New UAE federal arbitration law welcomed as qualified success

The original version of this article was published by Practical Law (May 2018).

The UAE has issued Federal Law No.6 of 2018 on Arbitration (Law), which will shortly replace the country's existing, outdated arbitration legislation (see Legal update, UAE Government approves draft federal arbitration law).

Although the Law is based upon the UNCITRAL Model Law, as with most of the new arbitration legislation which has been promulgated in the Middle East in recent years, there are some notable departures. We provide below some of the key points arising from the Law.

When does the Law come into force?

The new Law will come into force 30 days after it has been published in the Official Gazette. This has not yet happened. The next edition of the Official Gazette is likely to be issued at the end of May or early June 2018.

Application of the Law

The Law will apply to existing arbitrations, even if such an arbitration is based on an arbitration agreement which precedes the law; and procedures conducted in existing arbitrations in accordance with the previous legislation will remain valid. It is presumed that, from the date the Law comes into force, tribunals in existing arbitrations will have to ensure that those arbitrations comply with the new Law on an ongoing basis.

The Law is silent on whether it will apply to, or affect, existing court proceedings relating to arbitration. For example, where enforcement proceedings are on foot, it is unclear whether those proceedings will need to move to a different court (in accordance with the Law) or whether, for example, certain arguments raised in the proceedings which may have been valid under the old law will become invalid or impermissible.

Scope of application of the Law

The Law will apply to all arbitrations (whether domestic or international, within the meaning of the Law), that are conducted in the UAE or where the parties have agreed to its application. The intention must be that it will not apply to arbitrations seated in the DIFC or ADGM, where that relevant offshore jurisdiction's arbitration law will apply.

The Law is also said to apply (presumably in arbitrations outside the onshore UAE) where an arbitration arises in relation to a legal relationship regulated by UAE law, save where that law is excluded by a specific law. The meaning of this provision is not very clear. However, it probably means that, if UAE law would apply to a contract on a mandatory basis (for example, where the matter relates to certain aspects of real estate), then (unless the parties agree otherwise), the UAE arbitration law will apply. However, this provision appears to mix concepts and it is unclear how a tribunal (seated outside the UAE), should decide which arbitration law applies to the arbitration.

Key provisions under the new law

What is arbitrable?

The Law retains the present position under UAE law that arbitration agreements can only be entered into in respect of matters which are capable of settlement by conciliation (Article 4(2)). This probably means that, as before, matters relating to (for example) bankruptcy, criminal offences, divorce, employment and registered agency agreements are not arbitrable.

Separability and kompetenz-kompetenz

The Law confirms what was already the case under the old UAE law, namely that the arbitration agreement is independent of, and separable from, the remainder of the contract (Article 6(1)).

Article 19 confirms that tribunals have the power to determine their own jurisdiction.

What constitutes an arbitration agreement?

Broadly following the UNCITRAL Model Law, Article 7 provides that, while an arbitration agreement must be in writing, it can arise through the exchange of letters or emails. Agreements can also arise from reference made to standard terms, international agreements or other instruments which contain an arbitration agreement, provided the reference is "very clear" that the arbitration clause forms part of the contract. This essentially confirms the existing position under UAE law. Specific limitations in respect of the incorporation of arbitration clauses by these means, such as arise in the UAE's insurance laws, will continue to apply.

However, the Law does not alter the requirement that UAE onshore companies can only agree to arbitration if an individual with specific authority to bind a company signs the agreement. As a result, this formality (which has long thwarted arbitral processes in the UAE) will continue to apply. This may well affect the impact of these broader provisions.

Waiving the arbitration agreement

Article 8 provides that a defendant to court proceedings brought in circumstances where the claimant's claim falls within the scope of a valid arbitration clause must plead the existence of an arbitration agreement before it submits any demand or defence. The previous position was that the defendant must raise the existence of the clause at the first hearing that it attends. However, in practice, the new provision is unlikely to change the position as, arguably, a request for an adjournment (or similarly procedural requests) is likely to be regarded as a "demand" and, as a result, any prudent defendant will still have to raise the existence of the clause at the very first hearing that it attends.

