The UAE introduces changes to challenging and enforcing arbitral awards in the country
This year marks the adoption of the new Arbitration Law in the UAE (Federal Law No. 6 of 2018 on Arbitration), which entered into force on 16 June 2018.
In this article, we focus on the changes introduced by the Arbitration Law to the process of enforcement and challenging of certain arbitral awards in the UAE. The ease of enforcement is one of the key criterion when choosing a dispute resolution mechanism and the new law has made significant changes to this process with the aim of making enforcement of arbitration awards a simpler process.
Scope of application
The Arbitration Law will apply to:
> all arbitration proceedings conducted in the UAE unless parties choose another law provided that this other law does not contravene the UAE public order and morals;
> arbitral proceedings conducted abroad, if parties so agree;
> any arbitration arising from a legal relationship governed by the UAE law, unless excluded by law. The Arabic text of this provision leaves some doubts as to whether its effect is to make the law applicable to all foreign arbitral proceeding where substantive UAE law is applied.
Notably, there are two free zones in the UAE that have their own arbitration regimes – the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). The general consensus in the legal community is that the law intends to preserve the freedom of the parties to choose these autonomous arbitration regimes by agreement, but it could have been clearer in expressing this intention.
The Arbitration Law shall apply to any arbitration proceedings existing at the date the law enters into force. This means that any awards enforced after 16 June 2018 (issued both before and after the entry of the law into force) should be enforced under the new procedure.
The Arbitration Law introduces the concept of commencing a fresh action to challenge the arbitration awards. Previously, the UAE courts have found that a party wishing to set aside the award issued in the UAE could only do so if the successful party was seeking ratification and enforcement in the local courts. The defendant could not initiate an independent challenge in the local courts.
Now any party can challenge the award before local courts by starting a fresh action for setting aside the award or in response to the claimant’s application to ratify the award. Article 53(1) sets out the grounds for setting aside the award, some of which are similar to the grounds for setting aside under the UNCITRAL Model Law on International Commercial Arbitration but do not entirely mirror it. For example, the ground under Article 53(1)(e) is that the award “did not apply the law which the arbitration parties have agreed to apply to the subject matter of the dispute.” This may be interpreted as a permission for the UAE courts to set aside the award due to an error of law. Appeals of arbitral awards on the point of law are permitted in certain jurisdictions. For example, they are allowed in England on limited grounds, but in practice such appeals are rarely made and are even rarer to succeed.1 In absence of similar established practice in the UAE courts, this ground of appeal can create obstacles for enforcement. It remains to be seen how the UAE courts will interpret this provision.
Procedurally, the action for setting aside the award must be filed with the Court of Appeal that has jurisdiction over the matter or as agreed by the parties, and it must be brought within 30 days from the date of serving the award on the party seeking the challenge (Article 54(2)). Any waiver of the right to apply for setting aside of the award will not be effective. In addition, the new action for setting aside has a number of helpful features:
> the decision of the court to set aside an award is final and can only be appealed in cassation courts;
> the award can be set aside in whole or in part;
> the arbitration agreement remains in force after the award is set aside (unless the ground for setting aside is a defect in the arbitration agreement);
> the court can grant a period of up to 60 days to the arbitral tribunal to rectify the form of the award (but not the substance) if this will eliminate the grounds for setting aside;
> the action to set aside does not stay enforcement, although such a stay can be ordered by court upon a good cause. A stay can be accompanied by an order to provide security.
Ratifying and enforcing awards
The new Arbitration Law simplifies the process for ratification and enforcement of the awards that are governed by the Arbitration Law. Instead of filing a substantive claim as used to be the case, the claimant now must file the following documents with the chief justice of the Court of Appeal in the relevant Emirate: (i) the original award (or certified copy of it) accompanied by certified Arabic translation where award is not in Arabic; (ii) a copy of the arbitration agreement and (iii) a copy of the minutes of lodging the award in court.
According to Article 55, the court must issue an order for ratification and enforcement of the award within 60 days from submission of the application for enforcement unless the court finds a reason to set aside the award upon any of the grounds under Article 53(1).
A grievance to review the court’s decision on enforcement of the award can be filed with the Court of Appeal within 30 days.
In principle, as highlighted above, the new Arbitration Law is not intended to apply to foreign arbitral awards and therefore does not affect the process of enforcement of foreign arbitral awards in the UAE. However, it is important to note that Article III of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which UAE is a signatory, provides that there shall not be imposed substantially more onerous conditions or higher fees for recognition and enforcement of foreign arbitral awards than those that exist in relation to domestic awards. Article 55 of the Arbitration Law simplified the process for enforcement of domestic arbitral awards, which arguably puts foreign awards at a disadvantage because currently the claimant wishing to enforce a foreign arbitral award in the UAE is required to file a substantive case in the local courts of first instance.
The Arbitration Law introduced positive changes to the process of challenging and enforcing arbitral awards. The law could have been clearer in relation to the grounds for challenging the awards and arguably missing an opportunity to clarify the position in relation to enforcement of foreign arbitral awards.
1 The Commercial Court Users’ Group Meeting Report dated 13 March 2018 shows that in 2017 only 10 out of 56 appeals on point of law were granted and only 1 appeal was successful.