Tag: Dispute Resolution

Weathering the April Storms: Where will the burden fall under UAE law?

When TS Eliot wrote in 1922 that “April is the cruellest month” he likely never envisaged extreme weather of the proportions experienced in the UAE on the 16th of April 2024.  What, then, of the parties to a contract?  Ought they to have foreseen this and catered for it in the terms of their agreement? And how should the inevitable losses caused be allocated between them under UAE law?  As the UAE continues its recovery, contracting parties across all commercial sectors will likely be considering these questions very carefully.

 

The starting point, as always, will be the terms of the contract itself.  However, in the absence of the parties reaching an agreement as to what these require, Article 249 of the UAE Civil Code will undoubtedly feature prominently in any dispute. Article 249 provides (in translation) as follows:

 

“If exceptional circumstances of a public nature which could not have been foreseen occur as a result of which the performance of the contractual obligation, even if not impossible, becomes oppressive for the obligor so as to threaten him with grave loss, it shall be permissible for the judge, in accordance with the circumstances and after weighing up the interests of each party, to reduce the oppressive obligation to a reasonable level if justice so requires, and any agreement to the contrary shall be void.”

 

James Whelan, writing in the Ministry of Justice’s Commentary on the UAE Civil Code, regards this provision as an exception to the general rule that it is not the function of the judge to create or vary contracts on behalf of the parties and states that the UAE legislature has restricted its application to cases of “unforeseen emergencies”.

 

The application of Article 249 of the UAE Civil Code is conditional upon the occurrence of an “exceptional emergency (or event) of a public nature” that could not have been foreseen at the time the contract was formed, and which renders performance of the obligation in question burdensome or onerous, but not impossible.  An event of a “public” nature means that it affects the entire industry or economy rather than a particular venture or project. Al Sanhouri offers useful examples of what may constitute “exceptional emergencies” such as earthquakes, wars or an epidemic, and floods are specifically included on this list.

 

In UAE law, “exceptional emergencies of a public nature” for the purposes of Article 249 are to be contrasted with “force majeure events” as stated in Article 273 of the UAE Civil Code.  Whereas force majeure events render the performance of an obligation impossible and result in the termination of the obligation, “unforeseen emergencies of a public nature” render the performance of contractual obligations “onerous and excessive … without reaching the level of impossibility” and “result only in the reduction of the obligation to a reasonable level and the consequences are thus borne by the obligee and the obligor”.

 

Article 249 is a mandatory provision which UAE law precludes contracting out of.  Parties to contracts governed by UAE law will therefore need to consider, honestly and realistically, the impact of the April Storms on the performance of their own and each other’s obligations to determine whether (and, if so, to what extent) Articles 249 and 273 might apply.

 

Obligors tempted to argue that Article 249 applies and that the performance of an obligation that has become more onerous should consequently be reduced by the court to a more reasonable level will need to remember that an increased burden of itself is insufficient: performance must carry with it the threat of “grave loss” before the principle bites.

 

Similarly, it would obviously be tempting for an obligee, seeking to resist an application under Article 249, to attempt to argue that the relevant event was foreseen (or was at least of a type that could or ought to have been foreseen) and that therefore the judicial discretion is simply not engaged.  To contend, for example, that even if this particular storm was not foreseen at the time the contract was formed the contract already speaks to what happens in the event of extreme adverse weather in general and therefore the parties can be taken to have envisaged these sorts of circumstances.

 

However, these arguments would not only be contrary to both the letter and the spirit of the Code itself but are also at odds with the relevant principle of Islamic Shariah law (Udur) from which Article 249 is derived.

 

Article 249 is engaged when, despite the circumstances, the terms of the contract prima facie continue to require performance by the obligor but this would cause him grave loss.  Even if a contract contains terms specifying how the risk of extreme weather events is to be borne, Article 249 enables the Court to step in and “reduce the oppressive obligation to a reasonable level if justice so requires”, and any agreement to the contrary shall be void.

 

The dispute resolution team at Afridi & Angell practices in English and Arabic, and is well-equipped to advise on bringing and defending Article 249 applications across the full range of commercial sectors in litigations and arbitrations both onshore and offshore. ■

Insurance claims for damage caused by the torrential rain and floods

Early last week, the UAE experienced its most severe rainfall in the past 75 years. A large number of homes and business premises across the UAE suffered damage from the effects of the rain or floods, including the many motor vehicles that were stalled or otherwise impaired.