Again, this is an opportunity missed, as it is frequently the case that, by the time of a first hearing, defendants and their counsel do not understand the nature of the claims being made against them, nor whether they fall within the scope of an arbitration clause and, as a result, they are taken to have waived their right to arbitrate.

Who can be an arbitrator?

Unsurprisingly, Article 10 confirms that a person of any gender or nationality can be an arbitrator, and requires any nominated person to disclose any circumstances that might raise doubts as to his or her independence or impartiality.

Perhaps more surprisingly, the Article prevents members of the board of trustees or of the administrative team of the relevant arbitral institution from sitting as arbitrators.

Waiving objections

Article 25 follows the UNCITRAL Model Law, and provides that a party that is aware of a violation of the arbitration agreement or of any provisions of the law but failed to object within seven days from the date of becoming aware, will be deemed to have waived its opposition.

Article 20 requires a party that wishes to challenge a tribunal's jurisdiction to do so before, or when, filing its defence. Alternatively, where a claim is raised that arguably does not fall within the scope of the arbitration agreement, any objection must be raised by no later than "the date of the hearing that follows the hearing in which such [claim] was first raised". The references to numerous hearings here reflect the fact that domestic UAE arbitration practitioners (in common with court proceedings) tend to hold frequent, short hearings.In theory, these provisions should require parties to raise jurisdictional and procedural objections during the arbitration (and promptly), failing which they will be taken to have waived them. However, in practice, a number of these objections may be regarded by the UAE courts as falling within the scope of "public policy" (unless the courts' definition of that term alters following the promulgation of the Law). If that is the case, even if a party fails to object, it is likely still to be open to them to seek to set aside an award on these grounds.

Precautionary measures and subpoenas

The most progressive elements of the new law relate to the tribunal's powers to order interim relief and to the court's power to assist the tribunal in both enforcing such orders and in compelling witnesses and third parties to appear as witnesses and to produce documents in the arbitration.

Perhaps the most surprising provision of the Law is Article 21, which grants wide-ranging powers to arbitral tribunals to order the parties to take precautionary measures which it considers necessary.

These powers centre around:

• Maintaining, or reinstating, the status quo
• Preserving evidence and property
• Ordering parties not to take particular action

The UAE courts either do not have, or rarely invoke, their powers to issue prohibitory injunctions, so this Article is quite revolutionary.

Having made such an order, a tribunal may give permission for the applicant to apply to the UAE courts to issue an order for the execution of the tribunal's order (which it must do within 15 days). Once made, that order will be a judgment of the relevant UAE Court of Appeal, and must be enforced by the execution judge. Quite whether, or how, the execution judge will be able to enforce certain types of injunction is not clear. However, a recalcitrant party may find itself in contempt of court (with all of the potential travel, and even criminal, consequences that flow from that) if it fails to comply with the court's order.

Article 36 provides that a tribunal may seek the UAE Court of Appeal's assistance in obtaining evidence in the arbitration. The court may order witnesses to appear before a tribunal to deliver oral testimony or to produce documents or other evidence. The court may also instruct third parties to present documents in their possession where the provision of such documents is necessary for the determination of the dispute. The court is also empowered to punish witnesses who fail, without justification, to attend or to answer questions put to them.

Hearings, deliberations and witnesses

The Law has brought the UAE's arbitration regime up to date in terms of technology and the realities of international commerce. For example:

• Articles 28(2) and 33(3) permit hearings and tribunal deliberations to take place via "modern communication technologies", such as teleconference or videoconference
• Article 35 permits witnesses to provide testimony via modern communication technology
• Article 41 enables tribunals to sign awards outside the seat of arbitration, and to manage the signing in whatever manner they desire (including by electronic means). The award will still be deemed to have been rendered in the seat

Joinder

While the Law does not go as far as some recent arbitration laws and rules in respect of consolidation, Article 22 does grant arbitral tribunals the power to join parties upon the request of any of the existing parties or of an intervening party, provided the new party is a party to the relevant arbitration agreement.

