Arbitration in the UAE, Its Pros and Cons

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Table of Contents

Introduction
Concept of Arbitration
Advantages and Disadvantages of Arbitration
Development of Arbitration in the UAE
Arbitration is an Alternative Dispute Resolution in the UAE
The UAE Legislation on Arbitration
Conclusion
Works Cited

Introduction

For a long time, dispute resolution in the UAE was perceived as a complicated process because it was almost impossible to forecast the enforcement of legal rights. This process had no international standard and needed improvement. That is why the parties preferred to address their issues to the courts. Arbitration was considered to be more costly and time-consuming for a long but relatively recently the situation altered, and foreign investors were attracted to support arbitration and enhance the performance of the country. Thus, this procedure turned out to be based on the Western principles that focused on fairness and transparency.

Considering such improvements, the parties in the UAE started to refer to the arbitration as one of the alternative dispute resolutions. They believed it to be similar to the court procedure but friendlier and less official. Mainly, they found the fact that “arbitration … gives the parties substantial autonomy and control over the process that will be used to resolve their disputes” the most beneficial (Moses 1).

The significance of such benefit is that none of the parties is willing to provide the opponent with the home-court advantage. In the case of arbitration (both domestic and international), the issue is considered by the neutral and independent institution that has no biases in favor of one of the parties. Thus, arbitration is the best alternative dispute resolution for businesses that are willing to discuss their problems in the UAE. Unfortunately, no particular separate law is created for it, but some insights can be received from the UAE Civil Procedure Code and draft laws.

Concept of Arbitration

Moses states that “arbitration is a private system of adjudication” (1). It is seen as a procedure that provides two disagreeing parties with the opportunity to agree. They submit a dispute to the third party that is known as the arbitrator. It can be either an impartial panel or an individual. The peculiarity of this procedure is that the arbitrator is the one to resolve the conflict and decide what both parties must adhere to. The parties who conclude to refer to this process do not take into consideration any judicial system.

However, the final decision that is enforceable in a court. The parties can choose one of three decision-makers and consider whether an arbitration institution is to be approached or not (ad hoc) as well as to select the place and the language of the arbitration. The rules for the process can be defined by the arbitral institution or just be chosen by the parties. Arbitration is commonly used in the framework of international business because it is rather flexible and neutral. With its help, both parties receive control over the situation and gain autonomy. They do not have to yield to the home court system of the opponent and can be treated fairly.

The parties’ consent gives power to the arbitrators but also limits it, as they receive an opportunity to make only the decision that is connected with the scope of the agreement. Except for that, they are obliged to utilize only those rules, procedures, and laws that were chosen. As a rule, the fact that the parties will resolve their disputes with the help of arbitration is mentioned in the commercial contract. If such agreement is not written in the contract that is made between the parties, they have an opportunity to create it after a dispute occurred and refer to the submission agreement.

People or institutions chosen as arbitrators do not represent any government hierarchy and are private citizens. Being not judges, they are likely to pay less attention to public policy and interest. Arbitrators are more concerned about their primary responsibility that is why they are focused on the dispute and its resolution. They are also extremely thoughtful of the parties. They pay much attention to the interaction, as being chosen once; they would like to be referred to again.

Thus, arbitrators are to present themselves as even-tempered, fair-minded, and reasonable individuals who are well aware of all business peculiarities. They are not always lawyers, as their profession depends on the required knowledge that is defined by the industry. Thus, in some cases, architects and engineers can become arbitrators. If one arbitrator is chosen, he/she is selected under the agreement between the parties. Still, it is possible that then they choose the third one without the interference from the parties. International arbitrators are obliged to be independent and impartial because the arbitral institution or a court can throw doubt upon them.

Mainly, the parties decide to refer to arbitration because it allows receiving the final and binding award. This award is rarely appealed to a higher level court, which is rather advantageous. Of course, the opportunity to appeal exists but it can be used only if there was a defect in the procedure of arbitration. In the majority of cases, the only grounds for setting aside an award are rather limited. They include the mentioned defect in the process and the situation, in which the arbitrators abused their powers and made a decision that was not related to the dispute. When the award is passed, the losing party is expected to follow its terms voluntarily.

