Arbitration in the United Arab Emirates: Arbitration in the United Arab Emirates (UAE) stands out as a dependable and streamlined approach for resolving conflicts in a global environment where commercial disputes can surface rapidly. Recognized for its vibrant business landscape and extensive international trade, the UAE has enthusiastically adopted arbitration as a potent mechanism for resolving commercial disputes. In this article, we explore the intricacies of this process to gain a deeper understanding of why arbitration emerges as an appealing option for both individuals and businesses.
Onshore Arbitration Versus Offshore Arbitration in the UAE
In the UAE, the legal and financial landscape is divided between two types of zones:
The “onshore” zone | The “offshore” zones, known as “free zones” |
This jurisdiction encompasses a significant portion of the UAE's territory and operates under the purview of the federal laws and regulations established by the UAE government. Businesses and individuals operating within this zone fall under the governance of key legislative frameworks such as the UAE Civil Code, the UAE Commercial Companies Law, and other pertinent federal laws. These legal structures are designed to regulate diverse aspects of business, trade, and activities conducted within these designated areas. | These zones are established as autonomous jurisdictions with distinct legal and regulatory frameworks. Functioning under separate laws, frequently rooted in common law principles, they feature specialized courts dedicated to adjudicating matters within their designated jurisdictions. The Dubai International Financial Centre (DIFC), established in 2004, operates as a financial free zone. Its legal foundation is grounded in Federal Law 35/2004 and Dubai Law 9/2004. Similarly, the Abu Dhabi Global Market (ADGM), inaugurated in 2015 in Abu Dhabi, operates as an independent financial free zone. It has its own set of laws, including the establishment of a Court of First Instance and a Court of Appeal, both founded on common law principles. |
Agreements to arbitrate disputes are governed by distinct laws contingent upon the arbitration's seat:
● Onshore UAE Disputes: Disputes seated onshore in the UAE are regulated by Federal Law No. 6 of 2018 concerning Arbitration (UAE Arbitration Law), effective since June 15, 2018.
● ADGM Seated Disputes: Arbitrations with the seat in the Abu Dhabi Global Market (ADGM) falls under the ADGM Arbitration Regulations 2015 (ADGM Arbitration Law), which is based on the UNCITRAL Model Law.
It's important to note that, irrespective of the seat's location, these laws may also apply if explicitly designated by the parties in their arbitration agreement as the governing laws.
Arbitral Institutions in the UAE
Numerous distinguished arbitral institutions in the UAE facilitate arbitration proceedings, offering parties efficient and dependable dispute resolution alternatives. Notable among these institutions are:
- Dubai International Arbitration Centre (DIAC): Established in 1994, DIAC has emerged as a leading arbitral institution in the region. It administers arbitrations in accordance with the DIAC Arbitration Rules 2007 and the recently introduced DIAC Arbitration Rules 2022.
- Abu Dhabi Conciliation and Arbitration Centre (ADCCAC): Administering arbitrations under the Procedural Regulations of the ADCCAC, this center plays a vital role in facilitating dispute resolution in Abu Dhabi.
- Sharjah International Commercial Arbitration Centre (Tahkeem): Established in 1995, Tahkeem is instrumental in promoting commercial arbitration in Sharjah.
- Ras Al-Khaimah Centre for Reconciliation and Commercial Arbitration (RAK Chamber): In operation since 2018, this institution serves as a focal point for commercial dispute resolution in Ras Al-Khaimah.
Importantly, these institutions are not confined to handling disputes arising within specific free zones. In other words, parties involved in onshore or offshore arbitration disputes can engage any of these institutions to administer their dispute, provided they have been expressly specified in the arbitration agreement.
The Validity of the Arbitration Agreement in the UAE
The validity of arbitration agreements in the UAE is contingent upon specific requirements, which include:
- ● Written Form: The arbitration agreement must be in writing, encompassing both physical and electronic correspondence.
- ● Arbitrability of the Dispute: The nature of the dispute between the parties should be suitable for resolution through arbitration.
- ● Legal Capacity of Individuals: If an individual is a party to the arbitration agreement, they must possess the legal capacity to dispose of their rights, meaning they are not a minor and are not subject to any prohibitions regarding the exercise of all their rights.
- ● Legal Capacity of Companies: If a company is a party to the arbitration agreement, the representative must have specific authority to agree to arbitration. This authority is typically demonstrated through a shareholder's resolution or the company's articles of association.
