Concurrent delays in the construction industry- the necessity of a comprehensive agreement for definition and framework for identification and quantification

by Uditha Tharanga, FCIArb 

Concurrency is among the most discussed and complicated areas of the construction industry, and the identification and assessment of concurrent delays, is arguably one of the most contentious technical matters in forensic delay analysis. While, in many jurisdictions the matter is still evolving, it has been subject to different treatment under common law and civil law jurisdictions.  

However, it is evident that the major controversy of concurrency is related to its practical application in prevailing legal authorities. On immediate observation, the lack of agreement between contracting parties for a clear definition of concurrent delay and the lack of understanding of the core legal principles can be identified as primitive causes. The author has come across several cases where the above elements of concurrency are at dispute.  

Contracts’ not having clear terms 

As a foremost consideration, the author believes that many standard contract forms published till date are not sufficiently capable of catering to such disagreements. The un-amended FIDIC contracts, which are widely used in the Middle East and many other countries across the world, do not address concurrent delay in their contract terms. However, even when the concurrency is addressed in the contract, the definition, technical aspects and procedures are not captured sufficiently to avoid any disputes.  

Seeking a definition  

The term “concurrent delay” means the occasion where the project completion is overrun by two or more delay events at the same time, one being an event for which the employer is culpable and the other being an event for which the contractor is responsible under the contract. It is sometimes said that the effect of the two delays should be precisely simultaneous to be considered as a concurrent delay. This is considered a narrow definition of concurrent delay, also known as “true” concurrency.¹ However, it has been argued that ‘true concurrency’ is mostly hypothetical and will only arise in exceptional factual circumstances.²  

In line with the above definition, the SCL protocol³ in its section B.10.3 describes concurrent delay as follows:  

“True concurrent delay is the occurrence of two or more delay events at the same time, one an Employer Risk Event, the other a Contractor Risk Event, and the effects of which are felt at the same time. True concurrent delay will be a rare occurrence.” 

Then, the protocol goes further and explains that more common usage of the term ‘concurrent delay’ concerns the situation where two or more delay events arise at different times, but the effects of them are felt at the same time.⁴  Although there were many subsequent definitions suggested, the one that has been put forward by John Marrin KC⁵ has been approved by the courts as a useful working definition and adopted for situations involving concurrent delays.⁶ The said definition is as follows: 

“a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency”⁷. 

As it captures key elements in defining concurrency (effectiveness of cause and effect, criticality and causative potency) it has since then been used as a reference in many subsequent disputes. However, the principles of this definition are not often seen to be adopted properly when it comes to implementation. For this reason, the result of the concurrency analysis substantially varies and often depend on the expert who carries out the analysis.  

Practical application of concurrency 

The SCL protocol is one the many practical guidelines, often being used as a reference. The most interesting discussion with regards to concurrency in the protocol is pertaining to the timing of the delay events. The SCL protocol in its section B.108 identifies four key points regarding concurrency as follows: 

1. the concurrency situation where the employer’s risk event and the contractor’s risk event occurred at the same time and their effects are felt at the same time;   

2. the concurrency situation where two or more delay events occurred at distinct times but the effect is felt within the same time; 

3. the delay must affect the completion, and by implication, both should be on the critical path and should be effective causes of delays; and  

4. CPM analysis is essential in determining concurrency. 

Although, the protocol set out some important considerations as above, in the author’s opinion, it provides few references to the form of analysis and the timing of the analysis in connection with the above concerns. Similarly, there are other issues that are related to the practical application which are not detailed therein. Perhaps, the best outcome of the SCL protocol regarding the concurrency is to encourage the use of common sense approach thereby highlighting that the margin of imprecision should be taken into account in reaching the conclusion on concurrency.⁹ The recent decision of the England and Wales High Court, Thomas Barnes & Sons PLC v Blackburn With Darwen Borough Council [2022] EWHC 2598 (TCC),  has also emphasized that courts will prefer a pragmatic, common sense approach to assessing delay, over the opinions of delay experts. 

By providing a theory to assist the practical application, the AACE International Recommended Practice No. 29R-03 (RP29R-03) introduces the concept of “literal” and “functional” concurrency which is related to the timing of the delay events occurrence. The difference inevitably depends on the method analysis as well as the duration of analysis.¹⁰  

The ‘literal’ and ‘functional’ theories are described as follows: 

 “Under the Literal Theory, the delays have to be literally concurrent in time, as in ‘happening at the same time.’ In contrast, under the Functional Theory, the delays need to be occurring within the same analysis period.”¹¹  

The functional theory seems to be more liberal in identifying and quantifying the concurrency as the delays may occur within the same measurement period to qualify as concurrent delays while the literal theory is similar to true concurrency, as defined under the SCL protocol. Under the latter theory, a delay at any point in the critical path creates a float through the entire network which makes the subsequent delay non-critical until the completion of the first delay event. It is sometime argued that the exact simultaneity is impossible. If the CPM schedule considers the “day” as the smallest unit of time, then both delays have to start on the same day regardless of the time, in order to be concurrent delays.  

Under the former theory of ‘functional concurrency’ it is possible that the employer’s delay occurring at the beginning of the month (first week) of the analysis period becomes concurrent with the contractor’s delay occurring in the last week of the update period as long as the other tests are met.¹² This way, it is common that the literal and the functional theories provide significantly different results and the practitioner who adopts functional theory will generally find more concurrency than one who adopts the literal theory. The difference in outcomes is sometimes significant. Hence, the decision as to which one of these conceptual approaches should be employed, can be dispositive of a delay dispute. 

Additionally, the discussion extends further than to the simple decision of “literal” or “functional” theory when analysing concurrency, as there are several other issues that will inevitably affect the outcomes of the concurrency analyses.  

As AACE (RP29R-03) suggests, these are the matters of:  

1. how the delay is determined (whether based on the cause or effect as they are both permitted under the protocol); 

2. the Contract’s definition of criticality and how the critical path is determined; 

3. the time period of the analysis (frequency, duration and placement of analysis periods);  

4. the order of the insertion or the extraction of delay events in connection with the selected methods of delay analysis; and 

5. whether the analysis is being performed in hindsight (retrospectively) or blind-sight (knowledge-at-the-time) or in other words whether it is being performed contemporaneously or forensically. 

Therefore, the protocol stresses on the requirement of proper agreement between parties for the definition of the concurrent delay as well as the other aspects of the CPM and the delay analysis as above. The solution is to ensure that contracts include the clear agreed terms to deal with all possible areas of disagreements related to concurrency. This should include a framework of definition as well as the detailed implementation protocol of analysis, amongst others. 

The issue of additional costs 

As regards to the matter of additional costs, the contractor fails to recover his additional cost for the duration of concurrent delay as the ‘but-for’ test of causation cannot be met. This outcome coincides with the SCL Protocol, English law and it also coincides with the conventional approach to such problems applied by tribunals in the United States.¹³ 

This could be reviewed alongside the literal and functional theories to assess whether the parties’ delay costs can be apportioned. There should also be an agreement between the parties to specify the matter of recovery of additional costs in case of delay.

---

1. The Royal Brompton Hospital NHS Trust v Hammond (2001) 76 Con. L.R. 148, 

2. J Stephen Forts QC and The Hon Sir Vivian Ramsey (editors), Keating on Construction Contracts (9th edition, Sweet & Maxwell, 2012) 

3. Society of Construction Law Delay and Disruption Protocol (SCL 2017), <www.scl.org.uk> 

4. ibid Note 03, Section B.10.4

5. It is included within a paper produced for the Society of Construction Law in 2002

6. Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm)

7. John Marrin QC, SCL paper, note 1, page 2. John Marrin QC, ‘Concurrent Delay’, SCL paper 100 (February 2002)

8. Society of Construction Law Delay and Disruption Protocol (SCL 2002), <www.scl.org.uk>

9. Ibid Note 04 Section 10.11

10. AACE® International Recommended Practice No. 29R-03 FORENSIC SCHEDULE ANALYSIS TCM Framework: 6.4 – Forensic Performance Assessment < https://web.aacei.org/docs/default-source/toc/toc_29r-03.pdf

11. ibid [1, (Section 2.D.1)]

12. Ibid Note 10

13. Blindennan Construction Co. y. United States, 695 F.2d 552,559 (Fed. Cir. 1982), quoting Coath & Gross, Inc. y. United States, 101 Ct. CI. 702,714-715 (19U) 

 

---

Uditha Tharanga is a Fellow of the Chartered Institute of Arbitrators and a member of the Royal Institution of Chartered Surveyors. He is a practitioner in the field of Arbitration and both a Quantum and Forensic Delay Expert in the construction field. His research interests include Construction ADR, Multi Party Arbitration and Third Party Funding in international Arbitration. He can be contacted on udtharangaw@gmail.com   

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Farhan Shafi or Reshma Oogorah.

Diversity Series: Part 1: Why is diversity important in arbitration?

by Magda Kofluk, MCIArb

Diversity is a concept that is heard often nowadays, but what does it actually mean and what are people really doing to implement and create greater diversity? There is no one definition of diversity. It can refer to a greater variety of genders, ethnicities, ages and cultures, to name a few.  

UAE is a very diverse country being a home for over 200 nationalities of various ethnic origins and beliefs. Yet can we say that arbitration in the UAE is equally diverse? 

Unfortunately, I think the answer is still not yet.  But the drive towards greater diversity within arbitration practice has become more pronounced. Many stakeholders including arbitral institutions, legal practitioners and experts have launched or taken part in initiatives to help encourage and promote diversity in arbitration practice.  However, more can be done and it is important to continue the discussion.  

This new series of diversity-related publications in the CIArb UAE newsletter will address the following:  

• explore why diversity is important in arbitration; 
• put together a list of different initiatives and organisations promoting diversity including ways for underrepresented members of the community to get more opportunities; 
• talk to diversity champions about their journey and experience; and 
• welcome comments and ideas from the arbitration community in the UAE regarding diversity, amongst others. 

When we talk about diversity in arbitration we often focus on the arbitrators and especially their gender. But it goes much further than that. Diversity in arbitration applies not only to the arbitrators but also to counsel and experts.  

One of the main reasons parties decide to resolve their disputes through arbitration is efficiency including timeliness, cost-effectiveness, procedural fairness and finality.  

Diversity can help increase the efficiency of arbitration proceedings: 

• A diverse panel of arbitrators can bring a wider range of perspectives, experiences, and skills to the decision-making process, which can lead to better-informed decisions and greater acceptance of those decisions by the parties involved.  
• A diverse legal counsel team can lead to improved decision-making. Counsel with different backgrounds and experiences can offer a wider range of insights and ideas, which can lead to better-informed decisions and more creative solutions.  
• A diverse group of experts can offer a broader range of perspectives and insights that may not be available from a homogenous group. This can be particularly important in complex or cross-border disputes, where a diverse group of experts can bring a more nuanced understanding of cultural, legal, technical and economic issues. 

We address these aspects of diversity in more detail below.  

1. Arbitrators 

First, one of the biggest arguments for greater diversity within arbitration is that it will expand the pool of arbitrators available to a party or institution when they are looking to appoint tribunal members.  

It is quite common, for parties to be looking at similar or the same arbitrators, especially when their search is confined to those who have the most experience or have been in the field for the longest. This inevitably leads to a number of potential candidates being conflicted out and therefore unable to act. The encouragement of diversity in arbitration practice, will mean that there is a wider pool of arbitrators available to the parties when they are looking for candidates for nomination.  

Second, diverse tribunals can bring a range of different perspectives to the dispute. For example, a tribunal composed of arbitrators from civil law and common law backgrounds can lead to a more informed and reasoned decision.  

Third, a diverse tribunal can help to ensure that the arbitration process is fair and impartial. When the tribunal members come from diverse backgrounds, it can help to avoid bias and can lead to a more balanced decision. 

Fourth, a diverse tribunal can help to enhance the legitimacy of the arbitration process. Parties are more likely to accept the outcome of the arbitration when they feel that the process was fair and inclusive. 

Finally, a diverse tribunal can provide a role model for future generations. When young arbitrators see that diversity is valued in the arbitration community, they are more likely to be encouraged to pursue a career in arbitration. 

2. Counsel 

When counsel with different backgrounds and experiences come together to work on a case, they bring with them their own unique perspectives and ideas. This diversity can be particularly valuable when dealing with complex disputes that require a multi-disciplinary approach, such as those involving technical, scientific, or cultural issues. 

Similarly, cultural background can also play a role in promoting diversity in counsel. When dealing with disputes that involve parties from different cultures, counsel team with a diverse range of cultural backgrounds can help to facilitate communication and understanding. This can be particularly important when negotiating settlements or crafting solutions that are acceptable to all parties involved. 

In addition, diverse counsel team can also help to ensure that all parties are able to effectively advocate for their interests. By bringing a range of perspectives to the table, diverse counsel team can identify and address potential blind spots or biases in their own arguments or those of their opponents. This can lead to a more thorough and effective presentation of evidence, and ultimately, better-informed decisions by the tribunal. 

Ultimately, the value of diverse counsel team lies in the fact that it allows for a more comprehensive and nuanced understanding of the issues at hand. By drawing on a range of backgrounds and experiences, diverse counsel can offer insights and ideas that may not be apparent to a homogenous group of lawyers. This can lead to better-informed decisions and more creative solutions to complex disputes, ultimately benefiting all parties involved. 

3. Experts 

Similar to counsel, diverse experts can offer different perspectives and insights that may not be apparent to a homogenous group of experts. This is particularly important when dealing with complex technical or scientific matters, where diverse experts with different experiences and backgrounds can offer a more comprehensive understanding of the issues at hand. 

In addition, greater diversity will expand the pool of experts available to a party or institution when they are looking to appoint experts. It is especially important in niche areas of expertise. 

Further, having a diverse range of experts involved in the arbitration process can also help to ensure that all parties are able to effectively advocate for their interests. This is particularly important when dealing with disputes that involve technical or scientific issues, as parties may need to rely heavily on expert testimony to support their arguments.  

Overall, the importance of diverse experts in arbitration lies in the fact that they can offer unique insights and expertise. By drawing on a range of perspectives and expertise, the tribunal can be more confident in the accuracy and reliability of the evidence presented, and ultimately, make better-informed decisions that take into account the broader context in which the dispute is taking place. 

Conclusion 

Overall, the importance of diversity in arbitration cannot be overstated. By promoting diverse representation of tribunal members, counsel, and experts, the arbitration process can ensure that parties receive a fair and impartial ruling. Diverse representation can also lead to more creative and effective solutions to complex disputes, while also promoting greater trust in the arbitration process as a whole. As the world becomes increasingly diverse, it is important that the arbitration community recognizes the value of diversity and takes concrete steps to promote it in all aspects of the process. 

Now that we have emphasised why diversity in arbitration is important, in the next part we will explore various initiatives and organisations promoting diversity from two perspectives. One perspective is to help all of us make arbitration more diverse and inclusive. The second perspective is to provide the underrepresented members of the arbitration community with the tools to break into arbitration and progress in their career. 

---

Magda Kofluk is a Member of the Chartered Institute of Arbitrators. She is Managing Associate at Stephenson Harwood Middle East and may be contacted on Magda.Kofluk@shlegal.com  

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Farhan Shafi or Reshma Oogorah.

Jurisdiction of Abu Dhabi Courts v ADGM Courts

by Nayiri Boghossian, MCIArb 

Abu Dhabi Courts have jurisdiction to review an application for the nullification of an award issued in an arbitration that is seated in Abu Dhabi. But, in a recent case, they declined jurisdiction in favor of ADGM Courts. Nayiri Boghossian, MCIArb examines the relevant case and the decision rendered by Abu Dhabi Courts.  

In a decision dated 19 September 2022, the Abu Dhabi Court of Cassation declined jurisdiction to review an application for the annulment of an ICC award issued in an arbitration seated in Abu Dhabi. They held the opinion that the courts of Abu Dhabi Global Market (“ADGM”) have jurisdiction over the matter given the ICC’s presence in ADGM.  

Summary of the Case 

The Claimant, a sub-contractor, filed an arbitration against the Respondent, the main contractor. The arbitration was conducted under the ICC Rules and seated in Abu Dhabi in line with the subcontract concluded between the parties. An award was issued in favour of the Claimant (“Award”) awarding it an amount slightly over two million U.S. dollars. The Claimant filed an application for the nullification of the Award before the Court of Appeal in Abu Dhabi (“COA”) as the awarded amount was significantly less than the claimed amount of thirty million U.S. dollars.  

The COA dismissed the application on the basis that it lacked jurisdiction.  Since the arbitration was conducted under the ICC Rules and the ICC has a “branch” in ADGM, the COA held that the ADGM courts have jurisdiction to hear the application for nullification. The Claimant appealed the decision to the Court of Cassation (“COC”), which upheld the decision of the COA.   