 

Those who are covered by home insurance policies may, depending on the terms of the policy, ordinarily expect to be compensated for the cost of repairs or replacement for certain types of damage including: (a) structural damage caused to premises and damage to the plumbing or electrical systems; and (b) damage to contents such as personal belongings, furniture, and electronic appliances. Businesses covered under property all risk and business interruption (PAR & BI) may, depending on the terms of the policy, ordinarily expect to be covered for the cost of repair or replacement of the damages as well as the loss suffered due to the interruption in business.

 

Careful review of the terms and conditions of a policy is essential in order to assess the extent, limits, and exclusions, applicable under the coverage of the policy.

 

Policyholders intending to submit a claim under a home insurance or PAR & BI policy should in the ordinary course:

 

(a) gather clear and contemporaneous evidence of the damage suffered and the exact cause(s) of such damage;

 

(b) take necessary measures to mitigate the damage, ideally with prior notice to the insurer providing sufficient details;

 

(c) inform and obtain prior approval from the insurer if there is a necessity to repair the damage pending the submission or approval of a claim;

 

(d) record and retain evidence of all costs incurred in the process of repairing the damage;

 

(e) be mindful that insurers may reject claims if steps taken by policyholders result in worsening the damage; and

 

(f) submit all claims to the insurer as expeditiously as possible following the claims procedure stipulated in the policy.

 

Dispute resolution

 

Insurance policies will generally be governed by Federal Decree Law No. 48 of 2023 On the Regulation of Insurance Activities (the Insurance Law). Pursuant to Article 101 (2) of the Insurance Law, if a dispute arises relating to an insurance claim, a complaint must be submitted to the Banking and Insurance Dispute Resolution Unit (BIDRU) instituted pursuant to Article 121 of Federal Decree Law No. 14 of 2018 (the Old Insurance Law). BIDRU is now known as the “Sanadak”. In terms of Article 2 of the Central Bank’s Regulation on the Establishment of an Ombudsman Unit for the United Arab Emirates (the Sanadak Regulation), the principal mandate of “Sanadak” is “to receive, handle, review and resolve Complaints in a thorough, timely, transparent, fair and legally sound manner.” Submitting a complaint to “Sanadak” is now the mandatory first step in any dispute concerning an insurance policy, and is a cost-effective option for policyholders who are dissatisfied with the manner in which an insurer has responded to a claim.

 

Determinations made by “Sanadak” concerning insurance disputes may be appealed to the Insurance Dispute Resolution Committee (IDRC) within 30 days from the issuance of the determination. In terms of Article 101 (5) of the Insurance Law, an insurer may not appeal decisions of the IDRC if the value in dispute does not exceed AED 50,000: such decisions are deemed final and enforceable immediately upon issuance. Where the value exceeds AED 50,000, the insurer may appeal the decision before the Court of Appeal within 30 days from the date of its issuance or when the insurer became aware of it. The insured may appeal a decision of the IDRC, before the Court of Appeal, irrespective of the claim value, within 30 days from the date of issuance of the decision or when the insured became aware of it.

 

Lastly, it is important to be mindful that “Sanadak” will not have jurisdiction over a complaint where the insurance policy provides for an alternative forum for dispute resolution. Article 7 (6) of the Instructions Concerning the Code of Conduct and Ethics to be Observed by Insurance Companies issued by the Insurance Authority pursuant to Board Resolution No. 3 of 2010 permits non-compulsory insurance policies to incorporate arbitration clauses. Apart from this, Article 2 (2) of the Insurance Law also provides that its provisions shall not apply to companies operating in Financial Free Zones i.e., the Dubai International Financial Centre and the Abu Dhabi Global Market.

 

Although the Sanadak mechanism came into existence quite recently, Afridi & Angell has assisted clients to make claims on this platform, which has been an efficient online service. The dispute resolution team at Afridi & Angell is well-equipped to advise on disputes arising out of insurance claims. ■

Arbitration in the Middle East: Dubai Court of Cassation clarifies the distinction between jurisdiction and admissibility for the first time

In arbitration, distinguishing between jurisdiction and admissibility can be complex. A recent Dubai Court of Cassation ruling clarified that contractual pre-conditions affect admissibility, not jurisdiction. This distinction is crucial, impacting both arbitration proceedings and the reviewability of awards, and signals a more arbitration-friendly approach in the UAE.

