Guide to Arbitration Agreements in the UAE in 2024

Arbitration is a form of alternative dispute resolution that involves resolving disputes outside the court system. It is a widely accepted dispute resolution method in commercial disputes. Most commercial agreements have an arbitration clause, where the parties agree to submit their disputes to one or more arbitrators. 

An arbitrator is an impartial and qualified third party appointed by or on behalf of the parties. The arbitrator, acting in a capacity akin to a judge, presides over the matter in a less formal setting than a traditional courtroom proceeding. Arbitration Awards are legally binding as court decisions.

Arbitration proceedings cannot occur without an arbitration agreement (or an arbitration clause in the agreement). Parties are required to specifically choose arbitration in the underlying agreement as the method of dispute resolution for arbitration proceedings to take place. The arbitration agreement or clause should be drafted to clearly reflect the parties’ intention to settle disputes by means of arbitration. 

What is an Arbitration Agreement?

An arbitration agreement is a contractual arrangement in which parties commit to resolving disputes through arbitration rather than pursuing litigation in a court of law. An arbitration agreement may be in the form of an arbitration clause in the underlying contract or in the form of a separate agreement.

Key Components of an Arbitration Agreement

The arbitration agreement/clause should include the following essential elements:

– Number of arbitrators,

– Language in which proceedings will be conducted,

– Applicable arbitration body to supervise the arbitration (such as ICC, LCIA),

– Seat or Place of arbitration

The Legal Framework of Arbitration in the UAE

The UAE Arbitration Law, i.e., Federal Law No. 6 of 2018, was issued in May 2018 and was recently amended by Federal Law No. 15 of 2023. Important provisions of the Law are discussed below:

– The UAE Arbitration Law applies to any arbitration carried out in the UAE (unless both parties agree to apply another arbitration law). The Law also applies to any International Commercial Arbitration carried out outside the UAE if the parties agree that it should be used.

– Article 7 of the Law states that an arbitration agreement must be in writing, except in certain specified cases, such as when the agreement is contained in an exchange of communications, e.g., email correspondence.

– Article 10 states that the arbitrator is not required to be of a particular gender or nationality, but the arbitrator should not have any direct relationship with any of the parties that would prejudice his impartiality, integrity, or independence.

– Article 19 states that the Tribunal has the power to rule on its own jurisdiction and may do so either as a preliminary question or in a final arbitral award on the merits of the dispute.

– Article 21 grants the Tribunal the power to issue interim measures upon request by a party or on their own initiative whenever they deem it necessary. Interim measures can include an order to preserve evidence that may be material to the resolution of the dispute, taking necessary measures to preserve the goods that constitute a part of the dispute’s subject matter, preserving assets and property of which a subsequent award may be enforced, or maintaining the status quo. 

International Treaties and Conventions

The UAE ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2006, which has profoundly influenced the country’s arbitration framework. 

Its adoption has created a more reliable and internationally harmonized dispute resolution system. The courts in the UAE typically enforce foreign arbitral awards by applying the provisions outlined in the New York Convention. 

Benefits of Choosing Arbitration in the UAE

Confidentiality

Confidentiality is an important feature of arbitration and one of the main reasons why parties choose it. Arbitration is considered a private dispute resolution process, and the parties, arbitrators, and the arbitration institution are required to maintain confidentiality with regard to the proceedings, evidence, and award (unless the parties agree otherwise). 

Expert Arbitrators

Parties can appoint technical experts with specialist knowledge as arbitrators. The experts can then conduct in-depth analyses of the technical issues in a complex dispute, such as delay and quantum analysis in construction disputes. 

Faster Resolution

The primary benefit is the quicker process than litigation. Scheduling an immediate session with an arbitrator is considerably more straightforward than securing an expedited hearing date in Court. Additionally, rescheduling with an arbitrator is generally more manageable than doing so with the Court system.

Drafting a UAE Arbitration Agreement

Essential elements of an arbitration agreement or clause are:

1. Referral of Disputes to Arbitration

An arbitration agreement/clause must explicitly convey the parties’ intention to settle disputes by arbitration. Courts will assess the existence, validity, and applicability of the arbitration clause concerning the particular dispute, ensuring that only arbitrable matters are submitted for resolution.

2. Seat of Arbitration

The seat of arbitration determines the procedural law governing the arbitration, i.e., the law governing the conduct of the arbitration proceedings (such as interim remedies or the right to appeal).

The Courts of the seat have supervisory jurisdiction over the arbitration. The seat impacts the applicable procedural laws and the enforceability of the arbitration award. It should not be confused with the physical place or venue of arbitration. 

