An Introduction to Arbitration in the Middle East

By Richard Harding¹

Following a dispute between them, the Caliph of the Muslims and an ordinary man chose to have their differences determined by an arbitrator and went to see him. When they arrived, the arbitrator, very astonished, came to greet them and asked the Caliph why he had not requested him to come to the Caliph, instead of the Caliph coming to him. The Caliph replied that one must go to the arbitrator to consult him. The arbitrator then invited them to enter and offered a cushion to the Caliph. However, the latter refused it and said that this was the first act of bias on the part of the arbitrator. (Mabsut: The Imam As-Sarsafi)

Every country has its own courts and judges, so why bother with a different form of dispute resolution? In many parts of the Middle East, arbitration is seen as unfamiliar and unnecessary. However, in commercial matters, arbitration has a number of important advantages over court proceedings. In particular, the parties can generally chose: the person who will determine their disputes; where the hearings will be held; the language to be used and the law to be applied. Where the parties are from different countries or cultures, these advantages are of overwhelming significance, as each party will fear having vital commercial matters decided in a foreign country, in a foreign language, and by a judge who they may perceive as being biased against them. Arbitration deals with these fears and provides a means of resolving commercial disputes which both sides will see as fair.

In most cases, the agreement to arbitrate is contained in the original commercial contract between the parties. There are many standard arbitration clauses which can be used, but since arbitration is a bespoke system, to be adapted to the requirements of the parties, the terms of the agreement to arbitrate should be separately negotiated.

The first consideration is whether arbitration should be governed by the rules of an institution, such as the International Chamber of Commerce in Paris, the Cairo Regional Centre for International Commercial Arbitration, or the Dubai Chamber of Commerce. The principal advantages of using such institutions are that they have a defined set of procedural rules, which saves the parties having to spend time and money agreeing every aspect of how an arbitration is to be conducted. They will also either appoint, or assist in the appointment of arbitrators. These services, however, come at a cost, with the ICC providing a very high level of service at a very high cost.

The next consideration is how many arbitrators. In most countries the law requires an uneven number, which will usually be either one or three. In international cases it is generally better to have three, with each side nominating one, and either the nominated arbitrators or an institution choosing the third, to act as chairman. It is therefore also necessary to agree on how the arbitrator or arbitrators are to be appointed. It is generally not a good idea to identify a particular individual in the contract, as he may not be able to act when the parties need him, possibly years later.

Other fundamental issues to be included in the arbitration agreement are the applicable law and the seat of the arbitration. There are two elements to the applicable law: the substantive law, which governs the rights of the parties in relation to the matters in dispute, and the procedural law, which governs how the dispute is to be determined. These laws need not be the same. Unless the parties have agreed otherwise, the procedural law is generally taken as being the law of the country in which the arbitration has its ‘seat’. The seat of the arbitration is the country where it is based, and can be wherever the parties chose. However, they should chose carefully, as this will determine which court will supervise the arbitral process.

Although arbitration is intended to remove the determination of a dispute from the courts, there remain, in every country, functions which the court will still perform in relation to arbitrations. These include removal of unsuitable arbitrators; making orders with sanctions to assist the arbitral process; and dealing with any challenges to an award once it has been issued. The courts of some countries are happier to intervene than others. This can be an important factor in determining the seat of an arbitration.

The language of the arbitration should also be specifically agreed. If all of the documentary evidence is in English, it may be impractical to conduct a commercial arbitration in Arabic. Equally, if neither side is happy using English, they should agree on a common language in which they will both be able to conduct and follow the proceedings.

In the Middle East, arbitration is often seen as a last resort, signifying the permanent breakdown in the relationship between the parties. It is perceived in this respect as little different to going to court. In many other jurisdictions, with a longer history of using arbitration, it is seen as a less confrontational means of dispute resolution, to be used where a third party is needed to resolve a dispute, so the parties can maintain their commercial relationship.

Where the parties have agreed on an institution to oversee their arbitration, then the rules of that institution will define how arbitration proceedings are to be commenced. For example, the rules of the ICC provide that a request for arbitration is to be sent to the ICC itself (Article 4(1)). Where no institution has been agreed, the claimant just has to write to the other party informing them that they require the disputes between them to be determined by arbitration.

The next step is to appoint one or more suitable arbitrators.