In reaching their decision, the COA and COC relied on Law No. 4/2013 Concerning Abu Dhabi Global Market as amended by Law No. 12/2020 Amending Some of the Provisions of Law No. 4/2013 Concerning Abu Dhabi Global Market (“ADGM Law”), and on the Federal Arbitration Law No. 6/2018 (“FAL”).  

In its decision, the COC cited Article 18.1 of the FAL, which states that “The competent Court shall have jurisdiction to consider arbitration issues referred hereunder in accordance with the procedural laws of the State. The Competent Court shall exercise exclusive jurisdiction until the conclusion of all arbitral proceedings.”  The decision also cites Article 1 of the FAL which defines competent court as “The federal or local Court of Appeal agreed upon by the parties or in whose jurisdiction the arbitration is conducted.”   

The COC then referred to Article 1 of the ADGM Law which defines “Global Market Establishments” as “Company, any branch, representative office, institution, entity, or project registered or licensed to operate or conduct any activity within the Global market by any of the Global market Authorities according to the provisions of this law or the Global market regulations or the executive resolutions including the licensed financial Global market Establishments.”  The COC also quoted the following provisions of Article 13 of the ADGM Law: 

“1. The Global Market’s Courts shall be of two degrees, first instance (formed of a single judge) and appeal (formed of three judges). Without prejudice to the provisions of this law and the Global Market Regulations, the Global Market’s Courts shall be considered as courts of the Emirate, with jurisdiction over disputes and matters in accordance with the provisions of this law and the Global Market Regulations… 

“7 . The Court of First Instance shall have exclusive jurisdiction to consider and decide on matters according to the following: …(d) Any request, claim or dispute which the Global Market’s Courts has the jurisdiction to consider under the Global Market Regulations… 

“10. The Court of Appeal shall have exclusive jurisdiction to consider and decide on appeals made against the judgments or orders issued by the Court of First Instance.  

“11. Judgments of the Court of Appeal are final and may not be challenged by any method of appeal.” 

The COC then explained that under the subcontract, the parties agreed to resolve their disputes through arbitration seated in Abu Dhabi under the ICC Rules. The parties did not dispute that a fifth “branch” of the ICC had been established in Abu Dhabi when the arbitration was ongoing. As a result, the said branch was considered a representative office of the ICC and was the seat of the arbitration. The COC held that, consequently, the arbitration was subject to the laws of ADGM and the ADGM Courts were the competent forum to review a challenge to the Award.  

Analysis

The COC relied upon legal provisions which do not support the conclusion it reached, and the decision is flawed in several respects.  

Under the arbitration agreement, Abu Dhabi was the seat of arbitration; not ADGM. If the parties had chosen ADGM as the seat, then ADGM Courts would have had jurisdiction on the basis of the Arbitration Regulations 2015 and not on the basis of the FAL, as cited in the decision.  

The fact that the arbitration was conducted under the ICC Rules does not affect the choice of seat. The choice of an arbitral institution and its rules results in the application of the rules of the relevant institution together with the arbitration law of the seat. The choice of ICC Rules cannot result in  ADGM as the seat. The COC interfered with the parties’ choice by changing the seat to ADGM. 

Moreover, as the court noted, the ICC case management office in ADGM (which the COC described as a branch) had not yet opened when the parties entered into their arbitration agreement. As such, it was not considered by the parties when drafting and signing their arbitration agreement. Of course, even if it had been, it would not have affected the choice of Abu Dhabi as the seat.  

This case demonstrates the need for parties to carefully draft their arbitration agreements until the Abu Dhabi courts rectify the situation. Hopefully, the Abu Dhabi Courts will make further decisions which clarify the legal position and apply various relevant laws carefully and correctly. 

---

Nayiri Boghossian is a member of the Chartered Institute of Arbitrators. She is a partner at Al Owais Advocate and Legal Consultants and can be contacted on nayiri@alowaislegal.com  

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Farhan Shafi or Reshma Oogorah.

The Rise of Artificial Intelligence: A UAE Commercial Arbitration Perspective

by Farhan Shafi 

The increasing capability of AI technology in recent years has led to it being hailed as potentially one of the most disruptive technologies ever developed. This article assesses the limitations of current AI technology and examines whether it can heavily disrupt arbitration practitioners in the UAE.  

Can machines think? Alan Turing posed this question almost 73 years ago. Today, a conversation with the latest generation of artificial intelligence (“AI”) models, such as OpenAI’s ChatGPT, leaves the impression that machines can, indeed, think. ChatGPT can carry on seemingly intelligent conversation, write computer code, and draft essays which do not trigger conventional plagiarism checkers. ChatGPT even shows promising legal capability. It can, amongst others, pass certain law school exams, answer legal questions and explain legal concepts (even those relating to UAE law) with varying degree of success, research key precedents, suggest arguments, and draft sample legal documents and contracts. 

Such capabilities in a freely available AI model may give arbitration practitioners a pause. Can AI disrupt a large portion of their work? Is it possible to specifically train an AI model to review documents, evaluate evidence, conduct legal research, and draft briefs as a lawyer? Considering that AI can complete a task in seconds that would take a human several hours, it is a valid concern.   

This article provides a high-level answer to these questions in the context of commercial arbitration in the UAE and argues that current AI technology and available data has inherent limitations that make them unsuitable for performing complex legal tasks. The article focuses on the technical limitations with data. Other challenges such as government intervention to protect unlicensed practice of law by AI are not considered. Furthermore, the discussion is limited to commercial arbitration proceedings seated in the UAE and governed under UAE law. 

Technical Landscape  

To understand the challenges that AI may face in performing legal tasks, it is important to understand the underlying technology used to train AI models. The latest generation of AI uses machine learning (“ML”) processes, such as deep learning through neural networks, and are driven by data. ML programs use data to learn and improve their performance over time. They rely on detecting hidden factors or patterns from training data fed to them. By applying brute force processing power to a large data sample, the model can use the data to identify an algorithm. Generally, the larger the data set, the easier it is to identify an algorithm.  

Once an algorithm is identified, AI uses the algorithm to make future decisions, relying on statistics and probability calculations. In this way, AI can generate text with impressive accuracy. While the output may seem intelligent, it is essentially nothing more than the result of a probabilistic model.  

In simpler terms, AI learns a general rule from large amounts of data that it can apply to future unseen data to accomplish the desired task.  

Developing an AI Lawyer – The Data Acquisition Problem 

For an AI lawyer to be effective, it must understand the applicable law, correctly assess what evidence is relevant, apply the legal principles to the factual scenario, and draft briefs on that basis. For each aspect, it must be fed data based on which it learns patterns and trains itself. To achieve accurate results, the AI lawyer must be trained with data, that is high-volume, has a variety of repeating fact patterns, and is correct.  

To learn how to apply a legal principle to a particular scenario, the AI lawyer needs a large amount of data samples with those repeating fact patterns and correct outcomes. The amount of data required depends on the complexity of the task but could range from hundreds to millions of data samples. Once trained with this data, the AI lawyer can create a general rule which can be applied to new scenarios.  

The main problem in developing such an AI model is obtaining the necessary data. Below, different sources of law in UAE are considered, and their limitations highlighted to show the unavailability of adequate data. 

Legislation 

The starting point of learning a legal principle in a civil law jurisdiction such as UAE is to read the relevant legislation, where the principle is contained in a single article or series of articles. Since such data would constitute a single data point, it is insufficient for the AI since it needs to train with repetitive fact patterns to recognise the algorithm. There is an alternative under which a single data source such as an article in a legislation can be used to train the AI. In this case, the legislation would need to go through data pre-processing where a legal expert will need to, amongst other things, break down each legal principle contained in a legislation on a granular level, identify the grammatical role of each word, and identify the relationships between the words while still risking an inaccurate result. The sheer cost, complexity, risk of error and time required in such a task for thousands of legal principles which may still produce inaccurate results mean thats legislations are not a practical data source to train an AI model.  

Awards 

To train an AI lawyer to be an arbitration practitioner, studying arbitral awards is another potential source of training data. The fatal element, however, is the importance attached to confidentiality in commercial arbitration due to which awards, and parties’ submissions are not published in most cases. For example, Article 38 of DIAC Rules 2022 stipulates that unless parties agree otherwise, all awards, orders, materials and documents must be kept confidential. Similarly, the Dubai Court of Cassation has previously confirmed that unless parties agree otherwise, arbitration is a private process.¹ As a result, there are simply not enough publicly available awards to train the AI.  

Judgments  

If the AI model were to use judgments as training data to understand the law and related concepts, the first problem would be the language since judgments are published in Arabic while most arbitrations are conducted in English. In order to constitute sufficient data, each judgment issued by the courts would have to be obtained and then translated by a certified agency. Not only would the process be extremely expensive and cumbersome making it a futile endeavour, but the credibility remains questionable given the risk of errors in translating a large volume of documents. A workaround is to utilise existing translated judgments in legal search engines, but copyright issues aside, the data is still likely to be numerically insufficient. 

However, even with the existing translations, the structure of the judgments is not ideal for training an AI model. Most readily available judgments are appellate decisions which contain a brief factual and procedural background followed by a short decision. Often, courts rely on expert evidence which is not available with the judgment. There are also very few primary court judgments available. The AI model would not have the benefit of reviewing parties’ submissions either. This makes most of the data from judgments unsuitable to train the AI as it is difficult to discern an algorithm. It is possible that where a particular law is cited often, the AI can explain what it says, but it would not be able to learn how to apply it to a factual scenario due to the limited information provided. 

The above problem is further complicated by the lack of repetitive fact patterns. Two cases are unlikely to be similar and the already limited number of judgments would be divided into various sectors and areas of law. Since UAE is a civil law system, court judgments do not bind other courts either which could result into conflicting decisions on similar fact patterns. As such, it will be difficult for the AI model to discern a pattern where there clearly is none.  

Thus, while training from judgment may provide limited benefit in terms of learning some commonly repeated legal concepts, the AI lawyer would still not be knowledgeable enough to handle a case itself and will lack the ability to apply any learned legal principles to factual scenarios.  

Changes in Law 

Another problem with training AI is the difficulty in learning new information. For AI to learn a general rule, it needs to study a large amount of data. However, legislative changes over time may render the past data useless. Consequently, each time the law is changed, the AI lawyer will be unable to apply the new law based on probabilistic methods. Since the AI lawyer would not be able to update itself in real-time with latest developments, there would be a cut-off date to the knowledge an AI lawyer holds which would make its use impractical.   

The Future and Conclusion 

The coming decade is likely to witness vast improvement in AI technology as giants like Google and Microsoft invest billions of dollars in AI. However, artificial general intelligence, the concept that a machine can employ human cognitive abilities, remains elusive. Current AI technology relies on massive amounts of data to make predictions which appear to be intelligent but ultimately are not. This form of AI technology will still likely have a major impact on arbitration in the UAE in the coming years. AI could be routinely used to translate documents, review and summarise documents, assist with arbitrator selection, create document bundles, and generate first draft of legal briefs. But, for now, arbitration practitioners can rest easy knowing there is no immediate threat, at least until the next big leap in AI technology.  

---

1. Case No. 157/2009, ruling of the Dubai Court of Cassation of 27 September 2009 

---

Farhan Shafi is an Associate of the Chartered Institute of Arbitrators. He works as an Associate with Blanke Arbitration. Farhan can be contacted on fs@blankearbitration.com 

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Farhan Shafi or Reshma Oogorah.

Non-Payment of Advance on Costs in Arbitration: An International Perspective

by Asha Bejoy, FCIArb

An advance on costs is a prerequisite for initiating an arbitration. This article delves into the rules established by different arbitral institutions regarding such advances, as well as the remedies available in case of non-payment of such advances.

Arbitration, being a private dispute resolution process, commences only after the payment of the advance on costs necessary to cover the expenses of the arbitrators and the administrative costs of the arbitration institution. Unlike courts, which are publicly funded, arbitrators rely on the advance on costs to cover their fees. Most major arbitration institutions require that the parties pay their share of the arbitration fee before the dispute is heard. For instance, Article 37(2) of the International Chamber of Commerce (ICC) Rules 2021 requires the claimant and the respondent to pay the advance on costs fixed by the ICC Court in equal shares.

If one party, typically the respondent, refuses to pay its share of the advance on costs, the claimant has no choice but to pay the advance on costs for the respondent and for itself. This is because, if an agreement contains an arbitration clause, courts typically do not have the jurisdiction to entertain such a case. The claimant’s only option in this situation would be to go through arbitration, incurring fees and seeking a refund from the opposite party, in case of a non-payment of the advance on costs by the opposite party. An arbitration can only proceed if the parties have sufficient funds for paying the arbitration fees. This has led to an undesirable situation where certain parties, usually the respondents, use non-payment of advance on costs as a strategy to discourage the claimant from pursuing its claims, especially when they know that the claimant is struggling financially. This strategy is aimed at forcing the claimants to withdraw their claims due to the increase in advance on costs they will have to pay. Although this tactic is often frowned upon by arbitral tribunals, as it is a direct violation of procedural rules, it is still used as an attempt to discourage claims.  

Regulations and Remedies under International Chamber of Commerce  

The International Chamber of Commerce (ICC) Arbitration Rules 2021, include a provision in Article 37, for an “Advance to Cover the Costs of the Arbitration“. Article 37(5) of the ICC Rules specifically addresses situations regarding non-payment of advance on costs. It states, “In all cases, any party shall be free to pay any other party’s share of any advance on costs, should such other party fail to pay its share”. 

The ICC Rules have several remedies in place if one party fails to pay their portion of the advance on costs. For instance, as per Article 37(6) of the rule, there is a two-step process. In cases where the request for an advance on costs is not complied with, the Secretary General may direct the arbitral tribunal to suspend its work, and a time limit of at least 15 days is set for payment. If payment is still not made, the relevant claim is deemed to have been withdrawn, but the decision may be appealed. 

The UAE Perspective 

When compared to more developed jurisdictions such as the US, UK, Europe, and Asia, arbitration is considered relatively nascent in the Middle East. The United Arab Emirates (UAE) introduced a comprehensive arbitration law in 2018, in line with the UNCITRAL principles through the enactment of Federal Law No. 6/2018. Consequently, parties from the UAE may still be unaware that the arbitration process has a legally binding effect. This is particularly true where respondents often view the payment of the advance on costs as the responsibility of the claimant. It is not uncommon for respondents to refuse to pay their share of the advance on costs. 

Different arbitration institutions in the UAE have different approaches to the advance on costs remaining unpaid. 

Article 3 of Appendix I of the DIAC Arbitration Rules 2022 deals with payment of the advance on costs for arbitrations under DIAC arbitrations. As per Articles 3.3 and 3.4 of the aforementioned provision, either party can make payments for the other party’s share of the costs for the arbitration which is necessary for the continuation of the arbitration at any point. These payments will be included as part of the total costs of the arbitration, and the party who made the payment can seek reimbursement through the tribunal by requesting an award on costs in accordance with Article 36.2. If a request for payment of the costs remains unfulfilled, the issue will be brought before the Arbitration Court to establish a final deadline for making the payment. The claim or counterclaim will be considered withdrawn if payment is not fulfilled within this deadline. 

According to the Procedural Regulations on Arbitration under Article 39 of the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) 2013, the parties to the arbitration shall both equally deposit to the arbitration centre, the fees for the arbitration at the commencement of the arbitration, and the final award shall determine which of the parties shall bear the fees and in what proportion. If one of the parties fails to pay its share of the fees, the party who has an interest in arbitration can loan the defaulting party’s share of the fees to the arbitration centre. However, if all parties involved fail to make the payment, the arbitral tribunal may choose to (i) continue with the arbitration, despite the non-payment risk, (ii) determine which party should be responsible for the outstanding fees and in what proportion, or (iii) decline the arbitration case. 

Different approaches to Advance on Costs Payment  

• The Contractual Approach 

The proponents of the contractual approach argue that paying advance on costs in arbitration is a condition agreed upon by the parties when they agreed to incorporate rules of the arbitration institution that provides for equal sharing of advance of cost into the contract. This obligation is seen as an obligation owed by the parties to the contract to each other and an extension of the agreement to comply with the rules of the arbitral institution, which includes paying for their portion of the advance on costs. Therefore, if one of the parties does not fulfil their obligation to pay for their portion of the advance on costs, it is then viewed as a breach of the arbitration agreement. According to this approach, the responsibility to pay advances on costs is mutual between the parties, and it is derived from their arbitration agreement. 

