United Arab Emirates: The UAE's New Arbitration Law

On 3 May 2018 a new arbitration law was issued by the President of the United Arab Emirates and it is expected to be published as Federal Law No. 6 of 2018 on Arbitration (the Arbitration Law). The Arbitration Law repeals Articles 203 to 218 of the UAE Civil Procedure Code (Federal Law No. 11 of 1992) applicable to arbitration, and any other provisions contrary to the Arbitration Law. In this short briefing, we cover key features of the new law: what you need to know in a nutshell.

A heads-up on the key features for UAE businesses

The Arbitration Law is not in force. It shall come into force one month from the day after the date of its publication in the Official Gazette. The Arbitration Law is in Arabic. As with other Federal laws, the UAE Ministry of Justice may publish an unofficial English translation of the law.

The Arbitration Law shall apply to all arbitration proceedings ongoing at the time that the new law comes into force, even if such proceedings are based on an arbitration agreement entered into prior to the coming into force of the new law.

What are the key features of the new Arbitration Law?

Bringing the UAE in line with international norms – The new law is broadly based on the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade (the UNCITRAL Model Law). The UNCITRAL Model Law is a standard designed to assist States in uniformly reforming and modernising their laws so as to take into account the features of international commercial arbitration. The UNCITRAL Model Law provides a pattern that lawmakers can adopt or adapt as a basis for their national arbitration law. The UAE's new Arbitration Law is an adaptation of the UNCITRAL Model Law.

Consistent with the UNCITRAL Model Law, for example, the Arbitration Law features limited grounds to annul an arbitral award, and provides for the authority of an arbitral tribunal to rule on its own jurisdiction.

Scope of application – Based on the UNCITRAL Model Law, the Arbitration Law distinguishes between international arbitration and domestic arbitration. The Arbitration Law applies to both.

Article 2 of the Arbitration Law titled "Scope of Application" exhaustively sets out the cases in which the Arbitration Law will apply. According to Article 2, the Arbitration Law shall apply to:

• any arbitration conducted in the UAE, unless the parties have agreed that the dispute shall be subject to any other arbitration law and provided that such law does not contravene public policy;
• any international commercial arbitration conducted outside of the UAE, if the parties have agreed that the UAE Arbitration Law shall apply; and
• any arbitration arising from a legal relationship (whether or not contractual), where the relationship is regulated by the laws of the UAE, except where a more specific provision of UAE law provides otherwise.

For example, under Article 2(1), the Arbitration Law shall not apply to arbitration proceedings where the parties have agreed that their arbitration is subject to the DIFC Arbitration Law (DIFC Law No. 1 of 2008), or that the seat of their arbitration shall be the Dubai International Financial Centre (Dubai's financial free zone).

Under Article 2(2), the Arbitration Law shall not apply to arbitration conducted outside of the UAE unless the parties have agreed to apply the Arbitration Law. This is the case, for example, where hearings are held outside the UAE but the parties have agreed the UAE as the seat of their arbitration.

In our opinion, Article 2(3) of the Arbitration Law provides that the Arbitration Law shall apply where the legal relationship underlying the arbitration is subject to mandatory substantive provisions of UAE law. For example, the new Arbitration Law shall apply to any arbitration conducted outside of the UAE where UAE law mandatorily applies to resolve the dispute. Mandatory laws include UAE employment law, the UAE Agency Law regulating commercial agencies in the UAE (Federal Law No. 18 of 1981), UAE laws applicable to ownership of real property (real estate) in the UAE, UAE family and estate laws, and UAE criminal laws.

Formation of an arbitration agreement – The Arbitration Law is more flexible than its predecessor as to the formalities of an agreement to arbitrate. While it does preserve the requirements for an arbitration agreement to be in writing and to be entered into by a duly authorised representative of any company, the new law is not as prescriptive in respect of these two conditions.

• The arbitration agreement must be in writing – Inspired by the UNCITRAL Model Law, pursuant to Article 7(2)(a) of the Arbitration Law, the requirement that an arbitration agreement be in writing is met if the agreement is contained in a document signed by the contracting parties, or in an interparty exchange of messages or other forms of written communications, or by email or other electronic correspondence.