Still, if it is not so, the prevailing party appeals to the court to make the award recognized and enforced. The losing party is still able to challenge the award, but it cannot be done on the merits. Even if the mistakes of law or fact were made, the award is enforced. When it is recognized in the enforcing jurisdiction, it is believed to be as heavy and powerful, which presupposes that it can be enforced in the same way (Moses 2). In this way, it can be seen that award and jurisdiction become equal in the eyes of the law even though they require different procedures.

Advantages and Disadvantages of Arbitration

The parties refer to the arbitration because it provides a range of substantial benefits for them. The empirical study conducted by Christian Buhring-Uhle showed that arbitration is advantageous because of the two main reasons (Drahozal and Naimark 31):

It is a neutral forum. Arbitrators can be impartial and not have biases in the other party’s court.
With its help of arbitration, the enforcement is likely to be obtained without complications.

Professionals tend to prefer arbitration award because it is not so difficult to enforce internationally in comparison with the national court judgment. This happens because courts can prevent enforcement only because of the crucial procedural irregularities and integrity issues.

Except for that, the parties find it beneficial that there is a possibility to maintain the whole procedure and the award confidential. As a rule, confidentiality is guaranteed by the institutional rules. Still, it can be expanded under the agreement that is made by both parties. For example, if there is a necessity to involve witnesses and experts, they can be bound by a confidentiality agreement. Such an approach is extremely advantageous for businesses because they tend to be reluctant to disclose their operations and other information about the organization. At the same time, some would like to keep back the type of dispute and its outcome, especially if it is negative.

One more advantage that is given by such type of adjudication is the ability to choose arbitrators. It can be seen when the experts of some unique spheres are required, for example, those who have technical skills. Except for that, arbitration provides an opportunity to save some time. It requires fewer discoveries than in full-scale litigation. The absence of the possibility to make several appeals of the decision is advantageous. When finishing a dispute, businesspeople finally receive a chance to get on with their businesses.

It should be also mentioned that arbitration is more beneficial financially. It is claimed to be less expensive than litigation, but organizations tend to take no notice of this advantage nowadays. However, even if arbitration is not less costly, it still has a wide range of benefits.

It cannot be denied that arbitration also has some disadvantages. Still, they are not critical and are mainly discussed as the advantages but from the other perspective. In this way, fewer discoveries can be a problem if the dispute required extensive discovery. For example, for antitrust disputes that also often need the aggrieved party. This is the only manner, in which the violation can be proved with a decent reference to the unique information gained by sufficient access to the relevant documents. Thus, such limitations are likely to prevent meeting its burden of proof.

As the opportunities for the appeal are extremely limited, the party can face a range of difficulties because it will be extremely difficult to find a way out in the case of having a decision that is wrong on the law or the facts. Trying to solve such a problem, some parties that operate in the US started to add a new clause to their agreement. However, the Supreme Court prohibited judicial review of the merits (Baker and Berkowitz para. 1).

Moreover, arbitrators do not have any power that they could be able to use to provide penalties or force some of the parties to do something that is expected and required. In such a situation, it seems to be more advantageous to refer to the court because it has such coercive powers. Arbitrators are said to have no power at usually; that is why the court assistance can be required anyway.

Particular problems may also occur in the case of multiparty disputes. Arbitral does not provide an opportunity for several parties to join the process even though they are involved. It means that the only chance to participate is to agree to arbitrate. Also, when similar claims are made by different parties they are not consolidated even though such an approach is likely to be reasonable because of the same limitations.

Finally, very arbitrators should be discussed. It should be mentioned that the pool of experienced international arbitrators is yet not diverse, which is treated as a problem in the current society due to the tendencies in the society and business sphere. Still, some attempts to solve this issue were made.

Taking everything mentioned into consideration, it can be stated that arbitration, as well as the jurisdiction, has its advantages and disadvantages. The parties that need to solve some dispute should consider its time and find out all basic peculiarities to be sure that arbitration can bring the most benefit to them.