• The Procedural Approach 

Advocates of the procedural approach contend that the responsibility to pay an advance on costs in arbitration stems from the procedural obligation. According to this theory, the agreement to arbitrate is a separate contract and it is a contract that gives rise to procedural obligation. By incorporating rules of an arbitral institution by reference, the parties have agreed to be governed by such rules. This is seen as an obligation owed by the parties towards the arbitral institution not to themselves. In instances where a party fails to pay advances on costs, it is for the arbitral institute to decide this question as it is administrative in nature. According to this school of thought, the arbitral tribunal cannot render a decision ordering the defaulting party to pay the advance on cost as it is not within their authority.  

• The Good Faith Approach 

There is a third school of thought which says the responsibility to pay an advance on costs is considered an obligation based on good faith, which essentially means that the parties have the commitment to move forward with the proceedings in good faith. 

Conclusion 

To conclude, where a party declines to pay their share of the advance on costs in an arbitration, most institutional rules allow for the other party to make the advance on cost for the defaulting party. If this is not fulfilled, the proceedings may be suspended, or claims and counterclaims of the the defaulting party may be considered as withdrawn. However, not all institutional rules explicitly empower the arbitral tribunals to issue a partial award for reimbursement of the advance on costs. The paying party generally has no choice but to pay for the advance on costs on behalf of the non-paying party, and these costs may typically be recovered in the final award. Claimants must prepare for the worst-case scenario and go ahead with arbitration while considering the possibility of the respondent failing to make the payment. It is recommended that parties carefully review the arbitration clause to ensure that it explicitly provides costs of arbitration to be equally borne by the parties and to choose those institutions that have beneficial provisions in terms of recovering the arbitration costs. International commercial arbitration can benefit greatly from a harmonized approach to this issue, and continued attention should be given to this topic, in order to promote the growth and development of arbitration as an effective means of resolving disputes. 

---

Asha Bejoy is a Fellow of the Chartered Institute of Arbitrators. She is a lawyer and runs her legal consulting business in the UAE under the brand ATB Legal and can be contacted on asha@atblegal.com    

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Farhan Shafi or Reshma Oogorah.

Witnesses and Taking an Oath in Arbitral Proceedings

by Nayiri Boghossian MCIArb 

Witnesses are required to take an oath in arbitral proceedings and sometimes tribunals require that an oath be taken in the name of God and with a holy book. This article argues that there is no need to use a holy book or swear, in the name of God, in arbitral proceedings in the UAE. Nayiri Boghossian, MCIArb examines UAE legislation on this point, as well as decisions by the Dubai courts.  

Witnesses and Taking the Oath in Arbitral Proceedings 

According to the laws of the United Arab Emirates (“UAE”), it has historically been a requirement for witnesses to take an oath when giving their testimony in arbitration proceedings. Arbitral tribunals are generally very careful to comply with this requirement to ensure the enforceability of the arbitral awards that are being issued. Tribunals would normally ask the witness to swear on the holy book and to take an oath in the name of the “Almighty God”. This article argues that there is no need to use a holy book nor is there a need to swear in the name of God when witnesses are giving evidence in arbitration proceedings. 

The Requirement of Taking an Oath 

The requirement of taking an oath was set out in Article 211 of the Federal Law No. 11/1992 on the Civil Procedures Law (“CPL”). Article 211 used to state that arbitrators should administer an oath on witnesses. Article 216 of the CPL provided the instances where an award can be nullified such as in the case of procedural irregularity that impacted the award. On this basis, awards which relied on testimonies of witnesses who had not taken an oath were subject to nullification.   

Both Articles 211 and 216 were repealed with the issuance of the Federal Arbitration Law No. 6/2018 (“Arbitration Law”). The Arbitration Law does not include any provision akin to Article 211. As a result, there is currently no express requirement for administering an oath on witnesses. Court decisions issued since the promulgation of the Arbitration Law have upheld the requirement of taking an oath. However, these decisions relate to arbitral proceedings that took place prior to the issuance of the Arbitration Law^[1].  

Commentators expect that courts will require that an oath be administered on witnesses as court decisions considered that taking an oath is mandatory. For example, in Dubai Court of Cassation Appeal No. 322 of 2004, the Court of Cassation explained that the requirement set out under Article 211 of the CPL is of mandatory nature as it ensures the accuracy of the testimonies made. As such, arbitrators are bound to administer an oath and the violation of the said requirement renders the arbitral proceedings invalid. The Court further explained that a party may challenge the validity of the award before the courts even if such party had not challenged the failure to administer an oath before the arbitral tribunal. As for the wording of the oath, the Court stated that it should contain language that shows it is a sworn testimony.  

We find similar notions in Dubai Court of Cassation No. 503 of 2003, which provides for the mandatory nature of taking an oath and the potential invalidity of the arbitral proceedings in case of non-observance of the said requirement. The decision further explains the rationale for imposing an oath, which is to ensure the accuracy of the testimonies as it would discourage witnesses from making a false testimony. This would reassure the parties of the veracity of witness testimonies particularly since false testimony is a criminal offense. In this specific case, the court also mentioned that taking an oath requires a sworn testimony and found that this was not met in the instant case as the arbitrator had simply drawn the attention of the witnesses that they are bound to tell the truth and that harsh consequences can follow if they do not do so. The court explained that simply alerting a witness of the need to say the truth is not enough and it decided that the award should be nullified.  

The Wording of the Oath and the Use of A Holy Book 

The wording of the oath usually adopted is the one set out at Article 41(3) of the Federal Law No. 10/1992 on Evidence in Civil and Commercial Transactions (“Evidence Law”). It can be translated as follows “I swear by Almighty God that I shall tell the whole truth and nothing but the truth”. It is common practice for tribunals seated in the UAE to use largely similar wording and to require the witness to swear on their holy book.  

A question arises with respect to witnesses who do not believe in the “Almighty God” and who do not subscribe to any specific holy book. Clearly, a tribunal may not force a witness to testify in a manner that is not in line with his or her conviction.  

Indeed, the courts themselves have taken a more lenient approach to this question. In Dubai Court of Cassation No. 171 of 2010, the claimant applied for the ratification of two arbitral awards while the respondent filed a petition for the nullification of those awards. A number of nullification grounds were raised which included the argument that the awards had violated public policy and the Islamic Sharia rules as the oath administered on the witnesses did not mention God since the oath was as follows “I swear that the evidence I will present is the truth and nothing but the truth”.

In addition, the respondent argued that testimony should be offered on the holy Quran or Bible. The Court of Cassation dismissed the aforementioned ground of appeal explaining that as per Article 211, a witness should take the oath before a tribunal prior to giving its testimony. Otherwise, an award that is based on the testimony of witnesses who have not taken the oath will be null and void.  

The Court of Cassation went on to explain that although the Evidence Law requires the witness to swear by “Almighty God” that they shall tell the whole truth and nothing but the truth, it is not a condition to use the words “Almighty God”. This is so because scholars of Islamic Sharia have determined that in stating in his or her oath, the words, “I swear” or “I take the oath”, a witness effectively adheres to the meaning or requirements of an oath.

In fact, it is even sufficient for the witness to state “I testify” as this includes an oath. The Court of Cassation explained that the key aspect is to not violate the public policy by testifying for example in the name of something or someone other than God. The Court of Cassation also clarified that it is not a requirement for the witness to place its hand on a Quran or a Bible when testifying as the law did not impose such a requirement. In the instant case, the witnesses had testified after taking an oath before the tribunal using the words “I swear” and the oath administered stated “I hereby swear that the evidence I am presenting are the truth and nothing but the truth”. As such, it was held that the testimonies were offered in a correct manner and the Court of Cassation rejected the appeal. 

Final remarks

If it is not a requirement to swear in the name of God or on a holy book. Tribunals should simply abandon the practice of having a witness place its hand on a holy book and swear, in the name of God. In other words, they should apply the same approach to witnesses who believe in God and to those who do not. There is clearly no need to make a distinction and more importantly, there is no need to impose more cumbersome requirements beyond what is actually needed. Such approach would simplify the process and avoid the situation where a witness is asked about their religious beliefs, which is, after all, a very personal matter.  

---

1. Dubai Court of Cassation Appeal No. 205/2019 and Dubai Court of Cassation Appeal No. 364/2019

---

Nayiri Boghossian is a member of the Chartered Institute of Arbitrators. She is a partner at Al Owais Advocate and Legal Consultants and can be contacted on nayiri@alowaislegal.com  

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Farhan Shafi, Mohammed Taj or Reshma Oogorah.

The signing of arbitral awards under UAE law: recent developments with respect to the enforcement of foreign awards in the UAE

by Soraya Corm-Bakhos MCIArb

It is well settled under UAE law that arbitrators are required to sign the reasoning and dispositive parts of an arbitral award, failing which the award is invalid. This requirement extends to foreign awards. This article looks at the relevant provisions of the Federal Arbitration Law and latest jurisprudence from the UAE courts refusing to enforce foreign awards based on a irregularity in the signing of the award.  

Introduction

Under UAE law, an award must comply with several formalistic requirements to ensure its validity. One of those mandatory requirements is the signature of the award by the arbitrators. In the event of an irregularity in the signing of an award, there is a risk that the award may be set aside or not enforced by the onshore UAE courts. Recent case law confirms that this position not only remains unchanged for domestic awards under the UAE Federal Arbitration (FAL) but may also negatively impact the enforcement of foreign awards under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC).  

Relevant legal provisions  

Prior to the entry into force of the FAL in 2018, Article 212(5) of the UAE Civil Procedures Code (CPC) provided in relevant part that the award “must be in writing […]it must in particular include […] the signatures of the arbitrators”.  

Although Article 212(5) of the CPC did not include any specific detail as to where and how the award must be signed, the onshore UAE courts have ruled that: 

1. It is not sufficient for arbitrators to sign the final page of the award; both the reasoning and the dispositive parts of an award must be signed (see Case No. 233/​ 2007, judgment of the Dubai Court of Cassation of 13 January 2008; also Case No 156/​2009, judgment of the Dubai Court of Cassation of 27 October 2009);  

2. if the reasoning and the dipositive part of an award overlap or are contained in the same document, it may be sufficient for the last page of the award that contains both part of the reasoning and the dispositive part to be signed (see Case No. 233/2007, judgment of the Dubai Court of Cassation of 13 January 2008; also Case No. 156/2009, judgment of the Dubai Court of Cassation of 27 October 2009); and 

3. this signing requirement qualifies as a matter of public policy which may be raised ex officio by the court (see Case No. 218/2006, judgment of the Abu Dhabi Court of Cassation dated 17 October 2006; also Case No 156/​2009, judgment of the Dubai Court of Cassation of 27 October 2009). 

Based on those rulings, it is well settled that a domestic award may be set aside or declared unenforceable as a matter of UAE law in the event of a irregularity in the signing of the award. Arbitrators and legal counsel operating in the UAE are mostly familiar with this stringent signing requirement and will usually always err on the side of caution and ensure that each arbitrator signs or at least initials each page of the award with a full signature on the final page of the award.  

Article 41(3) of the FAL, which replaced Article 212(5) of the CPC, now provides: “The award shall be signed by the arbitrators and in arbitral proceedings with more than one arbitrator, the signatures of the majority of all members of the Arbitral Tribunal shall suffice, provided that the reason for any omitted signature is stated”. Like Article 212(5) of the CPC, Article 41(3) of the FAL still requires the award to be signed by all arbitrators but does not provide that an award must be signed on each page or where the signatures must be affixed.  

Recent local courts’ rulings 

Recent rulings of the onshore UAE courts have confirmed that the previous line of cases issued under the old Article 212(5) still apply under the FAL in the context of not only domestic but also foreign arbitral awards. 

Domestic awards 

In a judgment dated 14 June 2020, the Dubai Court of Cassation considered the enforcement of a UAE seated arbitral award under the FAL. The court adopted a strict interpretation of Article 41(3) of the FAL requiring that both the reasoning and dispositive parts of the award be signed.  

However, importantly, in this case the court did not set aside the award for violation of public policy but decided to remit the award to the Dubai Court of Appeal to allow the irregularity in the signing of the award to be rectified by the arbitral tribunal in accordance with Article 54(6) of the FAL.^[1] Article 54(6) allows a party to the arbitration to request the competent court of appeal to let a tribunal rectify any formalistic defect in the award that would otherwise serve as a ground for nullification. ^[2]  

Foreign awards 

In two subsequent cases, the Dubai Court of Cassation applied the narrow and strict approach to the signing of awards in the context of applications for enforcement of foreign awards, i.e. awards rendered in proceedings seated outside of the UAE.  

On 15 April 2020, the Dubai Court of Cassation issued a judgment refusing to enforce a foreign award, which contained the signature of the arbitrator on the last page only.^[3] In reaching this decision, the court referred to the following Articles of the NYC: 

1. Article III which provides in relevant part: “Each contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon”; and 

2. Article V(2)(b) which provides that enforcement of an arbitral award may be refused if the competent enforcing court finds that the “recognition or enforcement of the award would be contrary to the public policy of that country”. 

The court considered that the “applicable procedural rules” comprise all the provisions of the FAL, including Article 41(3). As regards Article 41(3), the court confirmed its previous line of cases and ruled that signing an award requires signing both the dispositive and the reasoning parts of the award otherwise the award is deemed invalid and enforcement would be contrary to UAE public policy. 

On 21 April 2022, the Dubai Court of Cassation refused to enforce the foreign award (which was issued under the ICDR-AAA Rules) on grounds of public policy for lack of compliance with the UAE law signing requirements.^[4] The court once again considered that arbitrators must sign not only the operative part of the award but also its reasoning for the award to be valid and enforceable.  

Conclusion 

Despite the entry into force of the FAL and the more streamlined enforcement process of foreign awards introduced by the latest amendments to the CPC^[5], the onshore UAE courts remain susceptible to refuse enforcement of awards, whether domestic or foreign, on (perhaps overly) technical grounds.^[6]   

When arbitrating parties anticipate that enforcement may need to take place in the UAE, they should ensure that the arbitrators sign every page of the award (regardless of whether the law of the seat includes a similar requirement) to mitigate the risk of a challenge to enforcement based on a failure to comply with the mandatory signing requirement under UAE law.

---

Soraya Corm-Bakhos is a Member of the Chartered Institute of Arbitrators. She works as Counsel for Watson Farley & Williams (Middle East) LLP and can be contacted on SCorm-Bakhos@wfw.com

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Farhan Shafi, Mohammed Taj or Reshma Oogorah.

1. Case No 1083/2019 – Ali & Sons Marine Engineering Factory LLC v E-Marine FZC, judgment of 14 June 2020.
2. For a commentary of this decision, see Gordon Blanke “Your signature, please: recent developments under article 41(3) of FAL”, Practical Law Arbitration Blog (August 20, 2020) available at http://arbitrationblog.practicallaw.com/your-signature-please-recent-developments-under-article-413-of-fal/.
3. Case No. 403/2020.
4. See case No. 109/2022, judgment of 21 April 2022. For a detailed commentary of this decisions, see Sara Sheffield, Reem Faqihi, “UAE Court Rejects Enforcement of Foreign Arbitral Award for Irregularity in the Placement of the Arbitrator’s Signature and Confirms the Period for Appealing an Order to Execute Foreign Arbitral Awards”, Kluwer Arbitration Blog (12 September 2022), available at http://arbitrationblog.kluwerarbitration.com/2022/09/12/uae-court-rejects-enforcement-of-foreign-arbitral-award-for-irregularity-in-the-placement-of-the-arbitrators-signature-and-confirms-the-period-for-appealing-an-order-to-execute-foreign-arbitr/.
5. See Cabinet Decision No. 57 of 2018 amending the CPC; Article 85(2) of the Cabinet Decision now provides that an application for enforcement of a foreign award may be submitted directly to the execution judge who is required to issue its decision within 3 days. The judge’s order remains subject to appeal.
6. See Cabinet Decision No. 57 of 2018 (in particular Article 85(2)), which provides that an order for enforcement of a foreign award may now be obtained by way of petition submitted directly to the execution judge.

Suspension and Termination Claims: Issues & Complexities

by John Boultwood ACIArb 

With the consequential impact of COVID now manifesting in commercial matters being taken to dispute, a common feature of such projects is a slow rate of progress, suspension and even termination of projects.   

This article considers the competing positions that often arise from the circumstances of projects that run into such difficulties including the usual features of evaluation and ascertaining such claims. 

Suspension is a complex subject that often requires a full understanding of how the contract operates and what effect suspension has on either Party to a contract. The FIDIC 1999 Red Book (“FIDIC 99”) is typically used here in the Middle East and contains various clauses on how suspension is implemented and subsequently valued.  

