Tag: Dispute Resolution

Drawing a cheque which is dishonoured due to insufficient funds will not be a criminal offence after 2 January 2022, when Federal Decree No. 14/2020 (the Decree) comes into effect. Here is a quick primer on the changes that the Decree will introduce.

 

– The highlight of the Decree is the decriminalisation of the act of drawing a cheque which is dishonoured due to insufficient funds. The Decree repeals Articles 401, 402 and 403 of the UAE Penal Code which criminalised the acts of drawing (or endorsing), in bad faith, a cheque without a sufficient balance in the account to honour the cheque, writing a cheque in a manner that makes it unpayable, and ordering a drawee (i.e., a bank) not to make payment.

 

– It is important to note that the Decree does not decriminalise all cheque related offences. For example:

 

 

• Deliberately writing a cheque in a manner rendering it unpayable (e.g., deliberately placing a wrong signature), closing an account or withdrawing all funds before a cheque is presented, and ordering a bank not to make payment of a cheque (except in the limited circumstances of loss of a cheque, bankruptcy, or the cheque being rendered stale) are punishable with a fine of not less than 10 per cent of the cheque’s value, subject to a minimum of AED 5,000, and a maximum of double the value of the cheque and/or imprisonment for no less than six months.

 

• Endorsing or delivering a bearer cheque with the knowledge that there are insufficient funds is punishable with a fine of not less than 10 per cent of the cheque value, subject to a minimum of AED 1,000, and a maximum of the value of the cheque.

 

• Forging a cheque, knowingly using a forged or counterfeit cheque, and knowingly accepting funds received by use of a forged or counterfeit cheque are punishable with a fine of between AED 20,000 and AED 100,000 and imprisonment of no less than one year.

 

• The court may ‘name and shame’ defendants found guilty of committing any of the foregoing crimes by publication of their name, profession and address in two widely-circulated dailies in the UAE.

 

– The court may prohibit a convicted defendant from conducting business for up to three years where the crime(s) were committed in relation to, or in the course of conducting business. Where the crimes have been committed in the name of or for the benefit of a corporate entity, the natural person managing the entity will not be criminally liable unless it is proved that s/he was aware of the crime or that s/he committed the crime for personal benefit or the benefit of third parties.

 

– The Decree facilitates civil remedies by deeming a cheque which is confirmed by the bank as being dishonoured due to insufficient funds to be an ‘executive instrument’. As a result, a party holding a cheque dishonoured due to insufficient funds can, after January 2, initiate proceedings directly before the execution division of the courts to obtain payment, and seize assets of the drawer. The time and cost incurred with ordinary proceedings are bypassed as a result.

 

– The Decree permits partial payment of cheques, which will facilitate some payment being made under a cheque even where there are insufficient funds for the value of the cheque. Where the beneficiary requests partial payment, the bank must comply and thereafter inform the UAE Central Bank.

 

– The following provisions of the Decree are relevant to banks:

 

• A bank must make partial payment of a cheque where there are insufficient funds for the whole value, unless the bearer declines partial payment.

 

• A bank must report events of insufficient funds, where a drawer has emptied an account and cheques cannot be honoured, and where partial payment of a cheque has been made, to the UAE Central Bank.

 

• Banks may be subject to a fine of not less than 10 per cent of the cheque value, subject to a minimum of AED 5,000 and a maximum of double the value of the cheque, where it refuses to make partial payment, or refuses to make payment of a cheque despite sufficient funds, among others.

 

Decriminalising the act of writing a cheque which is dishonoured due to insufficient funds, and restricting criminal sanctions to acts which are essentially fraudulent in nature, is undoubtedly a step in the right direction. The threat or use of criminal action to pursue civil rights has always been problematic, and the change introduced by the Decree will enhance the UAE’s credibility in the financial world. It is also encouraging to see that the Decree has introduced provisions to make civil remedies in relation to cheques a more efficient process, thereby balancing the interests of the drawer and the beneficiary. The implementation of the Decree will no doubt be monitored with great interest. ■

