Arbitration Agreement in the UAE

Exploring UAE's Arbitration Agreement nuances under Federal Law No. 6 of 2018: Scope, validity, and procedural impacts in arbitration.

Navigating the Arbitration Agreement under the Federal Law No. 6 of 2018 on Arbitration in the UAE

The Federal Law No. 6 of 2018 on Arbitration in the UAE (the “UAE Arbitration Law”) provides a legal framework for all arbitrations within the UAE, aligning with international standards and offering a comprehensive set of rules applicable to both domestic and international arbitrations. It covers various aspects, including arbitration agreement, arbitrator’s appointment, arbitration proceedings, and enforcement of awards. https://www.hilalassociates.com/arbitration-mediation.html

An arbitration agreement under the UAE Arbitration Law is a legally binding agreement in which parties agree to resolve disputes through arbitration rather than court litigation. The agreement must be in writing, and its validity isn’t affected by the nullity or termination of the main contract. Arbitration agreements are crucial as they define the scope, procedure, and applicable rules for the arbitration process.

Under the UAE Arbitration Law, an arbitration agreement is defined as a mutual agreement between parties to submit to arbitration either before or after a dispute has arisen. This provision allows for a proactive approach to dispute resolution, enabling parties to agree in advance to arbitrate potential future disputes or to opt for arbitration after a dispute has already emerged. This flexibility is key in the law, offering parties the opportunity to choose arbitration as their method of resolving disputes at various stages of their contractual or business relationship.

International element of Arbitration Agreement:

Under Article 3 of the UAE Arbitration Law, the relevance of an arbitration agreement in determining the international nature of arbitration is significant. Arbitration is deemed international if, at the time of the arbitration agreement’s conclusion, the parties’ places of business are in different states, or if key locations relevant to the arbitration or the underlying commercial relationship (such as the place of arbitration or where substantial obligations are to be performed) are outside the state. Additionally, if the dispute or the agreement itself involves more than one country, the arbitration is classified as international. This classification impacts the applicable legal and procedural frameworks, reflecting the cross-border nature of the dispute.

Legal Capacity for Arbitration Agreement:

Under the UAE Arbitration Law, an arbitration agreement must be entered into by individuals who are legally competent or by authorized representatives of legal entities. It emphasizes that the validity of an arbitration agreement is contingent upon the legal capacity of the parties involved. Furthermore, it restricts arbitration in matters that inherently cannot be resolved through conciliation, thereby delineating the scope of disputes eligible for arbitration.

Forms of Arbitration Agreement:

The law allows for flexibility in the formation of arbitration agreements. Such agreements can be proactively made as part of a contract or as a separate agreement to cover potential future disputes. Interestingly, it also allows for the formation of an arbitration agreement after a dispute has arisen, even if legal proceedings have already commenced. This demonstrates a recognition of arbitration as a viable alternative to litigation, even in ongoing disputes.

Separability of the Arbitration Agreement:

This concept establishes that an arbitration agreement is an entity distinct from the other terms of the contract. This means that even if the main contract is invalidated or terminated for any reason, the arbitration agreement within it remains enforceable, unless issues of incapacity of a party are involved. This principle ensures that the mechanism for dispute resolution remains intact regardless of the fate of the contract.

Written Arbitration Agreement Requirements:

The law mandates that arbitration agreements must be in written form, including a variety of mediums such as electronic communication. This can include explicit agreements in signed documents, or implicit agreements through references in existing contracts. The emphasis on written agreements underscores the need for clear and unambiguous terms to avoid disputes about the existence or scope of the arbitration agreement.

Adjudication of Disputes with Arbitration Agreements:

Under the UAE Arbitration Law, the process of adjudicating disputes that involve arbitration agreements is outlined in a specific provision under Article 8. This provision establishes a fundamental principle that governs such cases. When a dispute is brought before a court, and it falls within the scope of an arbitration agreement, certain procedures come into play viz.,

  • If a dispute that is subject to an arbitration agreement is brought before a court, the court has a specific role to play. It must declare the action inadmissible if the defendant raises an objection based on the existence of the arbitration agreement. This objection must be raised before the defendant makes any substantive claims or defenses related to the case.
  • However, there are exceptions to this general rule. One exception arises when the court determines that the arbitration agreement itself is null and void or incapable of being performed. In such cases, the court may proceed with the dispute.
  • Another exception applies when an action challenging the validity of the arbitration agreement has already been initiated in court. Even in this situation, the arbitration proceedings can still move forward, and an arbitral award may ultimately be issued.

In essence, the UAE Arbitration Law places a strong emphasis on the enforceability of arbitration agreements. It encourages parties to honor their arbitration agreements and seeks to uphold them unless the court finds the agreement to be invalid or unenforceable. This framework aims to promote the use of arbitration as a preferred method of dispute resolution when parties have mutually agreed to it.

Relevance of Arbitration Agreement to the Appointment of Arbitrator:

The arbitration agreement plays a fundamental role in the selection of the Arbitral Tribunal.