The terms of suspension under the Contract often result in the Parties having different views of the purpose and ambit of the suspension. FIDIC 99 Clause 8.8 deals with suspension either by the Contractor or the Employer. Whether the Contractor or Employer suspends works, suspension claims are likely to include the following issues: 

• Where the project is about to be suspended, the Parties need to be clear on the scope of the suspension and what elements of the project require the Contractor to maintain resources and perform any ongoing duties. 

• During the suspension, the Parties would be well served to monitor the resources being deployed and to flag any issues arising in the suspension that may have implications regarding any restart of the works. This can be sought through effective project management dialogue and recording of weekly meetings. 

• Upon lifting the suspension, the parties will seek to agree the time and cost consequences and to review any interim payments that have been made during the suspension period.  

When a project is suspended, the correspondence during the suspension period is usually unclear regarding the actual or reduced level of resources to be maintained during the suspension period. This can result in the Parties having different views as to whether the Main Contractor was to maintain a full resource and be prepared to resume at any time, or whether the suspension was indefinite with lesser safeguarding duties and a remobilisation. 

Consequently, this can result in conflicting opinions of the parties on the resources deployed and valuation of the level of resources that can be valued as part of the suspension instruction. Where an element of the works is not subject to the suspension, it may also be questionable whether that element of the works is subject to a progress valuation under the original value of works or valued as part of the suspension costs. If the Employer asserts that the Contractor was in culpable delay at the time of suspension, any work fronts where the Contractor can recoup schedule losses may also be a topic for evaluation, concerning responsibility and time and cost consequences. 

The below conceptual diagram illustrates the different stages of suspension through the project lifecycle. The green represents the works progressing as usual, the amber illustrates the period both before and after suspension and the red illustrates the usual uncertainty surrounding the suspension of works. The suspension period is where communication between the Employer and the Contractor is of paramount importance.  

Conceptual diagram for the suspension of works​

Depending upon the duration of the suspension there may be a trade-off decision between the costs of demobilising, cancelling rental agreements and remobilising equipment versus the cost of maintaining the status quo through the suspended period. The lifting of the suspension may give rise to issues regarding resource planning for materials in transit and the remobilisation of personnel and equipment. 

Valuation will depend upon the ambit of the suspension instruction, its duration, and the resources that are subject to the suspension. The valuation principles under the Contract need to be examined to consider whether the valuation requires a cost-based or rate-based valuation. This can provide a significant range of valuations, particularly where large equipment or plant is retained on the project and whether the Contractor could have deployed that equipment at market rates elsewhere. 

It is beneficial that the allocation of resources and any continuing scope is agreed upfront and to keep weekly records of the resourcing during the suspension period. Ideally, costs should be kept by reference to cost records compiled weekly. 

Suspension often foreshadows the triggering of a termination.   

Termination is primarily a contractual mechanism, whereby an Employer or a Contractor asserts its contractual right to give notice of termination under the Contract. Under FIDIC 99, the Contractor may terminate under clause 16.2 (Termination by the Contractor) and the Employer may terminate under clause 15.2 (Termination for Contractor’s Default) or clause 15.5 (Termination for Employer’s Convenience).  Depending upon the Contract the valuation mechanisms that flow from the parties, termination may vary and often the termination provisions are subject to special conditions or amendment.   

Termination disputes always turn on the facts, which can cause the basis of termination to be challenged, matters to become complex and prolong project delivery; it is common to see allegations of wrongful termination and counterclaims. 

A common feature of termination is the valuation of the physical value of work done reflective of the progress at the point of triggering termination. This depends upon the records of the works completed by the Main Contractor and its Subcontractors as well as the supply of any materials procured or subject to partial procurement at the date of termination. More fundamentally, the Employer may take a position with regard to overpayment and value for money. 

In respect of valuing termination, this involves verifying the value of any work done, encompassing progress in procurement and the direct consequences of termination. Different valuations are proffered by Contractors and Employers. The Contractor’s valuation at termination will seek recompense for any direct costs and loss of opportunity arising out of the termination, whereas the Employer’s valuation will rely upon the tangible benefits gained by the Contractors delivered work, the additional costs post-termination, as well as the re-tendering and completion value to complete the remaining post termination scope (i.e., the balance of the works to be undertaken post-termination). 

In addition to justifiable grounds for termination there are many factors to consider for both the Employer and Contractor before issuing a notice of termination. The Contractor should ensure that its termination valuation is supported with a backup audit trail, indicating the progress of works at the time of termination and further the Employer would need to consider the follow-on works and whether it employs and subsequently onboards the incumbent Sub-Contractors to the new Main Contractor completing the works or retenders a relet for the balance of the works.  Fundamentally, any claim for extra over costs to the Employer need to be demonstrably arising from a like for like comparison of the balance of works left at termination. 

Aside from the assessment of the value of work done by the Contractor at termination, the contractor may also claim costs for the demobilization of significant plant and equipment that was planned for the terminated project and for any ongoing liabilities.  

Regarding the demobilisation of plant and equipment that cannot readily be deployed elsewhere, there could be a claim for extended durations of rental charges. Again, this would all have to be demonstrable and auditable cost.  Connected to this is the question of what is a reasonable time for accrued ongoing post termination costs.   

Regarding Contractor ongoing liabilities, the Contractor may have to negotiate and settle ongoing agreements within its supply chain. The Contractor will have to address any claims that existed prior to and/or arose from the termination. Records of any negotiations and settlements will be important to demonstrate that commitments were sensibly closed out, particularly if these are included as part of the Main Contractor’s direct costs of termination and to be passed on to the Employer.   

In a termination situation, the Employer will need to make arrangements to complete the works and may claim for any costs this incurs. If the Employer wishes to make such a claim, it is important that the Employer can provide an audit trail of the incomplete scope of the works at termination.  The topic of post termination variations will give rise to a question of whether such variations would have been a corresponding variation had the original Contractor completed the works.   

However, the Employer should be cautious when placing the follow-on works to ensure that the balance of the completion works is demonstrably linked to the value of the work done at termination. The terminated Contractor will inevitably argue any concerns over like for like scope for any follow-on contractors and so the Employer should ensure that follow on costs are mitigated where possible and that any future variations are separated from a cost to complete claim against the previous Contractor.  

The below conceptual diagram illustrates the phases of termination from terminating the existing Contractor and re-engaging a new contractor to complete the works.  

Conceptual diagram for the termination of works​

 

The author notes that the above is a general guide to issues which in his experience give rise to significant valuation differences and that the parties to a Contract should before suspending or terminating have a weathered eye on the range of issues that are likely to follow. 

---

John Boultwood is an Associate of the Chartered Institute of Arbitrators. He is a Quantum Expert Witness, the Managing Director of Boultwood + Associates and can be contacted on john.boultwood@boultwoodassociates.com  

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our general editor Reshma Oogorah.

Space Arbitration as the Forum of Choice for the Space Industry

by Mohamed Amara MCIArb and Laura Yvonne Zielinski

The space industry is growing and with this growth comes a higher risk of disputes. The legal community should be prepared to offer efficient dispute resolution mechanisms to the users of outer space and space arbitration has an important role to play in this context.  

The first half of 2022 has seen a stark increase in the presence of outer space in our conversations. Newspapers such as Le Monde and the Wall Street Journal now regularly report on space developments and threats, and as a consequence, in the legal world, space law is increasingly seen as less of a niche subject and more as a legal branch of interest to the broader community. One of the legal topics that is being discussed concerns dispute settlement mechanisms that are available to the space industry. The underlying thought is that the growth of the space industry will sooner or later result in space disputes and that the legal community should be prepared to offer efficient mechanisms to solve them. So what are the dispute resolution mechanisms available to the space industry in the UAE and beyond? 

Domestic Litigation 

In theory, space disputes, like any other disputes, could be solved by domestic litigation. However, there are doubts about whether national courts are indeed the best forum for the space industry. This is because space activities are generally highly technical, international and often confidential, and domestic courts are not always prepared to adequately address the needs resulting from these specific characteristics. In addition to practical questions regarding for example the language of the proceedings where two parties from different jurisdictions are involved, the main shortcomings of domestic courts with regard to space disputes are considered to be the lack of expert knowledge of the space industry in domestic judges, and the public nature of national litigation that fails to take into account the need for protection of sensitive space technology.  

The Dubai Courts of Space 

In 2021, the DIFC Courts have created the Courts of Space to address the issues set out above. In this regard, the Dubai Space Courts offer proceedings in English and apply the common law approach. The DIFC Courts are a forum of choice, meaning that they can be chosen by parties all around the world and their judgments are honored by other common law jurisdictions. Finally and most importantly, the judges of the Space Courts are trained in space law and the outer space industry to offer space users the industry-specific dispute settlement they require.  

International Arbitration 

Beyond the Dubai Courts of Space, it is international arbitration that might present the best option for the space community. Like the Courts of Space, arbitration can be chosen by parties in their (space) contracts. Arbitration offers as its main advantage that it allows parties to a dispute to select their arbitrators and therefore allows parties to a space dispute to choose arbitrators who are familiar with the space industry and can well understand and judge a space dispute before them. In addition, international arbitration is also uniquely placed to offer parties the level of confidentiality required by a specific dispute as, if necessary, even the existence of an arbitration proceeding can be kept confidential. 

These advantages are well known and many space contracts already contain arbitration clauses. For example, the European Space Agency provides for arbitration in Clause 35(2) of its General Clauses and Conditions for ESA Contracts (Regulations of the European Space Agency: General Clauses and Conditions for ESA Contracts, ESA/REG/002, revised on 5 July 2019) and arbitration clauses also seem to be routinely included into commercial space contracts by companies such as SpaceX, Avanti, Boeing, Airbus and Arianespace (Rachael O’Grady, “Dispute Resolution in the Commercial Space Age: Are All Space-Farers Adequately Catered For?”, ICC Dispute Resolution Bulletin, Issue 3, 2021, p. 55). A study undertaken by Vivasat Dadwal and Madeleine Mcdonald confirmed that international arbitration is the preferred mechanism by both State and non-State actors in the resolution of publicly-known space-related disputes, especially in the satellite industry (Viva Dadwal, Madeleine Mcdonald, “Arbitration of Space-Related Disputes: Case Trends and Analysis”, presented at the 71st International Astronautical Congress in October 2020).  

What is interesting is that the arbitration rules chosen by the parties so far seem to have been generic arbitration rules such as those of the International Court of Arbitration of the International Chamber of Commerce or the London Court of International Arbitration. And this in spite of the existence of sector-specific arbitration rules such as those published by the Permanent Court of Arbitration.  

The PCA Outer Space Rules 

In 2011, the Permanent Court of Arbitration, in collaboration with an expert group of 13 leading experts in aerospace law, developed and published the specifically-tailored Optional Rules for Arbitration of Disputes Relating to Outer Space Activities.  

These rules are based on the well-known UNCITRAL arbitration rules but contain various adaptations to better suit the requirements of the space industry. For example, under Articles 10(4) and 29(7), the Secretary-General of the Permanent Court of Arbitration maintains a list respectively of arbitrators and experts with specialized knowledge of the subject matter at issue. Article 17(6) allows the parties to a dispute to apply to have certain information classified as confidential and Article 17(8) provides for the possibility of appointing a ‘confidentiality adviser’ to report to the tribunal on specific issues without disclosing the confidential information on which the report is based. Finally, according to Article 27(4), the tribunal may request the parties to provide a non-technical document summarizing and explaining the background to any scientific, technical or other specialized information which the arbitral tribunal considers to be necessary.  

The PCA Outer Space Rules are available to both States and public entities and private parties and by choosing them, the parties waive their right to immunity from jurisdiction. Like all international arbitration awards, awards rendered under the PCA Outer Space Rules are final and binding and enforceable internationally in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted on 10 June 1958. 

As far as publicly known, the PCA Outer Space Rules have not yet been used in practice. However, “[a]s the size and sophistication of the market develops, it seems likely that users will gravitate toward the [PCA Outer Space Rules], which were prepared with their specific needs in mind.” [Evgeniya Goriatscheba, Mikhail Batsura, “Specialized Arbitration Rules for Disputes Relating to Outer Space Activities”, Arbitration.ru, March-April 2021, No. 2(26), p. 23.] 

Conclusion 

When it comes to discussions about dispute settlement mechanisms for the space industry, the question is sometimes raised as to whether there is a need for an international space court or whether any other new dispute settlement mechanisms need to be created in anticipation of an expected increase in space disputes. It seems however that this is not necessary. There are already dispute resolution mechanisms specifically tailored for the space industry. Rather than creating new institutions, it is important to raise awareness of the mechanisms that exist already to make sure that the space industry takes advantage of them to efficiently address any disputes that might arise in the coming years. 

---

Mohamed Amara  MCIArb is a member of the Chartered Institute of Arbitrators and of the International Institute of Space Law (IISL). He sits as arbitrator, is an accredited mediator and is the General Counsel for the Federal Geographic Information Center. He can be contacted on m.amara@amarapartners.ae. 

Laura Yvonne Zielinski is the Founder and President of the Space Arbitration Association and an associate at Holland & Knight in Mexico City. She can be contacted on laura.zielinski@space-arbitration.com.  

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our general editor Reshma Oogorah.

Regulation of TPF in the MENA Region: New DIAC Rules 2022

by Sima Ghaffari MCIArb 

In light of the increased involvement of Third Party Funding in international arbitration, it is apposite to explore the regulation of TPF in Middle Eastern jurisdictions. This article will highlight the approach of the new DIAC Rules 2022 to the topical issue of Third Party Funding in arbitration.  

One of the most important criticisms of arbitration is its ever-increasing costs. As such, the use of financing options in the arbitration arena continues to gain momentum.  Third Party Funding (“TPF”) can remove the arbitration costs off the balance sheet of the funded parties and enable them to pursue a meritorious claim. The COVID-19 pandemic has also accelerated the future of TPF. There has been a growing trend toward the regulation of TPF, as a tool to improve access to justice for under-resourced parties. Therefore, many jurisdictions have liberalized TPF and adopted pro-TPF stances in recent years. Likewise, many leading arbitral institutions including ICC, SIAC, ICSID and HKIAC have started to modernize their arbitration rules and regulate TPF. 

In a similar vein, TPF found an echo in the updated rules of the Dubai International Arbitration Center (“DIAC”) which came into effect on 21 March 2022 (“DIAC Rules 2022”). This can be considered a step forward in the efficient resolution of complex and high-value disputes, in particular, in the construction and energy sectors. Taking such statements as a starting point, this article will discuss the efficiency of the new TPF provisions under the DIAC Rules 2022. It will also briefly highlight the position of TPF in the MENA Region (“Region”). 

Third Party Funding through the Lens of the DIAC Rules 2022 

The new version of DIAC Rules apply to arbitrations which commence on or after 21 March 2022. The modern archetype of these rules can place the DIAC at the forefront in terms of efficiency in institutionalized arbitration in the MENA Region. The key features of the new DIAC Rules include the incorporation of multiple party and multi-contract arbitration¹, joinder and consolidation, TPF, expedited proceedings, appointment of an emergency arbitrator etc. The previous version of the DIAC Rules (2007)² was silent on the regulation of the use of TPF in arbitrations conducted under the DIAC Rules. 

Providing the definition of TPF is still a tricky issue³. DIAC, in its article 1.1, shed some light on what qualifies as TPF and defines third party funding arrangement as “an arrangement between an independent third party (whether an individual or body corporate) and one of the parties to the arbitration which confers on that third party an economic benefit which is linked to the outcome of the arbitration and may involve the receipt of a share of the proceeds of any award”. 

The involvement of the funder may endanger the impartiality and independence of arbitrators as there is the risk of conflict of interest arising from the relationships between third party funders and arbitrators. For instance, an arbitrator may be the director of the funder or the funder may be involved in two cases where the same member of the Tribunal is acting as counsel or arbitrator. Hence, one could argue that it would be prudent for a Tribunal to be appropriately informed of the presence of funders, to avoid any adverse effect fromthe potential direct and/or indirect relationships between funders and arbitrators on its impartiality and independence.Article 22 of the DIAC Rules deals with the issues related to disclosure obligations and adverse costs liability. It provides a disclosure regime for the purpose of assessing conflicts of interest that would arise out of relationships between arbitrators, funders and counsels. DIAC imposes an obligation to declare the existence of TPF and effectively addresses the correlation between TPF arrangements and disclosure. The partial or limited disclosure prescribed in the DIAC Rules 2022 is aligned with the latest updates to the arbitration rules of leading institutions like the ICC⁴. 

Article 22 of the DIAC Rules 2022 addresses the obligation to disclose TPF at different stages of an arbitration: prior to and after the constitution of the Tribunal. Before the constitution of the Tribunal, parties must promptly disclose the existence of TPF arrangement “together with details of the identity of the funder, and whether or not the funder has committed to an adverse costs liability”.  

