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May 13, 2019

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Out With the Old in With the New Introducing the New Use Federal Arbitration Law


- James Harbridge, Partner [ HFW Law Firm ]

James-Harbridge

The New Law is a brave attempt at modernizing the practice of arbitration in the UAE, however, its true impact will ultimately be determined by the manner in which the UAE Courts interpret and apply its clauses and by the number of successful nullification applications made

The introduction of Federal Law No. 6 of 2018 on Arbitration (the “New Law”) across the UAE is further evidence of the country’s intent to modernize and bring its arbitration laws in line with international standards.

Whilst the New Law represents a significant enhancement on the previous statutory position, it remains to be seen how the UAE Courts will interpret its various provisions.

Additionally, further clarity may be required in order to maximize the true potential of the New Law.

Introduction

On 16th June, 2018, the New Law - based on the UNCITRAL Model Law - came into effect in the UAE, repealing Articles 203 to 218 (the “Old Law”) of Federal Law No. 11 of 1992 (as amended) [the “Civil Procedure Law”].

The arbitration provisions of the Old Law had long been perceived by many to be outdated and not reflecting the best practices in arbitration. Its provisions - only 16 in total – left considerable scope for recalcitrant debtors to frustrate the enforcement of awards, as evidenced by the number of successful nullification challenges that have been raised against domestic awards in recent years.

This article examines some of the ways in which the New Law has updated the arbitration landscape in the UAE as well as some areas where uncertainty remains.

Improvements

• Removing ambiguity concerning an agreement to arbitrate
While both the Old and New Law require an arbitration agreement to be in writing, the Old Law was silent as to what constitutes the written form. The New Law has now clarified that:
- any document containing a valid arbitration clause signed by the parties, an exchange of messages or other forms of written communication, or, alternatively, email or other electrical correspondence would satisfy the “in writing” requirement. This was a broader interpretation of what may constitute an agreement to arbitrate than was the case previously (Article 7(2)(a) of the New Law);
- incorporation by reference is permissible, addressing concerns of having arbitration clauses in standardform contracts and/or terms of business (Article 5(3) of the New Law); and
- the arbitration agreement is separate from the rest of an agreement, meaning the agreement to arbitrate will be enforceable even if the rest of the contract is subject to challenge (Article 6 of the New Law).

• Specifically recognizing the power of the Tribunal and the UAE Courts to award interim measures and interim/partial awards
Interim measures and interim awards are now, for the first time, explicitly provided for in Articles 18, 21 and 39 of the New Law. These measures can be ordered directly by the tribunal itself (Article 21) and by the Courts (Article 21) and the Courts can order interim/ partial awards (Article 39).
Under the Old Law, there was some doubt – and therefore scope for challenge – as to the enforceability and interim awards as well as their impact on a final award. This doubt has now largely been removed.

• Preventing the deliberate suspension of arbitration proceedings by filing Court applications
An arbitration will no longer be derailed should a party file any of the following applications with the Court:
- a complaint with regards to the arbitration agreement itself (Article 7 of the New Law);
- a recusal application (Article 15(3) of the New Law); an application for interim or provisional measures (Article 18(3) of the New Law); and
- criminal applications, including forgery, unless the tribunal believes that it would assist the tribunal to suspend the arbitration until after the Courts have rendered a decision on the criminal matters (Article 43 of the New Law).

• Permitting the use of technology to promote efficiency
The New Law has clearly sought to make arbitrations more efficient by relaxing some existing rules, widening others and catering to the use of modern technologies:
- what constitutes valid notification has been broadened to include service by email and fax (Article 24 of the New Law);
- hearings and tribunal deliberations can be dealt with by way of video and telephone. Additionally, hearings can be held in any location without regard for what the seat of the arbitration may be (Article 28 of the New Law);
- hearings no longer need personal attendance of the parties (Article 33 of the New Law) or of expert witnesses or witnesses of fact (Article 35 of the New Law) as the tribunal may choose to hear their evidence via video or telephone; and
- awards can be signed electronically (Article 41 of the New Law).