  • Within the context of arbitration proceedings, the Parties retain the autonomy to establish the protocols for appointing arbitrators, encompassing aspects such as the timing and methodology of their designation. This agreement holds immense significance as it directly influences the execution of the arbitration process as stipulated within the arbitration agreement.
  • In scenarios where the arbitration proceedings involve a single arbitrator, and mutual consensus on the arbitrator’s appointment eludes the Parties within the designated timeframe, the Relevant Authority possesses the prerogative to intervene and appoint the arbitrator at the behest of one of the Parties. The arbitration agreement can be customized to encompass provisions related to the arbitrator’s appointment, offering flexibility to adapt to various circumstances.
  • Similarly, in cases where the Arbitral Tribunal comprises three arbitrators, each Party assumes the responsibility of designating one arbitrator. Should any Party fail to fulfill this obligation within the prescribed timeframe, or if the two appointed arbitrators cannot reach an agreement regarding the third arbitrator, the Relevant Authority is vested with the authority to promptly effectuate the appointment. Alternatively, the Arbitration Agreement may stipulate that the Parties or their appointed arbitrators are responsible for the selection of the third arbitrator, offering versatility in the appointment process.
  • Furthermore, the arbitration agreement can encompass considerations pertaining to the qualifications mandated for arbitrators, encompassing both the criteria outlined in the law and those mutually agreed upon by the Parties. This meticulous attention to the arbitration agreement’s terms serves as a safeguard against potential pitfalls or anomalies in the arbitration process.
  • In summary, the arbitration agreement is a fundamental element in shaping the composition of the Arbitral Tribunal and the overall arbitration process. Tailoring the agreement to address specific appointment scenarios and qualifications of arbitrators is instrumental in ensuring the agreement’s effectiveness and mitigating any potential shortcomings.

Relevance of Arbitration Agreement in the Termination of an Arbitrator’s Mandate:

Article 16 of the UAE Arbitration Law addresses the termination of an arbitrator’s mandate. This provision comes into play when an arbitrator encounters specific challenges or fails to fulfill their duties as stipulated in the Arbitration Agreement:

  • Inability to Perform Functions: If an arbitrator becomes unable to perform their functions, it raises questions about their capacity to carry out the arbitration process as agreed upon in the Arbitration Agreement.
  • Failure to Act or Undue Delay: When an arbitrator fails to act promptly or causes undue delays in the arbitration proceedings, it may lead to disputes regarding compliance with the terms of the Arbitration Agreement.
  • Intentional Neglect of Agreement: Arbitrators are expected to adhere to the provisions of the Arbitration Agreement. If they intentionally neglect these terms, it highlights the importance of the agreement in guiding the arbitration process.
  • Withdrawal or Dismissal: If an arbitrator refuses to withdraw voluntarily or if the Parties cannot agree on their dismissal, it underscores the significance of the Arbitration Agreement in addressing such matters.
  • In such situations, the Relevant Authority, as per the Arbitration Agreement, has the authority to terminate the arbitrator’s mandate. This emphasizes the role of the Arbitration Agreement in governing the conduct and performance of arbitrators throughout the arbitration proceedings.

Relevance of the Arbitration agreement to the issue of jurisdiction:

The relevance of the arbitration agreement to the issue of jurisdiction is significant under the UAE Arbitration Law. The arbitration agreement plays a crucial role in determining which disputes are subject to arbitration and which fall under the jurisdiction of the court. Here’s why the arbitration agreement is relevant to jurisdiction:

  • Scope of Arbitration: The arbitration agreement defines the scope of disputes that parties have agreed to resolve through arbitration. If a dispute falls within the scope of the arbitration agreement, it means that the Arbitral Tribunal has jurisdiction to hear and decide that particular dispute. This emphasizes the importance of a well-drafted arbitration agreement that clearly outlines the types of disputes covered.
  • Challenges to Jurisdiction: Parties may sometimes challenge the jurisdiction of the Arbitral Tribunal, claiming that the dispute should be heard in court instead of through arbitration. These challenges may be based on arguments such as the non-existence or invalidity of the arbitration agreement. The relevance of the arbitration agreement is evident when such challenges are raised because the validity and applicability of the agreement directly impact whether the dispute remains within the jurisdiction of arbitration.
  • Preliminary Jurisdictional Rulings: The Arbitral Tribunal has the authority to make preliminary rulings on its own jurisdiction. It can decide whether it has the right to hear a particular dispute based on the terms of the arbitration agreement. If the Tribunal rules that it has jurisdiction, the dispute will proceed to arbitration. If not, the dispute may be referred to the court. Therefore, the arbitration agreement’s language and scope are crucial in influencing these preliminary rulings.
  • Court Intervention: In cases where a party disagrees with the Arbitral Tribunal’s preliminary decision on jurisdiction, the arbitration agreement allows for court intervention. The court will decide whether the arbitration agreement covers the dispute or if it falls under its own jurisdiction. This underscores how the arbitration agreement serves as the foundation for determining jurisdiction and whether the dispute should be resolved through arbitration or in court.
  • Jurisdictional challenges: Article 20 establishes strict deadlines for raising jurisdictional challenges. A party must raise a plea that the Arbitral Tribunal lacks jurisdiction at specific stages of the arbitration process. The arbitration agreement is highly relevant here because it defines the scope of disputes subject to arbitration. If a party believes that a particular matter is outside the scope of the arbitration agreement and, therefore, falls under the jurisdiction of the court, they must raise this issue within the prescribed time limits.
  • Time Limits and Awareness: Article 25 highlights the importance of time limits and awareness. If a party becomes aware of a violation of the arbitration agreement or any applicable provisions of the law and fails to object within the specified time limit, they may be deemed to have waived their right to object. This underscores the need for parties to carefully review the arbitration agreement to understand their obligations and rights.