Development of Arbitration in the UAE

From the very beginning, dispute resolution turned out to be a great problem for the Middle East region. No one was able to forecast the enforcement of legal rights was unpredictable because there was no decently maintained uniformity. As a rule, all processes that were conducted with the purpose to resolve the dispute failed to follow those standards and best practices that were accepted and utilize internationally.

Taking this fact into account, it can be considered that the Middle East was trying to alter the situation and improve it for many years. Such alteration has streamlined during recent years due to the inflow of numerous Western construction and engineering firms. They are rather extended and sophisticated that is why they came to the region with particular expectations for fairness and transparency expression in the framework of resolution of various disputes.

In the Middle East, arbitration started to be perceived from the international point of view as one of the means that can be used for dispute resolution after the establishment of regional arbitration institutions. The most well-known among them is “the Cairo Regional Centre for International Commercial Arbitration, the Abu Dhabi Commercial Conciliation and Arbitration Centre, the Bahrain Arbitration Centre and the Dubai International Arbitration Centre” (“Recent Developments in Arbitration Law in the UAE” para. 2). Except for the creation of such institutions, the development of arbitration included the entrance to the New York Convention. Still, the most significant steps are seen as the provisions that have more in common with foreign and international organizations successfully operate on the territory of the country.

It is not a secret that the UAE, and especially its capital, is willing to become a major force for the international economy. It implements changes extremely quickly to prove its ability to become a leader. This, it adopted the New York Convention in 2006 and added three significant developments in two years. The federal government of the country developed a new arbitration law that should be discussed and edited to provide as many benefits as possible. It was enacted by the Dubai International Financial Centre (DIFC), which soon cooperated with the London Court of International Arbitration (LCIA). As a result of such a partnership, the DIFC – LCIA Arbitration Centre was created. Such changes significantly improved the position of the UAE, providing it with more opportunities to turn into the international center for arbitration.

Financial free zones were created in the UAE at the beginning of the 21st century, and DIFC was one of them. The purpose of its establishment was the design of the environment of progress and development for a range of business areas. Except for that, it offered an option for dispute resolution. Arbitration services followed one legislative platform for four years, till a new law was enacted in 2008. It had the supplementary and additional provisions that allowed to deal with civil and commercial arbitrations.

The new law provided the parties with the opportunity to refer to the DIFC even if they have no relation to it. International and domestic businesses had equal rights to seat their arbitration in the DIFC. Both of them received benefits, as the procedure was familiar to the foreign businesses and was maintained nearby to local ones. Still, if the parties had decided to seat in some other place except for the DIFC, they were likely to have no chance to take full benefit of the law, according to which parties are not obliged to be physically present at hearings.

The creation of the DIFC-LCIA Arbitration Centre provided the DIFC with the opportunity to turn into the leading forum for arbitration with time. For now, it claims that “located within DIFC, the DIFC-LCIA Arbitration Centre will promote and administer the effective resolution of international business disputes through arbitration and mediation, offering all the services that are offered by the LCIA casework secretariat in London” (LCIA para. 2). The DIFC-LCIA Arbitration Centre is willing to maintain a business-friendly regime and successfully utilize the best practices of the LCIA, following its general-purpose rules and procedure.

The arbitration system that currently exists in the UAE is extremely important for it. It is internationally recognized, which provides an opportunity to enhance confidence from “the international business community and encourages foreign investment which is critical for the UAE to diversify into markets outside the oil industry” (Brewer Smith Brewer Gulf para. 4). For a long time already, the UAE implemented changes aimed at the improvement of the facilities and systems that are in access for various parties that have some disputes they cannot resolve without external help. They considered both domestic and foreign parties, underlying the necessity to alter existed standards about international ones. Such changes entailed the involvement of governmental and non-governmental institutions.

Arbitration is an Alternative Dispute Resolution in the UAE

Importance of Arbitration

The UAE developed under the influence of the Arab and Islamic worlds. They affected the formation not only of culture and ethical norms but also legislation. As a result, the country was familiar with arbitration starting with ancient times. Of course, it was not institutionalized then and was an informal process of dispute resolution that was mainly focused on the issues concerning family and land.

