Recognizing the importance and the growing preference for arbitration as a form of dispute resolution, UAE authorities promulgated Federal Law No. (6) of 2018, otherwise known as the UAE Arbitration Law. This law repealed Articles 203 to 218 of Federal Law No. (11) of 1992 or the UAE Code of Civil Procedures and further has provided better guidance for arbitration in the UAE.
Unlike the more traditional forms of dispute resolution, Arbitration allows the parties to confer jurisdiction on settlement of their disputes to an arbitral tribunal, and in the process, take away the jurisdiction from the regular courts. As an extraordinary remedy, the choice of arbitration has not always been given efficacy in the past due to various reasons. The most notable of which are (1) the dispute concerns a matter of public policy, (2) the lack of capacity of the signatory, and (3) a defective arbitration agreement. It is also interesting to note that, in the past, not being able to plead the existence of an arbitration clause at the first hearing is treated by the Courts as waiver of the arbitration agreement.
An arbitration agreement is defined in Article 1 of the UAE Arbitration Law as the agreement of the parties to refer a matter to arbitration, whether such agreement is made before or after the dispute arises [should this be in quotes?] It can be contained in a particular contract in respect of all or some disputes that may arise between the parties, by separate agreement, or through an explicit referral considering such clause as a part of the contract [what is an explicit referral?]. Since arbitration as a choice of dispute resolution is agreed by both parties consent, an arbitration agreement can be entered into even after a dispute arises and even if a claim is already before the courts.
In order to give effect to the choice of arbitration as alternative dispute resolution, the following points should be considered in entering into an arbitration agreement:
1. The dispute should be a matter where composition or settlement is allowed, and Article 4(2) of the UAE Arbitration Law stipulates that arbitration will not be permitted on matters that are non-conciliatory. Thus, issues concerning public policy cannot be submitted for arbitration. For example, employment issues and criminal matters are not arbitrable.
2. The arbitration agreement should be entered into by a natural person only who enjoys the capacity to dispose of rights or the representative of a juristic person authorized to agree on arbitration. [what is a non-natural person? Perhaps clarify this]
There are two aspects of capacity contemplated in this requirement of the law. First, the person signing must have the capacity to contract based on the law governing such person’s capacity. For example, in the UAE, the capacity to contract without need of guardian or court order for locals is when they reached the age of 21 (lunar years). Hence, an Emirati below the age of 21, by himself, does not have the capacity to sign an arbitration agreement. If the party entering into the arbitration agreement is from the United Kingdom, UK laws will determine whether he has the capacity to enter into an arbitration agreement. Article 53 (1)(b) of the UAE Arbitration Law confirms this requirement as it provides that an arbitration award may be avoided if either party, at the time of concluding the arbitration agreement, lacks capacity according to the law governing his capacity.
Another aspect of capacity is if the authority to enter into an arbitration agreement is validly delegated. For companies, refer to the constitutional documents such as articles of association to ensure that the signatory has the capacity to bind a company to arbitration. This is confirmed by Article 53(1)(c) which provides that an arbitration award may be avoided if the person has no capacity to dispose of the disputed right according to the law governing his capacity.
In the UAE, powers of attorney are usually presented to establish a person’s authority to act on behalf of a juridical entity. Most powers of attorney and contracts are signed by the general manager, who usually has a wide range of authority to bind the company he represents. However, when entering into a contract with an arbitration agreement or a separate arbitration agreement, one must ensure that the signatory has the capacity to enter into the arbitration agreement. The constitutional documents may confer or limit the authority to bind a company in arbitration to a specific officer or person, or only as regards specific disputes or for disputes within a value limit. The constitutional document may also dictate if the authority to bind the company to an arbitration agreement may be delegated. Hence, to ensure capacity, one has to check the capacity to contract and the validity of delegation of such capacity.
3. The arbitration agreement must be in writing as required by Article 7 of the UAE Arbitration Law, otherwise, it shall be null and void. This provision of law establishes the arbitration agreement as a formal contract that should be concluded in a written document.
This requirement that arbitration agreement must be in writing reflects the intention of legislators to consider the writing of arbitration agreement essential, and not merely a means of proof. Since writing is a formative element in the agreement to arbitrate, the invalidity resulting from it is considered an absolute invalidity of public order. Hence, it is not permissible to agree to the contrary and the court must consider the matter even without the request of the parties.
The enumeration provided in Article 7(2) of the UAE Arbitration Law is instructive as to when the requirement of the arbitration agreement to be in writing is deemed satisfied. It includes (a) when it is included in a signed instrument, stated in exchanged letters or written means of communications such as emails, (b) when it is in a written contract and a reference is made to the provisions of a standard contract, international convention, or any other document that has an arbitration clause and the referral is explicit, (c) when agreed upon while dispute is being heard by the competent court and the court judges that the arbitration agreement is evident, litigants are left to commence arbitration proceedings, and the claim is considered as not filed, and (d) when requested in written submissions exchanged between parties during arbitration proceedings or is acknowledged before the courts, where either party requests referral to arbitration and the other party does not challenge the request in its response.
4. Arbitration Agreement shall not be terminated upon death of either party, unless otherwise agreed upon by the parties. Hence, when entering into arbitration agreements, one must keep in mind that the heirs or legal successors will also be bound by the arbitration agreement. If parties do not intend to bind their legal successors, the parties must agree on this so the arbitration agreement will not be valid against their legal successors.
The Arbitration Agreement is the expression of the parties’ intent to enter arbitration proceedings. It is important to ensure arbitration agreements are correctly drafted, and legal requirements are duly followed, as defective arbitration agreements may result in difficulties such as the enforcement of awards, or even the enforcement of the agreement itself.t. With the effectivity of the UAE Arbitration Law, these issues are brought to the fore and clarified, providing parties the opportunity to correct any defects and ensure the validity of arbitration agreements.
We foresee arbitration to become an increasingly preferred option for parties in a legal claim to consider. For matters that do not concern public policy nor the intervention of the judicial system, arbitration can provide an efficient, objective and more expedient way to achieve resolution. With the legal framework in place and institutions effectively adjudicating on arbitration matters, it is a matter of time for concerned parties to start seeking arbitration as a remedy for their claims and to consider planning for arbitration as an option before entering any significant agreements.
If you have any concerns about your arbitration agreements or are interested to discuss this method of alternative dispute resolution, please contact