 

Read the full article here.

Unification of Federal and Local Judicial Principles: key decisions relating to civil procedure and cheques

The Commission for the Unification of Federal and Local Judicial Principles (the “Commission”) recently issued a number of decisions aimed at harmonising certain “judicial principles”. Since the doctrine of stare decisis is not followed in the UAE, there have been instances of incongruities in the application of law by the UAE courts. The Commission was established under Federal Law 10 of 2019 (the “Federal Law”), recognising a need to avoid such inconsistencies.

 

In terms of Article 18 of the Federal Law, decisions of the Commission are binding on all on-shore courts of the UAE, including courts of emirates which are not part of the federal judicial system (Abu Dhabi, Dubai, and Ras Al Khaimah) – with the fail-safe that an inconsistency between a judgment and a “judicial principle” recognised by the Commission may constitute a ground for appeal of a judgment which otherwise would be final. Requests for unification of judicial principles can be submitted by the heads of supreme courts in the UAE, the federal public prosecutor, and local prosecutors.

 

The following are some of the key decisions issued by the Commission.

 

Scope of Article 667 of the Commercial Transactions Law (enabling direct execution proceedings for cheques dishonoured for insufficient funds) expanded to include cheques dishonoured due to account closure

 

  • In terms of Article 667 of Federal Decree Law 50 of 2022 (the “Commercial Transactions Law”), the bearer of a cheque which was dishonoured due to “unavailability” or “insufficiency” of funds is able to rely on the cheque as a writ of execution to file execution proceedings (as opposed to asserting a substantive claim) against the drawer of the cheque. This provision was introduced following the decriminalisation of the act of drawing a cheque without having a sufficient balance in the account to honour the cheque. Readers are reminded that not all acts concerning cheques were decriminalised.

 

  • The Commission has expanded the scope of Article 667 of the Commercial Transactions Law to include instances where a cheque is dishonoured due to an account being closed. Therefore, bearers of cheques which are dishonoured for this reason are now able to file execution proceedings directly against the drawer for the value of the cheque.

 

  • It should be noted that the act of closing an account prior to issuing a cheque or presenting it to the drawee for payment still constitutes an offence punishable by a term of imprisonment of up to two years. Therefore, until further clarification is provided, the prudent view is that this act has not been decriminalised.

 

Federal Supreme Court / Courts of Cassation power to reverse judgments extended to criminal matters

 

  • In terms of Article 190 of Federal Decree Law 42 of 2022 (the “Civil Procedure Law”), the Federal Supreme Court or Court of Cassation (as applicable), is empowered to ‘reverse’ final civil judgments issued by it, on its own volition or upon an application being made by the party against whom the judgment was issued, in any of the following circumstances:

 

– if the judgment contains a procedural error committed by the court or its auxiliary bodies and such error affected the outcome of its decision or judgment;

 

– if the decision or judgment is based on an abrogated law, and the application of the correct law would have materially altered the court’s judgment; or

 

– if the judgment is issued in violation of any judicial principles prescribed by the Commission, among others

 

  • The Commission has widened the ambit of Article 190 of the Civil Procedure Law to cover judgments issued by the Federal Supreme Court or Court of Cassation (as the case may be) in criminal cases.

 

Court of Appeal to decide on the substance of the claim if it declines to grant a payment order

 

  • Payment Orders are mechanisms that enable a creditor to obtain summary relief where, among others, there is a confirmed debt owed to it. Prior to the current decision of the Commission, a judgment on an application for a Payment Order could be appealed to the Court of First Instance (if the value of the claim is less than AED 50,000), or to the Court of Appeal (if the value of the claim exceeds AED 50,000). If the Court of Appeal found that a Payment Order should not be granted, and absent an appeal to the Court of Cassation (available only on issues of law and where the claim exceeds AED 500,000) the applicant was required to file ordinary proceedings anew to claim its debt.

 

  • Following the current decision of the Commission, if the Court of Appeal finds that a payment order should not have been granted, it must proceed to adjudicate the applicant’s claim against the counter-party as it would in ordinary proceedings.

