Middle East arbitration highlights from 2016 and trends for 2017

The last 12 months have seen a number of important developments in arbitration practice in the Middle East, some comforting to the arbitration community, some controversial. Here, we present a summary of the key themes from 2016, and give our thoughts on what to expect in 2017.

Court decisions supporting arbitration

Many jurisdictions in the Middle East seek to promote themselves as arbitration-friendly in a bid to attract business. Key to such claims is the support given by local courts to the process of arbitration and to the recognition and enforcement of domestic and foreign arbitral awards, with arbitration typically being the dispute resolution method of choice for many international businesses operating in the region. Whilst some practitioners see courts in the region as an impediment to arbitration, the past 12 months have seen some key court decisions across the region in support of arbitration.

• DIFC Court holds award enforceable even where signatory to arbitration agreement had no express authority to bind party to arbitration

It has long been believed that an arbitration clause in a contract could not be enforced against a UAE company unless the person signing the contract had specific authority to bind the company to arbitration, and not simply authority to enter into the contract.

In Ginette PJSC v (1) Geary Middle East FZE and (2) Geary Limited, however, the DIFC Courts held that an arbitral award should be recognised and enforced notwithstanding that there was no evidence that the individual who signed the arbitration agreement (which was contained in a settlement agreement) on behalf of an award debtor had express authority to bind the Company to arbitration.

The DIFC Court held that there was a distinction between there being evidence that the Executive Managing Director had no authority to sign arbitration agreements and there simply being no actual evidence that the same individual was authorised to sign arbitration agreements. The award creditor did not have to prove that the person who signed the contract for the award debtor had the power to do so.

Despite having jurisdiction over the dispute and acknowledging that DIFC law should be applied, interestingly, the DIFC Court went on to consider the position under UAE law and concluded that the outcome of the case would have been the same even if UAE law had been applied.

This is an example of Courts in the UAE (in this instance the DIFC) handing down an arbitration-friendly judgment.

For our further legal analysis and comments on the significance of the judgment, please click here.

• DIFC Court willing to imply an agreement on seat of arbitration

In April, the DIFC Court ordered a stay of proceedings in light of parallel proceedings in California in Gavin v Gaynor. The case is significant in a number of respects; for a more detailed discussion on the impact of the case, please click here.

Importantly for arbitration, the court considered the interpretation of arbitration agreements and the implication of an agreement settling the seat of arbitration as the jurisdiction with "most connection" to the claim.

Where parties do not expressly agree to a nominated arbitral seat, then, once DIFC Court jurisdiction is established (even if arguable), the DIFC Courts are prepared to imply an agreement between the parties in relation to the seat, based on the seat with the closest connection to the agreement, taking into account the terms of the substantive agreement, the parties, the nature of the transaction, as well as any other relevant factors.

• DIFC Court refuses anti-suit injunction in support of arbitration

In July, the DIFC Court refused to grant an injunction in favour of the claimant in Brookfield Multiplex Constructions LLC v (1) DIFC Investments LLC (2) Dubai International Financial Centre Authority CFI 020/2016, which would have had the effect of staying proceedings brought in the Courts of mainland Dubai.

Brookfield and the DIFC Authority entered into a contract in 2003 for the construction of the Gate Building in the DIFC. The parties agreed that, in 2005, the DIFC Authority's rights and liabilities under the contract had been transferred to DIFC Investments (DIFCI). In October 2015, a stone slab fell from cladding on the Gate Building and subsequent investigation led to an allegation that the incident was caused by defective workmanship which was common and widespread.

Proceedings in the Courts of mainland Dubai were brought by DIFCI for an expert to be appointed to inspect and report on the affected parts of the Gate Building.

Whilst there was no dispute between the parties as to the existence of a binding arbitration agreement, Brookfield argued that DIFCI's application to the Dubai courts constituted a breach of the arbitration agreement because the terms of the application to appoint the expert was not simply to report on the condition of the property, but to "prove any such flaws and errors committed by the defendants…as well as assess any damages thereto including value thereof" and thus would have impinged upon the role of any arbitrators appointed to resolve the dispute.

