Legal Briefing

A to Z of Arbitration

The In-House Lawyer Logo

Dispute Resolution | 24 January 2018

pdf-download-button

A is for award! It is essential to start with the end result in mind; the purpose of any arbitration is to secure an award that you can ratify and enforce against the respondent’s assets. An unenforceable award is worthless and unfortunately in the Gulf you have a greater chance of ending up in this position than in other parts of the world. It is therefore important to take legal advice at the outset about where you want to get to at the end of the arbitration and whether there is a clear road to the money! This will include advice on any issues in the contract documents which could affect the enforceability of an award that you secure at the end of arbitration such as the requisite authority of the person who signed the contract containing the arbitration agreement or the validity of the arbitration agreement.

B is for bonds, bank guarantees and other securities disputes about bonds are common in construction arbitration disputes in the gulf. Whether you have the benefit of a security or you may be exposed to the risk that your bond will be wrongfully liquidated it will be important to fully and clearly understand your legal position. Generally in the Gulf there are very limited circumstances in which a bank can resist payment of a demand made on an unconditional bond but there may be circumstances in which it is possible to resist payment of conditional bonds.

C is for costs arbitration is a notoriously costly process but costs can be estimated with transparency by experienced lawyers. Funding an arbitration when cash flow is already tight can be a major challenge for claimants and defendants alike. Arbitration costs include a number of elements such as the administrative costs and expenses of the arbitration institute / centre which oversees the arbitration, the tribunal’s costs and expenses, the costs of the experts required to provide evidence to support your claim or defence and legal costs. We are experienced in preparing detailed cost estimates for each stage of the arbitration under the rules of all regional and international arbitration centres. These estimates have allowed our clients to understand and budget for arbitrations and recognise the key points in time where there may be opportunities for settlement.

D is for deadlines and time limits dispute resolution clauses often contain a number of requirements that must be complied with before a party is entitled to proceed to arbitration. This can include requirements to set out your claims in detail with supporting documents within certain time limits or to make reasonable attempts to settle the dispute amicably before proceeding to arbitration. If one party does not comply with its obligations under the dispute resolution provisions then the other party might be able to raise an objection later down the line that the arbitration has been commenced prematurely and that the arbitration tribunal does not have jurisdiction to hear the dispute. Again, it’s important to have a clear understanding of your contractual obligations and take advice on how best to comply with those obligations.

E is for enforcement depending on the seat of the arbitration in the Gulf (see S for Seat) securing an arbitration award might be only the first part of the journey on the road to getting your money. Unless the losing party agrees to pay voluntarily it may be necessary to enforce your award through a second round of ratification and enforcement proceedings. The complexity, duration and cost of these proceedings will depend on the seat of the arbitration.

For example, where the arbitration is seated in Dubai, the award will need to be ratified and enforced through the local Dubai Courts and will be subject to the relevant provisions of the UAE Civil Procedure Law. Such proceedings can be very difficult to predict and could take 2 or more years to complete. By comparison, where the seat of arbitration is the DIFC, the DIFC Arbitration law applies and the grounds for refusing to enforce an arbitration award are narrower than under the Civil Procedure Law. Knowing how easy or difficult it might be to enforce your award is information that you should have in mind right from the kick-off and we can advise you on these points and share our experience of enforcing awards locally.

F is for funding
current market conditions in the Gulf, particularly the liquidity squeeze brought on by the sustained low oil price, mean that many projects are facing a toxic combination of delays and late or disputed payments. But funding the legal costs of pursuing claims when cash is already heavily tied up in the project is a major challenge for claimants. Most businesses would prefer to re-invest cash in commercial growth, rather than tying funds up in pursuing lengthy claims. Third party funding provides a potentially attractive opportunity to share the financial burden and risk of formal disputes and can offer a cost-effective solution to parties who might otherwise be deterred from pursuing a good claim. Third party funding is already well known in the UK, US, Canada and Australia. There are a number of experienced and well established specialist funders in the UAE market as well as a broad range of third party funding products and structures. Each third party funder’s arrangements can be structured differently to suit the needs of the party seeking funding, taking into account the facts and jurisdiction of the dispute.

