Arbitration is a form of alternative dispute resolution that involves resolving disputes outside the court system. It is a widely accepted dispute resolution method in commercial disputes. Most commercial agreements have an arbitration clause, where the parties agree to submit their disputes to one or more arbitrators.
An arbitrator is an impartial and qualified third party appointed by or on behalf of the parties. The arbitrator, acting in a capacity akin to a judge, presides over the matter in a less formal setting than a traditional courtroom proceeding. Arbitration Awards are legally binding as court decisions.
Arbitration proceedings cannot occur without an arbitration agreement (or an arbitration clause in the agreement). Parties are required to specifically choose arbitration in the underlying agreement as the method of dispute resolution for arbitration proceedings to take place. The arbitration agreement or clause should be drafted to clearly reflect the parties’ intention to settle disputes by means of arbitration.
An arbitration agreement is a contractual arrangement in which parties commit to resolving disputes through arbitration rather than pursuing litigation in a court of law. An arbitration agreement may be in the form of an arbitration clause in the underlying contract or in the form of a separate agreement.
Key Components of an Arbitration Agreement
The arbitration agreement/clause should include the following essential elements:
– Number of arbitrators,
– Language in which proceedings will be conducted,
– Applicable arbitration body to supervise the arbitration (such as ICC, LCIA),
– Seat or Place of arbitration
The Legal Framework of Arbitration in the UAE
The UAE Arbitration Law, i.e., Federal Law No. 6 of 2018, was issued in May 2018 and was recently amended by Federal Law No. 15 of 2023. Important provisions of the Law are discussed below:
– The UAE Arbitration Law applies to any arbitration carried out in the UAE (unless both parties agree to apply another arbitration law). The Law also applies to any International Commercial Arbitration carried out outside the UAE if the parties agree that it should be used.
– Article 7 of the Law states that an arbitration agreement must be in writing, except in certain specified cases, such as when the agreement is contained in an exchange of communications, e.g., email correspondence.
– Article 10 states that the arbitrator is not required to be of a particular gender or nationality, but the arbitrator should not have any direct relationship with any of the parties that would prejudice his impartiality, integrity, or independence.
– Article 19 states that the Tribunal has the power to rule on its own jurisdiction and may do so either as a preliminary question or in a final arbitral award on the merits of the dispute.
– Article 21 grants the Tribunal the power to issue interim measures upon request by a party or on their own initiative whenever they deem it necessary. Interim measures can include an order to preserve evidence that may be material to the resolution of the dispute, taking necessary measures to preserve the goods that constitute a part of the dispute’s subject matter, preserving assets and property of which a subsequent award may be enforced, or maintaining the status quo.
International Treaties and Conventions
The UAE ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2006, which has profoundly influenced the country’s arbitration framework.
Its adoption has created a more reliable and internationally harmonized dispute resolution system. The courts in the UAE typically enforce foreign arbitral awards by applying the provisions outlined in the New York Convention.
Benefits of Choosing Arbitration in the UAE
Confidentiality
Confidentiality is an important feature of arbitration and one of the main reasons why parties choose it. Arbitration is considered a private dispute resolution process, and the parties, arbitrators, and the arbitration institution are required to maintain confidentiality with regard to the proceedings, evidence, and award (unless the parties agree otherwise).
Expert Arbitrators
Parties can appoint technical experts with specialist knowledge as arbitrators. The experts can then conduct in-depth analyses of the technical issues in a complex dispute, such as delay and quantum analysis in construction disputes.
Faster Resolution
The primary benefit is the quicker process than litigation. Scheduling an immediate session with an arbitrator is considerably more straightforward than securing an expedited hearing date in Court. Additionally, rescheduling with an arbitrator is generally more manageable than doing so with the Court system.
Drafting a UAE Arbitration Agreement
Essential elements of an arbitration agreement or clause are:
1. Referral of Disputes to Arbitration
An arbitration agreement/clause must explicitly convey the parties’ intention to settle disputes by arbitration. Courts will assess the existence, validity, and applicability of the arbitration clause concerning the particular dispute, ensuring that only arbitrable matters are submitted for resolution.