The DIFC Court held that DIFCI's application to the Dubai Court for an expert to be appointed was not a breach of the arbitration agreement:

a.     the arbitrators would have the power to control their own procedures and could choose to admit or not admit the evidence of the Dubai Court-appointed expert;

b.    under the arbitration agreement, the parties agreed that those procedures could not be contrary to the laws of Dubai, and so the expert's report would merely have evidential, rather than substantive effect;

c.     experts often stray into areas which are ultimately the domain of the tribunal;

d.    DIFCI made clear that it would not pursue court proceedings to determine substantive liability

and therefore that there was no basis for an anti-suit injunction to be granted.

Whilst the DIFC court did not stop the court proceedings, it did consider (i) the jurisdiction of the DIFC Court to make an anti-suit injunction (the DIFC Court held it did have jurisdiction) and (ii) the seat of this particular arbitration (the DIFC did not exist as a jurisdiction at the time of the 2003 contract).

• Dubai Court of Cassation recognises UK's membership of the New York Convention

On 30 March 2016, the Dubai Court of Appeal refused to enforce an ICC arbitral award rendered in London, England on the grounds that it was not satisfied that the United Kingdom was not a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The ruling was made despite (i) neither party relying on such grounds and (ii) the grounds being factually incorrect (the UK signed the New York Convention in 1975).

The Court of Appeal instead ruled that the UAE's Civil Procedure Law (CPL) applied to the enforcement of the Award.

There are reciprocity provisions in the CPL by which a foreign arbitral award will only be enforceable in the UAE if the two countries have signed an instrument relating to the enforcement of arbitral awards, by which the courts of that foreign country in turn enforce awards originating in the UAE. As the Court of Appeal was not satisfied that such a convention existed, it refused to enforce the Award. (The New York Convention does not contain a similar reciprocal principle (there is no requirement for the foreign country to demonstrate that it would enforce a UAE Award) although signatories can reserve their rights to enforce awards made only in other contracting States.)

The CPL should not have been applied in this manner, as the UAE is a signatory to the New York Convention.

The Court of Appeal's decision was appealed to the Court of Cassation.

To widespread relief amongst UAE arbitration practitioners and the wider business, the Court of Appeal's judgment was reversed, in short order.

The Court of Cassation issued its judgment in Case No. 384 of 2016 on 19 June 2016, confirming, inter alia, that:

• by virtue of Article 238 of the CPL, UAE courts were bound by the provisions of international enforcement conventions to which the UAE was a party;
• this included the New York Convention, which had been adopted by the UAE in 2006;
• the UK signed the New York Convention on in 1975;
• therefore both the country in which the Award was issued and in which enforcement was sought are both members to the New York Convention, which would apply (and not the CPL); and
• the Court of Appeal's ruling violated UAE law.

The decision reached by the Court of Cassation was, in our view, sensible and correct. However, in its judgment, the Court of Cassation made no mention of the UAE's decision, when signing the New York Convention, not to reserve its right to enforce awards made only in other contracting States. The UAE's decision in this regard means that its courts must, in principle, recognise and enforce all foreign awards, regardless of where they are issued. The Court of Cassation's silence on this point may, regrettably, be interpreted to mean that only awards issued in other New York Convention countries are recognisable and enforceable in the UAE, which would be inconsistent with the UAE's obligations under the Convention. Nevertheless, on the whole, a welcome decision.   

• Qatar Court of Cassation allows enforcement of foreign arbitral award

Qatar is also party to the New York Convention, allowing easier enforcement of foreign arbitral awards in Qatar. However, enforcement of arbitral awards in Qatar can be inconsistent, and some award creditors have found their awards being annulled by the local courts.

In a decision which provides comfort to parties who may need to enforce foreign arbitral awards in Qatar, the Qatar Court of Cassation recently overturned the decisions of the Qatar Courts of First Instance and Appeal and upheld an international award.  The court ignored the fact that the award in question had not been issued in the name of the Emir (and so breached Article 69 of the Civil and Commercial Procedural Code), holding that this was not relevant so long as the award complied with the relevant provisions of the New York Convention.

For a summary of the arguments raised in the Qatari Courts and the reasoning of the Court of Cassation, please click here.

