Disputes in the UAE: Arbitration options

Uncertainty over the expediency and specialist experience of the UAE courts means arbitration is the procedure of choice for formal dispute resolution for major construction projects. Arbitration can offer several other advantages over litigation such as flexibility, privacy, the ability to restrict appeals, a more straightforward process of enforcing awards overseas and greater control over proceedings. In addition, unlike the local courts, rights of audience are not restricted largely to lawyers who are UAE nationals.

The UAE is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (better known as the New York Convention). This means that an arbitration award obtained in the UAE will be recognised in one of the other 143 states which have ratified the convention and vice versa.

Arbitration centres in Dubai

Dubai offers two main local alternatives to the established arbitration centres of Paris, London, New York, Singapore and Hong Kong. In both centres, proceedings are conducted in English. Whilst the two modern centres are convenient for parties whose projects are taking place in the Middle East, Dubai also intends them to present a strong alternative to the traditional neutral arbitration centres, taking advantage of the emirate's geographic position between Western Europe and East Asia.

The Dubai International Arbitration Centre (DIAC), created in 1994, is the UAE's busiest arbitration centre. Its arbitration rules should be familiar and welcome to experienced international contracting parties, being based on the 1976 UNCITRAL Arbitration Rules.

Dubai's second arbitration centre dates from last year and is housed in the Dubai International Financial Centre (DIFC), a sector of Dubai Municipality the size of Vatican City which functions as its financial free zone. The DIFC constitutes a separate legal jurisdiction from the emirate of Dubai. As a joint venture with the London Court of International Arbitration (LCIA), the DIFC-LCIA Arbitration Centre's arbitration rules are substantially the same as that organisation's.

Since a new DIFC arbitration law (DIFC Law No. (1) of 2008) came into force last year (based upon the UNCITRAL Model Arbitration Law and England's Arbitration Act 1996), parties anywhere in the world now have the option of referring their civil or commercial contractual dispute to the DLAC.

The respective arbitration rules of the two centres are drawn from well-regarded sources. They have differences but opting between them might seem to largely be a matter of personal preference.

However, other important factors will influence the choice. The experience and expertise of the arbitrators on the panel of an arbitration centre is one consideration. It is also necessary to consider the law which governs the arbitral tribunal and the arbitration proceedings. The law of the arbitral procedure derives from the jurisdiction in which the arbitration centre is situated rather than the law which governs the contract. This is important as it may affect the choice of arbitrator and the validity of the award.

DIFC law governs the DLAC's arbitration procedure. It is based on English common law which British contractors and consultants may find themselves more familiar with. The law governing the DIAC is that of Dubai itself which follows a mainly civil code system.

Most importantly, the DLAC does appear to enjoy a very significant advantage over the DIAC regarding the enforcement of arbitral awards. The UAE still has no federal arbitration law - arbitration falls under the UAE Civil Procedure, Federal Law No. (11) of 1992 which is largely viewed as inadequate in addressing the subject. This weak spot means that domestic arbitral awards are not automatically binding and enforceable in the UAE. A successful party would thus need to get its award certified though all three tiers of the local court system if the other party refused to pay.

Not only does the DIFC avoid this issue by having a separate, suitable arbitration law but the Dubai emirate's Law No. (12) of 2004 provides that any arbitration award made in the DLAC is enforceable in Dubai's courts as soon as it has been ratified by the DIFC's courts. This legislation should mean that local enforcement is not an issue for a DLAC award. Nevertheless, doubts still persist in some quarters that the Dubai courts will apply Law No. (12) of 2004 without question. It is likely that these concerns will not be fully dispelled until a test enforcement case clarifies the position.

Arbitration elsewhere in the UAE

Parties based in Abu Dhabi frequently select the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) as the arbitration centre. Like the DIAC, the ADCCAC has a high degree of experience in construction disputes. It also suffers from the same drawback as the DIAC, namely, that the absence of a suitable UAE arbitration law means that domestic arbitration awards are not final and binding.

The UAE's main arbitration centres can hear disputes from the other five other emirates although it should be noted that each emirate has its own arbitration centres. These have the same difficulties on enforcement as the DIAC and the ADCCAC.

Other arbitration centres in the Middle East

If the parties are willing to look outside the UAE for an arbitration venue, there are respected arbitration centres in Gulf jurisdictions where there is a satisfactory, UNCITRAL Model Law based arbitration law and which states are signatories to the New York Convention. These options include venues in Cairo and Muscat.

Another alternative is Bahrain, an oil-rich kingdom less than an hour's flight from Dubai and Abu Dhabi. Bahrain is due to open a new arbitration centre later this year. The Bahrain Chamber for Dispute Resolution (BCDR) could emerge as a serious local rival to the arbitration centres of Dubai and Abu Dhabi as a neutral seat of international arbitration. The BCDR has teamed up with the American Arbitration Association (AAA) and may provide an attractive option for parties more comfortable with the rules and practices of the AAA and its international division, the International Centre for Dispute Resolution. On the matter of enforcement, Bahrain has ratified the New York Convention and has an arbitration law based on the UNCITRAL Model Law so enforcement of an award obtained in Bahrain within the kingdom or in another Convention state (such as the UAE) should be straightforward.

In spite of the growing reputation of its major arbitration centres, it is universally-acknowledged that the UAE needs to enact a satisfactory federal arbitration law as soon as possible. A draft law was circulated for consultation last year based on the widely-accepted UNCITRAL Model Law. However, its progress has been chequered and it remains unclear when it will come into law and in what form.

Until then, enforcement in the UAE will remain a key concern for those using local arbitration centres. For those committed to arbitrating within the UAE, at present the separate legal framework of the DIFC should make the DLAC a more attractive seat than the DIAC or the ADCCAC.