tribunal and interest. Unlike the previous year's ruling of the Fujairah Courts to enforce an LMAA award in the UAE, the Dubai enforcement action in this case was fully contested by the Dubai company that lost in the London arbitration. The Dubai court’s judgment was heralded by legal practitioners and users of international arbitration as a welcome signal of the changing landscape for arbitration in the UAE.
The significance of the Court’s judgment was reinforced in February 2012 when the Dubai Court of Appeal, ruling on an appeal by the defendant (the original respondent in the arbitration), upheld the judgment of the Court of First Instance, adopting in full the lower court’s findings on the application of the New York Convention under UAE law.
The result in this Dubai enforcement case is hugely encouraging and our hope is that it is an indication of an alignment between judicial thinking and the UAE's international treaty obligations under the New York Convention. Although there is no doctrine of binding judicial precedent in the UAE, Cassation judgments are persuasive and the ultimate litmus test will be some favourable Cassation decisions2.
The developments discussed in this article represent some of the latest steps in Dubai’s aspiration to become an international arbitration centre rivalling the likes of London, Paris, Singapore and Hong Kong. Certainly the local arbitration community is reservedly excited about the change that is being seen in arbitral enforcement in the UAE, and rightly so, particularly if other cases follow to establish a track record of pro foreign arbitration decisions. In light of these pro-arbitration developments, insurers and reinsurers will not be alone in feeling a strong sense of encouragement that arbitration is a suitable choice of dispute resolution mechanism for contractual dealings with UAE-based parties.
We also await with optimism news of the progress of a promised Federal Arbitration Law which has been in the pipeline for several years and that we hope will be supportive of the arbitral process. Such developments will be key to confirming the progress that we have touched upon here.
1The DIFC Courts have recently circulated a consultation paper to DIFC Courts users addressing principally matters relating to enforcement of DIFC judgments outside the DIFC, including in the wider Emirate of Dubai, the UAE and the GCC. We may therefore see some further legislative clarification of these matters in due course.
2At the time of going to press a Cassation appeal has been filed by the defendant in the successful enforcement case referred to above. It is likely the Cassation will be determined this year.