The arbitration clause - is it a devil you know?

Leonora Riesenburg.

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As the old adage states: better the devil you know than the devil you don’t.

In a territory where the maintenance of good business relations is still considered king, 2009 and 2010 alike has been witness to a surge in commercial arbitration.

Arbitration is a form of alternative dispute resolution (ADR) in which the parties to an agreement agree, usually as part of the primary agreement, to submit their differences to a third party or a tribunal for a binding decision. Arbitration extends a number of key advantages.

Parties can appoint an arbitrator or arbitrators with sector specific business experience they have confidence in. Proceedings are less formal and more flexible encouraging a less hostile agenda. The arbitral tribunal is not usually bound by rules of evidence or procedure applicable to judicial proceedings; and the hearing is private and so the proceedings and award relatively confidential.

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In short: the parties have greater control over the process, which they themselves are empowered to shorten or lengthen, depending on mutual resolve to bring the case to a swift hearing.

In theory, arbitration is a sensible alternative to litigation. In practice, it is by no means without problem. The arbitration clause favours the parties’ right to elect the procedure governing the arbitration; parties who often choose out of comfort and not out of prudence.

The problem arises in the fact that arbitration in the UAE is still in its infancy and riddled with a myriad of questions relating to the independence and integrity of the administrative institution and its operatives, the strength of the administration, procedural fairness and transparency for all regardless of rank, and the centre’s adherence to international rules and best practice.

The better the administrative forum, the higher the degree of procedural supervision, the greater the international respect for its awards and, as far as possible, immunity from challenge.

A number of positive steps have been taken by the Federation to erode a business culture of distrust. In 2006, the UAE acceded to the Federation to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, promoting mutual co-enforcement of arbitral awards across no less than 144 states.

In Dubai, both the Dubai International Arbitration Centre (DIAC) and the Dubai International Financial Centre and London Court of International Arbitration joint venture have recently either modeled their rules on, or adopted the UN Commission on International Trade Law (UNCITRAL) Model Laws which go well beyond what is provided for in the Civil Procedure Code.

A code which is still primordial in other centers, including the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC). Inter-state disparity results in a number of unknowns.

In the absence of a unitary Federal law on arbitration, the UAE Civil Procedure Code, Federal Law No. 11 of 1992, favours controversial rules such as the cancellation of arbitration in favour of legal suit, in circumstances where one of the two parties files suit, and the other party fails to object to such filing at first hearing (Article 203(5)) or the enforceability of arbitral awards only once approved by the relevant court with which the award was filed.

The piecemeal re-modeling however marks a powerful shift in the fabric of domestic arbitration and an unmitigated incentive to arbitrate in the more progressive centers in territory. Those who try this will rapidly learn that there is no real cure for deficiencies in contractual arbitration clauses. The UAE calls for better drafting to overcome administrative overhangs.

About Leonora Riesenburg
Leonora Riesenburg is senior legal consultant for the Projects & Construction Group of Galadari & Associates advocates and legal consultants in Abu Dhabi.

Leonora is a dual qualified lawyer from the UK with more than three years of regional experience in the Gulf and operates in a number of highly technical niche sub sectors including construction, infrastructure projects, LNG, ONG, power, telecommunications, water and wastewater.