Arbitration in the Gulf Cooperation Council

By Michael Kortbawi, BSA Ahmad Bin Hezeem & Associates LLP, Dubai, United Arab Emirates

 

In recent years we have seen a proliferation of GCC Arbitration centres established in the GCC. The UAE alone is home to 7 arbitration centres:

 

Dubai International Arbitration Centre (DIAC)

Abu Dhabi Commercial Conciliation and Arbitration Centre

Sharjah International Commercial Arbitration Centre,

Ras al Khaimah Centre of Reconciliation and Commercial Arbitration

Ajman Commercial Conciliation

Emirates Maritime Arbitration Centre

 

Elsewhere across the GCC, arbitration centres include:

 

The Bahrain Chamber for Dispute Resolution

The Commercial Arbitration Centre of the Kuwait Chamber of Commerce and Industry (KCAC)

The Qatar International Center for Conciliation and Arbitration (QICCA) • The Saudi Center for Commercial Arbitration

In the Middle East, countries are resolving to upgrade their arbitration laws to reflect international best practice standards. This is evidenced by the fact that most GCC countries have adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the "New York Arbitration Convention", one of the key instruments in international arbitration. The Convention applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration.

From an international perspective, very little seems to be known about arbitration in the GCC. Below are the ten points to consider before commencing arbitration in the GCC.

 

Awards must be ratified by local courts that are known for ˜erratic' ratification of awards. In many cases, ratification leads to the reopening of the case to address its merits. In general there have been significant steps towards greater certainty for foreign award creditors seeking to enforce against assets located in the GCC. As the GCC countries are often considered emerging jurisdictions, there is still a certain amount of uncertainty surrounding the enforcement of foreign awards. In 2010, the Fujairah Court of First Instance ordered the first ever enforcement of a foreign award in the UAE. Stemming from this judgement, it is recognized that conventions and treaties entered into by the UAE have the force of local legislation. In 2013, the Court of First Instance in Qatar annulled a foreign ICC award relying on Article 69 of the Qatari Civil and Commercial Procedural Code which states that all judgments must be issued in the name of the Emir. This was despite the fact that the arbitration was seated in Paris, and its enforcement in Qatar was therefore subject NY Convention. However, the Court of Cassation referred the case back to the lower court, stating explicitly that foreign awards are subject to the New York Convention and courts should not impose the requirements of the Code upon them. While this decision is merely persuasive it does signal a positive turning of the tide for enforcement of foreign awards.

The parties to arbitration in the GCC may determine their preferred language of proceedings, unlike in local courts where proceedings and documents must be in Arabic leading to significant translation costs and ambiguities in translation. Parties can decide whether to conduct arbitration by documentation or by holding hearings. They may also decide on additional issues such as the applicable law, venue, number of arbitrators and preferred professional background.

There remains is no set rule in the domestic arbitration law that provides an arbitrator with guidance as to which substantive law should be applied to the dispute. Generally, parties are free to decide on the law applicable to the merits of the case. In addition, there is a limited choice in determining the place of arbitration. Despite the fact that arbitration has increased in popularity it is still a relatively new concept in the GCC. In fact, the Dubai International Centre for Arbitration was only established in 1994. In fact, with the UAE aside, there remains only one possible seat for arbitration in each of the GCC countries, not including Oman which has yet to establish an arbitration centre.

Not all disputes can be arbitrated. Employment disputes, criminal matters, matters relating to public policy and personal status issues cannot be arbitrated. The main source of arbitration proceedings in the GCC arises from construction disputes. These types of disputes tend to be very complex and generally require an expert to determine the issues in question. The past decade has seen a huge number of significant infrastructure projects being implemented around the region as seen from the World Cup construction in Qatar and the current construction on the world's tallest building in the UAE expected to be completed in time for Expo 2020. Construction work in the Middle East is generally secured by global contractors and engineering companies from GCC governments. Such global companies usually prefer the use of international governing law and jurisdiction clauses and arbitration clauses in their contracts to allow any disputes to be heard by arbitration centres with which they are more familiar. On the other hand, the government will generally to seek retribution through the local court system. The use of a local arbitration centre is increasingly being adopted as a middle ground for both parties.

Arbitration in the GCC is often more costly than litigation. Lack of competition allows arbitration centres to fix high costs whereas local courts have lower capped fees. Typically only large companies have the vast resources necessary for arbitration. As you can see from the below table, the cost of arbitration in the GCC differs greatly from both the UK and US.

 

There is no legal requirement for the number of arbitrators per proceeding. As a general rule, there should be an odd number in the instance of there being more than one arbitrator.

Article 206 of the UAE Civil Procedure provides that an arbitrator cannot be: a minor, legally incapacitated, stripped of his civil rights because of a criminal conviction (unless he has been rehabilitated) or bankrupt.

Specialists can be selected and appointed as arbitrators, enabling the tribunal to draw on its own expertise. In contrast, judges in the local courts generally rely on court-appointed experts to determine issues of law. One of the advantages of arbitration over litigation is that the parties may have the ability to nominate one of the arbitrators. In such instances, parties are given an opportunity to have a person of their own choosing involved in the determination of the dispute.

Arbitration is an increasingly popular option for parties in the GCC, based on the fact that it is often a more expeditious than litigation. In local court proceedings throughout the GCC, a successful party is usually awarded a nominal sum in respect of its legal costs. In international arbitration however a successful party has a chance of being awarded a proportion of their legal costs. In general, litigation in the GCC requires a longer period for resolution due to the right of appeal to a higher court. Conversely, arbitral awards are usually final and binding, are generally not subject to appeal while being more easily enforceable outside the jurisdiction in which they were issued.

Despite arbitration being a product of a private agreement between parties it is not considered as confidential in all jurisdictions, whether or not arbitration is deemed confidential is wholly dependent on the seat of the arbitration. In the GCC, arbitration proceedings are generally considered to be fully confidential unless there is an express agreement between parties that states otherwise. This ability to solve disputes in private is evidence of a further advantage of arbitration over litigation.

In the US, arbitration must be in writing to be enforced, there is no requirement for it to be signed. To enforce arbitration agreements in the UAE the agreement must be in writing and signed by both parties. Courts generally decline to enforce arbitration agreements in the form of fine print on terms & conditions and on the back of invoices. Arbitrators in the US have broad discretion in awarding remedies including awards for monetary and punitive damages. The power of the tribunal to award legal costs in the UAE is governed by the parties' express agreement. There is no culture or practice of reimbursement fees in the region.

Arbitration centres are growing in significance throughout the GGC, as discussed they are of particular relevance in the construction industry, an ever growing industry in the Middle East. In response, GCC governments have been developing legislation that sets the legal framework for arbitration proceedings and the enforcement of awards as a method of promoting arbitration as a means of dispute resolution in the GCC. Global construction companies are becoming increasingly more comfortable dealing with disputes in the GCC region as legislators make enhanced efforts to reflect international standards in arbitration proceedings.