Ensuring Your Arbitration Agreement is Valid – Contracting with UAE Registered Companies

Arbitration agreement is an agreement that provides a method of resolving disputes amicably and providing both the parties with a win-win situation. Such agreements are generally inserted as a clause in the work agreement or a separate agreement is prepared working out the clauses that determine factors such as which law would apply in cases of arbitration, who would be the arbitrator etc.

Arbitration agreements have become commonplace with respect to construction contracts with registered companies. A registered company is a company registered under the Commercial Companies Law, Federal Law no. 5 of 2015. Generally when a registered company enters into any contract for work or other work related contracts, it also enters into Arbitration Agreement with the party as arbitration is, time saving, cost-effective, and amicable method for resolution of disputes. This also ensures that relation between the company and the party is not severed forever, as arbitration prevents bitterness between the parties.

Before finalizing an arbitration agreement with a registered company, the party must refer to the arbitration laws of UAE and ensure the validity of the agreement. This article will further elaborate on validity of an Arbitration agreement and specifically an agreement with a registered company.

Arbitration Agreement in UAE

For the first time, UAE Arbitration law had been introduced in 1992. Later, in the year 2018 a new Arbitration law has been published, as Federal Law no. 6 of 2018. This law repeals Article 203 to 218 of the UAE Civil Procedure Code (Federal law no 11 of 1992) applicable to arbitration and also any other provision that in contravention to Arbitration Law.

This new Law is broadly based on the UNCITRAL Model Law of the International Commercial Arbitration adopted by the United Nations Commission on International Trade. Based on UNCITRAL Model law, this law distinguishes between International Commercial Arbitration and Domestic Arbitration, and it applies to both.

Definition:

Article 1 of Arbitration Law (Federal Law no. 6 of 2018) defines Arbitration as A procedure regulated by law in which a dispute between one or more parties is submitted, by agreement of the parties, to an arbitral tribunal which makes a binding decision on the dispute. Further Article 1 defines Arbitration agreement as an agreement between parties to submit to arbitration, made before or after a dispute has arisen.

Applicability:

Article 2 of Arbitration Law (Federal Law no. 6 of 2018) talks about the scope of applicability of this law on various arbitration agreements. It applies to all the arbitration agreements contracted in the State except if the parties have expressly agreed on application of some other arbitration law, and provided that it does not contravene the public order and morality of the State. Also if any International Commercial Arbitration is taking place, in which the parties have agreed for application of UAE Arbitration law, it shall be applied. Lastly, it also applies to any arbitration arising from a dispute in respect of a legal relationship, whether contractual or not, governed by State law, save as excepted by special provision.

Requirements of a Valid Arbitration Agreement:

UAE Federal Law No. 6 on Arbitration has set out certain requirements for a valid Arbitration Agreement:

  • Capacity to enter into an arbitration agreement:

An arbitration agreement can be entered into by a natural person having the legal capacity to dispose of his rights or on behalf of a juridical person by a representative with specific authority to arbitrate.

Note: In case of Registered Company, we observe that it comes in the category of Juridical Person, hence the other contracting party must ensure that the contract is entered into by a representative who has specific authority to arbitrate, otherwise the arbitration agreement will be deemed to be invalid. Adding to this, one must be careful about the fact that not all directors of a company are capable of becoming a representative with specified authority because Article 154 of the New UAE Companies Law (Federal Law No. 2 of 2015), which applies to almost all companies established in the UAE, states that unless directors are given specific authority to enter into an arbitration agreement under the Articles of Association they cannot do so without a special resolution from the general assembly.

  • Arbitration is not permitted in matters which do not have a clause for compromise, thus the party must ensure addition of compromise clause.
  • Arbitration agreement may be concluded before or after the dispute. If it is concluded before the dispute arises either in the form of a separate agreement or as a clause within a contract, in relation to all or certain disputes which may arise between the Parties, and if it is concluded after the dispute arises the agreement must determine matters included in the Arbitration. (Article 5)
  • Article 7 says that the agreement must be in writing. Both the parties must sign the document containing arbitration agreement. They can conclude an agreement by exchange of messages or other form of written communication or by email or by electronic correspondence. It is stated that the document should arbitration clause.

Arbitration an Efficient Method of Dispute Resolution with Registered Companies

Arbitration has been developed as a method of dispute resolution for its efficiency in dispute resolution, and prevention of significant delays. The Federal Law on Arbitration consists of certain provisions which make Arbitration with registered companies lucrative.

  • Notwithstanding any challenge against an arbitrator, the arbitration proceeding must continue.
  • A 15 day time limit has been given to challenge the preliminary award before a UAE Court.
  • A 15 day time limit has also been given to the UAE Court of appeal to determine any challenge to a preliminary award.
  • Continuation of arbitration proceeding, notwithstanding a challenge to the preliminary proceeding.

The time limit set for the procedures ensures a swift and just dispute resolution.

Some Precautions to be taken at the Time of Entering into Arbitration Agreement with a Registered Company

To ensure that an arbitration agreement with registered company is a valid one, a party must fulfill all the above mentioned points. Further certain specific things that need to be taken care of are:

  • Before entering into an arbitration agreement with a UAE Registered entity, look for the representative of the company with specific authority to enter into arbitral agreements as mentioned in its Articles of Association, and if there is no specific authority given, then ensure that a resolution is passed to that effect.
  • Ask for the proof of authority by the Representative of the registered company.
  • If novation or re-assignment of the agreement is done to another company, ensure that the true representative is entering into the agreement.

Conclusion

We have seen a rise in arbitration, replacing the regular court proceedings as it comes with a number of benefits, such as cost-effectiveness, time-efficiency, and flexibility in procedure. This is the reason why companies prefer this alternative method for dispute resolution, further the new arbitration law of UAE has ensured that the arbitration procedure matches world standards so that it may ensure increase the ease of doing business.  This article talks about the various measures that a party must take before entering to arbitration agreement with a UAE Registered company, and the most important factor to be kept in mind is that the person with who enters into the agreement has specific authority, otherwise the agreement may not be enforceable. Hence the party must focus on all the above given points.

Author:

Adv. Sohail Hafesjee
Corporate & Commercial – Debt Restructuring | Arbitration and Dispute Resolution | Labor/Employment Benefits | DIFC Litigation
sohail.hafesjee@bestwinslaw.com