UAE seeks Middle East arbitration hub status

In late February 2018, the United Arab Emirates’ advisory parliament, the Federal National Council, announced the approval of a draft federal arbitration law. The move was immediately lauded as an important step that could bolster the UAE’s position as the pre-eminent jurisdiction for commercial arbitration in the region, as well as a key jurisdiction for commercial arbitration globally.

While the UAE has grown to become a global business hub and the regional headquarters of many of the leading international companies, it lacks a comprehensive legislative framework for arbitration, a fast-growing method of settling disputes out of court. “The current provisions in the Civil Procedure Law dealing with arbitration date back to the early 1990s, and are very limited in scope. On any view, they do not constitute a modern and comprehensive arbitration law,” says Raza Mithani, a partner in commercial dispute resolution at law firm Berwin Leighton Paisner.

In addition, while the approach of local courts to arbitration has become increasingly supportive, “there have been uncertainties and bumps in the road caused by certain judicial decisions”, says Mr Mithani. “Having a federal arbitration law that is based on international best practice will remove a lot of that uncertainty, and therefore the recent announcement has been welcomed by both the legal and business communities,” he adds.

Arbitration is king

Arbitration is the dispute resolution method of choice for many international companies operating in the Middle East, as it allows them to have disputes resolved by an English-language tribunal as well as input into who rules on their cases. Arbitration also offers greater confidentiality, speed and flexibility. This has made the enactment of modern commercial arbitration legislation all the more pressing for the UAE.

According to Nassif BouMalhab, a Dubai-based lawyer and partner in Clyde & Co’s Middle East dispute resolution group, the new legislation is especially important since the current onshore UAE laws applicable to arbitration were enacted well before the UAE became a leading business hub.

“The remarkable increase in foreign direct investment [FDI], combined with the preference for arbitration as a means to secure international commercial transactions, has created a need to elevate the existing legal framework,” says Mr BouMalhab. The UAE saw an FDI inflow of $10.3bn in 2017, up from $9.6bn in 2016, according to the UAE Competitiveness and Statistics Authority.

Arbitration in the UAE has been rising in recent years. Both the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), the UAE’s two offshore financial centres, have enacted their own international standard arbitration laws to make up for the shortfall on the federal level. In 2017, the DIFC courts saw a 41% increase in the total number of commercial cases it handled, including a 17% rise in arbitration cases. Meanwhile, the ADGM announced the establishment of an arbitration-hearing centre in July 2017, expected to be fully operational in 2018.

In September 2017, the International Court of Arbitration of the International Chamber of Commerce, a leading commercial dispute resolution institution, also opened a representative office for the Middle East and north Africa region in the ADGM.

The new law

Discussions regarding a standalone arbitration law have been going on in the UAE for more than a decade, with various draft laws having been circulated during that time. The latest draft law is reported to contain 61 articles, covering both domestic and international arbitration, and is expected to be based largely on the UN Commission on International Trade Law model law (considered a key model for international commercial arbitration). 

 “The reason why the model law is such a great starting place is that it provides a level of certainty. Countries are able to structure a law around a widely accepted framework used by the main jurisdictions for international business,” says Peter Anagnostou, a senior legal consultant in the litigation, arbitration and investigations team at law firm DLA Piper in the Middle East. The move would also bring the UAE into line with 78 other countries that have adopted an arbitration law based largely on the provisions of the model law, he adds.

The long-awaited arbitration law would apply to all arbitrations conducted in the UAE, as long as all parties agree not to be subject to another arbitration law. Reportedly, parties can also choose the specific legal system they wish to govern their dispute and where the case will be heard.

Clarity on enforcement is expected to be one of the biggest benefits of the new law. “Most of the issues faced in the UAE come at the end of the arbitration rather than during the course of the arbitration, which usually follows standard procedures seen in most other international jurisdictions,” says Mr Anagnostou.

“Enforcement aspects are more complex. In the past, there have been some challenges to the enforcement of arbitral awards in the UAE onshore courts. It is hoped that the new UAE arbitration law will improve the enforcement process and provide a level of certainty and guidance whereby the courts will know exactly what procedure to follow and parties will know what the court procedure will be.”

There is currently no expedited procedure before the courts for the enforcement of arbitration awards in the UAE. The new law is also expected to bring greater clarity regarding the grounds and timeframe in which an award can be challenged, as well as auxiliary issues such as the support that local courts should give to the arbitration process.

Enacting the law

While obtaining the approval of the Federal National Council is an important development, there are still several steps that need to be taken before the arbitration law becomes a reality.

Following any final revisions, the bill will go to UAE president Sheikh Khalifa bin Zayed Al Nahyan for his approval and signature, and the ratification of the Supreme Council. It will then be published in the Federal Gazette and shortly after become law. All of this is expected to happen in 2018, after which legal practitioners and businesses will need to familiarise themselves with the new legislation, though this is not expected to be a major problem.

“I don’t expect any issues in implementing the law. Implementation is now just the final step, the missing piece in the puzzle to solidify the UAE’s position as an international, global hub,” says Mr Anagnostou. He adds that while the arbitration law has been discussed for more than a decade, and has taken a long time to get to where it is, it is by no means unusual for arbitration laws to take such a long time. “It’s very common for these laws to take a long time to develop and amend. The UAE isn’t an outlier in that respect,” he says.

International arbitration hub

Having an effective dispute resolution system in place is likely to have a positive impact on investor confidence and trust in the UAE. Once the legal framework is in place it is expected to further boost the emirates’ overall reputation as a business hub, as well as give current and potential investors greater confidence in their ability to resolve disputes quickly, fairly and cost effectively.

While countries such as Saudi Arabia, Oman and Qatar have also ratified their own federal arbitration laws, the UAE is in a strong position to grow further as a regional arbitration hub. Those involved in the sector believe that, ultimately, the UAE could earn a place alongside rival traditional commercial arbitration hubs such as London, Paris, Hong Kong and Singapore.

According to Mr Mithani, in the past many disputes that originated in the UAE got referred for arbitration in places such as Paris or London. In recent years, however, the UAE has successfully attracted back some of this arbitration business. “The UAE has also had some success in attracting arbitration business from the wider Middle East,” he adds. “The next stage in the development of the UAE as an arbitration hub will be to attract such business from other regions such as Africa and India. Given its position as a logistical hub, this is entirely possible, and is likely to be accelerated by the enactment of a federal arbitration law.”

Meanwhile, those involved in legal and business operations in the UAE await the final version of the law with cautious optimism.