Only the custom and the community could enforce the final decision due to the absence of any institution at that time. Still, the majority of commercial, civil and criminal issues were discussed and solved in this way till the moment when the political system was established, and arbitration turned into a formal procedure. In this way, people used to believe that arbitration is appropriate for the disputes between the family members while the court was expected to consider disagreements that occur between some parties. Such distribution reveals the way the Arabs and Muslims treated arbitration, as they saw it as a kind of dispute resolution that is based on a friendly platform.

Thus, it turns out to be clear that arbitration has been treated as a useful procedure since the early times. However, it started to be actively used only in the 15th century when vast amounts of natural resources were found on the territory of the country. The oil business started to develop rapidly, which caused a wide range of disagreements and misunderstandings. The court system turned out to be rather unfriendly to such issues; that is why it was considered that a new form of dispute resolution is needed. Such change occurred to be rather beneficial for the arbitration, as it provided an opportunity to establish arbitration as an alternative dispute resolution that also appealed to the representatives of both commercial and business entities.

Being dependent on the oil and mineral resources for a long time already, the UAE considered that it would be advantageous to discuss other potential sources of revenue. The country started to think about alternative ways of attracting investments from foreign countries and came up with the decision that it would be advantageous if the arbitration center was created in the UAE, and universal laws were established. Such a strategy was believed to:

Guarantee that the country has dispute resolution laws of international standard. The investors were supposed to be likely to support such initiative, as they would have an opportunity to promote the best arbitration services and venues in the world.
Turn the UAE into a world-class arbitration center, which was likely to attract various parties that have some disputes so that they decide to seat their cases in the country.

Such a decision was not only the attempt to perform the UAE as the main center of arbitration in the world due to the universal laws and regulations. It was a business-oriented strategy developed by the country to enhance its economic performance (Kwan and Teale 95).

It is believed that the Arbitration Centers in the UAE are likely to become the leaders in the world because they have a range of advantages in comparison to others:

Geographical location

The location of the UAE has geo-economic importance, as it can be used to link Eastern and Western Europe as well as Central and South Asia. The chances for the UAE to become a leader in this sphere increase because Asian states have no arbitration center of international standard yet while it is needed, as arbitration becomes a commonly used instrument for commercial disputes resolution.

Neutrality

The place of arbitration plays an extremely significant role in the whole procedure, as the parties are willing to avoid home-court advantage of their opponents. In this perspective, it is rather advantageous to choose a seat that is the most neutral. The parties are to consider the arbitration law of the seat and its commitment to the New York Convention 1958. If they are not decent, the received award will not be likely to be enforced and recognized by the home country of the parties. Taking into consideration such peculiarities, it can be concluded that the UAE is a perfect seat for arbitration because it is independent and impartial for everyone.

Standard and facilities

Due to the rapid development, the UAE turned into a leader of the global economy, which provided the parties with the possibility to continue their business while they are resolving the disputes in the UAE. The country also attracts not only the best arbitration professionals but experts of different fields who can support the dispute by their expertise (Dubai International Arbitration Center, “Why Arbitrate in Dubai?” para. 1).

Legislation

The institutions of arbitration that can be found in the UAE follow the revised 2008 Law based on the Model Law. It is rather beneficial, as the majority of the parties prefer to cooperate with the institution that follows the commonly recognized Model Law.

Benefits of Arbitration as an Alternative Dispute Resolution

Some quarrels may often occur between the parties, but they are mainly resolved before the court, which means that the alternative dispute resolution (ADR) means are used. These can be mediation, neutral evaluation or other “various creative ways that have been used to resolve disputes short of the last resort” (Atlas, Huber, and Trachte-Huber 1). Such a process appeals to the parties because it is less formal and stressful than the official trial.

Except for that, it provides an opportunity to maintain the procedure in a more confidential way, which is highly valued by businesses. Arbitration is one of the ADR services that allows the parties to choose a neutral person who will consider their arguments and evidence to make a final decision, which can be appealed to the court if the parties find it to be indecent and follow the procedure of non-building arbitration. Arbitration and other ADR are suitable to discuss family civil and commercial issues.

