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

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case (unpublished judgment) focused on the nullification grounds mentioned in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