For example, if the seat specified in the arbitration agreement is the UAE, only UAE courts can supervise the arbitration proceedings, irrespective of where the hearing took place.

3. Number of Arbitrators and Method of Selection

The arbitration agreement should specify the number of arbitrators and the method of their selection. Most arbitration proceedings are conducted by a panel of three arbitrators. 

Each disputing party selects one arbitrator, and the third arbitrator (who acts as the chairperson of the panel) is chosen either through mutual agreement between the parties or, if they are unable to reach a consensus, by the arbitration institution or a neutral appointing authority. In less complex cases, parties may agree to appoint a sole arbitrator.

4. Language of Proceedings

Agreeing on a common language for arbitration ensures that both parties are comfortable and can effectively participate in the arbitration process. The choice of language can significantly impact the clarity of communication, understanding of legal terms, and overall fairness of the proceedings. 

The language of the proceedings is often the same as that of the underlying contract or the language of the contractual correspondence, as it can reduce the expenses related to translation services. 

5. Rules of Arbitration

Parties may opt to apply the rules of an established arbitral institution, such as the ICC or LCIA, to supervise the arbitration proceedings. 

Common Mistakes to Avoid in UAE Arbitration Agreement

1. Inconsistencies

Inconsistencies in arbitration agreements can lead to significant legal challenges. For example, a contract may have two conflicting dispute resolution clauses: an exclusive jurisdiction clause in favor of the Dubai courts and an arbitration clause.

2. Failure to Specify the Scope

When the scope of an arbitration agreement is not clearly defined, it can lead to disagreements about whether the agreement covers a specific matter or dispute and whether it should be resolved through arbitration. 

Clearly defining the scope of the arbitration agreement helps avoid ambiguity and ensures that both sides understand which matters will be settled through arbitration rather than in court.

3. Failure to Specify the Seat of the Arbitration

If the seat of arbitration is not clearly defined, it creates ambiguity regarding which country’s laws will regulate the arbitration process and which courts will hold supervisory authority. This uncertainty can hinder parties from making informed strategic choices and taking necessary procedural actions.

The Arbitration Process in the UAE

1. Initiating Arbitration

Arbitration proceedings commence when the Claimant sends a notice of arbitration to the Respondent or submits a request for arbitration to the arbitration institution (depending on whether the arbitration is ad hoc or institutional). 

The Notice/Request includes details of the dispute giving rise to the claim and the relief sought. In the case of three arbitrators, the Claimant may also nominate its arbitrator in the Notice/Request. 

2. Selection of Arbitrators

After the Notice/Request is served, the Respondent provides a Reply/Answer, which includes the Respondent’s position and counterclaims (if any). In case of three arbitrators, the Respondent may nominate its arbitrator in the Reply/Answer. 

In the case of three arbitrators, the two party-appointed arbitrators select the chairman of the Arbitral Tribunal. In the case of a sole arbitrator, the parties try to reach a consensus regarding who should be appointed.

3. Arbitration Proceedings

Preliminary Hearing

Once the Arbitral Tribunal is constituted, a hearing is convened with the parties to discuss the procedural issues. After consulting the Parties, the Tribunal draws up a provisional timetable for the proceedings.

Exchange of Pleadings and Fact Witness Statements

The parties exchange pleadings, which include a Statement of Claim, Statement of Defence, Statement of Reply, i.e., the Claimant’s Reply and Defence to Counterclaim, and Statement of Rejoinder, i.e., Respondent’s Reply to the Claimant’s Defense to Counterclaim. Submission of written witness statements is also a common practice in arbitration.

Discovery Stage

In the document discovery phase, the parties may request each other to produce the documents which they think will be relevant to support their respective cases.

Exchange of Expert Reports

Arbitration enables the parties to appoint independent technical experts with specialist knowledge to conduct in-depth analyses of the disputes. These experts prepare written submissions known as Expert Reports.

Exchange of Opening Submissions

Parties may exchange written opening submissions before the hearing, including a summary of their position, facts, issues, evidence, and arguments.

Main Hearing

In most cases, an oral hearing takes place, during which the parties present their respective cases. The hearing may also involve cross-examination of witnesses and experts. It may take place in person or virtually online.

Award

The Tribunal usually issues the Arbitration Award (i.e., the final dispute decision) after the hearing concludes.  

Conclusion

Arbitration is a preferred alternative to traditional court proceedings for several reasons. First, arbitration proceedings are private and confidential. Second, arbitration involves a thorough analysis of complex disputes. 

However, arbitration proceedings cannot take place without an arbitration agreement. Therefore, parties should be meticulous in drafting their arbitration agreements. Unambiguous language is essential to avoid conflicts and facilitate efficient dispute resolution.