Tag: Dispute Resolution

Afridi & Angell was recently successful in obtaining interim orders from the Dubai Courts attaching bank guarantees pending commencement of arbitration proceedings. The first matter involved two guarantees issued as performance bonds in two separate construction contracts, both which contained an arbitration clause under the Dubai International Arbitration Centre (DIAC) Rules. The second matter involved an advance payment guarantee for a transport contract which contained an arbitration clause under the Singapore International Arbitration Centre (SIAC) Rules seated in Singapore. Some observations relating to these proceedings are set out below.

1. The applications for provisional relief in both cases were filed in the Dubai Court of Appeal. The Federal Arbitration Law (Law No. 6 of 2018) provides that a party may seek interim relief either from the tribunal, or the ‘Competent Court’, being the Court of Appeal of the relevant Emirate, and that the Chief Judge of the Court of Appeal may issue orders for interim relief at the request of a party or a tribunal in respect of existing or future arbitrations. In both matters, the orders were issued for arbitrations which had not yet commenced.

2. The court fee for provisional relief is AED 320 per application. In contrast, the court fee for interim relief in support of litigation can be as much as AED 20,020. A comparable fee was payable when obtaining interim relief in support of arbitration before the Federal Arbitration Law came into effect.

3. It can take up to two weeks for the court to issue its decision. In the past, it was common for applications for interim relief to be decided on the same day as the application being filed, or within 24 to 48 hours after filing. However, the electronic case registration process of the Dubai Courts usually means that a day or two will be taken up before the matter is placed before a judge. This should be borne in mind as interim relief is often time sensitive.

4. The application is determined ex-parte. Notice to the defendant is not issued by court prior to hearing the application for provisional relief.

5. A single application may be made for multiple contracts, provided that the parties to the contract are the same. In the first of the two matters, the guarantees which were attached were issued in relation to two separate projects and contracts. However, they were between the same parties, and the dispute resolution provisions were identical, and the Court of Appeal accepted a single application and ordered attachment over both guarantees.

6. A party which is not party to the arbitration agreement may be a party to an application for interim relief. In the second of the two matters, the guarantee was procured by a related third party which, although having certain rights under the transport contract was not a party to the arbitration agreement. This third party was named as a co-applicant, together with the party that was subject to the arbitration agreement. Although the court did not provide any reasoning, it is unlikely that the court would have accepted the application for interim relief under the Federal Arbitration Law if at least one of the applicants was not a party to the arbitration agreement.

7. It is no longer necessary to file a substantive suit in court. Under the Federal Arbitration Law, a ‘notice of a request for arbitration’ is deemed to satisfy the requirement of a substantive suit and a separate substantive suit need not be filed in court. In practical terms, the applicant should be ready to demonstrate to the court that the notice of arbitration was issued within eight days of the order for interim relief being granted. It should be noted that until last year, the time period for filing a substantive suit was eight days from the date on which the order for interim relief was implemented. However, following amendments to the UAE Civil Procedure Law in 2019, the time period is now eight days from the date on which the order for interim relief was issued.

It is important to bear in mind that, as there is no system of binding precedent in the UAE, it is possible that the court might take a different approach in future cases in relation to points 5 and 6. ■

The UAE has treaties with several countries for judicial co-operation and the mutual recognition and enforcement of judgments. These include Tunisia, the GCC countries, Algeria, France, Jordan, Egypt, Syria, Armenia, China, Sudan and Pakistan.

On 25 October 1999, the UAE entered into such a treaty with the Republic of India, via the Agreement on Juridical and Judicial Cooperation in Civil and Commercial Matters for the Service of Summons, Judicial Documents, Judicial Commissions, Execution of Judgments and Arbitral Awards. Notwithstanding this treaty, parties had experienced difficulty in enforcing a UAE judgment in India due to the Central Government of India not issuing a notification pursuant to Section 44A of the Code of Civil Procedure of India (CPC). Section 44A (Execution of decrees passed by Courts in reciprocating territory) requires the Central Government of India to issue a notification in the Official Gazette declaring the UAE as a reciprocating territory.

According to a secondary source, a district court in one of the States in India recently dismissed a petition for the enforcement of a Dubai judgment on the grounds that the notification required under Section 44A of the CPC had not been made.

