Challenging an Arbitration Award in the UAE Courts
Posted on 3rd May 2010 by Camille Paldi,
Grounds for challenge may be found in Article 216 of the Civil Procedure Law, Federal Law No. 11 of 1992 (“Civil Procedure Law”):
1. “The parties to the litigation may apply for the invalidation of the arbitrator’s judgment when the court hears its ratification in the following cases:
a.) If it is given without an arbitration deed or on the basis of a void document or if it becomes non-suited by lapse of time or if it is ultra vires.
b.) If the judgment is given by arbitrators who have not been appointed according to the law, if it is given by some arbitrators who are not authorized to pass judgment in the absence of others, if it is given on the basis of an arbitration deed in which the subject of dispute has not been determined or if it is given by a person who is not qualified to agree on the arbitration or by an arbitrator who does not satisfy the legal conditions.
c.) If the judgment is invalid or if the procedures are rendered invalid in a manner that affects the judgment.
2. The acceptance of an invalidation shall not be prevented by the party who waives his right therein prior to the arbitrator’s judgment.”
“It was held in many reported cases e.g. Cassation Petition 40 of 2004 that the validity of an arbitration award may only be challenged on the grounds which are exclusively stated in Article 216 of the Code of Civil Procedure.” (Omer Eltom, The Emirates Law In Practice, p. 386)
Challenge of the arbitration award is only available for procedural issues.
Article 217 of the Civil Procedure Law states:
- “The judgments of the arbitrators shall not be subject to challenge in any manner.
- However, a judgment that confirms or cancels the decision of the arbitrators may be challenged by any appropriate method.
- As an exception to the provision of the preceding paragraph, a judgment shall not be subject to appeal if the arbitrators are authorized to make the reconciliation, if the parties to the dispute have expressly waived their right of appeal, or if the value of the dispute does not exceed 10,000.00 AED.”
“The rule that the court should not review or consider the substantive aspects of arbitration awards or their compliance with the law was confirmed by many reported judgments such as the judgment in Cassation Petition 88 of 2004.” (Omer Eltom, The Emirates Law In Practice, p. 386)
Karim Nassif of Habib Al Mulla states in his paper entitled, ‘The United Arab Emirates’ that the Dubai Court of Cassation recently classified the grounds for challenges under two categories in Dubai Court of Cassation Petition No. 270/2008, Judgment dated 24/03/2009 and Dubai Court of Cassation, Petition Number 32/2009, judgment dated 29/03/2009. Mr. Nassif states that the two categories include 1) grounds linked to the arbitration agreement and 2) grounds linked to the arbitral proceeding.
“Grounds Linked to the Arbitration Agreement: non-existent or invalid arbitration agreement; expired arbitration agreement; arbitrator’s excess of authority in addressing matters outside the scope of the arbitrator’s mandate; or the infringement of a public order rule.
Grounds Linked to the Arbitral Proceeding: irregular composition of the arbitral tribunal; issuance of the award by a truncated tribunal with no authorization to do so; failure to define the dispute in the arbitration agreement; lack of capacity to enter into the arbitration agreement; due process violations such as denial of opportunity to present one’s case and equal treatment of the parties; or if the arbitration proceedings become void.”
Omer Eltom states that, “The determination of the validity of an arbitration clause is held to be dependent on the law of the country in which the arbitration was agreed to be conducted. In Cassation Petition 293 of 1991, it was held that since the relevant agreement provided for the ICC in Paris as a venue for arbitration, the validity of the arbitration provisions should be determined in accordance with French Law.” (Omer Eltom, The Emirates Law In Practice, p. 386)
Mr. Nassif provides a keen analysis of examples of grounds for challenges based on Dubai Courts jurisprudence.
- “Capacity to Enter Into an Arbitration Agreement: Capacity concerns the ability of a person (whether an individual or a legal entity having a juristic personality) to conclude and to be a party to an arbitration agreement. Where a person lacks such capacity, an arbitral award rendered in a matter involving a party lacking capacity might be annulled. By way of example, the Dubai Court of Cassation has held consistently in several rulings by way of Articles 235 and 237 of the Commercial Companies Law that a statutory representative of an LLC (manager) has the full power to carry out the management of the affairs of the company, which includes the capacity to enter into an arbitration agreement. (Dubai Court of Cassation Petition No. 164/2008, judgment dated 12/10/2008; No. 220/2004, judgment dated 17/01/2005; No. 537/1999, judgment dated 23/04/2000; No. 462/2002, judgment dated 02/03/2003).”