• Saudi Court recognises foreign arbitral award

Saudi Arabia's new (2012) Arbitration Law (based on the UNCITRAL Model Law), and its new Enforcement Law (2013) replaced 30-year-old legislation which was generally perceived by practitioners as arbitration-unfriendly.

In May 2016, a new enforcement court in Riyadh established under the new legislation recognised a USD 18.5 million foreign ICC arbitral award and converted it into a Saudi court order, executable against a Saudi-domiciled debtor, with a minimum of fuss.

Previously, despite Saudi being a New York Convention signatory, obtaining recognition of and enforcing foreign arbitral awards there was problematic, and contracting with Saudi counterparties with no assets outside the jurisdiction added risk to doing business there.

Whilst the Court's decision is not binding on other Saudi Courts, it is a huge step in the right direction for arbitration in Saudi.

• Saudi Court allows first female arbitrator

Also in May this year, the Saudi administrative Court of Appeal in Dammam reviewed and confirmed the formation of an arbitral tribunal using its powers under Article 15 of the new Saudi Arbitration Law. The main significance of its decision (which is final and not subject to appeal) was that in so doing, the Court did not object to the appointment to the Tribunal of the first Saudi female arbitrator in the field of commercial disputes, Ms Shaima Aljubran.

Scholars have historically cited Shari'a Law as a basis for the understanding that neither non-Muslims nor women could act as arbitrators. It is worth noting that the new Saudi Arbitration Law does not stipulate gender requirements for arbitrators.

Again, whilst the Court's decision does not bind other courts in Saudi, and we do not know whether any award of the Tribunal of which Ms Aljubran is a member will be challenged at the enforcement stage, this is another positive step for arbitration in Saudi.

New seats of arbitration, new arbitral institutions and a new judicial body

Dubai Arbitration Week in November featured a number of discussions on the benefits (or otherwise) of the proliferation of arbitral institutions and rules in the region. Existing arbitration centres include DIAC, DIFC-LCIA, ADCCAC (in the UAE), QICCA, QFC (in Qatar) and GCC and BCDR-AAA (in Bahrain). Despite this, the last 12 months have seen the introduction of a new arbitration seat – the Abu Dhabi Global Market (ADGM), and 2 new arbitral institutions in the region – the Emirates Maritime Arbitration Centre (EMAC) and the Saudi Center for Commercial Arbitration (SCCA).

• SCCA

The Saudi Center for Commercial Arbitration is the first international arbitration institution in Saudi. Established in 2014, it was officially inaugurated on 3 October 2016. The SCCA's Rules, developed in partnership with the AAA-ICDR, are based on the UNCITRAL rules to ensure they align with international standards, but adapted to reflect local expectations and to sit within the local legal and procedural framework.

Whilst the SCCA is new, two cases have now been submitted to the SCCA and the arbitration community is watching hopefully to see their successful administration.

Whether the Saudi Government will now encourage SCCA dispute resolution provisions in its contracts with third parties (as opposed to its previous default position of Saudi courts) also remains to be seen.

• EMAC

In April 2016, UAE Vice President, Prime Minister and Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum issued Decree No. 14 of 2016 establishing the Emirates Maritime Arbitration Centre.

EMAC is a specialised arbitration centre designed to meet the needs of international and regional businesses operating in the maritime sector. EMAC's stated primary function is "to provide flexible and neutral mechanisms to effortlessly settle disputes within the maritime sector in UAE".

The EMAC Rules provide that unless the parties expressly agree otherwise, the seat of any arbitration will be the DIFC, meaning that the supervisory court will be the common law DIFC Court.

The establishment of an industry-specific arbitral institution adds to the regional choice of institutions. As with any new arbitral institution, there will inevitably be a time lag following its creation before parties use the Centre to resolve their disputes, although its existence demonstrates a commitment by the Government to strengthen the UAE's position as a place for international arbitration; on this occasion in respect of maritime disputes.   