• Facilitating the handling of witness testimony Article 211 of the Old Law required tribunals to apply the same procedures in relation to witness testimony as those applied within the UAE Courts. However, in some instances, those procedures were less suited to modern arbitration. The New Law removes this requirement.

• Empowering the tribunal to unilaterally extend the time to render an award by six months
The Old Law specified that arbitral awards were to be rendered within six months of the date of the first procedural hearing of the tribunal. For complex arbitrations, that was an extremely narrow and unrealistic timeframe. Article 42 of the New Law grants the tribunal the power to unilaterally extend the time frame for an additional six months without having to revert to the Court. The timeframe can be extended even further with the tribunal and the parties’ agreement.

• Removing the requirement that the award be signed by all the arbitrators in the UAE
The New Law clarifies that tribunal members no longer need to be physically present within the UAE when they sign awards, thereby saving unnecessary travel and costs and preventing delay.

• Bringing issues relating to enforceability in line with international standards
The New Law has simplified and improved the procedure relating to enforcement. Specifically:
- a UAE arbitration award is recognized in the law as being on a par with - and as easily enforceable as - a UAE Court judgment. However, in order to be enforced in the UAE, the award will still need to be ratified in the UAE Courts (Article 52 of the New Law);
- an application to a Court of Appeal seeking ratification and enforcement of an award shall be determined within 60 days from the date of the application (Article 55(2) of the New Law);
- there are now narrower grounds, based on Article 34 of the UNCITRAL Model Law, for seeking nullification of an award (Article 53 of the New Law);
- a party has only 30 days from the rendering of an award - or 30 days from the ratification of an award by the UAE Court of Appeal - to file a nullification application before the UAE Court of Appeal (Article 54 of the New Law); and
- unlike under the Old Law, the mere filing of a nullification application will no longer prevent the enforcement of the underlying award.

Remaining Uncertainty

• Immediately applicable to domestic arbitrations Article 59 of the New Law directs that it is immediately applicable to ongoing domestic arbitrations, even if the arbitration agreement was agreed prior to 16th June, 2018. However, no transitional arrangements are provided. In the short term, there may be uncertainty as to how parties can comply with the New Law mid-arbitration which could potentially give rise to procedural challenges later on.
• Failure to resolve issues relating to capacity and authority

Under the Old Law, numerous awards were challenged and nullified on the basis that the arbitration agreement was signed by persons who did not have the capacity or authority to sign. This was supported by Article 58(2) of the Old Law, which called for the signatory to have “special authority” to agree to arbitrate. Whilst recent court judgments have seen some relaxation to this requirement, the New Law does not expressly repeal Article 58(2) and provides no further clarity on this issue. It fails to provide any fresh information on who has capacity or special authority. Accordingly, it is expected that domestic arbitral awards will still be challenged in Court on the basis of authority.
• Criminal Liability
The New Law has not expressly repealed the amendments to Article 257 of the Penal Code, thereby leaving some uncertainty as to whether criminal sanctions will be used in practice against arbitrators.
• Failure to explain what happens if a party seeks to nullify an interim measures award
Whilst the New Law provides for interim relief and expressly states that a party can obtain this from either the tribunal or the Court without it leading to the suspension of an arbitration, there is no express right given to a party which seeks the judicial nullification of an interim award, nor is there an express process as to how this attempt is to be made or if the arbitration will be suspended pending resolution of an attempted nullification of an interim award.

Conclusion

The true impact of the New Law will ultimately be determined by the manner in which the UAE Courts interpret and apply its clauses and by the number of successful nullification applications which are made.

However, it is clear that the New Law represents a brave attempt to modernize the practice of arbitration in the UAE with the ultimate goal of making the UAE a regional hub of arbitration.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

 

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