Latest Draft of UAE Federal Arbitration Law Released

By Patrick Bourke and Adam Vause

The most recent draft of the much anticipated UAE Federal Law in respect of Arbitration (the Draft Law) was released on 16 February 2012. The Draft Law represents the UAE’s proposed updating of its legislation in order to, among other goals, comply with its accession to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) in 2006. Although the Federal Arbitration Law remains pending, this latest release demonstrates a positive step towards such a law coming into force and its contents should be considered when drafting arbitration clauses where the dispute could involve the UAE.

The status quo

At present, the UAE federal law that deals with arbitration is a small number of articles of the UAE Civil Procedure Code (the CPC). These articles relate to the formalities of an arbitration agreement, the constitution of the arbitral tribunal, the grounds upon which a court could dismiss an arbitrator, and procedural requirements relating to the enforcement of awards and grounds upon which an award can be challenged. The CPC also grants UAE courts the power to compel or fine witnesses. The provisions are not based on the UNCITRAL Model Law (the Model Law).

Highlights of the Federal Arbitration Law
The Draft Law (like previous drafts of the Federal Arbitration Law) will repeal the sections of the CPC relating to arbitration. While the Draft Law appears to be based on the Model Law, there a number of departures. Below are a number of the key provisions of the Draft Law that are of note:

• Broad application of Law – the Draft Law applies both to arbitrations which take place within the UAE (regardless of the legal nature of the dispute) and international commercial arbitration where the parties agree to subject the arbitration to UAE law (Article 2).
• Role of the UAE Courts – Courts may order temporary or conservative procedures to be taken either prior or during the arbitration (though the arbitration must stop while those orders are being made) (Article 6). The relevant UAE court will be the court which is “basically responsible for resolving such dispute” (Article 5). Unless the parties agree otherwise, it appears that international commercial arbitral disputes will be supervised by the Abu Dhabi Federal Court of Appeal. It will remain to be seen how easily any order from that court will be enforced in the other Emirates of the UAE.
• Limits to arbitrability – No arbitration can be conducted for matters on which “reconciliation” can be made. It remains to be seen what will be the scope of this provision (Article 14).¹
• Nationalities of arbitrators – The Draft Law provides that the parties are free to agree to a requirement that an arbitrator be of a certain nationality (Article 17), but otherwise there is no nationality requirement. On the other hand, Article 18.3 provides that in international arbitrations, none of the arbitrators can be the same nationality as any of the parties. It is, however, unclear whether this only applies where the parties are unable to agree on the selection of arbitrators.
• Language of arbitration – The Draft Law indicates that all arbitrations will be conducted in Arabic unless the parties agreed otherwise (or where the tribunal determines another language or languages to be used) (Article 28).
• Depositing awards with the Court – There is a requirement for awards to be deposited with the appropriate UAE Court (and translated in Arabic, where necessary) within two weeks of issue (Article 46) (there is currently a similar obligation under the CPC).
• Confidentiality is presumed – While often arbitration statutes are silent on the matter, the Draft Law states that arbitration awards are presumed to be confidential subject to consent of the parties (Article 48).
• No rights of appeal – Subject to annulment and enforcement issues set out below, the Draft Law does not provide for any right of appeal of an arbitration award. This is consistent with the Model Law.
• Annulment proceedings should not delay enforcement – Filing a suit to annul the award shall not suspend enforcement of the award, unless a party can persuade the court that there are “serious reasons” for suspension (Article 57). In any event, if enforcement is suspended, the Draft Law provides that the court must resolve the annulment suit within 3 months of suspending enforcement.
• Novel ground to refuse enforcement – No order may be issued to enforce an award without verifying that it is not “in conflict with a ruling on subject of dispute passed by any UAE court of law”. Construed narrowly – e.g., there isn’t a conflicting decision on the same dispute between the same parties on the same facts – this may not be of concern. Construed broadly, such a provision could hamper enforcement efforts.
• Interaction with the laws of the DIFC? – The DIFC has a jurisdiction which is separate and distinct from the wider UAE. One feature of the DIFC is that the federal and commercial laws of the UAE are not applied within its jurisdiction. As such it is not anticipated that the Draft Law will affect arbitration within the DIFC, which already has its own arbitration law (DIFC Law No. 8 of 2004), which applies to the arbitration of disputes connected with the DIFC or where the parties have agreed that they shall be subject to the DIFC Arbitration Law.

Moving forward
Observers of arbitration in the region have been predicting the passage of the Federal Arbitration Law for a number of years. The publication of the Draft Law is a positive development in that regard although it remains unclear when the Federal Arbitration Law will be passed.

Notwithstanding, this latest release provides those involved in contractual negotiations with fair warning as to the issues that should be given due consideration when drafting arbitration clauses in agreements where the UAE is the seat of arbitration, or where UAE courts could be a forum for enforcement.

Footnotes

1. This may also be an issue of translation. There are a number of instances where the English language translation of the Draft Law contains ambiguous or even unclear text. For instance, there is repeated reference to the word “apology” which seems to be a reference to “defending” or “responding” materials (see Articles 33 and 34). Under UAE law the Arabic version of legislation is the official version that will be relied upon if there is any debate as to interpretation.