In a decision issued in July 2021, the Dubai Court of Appeal held that an arbitration clause should be construed narrowly, and emphasized that everything that may be waived or prevents its [i.e., the arbitration clause’s] application must be sought.  This judgment, which rejected a challenge to the jurisdiction of the Dubai Courts based on the existence of a purported arbitration agreement, was discussed in our inBrief dated 12 September 2021. The gist of the judgment of the Court of Appeal was that the dispute resolution clause of the contract in question included language stating that any referral to arbitration will be ‘without prejudice’ to the jurisdiction of the UAE Courts and ‘subject to agreement between the parties’ and, following the principle of narrow construction of arbitration agreements, the Court of Appeal found that there was no evidence that an agreement was reached between the parties to resolve disputes through arbitration.

 

The judgment of the Dubai Court of Appeal was appealed to the Dubai Court of Cassation. The appellant took up the following arguments in appeal, among others:

 

(a) there are multiple references to arbitration in the contract between the parties (in addition to the dispute resolution clause), which was evidence that the parties had agreed to resolve disputes through arbitration; and

 

(b) there is evidence that the parties negotiated the applicable arbitration rules before entering into the contract, which is evidence that the parties had agreed to resolve disputes through arbitration.

 

In October 2021, the Court of Cassation affirmed the judgment of the Court of Appeal and rejected the appeal. In rejecting the argument summarized in (a) above, the Court of Cassation relied

on the principle that arbitration agreements must be narrowly construed, which is now a common reference in judgments addressing the validity of an arbitration agreement. The Court of Cassation went further, and held that where there is an optional arbitration clause and one of the parties commences litigation, the other may not seek to rely on the arbitration agreement to challenge the jurisdiction of the courts. Unfortunately, the Court of Cassation did not elaborate further on this principle in this judgment, and is a missed opportunity for useful guidance on issues surrounding optional arbitration clauses. Would it have made a difference if it was a unilateral optional arbitration clause? What would have been the position if a party commences arbitration, as opposed to litigation, first?

 

In rejecting the argument summarized in (b) above, the Court of Cassation held that as the evidence relied on by the appellant was not produced in the lower courts, it is not admissible before the Court of Cassation, which is a court of law in the UAE.

 

This judgment highlights the need to have a carefully drafted dispute resolution clause, particularly where the parties wish to have disputes resolved through arbitration. ■

 

The Decree, which came into force on 20th September 2021, abolished the Emirates Maritime Arbitration Centre (EMAC) and the DIFC Arbitration Institute (DAI) with immediate effect and has raised multiple queries in the legal and business communities, particularly as to whether parties should still opt for EMAC or DIFC-LCIA arbitration clauses in agreements that are presently being drafted.

Pursuant to the Decree, the Dubai International Arbitration Centre (DIAC) will replace all rights and obligations of the now abolished EMAC and DAI. The DIAC has been granted a period of no more than six months to effectively replace EMAC and the DAI.

Although the Decree does not abolish or even make reference to the DIFC-LCIA Arbitration Centre, the DIFC-LCIA Arbitration Centre was established consequent to an agreement entered into between the DAI and the LCIA; meaning that, the abolishment of the DAI calls to question (at the very least) the mandate under which the DIFC-LCIA Arbitration Centre continues to operate. It is expected that there will be further regulation, perhaps in the form of administrative orders, that will hopefully clarify the status of the DIFC-LCIA Arbitration Centre.

However, for present purposes, two questions arise, (i) what effect does an EMAC/DIFC-LCIA arbitration clause have consequent to the Decree; and (ii) should parties continue to include EMAC/DIFC-LCIA arbitration clauses in their agreements.

Pursuant to Article 6 (a) of the Decree, all agreements executed as at the date the Decree came into force (i.e., 20 September 2021) that contain a clause providing for “arbitration in the Canceled Arbitration Centers” (i.e., EMAC and by implication DIFC-LCIA) “shall be valid and effective”, and the DIAC shall replace “the Canceled Arbitration Centers” in “hearing and resolving disputes arising from such agreements” unless parties agree otherwise:

All agreements concluded as at the date of entry into force of this Decree for resorting to arbitration in the Canceled Arbitration Centers shall be valid and effective, and the Dubai International Arbitration Centre shall replace these centers in hearing and resolving disputes arising from these agreements, unless the parties thereto agree to otherwise. [LexisNexis translation]

The Decree therefore provides some comfort to parties who have opted for EMAC/DIFC-LCIA arbitration clauses in agreements that were entered into on or before 20 September 2021, as the Decree specifically provides that such arbitration agreements will be valid and effective.