Parties to an arbitration agreement are free to chose who they want to determine their disputes. Sometimes they will agree on a particular individual to act as a single arbitrator. More often, however, each side is wary of the other’s proposals, so that each appoints a person they are happy with, and a chairman for the arbitral tribunal is then selected by the other two arbitrators, or by an arbitral institution.

All arbitrators, whether party appointed or not, must be independent of the parties and neutral. Where there is actual or apparent bias, the aggrieved party may apply to the local court, or to the arbitral institution where applicable, for the removal of that arbitrator, and his replacement with a more suitable person.

Parties should be careful not to select an arbitrator without taking advice from lawyers experienced in arbitration. There are many people who profess to great expertise as arbitrators and are appointed simply on the basis that their name is familiar. However it is only on the basis of experience of how an arbitrator conducts proceedings and prepares his awards that his true quality can be judged. In sensitive international disputes where huge sums of money are at stake, it is essential that the best possible people are chosen to decide the fate of the parties.

Once the arbitrators have been appointed, it is for them to determine how the proceedings are to be conducted. This is subject to two matters. First, the applicable procedural law, and secondly the agreements of the parties, which the arbitrators are bound by.

If the parties have not agreed the applicable substantive or procedural law, or which country is to be the seat of the arbitration, then these are the first matters which will be determined by the arbitrators.

The arbitrators will usually convene a first hearing to make clear how the parties and arbitrators are going to communicate, and to fix a timetable for the various steps to be taken for the parties to present their respective cases. Some arbitration rules also require the arbitrators to define their Terms of Reference at the start of the proceedings.

The arbitrators cannot determine the dispute between the parties without the submissions and evidence of the parties. It is therefore necessary to identify what submissions are to be made, and how the evidence is to be presented. There are two main ways in which this is done:

1. The parties serve submissions which include all of the documents, experts reports and witness statements that they rely on, and then proceed to a hearing; or
2. The parties serve pleadings to identify where the real issues are, and then provide only the documents and written evidence which relate to the matters in issue. The hearing follows the exchange of all submissions and evidence.

The first procedure is more straightforward, but is more suitable for cases where the issues are already relatively well defined. The latter can be more complex to manage, but often saves the time and cost of preparing evidence in relation to points which are not contentious.

Where the second of these approaches is adopted, a typical timetable in a substantial commercial arbitration might include dates for the following steps:

1. Claimant’s claim document;
2. Defendant’s defence document, and any counterclaim;
3. Claimant’s Reply to the Defendant’s defence, and his defence to any counterclaim;
4. Defendant’s Reply to the Claimant’s defence to any counterclaim;
5. Documentary evidence – This may be provided either with the pleadings, and supplemented by specific requests from the other side, or separately, by exchanging lists of relevant documents and then supplying copies of those documents on request;
6. Witness statements – These will set out the evidence which the witnesses of fact are prepared to give. Often these will be followed by responsive witness statements, dealing with matters raised in the other side’s first witness statements.
7. Experts’ reports – Where opinion evidence is required, this is generally given by experts. Their reports will be exchanged, and the experts will usually be expected to meet to identify for the arbitrators and the parties the points on which they agree and disagree, and the reasons for their disagreements. Most arbitrators will expect the experts to be providing their own independent professional opinion, and not simply saying what the party relying on them wants them to say. The arbitrators may also choose to appoint an expert to advise them on the rival contentions of the parties.
8. Trial bundles – Where there is a significant amount of documentation to be considered at a hearing, it is essential that it is available to all in numbered and paginated files, so that time is not wasted at the hearing searching for documents, and documents can be readily referred to in written submissions. Advocates will require these bundles well in advance of the hearing in order to prepare effectively.
9. Written opening statements – Arbitrators will be greatly assisted by the parties’ advocates providing, a week or so before the hearing, written submissions introducing them to the arguments and evidence.

Where appropriate, the arbitrators can determine some or all of the issues on the basis of written submissions and documents alone, but this is generally only where there are few disputes of fact. The arbitrators will therefore want to fix dates and a venue for the hearing of oral evidence and argument. Generally, the hearing can take place in any location convenient to the parties, and usually need not be in the country the seat of the arbitration.

In commercial arbitrations, the primary purpose of a hearing is for the arbitrators to hear the written evidence of the witnesses tested in cross-examination. They may also want to hear oral argument, and have their own questions answered. It is therefore essential that the parties are represented by experienced advocates who can cross-examine effectively, and put their client’s case persuasively.