 

  • While this is advantageous to a creditor in the sense it no longer has to incur the time and expense to file ordinary proceedings anew in the Court of First Instance, it also means that the parties lose one level of appeal, unless the value of the claim exceeds AED 500,000 (thus enabling an appeal to the Court of Cassation on an issue of law). ■

Arbitration (UAE chapter), Lexology Panoramic

This Q&A provides a multi-jurisdictional in-depth understanding of Arbitration. This particular chapter explores the UAE process and challenges faced when considering Arbitration as a course of action. The chapter covers a broad spectrum of truths, a sample of topics covered are as follows; laws and institutions, arbitral proceedings, jurisdiction and competence of arbitral tribunal, interim measures and sanctioning powers and updates and trends.

Dubai Court of Cassation Issues Directions on the Imprisonment of Judgement Debtors in the UAE

Article 319(1) of the UAE Civil Procedure Law authorises an execution judge to imprison a debtor who fails to satisfy a judgment debt, unless the debtor is able to prove that he is insolvent.

 

Although the text of Article 319(1) places the burden of proving insolvency on the judgment debtor, this appears to have been reversed following a decision of the General Assembly of the Dubai Court of Cassation issued in October 2023. A judgment creditor is now required to prove that the judgment debtor is solvent before an order of imprisonment may be issued under Article 319. In its decision, the Court of Cassation refers to and codifies the principle of Islamic Sharia’ which presumes the insolvency of a debtor.

 

However, the decision maintains that Article 319(2) provides that a plea of insolvency cannot be maintained in the following circumstances:

 

a) if the debtor deliberately smuggled or concealed their assets; or

 

b) if the debt is due in instalments that the debtor has defaulted on, or if the debt arises out of a guarantee given to the court on behalf of a different debtor, except where the debtor provides evidence of new circumstances which did not exist before and which have adversely affected his financial situation.

 

This poses a significant evidentiary burden on judgment creditors, who must now prove that (a) the judgment debtor is solvent, or (b) that one of the exclusions in Article 319(2) applies in order to obtain an order for imprisonment. It also remains to be seen whether this decision would disincentivise parties from invoking the processes set out in the UAE’s bankruptcy and insolvency legislation.

 

Orders issued by the court under Article 319(1) prior to this decision have been vacated. ■

Navigating the Jurisdiction: Key UAE Court Decisions from 2023 Shaping the Arbitration Landscape

The UAE’s arbitration landscape continues to evolve and, as 2023 draws to a close, we summarise some of the more significant judgments issued by the UAE on-shore Courts in relation to arbitration this year. While the trend of the judgments reinforces the ‘arbitration-friendly’ approach of the UAE Courts of late, 2023 has not been without its outlier cases.

 

1) It may no longer be possible to circumvent an arbitration agreement by joining third parties to court proceedings

 

A popular strategy deployed by parties wishing to bypass an arbitration agreement and invoke the jurisdiction of the UAE Courts (ordinarily a claimant) is to add parties who are not party to the arbitration agreement, as in cases which involve multiple defendants, a UAE court which has jurisdiction over one defendant has jurisdiction over all the defendants.

 

In Dubai Court of Cassation Case No. 1078/2023, the court upheld a Court of Appeal decision rejecting this strategy. In its judgment, the Dubai Court of Appeal laid down several clear principles:

 

  • while a claimant may add multiple defendants, and while a court which has jurisdiction over one defendant will have jurisdiction over all the defendants, there must be ‘real claims’ against each of the defendants;

 

  • what constitutes ‘real claims’ is a matter to be determined by the trial court based on the evidence and any applicable presumptions of law (in this case, the court found that the claimant’s cause of action was clearly a contractual one, and there were no ‘real claims’ against individuals who were not party to the contract); and

 

  • adding parties solely for the purpose of invoking the court’s jurisdiction is not permitted.

 

2) Amendments to contracts need not expressly refer to an arbitration clause in the initial contract

 

In the same case, the Dubai Court of Appeal (Case No. 911/2023) also held that an amendment to a contract which contains an arbitration does not need to expressly refer to the arbitration clause in the initial contract, provided that the amendment clearly forms part and parcel of the contract which contained the arbitration clause (i.e. as opposed to standard terms or a different contract containing an arbitration clause which is incorporated by reference). However, the prudent approach remains to replicate or clearly refer to the arbitration agreement between the parties in the initial contract.