  Article 5(3) of the Arbitration Law is clear that the incorporation by reference in any commercial contract to any document containing an arbitration clause (e.g. general terms and conditions) is sufficient to constitute an arbitration agreement.

  Pursuant to Article 7(2)(b) of the Arbitration Law, the requirement that an arbitration agreement be in writing is also met if any model contract, international agreement or any other document containing an arbitration clause is incorporated by reference into the commercial contract.

  Significantly, Article 7(2)(c) of the Arbitration Law provides that the requirement for an arbitration agreement to be in writing is met if the agreement is contained in written submissions exchanged in the course of arbitration proceedings. The requirement is also met by implication in court proceedings if a party requests that the dispute be referred to arbitration on the alleged basis that the parties agreed to arbitrate the dispute.

• The authority to agree arbitration – In our opinion, Article 4(1) of the Arbitration Law read in conjunction with Article 53(1)(c) suggests that the authority of a company representative to agree arbitration shall be determined on the basis of the law applicable to the relevant company.

  For example, in the case of a company constituted under the laws of the State of Maryland, USA, the authority of a company's representative to bind the company to arbitration shall be determined under the relevant laws of the State of Maryland. In this way, the Arbitration Law imports the ostensible authority of a representative to bind the company to arbitration where the law applicable to the company admits ostensible authority as a basis.

Efficient proceedings – There are a number of provisions in the Arbitration Law designed to promote efficiency in arbitration and to prevent significant delays in the conduct of arbitration. A few examples include:

• Continuation of the arbitration proceedings notwithstanding any application for interim or provisional court measures relating to ongoing arbitration;
• Continuation of the arbitration proceedings notwithstanding any challenge against an arbitrator (e.g. challenging the independence or impartiality of an arbitrator);
• A 15-day time limit to challenge before a UAE Court of Appeal any preliminary award made by an arbitral tribunal determining its own jurisdiction;
• A 15-day time limit for the relevant UAE Court of Appeal to determine any challenge to an arbitral tribunal's preliminary award on its own jurisdiction; and
• Authority for the arbitral tribunal to continue the arbitration proceedings notwithstanding any challenge to its preliminary award on jurisdiction.

Enforceable awards – Perhaps the most significant reforms brought about by the new Arbitration Law address the enforceability of UAE arbitration awards.

Under the Arbitration Law, the procedure to enforce an arbitration award in the UAE has been shortened. Enforcement proceedings commence directly before the UAE federal or local Court of Appeal, not before the Courts of First Instance as before.

Article 52 of the Arbitration Law provides that a UAE arbitration award is binding upon the parties to the award and is equally as enforceable as a judgment of the UAE courts.

An arbitration award should be executed voluntarily by the parties. Failing voluntary execution of an award by the parties, forced execution of an award against a party requires an order of a UAE Court of Appeal.

Article 55(2) of the Arbitration Law provides that 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 53 of the Arbitration Law sets out an exhaustive list of grounds to challenge an arbitral award. These grounds are inspired by Article 34 of the UNCITRAL Model Law and accord with international standards.

Article 54 of the Arbitration Law provides a 30-day time limit for a party to challenge the validity of a final arbitration award before the relevant UAE Court of Appeal. A challenge may also be made outside of the 30-day time limit if the challenge is heard before the Court of Appeal which is hearing the application for ratification of the award.

It is possible to appeal against an order of the Court of Appeal ratifying an award and declaring it enforceable. The appeal must be made within 30 days of the Court of Appeal's notification of the order.

Conclusions

The Arbitration Law achieves a milestone in maintaining the UAE's reputation as the international arbitration hub of the region. The Arbitration Law is an adaptation of the UNCITRAL Model Law. This reform modernises the regulatory framework underpinning UAE arbitration to bring it in line with international commercial arbitration norms globally.

The law is consistent with the UAE's remarkable efforts to promote a legal landscape that inspires investor confidence.

As with all new legislation, consistency in the interpretative approach taken when applying the Arbitration Law will be fundamental to its intended purpose. Mindful of the vulnerability of the new law to varying interpretations, Clyde & Co is pleased to sit on the newly constituted Arbitration Circle, a think tank of leading UAE arbitration practitioners committed to promoting a unified interpretative approach.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.