An Overview of the Most Significant and Interesting Decisions from Across the UAE in 2024

A unilateral dispute resolution clause typically allows one party to be bound to a specific forum for resolving disputes, such as arbitration seated in Dubai, while granting the other party the flexibility to bring disputes in other forums, such as courts, or in different jurisdictions. These clauses are commonly found in loan agreements, where lenders reserve the right to pursue borrowers in any jurisdiction with competent authority. While such clauses are generally upheld in the ADGM and DIFC, their enforceability under UAE law has historically been less clear.

In Dubai Court of Cassation Judgment 735 of 2024 (Commercial Appeal), the Court ruled that unilateral dispute resolution clauses are not enforceable under UAE law. UAE law recognises arbitration as an exceptional form of dispute resolution that requires parties to explicitly opt out of the jurisdiction of the courts. For an agreement to arbitrate to be enforceable, it must be clear, explicit, and unambiguous. The Court held that if only one party has the right to choose the method of dispute resolution, there is no “meeting of the minds,” rendering any purported unilateral arbitration clause invalid.

Unilateral dispute resolution clauses are widely used across multiple jurisdictions, particularly in the financial sector. If such clauses are included in a contract but deemed unenforceable, this could significantly alter the risk profile of a transaction. Specifically, a party relying on a unilateral dispute resolution clause might find their disputes resolved in an unfavorable jurisdiction or forum. It remains unclear whether the Court’s decision was influenced by the specific wording of the clause in question, so caution is advised when considering the inclusion of these provisions in future contracts.

In 2021, Royal Decree 34 significantly altered the UAE arbitration landscape by, among other things, abolishing the DIFC-LCIA Arbitration Centre and transferring jurisdiction to the Dubai International Arbitration Centre (DIAC). This change caused uncertainty regarding the validity of arbitration agreements where parties had agreed to use the DIFC-LCIA, raising concerns about the enforcement of decisions when the DIAC was substituted for the agreed centre. These concerns were highlighted when a Louisiana court refused to enforce an award where the DIAC had replaced the DIFC-LCIA, and a ruling in the Singapore courts also questioned enforcement on what was seen as a technicality.

In Case 536/2024, the Abu Dhabi Court of Cassation upheld the Court of Appeal's decision in Case 449/2024, confirming that an arbitration clause referring disputes to the DIFC-LCIA remained valid, even though the dispute was heard under DIAC rules. The court ruled that the dissolution of the DIFC-LCIA under Decree 34 of 2021 did not make the arbitration clause invalid or unenforceable. It stressed that the parties' intention to resolve disputes through arbitration was still binding, even if the named institution no longer existed. The court also clarified that arbitration agreements referring to the DIFC-LCIA could be carried out under DIAC or other appropriate frameworks, ensuring the parties' original intent was honoured.

The parties' intent to resolve disputes through arbitration remained binding, and arbitration agreements referencing the DIFC-LCIA could be executed under DIAC or other appropriate frameworks, ensuring continuity and upholding the parties' original intent.

This judgment is important as it reinforces the UAE's support for arbitration agreements, even in the face of uncertainty created by Royal Decree 34. By upholding arbitration clauses linked to now-defunct institutions like the DIFC-LCIA, the Court demonstrates the UAE's commitment to honouring party agreements and ensuring consistency in dispute resolution. This approach enhances the UAE's reputation as a stable and pro-arbitration jurisdiction. However, enforcement challenges in foreign jurisdictions may persist, and it is expected that cases related to this issue will continue in the future.

The rising cost of arbitration is a key factor in deciding whether to pursue a claim. A major consideration is whether the winning party can recover costs from the losing side. While UAE Arbitration Law allows the recovery of tribunal and institutional costs, it does not explicitly permit the recovery of legal or expert fees. This contrasts with many institutional rules that allow such recoveries. The court's approach to enforcing awards for these costs has been inconsistent.

This dispute concerned the enforcement of an arbitration award under the ICC Rules, where a party was awarded its legal costs. Initially, the Court ruled that the legal cost award could not be enforced, as it believed the ICC Rules did not explicitly allow tribunals to award legal fees. However, on appeal, the Court reversed its decision, confirming that the ICC Rules do permit tribunals to award legal fees, even if not explicitly agreed upon by the parties. The Court referenced the clear wording of Article 38(1) of the ICC Rules, which includes "reasonable legal and other costs" as part of arbitration costs.

The Court referred to the clear language in Article 38(1) of the ICC Rules, which includes "reasonable legal and other costs incurred by the parties" as part of arbitration costs. This judgment is significant as it demonstrates the UAE Courts' alignment with international standards and best practices, fostering increased certainty and trust for parties involved in arbitration or enforcing awards in the UAE. The decision reinforces the Court's commitment to upholding underlying agreements, further promoting trust in legal processes. However, since UAE Courts do not follow a system of binding precedent, parties are advised to explicitly include provisions in their arbitration agreements that allow tribunals to award legal and expert fees.

If an arbitration is to be determined by more than one arbitrator, it is always preferable that the tribunal agrees unanimously with the award, however, circumstances can arise where an arbitrator does not agree with the majority of their panel members. This results in a circumstance where the final award may not be signed by all arbitrators, and significant questions may arise as to whether such an award would be enforceable under UAE Law.

Certainty of enforceability is a fundamental principle of arbitration and the UAE has made significant strides to show that it is arbitration friendly. Therefore, clarity on this issue was required.