G is for governing law and jurisdiction clauses these clauses specify what law will govern the contract and which courts or arbitration centre / institute will have jurisdiction to hear any disputes relating to the contract. These clauses are often at the end of the contract and considered to be part of the “boiler plate” rather than worthy of commercial negotiation. But if there is any prospect of shaping these clauses to work to your advantage before the contract is signed then it could save you a lot of time and money if a dispute does arise (see M for maximising future recovery). At the very least they could place you in a much stronger negotiating position if you’re able to negotiate provisions which would allow you to arbitrate quickly and enforce your award with relative ease.

H is for Hotel! Most arbitration hearings, particularly the evidential hearing at the end, will take place in the conference rooms of hotels. The UAE is a geographically central location between the East and West and has many five star hotels with good conference facilities, making it an attractive choice of venue for hearings (see V for venue). When choosing a venue for the arbitration hearings it is important not to overlook the quality of facilities offered. Embarrassing IT hiccups, poor food and inappropriate ambient room temperatures should be avoided if you want to keep the tribunal happy!

I is for interim relief where an arbitration is seated in the UAE (outside the DIFC), an arbitration tribunal currently has no statutory authority to grant interim relief absent specific agreement of the parties (e.g. in the Rules applicable to the arbitration). Here interim measures will have to be sought in front of the onshore courts. The most commonly sought application in front of the onshore UAE courts is a precautionary attachment order which is available under a set of very specific (and limited) circumstances.

Where an arbitration is seated in the DIFC the tribunal will have the statutory authority to grant measures such as security for costs, preservation orders and any other relief (on a provisional basis) which the tribunal would have power to grant in an award. Where the arbitration is seated in the ADGM, the arbitration tribunal will have broad powers to issue temporary interim measures to maintain the status quo, prevent imminent harm or prejudice to any party to the arbitration or to preserve assets and evidence.

J is for joinder of third parties as the law currently stands in the UAE only the parties who have signed an agreement to arbitrate can be bound by it. Therefore, third parties can only be joined in an arbitration if they give their consent in writing.

K is for know the facts almost all disputes turn on those facts that can be established by the parties. Never underestimate the value of establishing and maintaining a robust document management system and administrative policies during the course of a project. It will greatly reduce the time spent by your company and its lawyers in understanding the facts of the dispute and the strengths and weaknesses of your claim. Convincing documentary evidence to support your company’s position will also frequently be sufficient to cut disputes off at an early stage and increase the likelihood of an outcome in your company’s favour.

L is for limitation period in the case of a commercial transaction under a contract governed by the laws of the UAE, the limitation (or prescription) period is 10 years from the date of fulfilment of the contract. In the case of other transactions, the time limit for issuing a claim is 15 years. Specific types of claim have further limitation periods. For example, a claim on a dishonoured cheque must be brought within 2 years of the date of the cheque; claims under insurance contracts must be brought within 3 years of the insured event or knowledge thereof, claims relating to consultant’s fees and disbursements must be brought by 5 years from when payment falls due and the time limit for claims under the decennial liability provisions of the UAE Civil Code expires after 10 year or 3 years of discovery of the defect or collapse.

M is for maximising future recovery
in order to ensure that you can enforce any arbitration award at the end of the arbitration against the other party’s assets it is necessary to consider, when drafting your arbitration agreement, where the other party’s assets are located. You should, where possible choose a seat for the arbitration (see S for seat) which maximises the chances of recovery in that location.

N is for New York Convention a country which has ratified the New York Convention should recognise and enforce arbitration awards made in another member state. Each contracting state effectively agrees to recognise and enforce an arbitration agreement unless it finds (on a relatively limited number of grounds) that the agreement is null and void, inoperative or incapable of being performed. The UAE signed the New York Convention in 2006 and is one of 157 contracting states across the world. This global ratification of the New York Convention is one of the reasons for the success of international arbitration.

O is for obscure! The UAE Civil Procedure Code contains a number of (at times obscure) administrative requirements which, if not strictly followed, can open the door to challenges to the validity of an arbitration award. This can turn the ratification and enforcement of a UAE seated arbitration award in front of the UAE onshore courts into a minefield. Instructing UAE based lawyers who have first-hand experience of the potential procedural traps is an important step in mitigating against these risks.