2. Seat of Arbitration
The seat of arbitration determines the procedural law governing the arbitration, i.e., the law governing the conduct of the arbitration proceedings (such as interim remedies or the right to appeal).
The Courts of the seat have supervisory jurisdiction over the arbitration. The seat impacts the applicable procedural laws and the enforceability of the arbitration award. It should not be confused with the physical place or venue of arbitration.
For example, if the seat specified in the arbitration agreement is the UAE, only UAE courts can supervise the arbitration proceedings, irrespective of where the hearing took place.
3. Number of Arbitrators and Method of Selection
The arbitration agreement should specify the number of arbitrators and the method of their selection. Most arbitration proceedings are conducted by a panel of three arbitrators.
Each disputing party selects one arbitrator, and the third arbitrator (who acts as the chairperson of the panel) is chosen either through mutual agreement between the parties or, if they are unable to reach a consensus, by the arbitration institution or a neutral appointing authority. In less complex cases, parties may agree to appoint a sole arbitrator.
4. Language of Proceedings
Agreeing on a common language for arbitration ensures that both parties are comfortable and can effectively participate in the arbitration process. The choice of language can significantly impact the clarity of communication, understanding of legal terms, and overall fairness of the proceedings.
The language of the proceedings is often the same as that of the underlying contract or the language of the contractual correspondence, as it can reduce the expenses related to translation services.
5. Rules of Arbitration
Parties may opt to apply the rules of an established arbitral institution, such as the ICC or LCIA, to supervise the arbitration proceedings.
Common Mistakes to Avoid in UAE Arbitration Agreement
1. Inconsistencies
Inconsistencies in arbitration agreements can lead to significant legal challenges. For example, a contract may have two conflicting dispute resolution clauses: an exclusive jurisdiction clause in favor of the Dubai courts and an arbitration clause.
2. Failure to Specify the Scope
When the scope of an arbitration agreement is not clearly defined, it can lead to disagreements about whether the agreement covers a specific matter or dispute and whether it should be resolved through arbitration.
Clearly defining the scope of the arbitration agreement helps avoid ambiguity and ensures that both sides understand which matters will be settled through arbitration rather than in court.
3. Failure to Specify the Seat of the Arbitration
If the seat of arbitration is not clearly defined, it creates ambiguity regarding which country’s laws will regulate the arbitration process and which courts will hold supervisory authority. This uncertainty can hinder parties from making informed strategic choices and taking necessary procedural actions.
The Arbitration Process in the UAE
1. Initiating Arbitration
Arbitration proceedings commence when the Claimant sends a notice of arbitration to the Respondent or submits a request for arbitration to the arbitration institution (depending on whether the arbitration is ad hoc or institutional).
The Notice/Request includes details of the dispute giving rise to the claim and the relief sought. In the case of three arbitrators, the Claimant may also nominate its arbitrator in the Notice/Request.
2. Selection of Arbitrators
After the Notice/Request is served, the Respondent provides a Reply/Answer, which includes the Respondent’s position and counterclaims (if any). In case of three arbitrators, the Respondent may nominate its arbitrator in the Reply/Answer.
In the case of three arbitrators, the two party-appointed arbitrators select the chairman of the Arbitral Tribunal. In the case of a sole arbitrator, the parties try to reach a consensus regarding who should be appointed.
3. Arbitration Proceedings
Preliminary Hearing
Once the Arbitral Tribunal is constituted, a hearing is convened with the parties to discuss the procedural issues. After consulting the Parties, the Tribunal draws up a provisional timetable for the proceedings.
Exchange of Pleadings and Fact Witness Statements
The parties exchange pleadings, which include a Statement of Claim, Statement of Defence, Statement of Reply, i.e., the Claimant’s Reply and Defence to Counterclaim, and Statement of Rejoinder, i.e., Respondent’s Reply to the Claimant’s Defense to Counterclaim. Submission of written witness statements is also a common practice in arbitration.
Discovery Stage
In the document discovery phase, the parties may request each other to produce the documents which they think will be relevant to support their respective cases.
Exchange of Expert Reports
Arbitration enables the parties to appoint independent technical experts with specialist knowledge to conduct in-depth analyses of the disputes. These experts prepare written submissions known as Expert Reports.