To remedy this problem, the Indian Ministry of Law and Justice, issued a notification in the Gazette of India on 17 January 2020 declaring the UAE to be a reciprocating territory for the purposes of Section 44A of the CPC. Following this notification, a judgment passed by a UAE court will be viewed as a judgment from a reciprocating territory, and will remove an obstacle in enforcing UAE judgments in India. ■

1. There is a high possibility that you will have to present your case to an expert: Although the appointment of experts is more likely in disputes involving technical issues (e.g. maritime disputes, construction disputes, etc.), it is increasingly common for the UAE courts to refer disputes which, on the face of it do not require expert assistance, to experts. The courts have the power to do so in terms of Article 69 of the Federal Evidence Law (No. 10 of 1992 as amended) which provides that a court may delegate to one or more experts when necessary. Article 69 does not set out any criteria to be satisfied in exercising this power. The most frequent appointment is of accounting experts.

2. It is likely to be a pivotal stage of litigation: In the clear majority of cases, the courts adopt the conclusions of the expert, even though the expert’s report is not binding on the court. However, Article 90(2) of the Federal Evidence Law provides that if the court issues a judgment which contradicts the findings of the expert, the court must state the reasons why it disagrees with the expert’s findings. It is therefore important to ensure that your case is properly pleaded and understood by the expert.

3. You may object, on certain limited grounds, to the appointment of a person as an expert: A party may object to an expert if there is a reason to believe that he/she cannot perform his/her duties impartially, if he/she is related by blood or by law to one of the parties up to the fourth degree, is a proxy to one of them in his/her personal affairs, a guardian or tutor or working for one of the parties, or if he/she or his/her spouse is in actual litigation with one of the parties in the case or with his/her spouse. An objection must be filed within a week of the order appointing the expert.

4. Experts have wide discretion to carry out their functions: The order appointing an expert will set out a mandate for the expert, and will vest the expert with the authority and powers required to carry out his tasks, e.g. to visit the premises of the parties, examine documents, and hear witnesses without administering an oath to them. Parties can take the opportunity to ask the expert to require their opponents to produce certain documents, which is useful as document production in the courts is very limited.

5. You have an uphill task ahead of you if the expert does not give you a favourable report, but all is not lost: The parties are given an opportunity to comment on the expert’s report before the court issues judgment. A party may also request the court to refer the matter to a different expert, or a panel of experts, or an expert at the Ruler’s Court, although such requests are rarely granted. The court, on its own initiative or upon request of a party, may order the expert to be present in court to be questioned, although such orders are also rare.  Pursuant to Court Circular 4/2018 issued by the Dubai courts, parties are permitted to submit reports prepared by an expert for consideration by the judge. The privately appointed expert must be accredited by the courts, and his report should not criticize the court-appointed expert’s report (even though there may be disagreement regarding the findings).

6. An expert could be criminally liable if he provides a report that he knows to be false, or gives a false interpretation of facts: Article 257 of the UAE Penal Code (Federal Law No. 3 of 1987 as amended) provides for a sentence of imprisonment between one and five years. In practice however these are difficult allegations to prove.

7. An expert’s report may assist a party to obtain provisional relief: The UAE courts have the power to grant provisional relief pursuant to applications made without notice to the defendant. Such relief is sought primarily under the provisions of Article 252 of the UAE Civil Procedure Code or the Federal Maritime law. These discretionary orders are granted on the basis of documentary evidence filed by the applicant, and having a report from an expert accredited by the court can sometimes improve the odds of obtaining an order from the court. ■

The Public Prosecutors’ Department in Dubai has the power to impose fines with respect to certain criminal misdemeanors and offences[i] without being required to refer the matter to a Court of Law. Such fines are issued under a Penal Order. This power stems from Dubai Law No. 1 of 2017, which authorises the Attorney General of Dubai to prescribe the offences and the corresponding fines which may be the subject of a Penal Order. On 1 October 2019 the Attorney General of Dubai issued Resolution No. 119 of 2019 (the Resolution) amending certain fines that could earlier be imposed under Penal Orders, and adding misdemeanors and offences which may be the subject of a Penal Order.  

The following fines are amended:

The following misdemeanors and offences may now be punished under a Penal Order:

[i] Under the UAE Penal Code, ‘Misdemeanors’ are crimes that are punishable by a fine, diyah and/or a term of imprisonment not exceeding three years. ’Offences’ are crimes that are punishable by a fine or by detention for a period not exceeding ten days.

Several significant changes to the UAE Civil Procedure Law (Federal Law No. 11 of 1992 as amended) came into effect in February this year. An overview of these changes, brought about by Regulations promulgated pursuant to Decree by Law No 10 of 2017 and Cabinet Resolution No. 57 of  2018 (the Regulations) can be found in our inBrief of 12 February 2019.

The changes made to Payment Orders under the Regulations have gathered a lot of interest, as it may offer an efficient means of recovering certain debts through the onshore UAE courts. In this inBrief, we take a closer look Payment Orders and the changes made by the Regulations.

What are Payment Orders?

