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First Nullification of a Domestic Arbitration award under the umbrella of the new Federal Arbitratio

June 2019 - Litigation & Dispute Resolution. Legal Developments by Mahmood Hussain Advocates & Legal Consultancy.

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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Recently, on the 26th of December 2018, Dubai Courts experienced the First nullification case (unpublished judgment) focused on the nullification grounds mentioned in the new law (UFAL 2018).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 ‚Äėfamily') 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 ‚Äėarbitration 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)