In addition, Article 8 (c) of the Decree provides that the arbitration rules of “the Canceled Arbitration Centers” (i.e., the EMAC rules and by implication, the DIFC-LCIA rules) and the DIAC will continue to apply until DIAC approves its new arbitration rules. This, however, raises another concern. If an EMAC arbitration, for example, is initiated after 20 September 2021 (and prior to DIAC issuing its new arbitration rules), does it mean that in terms of Article 6 (a) and Article 8 (c) of the Decree, the arbitration must be initiated under the EMAC arbitration rules and thereafter, the new DIAC arbitration rules become applicable once issued by the DIAC? If so, such eventuality is likely to raise multiple practical and legal issues.

The next issue to consider is what effect an EMAC/DIFC-LCIA arbitration clause has in an agreement that was concluded after 20 September 2021. Would such an agreement be valid? And which institution will administer such an arbitration? A strict interpretation of Article 6 (a) of the Decree would suggest that the comfort given in Article 6 (a) of the Decree is limited only to agreements concluded on or before 20 September 2021. For agreements entered into after 20 September 2021, there is unfortunately no definite answer to this question as of now.

It remains to be seen whether further regulations to be promulgated pursuant to the Decree will expressly provide that any reference to an EMAC/DIFC-LCIA arbitration clause will be construed as a reference to an arbitration administered under the DIAC arbitration rules. Similar provision was made when the DIAC was first created in 2007 and references to arbitration under the Dubai Chamber of Commerce Rules were deemed to be a reference to the DIAC Rules.

Until there is more clarity, the prudent approach would be not to opt for EMAC or DIFC-LCIA arbitration clauses in agreements that are presently being drafted. We understand that the relevant authorities are in discussion regarding these issues, and we expect clarifications to be issued soon. ■

Parties in the process of arbitrating disputes, thinking of commencing arbitration, or even thinking of including arbitration provisions in a contract have been given a lot to think about, thanks to the changes introduced by Decree 34 of 2021. It is early days yet, and we need to see how matters develop. With that caveat out of the way, here is a rough guide of what Decree 34 could mean for parties in arbitration in the UAE.

 

You are party to an ongoing arbitration under the DIAC Rules

Carry on, you’re the least affected by the Decree.

 

You are party to an ongoing arbitration under the DIFC-LCIA or EMAC Rules

Unfortunately, you are at the opposite end of the spectrum. Although the Decree appears to contemplate that ongoing DIFC-LCIA and EMAC arbitration proceedings will continue without interruption, the language of the Decree also appears to make this conditional on the DIAC and its administrative body taking over supervision of any such proceedings. Afridi & Angell’s Legal Alert of 23 September 2021 addresses this scenario. Article 8(c) of the Decree provides that the DIFC-LCIA and EMAC Rules will continue to be applied to the extent they do not conflict with the Decree and the Statute, until the approval of the arbitration and conciliation rules of the DIAC by the DIAC Board of Directors. This seems to suggest that the DIFC-LCIA Rules and EMAC Rules will be disapplied once a new set of DIAC Rules are approved. Parties and arbitrators will need to tread carefully in order to avoid potential challenges to final awards.

 

You have ongoing litigation (either before the Dubai Court or the DIFC Court) in relation to arbitration

These matters will carry on. Article 7 of the Decree provides that the two courts will continue to hear all cases, petitions and appeals related to arbitration awards/procedures issued by tribunals appointed by the DIAC, DIFC-LCIA and EMAC.

