Key implications of the Dubai Court of Cassation Commercial Appeal 1514 decision (2022) for arbitration in construction disputes in the UAE

In Dubai Court of Cassation Commercial Appeal 1514 of 2022, the Dubai Courts have stated that matters of compliance with preconditions to arbitration are matters of admissibility rather than jurisdiction, in a move which seeks to address the imbalance between parties going to arbitration, and should increase access to timely and cost-effective dispute resolution.

BACKGROUND

In the majority of UAE construction contracts, and particularly those based on the FIDIC model, parties usually agree a series of dispute escalation provisions with which the parties must comply prior to referring any dispute to arbitration. These commonly include a need to request an engineer’s determination on any claims, or a requirement for the parties to seek a negotiated resolution before they can commence proceedings. These escalation provisions are often accompanied by strict time limits on the condition that, if those time limits are not met, a party will not be entitled to pursue the claim any further.

The UAE Courts have consistently held that any agreed escalation provisions act as mandatory preconditions which must be satisfied by a party prior to commencing arbitration. This has resulted in arguments about the satisfaction of the dispute escalation requirements being an important weapon in a respondent’s arsenal, with most construction claims always including some form of argument that the preconditions were not met. When raising the argument, respondents usually argue that matters of compliance are binary – the claimant has either complied, or it has not.

If it was established that a party had not complied with any contractually agreed dispute escalation proceedings, it was commonly argued that a dispute had not crystallised, and therefore an arbitral tribunal was required to decline jurisdiction. This often had the effect of ending proceedings and leaving a claimant with little recourse, as the time limits for complying with any preconditions had expired and/or the cost and time of complying retrospectively was considered too onerous.

In Dubai Court of Cassation appeal 1514 of 2022, however, the Courts have stated that questions regarding compliance with dispute escalation provisions should be treated as questions of admissibility, rather than jurisdiction, bringing the law in line with other jurisdictions such as England & Wales and Hong Kong.

MATTERS OF ADMISSIBILITY VERSUS JURISDICTION

The difference between jurisdiction and admissibility is an important one. Jurisdiction is a matter of whether the arbitral tribunal has the power and authority to hear a case. However, admissibility allows the arbitral tribunal to look at the issue of compliance with the contractual preconditions and determine what the consequences of non-compliance should be.

For instance, if the defects in compliance can be resolved, then the arbitral tribunal could determine that the claim is capable of being heard in arbitration, but stay the proceedings so that the claimant can go back and retroactively engage the dispute escalation mechanism. If the failure to comply is more substantial, an arbitral tribunal can determine the claims to be inadmissible either in whole or in part.

This creates an important distinction because, if the case is dismissed due to lack of jurisdiction, then the case ends. The judgement in Dubai Court of Cassation Commercial Appeal 1514 of 2022 suggests that in those instances, jurisdiction could revert to the Court, which would undo the parties’ agreement to refer disputes to arbitration.

The judgement therefore arguably limits the circumstances where an arbitral tribunal can decline jurisdiction to where a) there is no valid arbitration agreement, b) the disputes referred do not fall within the scope of the arbitration agreement, or c) the matter is not arbitral in accordance with UAE law.

THE EXTENT TO WHICH A PARTY MUST COMPLY WITH PRECONDITIONS TO ARBITRATION

Matters of compliance with agreed dispute escalation provisions will, however, continue to be a cause of much discussion in many construction arbitrations. In this connection, the judgement is also interesting because, in treating matters of compliance as issues of admissibility, the Court indicated an apparent discretion on the part of an arbitral tribunal when reviewing a party’s compliance with the contractually agreed dispute escalation provisions.

In this particular case, the contract required the parties to enter into negotiations to resolve any disputes prior to referring the matter to arbitration. However, the respondent did not reply to the claimant’s multiple invitations to attend a settlement meeting. A situation where a reluctant respondent could frustrate a claimant’s attempts to escalate a dispute would be clearly unsatisfactory, and therefore the Court approved the arbitral tribunal’s findings that the claimant’s attempt to escalate the dispute were “adequately compliant” with the contract, meaning that the claims could proceed.

The question of “adequate compliance” would necessarily be decided on a case by case basis. However, the Court’s recognition of a discretion when assessing the extent to which a party has complied with contractual preconditions is an important marker, and one which can hopefully adjust the balance between both parties so that valid claims are not allowed to expire.

This approach would be in the overriding interests of justice, and would also be consistent with the approach adopted in England & Wales, where the Courts have taken a more flexible stance when determining whether contractually agreed preconditions have been complied with.

CONCLUSION

The judgement in Dubai Court of Cassation Commercial Appeal 1514 of 2022 has the capacity to make it easier for claimants to proceed with arbitration, curtailing the more egregious attempts by reluctant respondents to have valid disputes dismissed due to questions of jurisdiction. However, as always, it remains to be seen how this judgement is implemented in practice, and how arbitral tribunals applying UAE law exercise any discretionary powers that they have at their disposal.

However, the judgement does not mean that preconditions to arbitration are no longer enforceable. Parties should always aim to ensure that any contractually agreed preconditions are met as UAE law still requires contracts to be performed in accordance with their terms. Therefore, a party attempting to avoid compliance with the contract’s preconditions wholesale could be criticised, and the Tribunal could render any claims inadmissible.