In some jurisdictions, such as the UAE, evidence must be taken on oath. Elsewhere no oath is required, but the witness will generally be asked to confirm that he is aware of the importance of telling the truth.

In most commercial arbitrations the parties are given a strictly limited time for the hearing. This is generally no more than 10 working days. To ensure fairness, the hearing time will usually be split equally between the parties. Some arbitrators may direct the parties to use their time only for cross-examination, as they have already read the witness statements and written argument, whereas others may leave it to the advocates to use their time for submissions, evidence-in-chief or re-examination, as they chose. It is important that all concerned know well in advance what procedure is to be adopted, so that the advocates can prepare effectively.

The award contains the decisions of the arbitrators, and generally their determination of what sums of money are to be paid by whom, to whom, and when. However, the losing party may decide not to pay. The arbitrators themselves cannot force the losing party to comply with their award, but the winning party can apply to a court for an order that the award is enforced, in a similar way to that in which a judgment of that court might be enforced. Since the order of a court is generally only directly effective in the country where that court is located, the winning party will have to ask for enforcement of the award in a country in which the losing party has assets. It is therefore essential that the arbitrator’s award is recognised by the courts of that country.

The 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (generally known as ‘the New York Convention’) provides that courts in states which have signed up to the convention will enforce foreign arbitration awards in the same way as domestic awards, and will only refuse enforcement under the following limited circumstances (Article V):

1. The arbitration agreement was not valid; or
2. The losing party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
3. Where the award deals with matters which the arbitrators were not asked to determine; or
4. The appointment of the arbitrators or the arbitration procedure was not in accordance with the agreement of the parties or the applicable procedural law; or
5. The award has not yet become binding on the parties, or has been set aside or suspended by the court where the award was made; or
6. The dispute is not one which the law of the country where enforcement is sought, permits to be determined by arbitration; or
7. The enforcement of the award would be contrary to the public policy of the country where enforcement is sought.

It should be noted that the UAE, Libya, Sudan, Iraq and Yemen have not signed the New York Convention, so that the rules applicable to the enforcement of awards in those countries will be different, and generally more onerous for the party seeking enforcement.

Many jurisdictions have mandatory provisions as to the form of the award, which, if not followed, may render the award unenforceable. For example, in Egypt the award must contain details such as the names and addresses of the parties and arbitrators, a copy of the arbitration agreement, a summary of the parties’ requests and submissions, and it must be signed. By contrast, for international arbitrations, Lebanese law does not prescribe any formalities at all.

There may also be mandatory requirements as to the time within which the arbitrators must make their award. If no award has been issued within this time, then the right to arbitrate may be lost, and any remedy will be through the local courts. It is therefore important that the parties and the arbitrators are aware of the relevant time limits and how they can be extended. This varies from country to country. In Jordan, the arbitrators can extend the 3 month period specified in law. In the UAE the period allowed is 6 months from the first hearing, and this can be extended by the agreement of the parties, or by the court, but not by the arbitrators themselves. In Syria, if the award is not given within the period agreed or specified by law, then the courts will appoint new arbitrators to continue the arbitration.

The place where the award is made is also of fundamental importance, since in many countries, such as Egypt and Oman, the award must be registered with the local court for it to become valid and enforceable. Failure to sign and make the award in the correct country could render it invalid. For example, if an award in an arbitration involving the government of Dubai were to be made in Europe, it would not be binding, as the government of Dubai is not permitted to take part in arbitration anywhere other than Dubai.

It will be clear from the discussion above that although there are a number of similarities between the laws of the countries of the Middle East in relation to commercial arbitration, there are also significant differences. Parties to any potential arbitration therefore need to take specific advice as to the applicable procedural and substantive laws. Failure to do so can have disastrous consequences, as substantial sums may be spent on obtaining an award which a court then declares is unenforceable as a result of an easily avoidable procedural error.

Equally, when parties decide to arbitrate in relation to claims for millions of dollars, they need to obtain the advice and representation of lawyers experienced in the preparation and presentation of cases in arbitration. A combination of local lawyers and international advocates is often considered to provide the ideal legal team.

No-one enters into a transaction or project with the intention of commencing an arbitration, but when disputes cannot be settled, all involved in business in the Middle East should be aware that they can turn to arbitration, to provide a fair and cost-effective resolution to their differences.

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.