● Precision of the Arbitration Agreement: The wording must be clear and unequivocal, demonstrating the parties' explicit consent to arbitration. It is advisable for parties to specify the seat and language of the arbitration, the number of arbitrators, and mention the applicable law to the arbitration agreement.
Failure to meet any of these criteria renders the arbitration agreement invalid. Consequently, the arbitral tribunal lacks the competence to issue a decision, and parties must resort to local courts to resolve their disagreement in such cases.
Overview of the Arbitration Process in the UAE
Commencement of the Arbitration
Under the UAE Arbitration Law, onshore arbitration proceedings initiate on the day following the constitution of the entire arbitral tribunal. This may appear unconventional, as arbitration commonly commences when the Claimant formally communicates their intention to initiate the process through a document known as a "request for arbitration."
In offshore scenarios, the arbitration process kicks off when the Respondent receives the request for arbitration. This distinction in commencement procedures reflects the specific provisions outlined in the UAE Arbitration Law, emphasizing the importance of the arbitral tribunal's constitution in onshore cases and the receipt of the request for arbitration in offshore cases.
Appointment of the Tribunal
In both onshore and offshore arbitration within the UAE, parties maintain the freedom to designate arbitrators of their choosing, provided these arbitrators demonstrate independence and impartiality.
The UAE Arbitration Law, specifically governing onshore arbitration, introduces additional criteria for arbitrator eligibility. The arbitrator must:
- ● Not be a minor.
- ● Not be under a court interdiction order or deprived of civil rights due to reasons such as bankruptcy, commission of a felony, misdemeanor, or conviction for a crime involving moral turpitude or breach of trust.
● Maintain independence from the institution handling the case.
In instances where parties or the arbitral institution fail to reach an agreement on arbitrator nominations, local courts can intervene to assist in the selection process. In such cases, the court's decision is considered final and cannot be appealed. This provision ensures a resolution mechanism in the event of disagreements regarding arbitrator appointments.
The Award
In the context of arbitral proceedings in the UAE, there are no specific rules that dictate the management of these proceedings. Both arbitral tribunals and the involved parties typically enjoy extensive discretion in structuring the procedure, allowing for flexibility tailored to the specific circumstances of each case.
Article 32.5 of DIAC Rolls the time limit which the Tribunal must issue the final Award is three months from the date of transmission of file to the Tribunal. Parties are advised to take into account any applicable time limits outlined in the rules of the relevant arbitration institution, if any. This absence of a statutory time constraint underscores the importance of parties considering and incorporating any procedural timelines established by the governing institutional rules they choose to follow.
Challenging the Award
When the arbitral award is rendered, it can be challenged:
Through an application to set aside filed by one of the parties | At the initiative of the Court |
In both onshore and offshore arbitration within the UAE, a challenging party seeking to set aside an arbitral award must substantiate circumstances such as:
● Irregularities Affecting the Composition of the Arbitral Tribunal or the Arbitral Proceedings. | In both onshore and offshore arbitration within the UAE, courts have the authority to initiate the setting aside of arbitral awards in specific circumstances, including: ● The Dispute Cannot Be Resolved Through Arbitration; or ● The Award Contradicts the Public Order or Moral Values of the UAE. For DIFC Courts, in addition to the reasons mentioned above, the DIFC Court has the discretion to set aside an award if the dispute was explicitly directed to another entity or tribunal for settlement under DIFC Law or any other mandatory law. This additional criterion emphasizes the importance of adhering to the specific legal frameworks and jurisdictions outlined in the dispute resolution process within the Dubai International Financial Centre. |
For onshore arbitration, additional grounds for challenging the award include situations where:
● The Award was Rendered After the Arbitration's Specified Timeframe Ended. In the case of offshore arbitration, laws applicable to such proceedings introduce an additional ground for annulment. This occurs when the award addresses a dispute that falls outside the defined scope of the arbitration. These specific grounds provide a legal basis for challenging and potentially setting aside arbitral awards in both onshore and offshore contexts within the UAE. |
In summary, the UAE provides a robust and comprehensive arbitration framework designed to accommodate the evolving commercial landscape of both onshore and offshore jurisdictions. Supported by modern laws and regulations, this framework ensures the structured and efficient resolution of disputes. The presence of various arbitral institutions within the country further solidifies its standing as a regional hub for commercial arbitration.
Whether a dispute arises within the conventional legal framework or in the specialized contexts of free zones. The UAE offers clear pathways for the appointment of tribunals, the conduct of proceedings, and the challenging of awards. This multifaceted approach contributes to the UAE's reputation as an attractive and reliable destination for businesses seeking fair and effective dispute resolution mechanisms.