Confidentiality

Article 33 provides that hearing are to be held in private. Article 48 provides that awards are confidential and may not be published. However, judgments that attach an award, for example judgments that ratify an award can be published, so confidentiality may not mean much in practice.

Time limits

The time limits in the Law (each of which can be departed from by agreement) are relatively short and show a desire that the proceedings progress and complete swiftly:

• Article 30(1) requires the claimant to file its statement of claim within 14 days of the constitution of the tribunal
• Article 30(2) requires the respondent to file its defence within 14 days from the day which follows the day on which it received the statement of claim
• Article 42(1) requires that the award be rendered within six months from the date of the first hearing, though the tribunal is empowered to extend this time limit by no more than six months, unless the parties agree a longer extension. If an arbitral award is not rendered within this time, either party (or the arbitral tribunal) may apply to the courts for additional time or alternatively to terminate the proceedings

Continuation of proceedings

The Law empowers tribunals to proceed with arbitrations while parallel court applications are under way in the following scenarios:

• Where a party applies to the courts to challenge the existence or validity of an arbitration agreement (Article 8(2))
• Where a party has applied to the courts for the disqualification of an arbitrator (Article 15(3))
• Where a party has challenged a tribunal's interim decision on its jurisdiction (Article 19(2))
• Where a claim which is outside the tribunal's jurisdiction, or which raises allegations of forgery or other criminal allegations, is made, the tribunal is permitted to continue to hear the case before it, provided it finds that the disposal of those matters is not necessary for it to determine the issues raised before it (Article 43)

These are welcome clarifications, which should give tribunals more confidence to press on with arbitrations where recalcitrant parties are seeking to delay or disrupt the process.

Challenges

Article 55 and 53 provide that applications to ratify and execute, and to annul, awards must now be made to the relevant Court of Appeal in the UAE. This is a welcome development as it means that there will now be only one level of appeal in respect of challenges to, and ratification of, arbitral awards (to the Court of Cassation).

However, there remain issues around such proceedings. For example; it was hoped that the Law would limit the grounds on which a party could apply to set aside an award. However, Article 53 specifies more grounds for challenge than existed under the old law. The Article also retains the general provision that awards may be set aside if they contravene public order or morals of the UAE, which has been used in the past as a "catch-all" provision to justify the inclusion of numerous grounds for challenge. As a result, if this Law is to change what is presently the key limiting issue with onshore UAE arbitration, it will be imperative for judges to demonstrate that this Law, in general, is intended to show a more pro-arbitration approach and that, as a result, the types of challenges that have been made in the past will no longer be countenanced. While, Article 54 confirms that a judgment refusing to annul an award can only be challenged in the Court of Cassation, Article 57 specifically permits an award debtor, having failed to persuade the Court of Cassation to annul an award and now facing an order for execution of the award, to file a "grievance" against the order. Such "grievances" can be appealed to the Court of Appeal, which means that there will continue to be delays in the execution of a confirmed award.

Conclusion

There is much that is good about the new Law, and we have not highlighted many provisions that are either translations of the Model Law or that have adopted the "international norm", on issues such as pleadings, notices, appointment and disqualification of arbitrators, form of awards and so on.

There are also aspects of the new Law that are genuinely progressive, such as the appointment of the relevant Courts of Appeal as the primary courts responsible for arbitral matters, and the significant increase in the powers granted to tribunals and courts to ensure the efficacy of the arbitral process.

However, there are provisions that do not resolve existing deficiencies in UAE arbitrations. Moreover, and perhaps most importantly, it remains to be seen how the relevant Courts of Appeal will approach the Law in practice, and whether the promulgation of the new Law will later be seen as a milestone in the progression and success of arbitration in the UAE.