 

You have a contract which provides for arbitration under the DIAC Rules

If you have made provision for the seat of the arbitration (e.g. Dubai, or the DIFC), that provision will be upheld and applied. However, if you have not made provision, the default seat will be the DIFC. Prior to the Decree, onshore Dubai would have been the default seat. Keep an eye out for revisions to the DIAC Rules – the version of the rules that will apply if a dispute goes to arbitration will depend on the language used in your dispute resolution clause.

 

You have a contract which provides for arbitration under the DIFC-LCIA or EMAC Rules

Although Article 6(A) of the Decree provides that all agreements which have been concluded by 20 September 2021 providing for arbitration under the DIFC-LCIA or EMAC Rules shall be considered as valid and effective, assuming that you do not run the risk of your claim being time-barred, you should consider waiting to see how matters develop before taking any steps. Article 6(A) goes on to provide that the DIAC will replace the DIFC-LCIA and EMAC in hearing and resolving disputes arising from these agreements. The DIAC has six months to effectively replace the EMAC and the DIFC Arbitration Institute, and a lot of the uncertainties should be resolved during this time. It may be necessary to consider amending your dispute resolution clause, depending how matters develop.

 

You are drafting a contract, and wondering what to put in as a dispute resolution clause

For the time being, and until the prevailing uncertainties are clarified, avoid opting for DIFC-LCIA or EMAC arbitration clauses. You can still opt for other institutional rules and have the DIFC as the seat of arbitration. The DIAC Rules, despite being possibly one of the oldest sets of institutional rules in the UAE, are suitable for most disputes. It is anticipated that the DIAC Rules will be overhauled very soon, and the recent amendments provide that the DIAC Court of Arbitration and the Board of Directors are empowered to issue and amend the DIAC Rules. ■

 

***

 

Regardless of which category you find yourself in, do not panic. Dubai is very nimble and proactive, and should soon iron out any issues that need to be addressed. Afridi & Angell’s dispute resolution team has extensive experience in advising on and representing clients in arbitrations. Should you have any questions, please contact the author or your usual Afridi & Angell contact.

The Decree, which came into force on 20th September 2021, has abolished the Emirates Maritime Arbitration Centre (EMAC) and the DIFC Arbitration Institute (DAI). The Decree has taken the local legal and business community by surprise, and has given rise to legitimate concerns as to its impact on arbitration proceedings presently underway.

The Decree abolishes EMAC and the DAI with immediate effect and transfers all their assets, rights and obligations to the Dubai International Arbitration Centre (DIAC), which will in effect, replace EMAC and DAI. To this end, the DIAC has been granted a period of not more than six months to effectively replace EMAC and the DAI. The DIFC-LCIA Arbitration Centre was established consequent to an agreement entered into between the DAI and the LCIA; meaning that, the abolishment of the DAI (at the very least) calls to question the continuation of DIFC-LCIA Arbitration Centre.

This alert very briefly highlights some of the questions that arise, by reference in particular to proceedings being undertaken under DIFC-LCIA Arbitration Rules (Rules), and considers the steps that might be required to mitigate potential challenges to the integrity of arbitration proceedings and any arbitration award that is issued under the Rules.

While each case will need to be examined on its own particular circumstances, some of the more immediate concerns that arise are as follows:

First, although the Decree appears to contemplate that ongoing DIFC-LCIA arbitration proceedings will continue without interruption, the language of the Decree also appears to make this conditional on the DIAC and its administrative body taking over supervision of any such proceedings.  Article 6(b) states as follows:

The arbitral tribunals and committees formed as at the date of entry into force of this Decree at the Canceled Arbitration Centers and the Dubai International Arbitration Centre shall continue to hear and resolve all arbitration cases before them without interruption and in accordance with the rules and procedures adopted by them in this regard, unless the arbitration parties agree to otherwise, provided that the Dubai International Arbitration Centre and its Administrative Body shall undertake supervision over these cases. [LexisNexis translation]

Therefore, a question arises as to how the proceedings would continue without interruption pending the replacement of the DIFC-LCIA Arbitration Centre with the DIAC.  Parties to an arbitration and their arbitrators will need to consider what steps might need to be adopted in order to cover the interim period, otherwise potential challenges to a final award can conceivably be made on the basis, for example, that the arbitration procedure adopted was not in accordance with the agreement of the parties, or was otherwise defective.