P is for power of attorney does the party signing a contract governed by UAE laws have the authority to bind the company to an arbitration agreement? Proof of specific authority will be required to enforce an award because an agreement to arbitrate must be given as a special capacity. This is because an agreement to arbitrate is seen by the UAE Courts as a relinquishing of an entity’s otherwise inalienable right to the recourse of the courts.

Depending on the legal status of the party, capacity to enter into an arbitration agreement can only be established by (i) a shareholder’s resolution, (ii) the Memorandum and Articles of Association of a Company, (iii) a commercial licence of an LLC showing the name of the general manager who has the requisite authority, or (iv) a special power of attorney containing explicit reference to the authority to enter into an agreement to arbitrate.

Q is for quoteNever arbitrate. Arbitration allows a third party to determine your destiny. It is a resort of the week.” – attributed to Attila the Hun

Or!

When will mankind be convinced and agree to settle their difficulties by arbitration?” – Benjamin Franklin

R is for respondent’s refusal to participate which, under the DIFC, DIAC and other UAE arbitration regimes does not prevent an arbitration tribunal from proceeding with the arbitration and rendering a decision in a party’s absence. In these circumstances, it is important to show that the respondent was properly notified of the existence of the arbitration proceedings.

S is for Seat of arbitration this will determine the (i) procedural laws that apply to the arbitration, (ii) the supervising court that will assist the parties if required and (iii) the nationality of the arbitration award and therefore the rules that will apply at the enforcement stage. When considering which seat to choose, a key consideration should be the location of assets against which an award is likely to be enforced (see E for Enforcement).

T is for tribunal whether the arbitration is seated in the UAE, DIFC or ADGM the parties are free to agree the procedure for the appointment of arbitrators. Where the parties fail to agree, any relevant institutional arbitration rules will provide a standard procedure for appointment of the tribunal.

The ability to agree on the identity of the tribunal which will decide the parties’ dispute is one of the key advantages of arbitration. Points to consider when nominating an arbitrator include (i) the key issues in dispute – highly technical issues may call for an individual with specialist in that field, (ii) the experience of the individual in acting as an arbitrator in the UAE (see O for Obscure) (iii) the character of the parties; an arbitrator with a style of working that will either complement or compensate for the approach taken by the parties will help the arbitration to run more smoothly.

U is for UNCITRAL Model Law UNCITRAL stands for United Nations Commission on International Trade Law and the model law was drafted with the aim of harmonising arbitration laws internationally. The DIFC Arbitration Law is based on the UNCITRAL Model Law and the UAE is expected to enact a new federal arbitration law based on the UNCITRAL Model Law in the near future (see W for widely anticipated UAE law on arbitration).

V is for venue i.e. the location where hearings will take place, not to be confused with the Seat (sometimes referred to as Place) of the arbitration! (See S for seat).

W is for widely anticipated UAE law on arbitration
which is rumoured to be very close to enactment. Arbitrations seated in the UAE are currently governed by the UAE Civil Procedure Code which contains a small number of articles relating to arbitration but leaves many issues open to interpretation. The introduction of a standalone arbitration law has been long awaited and it is hoped that it will address uncertainties as to the UAE Courts’ approach to arbitration, simplify and speed up ratification and enforcement of domestic and international arbitration awards and provide a comprehensive procedural framework based on the UNCITRAL Model Law (see U for UNCITRAL Model Law).

X is for Xeroxing (or photocopying) of documents Under most arbitration rules, the parties’ pleadings must be accompanied by all of the documents on which they intend to rely. A formal disclosure process will usually follow, allowing parties to request specific disclosure. By contrast, disclosure before the UAE Courts is usually very limited; a party is generally not obliged to disclose any documents that would be harmful to its case unless ordered to do so by the Courts. These provisions do not apply to arbitration proceedings where there are no specific restrictions preventing the tribunal from ordering disclosure of documents in accordance with the disclosure procedure agreed by the parties, such as the procedure in the IBA Rules on the Taking of Evidence.

Y is for the Yemen and

Z is for Zambia.

These countries are two of the very few not party to the New York Convention, although they each have a domestic arbitration law.