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Wednesday 01, August 2018 by Banker Middle East

A step towards securing investor trust

 

Mohamed Alem, Founding Partner and Mazen Ghosn, Senior Associate at the Dubai office of Alem & Associates, analyse the new Arbitration Law and its impact on the financial services sector.

After much anticipation, the UAE issued a new Federal Arbitration Law in May 2018. While it may still be too early to assess the exact impact on financial and business sectors, a first review of the 61 Articles contained in the new Arbitration Law confirms the enthusiasm of legal practitioners and economic actors for this latest legislative enactment.

THE PREVAILING SITUATION BEFORE THE NEW ARBITRATION LAW
Ever since the UAE acceded to the New York Convention on the recognition and enforcement of foreign arbitral awards in 2006, it was anticipated that Articles 203 to 218 of the 1992 UAE Federal Civil Procedure Law (FCPL) governing arbitral proceedings in the UAE would be repealed and replaced.

Indeed, it was widely believed in the arbitration community that the FCPL provisions failed to reflect international best practise and that the ambiguous and inconsistent framework of the 1992 law paved the way to so-called ‘guerrilla tactics’ employed by recalcitrant parties with the effect of significantly hampering the progress of arbitral proceedings conducted in the UAE. In addition, the UAE Courts have interpreted the FCPL’s provisions in such a way that arbitral awards often risked annulment on unreasonable grounds.

Thus, the UAE Courts annulled arbitral awards because witnesses failed to give an oath in the exact form prescribed for court hearings in the FCPL. Arbitral awards were also negated because the arbitrators did not sign each page of the award or that they were not physically present in the UAE when they signed the award.

UAE Courts also imposed the stringent conditions that tribunals render awards within six months from the ‘first arbitration session’ and that arbitration agreements be entered into by signatories who possess a special power of attorney or are named in the articles of association as the person with the authority to bind the company to arbitration.

Inevitably, the rigid application of the FCPL by UAE Courts on UAE-seated arbitrations sent a signal to the business community that the UAE is not a pro-arbitration jurisdiction. This resulted over time in dampening the appetite of foreign investors, particularly in public/private ventures where courts are overly protective of the Federal State’s interests.

Considering the urgent need to achieve a set of arbitration rules that are consistent with internationally accepted principles, Federal Arbitration Law no.6/2018 was ultimately enacted after eleven years of waiting and two previous failed attempts in 2008 and 2014.

KEY FEATURES OF THE NEW ARBITRATION LAW
The new Arbitration Law is largely based on the UNCITRAL Model Law which is designed to assist States in reforming and modernising their laws on arbitral procedure to take into account the particular features and needs of international commercial arbitration. The new Arbitration Law also incorporates several international principles such as the doctrine of competence-competence enabling tribunals to decide on their own jurisdiction and the principle of autonomy of arbitration agreements by virtue of which these agreements are separable from other provisions contained in underlying contracts.

It is to be noted that as soon as the new Arbitration Law comes into effect (one month from the publication date in the Official Gazette), it will apply to both ongoing and future arbitration proceedings.

One of the key features of the new Arbitration Law are the powers expressly conferred to UAE Courts to issue interim/ protective measures in relation to the arbitration proceedings and to intervene in the arbitration process in order, for instance, to act as appointing authority where parties fail to appoint arbitrators.

As for the enforcement of arbitral awards, the new law puts in place strict time limits with the purpose of simplifying and expediting the enforcement process. As such, the authentication, approval and execution of arbitral awards are now expected to be completed within 60 days from the request for enforcement of the award, unless the UAE Court finds that a reason for annulment exists.

Turning to the challenge of arbitral awards, the new law stipulates that the party that wishes to set aside an award must file the application for annulment within 30 days from the date of notification of the award. Furthermore, a challenge to the award no longer suspends enforcement as it did under.

In addition to the abovementioned substantial changes, the new law modernises different aspects of arbitration proceedings in the UAE. For instance, the new Arbitration Law provides that witnesses and experts can be cross-examined through electronic means, therefore allowing flexibility in providing evidence. The new law also recognises the validity of arbitration agreements concluded via email as well as awards signed electronically.

IMPACT OF THE NEW ARBITRATION ON FINANCIAL AND BUSINESS SECTORS
It has long been established that firms and businesses are attracted to arbitration due to the expertise and neutrality of the decision maker, the confidentiality of the proceedings, the parties’ lack of familiarity with courts and s in foreign jurisdictions, and most importantly the enforceability of the awards.

Undeniably, an effective arbitration that leaves no room for unpredictability of outcomes at the time of enforcement is paramount to securing investor trust. Indeed, a strong arbitration facilitates contract enforcement, thereby leading to increased investments, and particularly relationship specific investments (i.e. investments that have far less value outside of the initial relationship) such as those in the construction sectors or those with a high intellectual property component.

The adoption of the new Arbitration is clearly aimed at improving the reliability and predictability of arbitration as a mean to resolve contractual disputes in the UAE. By strengthening the legal protection of arbitration, the UAE can reasonably expect to attract foreign direct investments.

This said, it remains to be seen how the UAE Courts will be interpreting and applying the new Arbitration in such manner that may generate further confidence among arbitration users.