 

3) An agreement to arbitrate in a contract will extend to subsequent contracts between the same parties, provided that (a) there is a sufficiently close factual connection, and (b) there is no subsequent agreement to resolve disputes in a different forum

 

In Dubai Court of Cassation Case No. 828/2023, the court considered an appeal relating to a construction dispute. The parties had entered into a contract containing an arbitration clause, however, the dispute between the parties arose pursuant to purchase orders between the parties issued subsequent to the initial contract. One of the parties contended as the purchase orders do not contain an arbitration clause, disputes arising in connection with the purchase orders must be determined by the courts.

 

The Court of Cassation rejected this argument. After an analysis of the documents, it was determined that the arbitration clause in the initial contract applied to the purchase orders. This decision was based on the close connection between the initial contract and the purchase orders, involving not only the parties but also the subject matter of the contract. Following the ‘accessory follows the principal’ principle, the Court of Cassation held that “based on the implicit will of the parties deduced from all previous elements, all disputes regarding subsequent contracts are subject to the arbitration clause”. The court also took into consideration the nature of contracts entered into in the construction industry, holding that “taking into account the technical nature of the construction industry, which makes it unlikely that the parties intended to limit arbitration to specific matters and resort to state courts in other matters, which may be technically related to the matters subject to arbitration given the single nature of the subject matter of those contracts”.

 

However, the court made it clear that had there been an agreement to refer disputes to a different forum in the purchase orders, such an agreement would prevail. Where the subsequent instrument is silent, there now appears to be a presumption that the agreement of the parties to arbitrate (or other such agreement as to forum) in an earlier related contract will prevail.

 

However, the prudent approach remains to replicate or clearly refer to the arbitration agreement between the parties in the initial contract.

 

4) An arbitration agreement may be assigned and is binding on the assignee, even if there is no agreement in writing by the assignee to be bound by the arbitration agreement

 

In March 2023, the Dubai Court of Cassation (Cassation No. 1603/2022) held that an agreement to arbitrate contained in an agreement can be assigned to a third party, even where the third party had not expressly agreed to arbitrate.

 

The dispute arose in the context of a reverse factoring agreement. The defendant purchased goods from a supplier and agreed to make payment within 120 days from the date of the invoice(s). The plaintiff made early payment of the invoices to the supplier on behalf of the defendant. As a result, the right to receive payments for the goods purchased by the defendant was assigned to the plaintiff and the defendant was duly notified of such assignment. The contract between the defendant and the supplier contained an agreement to arbitrate. However, there was no arbitration agreement between the plaintiff and the defendant. The point of dispute arises from the defendant’s position that as a result of the assignment of invoices to the plaintiff, the arbitration agreement has also been assigned.

 

The Dubai Court of Cassation held upon the assignment of the right to receive payment to the plaintiff, the arbitration agreement between the supplier and the defendant was also transferred to the plaintiff.

 

The rationale of the court was that the assignment does not create new rights, but merely transfers existing rights that were vested with another party. On this basis, the court held that the arbitration agreement shall also be deemed to be assigned unless the assignment agreement expressly states otherwise.

 

5) An indirect claimant may rely on an arbitration agreement entered into by the party on behalf of whom the indirect claim is being made

 

In a dispute involving a claim asserted by a subcontractor in the context of a construction dispute, the Abu Dhabi Court of Cassation held that the subcontractor (who was asserting an indirect claim pursuant to Articles 392 and 393 of the UAE Civil Code) could resort to arbitration under the contract between the main contractor and the employer. Articles 392 provides that “every obligee …may exercise, in the name of the obligor, all of the rights of that obligor, save those that relate particularly to his person or which are not capable of being attached”, and Article 393 provides that “the obligee shall be regarded as a proxy for his obligor in exercising his rights”.

 

The Abu Dhabi Court of Cassation, in interpreting and applying Articles 392 and 393, found that they extend to a right to resolve disputes through arbitration. Consequently, a party representing another’s rights, in the context of Articles 392 and 393, may resort to arbitration under the original contract between the debtor and the creditor.

