Arbitration in the United Arab Emirates (UAE) is a reliable and efficient method for resolving conflicts in a world where commercial disputes can arise quickly. Known for its dynamic business landscape and international trade, the UAE has embraced arbitration as a powerful means of settling commercial disputes. In this note, we delve into the nuances of this procedure to better understand what makes arbitration an attractive choice for individuals and businesses.
Onshore Arbitration Versus Offshore Arbitration in the UAE
In the UAE, the legal and financial landscape is divided between two types of zones:
| The “onshore” zone | The “offshore” zones, known as “free zones” |
| It covers most of the UAE’s territory and is subject to the federal laws and regulations of the UAE government. Within this zone, businesses and individuals are governed by the UAE Civil Code, the UAE Commercial Companies Law, and other federal laws applicable to various aspects of business, trade, and activities conducted in these areas. | They are established as independent jurisdictions with their own legal and regulatory frameworks. They operate under separate laws, often based on common law principles, and have specialized courts to adjudicate matters within their jurisdictions. The DIFC, founded in 2004, operates as a financial free zone with its legal foundation established by Federal Law 35/2004 and Dubai Law 9/2004. The ADGM, established in 2015 in Abu Dhabi, functions as an autonomous financial free zone with its own set of laws, including a Court of First Instance and a Court of Appeal, based on common law principles. |
Agreements to arbitrate disputes are governed by different laws, depending on the seat of arbitration:
- The governing law for disputes seated onshore in the UAE is Federal Law No. 6 of 2018 concerning Arbitration (UAE Arbitration Law),[1]which came into force on 15 June 2018;[2]
- Concerning disputes for which the seat of arbitration is the DIFC, they are subject to the DIFC Arbitration Law No. 1 of 2008 (DIFC Arbitration Law);[3]
- The ADGM Arbitration Regulations 2015[4] (ADGM Arbitration Law), which are based on the UNCITRAL Model Law, apply to arbitrations where the seat of the arbitration is the Abu Dhabi Global Market.
Regardless of the location of the seat of arbitration, these laws can also apply to arbitration disputes if the parties explicitly decide to designate them in their arbitration agreement as applicable laws.
Arbitral Institutions in the UAE
Several prominent arbitral institutions in the UAE handle arbitration proceedings, providing parties with efficient and reliable dispute resolution options. Notable among these institutions are:
- The Dubai International Arbitration Centre (DIAC): established in 1994, the DIAC has emerged as a leading arbitral institution in the region. It administers arbitrations in accordance with the DIAC Arbitration Rules 2007[5] and the recently introduced DIAC Arbitration Rules 2022;[6]
- The Abu Dhabi Conciliation and Arbitration Centre (ADCCAC): it administers arbitrations under the Procedural Regulations of the ADCCAC;
- The Sharjah International Commercial Arbitration Centre (Tahkeem): established in 1995, Tahkeem plays a crucial role in promoting commercial arbitration in Sharjah; and
- The Ras Al-Khaimah Centre for Reconciliation and Commercial Arbitration (RAK Chamber): operating since 2018, this institution serves as a centre for commercial dispute resolution in Ras Al-Khaimah.
These institutions are not limited to handling disputes arising within specific free zones. In other words, parties involved in an onshore or offshore arbitration dispute can use any of these institutions to administer their dispute, as long as they have been specified in an arbitration agreement.
The Validity of the Arbitration Agreement in the UAE
The validity of arbitration agreements in the UAE is subject to specific requirements, including:
- Written form: the arbitration agreement must be in writing, which includes both physical and electronic correspondence;[7]
- Arbitrability of the dispute: the type of dispute between the parties should be suitable or allowed to be resolved through arbitration;[8]
- Legal capacity of individuals: if one of the parties to the arbitration agreement is an individual, they must have the legal capacity to dispose of their rights (not be minor and not be subject to any prohibition of exercising all their rights)[9];
- Legal capacity of companies: if one of the parties to the arbitration agreement is a company, the person representing it must possess the specific authority to agree to arbitration,[10] which is typically demonstrated through a shareholder’s resolution or by the articles of association of the company;
- Precision of the arbitration agreement: the wording must be clear and unequivocally show the parties’ consent to arbitration. It is also recommended for parties to indicate the seat and language of the arbitration, along with the number of arbitrators, and mention which law applies to the arbitration agreement.
If the arbitration agreement fails to meet one of these criteria, it will be considered invalid. It means that the arbitral tribunal will not be competent to issue a decision to settle the dispute between the parties. In that case, the parties must turn to local courts to resolve their disagreement.
Overview of the Arbitration Process in the UAE
Commencement of the Arbitration
According to the UAE Arbitration Law, onshore arbitration proceedings start the next day following the constitution of the whole arbitral tribunal.[11] This might seem unusual, as arbitration usually starts when one party lets the other know about their intent to start the process by sending a formal document called “request for arbitration”.
In offshore cases, the arbitration process starts when the Respondent receives the request for arbitration.[12]
Appointment of the Tribunal
In both onshore and offshore arbitration, parties are free to appoint the arbitrator of their choice, provided they are independent and impartial.