Neither DIAC nor any other institutions whose rules I reviewed including ICC and VIAC⁵ specify what exactly the “identity” of the funder means. The new ICSID Rules, however, clearly provides  that  the “name and address” of funders shall be disclosed through a written notice⁶. Facilitating the assessment of potential conflicts in this way can help to better preserve the overall integrity of arbitration. Likely due to confidentiality concerns, Article 22 of the DIAC Rules 2022 does not extend the scope of the disclosure obligation to further information such as the contractual document with regard to the funding agreement. 

As for funding arrangements made after the constitution of the Tribunal, Article 44.2 of the DIAC Rules 2022 prohibits parties from entering into a TPF arrangement  “if the consequences of that arrangement will or may give rise to a conflict of interest between the third-party funder and any member of the Tribunal”. The disclosure obligation of the new DIAC Rules (for the purpose of conflicts analysis) can be considered a significant step in ensuring the enforceability of arbitral awards.  

Third party funders may also appreciate these innovations as disclosure would better protect the investment of funders by avoiding conflicts of interest. 

Another procedural query related to TPF is the impact of TPF on allocation of costs. One may argue that the mere fact that a party seeking costs is funded by a funder does not suffice to deny the recovery of costs. Article 22.3 of the DIAC Rules 2022 provides that “The Tribunal may take into account the existence of any third party adverse costs liability when apportioning the costs of the arbitration between the parties”. The new ICC rules, however, do not highlight the issues related to funding costs. It remains to be seen whether Tribunals will consider funders accountable for arbitration costs when the funded party is not successful. 

Position of TPF in Middle Eastern jurisdictions 

As discussed earlier, the number of arbitration proceedings related to construction and energy industries is increasing and this can provide exciting business opportunities for funders.  The construction sector is an important source of demand for TPF in the Region and would benefit from clear regulatory frameworks for TPF arrangements as a cash flow 

management tool. The United Arab Emirates is one of the pioneers in regulating TPF arrangements in the Region⁷. Although TPF is still largely unregulated in many jurisdictions located in the Region, TPF is not prohibited by statute, whether generally or specifically. The absence of any express legislative prohibition might lead to the conclusion that there is no impediment in the use of TPF in arbitration⁸.  

The common law historic barriers including the doctrines of champerty and maintenance prohibiting TPF do not apply in the MENA Region. The legal system of many jurisdictions  located in the Region is inspired by civil law and Sharia traditions. For instance, the Iranian Constitution provides that all laws and regulations shall adhere to Islamic requirements. Neither the Iranian domestic nor international arbitration rules have been updated so far⁹. It remains to be seen whether the Iranian legislature will recognize the use of TPF or not. In doctrine, it has been widely argued that TPF is compatible with Sharia principles¹⁰. In light of the growth in the use of TPF, it is expected that other jurisdictions will renew their laws and arbitration rules and expressly permit the use of TPF in arbitration. 

Concluding Remarks 

The international arbitration community has begun to acknowledge the crucial role of TPF in the construction, energy, and infrastructure industries. Regulating TPF can provide solutions for parties wishing to resolve their disputes in a risk averse and cost-effective manner. Besides, it can provide new opportunities and career paths for lawyers and also provide more investment options for corporations.  Thus, the regulatory aspects related to TPF in the ADR sector should also be taken into consideration in the MENA Region.  

Although time will reveal the effectiveness of the new DIAC Rules, these rules represent a modernisation of the DIAC arbitration landscape and can promote UAE as the leading arbitral seat in the Region. Incorporation of provisions dealing with TPF is a welcome evolution from the 2007 DIAC Rules. In view of the foregoing, it is hoped that the DIAC Rules 2022 will deepen the effectiveness of TPF in international arbitration.

---

¹ See the previously published article on the CIArb UAE Branch News: https://ciarbuae.wordpress.com/2022/05/13/multi-party-and-multi-contract-arbitration-provisions-under-the-new-2022-diac-arbitration-rules/ 

² The text of the 2007 DIAC  Rules: http://www.diac.ae/idias/rules/  

³ In this regard, see chapter 3 of the Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, Available at https://cdn.arbitration-icca.org/s3fs-public/document/media_document/Third-Party-Funding-Report%20.pdf 

⁴ Article 11.7 of the 2021 ICC Arbitration Rules 

⁵ Article 13 of VIAC Rules also provide that a party’s disclosure shall be in “its statement of claim or its answer to the statement of claim, or immediately upon concluding a third-party funding arrangement”. 

⁶ See Alberto Favro, “New ICSID Arbitration Rules: A Further Step in The Regulation of Third-Party Funding”, Kluwer Arbitration Blog, June 3 2022, at http://arbitrationblog.kluwerarbitration.com/2022/06/03/new-icsid-arbitration-rules-a-further-step-in-the-regulation-of-third-party-funding/ 

⁷ DIFC Courts issued Practice Direction No. 2 of 2017 on Third Party Funding in the DIFC Courts, https://www.difccourts.ae/2017/03/14/practice-direction-no-2-2017-third-party-fundingdifc-courts/&nbsp;

⁸ Alain Farhad, “Does Third-Party Funding Have a Future in the MENA Region?” Bahrain Chamber for Dispute Resolution, International Arbitration Review, 2018 

⁹ Iran has adopted a dualist arbitration regime for arbitration: Domestic arbitration is governed by the Civil Procedure Code and international arbitration is governed by the Law on International Commercial Arbitration. 

¹⁰ For a better understanding of the issue, see C. Eken (2021, forthcoming) “Analysis of Third-Party Funding within the Islamic Framework” (TDM, ISSN 1875-4120) May 2021, http://www.transnational-dispute-management.com&nbsp;

---

Sima Ghaffari is an Associate member of the Chartered Institute of Arbitrators. She acts as an arbitrator and also serves as an ICC YAF Representative for the MENA Region chapter. Sima can be contacted on sima.ghaffari6@gmail.com. 

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our general editor Reshma Oogorah.

Use of Technology in Arbitral Proceedings – UAE Perspective

by Nayiri Boghossian MCIArb 

A lot has been written on the subject of arbitration and technology over the past couple of years due to the increased use of technology in arbitration. This article examines the use of technology in arbitration proceedings from the perspective of the laws of the United Arab Emirates (“UAE”). It provides a review of UAE legislation on the topic and examines a recent court decision issued by Dubai courts dealing with the use of technology in arbitral proceedings.   

Legislation about the Use of Technology 

The UAE embraced the use of technology in court proceedings way before the recent pandemic. Federal Law No. 10/2017 amending certain provisions of the Civil Procedures Law No. 11/1992 (“CPL”) added a section to the CPL entitled “The Use of Remote Communication Technology in Civil Procedures”. This new section included 12 articles which provide for the use of remote communication technology whether visual or audio to conduct the proceedings. The use of technology applies to all aspects of proceedings including attending hearings, exchanging documents, serving notice of proceedings, etc. In 2019, Ministerial Decision no. 260/2019 (“Decision”) was issued providing procedural guidelines to the judiciary on the use of electronical means and remote communication. The Decision provided further details on the use of technology in filing proceedings, serving notice, attendance of hearings, exchange of submissions and documents, amongst others. The Decision expressly stipulates that deliberation amongst judges can be done through electronic means.  

As far as arbitration is concerned, the legislator took into consideration the use of technology when promulgating Federal Arbitration Law No. 6/2018 (“Arbitration Law”). Here again, technology was adopted before the pandemic created a need for it. Article 28(2)b of the Arbitration Law allows the tribunal, unless otherwise agreed by the parties, to “hold arbitration hearings with the parties and deliberate by modern means of communication and electronic technology.” Article 33(3) states that “Hearings may be held through modern means of communication without the physical presence of the parties at the hearing.” Witness testimony can also be provided remotely as per Article 35.  

Case Summary 

The use of technology was also welcome by the courts which started using technology in all aspects of proceedings. Additionally, in a recent ruling of Dubai Courts, the courts refused to set aside an arbitral award which was challenged on the grounds that technology was used in deliberations and in holding hearings. The said case related to an award rendered on 28 June 2018 in an ad hoc arbitration seated in Dubai (“Award”). Once the Award was rendered, the Respondent filed an application for the annulment of the Award before Dubai Courts. In its application, the Respondent invoked many grounds of challenge including the conduct of the proceedings remotely. The Respondent raised in this respect a number of issues such as the hearings not taking place in Dubai, the tribunal not meeting with the parties, and the award’s reliance on the provisions of the Arbitration Law in allowing hearings and deliberations to take place through technological means of communication. The latter ground of challenge was based on the fact that the Arbitration Law was not applicable to the dispute as the proceedings took place before the Arbitration Law was issued¹.  

When the case reached the Dubai Court of Cassation² (“Court”), the Court rejected all the grounds of annulment raised by the Respondent. With respect to the challenges relating to the remote conduct of the hearings, the Court explained that Article 212 of the CPL, which was applicable to the arbitral proceedings, allowed the parties to determine the procedures applicable to the dispute³.  The terms of reference signed by the parties indicated that the parties have used the discretion granted to them in choosing the procedures to be followed. The said terms of reference indicate the parties’ agreement that the tribunal shall conduct the arbitral proceedings through modern technological means including video-conferencing. The arbitral tribunal implemented the agreement of the parties in conducting the proceedings remotely using modern means of communication. On these bases, the Court upheld the Award.  

The Court mentioned that the parties were ahead of the legislation allowing the use of technological means, referencing Law No. 10/2017 and the Arbitration Law. In that respect, the Court explained that Federal Law No. 10/2017 added a new chapter to the CPL related to the use of technology the purpose of which is to facilitate court proceedings by allowing the conduct of such proceedings remotely. As such, the physical presence of the parties before the court is not required and they may submit their defenses remotely. With respect to the Arbitration Law, the Court mentioned that articles 28 and 33 allow for arbitral hearings and deliberation amongst the tribunal members to be done through technological means. 

Concluding Remarks  

Although the Court mentioned the Arbitration Law as well as the chapter of the CPL relating to technology, it cannot be said that it applied them to the case at hand to reach its ruling. Instead, the Court’s ruling is based on Article 212 of the CPL. As such, the Court did not attempt to apply the Arbitration Law retrospectively nor attempted to apply to arbitral proceedings, the CPL provisions relating to court proceedings.  

In conclusion, parties to proceedings conducted through video conferencing and other technological means can be assured that UAE courts will not invalidate an award stemming from such proceedings simply because the proceedings were conducted through virtual means. The Court’s position is based on the various legislative texts reviewed above and which uphold the use of technology. Furthermore, this is in line with the pro-arbitration approach adopted in the UAE and which we are increasingly witnessing.  

 

---

^[1] The Arbitration Law entered into force in June 2018, a month after its publication in the official gazette.

^[2] Case No. 36/2020 Cassation Commercial

^[3] Article 212, which has been repealed since the promulgation of the Arbitration Law stated in subclause 1 that parties may agree on specific procedures to be followed by the arbitrator.

---

Nayiri Boghossian is a member of the Chartered Institute of Arbitrators. She is a partner at Al Owais Advocate and Legal Consultants and can be contacted on nayiri@alowaislegal.com  

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Multi-party and multi-contract Arbitration Provisions under the New 2022 DIAC Arbitration Rules

by Uditha Tharanga FCIArb

Parties to construction contracts regularly use arbitration as a mechanism of dispute resolution because of its benefits over other ADR methods and litigation. Frequently, arbitration proceedings are limited to the parties (normally two) to the contract due to the complexities of joining third party non-signatories to the proceedings.  

However, with the complex contractual relations between stakeholders in the business industry, in particular the construction industry (PPP & PFI contracts, joint ventures, consortium agreements and the like), the increasing number of complex multi-party disputes has demanded the requirement of efficient laws and rules of arbitration which are workable and capable of providing a self-sufficient and reliable mechanism for multi-party arbitration.  

Recently, the Dubai International Arbitration Centre (DIAC) launched the highly anticipated DIAC Arbitration Rules 2022 (“DIAC 2022 Rules”), which came into effect on 21 March 2022. Unlike the old rules¹, the new rules seem to provide certain attractive solutions to multi-party / multi-contract arbitration for parties wishing to resolve their disputes through DIAC.  

In this article, I review how efficient these rules are in relation to multi-party / multi-contract disputes with particular focus to the construction industry. Article 8.1 of the DIAC 2022 Rules provides that:  

8.1. Subject to the provisions of Articles 6.1 and 6.2, a party wishing to commence an arbitration under the Rules may submit to the Centre a single Request in respect of multiple claims arising out of or in connection with more than one agreement to arbitrate, provided the requirements of Article 8.2 below are or may be satisfied. 

Multi-party arbitration may be required either because there are several parties to a single contract or due to the existence of several contracts with a single arbitration agreement (such as a framework agreement) or because there are several contracts with different parties that have a connection to the matter in dispute.² In the former type of cases, although there is a single arbitration agreement (such as a Joint venture or consortium agreement), the parties may still demand that each would like to appoint an arbitrator.³  Article 12.5 of the DIAC 2022 Rules has provided a solution to this in providing for the joint nomination of the arbitrator for appointment by the Arbitration Court of DIAC.  

However, it is unclear as to why Article 8.1 of the DIAC 2022 Rules only addresses the claims arising in connection with more than one agreement to arbitrate and not the claim arising in connection with more than one contract such as provided for under the ICC Arbitration Rules 2021⁴. Multi-party disputes under multiple contracts yet under the same arbitration agreement (such as under a framework agreement) are seemingly excluded from the ambit of Article 8.1. Although such disputes are of rare occurrence, they can sometimes be encountered in the construction industry where the owner, developer, consultant, prime contractor and the subcontractors are bound by a single arbitration agreement.   

Article 6.1⁵ of the DIAC 2022 Rules is to be read in conjunction with their Article 8.2 which introduces certain criteria to conduct multi-party arbitrations. Based on Article 8.1 of the DIAC 2022 Rules, the party who is referring such claims to the Centre must first ensure that these criteria are or may be satisfied. Then, under Article 8.2 of the DIAC 2022 Rules, it is for the Arbitration Court of DIAC to consider the established criteria in deciding whether to allow consolidation and to decide on a prima facie basis whether any criterion under Article 8.2 (a) or (b) of the DIAC 2022 Rules are met. 

Articles 6.1 and 6.2 of the DIAC 2022 Rules deal with pleas raised by a respondent in objecting to conduct multi-party arbitration. The Tribunal and the Arbitration Court are vested with the power to decide on such objections after, and before the constitution of the Tribunal, respectively. Such approach is favourable as these objections are usually made during the early stages prior to appointment of the Tribunal (the appointment of the Tribunal may be deferred until the objection is settled). Hence it is a well thought out addition. The more so since Article 8.4 of the DIAC 2022 Rules is also consistent with the Kompetenz-Kompetenz principle based on which a Tribunal has the power to rule on its own jurisdiction: 

8.4. The decision of the Arbitration Court in respect of consolidation shall be without prejudice to the Tribunal’s powers to rule on its own jurisdiction under Article 6.1 or on a party’s right to apply for consolidation under Articles 8.5 and 8.6 below. 

Under Article 8.2, apart from the usual requirements such as  agreement by all parties, having compatible arbitration agreements, existence of same legal relationship and the involvement of the same parties, the DIAC 2022 Rules contain the Article 8(b)(ii) criteria whereby the underlying contracts are to consist of a principal contract and its ancillary contracts.⁶ These types of contracts can be commonly observed in the construction industry (i.e. the main contract, subcontracts and supply agreements). The requirement of Article 8.2 (b) (ii) and (iii) is broader than the criteria established by other international arbitral rules where the only requirement is generally that the claims should arise out of the same transaction or related transactions.  It follows that this approach is similar to that of the ICC and ICDR rules which demand the consent of all parties for the purposes of multi-party arbitration with an important distinction as discussed above. However, this approach is unlikely to afford the flexibility afforded by other arbitration rules such as the Swiss arbitration rules⁷ which is often preferred. This is flexibility is primarily important in conducting multi-party arbitrations. 

The rules further set out an important distinction between the pleas made after constitution of the tribunal and those before constitution of the tribunal. Pursuant to Article 8.2 and Article 8.5 of the DIAC 2022 Rules the consolidation is only possible where the Tribunal has been constituted in one of the arbitrations sought to be consolidated provided no arbitrator(s) has/have been appointed in any other arbitration. Otherwise, the consolidation is only possible if two or more Tribunals that have been constituted comprise of the same members. The consolidation at an advanced stage of proceedings may not be an efficient solution. Consolidation after Tribunals have been constituted for both the arbitrations, has a negative impact on the costs as the dismissed Arbitrators will need to be compensated. 