 

6) The Dubai Court of Cassation recognized the distinction between jurisdiction and admissibility and held that a question of inadmissibility does not result in the annulment of an arbitral award

 

In its judgment in Cassation Case No. 1514 of 2022 issued in July 2023, the Dubai Court of Cassation for the first time drew a distinction between the concepts of jurisdiction and admissibility.

 

The underlying dispute between the parties arose from an International Federation of Consulting Engineers (FIDIC) construction contract. The respondent in the arbitration sought to set aside the arbitral award against it on the basis that the claimant had failed to comply with the conditions precedent stipulated in the contract prior to referring the dispute to arbitration.

 

In dismissing the Respondent’s appeal, the Dubai Court of Cassation held that pre-arbitral conditions precedent does not pertain to the question of jurisdiction or competence of arbitral tribunal, i.e., they are not determinative of whether arbitration is the proper forum to hear the dispute or not. Rather, they go to the question of admissibility, i.e., whether the claims raised can be heard at that point in time, or whether such claims have been referred for arbitration prematurely.

 

Significantly, the court addressed the consequences that may flow from a finding of inadmissibility. The court stated that where an issue of inadmissibility is correctly invoked, the most likely result is that the arbitration proceedings may be adjourned pending the fulfilment of the conditions precedent by the parties, though arbitration remains the proper forum to resolve the dispute (i.e. the tribunal remains vested with jurisdiction). This is a departure from previous cases where the courts held that the failure to follow pre-arbitral questions go to the issue of jurisdiction, and annulled awards on that basis.

 

7) Non-payment of advances on costs do not result in the exhaustion of an arbitration clause

 

The same judgment of the Court of Cassation is also significant as it held that the court does not become seized with jurisdiction over disputes that do not proceed to arbitration due to the parties’ failure to pay advances on costs. This represents a departure from previous cases where the court held that non-payment of arbitration fees results in the exhaustion of the arbitration clause.

 

This was reinforced in November 2023 by Decision No. 10/2023 of the Dubai Court of Cassation which directed that the previous principle of considering an arbitration agreement be exhausted if an arbitration does not commence/proceed due to the parties’ failure to pay advances on costs must no longer be followed.

 

8) Notwithstanding the DIAC 2022 Rules, specific authority to agree costs may still be required

 

It is a long-settled principle of UAE law that arbitral tribunals require express authority to award legal costs. This remains the case even following the enactment of the Federal Arbitration Law, which was expected to dispense with this requirement. Possibly in response to this, the Dubai International Arbitration Centre (DIAC) Rules of 2022 (Article 36) appeared to suggest that tribunals are empowered to award legal costs by including the “fees of the legal representative” within the costs of arbitration. The Federal Arbitration Law does not require tribunals to possess the express authority to award the costs of the arbitration.

 

However, the Dubai Court of Cassation, in a matter involving the ICC Rules (in which Article 38 make provision similar to Article 36 of the DIAC Rules), set aside the part of the award in which the tribunal awarded legal costs on the basis that “Article 38 of the International Chamber of Commerce Rules, which the arbitrator relied upon, did not explicitly empower the arbitral tribunal to decide on the legal fees of the parties’ legal representatives in the arbitration.”. On the face of it, this appears to be an incorrect finding by the court, as Article 38.1 of the ICC Rules expressly provides that the “costs of the arbitration shall include the fees and expenses of the arbitrators … and the reasonable legal and other costs incurred by the parties for the arbitration.”

 

Given the similarity between the DIAC 2022 Rules and the ICC Rules, there now appears to be a question whether Article 36 of the DIAC 2022 Rules (of itself and without express agreement by the parties empowering the tribunal) is sufficient to empower a tribunal to award legal costs.

 

9) There is a risk that a finding of invalidity of a contract could extend to an arbitration clause in the contract, notwithstanding that the Federal Arbitration Law recognizes the separability of an arbitration clause.

 

In Court of Cassation No. 585/2023, the Dubai Court of Cassation held that a finding of invalidity of a contract extends to an arbitration clause contained in the same contract. The dispute arose in the context of a dispute between shareholders of a limited liability company established in the 1990’s. As required under law at the time, the majority shareholder was an Emirati national, and this was reflected in the company’s Articles of Association. However, at the same time, an addendum was executed to the Articles to provide that, among others, the Emirati national did not own any shares in the company.