In this matter, the arbitration award was signed by only two of the three presiding arbitrators, with the third arbitrator also failing to enter a dissenting opinion. The Court emphasised that the UAE Arbitration Law made specific provision for the issuing of an award by a “majority” of arbitrators. In addition, the Court noted that under the UAE Arbitration Law, whilst the law requires an arbitrator to provide reasons for refusing to sign an award (i.e., a dissenting opinion), the failure to do so was not deemed fatal to the award's enforceability. The Court emphasised that the UAE Arbitration Law aims to promote fairness, and therefore, awards should not be nullified if they are capable of correction.

This decision is important because it highlights the role of national laws and Courts in fostering an arbitration-friendly environment. It ensures that a party is not penalised if a panel of arbitrators does not reach a unanimous decision, reinforcing the enforceability of arbitration awards. While not binding, the ruling underscores the UAE Courts' increasing support for arbitration, boosting confidence in the UAE legal system, particularly for foreign parties. When selecting an arbitral center or governing law, parties should consider the rules surrounding dissenting opinions to ensure the enforceability of their awards.

Given the global nature of commerce, parties often need to seek interim relief in multiple jurisdictions to support proceedings in another. This can include worldwide freezing orders to prevent a party from disposing of or diminishing their assets until foreign proceedings are resolved, ensuring assets are available for enforcement if successful. However, interim relief must be obtained quickly to preserve assets for future enforcement. In Sandra Holdings v Al Saleh [2023] DIFC CA 003, the DIFC Court ruled that its powers to grant interim relief in support of foreign proceedings were limited to cases where a pre-existing foreign judgment was in place, undermining the timely nature of seeking such relief.

In the Court of Appeal decision, the DIFC Court disagreed with the Sandra Holdings ruling, finding it had an overly narrow interpretation of the Judicial Authority Law. The Court clarified that it has statutory jurisdiction under Articles 24 of the DIFC Courts Law and 7(6) of the Judicial Authority Law to recognise and enforce foreign judgments. This jurisdiction also includes the implied authority to issue protective or interim measures to prevent the dissipation of assets before the foreign judgment is rendered. The Court emphasised the importance of judicial adaptability in financial centers like the DIFC and the need to align with international commercial practices. This decision overturned the first-instance judgment that had followed the Sandra Holdings ruling.

This decision is significant as it represents a positive departure from the Sandra Holdings ruling, allowing parties to seek standalone relief in the DIFC Courts to support foreign proceedings. It provides much-needed clarity on the Court’s jurisdiction and ability to assist parties in foreign cases, aligning with international best practices. The decision underscores the growing role of the DIFC Courts in supporting global trade, reinforcing its position as a leader in judicial flexibility and commerciality. It highlights the trust that parties can place in the DIFC Courts and the UAE's legal systems.

The appellants argued that the judgment wrongly declared the constitutional documents of the companies invalid, treating the partnership as simulated under the old law. They contended that the old law’s restriction was abolished under the New Commercial Law, and the partnership should be declared simulated. The appellants emphasised that nullity and simulation are distinct legal concepts. Nullity refers to invalidating an agreement, while simulation refers to the lack of a real agreement. They argued that liquidating the companies based on invalidation was incorrect.

The appellants pointed out that the New Commercial Law, which abolished the 51% local shareholder requirement, should apply prospectively to ongoing contracts. The failure to apply this law was an error justifying the annulment of the judgment

On appeal, The Court of Cassation overturned the lower Court’s ruling and referred the case back to the lower Court declaring the companies' constitutional documents invalid and order liquidation, arguing that the Court had applied the old law relating to foreign ownership. It found that the lower Court had mistakenly applied old rules no longer in effect. The Court clarified the legal distinction between nullity (invalidating an agreement) and simulation (the absence of a real agreement). Importantly, the Court held that new laws apply prospectively unless stated otherwise.

This decision is important because it demonstrates the Court's shift towards a more nuanced approach, moving away from automatic liquidation and allowing investors to assert beneficial ownership. It provides much-needed clarity by confirming that new laws apply prospectively, ensuring that legal outcomes align with commercial realities and the parties' intentions. This approach promotes a balanced resolution of disputes, which, in turn, will enhance investor confidence. By supporting the UAE's economic reforms, the decision fosters fairness, transparency, and a more predictable legal environment.

"Without prejudice" (WP), as a concept, is well-established in common law jurisdictions. Protecting statements, offers, or admissions made during negotiations from being used as evidence in court should the negotiations fail. WP encourages open and honest communication attempts to resolve disputes by ensuring that anything marked "without prejudice" remains confidential and cannot harm either party's case should the matter proceed to litigation (except in relation to costs).

The Court decided that such statements made to the opposing party are not to be considered admissions and should not be used against the party who made them. This decision is significant as the UAE is a civil law jurisdiction and does not naturally adopt the "without prejudice" doctrine, except in some free zones.

This case marks a positive step toward aligning the UAE legal system with international best practices by adopting the "without prejudice" doctrine. If more widely implemented, it could promote greater use of alternative dispute resolution (ADR) mechanisms, potentially saving time and costs in lengthy legal proceedings. It may also foster trust between disputing parties. However, as the decision is not binding precedent and the "without prejudice" doctrine is not codified in UAE law, caution should be exercised when engaging in settlement negotiations in onshore UAE proceedings.