A similar approach has been taken in regards to joinders to distinguish between occasions prior and after appointment of the Tribunal.  

The approach of Article 9.4⁸ of the DIAC 2022 Rules is a significant change from the approach of the many of existing rules where in the latter the request for the joinder may not be submitted after confirmation or appointment of an arbitrator.⁹ It is submitted that the purpose of this restriction is to avoid delay in the proceedings due to pending consideration of a joinder. Another important issue is that a third party who joins should have an equal influence on the constitution of the tribunal. Under the current rules, although the joinder is allowed after the constitution of Tribunal, all parties’ explicit consent is still required for a joinder unlike under the Swiss and ICDR rules which do not require such consent. It is sometimes contended that rules which do not require the explicit consent of the parties are rules with a self-contained mechanism for multi-party arbitration and, hence, preferred.¹⁰  

The latter requirement has been dealt with in the form of explicit consent of all the parties to the constituted tribunal and the explicit waiver by the joinee of his right to nominate an arbitrator in accordance with the rules or the agreement to arbitrate. In any event, this is required under Article V (1) (d) of the New York Convention under which the recognition and enforcement of an arbitral award may be refused if the composition of the arbitral authority was not in accordance with the agreement of the parties. 

Under Article 9.4 of the DIAC 2022 Rules, it is the duty of the tribunal to consider potential conflicts of interests and the impact of a joinder on the efficient and expeditious progress of the arbitration. It is open for the tribunal to decide on matters that possibly act against the joinder and make a proper decision on that regard.  In a multi-contract construction scenario, such a case may be observed on occasions where the employer tries to drag a subcontractor into its arbitration with the prime contractor. The plea in this latter case may be filed by the prime contractor. A sound reason for this may include confidentiality issues, unwillingness to disclose financial information and the like.  

It is often argued that it is necessary to have a robust multi-party arbitration clause to deal with the stated issues efficiently. However, drafting such clause is not an easy task. It requires careful drafting involving a great degree of detail by addressing multiple possible scenarios. Therefore, it would be better if the selected rules, which are incorporated to the contract, address these issues in detail but not the contract per se. Accordingly, the DIAC 2022 Rules, provide effective solutions to many of the issues brought about by multi-party disputes for parties wishing to resolve their disputes by incorporating these Rules.  

^[1] DIAC rules 2007 by Decree no. 11 2007 of H.H. the ruler of Dubai on 06 May 2007

^[2] Blackaby, Nigel. Redfern and Hunter on International Arbitration. Oxford ; New York :Oxford University Press, 2015

^[3] BKMI Industrieanlagen GmbH, Siemens AG v. Dutco Construction Co. (Private) Limited , French Cass. Civ. 1ere, 7 January 1992, (1992)

^[4] Article 9 of the ICC Arbitration Rules 2021 

^[5] Article 6.1 provides that the tribunal shall have the power to rule on its own jurisdiction

^[6] Article 8.2 (b) (ii) 

^[7] Swiss Rules of International Arbitration 2021, published by Swiss Arbitration Centre

^[8] Under Article 9.4 of DIAC 22 Rules, Tribunals may allow the joinder if certain criteria are satisfied

^[9] See article 7 of ICC arbitration rules 2021 which states that “no additional party may be joined after the confirmation or appointment of any arbitrator”

^[10] Ibid 4

---

Uditha Tharanga is a Fellow of the Chartered Institute of Arbitrators. He is an Adjudicator, both a Quantum and Forensic Delay Expert, and Researcher in the fields of Multi-Party Arbitration and Third-Party Funding in International Arbitration focusing on the construction industry. He can be contacted on udtharangaw@gmail.com 

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

An assessment of the Arbitration laws in Iraq and how they compare with the UAE’s

By Wisal Nema MCIArb

In the Arab region, where countries have designated specific legislation for arbitration, as is the case in the United Arab Emirates, this proved to be a successful and significant step forward in the development of their arbitration framework. Actions already seem to be taking place in that direction with Iraq’s accession to the 1958 New York Convention on the Recognition of Arbitral Decisions and the Implementation of Foreign Judgments through Law No. 14 dated 6 April 2021.

Arbitration has been used as a means of resolving disputes instead of court litigation in many cultures. It is widely recognized throughout history. 

For example, the Greek philosopher, Aristotle, emphasized that parties to a disagreement may choose arbitration over litigation in order to avoid litigation¹. On a stone tablet unearthed in ancient Iraq during the Sumerian civilization, a five-thousand-year-old peace contract between the towns of “Uma and Lagash” was discovered as well as an agreement to resolve any disputes between the two cities via arbitration². This implies that Mesopotamia, whose geographical location was partly in ancient Iraq, was familiar with the notion of arbitration as a means of resolving disputes. 

Pre-Islamic Arabs were also familiar with arbitration as a way of resolving conflicts and rivalries. The Quraysh arbitration of the Prophet Mohammed (SAW) in putting the “Black Stone” in its position from the Kaaba five years before the journey to Islam was perhaps the most important arbitration episode in the pre-Islamic period³. Muslims have inherited arbitration from the Arab practices that were in place at the time of Prophet Muhammad’s mission (PBUH). Islamic law upheld good Arab practises while eradicating or amending those that were corrupt or incompatible with Islam’s core values. 
 

Later in the Ottoman Empire, a codification effort was carried out to bring out the various subjects of Islamic law in the form of codes, similar to European legal codes. The end product was officially called “Majallat al –Ahkam al-Adliyyah,” and was commonly referred to as the “Majallat” code in 1876⁴.  

“Majallat” literally means a written book. Majallat encompasses a series of laws that govern commerce, litigation, and evidence, as well as the arbitration norms in its Articles 1841 to 1851, which were implemented in all civil courts in Ottoman-ruled territories. Iraq was one among them. 

When the Iraqi Civil Code was written in 1951, it retained the arbitration provisions from the Majallat which were found in articles 139 to 149 of the Code. Unfortunately, the articles were not comprehensive enough and when they were put into practice, they caused problems, some of which are outlined below. As a result, the Iraqi government sought professional input from Egypt’s experts, such as Abdul Razzaq Al-Sanhoury, one of the professors who participated in the writing of the Iraqi Code of Civil Procedures No. 83 1969 (“CCP”). The CCP garnered a lot of attention for arbitration. A total of 26 articles (251 to 276 articles) in the new Code were devoted to the subject.  

However, despite the simplicity and clarity of the arbitration laws established under the new Code, there are still certain challenges to be overcome when it comes to the execution of arbitral awards.In contrast, the United Arab Emirates has the most recent arbitration law in the Middle East region, notably, the United Arab Emirates Federal Legislation No.6 of 2018 on Arbitration. Accordingly, I thought that it would be interesting to share some comparative insights with you, and at the same time identify what could be done to improve the arbitration framework in Iraq. 

Arbitration has been used as a means of resolving disputes instead of court litigation in many cultures. It is widely recognized throughout history. 

For example, the Greek philosopher, Aristotle, emphasized that parties to a disagreement may choose arbitration over litigation in order to avoid litigation¹. On a stone tablet unearthed in ancient Iraq during the Sumerian civilization, a five-thousand-year-old peace contract between the towns of “Uma and Lagash” was discovered as well as an agreement to resolve any disputes between the two cities via arbitration². This implies that Mesopotamia, whose geographical location was partly in ancient Iraq, was familiar with the notion of arbitration as a means of resolving disputes. 

Pre-Islamic Arabs were also familiar with arbitration as a way of resolving conflicts and rivalries. The Quraysh arbitration of the Prophet Mohammed (SAW) in putting the “Black Stone” in its position from the Kaaba five years before the journey to Islam was perhaps the most important arbitration episode in the pre-Islamic period³. Muslims have inherited arbitration from the Arab practices that were in place at the time of Prophet Muhammad’s mission (PBUH). Islamic law upheld good Arab practises while eradicating or amending those that were corrupt or incompatible with Islam’s core values. 
 

Later in the Ottoman Empire, a codification effort was carried out to bring out the various subjects of Islamic law in the form of codes, similar to European legal codes. The end product was officially called “Majallat al –Ahkam al-Adliyyah,” and was commonly referred to as the “Majallat” code in 1876⁴.  

“Majallat” literally means a written book. Majallat encompasses a series of laws that govern commerce, litigation, and evidence, as well as the arbitration norms in its Articles 1841 to 1851, which were implemented in all civil courts in Ottoman-ruled territories. Iraq was one among them. 

When the Iraqi Civil Code was written in 1951, it retained the arbitration provisions from the Majallat which were found in articles 139 to 149 of the Code. Unfortunately, the articles were not comprehensive enough and when they were put into practice, they caused problems, some of which are outlined below. As a result, the Iraqi government sought professional input from Egypt’s experts, such as Abdul Razzaq Al-Sanhoury, one of the professors who participated in the writing of the Iraqi Code of Civil Procedures No. 83 1969 (“CCP”). The CCP garnered a lot of attention for arbitration. A total of 26 articles (251 to 276 articles) in the new Code were devoted to the subject.  

However, despite the simplicity and clarity of the arbitration laws established under the new Code, there are still certain challenges to be overcome when it comes to the execution of arbitral awards.In contrast, the United Arab Emirates has the most recent arbitration law in the Middle East region, notably, the United Arab Emirates Federal Legislation No.6 of 2018 on Arbitration. Accordingly, I thought that it would be interesting to share some comparative insights with you, and at the same time identify what could be done to improve the arbitration framework in Iraq. 

Type of the Dispute 

Unlike Article 2 of the UAE Federal legislation which makes reference to commercial arbitration, Article 251 of the CCP does not identify the types of arbitration covered by it.  

International Arbitration 

Article 3 of the UAE Arbitration Law provides extensive information on the subject of international arbitration. In contrast to that, the CCP does not address international arbitration or the option of using it. Nor does it give disputants the right to seek arbitration outside the country. 

Independence of Arbitration Clauses 

Article 6 of the UAE Arbitration Law states that the arbitration clause is separate from other terms of the contract and is not affected by the contract’s nullity, renegotiation, or termination. There is no such provision in the CCP and it does not address whether an arbitration clause remains valid and effective if the main contract is invalid. 

Power of the arbitral tribunal to issue interim measures and to rule on its competence 

Articles 19 and 21 of the UAE Arbitration Law give arbitrators the power to issue interim measures or rule on their own jurisdiction.  Under the CCP arbitrators cannot do so.  Instead, Article 228 of the CCP provides that parties must make an application to the appropriate court. 

The Award of Arbitral Tribunal  

In most jurisdictions including the UAE, an arbitral award is not subject to appeal except in certain situations specified in the Code of Civil Procedure or the New York Convention. 

Under the CCP, arbitrators are required to render the arbitral award within the time frame determined by the parties. Alternatively, arbitrators are required to deliver the award within six (6) months by agreement or based on the views of a majority of arbitrators following a joint debate among themselves. Due to the fact that it is not “res judicata,” the arbitral decision cannot be enforced unless it is ratified by the appropriate court of First Instance in Iraq. 

According to Article 274 of the CCP, after reviewing the Arbitral Tribunal’s decision, the Court of First Instance issues a ruling approving, modifying, or cancelling it in whole or in part.  

It is worth noting that the Iraqi Civil Procedure Code makes no mention of accepting the authority of arbitrators’ award, but it does state that the arbitrators’ award is not immediately enforceable. Rather, the decision must be lodged with and approved by the relevant court, after which it is subject to all judicial ruling appeal procedures. 

Set aside (annulment) the Award 

Under Article 54 of the UAE Arbitration Law, there is a set time limit of 30 days from the date of notification of the award to enter an action for nullity of the arbitral award. The CCP does not specify a time limit for nullifying or appealing an arbitral award. However, Article 273 of the CCP states that when the arbitrator’s decision is presented to the court, the litigants may adhere to its invalidity. 

Conclusion

In light of these observations, as well as other concerns regarding existing legislative guidelines, it is my humble view that Iraq should consider the enactment of new arbitration legislation with the goal of organising the entire arbitration process more effectively, including its commencement, procedure, and execution. This would aid in the promotion of investment and the growth of the economy. In the Arab region, where countries have designated specific legislation for arbitration, as is the case in the United Arab Emirates, this proved to be a successful and significant step forward in the development of theirarbitration framework. 

Actions already seem to be taking place in that direction with Iraq’s accession to the 1958 New York Convention on the Recognition of Arbitral Decisions and the Implementation of Foreign Judgments through Law No. 14 dated 6 April 2021.In my view, this is the start of the process of developing investor confidence and comfort with Iraqi investments and I hope that this trend will continue. 

---

^[1] Syed Abdul Nabi Muhammad and Arbitration in Commercial and International Disputes, Theory and Practice

^[2] Kahtan Abdulrahman al Dorri- Arbitration Contract in Islamic Jurisprudence and Positive Law, p.38

^[3] Muhammad Al-Awa, Majid Kholousi, Muhammad Naji – Arbitration in Islamic Sharia and International Regulations, p. 24

^[4] Maher S. Mahmassani, Islam in Retrospect Recovering the Message

---

Wisal Nema is a Member of the Chartered Institute of Arbitrators. She is a Civil Engineer, and Head of the Planning and Controls section at Alturath Engineering Consultants and may be contacted on wisalnema2004@yahoo.com  

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Some Thoughts on the Development of Arbitration and Future Technologies

by Michael John Lawrence FCIArb 

One of the most interesting events for me at Dubai Arbitration Week in November 2021 was the event sponsored by the Scottish Arbitration Centre, “The Impact of Emerging Technologies on International Arbitration: Cybersecurity, Blockchain and Smart Contracts, and Artificial Intelligence”. As part of the arbitration community in the UAE one would be wise to keep abreast of the emerging technology landscape as applied to arbitration. The UAE has a clear strategy to be at the forefront of the application of emerging technologies, including to the Law, as the recent announcement of the DIFC Courts to establish a specialised court for the digital economy testifies. 

Professor Richard Susskind in the 2020 CIArb Alexander Lecture commenced his talk reminding us that ultimately it is the users who will determine the future of arbitration and to illustrate this he referred to the slide of a Black and Decker drill shown to salesmen on their first day of induction. “Is this what we sell?” “of course,” they reply. “No, it’s this!” and they are shown the hole!   

Online Dispute Resolution (ODR) has been with us as long as the internet, with the first “amateur stage” uses in the late 1990’s. It was posited as “The Future of Justice” back in 2015, so if we have anything to thank COVID-19 for, it’s that the future is now here and has been accelerated due to the pandemic. However, as Susskind would point out, this is Automation not Transformation, whereby we have merely applied updated technology to the existing process.  

Decentralization

A more transformative process is underway with the application of Decentralized Justice. This is particularly applied to disputes in the technology sector where as one of the pioneers of ODR, Ethan Katsh, has said, “the power of technology to resolve disputes is exceeded by the power of technology to generate disputes”. Many disputes are low value, transnational and relate to e-commerce transactions, therefore a fast and affordable method is needed to resolve disputes. Decentralized Justice is described as the convergence of ODR, blockchain and international arbitration. Whilst ODR and international arbitration need no introduction, what is blockchain and why is it useful as part of an ADR process? 

Nick Paumgarten neatly described what blockchain is in his New Yorker article of 2018: 

“Broadly speaking, a blockchain is an evolving record of all transactions that is maintained, simultaneously and in common, by every computer in the network of that blockchain, be it Ethereum, Bitcoin, or Monero. Think, as some have suggested, of a dusty leather-bound ledger in a Dickensian counting house, a record of every transaction relevant to that practice. Except that every accountant in London, and in Calcutta, has the same ledger, and when one adds a line to his own, the addition appears in all of them. Once a transaction is affirmed, it will—theoretically, anyway—be in the ledger forever, unalterable and unerasable.” 

So blockchain technology allows for the synchronisation of databases in a secure manner that is immutable and transparent, through computer technology without the intervention of third party in the middle as an agent. Essentially the trusted third party, for example the bank in a financial transaction, is replaced by trust in technology to carry out the transaction. The second wave of development of blockchain technology, from its original use to facilitate cryptocurrency transactions, was when it was applied to business cases outside this sphere. This is facilitated by the application of so-called ‘smart contracts’ which allow for self-executing actions to take place dependant on certain conditions, such as ‘if’ this ‘do’ that. 