 

The Emirati shareholder successfully asserted certain claims arising out of the addendum in an arbitration conducted under the DIAC Rules. The respondent sought to set aside the award, and the Court of Appeal set aside the award on public policy grounds as provided for in Article 53(2)(a) of the Federal Arbitration Law.

 

The Court of Appeal went on to hold that “the arbitration agreement as well as filing the arbitral proceedings on the basis of such invalid contract is against public policy” and, in doing so, appears to have linked the invalidity of the contract with the invalidity of the arbitration agreement. The judgment of the Court of Appeal was upheld by the Court of Cassation which found that a decision to invalidate a contract extends to all its terms including the arbitration clause.

 

This was a surprising outcome, given that the Federal Arbitration Law expressly recognizes the separability of an arbitration clause.

 

10) Parties choosing to resolve disputes through arbitration under the ICC Rules in the UAE may find the ADGM deemed to be the seat of arbitration.

 

Earlier this year, the Abu Dhabi courts ruled that they lacked supervisory jurisdiction over an arbitration conducted under the ICC Rules, even though the agreement stated that the seat would be in Abu Dhabi. However, the agreement did not specify whether the seat would be in the Abu Dhabi Global Market (ADGM) or on-shore Abu Dhabi. The Abu Dhabi Court of Cassation held that, because the parties chose the ICC Rules, and that because the ICC maintains a representative office in the ADGM, the ADGM should be taken to be the seat of arbitration, thereby vesting the ADGM Courts with jurisdiction to hear applications related to the arbitration. It is relevant to note that following this judgment, the ADGM Courts have accepted jurisdiction in matters arising out of arbitrations conducted under the ICC Rules and where the seat was specified to be Abu Dhabi.

 

A similar judgment was issued approximately two years ago by the Dubai Court of Cassation, in which it held that it had no jurisdiction over claims arising from a Dubai International Financial Centre (DIFC) and London Court of International Arbitration (LCIA) arbitration seated in Dubai and that as the DIFC-LCIA was a DIFC establishment, the DIFC Courts are the courts vested with jurisdiction. While this issue is no longer likely to arise as the DIFC-LCIA no longer exists, it highlights the need to specify the seat of arbitration with care, particularly in the Emirates of Abu Dhabi and Dubai, given that four jurisdictions exist within the two Emirates. ■

Amendment to the UAE Federal Labour Law

Article 54 of the Labour Law (Federal Decree-Law 20 of 2023 on the regulations of labour relations, as amended) dealing with employment disputes has been amended to give greater powers to the Ministry of Human Resource and Emiratisation (the Ministry). The amended provision shall come into effect from 1 January 2024.

 

Authority to issue a decision

 

Under the Labour Law, in case of an employment dispute, before filing a case before the Court of First Instance, the employer or the employee is required to file an application to the Ministry. The Ministry is required to examine the application and take appropriate actions it deems necessary to amicably settle the dispute between the parties.

 

In case the parties fail to amicably settle a dispute, while earlier the Ministry was required to refer the matter to the courts (i.e., the Court of First Instance), now the Ministry has been given powers to decide a dispute with a final decision:

 

i.  if the claim amount in the dispute is less than AED 50,000; or

 

ii. where a dispute relates to failure by either party to comply with an amicable settlement decision previously issued by the Ministry (irrespective of the claim amount).

 

The party in whose favour the Ministry has issued its decision can directly proceed with execution (a mechanism for enforcement of a decision) of the said decision as per the rules of execution under the UAE Civil Procedure Law.

 

The requirement to file an application to the Ministry is not applicable to free zone companies (employers) and its employees wherein an aggrieved party is required by the relevant free zone authority’s rules to first approach the free zone authority instead of the Ministry. Although a free zone employer/employee is still required to approach the Ministry in order to obtain a referral letter to the court (stating that the employee can file a case before the court), the Ministry does not look into the substance of the dispute and its role is just to issue the referral letter. It will be interesting to see if the applicability of these provisions will also be extended to apply to disputes between free zone companies (employers) and its employees.

 

Right to file the claim before the Court of Appeal

 

Within 15 working days from the date of notification of the Ministry’s decision, either party may file a case directly before the Court of Appeal (and not the Court of First Instance). The Court of Appeal shall set a date for hearing within three working days and issue its decision within 15 working days from the date of starting the proceedings before the Court of Appeal. The decision of the Court of Appeal shall be final.