• ADGM

The Abu Dhabi Global Market is one of the latest free zones to be created in the UAE. Similar to the DIFC, it operates its own self-contained common-law legal system. Twelve months ago, the ADGM enacted new arbitration regulations based on the UNCITRAL Model Law, thus creating a new arbitration seat in the UAE. (Whilst the Regulations were formally enacted on 17 December 2015, we feel that is sufficiently close to the end of the year to smuggle them into our 2016 review.) However, as with the QFC in Qatar, the ADGM does not currently have its own arbitration institution, and so, whilst parties can select ADGM as the seat, they would also have to choose an institution of choice to administer the arbitration, such as the ICC or the LCIA; otherwise, the proceedings will be ad hoc.

To read more about the ADGM Regulations, please click here.

• Judicial Committee of the Dubai Courts and the DIFC Courts

June 2016 saw the launch of the Judicial Committee of the Dubai Court and DIFC Courts.

The Committee's main role is to determine jurisdiction disputes between the Courts of mainland Dubai and the DIFC Courts, (including questions of whether in a particular case the DIFC Courts may serve as a conduit jurisdiction for the onward enforcement of domestic and foreign arbitral awards in mainland Dubai), and to consider conflicting judgments of the Dubai and DIFC Courts involving the same parties and subject-matter, including conflicting enforcement orders issued by the Courts in relation to the same arbitral award.

There will be 7 members of the Committee, 3 from the DIFC Courts and 4 from the Dubai Courts. Deliberations of the Committee are made behind closed doors and its decisions are final and binding; they cannot be appealed.

The intention behind the Committee is clear: to deal quickly and effectively with jurisdiction conflicts between the Dubai and DIFC Courts without undermining the jurisdiction or authority of either.

However, the devil here is in the detail. It is unclear from the decree establishing the Committee (Decree No. (19) of 2016) when there is a jurisdictional dispute for the tribunal to consider.  Do there need to be decisions by the Dubai and DIFC Courts both taking jurisdiction for proceedings or is it enough that a party alleges that matters should be in the other forum and begins a set of parallel proceedings?  Either way, pending the Committee's decision, the Dubai or DIFC Court proceedings are stayed.

It is also unclear whether the party that did not file the challenge with the Committee has a right to make submissions during the process.

There are of course wider constitutional questions arising from the establishment of the Committee and where it sits in the UAE Court hierarchy, but ultimately, practitioners and parties are likely to want a right to make submissions to the Committee in response to any jurisdiction challenge, a transparent process and a quality (and quick) decision.

Changes to Law / Institutional Rules

This year also saw some key changes and proposed changes to the rules of local arbitral institutions, and one potentially very significant amendment to the UAE's Penal Code.

• DIFC-LCIA

New DIFC-LCIA Rules, mirroring recent amendments to the LCIA Rules, became effective on 1 October 2016. The 2016 Rules introduce: (1) a procedure for appointing an emergency arbitrator; (2) a procedure for consolidation of multi-party disputes; (3) measures to increase efficiency and avoid delays; and (4) sanctions to punish counsel for poor conduct.

The changes introduced by the 2016 Rules are designed to ensure that DIFC-LCIA arbitrations are more efficient and less expensive.

For more details on the changes and our views on what they mean, please click here.

• DIAC

In August 2016, the Dubai International Arbitration Centre issued for public consultation a draft of proposed amended arbitration rules which are, once finalised, intended to replace the existing 2007 DIAC Rules.

The draft DIAC Rules follow in the wake of amendments to the arbitration rules of several other arbitration centres, including the sixth edition of the Arbitration Rules of the Singapore International Arbitration Centre, which entered into force on 1 August 2016 and the DIFC-LCIA's new rules (above).

The draft DIAC Rules seek to address the disparity between DIAC's existing rules and the rules of other arbitration centres, both domestic and international. The similarity of many of the proposed changes to the draft DIAC Rules to the recent amendments to the DIFC-LCIA Rules perhaps also reflects the new cooperative approach agreed between the DIFC and DIAC, heralded by the inauguration of a new DIAC office in the DIFC and the Memorandum of Understanding between the institutions.

For a more in-depth look at the draft DIAC Rules and what they will mean for parties in DIAC arbitrations, please click here.

• UAE Penal Code | Article 257

Perhaps the most controversial development in international arbitration this year in the region arrived in the UAE in September, with a change to the Penal Code, creating a new criminal offence for arbitrators of failing to act with integrity or impartiality.