Decentralized Justice platforms are a form of digital court based on blockchain technology. The procedure is governed by smart contracts which settle disputes through crowdsourced jurors. The jurors apply to the platform by purchasing an amount of cryptocurrency. If they are selected to rule on a case, they are sent the evidence and asked to vote on the outcome. If they vote with the crowd, they are paid more cryptocurrency, if they vote against, they must pay some. The main platforms using this technology are currently Kleros and Aragon. In both cases ‘jurors’ are not vetted or required to present any qualification. Jur is another platform which seems closer to ODR arbitration but at the moment the platform is still in development. Whether these platforms succeed beyond the management of disputes related to e-commerce relying on blockchain technology itself, remains to be seen.   

Many would argue that such platforms are not arbitration and do not even provide real justice but as was commented at the Scottish Arbitration event, whilst at present ‘the wisdom of the crowd’ appears an anathema to real justice, for the ever-increasing younger generation the wisdom of the crowd is perhaps all that matters. 

Artificial Intelligence – Assisting the Process 

Jeff Hawkins in his brilliant book “A Thousand Brains” explains the limitations of current AI technology. As a neuroscientist and computer engineer (the inventor of the Palm Pilot if you are old enough to remember this!) he is trying to discover how human intelligence works and apply this to AI. He explains that currently AI works by looking for patterns within data and then making predictions based on the patterns it discovers. AI is therefore narrow as to what it can currently achieve and in Hawkins’ view will never achieve human like intelligence using the present ‘Neural network’ methods. AI does not work in the same way that human intelligence does – at least not yet. 

This however is not to dismiss the power and importance of AI as it exists today. In 1997 IBM’s Deep Blue supercomputer took on and beat the world chess champion Garry Kasparov and this was followed by the AI-powered computer Watson winning the TV game show Jeopardy against champion players. Then by 2016 Google’s Deep Mind beat the World Champion in the game Go by four games to one. There are an astonishing 10,170 possible board configurations for the Chinese board game thought to have originated over 3,000 years ago. AI therefore is powerful and will continue to be a part of the arbitration process over the coming years. However, in the short term at least, this will be to assist the arbitration process and participants. 

Eidenmüller and Varesis classified the ways that AI assists arbitration into three categories. The first of these is Tools for Case management. The authors point to tools which are in fact of use to any professional to assist in the planning and scheduling of work, for case management. The second category is probably of as much use to counsel as the tribunal, and that is to gather facts and analysis from the vast amount of data in evidence and submissions. Such uses are now mainstream in e-discovery. The authors also refer to AI transcription services within this second category.  

Finally, they refer to tools for decision making. Again, these tools are perhaps of more use to counsel and their clients. Decision analysis and prediction of outcomes is particularly useful where a large data set of information is available, which of course is difficult for awards, given their confidential nature. The technique has however been successful in predicting outcomes of certain cases or for certain judges, where judgments are publicly available. A further growing use is for the selection of arbitrators themselves. Arbitrator Intelligence seeks to provide such a service through feedback questionnaires which gather key information whilst maintaining the confidentiality of the parties.  

Artificial General Intelligence – The Robot Arbitrator 

Jeff Hawkins has studied how the neocortex works as the “organ of intelligence” in the human brain. He has concluded that this portion of the brain works by creating models of the real world, in fact thousands of models. His theory is that it does this for all activities including high level thinking. These models are formed by our life and learning experiences. If this can be recreated in a machine, we will achieve human like Artificial General Intelligence (AGI). At that stage the Robot Arbitrator will be there. A number of objections are put forward to us ever reaching this goal by Professor Max Scherer and others. 

1. The confidential nature of awards means that data is not available to “train” the AI. This is a weakness of current AI techniques, but our AGI arbitrator will be “taught” arbitration, law etc. and consume scholarly articles the way a human does, only probably considerably quicker and with more information. 

2. AI can be biased based on the information used to form the basis of its decision making. This a concern with present AI which relies on the data it consumes. AGI will however learn from principals and examples the way we do. There is of course a risk that bias could be learned unconsciously but this would be no worse than with human learning. However, in addition, human behaviour is heavily influenced by ‘old brain’ functions which developed as a survival mechanism. This brain region is also responsible for conscious bias but with AGI our Robot Arbitrator would be free from this. So, in principle would be less biased than a human. There is no need, and in fact it is quite difficult, to programme AGI to include ‘old brain’ desires and prejudices. 

3. With AI we will not be able to understand the reasons for an award. A reasoned award with current AI technology would not be possible. The algorithm is not capable of explaining why or how it arrives at a decision. With AGI however this is no longer a concern. The AGI arbitrator would learn how to write an award, including how to provide reasons for the award, the same way that we do. 

4. AI cannot read human emotions with human witness testimony. This field is in fact already well advanced. The field of Emotion AI or Affective Computing dates back to 1995 with business uses such as Affectiva already in use. 

5. Users will not accept an award without human involvement. This is probably currently true but as AGI seeps into all fields of life I suspect attitudes will change. Consider self-driving cars. Once there is clear evidence and experience that there are less accidents with an AI driver than with a human one it, will humans be legally allowed to drive? 

6. Arbitration Law and Rules do not always permit an award without human involvement. Again, this will change as AGI becomes a part of modern life. There are laws for a multiple of modern technologies such as data management, cryptocurrencies, and email transmission. As society changes, so do attitudes and laws.    

Jeff Hawkins predicts that AGI on human principals is probably 20 to 30 years away, but I believe that it will one day be possible and perhaps even normal for an AGI entity to act as an arbitrator.  

---

Michael Lawrence is a Fellow of the Chartered Institute of Arbitrators. He is a Director and Co-founder of the Construction Consultancy Insite where he assists parties with contracts, claims and disputes related to property and construction matters. Michael is also a founder of the construction blockchain technology platform Bloqwork and can be contacted on michael.lawrence@insite-pm.com and michael.lawrence@bloqwork.com   

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Recoverability of parties’ costs: a persistent issue in DIAC arbitrations

by Soraya Corm-Bakhos MCIArb

Since a judgment of the Dubai Court of Cassation in 2013, the recoverability of parties’ costs is a salient and persistent issue of DIAC arbitrations. This article looks at the relevant provisions of the 2007 DIAC Rules and the Federal Arbitration Law and the jurisprudence of the UAE courts.

The legal and other costs of resolving disputes by arbitration are often substantial. For parties, the ability to recover legal and other costs plays an important role in deciding whether to arbitrate or to settle. The costs of an arbitration are divided in two main categories: (i) the “arbitration costs”, which include the tribunal’s fees and expenses and the administrative charges of any arbitration institution; and (ii) the “party’s costs”, which include legal or counsel fees and other expenses such as e.g. costs of party-appointed experts, witnesses or translation costs.  

An arbitral tribunal’s power to decide and allocate parties’ costs is derived from the relevant lex arbitri, the arbitration agreement and the applicable institutional rules. Most legal systems have arbitration laws that either expressly confer power to the arbitral tribunal to decide on costs, including parties’ costs, or consider that this is an inherent power included in the tribunal’s authority and mission to resolve the parties’ dispute (which cannot be completed without a decision on costs). Most arbitration institutional rules expressly empower the arbitrators to award costs, including parties’ costs¹. 

Since the issuance of a judgment of the Dubai Court of Cassation back in 2013 in Case 282/2012, the recoverability of parties’ costs in arbitrations conducted under the 2007 Dubai International Arbitration Centre (DIAC) Rules is a salient and persistent issue of DIAC arbitrations. Before analysing the decisions of the UAE local courts, we will consider the relevant provisions of the DIAC Rules and the UAE Federal Law No. 6 of 2018 on Arbitration (FAL). 

Relevant provisions of the DIAC Rules 

Article 37.10 of the DIAC Rules provides: “The Arbitration Costs and Fees, in accordance with Appendix – Cost of Arbitration, and their apportionment between the parties shall be fixed in the award or other order by which the arbitral proceedings are terminated. An award may be rendered solely for costs”.   

Article 4 of the Appendix Costs of Arbitration (Appendix) provides:   

4.1 The Tribunal may make decisions on costs at any time during the proceedings. 

4.2 The final Award shall fix the costs of the arbitration and decide which of the parties shall bear them and in what proportion they shall be borne by the parties. 

It is accepted that by reference to these provisions, a tribunal sitting under the DIAC Rules is empowered to rule on the “costs of the arbitration”. 

Article 2 of the Appendix provides : “The costs of the arbitration shall include the Centre’s administrative Fees for the claim and any counterclaim and the fees and expenses of the Tribunal fixed by the Centre in accordance with the Table of Fees and Costs in force at the time of the commencement of the arbitration, and shall include any expenses incurred by the Tribunal, as well as the fees and expenses of any experts appointed by the Tribunal”. 

These provisions do not expressly include legal or counsel fees within the definition of “costs of the arbitration”. 

Relevant provisions of the FAL 

Similarly, Article 46 of the FAL provides in relevant parts as follows: 

1. Unless otherwise agreed by the Parties, the Arbitral Tribunal shall assess the costs of the Arbitration including: the fees and expenses incurred by any member in the Arbitral Tribunal in the exercise of his duties, and the costs of appointment of experts by the Arbitral Tribunal. 

2. The Arbitral Tribunal may order that all or some of the costs set out in paragraph 1 of this Article be borne by one of the parties […]. 

These provisions do not expressly include legal or counsel fees within the definition of “costs of the arbitration”.²  

Both the DIAC Rules and the FAL are therefore silent as to the arbitral tribunal’s power to award parties’ costs.  

The local courts’ rulings 

In a judgment dated 3 January 2013 in Case 282/2012, the Dubai Court of Cassation found against the recoverability of legal fees in arbitrations under the DIAC Rules, giving a narrow interpretation of Article 37.10 of the DIAC Rules and of the Appendix. In that case, the Court set aside the award of counsel fees and ruled that the foregoing provisions of the DIAC Rules “do not include the legal expenses paid by the parties to their attorneys representing them in the arbitration or whoever prepares the claim […] The DIAC Rules do not grant arbitrators the power to award counsel fees”. This ruling has been rightfully criticised as the Court ignored the verb “include” in Article 2.1 of the Appendix, which in the English language is given a non-exclusive meaning and is commonly used to introduce a non-exhaustive list of examples. In other words, the DIAC administrative costs and the tribunal’s fees should be no more than two non-exhaustive examples of the type of arbitration costs that a tribunal is empowered to award and that may be recovered under the DIAC Rules.³ 

Parties have sought to overcome this restriction in the DIAC Rules by expressly agreeing to empower the tribunal to award legal fees in the terms of reference, which are customary (although not mandatory) under the DIAC Rules. Terms of reference are often executed by the parties’ legal representatives rather than the parties themselves. It is standard (and best) practice for powers of attorneys to include a specific and express power to sign terms of reference. 

In a recent judgment dated 29 November 2019 in case 427/2018, the Dubai Court of Cassation confirmed (in line with previous decisions) that the DIAC Rules do not provide the tribunal with authority to award lawyer’s fees. However, the Court of Cassation upheld a decision by the Court of Appeal, which found that terms of reference that provides for the tribunal’s authority to award “legal costs” did not mean that the parties had provided the tribunal with the authority to award lawyer’s fees; in other words, quite surprisingly, the Dubai Court of Cassation took the view that the term “legal costs” does not clearly authorise the tribunal to award lawyer’s fees. 

In a more recent judgment dated 5 April 2020 in case 990/2019, the Dubai Court of Cassation took an even more restrictive view.⁴ In this case, the parties’ legal representatives signed terms of reference pursuant to which the parties authorised a DIAC tribunal to determine and award fees and costs, including legal costs. The tribunal issued a final award ordering the claimant (partly successful in its claim) to pay the respondent’s legal costs in an amount exceeding AED 4 million. The claimant sought nullification of the award arguing that its legal representatives were not themselves authorised to agree to grant the tribunal authority to award legal costs. The Court of Appeal agreed and partially annulled the award insofar as it related to legal costs. Upon further appeal by the respondent, the Court of Cassation upheld the lower court’s decision and confirmed that when a representative is authorised by a power of attorney to agree to arbitration, appoint arbitrators, sign terms of reference and with respect to other matters related to a dispute, this authorisation cannot extend to an authority to agree to grant a tribunal power to award legal costs.  

Conclusion

To mitigate the risk of annulment of an award of legal or counsel fees, it is essential for parties involved in DIAC arbitrations to: 

1. Ensure that their lawyers’ powers of attorneys expressly and specifically state that they have the authority to agree on behalf of their clients that the tribunal has to the authority to award lawyers’ fees.  

2. If the arbitration agreement does not include express wording empowering the tribunal to award lawyer’s fees, the parties should ensure that the terms of reference clearly set out and describe the various parties’ costs that the tribunal has authority to award.  

It is to be hoped that the DIAC Rules will soon be amended to include an express power for the tribunal to award and allocate parties’ costs, including counsel fees. Pending such a revision, parties may wish to reconsider arbitrating disputes under the DIAC Rules; instead, they may opt in their contracts to submit disputes to arbitration under other institutional rules such as the ICC or LCIA Rules, which expressly provide for the recovery of legal costs. 

---

Soraya Corm-Bakhos is a Member of the Chartered Institute of Arbitrators. She works as Counsel for Watson Farley & Williams (Middle East) LLP and can be contacted on SCorm-Bakhos@wfw.com

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

---

1. See e.g. Article 37(4) of the 2012 ICC Rules.
2. The old Article 218 of the UAE Civil Procedure Code in effect prior to the entry into force of the FAL provided in similar terms: “The arbitrators shall estimate their fees and arbitration expenses and may decide that such amount, in whole or in part, be borne by the party against whom the award was issued”. 
3. See Gordon Blanke, “Dubai Court of Cassation finds against recoverability of Counsel fees in DIAC arbitration”, Kluwer Arbitration blog, June 23 2013 at http://arbitrationblog.kluwerarbitration.com/2013/06/23/dubai-court-of-cassation-finds-against-recoverability-of-counsel-fees-in-diac-arbitration-2/. for an exhaustive commentary of this ruling.
4. See Nayiri Boghossian, “Is an Award on Attorneys’ Fees Enforceable in the UAE?”, Kluwer Arbitration Blog, October 28 2020, at http://arbitrationblog.kluwerarbitration.com/2020/10/28/is-an-award-on-attorneys-fees-enforceable-in-the-uae/, for an exhaustive commentary of this ruling.

Foreign Investment Dispute Resolution: Comparative Study Sudan and UAE

Dr. Mawada Abu-Agla ACIArb, FAIADR

Sudan’s uprising in December 2018 marked dawn for the country’s new future after the overthrowing of a totalitarian regime that kept Sudan isolated from the international community for nearly three decades.

This isolation was mainly invoked by the US Department of Treasury through listing Sudan as a State Sponsor of Terrorism in 1993 and imposition of economic sanctions in 1997 targeting broad trade embargo which ultimately paralyzed sectors of international trade and banking of Sudan, as well as EU and UN sanctions imposed in 2004 and 2005 in the form of embargo and travel ban, and asset freeze on four individuals¹. These factors collectively hindered (1) the economy and development of Sudan, the land of the Nile, and a focal country in Africa, rich with natural resources and (2) the attraction of FDI in many fields such as, intellectual property, oil and gas, and land grabbing.

The glorious December uprising, the endorsement of world leaders in lifting Sudan from the Terrorism List Governments Sanctions on 14 December 2020, and the lift of the US economic sanctions² form part of the international community support.  The EU states responded positively through the Paris Conference held on 17 May 2021 as a platform for debt release initiative and encouragement of FDI in Sudan by releasing part of Sudan’s debts³. The impact of this Conference resonated in June 2021 with the World Bank’s and the IMF’s determination that Sudan qualified for debt release under the Heavily Indebted Poor Countries (HIPC) Initiative for an amount representing 90 percent of Sudan’s total external debt⁴.

Sudan and the UAE have a long history of collaborations that can be traced to the UAE’s independence. The UAE’s support to Sudan following the December Uprising was demonstrated through the UAE’s $1.5 billion aid package to Sudan granted in April 2019⁵ to ensure the economic stability of Sudan at a pivotal moment in Sudan’s history.

On 12 May 2021, prior to the Paris Conference, Sudan published in the official gazette five laws⁶ that impact economic development. Among these laws is the reenacted Encouragement of Investment Act 2021 (EIA). This act lays down rules that regulate and protect the rights of the foreign investor such as repatriation of capital and profit at the end of its investment and protection from expropriation and settlement of investment disputes.

The area of concern for every foreign investor is the means for resolving any dispute that may arise between the investor and the host state or any national or international corporation during the period of investment.  This article aims to examine the dispute resolution clause in Sudan and UAE investment statutes.