 

If proceedings have commenced before the Court of Appeal, there will be a stay on the execution of the decision issued by the Ministry.

 

Failure to Amicably Settle a Dispute or Claim Amount of more than AED 50,000

 

If the parties fail to amicably settle a dispute (within the timeframe provided under the law) and if the claim amount in the dispute is more than AED 50,000, the Ministry shall refer the dispute to the competent court (i.e., the Court of First Instance) together with a memorandum which shall include a summary of the dispute, the arguments of the parties and the Ministry’s recommendation. Within three working days from the date of receipt of the application from the aggrieved party, the competent court is required to set a date for the hearing and promptly decide on the dispute.

 

These are welcome amendments to the Labour Law which will result in quick resolution of disputes where the claim amount is low and will reduce the workload of the UAE Court of First Instance. ■

DIFC Courts to oversee disputes in all free zones?

A survey published by the Dubai Statistics Center has called for input from the public in what appears to be research relating to the application of ‘Common Law’ in all free zones in Dubai. The survey is not about the use of ‘Common Law’ in a general sense. Instead, the Dubai government is focused on integrating DIFC laws and giving jurisdiction to the DIFC Courts for overseeing civil and commercial disputes within the free zones.

 

The DIFC

 

The DIFC is governed by its own body of laws with an independent judicial authority, the DIFC Courts. The DIFC Courts currently have jurisdiction to hear disputes in connection with an entity established in the DIFC, disputes which are connected to the DIFC or disputes in which the parties have agreed to the jurisdiction of the DIFC Courts.

 

The rules of procedure in the DIFC Courts largely follow the Civil Procedure Rules followed by the English courts. The DIFC Courts apply DIFC laws in disputes before it, unless there is an agreement to the contrary. DIFC laws are largely a codification of English common law. The DIFC Courts can also apply any other law agreed among the parties to the dispute, such as UAE law.

 

Under the current legal framework in Dubai, unless a free zone company agrees to resolve its dispute through arbitration or through the DIFC Courts, all disputes will have to be referred to the on-shore Dubai Courts. The on-shore Dubai Courts operate under a civil law system and apply UAE laws by default. Proceedings before the Dubai Courts are conducted exclusively in Arabic, whereas in the DIFC Courts they are conducted in English.

 

The Survey

 

The survey published by the Dubai Statistics Center appears to suggest that the Dubai government is considering two possible means by which the jurisdiction of the DIFC Courts and the laws of the DIFC may be extended to all free zones in Dubai: a hybrid system and a standalone system.

 

a) Hybrid System: DIFC Courts having jurisdiction with UAE laws as default

 

Under this framework, the DIFC Courts would be responsible for overseeing civil and commercial disputes within the free zone. UAE laws will be applicable by default to the dispute. However, for matters concerning litigation procedures and evidentiary rules, the DIFC laws will take precedence. This means that while disputes will be adjudicated by the DIFC Courts, the foundational laws of the UAE would influence and guide the decisions in court cases.

 

b) Standalone System: Extended jurisdiction of DIFC to selected free zones

 

In this setup, the entire legal framework of DIFC’s civil and commercial laws (excluding licensing regulations) would extend to the selected free zone. This would mean that companies in these zones will function entirely under DIFC laws and regulations (e.g. company law, bankruptcy law, employment law, etc.), with the DIFC Courts handling all respective disputes.

 

Outcomes

 

As noted above, if the Hybrid System is implemented, the DIFC Courts will have jurisdiction over any entity in any free zone in Dubai without the need for agreement among the disputing parties to submit to the jurisdiction of the DIFC Courts. However, the DIFC Courts will only apply UAE law (and not DIFC law) unless there is an agreement among the parties to apply a specific different law. In other words, the lex fori (the law of the Court) would be common law.

 

Under the Standalone System, the DIFC Courts will, in addition to having jurisdiction over disputes concerning other free zone entities, also apply DIFC Laws by default. In effect, this system will determine disputes under common law, through a common law process of court (lex fori and lex loci). It is unclear whether a non-DIFC free zone entity engaged in financial services will be subject to the supervision of the Dubai Financial Services Authority in the same manner that applies to DIFC entities. ■