Secondly, the role of the DIFC-LCIA Arbitration Centre and the LCIA Court is an integral part of the Rules and, therefore, in circumstances where the effect of the Decree calls into question the very existence of the DIFC-LCIA Arbitration Centre, tribunals and parties will need to consider how the arbitration can in fact continue under the Rules if the DIFC-LCIA Arbitration Centre is removed from maintaining its traditional function which is embedded under the very same Rules. One such example is that Article 26.7 of the Rules requires the DIFC-LCIA Registrar to transmit the final award to the parties “authenticated by the Registrar as an DIFC-LCIA Arbitration Centre Award”.  This may no longer be possible.

Although the DIFC-LCIA Arbitration Centre has very recently published an update assuring parties that it continues to deal with the day-to-day management of cases under the Rules, it is unclear by what authority it continues to do so, given that the DAI stands abolished as of 20th September 2021. This too could potentially translate into challenges to awards (or a refusal by a Court to recognize awards).

Thirdly, an important practical consideration for tribunal members will be the status of the tribunal fees and disbursements that might need to be incurred to attend hearings, particularly where arbitrators based outside of the UAE plan to incur travel and accommodation costs to attend hearings in person.  Given that all functions concerning payments of fees are to be taken over by the DIAC, arbitrators will need to account for potential delays in the reimbursement of expenses and payment of fees.

Parties and arbitrators will need to give careful consideration to these factors and, notwithstanding the apparent intention under Article 6(b) of the Decree that proceedings should continue uninterrupted, parties and arbitrators will need to consider whether it might be prudent to stay or suspend proceedings until such time as the DIAC formally steps in, or until the parties and tribunal enter into an agreement that comprehensively covers some of the concerns highlighted above. A delay to proceedings would in such circumstances be inevitable, but the inconvenience will need to be balanced with the possible disastrous outcome if an award is set aside because of a failure to properly address the ramifications of the Decree.

No doubt this development will eventually settle into a new norm, but until then, both arbitrators and parties should tread carefully. ■

The UAE’s Civil Procedure Code was enacted in 1992 as Federal Law No. 11, and the first amendments to the Code were made more than a decade later in 2005. Since 2014, almost each successive year has seen amendments being made, the most extensive of which were the regulations issued under Civil Procedure Code (the Regulations) which came into effect on 16 February 2019. The Regulations themselves were amended in 2020 by Cabinet Decision No. 33/2020.

 

Federal Decree No. 15 of 2020 (the Decree) and Cabinet Resolution No. 75 of 2021 (the Resolution) comprise the latest set of amendments to the Civil Procedure Code and the Regulations, and cover a range of issues from service of defendants, to the conduct of proceedings, and the execution of judgments. This article examines some of the more notable changes introduced by the Decree and the Resolution.

 

The creation of Single-Level Courts 

The Decree makes provisions for the UAE Minister of Justice or the head of the Judicial Authority of an Emirate to create a Single-Level Court, which shall comprise of three judges, one each drawn from the Court of First Instance of the Emirate, the Court of Appeal of the Emirate, and the Court of Cassation of the Emirate or the Federal Supreme Court (to allow for the fact that save for the Emirates of Abu Dhabi, Dubai and Ras al Khaimah, the final level of appeal for the other Emirates is the Federal Supreme Court). The Single-Level Court was first proposed several years ago and, when established, will have jurisdiction where parties have agreed to submit themselves to the jurisdiction of that court, or where the subject matter falling within its jurisdiction is identified by regulations issued under the Civil Procedure Code (which is yet to happen). The court will only have jurisdiction over disputes which have a ‘definite value’  (i.e.  would  exclude  claims  for  unassessed damages) which is over AED 500,000. The judgments of the Single-Level Court will not be subject to appeal, except where the judgment is subjected to review under the provisions of Article 169 of the Civil Procedure Code, reversal pursuant to Article 187(bis) (discussed below) or where the judgment is defective as the parties were not properly summoned.  