In summary, the arbitration agreement is directly relevant to the issue of jurisdiction because it defines the scope of disputes subject to arbitration, provides a basis for challenges to jurisdiction, influences preliminary rulings by the Arbitral Tribunal, and determines whether court intervention is required to resolve jurisdictional disputes. It is a critical component in shaping the jurisdictional landscape of arbitration proceedings.

Award, its enforcement and the Arbitration Agreement:

Article 53 of the UAE Arbitration Law addresses objections to an arbitral award. The relevance of the arbitration agreement to this provision is significant, as it outlines the specific circumstances under which an objection against an arbitral award may be accepted.

  • Grounds for Objection: The arbitration agreement plays a crucial role in determining the grounds on which an objection to an arbitral award can be raised. The parties involved in arbitration proceedings are bound by the terms and conditions of the arbitration agreement. If the arbitration agreement is found to be valid and enforceable, it establishes the framework for resolving disputes through arbitration.
  • Invalidity of Arbitration Agreement: One of the key considerations in Article 53 is whether there was a valid arbitration agreement in place. If the arbitration agreement is deemed null and void, the objection against the arbitral award may be accepted. Therefore, the existence and validity of the arbitration agreement are central to the objection process.
  • Capacity and Legal Capacity: The arbitration agreement may also be relevant in cases where a party lacked the capacity to enter into the agreement at the time of its conclusion. If a party was incapacitated or lacked legal capacity according to the law governing their legal capacity, it could impact the objection to the arbitral award.
  • Notice and Proper Procedure: The arbitration agreement can influence objections related to the failure of the Arbitral Tribunal to provide proper notice or follow the principles of due process. Parties must adhere to the procedures outlined in the arbitration agreement, and deviations from these procedures can be grounds for objection.
  • Applicable Law: The arbitration agreement specifies the law that governs the subject matter of the dispute. If the arbitral award does not apply to the agreed-upon law, it may lead to an objection. The arbitration agreement defines the legal framework within which the dispute should be resolved.
  • Composition of Arbitral Tribunal: If the composition of the Arbitral Tribunal or the appointment of an arbitrator deviates from the provisions of the arbitration agreement or the agreement of the parties, it can be a basis for objection.

In summary, the arbitration agreement serves as the foundation for objections to an arbitral award. It defines the rules, procedures, and legal framework for arbitration proceedings, making it essential in determining the validity of objections raised against an arbitral award.

Conclusion: In conclusion, the Arbitration Agreement is a cornerstone in the realm of arbitration proceedings, shaping the landscape for objections to arbitral awards. It holds paramount significance as it establishes the framework within which disputes are resolved through arbitration. The arbitration agreement not only delineates the parties’ consent to arbitration but also outlines the procedures, applicable law, and conditions governing the arbitration process.

When considering objections to an arbitral award, the arbitration agreement serves as the touchstone. It defines the parameters within which objections can be raised and the circumstances under which they may be valid. The arbitration agreement’s validity, compliance with its provisions, capacity of the parties, adherence to proper procedures, and application of the agreed-upon law are all contingent on the terms set forth in the arbitration agreement.

In essence, the arbitration agreement is not merely a contractual formality but a fundamental element that underpins the process. It ensures that disputes are adjudicated in accordance with the parties’ intentions, making it pivotal in the determination of objections to arbitral awards. Therefore, a clear and well-crafted arbitration agreement is essential to provide a solid foundation for the arbitration process and address potential objections effectively.

Author’s Bio:

Nikhat Sardar Khan, a distinguished legal expert with extensive experience in the UAE’s legal landscape, currently heads the Department of Litigation, ADR and Corporate at Hilal & Associates Advocates & Legal Consultants. Her expertise encompasses complex litigation and dispute resolution in commercial matters, banking, finance, corporate practice, and more. As a qualified arbitrator and experienced mediator, she holds certifications from prestigious institutions like the Chartered Institute of Arbitrators (FCIArb) and The Royal Institution of Chartered Surveyors (RICS). Her legal acumen, honed over decades of practice in both India and the UAE, positions her as a formidable figure in the field of law.

Nikhat Sardar Khan (FCIArb)(RICS)
Head of DIFC Litigation, Corporate & Arbitration- UAE,
MENA and India.
Arbitrator | Mediator | DIFC Practitioner
Email: ni****@hi*************.com

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