Article 235 of the Commercial Companies Law, Federal Law No. 8 of 1984 states:
“The limited liability company shall be managed by one or more managers to be selected from amongst the partners or others provided that their number should not exceed five. The managers shall be appointed in the memorandum or by a separate contract for a limited or an unlimited period. If the managers are not appointed in the manner stipulated in the preceding paragraph, they shall be appointed by the partner’s general assembly.”
Article 237 of the Commercial Companies Law, Federal Law No. 8 of 1984 states:
“Unless his powers are specified in the company memorandum, the manager shall have full capacity to manage the company. His actions shall be binding on the company when being corroborated by stating the capacity for his actions. The Manager’s responsibility shall be the same as that of the members of the board of directors in a joint stock company. Any provision in the company memorandum to the contrary shall be void.”
Omer Eltom states, “An agreement to refer to arbitration may only be entered into by a person who is entitled to dispose of the right in dispute. In Cassation Petition 220 of 2004, the manager of an LLC was held to be competent by virtue of his post to enter on behalf of the company into an agreement to refer a dispute to arbitration. However, where an agent entered into an agreement to refer a dispute to arbitration where he had no express authority to do so, the agreement was held to be void as far as his principal was concerned.” (Omer Eltom, p. 382)
2. “Authority to Agree to Arbitration: Authority to agree to arbitration concerns the power to conclude such an agreement in the name of and on behalf of another (this refers to the concepts of mandate or agency under UAE law.) The Dubai Court of Cassation has held that the authority to agree to arbitration and the delegation of powers to a third party to enter into an arbitration agreement in the name of and behalf of an LLC is a special delegation that encompasses this specific right without there being any specific requirement of form. The delegation of authority may be express, implied, or apparent; verbal or in writing; and it may be assessed on a case by case basis. The rule of specificity is strictly observed.
3. Conditions Precedent: The Dubai Court of Cassation has ruled that contracting parties can subordinate their arbitration to conditions precedent which have to be fulfilled prior to a referral to arbitration. A failure to fulfill the conditions precedent is ruled to be a breach of the pacta sunt servanda principle and accordingly a submission for arbitration should be rejected where the relevant condition precedent remains unperformed.
4. Witness Testimony and Oath Taking: Witness testimony in arbitration proceedings under Article 211 of the Federal Law on Civil Procedure has to be provided under oath. Article 211 states, “The arbitrators shall place witnesses under oath and whoever makes a false testimony before the arbitrators shall be considered to have committed perjury.” (Bechtel Case, Dubai Court of Cassation Petition No. 503/2003, judgment dated 15/05/2005) and in (Dubai Court of Cassation, Petition No. 322/2004, judgment dated 11/04/2005).” (Karim Nassif)
“Cassation Petition 503/2003 dealt with the application of the UNCITRAL and Dubai Chamber of Commerce Commercial Arbitration Rules. Dubai Supreme Court held in this case that in situations where the parties agree to apply the UNCITRAL rules, those rules should be applied to the extent to which they are not in conflict with the mandatory provisions applicable to local arbitration proceedings. The Court held in that case that the arbitrator’s failure to ask the witnesses to take an oath was an infringement of the mandatory provisions of Article 211 of the Code of Civil Procedure. The arbitration proceedings were accordingly regarded as void. In both the relatively recent reported Cassation Petitions 503 of 2003 and 322 of 2004, it was held that even a waiver by the other party prior to issuing the arbitration award will not change the position.” (Omer Eltom, The Emirates Law In Practice, p. 386)
5. “The Dubai Court of Cassation has ruled recently that although public policy is not one of the grounds on which one may seek the setting aside of an award due to the fact that Article 216 of the Civil Procedure Code does not enunciate public order as a ground for annulment, domestic public policy should be taken into consideration at the enforcement stage as it is one of the essential criteria that applies to the enforcement of judgments and awards. The Court of Cassation found in the same ruling that not all imperative rules form part of the public order.” Karim Nassif
‘In fact, the court refers to Article 3 of the Civil Transactions Code; interestingly, this article provides that ‘ public order’ shall be viewed as including such provisions relating to private status such as marriage, inheritance, and lineage, as well as provisions, relating to sovereignty, free trade, distribution of wealth, rules of private ownership and the other rules and foundations upon which society is based in such a manner as not to conflict with the definitive provisions and fundamental principles of Islamic Sharia’h.