Federal Law No. 7 of 2016 amends Article 257 of the UAE Penal Code to read:

Any person who issues a decision, gives an opinion, submits a report, addresses a case or proves an incident for the benefit or against a person, failing to maintain the requirements of integrity and impartiality, in his capacity as an arbitrator, expert, translator or investigator, appointed by administrative or judicial authority or selected by parties, shall be sentenced to temporary imprisonment.

Said categories shall be banned from being re-assigned to such tasks, and shall be subject to the provisions of Article 255 of the present Law. (emphasis added)

This means that arbitrators that fail to maintain requirements of integrity and impartiality may now be guilty of a criminal offence and sentenced to imprisonment. Article 257 previously only applied, in less stringent terms, to translators, experts and investigators.

The scope of integrity and impartiality is not defined in the law and it is unclear whether further guidance will be introduced. 

Whilst the policy basis for introducing the offence may be sound, it is inevitably likely to weaken the image of Dubai as an arbitration-friendly jurisdiction, and provide a weapon to machine-gun practitioners who seek to intimidate arbitrators through the threat of (or actual) vexatious criminal proceedings. The effects of the new law are already being felt, with tribunal members resigning and other respected arbitrators declining appointment to UAE tribunals.

Our in-depth views on the potential effects of the amendment can be found here.

2017 trends

Three key trends that we anticipate for arbitration in the region next year are (i) an increase in formal cooperation between courts and authorities of local jurisdictions, (ii) more arbitrator resignations in UAE-seated arbitrations resulting from the amendment to Article 257 (unless it is repealed or significantly amended) and (iii) the promotion of diversity in arbitration.  

• More cooperation between courts and arbitral institutions

The end of this year saw a proliferation of cooperation agreements between the DIFC and third parties. The DIFC Court announced a Memorandum of Understanding with DIAC in September which aims to expedite the recognition, ratification and enforcement of DIAC arbitration awards by the DIFC Courts.

Also in September, the Dubai Resolution Authority (the DIFC body incorporating the DIFC Courts) entered into a Memorandum of Understanding with JAFZA, the Jebel Ali Free Zone Authority, with an aim of the MoU being to promote the use by JAFZA and its member companies of the DIFC-LCIA as an arbitration centre.

In October, the DIFC Courts reached a Memorandum of Understanding with Shanghai High People's Court in China to strengthen judicial cooperation and collaboration.

These Memoranda sit alongside the plethora of other Memoranda of Understanding and Guidance stretching back to 2010 between the DIFC Courts and other bodies, including with the UAE Ministry of Justice, the Commercial Court of England & Wales, the Federal Court of Australia, the United States District Court for the Southern District of New York and the Supreme Court of Korea.       

Next year we expect this trend to continue, with the DIFC reaching formal agreements with other courts and bodies aiming to both promote the DIFC-LCIA as an arbitration centre and to facilitate the recognition and enforcement of DIFC Court/foreign judgments (including converted arbitral awards) in the DIFC and elsewhere.

Indeed, as we go to press, a new agreement between the Courts of the DIFC and Ras Al Khaimah (RAK) has just been announced (12 December) that will allow judgments issued by the DIFC Courts to be directly enforced by courts in the emirate of RAK.

• Article 257 fall out

Unless Article 257 as amended is repealed or modified, we predict 2017 as a year in which UAE-seated arbitrations (including those seated in the DIFC, where federal UAE criminal law also applies) will suffer from arbitrator resignations and the increased use of guerrilla tactics by practitioners to invoke the provision in proceedings in which they sense it will gain a tactical advantage.

• Diversity in arbitration

An examination of statistics of who typically sit on arbitral panels demonstrates a distinct lack of female arbitrators and a preponderance of ethnically European arbitrators. However, there is growing recognition that this is not healthy – and indeed not in the best interests of the parties using arbitration, and the promotion of those who do not typically sit as arbitrators is gathering momentum (not just in the Middle East but globally). Whilst we do not expect the number of female and non-European arbitrators to increase dramatically during 2017, we are confident that more appointments will be made and that the position will improve over the next few years. 

For further information, please contact Craig Shepherd, Partner, Caroline Kehoe, Partner, Stuart Paterson, Partner, or Benjamin Hopps, Senior Associate.