 

Review of Court of Cassation judgments – a step towards further recognising judge-made law  

The UAE, being a civil law jurisdiction, does not have a system of binding judicial precedent as understood in common law systems. That said, while a single judgment of the UAE Courts does not bind, a line of authority established by the superior courts is influential, for example the principle that arbitration is an exceptional form of dispute resolution. Federal Law No. 10 of 2019 created a judicial tribunal comprising judges from the Federal Supreme Court and the Courts of Cassation to unify the federal and local judicial principles and precedents issued by these courts and to eliminate potential conflicts.

 

The role of judicial principles within the framework of UAE law is further recognised by the Decree, which identifies conflict with judicial principles as one of the grounds for appealing a judgment of a Court of Cassation. Prior to the Decree, Article 187 of the Civil Procedure Code provided that a judgment of a Court of Cassation was not subject to appeal, but was subject to review in certain limited circumstances set out in sub-articles 1, 2 and 3 of Article 169 of the Civil Procedure Code (being fraud, forgery or false testimony, and suppression of conclusive evidence respectively). The Decree adds Article 187(bis) which provides that the Court of Cassation may at its own initiative or at the application of the party against who the judgment is issued, reverse a decision, among others, in the following cases:  

 

– where a procedural error (either by the court directly or by one of its departments) affecting the conclusion of the decision/judgment has occurred;

 

– where the decision/judgment is based on a repealed law, and a different outcome would result if the current law is applied; and

 

– the decision/judgment violates judicial principles established by the panel, or other entire court circuits, or if it violates the principles established by the court, or the principles established by the judicial tribunal created by Federal Law 10 of 2019.    

 

Where a party wishes to seek this remedy, an application for reversal should be made to the President of the Federal Supreme Court/Court of Cassation, with a deposit of AED 20,000. Applications may only be made within one year of the initial judgment. If the application for reversal is accepted, the matter will be remanded back to the court which issued the decision for reconsideration.

 

The amendments do leave some matters unresolved. There is no clear guidance as to what constitutes a judicial principle. The Decree is also silent regarding judgments of any courts other than the Federal Supreme Court and Courts of Cassation which may have become final, e.g. by reason of not being appealed, although the language suggests that this mechanism is limited to judgments of the Federal Supreme Court and Courts of Cassation.

 

Amendments regarding Payment Order applications

One of the key changes introduced through the Regulations was the expansion of the summary procedure known as Payment Orders, previously confined to disputes involving commercial instruments, to disputes which involve a written confirmation of debt. The Cabinet Resolution makes further changes to the law governing this procedure, notably the following:

 

– Amending Article 64 of the Regulations to require the judge to provide justification for the court’s decision when granting or denying a Payment Order application in relation to implementation of a commercial contract. Previously, justification was required only where the judge rejected an application.

 

– An appeal against a Payment Order (appeals are available where the value of the claim is more than AED 50,000) now may be made within 30 days of the decision. Previously, it was 15 days. The amendment also requires a detailed memorandum of appeal to be filed at the time of filing the appeal. Previously, a simple notice of appeal sufficed. Where the value of the claim is less than AED 50,000, a challenge must be made by way of an objection (or a ‘grievance’ as commonly referred to) within 15 days – the law with respect to such challenges has not changed.

 

– The Cabinet Resolution provides that in an appeal originating from a case has been filed as ordinary proceedings but the supervisory judge has instead issued a Payment Order, and the Court of Appeal takes the view that the requirements for issuing a Payment Order has not been met, the Court of Appeal may remand the matter to the Court of First Instance to be heard as an ordinary claim. Prior to the amendment, if the Court of Appeal takes the view that the requirements for issuing a Payment Order have not been met, the application would be dismissed.

 

Summoning of parties  

A constant theme in the amendments to the Civil Procedure Code since 2017 is the attempt to streamline the process of serving court process on defendants. The Cabinet Resolution take further steps in this direction by providing that:

– summons may be served by recorded audio or video calls, short message services, smart applications, email, fax, or any other means agreed between the parties from the method of service recognised in the Regulations;

 

– summons may be served at the defendant’s domicile, residence, or on their attorney, spouses, relatives or servants and that refusal to accept summons will be deemed to result in personal service; and

 

– summons may be served at a place of work on the defendant, his/her manager or the management of the workplace.  