To the effect, the rules not pertaining to public order as defined in Article 3 albeit mandatory, should not be taken into consideration for the annulment of an award. This is, in no doubt, a distinctly narrow approach to the definition of the public policy concept; however, the court refers only to domestic public policy and not to any international public policy.’ (Karim J. Nassif, ‘Note on Arbitration Under UAE Law’ DIAC Journal, Volume 3, Special Edition 2, April – December 2009.)
Article 3 of the UAE Civil Transactions Law Federal Law No. 5 of 1985 states:
‘Public order shall be viewed as including such provisions relating to private status such as marriage, inheritance, and lineage, as well as provisions relating to the government regimes, free trade, distribution of wealth, rules of private ownership, further to other rules and principles upon which the society is based in all matters that are not in conflict wtih the conclusive provisions and fundamental principles of the Islamic Sharia’h.’
“Rules aiming to prevent the violation of public policy are explicitly provided in almost all international commercial conventions in order to provide the member states with a method to which to protect their national, fundamental interests against potential violations of their public policy. Some of these conventions combined the notion of public policy with other principles such as good morals, religious and fundamental principles of law. For example, Article 30(a) of the Riyadh Arab Convention on Judicial Cooperation (of which UAE is a member) provides that:
‘The recognition of a judgement may be refused in the following cases: (a) if it is contrary to the provisions of the Moslem Sharia’h or the Constitution or the public policy or good morals of the signatory state where enforcement is sought.’
The New York Convention of which the UAE is a member also states:
‘Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition or enforcement is sought finds that: (a) The recognition or enforcement of the award would be contrary to the public policy of that country.’
To avoid any potential conflict in deciding public policy issues, all parties should be familiar with the public policy of the countries to which their agreement relates. Each party should respect the public policy of the country that might relate to the contract, whether because the contract will be performed in that country or because the law of that country is the applicable law. The application of public policy rules should be considered throughout the different stages of international arbitration.” (Dr. Hussam Talhuni: ‘The Notion of Public Policy and Its Role in International Commercial Arbitration Part 2′ in DIAC Volume 3, Special Edition 2, April – December 2009 (DIAC Journal).
6. Formal Defects in the Arbitral Award: Article 212(5) of the Civil Procedure states that the award should be signed by the arbitrators. The signature of the chairman is not sufficient in cases where several arbitrators are hearing the dispute. The arbitrators must appose their signatures on both the reasoning and the dispositive otherwise the award is considered void. (Dubai Court of Cassation, Petition No. 233/2007, judgment dated 13/01/2008).” (Karim Nassif)
“An arbitration award should be reasoned, although it is free from the obligation to comply with the general form of judgments stipulated in the Code of Civil Procedure. In Cassation Petition 269 of 1995, it was held that it is sufficient for an award to include a summary of the statements made by the parties, their documents and the reasons in support of the final decree which should not be contrary to public order.” (Omer Eltom, The Emirates Law In Practice, p. 386)
The judgment should also be in Arabic unless otherwise specified.
Article 212 of the Civil Procedure Law states:
- “An arbitrator shall make his judgment without compliance with the procedures of pleading except as provided for in this part and the procedures for summoning the parties, hearing the grounds of their defences and enabling them to produce their documents. Yet the parties to the dispute may agree on certain procedures to be complied with by the arbitrator.
- The arbitrator shall make his judgment in accordance with the rules of the law unless he is authorized to undertake reconciliation, whereby he shall not comply with these rules except as relevant to public order.
- The rules of urgent execution shall be applied to the judgments of arbitrators.
- The judgment of the arbitrators shall be issued in the UAE otherwise the rules governing the judgments of arbitrators issued in a foreign country shall be applicable in respect thereof.
- The judgments of the arbitrators shall be given by a majority opinion. They shall be written together with the dissenting opinion and shall include in particular a transcript of the arbitration agreement as well as a summary of the statements and documents of the parties, the grounds for the judgment, the decree date, its place of issue and the signatures of the arbitrators; however, if one or more of the arbitrators abstain from signing the judgment, a record thereof shall be made, and the judgment shall be valid if it is signed by the majority of the arbitrators.
- The judgment shall be made in the Arabic language unless otherwise agreed by the parties to the dispute, in which case a certified translation shall be attached thereto when it is deposited.
- The judgment shall be considered to have been issued from the date on which it is written and signed by the arbitrators.”
Posted on 3rd May 2010 by Camille Paldi