Payment Orders are a mechanism for immediate ex parte judgment (i.e. without notice to the debtor). It existed under the UAE Civil Procedure Law before the Regulations were issued, but its use was restricted to claims involving financial instruments such as promissory notes and bills of exchange. Pursuant to the provisions   the Civil Procedure Law, Payment Orders may be applied for by a creditor holding a financial instrument and who has a confirmed claim for a fixed amount of money or a movable of a known type and quantity. It is important to note that where multiple claims are being asserted, and not all of them meet the legal requirements for an application for a Payment Order, the ordinary civil procedure for claims should be followed.

A key change brought about by the Regulations was to extend Payment Orders to disputes where the creditor’s right is “confirmed” either electronically or in writing, which need not be a financial instrument. What constitutes a “confirmed” debt has not been defined in the Regulations and the ordinary meaning may mean a written admission of debt. Recently, the Dubai Court granted a Payment Order based on a payment certificate certified by the engineer in a construction matter notwithstanding the existence of an arbitration clause in the underlying contract. The court therefore considered the certification of the engineer to be confirmation that the debt is due. This decision was not tested in appeal. Additionally, the Regulations provide that a claim for interest can be made under a Payment Order, whereas previously interest could not form part of such a claim.

This inBrief will consider the position where a Payment Order is sought consequent to a written admission of debt.

What constitutes a written admission of debt?

While the Civil Procedure Law and the Regulations provide no guidance on this issue, given the consequences of a successful application for a Payment Order (e.g. order issued within three days, a reduced appeal window of 15 days), it is likely that the courts will require a clear and unequivocal admission of debt. Although there is no system of binding precedent in the UAE, guidance may be given by reference to previous judgments:

It is established in the judgments of this court that an acknowledgment of a debt is the acknowledgment of a person that he owes a certain right to someone else, with a view to consider that right as being proved, and exempt the creditor from adducing any further evidence. For such an acknowledgment to be valid, it must be certain and assertive. If such an acknowledgment is surrounded by doubt, then it cannot be considered as correct or valid. The value of acknowledgment and significance of the paper issued by the debtor, where he acknowledges a debt and the consequences thereof on termination of limitation are matter of facts at the court discretion, as long as its inference is correct and reasonable. (Petition No. 1/2010(Labor))

The Regulations provide that confirmation of the debt, including written admissions of debt, may be established by reference to electronic sources.

What is the process?

Article 63 of the Regulations requires a creditor wishing to make an application for a Payment Order to first demand payment from the debtor. The creditor is required to grant the debtor at least five days from the date of receiving the demand to make payment. While the Regulations do not specifically address how a demand may be issued, Article 144 of the Civil Procedure Law provides that the demand be issued by registered post with acknowledgment of receipt, or by any other method that is agreed upon by the parties. Such alternative method should necessarily be one which facilitates a record of when the demand was served on the debtor. A prudent option would be to issue the demand through the Notary Public, as this would minimize the room for a debtor to successfully claim that the demand was not served on it.

Once five days have lapsed without payment being received from the debtor, an application may be filed before a summary judge. The competent court is identified with reference to the debtor’s domicile. The application must include the details required of an ordinary Statement of Claim/Plaint.  Additionally, the written admission of debt must be produced as evidence with the Statement of Claim/Plaint, together with evidence of the demand for payment being made.

An application for a Payment Order attracts the normal court fee (in Dubai, 6% of the claim value subject to a cap of AED 40,020).

Article 63 provides that the order be granted (or denied, presumably) within three days of the application being filed. If the application is denied, the judge is required to provide reasons. Prior to the Regulations, there was no requirement for the judge to provide reasons. If the application for a Payment Order is denied, the case will be transferred to be heard under the ordinary procedures. If the Payment Order is granted, the Payment Order is required to be served on the debtor through court within three months, failing which the Payment Order is rendered void.

A Payment Order may be appealed within 15 days by the debtor, and the court is required to determine the appeal within a week from the date of registration. Payment Orders qualify for expedited execution, i.e. execution may immediately commence notwithstanding that time for an appeal still exists.  It is also important to note that an application for a Payment Order does not preclude the party from seeking provisional relief under the relevant provisions of the Civil Procedure Code.

What next?

There are already reports of Payment Orders being applied for and obtained pursuant to written admissions of debt, including reports of a recent case in which a Payment Order for approximately USD 8 million was obtained. While this is promising, not every debt may be suitable for an application for a Payment Order. Payment Orders have been consistently recognised by the UAE courts as being an exceptional remedy, and as being subject to the rules of public order which suggests that the courts will approach applications strictly.