Arbitration is the best type of ADR for the situations when the parties are willing to find a third person to solve their problem without formality and high costs of a trial. It is also appropriate for the cases when an experienced in the field decision-maker is needed. However, it is better to choose another type of ADR if the parties are willing to have total control and have an opportunity to reconsider the outcome without any problems and penalties.

Referring to ADR instead of addressing the case to the court can be rather beneficial for the parties as such an approach allows us to save time. In the majority of cases, a dispute can be resolved within a couple of months or even weeks, while receiving a final decision through the trial can take more than a year. In this manner, the parties can also control their finances and reduce expenditures because there is no need to spend funds on litigation expenses.

ARD allows the parties to have a significant role in the procedure, which means that they can influence the outcome. They have a chance to show their side of the story and select an expert who will make a final decision. It is also critical that arbitration as ARD allows preserving relations between the parties, as it is a more friendly and less hostile way of resolution. An experienced arbitrator may assist the parties in their interaction so that no new issues occur during their communication. ARD can help the parties to reach mutual satisfaction, as it does not presuppose the existence of the losing party because the decision made can be beneficial for both of them. ARD is also advantageous for the attorneys because they have an opportunity to serve as assistants but not belligerents, which has positive influences on their relationships and can generate repeat business (Judicial Branch para. 8).

In his article, Richard Bell claims that arbitration is the most formal form of ADR (para. 35). Such a fact can also explain why the parties prefer to use it instead of other types of ADR. The representatives of the business who have some issues are willing to receive the decision that would be generally recognized and will not be argued by the court. They are looking for a procedure that can bring almost the same outcome as the trial but have a simplified structure. In this way, arbitration fits their demands perfectly while other forms of ADR are less authoritative, which makes them rarely valued in the UAE.

The UAE Legislation on Arbitration

Arbitration in the UAE is based on the Arab and Islamic legislation and customs, which means that it combines both legal and informal approaches of resolution. Such a concept was not welcome by the courts initially, which entailed a range of problems. Still, with time, the procedure started to follow an international standard and turned into usual practice. Initially, with the creation of the UAE, new laws were established to fill the gaps that occurred because of the creation of a new country. Still, at that time legislation entailed long delays. Today it is well organized and performed mainly by the DIFC Courts that are based on the English legal system.

In the UAE, no special law on arbitration exists; however, the peculiarities of the procedure are outlined in the Civil Procedure Law of 1992 (Whelan 35). Several articles of the Federal Law No. 11contain the information about domestic and international arbitration. They can be found in chapter three (Blanke and Karim para. 2). For example, the most basic information about arbitration as outlined in Article 203. It is stated that this type of ADR is considered to be valid only if it is decently arranged in the written form (Dubai International Arbitration Center, “Federal & Local Laws” para. 1).

The same requirement also exists in the English Arbitration Act 1996 (5). It is also underlined that if one of the parties addressed the case to the court, its opponent is to be present at the hearing. Otherwise, it would be canceled. The role of the court is discussed in Article 204. If arbitrators do not perform their duties, the court is free to select other institutions for this position, and such a decision cannot be argued.

Articles 203 to 218 of chapter three are devoted to the process of arbitration and its peculiarities while the fourth chapter is focused on foreign judgments, articles 235 to 238 in particular. Execution procedures are discussed in the fifth chapter in the articles 239 to 243 (Dubai International Arbitration Center, “Arbitration in the UAE” para. 5).

The arbitration agreement is characterized by the UAE Civil Procedure Code. It is stated that the number of arbitrators cannot be even, as it can entail additional issues. According to the Law, they can be arbitrators can be appointed by the parties who have a dispute, by the institution, or by the court. Legislation of un-Islamic practices is not permitted. Arbitrators cannot force one of the parties to provide some documents or evidence, but they are allowed to take this case to the court. The applicable law is not discussed in this framework, which means that the parties have an opportunity to choose any. Still, they are obliged to keep to the UAE law. Otherwise, the award received after the arbitration can be not enforced (Dubai International Arbitration Center, “Federal & Local Laws Concerning Arbitration in UAE” para. 12).