Exchange of Opening Submissions
Parties may exchange written opening submissions before the hearing, including a summary of their position, facts, issues, evidence, and arguments.
Main Hearing
In most cases, an oral hearing takes place, during which the parties present their respective cases. The hearing may also involve cross-examination of witnesses and experts. It may take place in person or virtually online.
Award
The Tribunal usually issues the Arbitration Award (i.e., the final dispute decision) after the hearing concludes.
Conclusion
Arbitration is a preferred alternative to traditional court proceedings for several reasons. First, arbitration proceedings are private and confidential. Second, arbitration involves a thorough analysis of complex disputes.
However, arbitration proceedings cannot take place without an arbitration agreement. Therefore, parties should be meticulous in drafting their arbitration agreements. Unambiguous language is essential to avoid conflicts and facilitate efficient dispute resolution.
Consult SK Legal Professionals to Draft or Review Your Arbitration Agreements
Arbitration agreements play a critical role in ensuring efficient dispute resolution, especially in commercial contracts. At SK Legal, we provide expert consultancy services to draft and review arbitration agreements that align with UAE laws and global standards. Our services include:
- Tailored Legal Consultancy: Whether you need assistance drafting new arbitration clauses or reviewing existing agreements, our experienced team offers customized legal advice to safeguard your interests.
- Expert Drafting and Review: We ensure your arbitration agreements are clear, enforceable, and fully compliant with applicable regulations. Our meticulous approach minimizes risks and potential disputes.
- Specialized Legal Services: We provide specialized support for complex arbitration matters, including multi-jurisdictional disputes, ensuring you have a solid legal foundation in any scenario.
For personalized assistance and expert legal advice on arbitration agreements, contact us at info@sklegalfirm.com.
Frequently Asked Questions (FAQs) About the UAE Arbitration Agreement
Article 21 of the UAE Arbitration Law allows parties to enforce interim measures issued by an arbitral tribunal through the UAE courts. It also empowers tribunals to require security for costs and amend, suspend, or repeal interim measures.
Article 8 of the UAE Arbitration Law states that courts must dismiss any action that falls within the scope of an arbitration agreement, provided that the existence of the arbitration agreement is raised before any substantive claims or defenses are made. This dismissal will occur unless the court determines that the arbitration agreement is invalid or impossible to perform. Importantly, filing such an action does not prevent the continuation of arbitral proceedings or the issuance of an arbitral award.
The key steps in forming an arbitration agreement are:
- Drafting the agreement with key provisions (rules, venue, language, number of arbitrators)
- Obtaining mutual consent from both parties
- Executing the agreement by signing
- Commencing arbitration by notifying the other party if a dispute arises
- Proceeding with the arbitration process as outlined in the agreement
When a dispute is submitted to arbitration, the process begins with the claimant initiating the proceedings by filing a request for arbitration with the opposing party and the chosen arbitration institution.
The parties then collaborate to select and appoint one or more arbitrators who will oversee the case. In some instances, a preliminary hearing may be convened to address initial matters, establish timelines, and outline the procedures that will govern the arbitration.
As the process unfolds, both parties are given the opportunity to submit their respective claims, defenses, and supporting evidence, which may include witness statements and documents.
A hearing is then held where the parties present their arguments, evidence, and witness testimonies. Following the presentation of evidence, the parties may make closing arguments to summarize their positions.
Finally, the arbitrator(s) issue a binding decision known as an arbitral award, which concludes the arbitration process.
Arbitration has both advantages and disadvantages. It is often quicker and less expensive than litigation, providing a more efficient resolution process.
Additionally, arbitration is typically private and allows parties to choose their arbitrator, which can lead to more informed decisions.
However, it also has downsides, such as limited opportunities for appeal, potential bias in arbitrators, and less transparency.
Ultimately, whether arbitration is good or bad depends on the specific circumstances of the dispute and the preferences of the parties involved.
Disclaimer
This publication does not provide any legal advice and it is for information purposes only. You should not rely upon the material or information in this publication as a basis for making any business, legal or other decisions. Therefore, any reliance on such material is strictly at your own risk.
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Sameer A. Khan
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