Abstract:

Recently,

the UAE has promulgated Federal Law Number 6 for 2018 (UFAL 2018) at the time

when procedures for ratifying of arbitral awards have been changed substantively.

The new UAE federal law (hereafter referred to as UFAL 2018) has replaced the

enforceability of Articles 203-218 of the Civil transaction code promulgated by

law number 11 of 1992 (hereafter referred to as CPC). These provisions were

mainly linked to the definition of the Arbitration clause, types of disputes

that could be resolved by arbitration and that show how to ratify such awards

by Dubai courts in order to execute reliefs awarded thereof . The UFAL 2018

stipulated that the provisions of the said law shall be only applicable to all

ongoing arbitration proceedings from the time the law came into force.

Recently,

on the 26th of December 2018, Dubai Courts experienced the First nullification

case (unpublished judgment) focused on the nullification grounds mentioned in

the new law (UFAL 2018). Although the outcome of the case was the nullification

of the arbitral award that involved claims worth 8.5M AED, the justification of

the judgment was interesting as it laid down some General Law Principles.

Summary of the case:

The Plaintiffs

are a family (referred hereinafter collectively as a ‘family') composed of a

Father and his two sons. They are the owners of a Villa located in a Posh area

located in Downtown, Dubai. The father, as the de facto representative of the

family, signed a written construction contract with a reputable Contractor in

Dubai to construct the infrastructure, mechanical and electrical works related

to the said Villa. Even though the entire family is the owner of the Villa, the

father is the one who concluded the Construction Contract with the Contractor

in his capacity as the Employer.

The

Employer failed to pay the due amounts to the contractor as per the signed

written construction contract. Subsequently, the Contractor initiated

arbitration proceedings against the family (Respondents in arbitration) as the

owners of the Villa in their capacity as Employer to the project. In this

regard, we take note that the Employer's representative, had pleaded that the

sons have no capacity to be part of the arbitration proceedings because they

did not sign the construction contract and did not provide their consent to be

a party to either the arbitral proceedings or the arbitration clause mentioned

in the construction contract of the Villa. However, Such plead was not taken

into consideration by the Tribunal, Moreover, we also take note that representative

of the Respondents (father and two sons ) had also filed a counterclaim to seek

compensation for damages in the Villa.

On

the 12th of August 2018, the Arbitration Tribunal issued an arbitral award that

ordered the Respondents (the Family) to pay the Contractor an amount of 8.5M

for the accomplished and variation works and dismissed the counterclaim of the

Respondents.

The

family was not satisfied with the arbitral award, and on 10th of September

2018, the Family filled a nullification of arbitration award case against the

Contractor, as per the nullification grounds of the new law (UFAL 2018) and the

failure of the Arbitration Tribunal to justify the ruling of the award.

Court Findings on law

principles to nullify the arbitration award:

the

court refuted by saying that, although the Jurisprudence of Civil Law

countries, confirms that the provisions of the laws apply only to the events

after the entry into force, also known as the prospective effect of the

legislation and not the events that have retrospective effect i.e., principle

that allows the law to apply to events occurred before the enforcement of the

law. However, the principle of retrospective effect shall apply if there is a

provision in the law to determine the retroactive effect or the provisions of such

law are related to public policy.

Considering

the above, the court has explained that Article (59) UFAL 2018, states that the

provisions of this law apply to any arbitration existing at the time this law

comes into existence, even if it was based on an earlier arbitration agreement.

However, the provisions of any previous legislation shall be considered as

correct. Therefore, the new UFAL 2018 may not be

applied to the events that have occurred in the past on any legal relationship,

legal status that arose prior to UFAL 2018 coming into force and the previous

procedures that applied, based on an existing arbitration law at that time, (CPC

articles 203-218).

The

court has also clarified that it was clear from the relief requested by the Plaintiffs

(family) that the dispute had begun before UFAL 2018 came into force on 16th of

August 2018. It shall be noted that UFAL 2018 is not applicable to the events

that took place before the UFAL 2018 came into force, that followed the

previous legislation (old CPC 1992) . Therefore, it cannot be argued  that the arbitral award issued  is invalid in this  case after considering the  grounds enumerated in UFAL 2018 provision which

denies the application of the retroactive principle to the new legislation

(UFAL 2018). However, the applicable  law

shall be CPC 1992 as the valid existing law at the time of the cause of action

of the construction contract, such CPC 1992 must  prevail over the UFAL 2018 due to the latter

nature which confirmed non-retrospective principle.

As such, the text of article 216 of the CPC

shall be in force until the date analyzed and scrutinized with the facts of

this case. The parties to the case, at the time of consideration of the

arbitrators award, may request the nullification in the following grounds: a)

If the arbitral award issued was based on invalid terms of reference or an

agreement that has expired the time limit or if the arbitrator has exceeded his

limits under the terms of reference, in other words, the arbitrator acted

beyond his powers  b) If the award was

issued by arbitrators who were not appointed in compliance with the law, or by

only a number of arbitrators who were not authorized to issue the award in the

absence of the others, or if it was based on terms of reference in which the

dispute was not specified, or if it was issued by a person who is not competent

to act as an arbitrator or by an arbitrator who does not meet the legal

requirements c) If the award of the arbitrators or the arbitration proceedings

becomes null and void and such oddness affected the award.

The

court has also explained that the Plaintiffs in the arbitration proceedings

have filed their arbitration case against the whole family, assuming that the

family is, in fact, the owner of the Villa. Consequently, the whole family

should also be considered as a party to the arbitration proceedings, however,

the court has affirmed that the Arbitrator mandate is driven from ‘arbitration

convention which is a written, explicit, unambiguous agreement between the

signed parties thereof to resolve their disputes throughout the arbitration

proceedings. In this case, the arbitrator acted beyond the given mandate as

mentioned in the arbitration agreement/clause, as such action leads to the

involvement of a person who is not a party to the arbitration clause, that will

result in termination of the purpose of the arbitration clause as per para. A,

C of article 216. Subsequently, considering that the two sons are not party to

the arbitration clause, considering that the award was released against the

whole family (father and two sons), then it is very clear that the arbitrator has

acted beyond the arbitration clause limit which the court considers as a valid

ground to nullify the arbitral award subject of the case completely.

Conclusion:

In

conclusion, we highlight that the UFAL 2018, apropos arbitration has undertaken

faster and easier procedures to enforce the domestic arbitration awards,

notwithstanding the affordable court fees to apply for the ratification and

enforcement which is 320 AED only. However, we also take note that, the same

instances in the present case could be triggered in the future at the time of

applying for nullification of the award or requesting the ratification of the

same. Hence, in such instances, it could be argued that the old provisions of

the Civil Code are the applicable provisions subject to the timing of the

events. Hence, its worthy to be knowledgeable about the applicable provisions.

Having

said that, parties should always consider and keen to appoint an arbitrator,

arbitration lawyer and a litigator and who is familiar UFAL 2018 provisions and

practice as well as the previous provisions and practice of the CPC  1992 to ensure that the arbitral award

fulfills the requirements and the applicable best practice of the UAE courts to

be ratified and enforced smoothly.

Written by: Taha Sharaf

Associate, MHLF (Mahmood

Hussain Law Firm)