Enforceability of foreign arbitral awards in the UAE

The UAE, as party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) without reservations, should in principle recognise and enforce foreign arbitration awards.

Accordingly, subject to Article 5 of the New York Convention, the UAE courts should enforce foreign arbitral awards provided that the subject matter can be arbitrated under UAE law and such enforcement would not offend public policy.

Before the UAE ratified the New York Convention in 2006, foreign arbitral awards were dealt with in the same manner as enforcing foreign courts’ judgments pursuant to articles 235-246 of the UAE Civil Procedures Law. This allowed the UAE courts to set aside foreign arbitral awards on a variety of grounds.

Another issue relates to the Arbitration Section provided under the UAE Civil Procedures Law. In particular, articles 203-213 which govern the process of recognising arbitration awards and provide the defendant with an opportunity to invalidate the arbitration award on various grounds relating to the validity of the arbitration clause, the appointment of the tribunal or the arbitration procedure. Although these articles do not explicitly provide whether they apply to foreign arbitral awards or not, it has been ruled by the Dubai Court of Cassation (the Supreme Court in Dubai) in 2005 (i.e. before the New York Convention was ratified by the UAE), that these articles apply only to local arbitration awards and do not apply to foreign arbitral awards which are subject to articles 235-246 governing the enforcement of foreign courts’ judgments.

As a result of the above, the UAE Courts inherited a considerable amount of negative precedent in relation to the enforcement of foreign arbitral awards. These precedents suggested that foreign arbitral awards may not be enforced in the UAE.

Therefore, despite the fact that the UAE ratified the New York Convention in 2006, until recently it was not entirely clear whether or not local courts would apply these local rules, which allow the defendant to request the court to invalidate the arbitration award by challenging the validity of the arbitration clause or the procedures according to the UAE law.

Following the implementation of the New York Convention in 2006, it has taken several years for the first cases to come through the local court system. One judgment was handed down by the Fujairah Court of First Instance which recognised and enforced a foreign award in the UAE under the New York Convention. This was only a default judgment and many traditional non-recognition arguments were not raised. However, the court confirmed the basic purpose of New York Convention, i.e. local authorities/courts/countries should not discuss/review the merits of the award.

In a more recent development, the Dubai Court of First Instance ordered the recognition and enforcement of a London Arbitration Award under the New York Convention. The proceedings were fully contested by the defendant who filed a counterclaim requesting the court to invalidate the award on the grounds that: (i) the arbitration clause was signed by an unauthorised person on behalf of the defendant and hence was invalid; (ii) the award was made after the lapse of six months, which invalidates the proceedings as per local law; and (iii) the failure of the tribunal to apply the mandatory procedure of witnesses taking an oath before giving statements.

These are typical arguments and are often raised in most local arbitral award enforcement proceedings. The UAE as a matter of law applies strict rules/requirements in relation to written formalities and powers of the person signing the arbitration clause and thereafter arbitrating or delegating powers to attorneys on behalf of a company. Article 58 of the UAE Civil Procedures Law provides that an attorney may not arbitrate without specific authorities in the Power of Attorney.

There have been some cases in which courts have nullified local arbitration awards which took years to obtain, based on the fact that the individual who signed the arbitration clause lacked proper authority to arbitrate or agree to arbitrate on behalf of the company.

In a very positive outcome, the Dubai Court of First Instance ignored the defendant’s arguments and rejected the counter claim for lack of jurisdiction. The court concluded that articles 203-213 of the Civil Procedures Law which allow the defendant to request the court to invalidate the arbitration award based on the grounds raised in these proceedings apply only to local awards, i.e. not foreign arbitration awards.

The above judgment is not final and is likely to be appealed before the Court of Appeal and the Court of Cassation in Dubai. However, it sets a very encouraging precedent which supports the logical interpretation of the UAE Civil Procedures Law and the spirit of the New York Convention.

In terms of process, recognition and enforcement in the UAE requires two stages as follows:

Recognition/confirmation of enforceability stage:

The party seeking to enforce should bring an action before the Court of First Instance requesting the court to recognise and declare the enforceability of the arbitration award. It is usually at this stage that the defendant brings a counterclaim to invalidate the award as per articles 203-213 of the UAE Civil Procedures Law referred to above.

It will be crucial to give guidance to the local court and explain and differentiate between seeking the recognition of local arbitral awards, which are subject to invalidation as per the UAE Civil Procedures Law, and foreign awards passed under the New York Convention, which should be subject to the provisions and conditions provided under the Convention itself only. One should also emphasise that the court should not discuss the merits of the award and should simply ensure that all the elements required by the New York Convention are available in such award.

It should also be noted that the court judgment recognising the arbitration award can be appealed before the Court of Appeal and subsequently challenged before the Court of Cassation.

Execution stage:

Once the court judgment to recognise and enforce the award is final (an Appeal Court judgment, even if the matter has been appealed to the Court of Cassation, is a final judgment), the party requesting the enforcement will need to bring a claim before the Execution Court to proceed with enforcement. The Execution stage is simpler than the first stage. The Execution Judge will send a notification to the defendant requesting the settlement of the judgment amount (i.e. the award) including any outstanding interest and court fees within 15 days. If the other party fails to settle such amounts, then the judge will commence the process of enforcing the award by attaching any assets or enforcing against assets which were already pre-attached and proceed with auctioning the same through public auction to settle the awarded amount.

It is not clear how the courts in other Emirates in the UAE will deal with the enforcement of foreign arbitral awards. However, the recent judgment handed down by the Dubai Court of First Instance is a significant step in the right direction.

HFW