 

If service cannot be affected as above, summons shall be served among others by publication on the court’s website or in newspapers, including a foreign language newspaper where the party sought to be summoned is not a UAE national. In practice service of summons can still be a time-consuming exercise in the UAE courts (less so in the Dubai Courts), and it is hoped that the changes made by the Cabinet Resolution will make this a more efficient process.    

 

Added scope for ad-hoc courts

Article 30(bis) of the Civil Procedure Code provides that the Minister of Justice or the head of the Judicial Authority of an Emirate may create an ad-hoc court presided by one judge and assisted by two local or international experts to hear and determine certain matters that would otherwise fall within the jurisdiction of the major circuit of courts. The Cabinet Resolution clarifies that the ad-hoc courts will have the jurisdiction to hear civil, real estate, commercial and inheritance cases, and such disputes that the parties agree will be subject to the jurisdiction of the ad-hoc courts. Where there is such an agreement, other courts should decline jurisdiction, provided that the defendant in the matter asserts a jurisdictional objection before addressing the court on the merits of the dispute (i.e. similar to the position when asserting a jurisdictional objection based on the existence of an arbitration agreement). Each ad-hoc court will have a ‘preparation judge’ who shall exercise the powers of supervising judge and case manager. The ‘preparation judge’ is required to encourage settlement of disputes, and if a settlement is reached, the minutes of settlement shall acquire the status of a writ of execution. If settlement is not possible, the ‘preparation judge’ must, within 30 days, prepare a memorandum of opinion considering the parties’ position and the applicable law, and the matter will be referred to the competent court for adjudication in the ordinary manner. ■  

In a decision issued in July 2021, the Dubai Court of Appeal held that an arbitration clause should be construed narrowly, and emphasized that everything that may be waived or prevents its [i.e., the arbitration clause’s] application must be sought.   

 

In finding that the Dubai Courts have jurisdiction over the dispute, the Dubai Court of Appeal referred to judgments of the Dubai Court of Cassation characterizing arbitration as an exceptional means of dispute resolution and, being a departure from the general rule that the courts have jurisdiction over disputes, arbitration clauses must be interpreted narrowly, and everything that may be waived or prevents its application must be sought. The latter phrase in particular is of interest, as it suggests that the Court will need to be satisfied that there exists no issue that might affect the applicability of an arbitration clause.    

The dispute resolution clause in question, while containing the provisions regarding the number of arbitrators, the seat and the language of the arbitration, included language stating that any referral to arbitration will be ‘without prejudice’ to the jurisdiction of the UAE Courts and ‘subject to agreement between the parties’. The Court of Appeal recognized that parties may agree to arbitration as a method of dispute resolution, provided that it does not conflict with public order. However, in this case the Court of Appeal found that there was no evidence that an agreement was reached between the parties to resolve disputes through arbitration as set out in the dispute resolution clause, and that consequently the forum for dispute resolution is the Dubai Court.    

 

This judgment highlights the need to have a carefully drafted dispute resolution clause, particularly where the parties wish to have disputes resolved through arbitration.  

 

The principle that arbitration clauses must be interpreted narrowly is a well-established one, and the language that everything that may be waived or prevents its [i.e., the arbitration clause’s] application must be sought appears to have been used by the Dubai Court of Cassation as far back as in Petition No. 192 of 2007. This principle and precedent was part of a strategy successfully deployed by Afridi & Angell in a recent case before the Dubai Court of First Instance to argue that the Dubai Courts had jurisdiction over a dispute in which the plaintiff and one of the defendants had an arbitration agreement. The dispute in question arose from a real estate contract containing an arbitration clause. The developer at the time the contract was entered into had been replaced by the time the dispute arose, and the new developers were added as defendants to the court proceeding by the purchaser (our client). The court found that as the added parties did not have an arbitration agreement with the plaintiff, the court had jurisdiction over all of the defendants, notwithstanding that the plaintiff and the initial defendant had an agreement to resolve disputes through arbitration. ■