Several drafts of Arbitration Law were proposed to provide comprehensive legislation on both domestic and international arbitration (Stadwick para 2). According to them, the Abu Dhabi Federal Court of Appeal will be treated as a competent court. The draft law gives the parties a right to select the arbitrators with no restriction to their nationality or ethnicity but for the same with the parties. The award is to be deposited to the court in no more than 14 days. Confidentiality is provided by the law unless another decision was made by the parties. The draft is based on the Model Law and does not allow it to appeal against the award just like it.

Dubai International Arbitration Centre and the DIFC-LCIA will not follow this law because they are autonomous. The DIFC Law No.8 of 2004 will be taken into consideration instead (Dubai International Finance Center para. 1). Thus, the issue can be resolved either by the DIFC or by Dubai. Still, both of them will operate by the principles underlined in the New York Convention and the Model Law.

Conclusion

From the very beginning, the UAE considered arbitration to be less effective for dispute resolution than a trial in the court, but the situation has changed with time. It turned out that arbitration can provide the award that is recognized just as the court’s decision but through the simplified procedure. It is less costly and time-consuming, it allows the parties to select the institution or a person who will resolve the issue being impartial and independent. The UAE is likely to benefit from the adoption of arbitration because it is expected to be chosen as arbitrator over and over due to the geographical location, neutrality, applied standard and facilities, and legislation.

The main advantage of arbitration is the right to select the arbitrator provided to the parties. They have an opportunity to avoid home-court advantage in this way, which turns out to be critical, as the decision made by the arbitrator can be hardly altered. In this framework, the possibility to choose three arbitrators is also beneficial. Even though two of them will support the native party, the third one will remain neutral, and his/her decision will be conclusive.

As arbitration became a part of the UAE business strategy that is focused on economic development, its rules and institutions started to be modernized with the focus on international standards. When the draft of the Federal Arbitration Law is generally accepted and established, it will be used to reveal the country’s commitment to becoming the main seat of international arbitration. In this way, the UAE will support its position of the leader and attract further investment.

Works Cited

Arbitration Act 1996. 2016. Web.

Atlas, Nancy, Stephen Huber and Wendy Trachte-Huber. Alternative Dispute Resolution: The Litigator’s Handbook. Chicago: American Bar Association, 2000. Print.

Baker, Donelson, and P.C. Berkowitz. High Court Rejects Expansion of Judicial Review of Arbitration Awards. 2008. Web.

Bell, Richard. United Arab Emirates: Dispute Resolution in Abu Dhabi. 2011. Web.

Blanke, Gordon, and Karim Nassif. United Arab Emirates: Arbitration in the UAE 2011. 2011. Web.

Brewer Smith Brewer Gulf. Arbitration in the UAE. 2015. Web.

Drahozal,‎ Christopher, and Richard Naimark. Towards a Science of International Arbitration, Hague: Kluwer Law International, 2005. Print.

Dubai International Arbitration Center. Arbitration in the UAE. 2016. Web.

Dubai International Arbitration Center. Federal & Local Laws Concerning Arbitration in UAE. 2016. Web.

Dubai International Arbitration Center. Why Arbitrate in Dubai? 2016. Web.

Dubai International Finance Center. Laws & Regulations. 2016. Web.

Judicial Branch. ADR Types & Benefits. 2016. Web.

Kwan, James, and Emma Teale. “Arbitration in the United Arab Emirates: the Traps, the Tricks and Tips for the Unwary.” International Arbitration Law Review 4.1 (2006), 95-99. Print.

LCIA. International offices. 2016. Web.

Moses, Margaret. The Principles and Practice of International Commercial Arbitration, Cambridge: Cambridge University Press, 2012. Print.

Recent Developments in Arbitration Law in the UAE, 2016. Web.

Whelan, James. UAE Civil Code and Ministry of Justice Commentary. London: Sweet & Maxwell. Print.

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