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NEWS March 07 2019

Financier Worldwide Annual Review: Commercial Arbitration by Daniel Breytenbach

As published in Financier Worldwide Commericial Arbitration Annual Review, written by Daniel Breytenbach, Associate, Arbitration Department. 
 
 
Q. Reflecting on the past 12-18 months, what key trends and developments do you believe have dominated the commercial arbitration space in your region? 
 
Daniel Breytenbach: By far the most important recent development in the UAE arbitration sector is the enactment of the UAE Federal Arbitration Law No. 6 of 2018 (FAL). The FAL is predominantly based on the UNCITRAL Model Law on International Commercial Arbitration and replaced and superseded Articles 203 to 218 in the UAE Civil Procedures Code which previously governed arbitrations seated in onshore UAE, and which was widely held to be outdated and not suited for international arbitration. Notable positive changes brought about by the enactment of the FAL include significantly reducing the numerous grounds for challenging arbitral awards, expediting the process for the ratification of arbitration awards, enabling awards to be enforced as court judgments, and empowering arbitral tribunals to order interim or conservatory measures and to issue interim or partial awards.
 
Another important development is the removal of the threat of imprisonment for arbitrators in the UAE. In September 2016, Federal Decree No. 7 of 2016 was issued, amending certain provisions of the UAE Penal Code. The key amendment that attracted considerable attention was the amendment to Article 257, which exposed arbitrators to the risk of temporary imprisonment if they were found to be acting contrary to their duty of fairness and impartiality. The effect of the amendment was that many arbitrators not only declined new appointments in UAE-seated arbitrations, but also resigned from ongoing appointments.
 
 
Q. Have any recent commercial arbitration cases gained your attention? What can they tell us about arbitration in your region of focus?
 
DB: Arbitration proceedings in the UAE are confidential. Depending of the facts of each case, highly sensitive information, such as financial accounts, trade secrets, employment records and management affairs, may be disclosed during the course of arbitral proceedings. The confidentiality of proceedings and the fact that awards are not disclosed to the public are some of the main reasons why parties opt for arbitration.
 
 
Q. What challenges and issues exist for parties undertaking commercial arbitration in your region?
 
DB: Parties seeking to arbitrate in the UAE may initially find it daunting to select the appropriate forum for dispute resolution where they may also be certain that an eventual award will be enforceable. The UAE is comprised of onshore and offshore jurisdictions, and the offshore jurisdictions have their own arbitration laws. Recognition and enforcement of awards are generally obtained in the respective courts of the onshore or offshore jurisdiction where they were granted. However, the challenge arises when a successful party seeks to enforce an onshore arbitration award in an offshore jurisdiction and the unsuccessful party seeks to nullify the same award in an onshore jurisdiction.

 

Q. In your opinion, how might the processes and protocols for conducting commercial arbitration be improved to enhance aspects such as speed, cost and efficiency for the benefit of the parties involved? 
 
DB: The main drawback of arbitration is that proceedings are often lengthy and expensive. The dispute resolution process can, however, be tailored in the arbitration agreement to be as cost and time effective as possible. Negotiation and mediation stages should precede arbitration in a dispute resolution clause as they tend to keep the business relationship between parties intact. A further precursor to arbitration is the inclusion of dispute boards or making a provision for a determination by an independent third-party expert, which can be used to obtain a binding decision in much less time than arbitration proceedings would before a tribunal. This is particularly useful in construction contracts. Even if negotiation and mediation ultimately fail, it may nevertheless be utilised to settle some of the issues in contention and thus remove them from the scope of the arbitration that is to follow.

 

Q. How robust, would you say, is arbitral enforcement in your region? What can parties expect when trying to compel an award through local courts? 
 
DB: Article 55 of the FAL deals with the procedure to enforce an arbitration award. An award must first be ratified by the courts before it can be enforced in the UAE. Article 55(1) provides that a party seeking to ratify an award must file an application with the courts which is accompanied by the original copy of the award or an authenticated true copy, a copy of the arbitration agreement, a legal translation of the award in Arabic and a copy of the document recording the submission of the award with the court.
 
 
Q. Would you advise companies to include arbitration provisions in their commercial agreements? What factors should they address when doing so? 
 
DB: Commercial parties are advised to include arbitration provisions in their commercial agreements.
Firstly, parties should ensure that they enter into a valid arbitration agreement. The basic requirements for a valid arbitration agreement are, first, arbitration agreement can only be entered into by a natural person who is duly authorised to do so. Typically, the authorised person would be the general manager of a company or the person who has the authority to enter into arbitration agreements granted to him by a company’s memorandum of association (MOA) or a board resolution. Second, the agreement must be in writing. Normally this would take the form of an arbitration clause that forms part of a larger agreement which is countersigned by both parties, but it may also be incorporated in an agreement by reference to the provisions of a standard form contract which includes an arbitration agreement, like the International Federation of Consulting Engineers (FIDIC) conditions of contract.
Third, the arbitration agreement may not be made in relation to a matter which cannot be settled by arbitration. Certain matters are not arbitral in the UAE as they are deemed to be against public policy. Typically, any agreement which needs to be registered with a government authority would require the jurisdiction of the local courts to be agreed upon in the contract.
 
 
Q. How do you expect commercial arbitration to develop in your region over the coming months and years? 
 
DB: With the issuance of Federal Decree No. 24 of 2018, the UAE introduced new anti-corruption laws with extraterritorial effect. The decree amends certain provisions of the UAE Penal Code to strengthen anti-bribery and corruption legislation in the UAE, bringing it into line with other foreign jurisdictions. The first important effect of the amendments to the Penal Code is the inclusion of public officials to its scope of application and to impose a sanction of imprisonment for a maximum five years for any public servant accepting a bribe “in return for committing or refraining from an act that is mistakenly believed or alleged to fall within his job”. The second important effect is that the anti-corruption provisions also apply outside the UAE to any person who commits a bribery offence if either the offender or the victim is a UAE citizen, if the crime is committed by an employee in the UAE public or private sector or if it involves public property.
 
Lastly, it is important to note that arbitrators, experts and investigators have now also been included in the definition of ‘public servants’ for the purposes of the anti-corruption provisions. Administrative Circular No. 30 of 2018, issued by the Abu Dhabi Judicial Department, requires claimants to translate case files into English in civil and commercial cases which involve defendants who are not Arabic speaking.

Daniel Breytenbach is an associate in the arbitration at Horizons & Co. He is regularly occupied with complex construction and property development disputes relating to high-profile arbitration matters in Dubai, and involving major property developers in the real estate market. Daniel is available on daniel.breytenbach@horizlaw.ae. 

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