The UAE Arbitration Law, exclusively applicable to onshore arbitration, outlines additional requirements regarding the arbitrator. The arbitrator must:
- Not be a minor;
- Not be under a court interdiction order or deprived of their civil rights due to bankruptcy, committing a felony, misdemeanour, or conviction for a crime involving moral turpitude or breach of trust; and
- Be independent of the institution handling the case.[13]
If the party or the arbitral institution are unable to agree on the nomination of the arbitrators, local courts can assist them in this matter.[14] In that case, the court’s decision will be considered final (which means that it cannot be appealed).
The Award
There are no specific rules that govern the management of the arbitral proceedings. Arbitral tribunals and the parties usually have broad discretion regarding the organization of the procedure.[15]
No law provides for any time limit for an award to be issued. Parties should consider any time limits provided for in applicable institutional rules.
Challenging the Award
When the arbitral award is rendered, it can be challenged:
| Through an application to set aside filed by one of the parties | At the initiative of the Court |
| For both onshore and offshore arbitration To succeed, the challenging party must prove circumstances such as: – lack of a valid arbitration agreement;[16] – incapacity of a party at the time of the conclusion of the arbitration agreement;[17] – improper notice of the appointment of an arbitrator or the arbitral proceedings;[18] – breach of due process;[19] or – irregularities affecting the composition of the arbitral tribunal or the arbitral proceedings.[20] For onshore arbitration Additional grounds for challenging the award include situations where: – the arbitral tribunal did not apply the substantive law agreed by the parties;[21] or – the award was rendered after the arbitration’s specified timeframe ended.[22] For offshore arbitration Laws applicable to offshore proceedings mention an additional ground for annulment, which is when the award addresses a dispute that falls outside the scope of the arbitration.[23] | For both onshore and offshore arbitration Courts can take the initiative of setting aside arbitral awards if: – The dispute cannot be resolved through arbitration;[24] or – The award contradicts the public order or moral values of the UAE.[25] For DIFC Courts Apart from the reasons outlined above, the DIFC Court can set aside an award if the dispute was explicitly directed to another entity or tribunal for settlement under DIFC Law or any other mandatory law.[26] |
For additional information regarding the enforcement procedure in the UAE, please see: Enforcement of Arbitral Awards in the UAE.
In conclusion, the UAE offers a robust and comprehensive arbitration framework that caters to the dynamic commercial needs of both onshore and offshore jurisdictions. Its legal systems, replete with modern laws and regulations, ensure that disputes are resolved in a structured and efficient manner. The country’s tapestry of arbitral institutions further reinforces its position as a regional hub for commercial arbitration. Whether a dispute arises within the traditional legal framework or within the specialized realms of free zones like DIFC or ADGM, the UAE provides clear pathways for the appointment of tribunals, the conduct of proceedings, and the challenging of awards.
[2] UAE Arbitration Law, Article 61.
[3] DIFC Arbitration Law No. 1.
[4] ADGM Arbitration Regulations.
[5] DIAC Arbitration Rules of 2007.
[6] DIAC Arbitration Rules of 2022.
[7] UAE Arbitration Law, Article 7.
[8] UAE Arbitration Law, Article 4(2); the law does not provide a list of non-arbitrable disputes but some matters, such as criminal, family and personal status, bankruptcy and insolvency, disputes involving public policy are usually considered non-arbitrable.
[9] UAE Arbitration Law, Article 4(1).
[10] UAE Arbitration Law, Article 4(1).
[11] UAE Arbitration Law, Article 27.
[12] DIFC Arbitration Law, Article 28; ADGM Arbitration Regulations, Section 36.
[13] UAE Arbitration Law, Article 10.
[14] UAE Arbitration Law, Articles 11(5) and 11(7); DIFC Arbitration Law, Article 17(4); ADGM Arbitration Regulations, Section 19(5).
[15] UAE Arbitration Law, Articles 23(1); DIFC Arbitration Law, Article 26; ADGM Arbitration Regulations, Section 34.
[16] UAE Arbitration Law, Article 53(1)(a); DIFC Arbitration Law, Article 41(2)(a)(i); ADGM Arbitration Regulations, Section 58(2)(a)(ii).
[17] UAE Arbitration Law, Article 53(1)(b) and (c); DIFC Arbitration Law, Article 41(2)(a)(i); ADGM Arbitration Regulations, Section 58(2)(a)(i).
[18] UAE Arbitration Law, Article 53(1)(d); DIFC Arbitration Law, Article 41(2)(a)(ii); ADGM Arbitration Regulations, Section 58(2)(a)(iii).
[19] UAE Arbitration Law, Article 53(1)(d); DIFC Arbitration Law, Article 41(2)(a)(ii); ADGM Arbitration Regulations, Section 58(2)(a)(iii).
[20] UAE Arbitration Law, Article 53(1)(f) and (g); DIFC Arbitration Law, Article 41(2)(a)(iv); ADGM Arbitration Regulations, Section 58(2)(a)(v).
[21] UAE Arbitration Law, Article 53(1)(e).
[22] UAE Arbitration Law, Article 53(1)(g).
[23] DIFC Arbitration Law, Article 41(2)(a)(iii); ADGM Arbitration Regulations, Section 58(2)(a)(iv).
[24] See footnote No. 8.
[25] UAE Arbitration Law, Article 53(2); DIFC Arbitration Law, Article 41(2)(b)(i) and (iii); ADGM Arbitration Regulations, Section 58(2)(b).
[26] DIFC Arbitration Law, Article 41(2)(b)(ii).