A note of caution

This development also serves to highlight the fact that the concept of ‘without prejudice’ correspondence is not recognised by the onshore courts. Parties often make written settlement offers in good faith which are subsequently seized upon in onshore court litigation as admissions of indebtedness. With Payment Orders now being extended to written admissions of debt, it is ever more important to be cautious in conducting settlement attempts. ■

The enactment of the UAE’s first standalone arbitration law (Federal Law No. 6 of 2018; the Arbitration Law) introduced some important changes to arbitration in the UAE, such as recognising the enforceability of interim awards and significantly streamlining the enforcement of arbitral awards. However, the requirements for establishing a valid arbitration agreement (i.e. a written agreement entered into by persons with the requisite authority) remained largely unchanged under the new law, which restated the previously existing legislative requirements and codified principles established by the courts, for example recognising arbitration agreements incorporated through reference to standard terms and through electronic correspondence.

Judgments on issues of arbitration ordinarily contain a reference, if not as part of the reasoning of the judgment then at least as a preface to the reasoning, to the nature of arbitration as a form of dispute resolution. In cases decided before the Arbitration Law came into effect, arbitration was characterised as an exceptional form of dispute resolution. The characterisation of arbitration as an exceptional form of dispute resolution goes beyond mere semantics, as it formed the basis for the application of strict standards in determining whether a valid arbitration agreement existed.

It was therefore a welcome development that the Dubai Court of Appeal in a judgment issued in January 2019 characterised arbitration not as an exceptional form of dispute resolution, but as an alternative one:

As such, arbitration is not an exceptional means of resolving disputes but an alternative means that shall be followed once its conditions are satisfied. Arbitration is a matter of the parties’ intent and giving expression to their intent in a written agreement, whether in the form of a separate agreement or as a clause within a contract. In all cases, the law requires that such agreement be evidenced in writing.¹ 

However, in its judgment issued in Cassation Petition No. 1019 of 2018 in March 2019, the Dubai Court of Cassation once again characterises arbitration as an exceptional form of dispute resolution. By way of background, Cassation Petition No. 1019 of 2018 involved a challenge to the jurisdiction of the Dubai Court based on the existence of an arbitration clause. Although several drafts of a contract containing an arbitration clause were exchanged between the parties via email, a physical copy was not signed. It is also important to note that (a) the disagreement between the parties was with respect to the commercial terms, and there was no discussion or disagreement regarding the arbitration clause in the draft agreements, (b) both parties performed certain obligations under the contract, and (c) the plaintiff in fact asked the defendant how many arbitrators should constitute the tribunal, before it instituted proceedings in Court. The Court held as follows:

It is also established that arbitration is an express agreement whereby parties agree on referring their disputes to an arbitrator and not to the court. The agreement on arbitration may be an arbitration clause or terms of reference, and this is only valid in writing, whether by signing an instrument between the two parties or the messages, cables or other electronic means exchanged between the parties or through any form of written correspondence. Agreement on arbitration may not be assumed or inferred from general provisions in a document or a quotation as long as the arbitration agreement is not specifically provided for in a way indicating that both parties expressly know about and accept it, because it is an exception from courts’ jurisdiction. (Emphasis added).

Following from its characterisation of arbitration as an exceptional form of dispute resolution, the Court of Cassation went on to hold that there is no valid arbitration agreement:

However, the emails do not show that the two parties agreed on the terms included in the draft contract and this is further evidenced by the two parties’ failure to sign the contract. The expert’s report, which the court believes to be correct, indicates that the two parties did not sign the contract because they were in disagreement on some of the contractual terms and that the basis of the transactions between them was the quotation. The messages exchanged between the two parties did not refer to any agreement between the parties on referring their dispute through arbitration or to the back-to-back condition, therefore, the two pleadings are baseless both in fact and law, and the court hereby dismisses them.

Interestingly, the Court of Cassation made no reference to the provisions of the Arbitration Law or its applicability, even though it was relied on by the parties in their written arguments.

There is no system of binding precedent in the UAE and, notwithstanding the judgment discussed above, there is still reason to believe that the Dubai Courts are getting progressively more arbitration-friendly, particularly following the enactment of the Arbitration Law. However, it appears that there still may be some instances where the courts view arbitration as an exceptional form of dispute resolution and consequently apply strict standards to determining whether a valid arbitration agreement exists.  Given the circumstances, the prudent view is that parties should continue to have a signed agreement (as was the practice before the enactment of the Arbitration Law) or, at the very least ensure that there is an unequivocal agreement to arbitrate contained in the electronic correspondence they wish to rely on, which are until there is further clarity on this issue. Parties will also have to ensure that the individuals agreeing to arbitration on behalf of corporate entities must have specific authority to do so, regardless of whether the agreement is reached through a signed agreement or electronic correspondence. ■