---

---

The UAE and Sudan’s Approach to Dispute Resolution of FDI Disputes 

In general, the court has primary jurisdiction over FDI disputes. In the UAE, parties can also agree to refer FDI disputes to ADR methods as provided in Article 12 of the Federal Law by Decree No. (19) of 2018 Regarding Foreign Direct Investment which recognizes Court as the primary method of resolving FDI disputes. Emphasis is given to the competent court to treat such cases on an urgent basis. However, parties can, if they wish, agree to alternative dispute resolution mechanisms for their disputes.

In contrast, Sudan takes a slightly different approach. Historically, investment disputes involving a foreign investor and the host state were resolved through traditional court channels through constitutional claims to the Supreme Court before the establishment of the Constitutional Court in 1998, followed by judicial administrative review⁷. Below is the evolution of investment statutes in Sudan:

A. Evolution of the Investment Acts in Sudan: 

I. Encouragement of Investment Act 1980 

With the birth of the Encouragement of Investment Act (EIA), 1980 Section 32, all investment disputes were to be settled through arbitration conducted inside Sudan. This act distinguished between three classes: (i) Sudanese investor dispute which were settled ad hoc under the relevant norms of the Civil Procedure Act 1974⁸ (ii) Arab investors disputes which were settled by arbitration under the Convention on the Settlement of Investment Disputes between Host States for Arab Investments and Nationals of Other Arab States, 1974, if  applicable to the dispute, and (iii) Foreign investors who are not Arabs, whose disputes were settled by arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (the Washington Convention “ICSID”). Although the settlement of investment dispute is preferred to be within the host state⁹, Fath El Rahman Abdalla El Sheikh noted the loophole within this Section, namely, cases of multinationals combining the three classes described above. He recommends that ad hoc arbitration be permitted where institutional arbitration is not possible¹⁰.

II. EIA 2000 

With the repeal of the 1980 Act and the enactment of EIA 2000 came a modification of Section 32 on investment disputes resolution, which provided for such disputes  to be resolved through arbitration or conciliation as a “priority”. Although this Act departed from its predecessor by not requiring that Sudan be the seat of arbitration and added reconciliation as well as the inclusion of the other agreements ratified by Sudan, namely the Unified Agreement for the Investment of Arabic Capital in Arab States 1980, and the General Agreement for Economical, Technical and Commercial Co-operation among Members Sates of Islamic Conference 1977, it does not lay any dispute resolution mechanisms.  Instead, it broadly incorporates areas of economic cooperation among Organization of the Islamic Cooperation (“OIC”) member states. 

Nevertheless, the content regarding the arbitration rules to be followed as part of honoring Sudan’s treaty obligations is the same in terms of multinational disputes and multinational contracts. Enforcing this provision in the format of arbitration or reconciliation having priority over other dispute resolution mechanisms that tackle foreign investor disputes is a rather non-automated task which implies having to apply to the arbitration institutions under these treaties to request arbitration¹¹. This Section may be interpreted as giving leeway to refer the dispute to the court or ad hoc arbitration or any other institutional arbitration, which is ideally a matter to be decided by parties, that is how they wish to settle their dispute.

---

III. NIEA 2013 and EIA 2021  

Section 39 of the Sudanese National Investment Encouragement Act 2013 (NIEA) which was reenacted as Section 34 in the EIA 2021¹². provided primarily for referral to disputes to the  specialized investment court¹³. unless the parties agreed to refer the dispute to arbitration or reconciliation, while leaving the remaining sub-section regarding the agreements ratified by Sudan including BITs or MITs unchanged.  The modification made to the respective Sub-Section (2) of the NIEA  2013¹⁴ and EIA 2021 was to avail a mandatory requirement to refer disputes based on the agreements mentioned above, where Sudan is a party provided that these institutions have jurisdiction on the subject matter of the dispute. Thus, theoretically the modification quashed the option of the host state, Sudan, and foreign investors to agree on other institutions or opting for ad hoc arbitration thus relinquishing the “leeway” described in Section 32 (2) above of the repealed EIA 2000, which gave ‘priority’ to resorting to mechanisms prescribed by these agreements instead of imposing them, provided that these institutions have jurisdiction over the  subject matter of the dispute, which may be regarded as an exception to the mandatory requirement.   It follows that Section 34 serves as an arbitration agreement giving rise to jurisdiction of the international mechanism ratified by Sudan, whereby this dispute resolution clause serves as referral by statute to arbitration and reconciliation, which foreign investors can invoke without further specific consent from the host country¹⁵. Furthermore, the issue of sovereign immunity is not regarded as grounds for impunity with regards to arbitration against the foreign state¹⁶. However, as mentioned above the parties must apply to the institutional bodies mentioned to request arbitration or reconciliation.

Conclusion

The key to alternative dispute resolution is the parties’ agreement. The EIA 2021 overlooks that parties must consent in writing and submit a request for arbitration under the referenced conventions. Instead, it merely directs the parties to the institutional options and gives jurisdiction to them, but it cannot compel them to actually proceed. Hence, the EIA 2021 in an indirect way gives the option for ad hoc or other institutional arbitration or conciliation as the parties see fit in disputes, which fall outside the scope of the agreements mentioned in the Act. On the other hand, the UAE’s clearly stipulates that courts have primary jurisdiction on FDI disputes, and party consensus is required when choosing an ADR mechanism.

1. Report to Congress January 2009, Office of Foreign Asset Control. Effectiveness Of U.S. Economic Sanctions With Respect To Sudan. 
2. On 12 October 2017 https://home.treasury.gov/policy-issues/financial-sanctions/sanctions-programs-and-country-information/sudan-and-darfur-sanctions as seen on 19-09-2021
3. https://eeas.europa.eu/delegations/world-trade-organization-wto/98646/paris-conference-support-sudanese-transition_en as seen on 19-09-2021
4. https://www.worldbank.org/en/news/press-release/2021/06/29/sudan-to-receive-debt-relief-under-the-hipc-initiative as seen on 19-09-2021
5. https://www.gulftoday.ae/business/2021/04/13/uae-and-sudan-explore-new-ways-to-boost-economic-cooperation as seen on 20-09-2021
6. https://moj.gov.sd/files/index/28 as seen on 10-08-2021
7. Fath El Rahman Abdalla El Sheikh. The Legal Regime Of Foreign Private Investment In Sudan And Saudi Arabia (2^nd ed. Cambridge University Press 2003) 375
8. being that the CPA at the time did not introduce institutional arbitration
9. Article 2 of the Charter of Economic Rights and Duties of States, calls for settling investment disputes inside the territory of the investee state.
10. El Sheikh (n7) 384-385
11. ICSID article 25 is to be read together with article 28 (1) and 36 (1)
12. Both sub-sections (1) are similar to section 32 of EIA 2000
13. Section 35
14. As translated by http://ilo.org/dyn/natlex/docs/ELECTRONIC/97252/115318/F-400265635/sudan1.pdf seen on 20-09-2021.
15. Gary B. Born. International Commercial Arbitration. (Wolters Kluwer. Kluwer Law International, 2009) 416 unless such approval is required to be given by the state for the suing of a state body as provided by article 25 (3) of the ICSID.
16. Article 27 of ICSID

---

Dr. Mawada Abu-Agla is an Associate of the Chartered Institute of Arbitrators. She is Senior Group Legal Advisor for Hayel Saeed Anam & Co Group of companies (HSA) HQ in Dubai and may be contacted on mawada_abuagla@hotmail.com 

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Is it enough to have a valid arbitration agreement to stay out of the Court’s jurisdiction?

by Mohieeldin Elbana MCIArb

Everyone will recall the promulgation of a standalone UAE Federal Arbitration Law (Federal Law No. 6/2018 on Arbitration or the Arbitration Law), which came into effect in early summer of 2018.  Since then, users of arbitration have seen the UAE Courts uphold a number of arbitral awards and reject attempts to set them aside. Award debtors’ historically effective frivolous arguments no longer worked. 

A few recent judgments seem to create a new gateway for parties to escape the effect of arbitration clauses and get their claims heard in the local courts. This is notwithstanding the existence of valid, and unchallenged arbitration agreements. 

In recent cases, the UAE Courts have found that notwithstanding that (i) the claim being subject to an arbitration agreement, (ii) the arbitration agreement being valid and binding, and (iii) a challenge to the Court’s jurisdiction being raised in a timely manner; there are overarching considerations resulting in the disregard of the arbitration agreement, and confirmation of the jurisdiction of the UAE Courts to hear the claims before it.   

In two recent cases, the court found that because the claim relates to an underlying dispute which in turn relates to multiple parties and multiple contracts (all of which refer to different forums including arbitration and litigation), involving a matrix of relationships, it would be prejudicial to segregate parts of the claim between arbitration and the Court. Accordingly, it was held that for reasons of ensuring the proper conduct of justice, the Court will disregard the valid arbitration agreements stipulated in some of the underlying contracts and deal with the claim as a whole. 

This will be of particular interest to parties that are often involved in multi-party projects or supply chain type agreements, or other scenarios where their contract sits alongside other related contracts. 

It is yet to be seen if such approach is solidified by further judgments. In the interim however, it will be necessary for parties to carefully consider the consequences of this approach when entering into new contracts and agreeing to dispute resolution clauses.  

---

Mohieeldin Elbana is a Member of the Chartered Institute of Arbitrators and a Committee Member of the CIArb UAE Branch. He is a Senior Counsel at OGH Legal and can be contacted on mohieeldin.elbana@oghlegal.com.

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Capacity to Enter into Arbitration Agreement – No longer a Matter of Public Policy?

by Sally Kotb FCIArb

Capacity to enter into arbitration agreements has always been a key issue that typically arose in every arbitration seated in the UAE and has often also been invoked as a ground for nullification of arbitral awards under both the old arbitration regime and the Federal Arbitration Law No. 6 of 2018 (“FAL”), which produced new arbitration procedures in line with international arbitration standards.

Article 4(1) of the FAL reinforced the same requirements in relation to capacity to enter into arbitration agreements and specifically stipulates that “[a]n agreement for arbitration shall be considered invalid unless it is made by an individual bearing the legal capacity to make an inclination over the subject-matter of the dispute.”  

Having said that, whilst the onshore UAE courts have in the past adopted a restrictive approach in their application of onshore UAE law to issues of authority in the context of arbitration agreements entered into by onshore UAE companies, there has in recent years been a visible trend towards a more pragmatic and flexible approach.  In particular, the onshore UAE courts are increasingly adopting principles of good faith, Article 70 of the UAE Civil Code (which is equivalent to the concept of estoppel), and concepts of implied authority when dealing with authority to enter into arbitration agreements. 

For instance, the onshore UAE courts have found on multiple occasions that where the name of the company is set out in the preamble of a contract containing an arbitration agreement, without expressly specifying the name and capacity of its legal representative, there is a conclusive presumption that the signatory has the authority to agree to arbitration.  By way of example, the Dubai Court of Cassation (in case 1225/2018) held that (emphasis added): 

“[…] if the name of a specific company is mentioned in the preamble of a certain contract and another person signs at the end or bottom of that contract, this establishes a conclusive presumption that whoever signed it had signed it in the name and on behalf of the company – regardless of the association between his name and the company’s name and as such, the effects of that contract including rights and obligations shall be added then to the company […] if the preamble of the contract mentions only the name of the legal person without the name and title of its legal representative; and the end of the contract bears an unreadable signature and if the contract contained the arbitration clause, in this case there is a conclusive presumption that whoever signed that contract commands capacity for acting on and agreeing to arbitration.  In this case, a challenge by the legal person on the basis that the signature does not belong to the legal representative shall not be accepted.  This is since the conclusion of contracts is based on good faith and as per customary stated in Article (70) of Civil Transactions Law […]”. 

In view of the above, if the name of a company was included in the preamble to the Contract, and the Contract did not specify the name and the capacity of a specific legal representative to sign the Contract, there should be a conclusive presumption that the signatory had the authority to agree to the Arbitration Agreement.   

The rationale for this presumption appears to be based, in part, on a view that where a company wishes to limit its signatory to a particular authorised person, it is incumbent on that company to notify its counterparty by specifying the name of that particular authorised person in the contract.1  The strength of the presumption is underlined by the fact that, even in cases where the contract signature is unreadable or illegible (and it is therefore not possible to determine any nexus between the signatory and the relevant company), the court would still presume that the contract had been signed by that company’s authorised representative.    

Not least, the Dubai Court of Cassation in Case No. 236/2020 has held relating to the alleged lack of a signatory’s authority to enter into an arbitration agreement on behalf of a company, that a party cannot assert that an arbitration agreement is invalid and argue that it is deficient if such defect is attributed to his own action.  In particular, the court held that: 

“[…] as provided by Clause 14/2 of the Code of Civil Procedure, it is not permissible to insist on the invalidity not related to the public order by the litigant causing the same either deliberately or negligently or if it is caused by the person oneself or someone working for this person. Consequently, a party to arbitration may not insist on the invalidity of the arbitration clause for defects related to the arbitration agreement resulting from one’s acts”.

As such, if a party is required to obtain certain approvals in order to give effect to an arbitration agreement and does not do so, it cannot rely on its failure to obtain such approvals to invalidate the arbitration clause.  It should be noted that Article 14 of the Civil Procedures Law provides, in effect, that a party may not rely on the invalidity of a legal procedure where such invalidity is caused by his own action.  Article 14 does not apply where the legal procedure is invalid as a matter of public policy.  Therefore, it is implicit within the above decision that the Dubai Court of Cassation did not consider that invalidating an arbitration agreement on the basis of lack of authority to be a matter of public policy, as it would then not have applied Article 14. 

Further, the onshore UAE courts attribute significance to the affixing of a company seal on a contract in terms of determining the validity of the arbitration agreement therein.  For example, the Dubai Court of Cassation (in both case 161/2020 and 236/2020) held the fact that the contesting party’s signature to the contract was accompanied by its company seal to be determinative in establishing the validity of the arbitration agreement.2   

The onshore UAE courts have also consistently upheld that a manager of a limited liability company has the full capacity in its management and the capacity to dispose of the rights related to its activity, including to enter into arbitration agreements on behalf of the company, unless the company’s articles of association restrict that power or prevent him expressly from agreeing to arbitration: 

“It is well established in the recurrent judgments of this court that resorting to arbitration may be valid only to those who have the capacity to dispose of the right under dispute.  Since that the manager of the limited liability company is the one who manages the same, then only him – based on this capacity – should have the capacity to agree to the arbitration in the name of the company and on its behalf within the limits of the activity thereof”. 

The onshore UAE courts have therefore consistently vested the manager of limited liability companies with wide powers for managing the company including the power to enter into arbitration agreements on the company’s behalf.  The onshore UAE courts require that such powers should be expressly restricted by the company’s articles of association where it is intended to deprive the manager or director of such powers.   

Although the UAE courts appear to be taking a more lenient approach in relation to capacity to enter into an arbitration agreement, it is still best practice to ensure that you are dealing with an authorized signatory on behalf of the counterparty to an arbitration agreement. This can be easily verified by reviewing not only the trade license of the company but also the company’s articles of association to ascertain whether the general manager or another individual is authorized to bind the counterparty to arbitration. This is particularly significant given that even under the FAL, a party can seek to set aside the arbitral award on grounds of lack of capacity if the arbitration agreement was signed by a person that did not have the requisite capacity required under Article 4 thereof.   

---

Sally Kotb is a Fellow of the Chartered Institute of Arbitrators. She works as Counsel for Baker Mckenzie Habib Al Mulla and can be contacted on Sally.Kotb@bakermckenzie.com

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Crystal ball shattered – new DIFC Founding Law amended; arbitration centres abolished; now what?

By Hari Krishna FCIArb

Less than six months into the operation of the new DIFC Founding Law (Dubai Law No 5 of 2021), it has been upended by Dubai Decree No 34 of 2021, issued on 14 September 2021 and gazetted on 20 September 2021 (“Decree 34”). The perhaps unintended aspect of Decree 34 that has gained the most attention worldwide is the state of suspended animation into which the DIFC-LCIA Arbitration Centre has been placed.  

Contrary to numerous “thought leadership” pieces doing the rounds, Decree 34 does not abolish the DIFC-LCIA Arbitration Centre or the DIFC-LCIA Arbitration and Mediation Rules. It specifically states that the DIFC-LCIA Rules remain in force for the time being.  

Decree 34 does three things: firstly, it amends the status of Dubai International Arbitration Centre (“DIAC”) and makes it an independent, non-governmental and non-profit institution (rather than an adjunct of the Dubai Chamber of Commerce and Industry). Secondly, it establishes a DIAC “Court of Arbitration” and a DIFC branch of DIAC (going so far as to make the DIFC the default seat of arbitration unless the parties specify a different seat).  Thirdly, and crucially, Decree 34 abolishes the Dubai Arbitration Institute (“DAI”) and the Emirates Maritime Arbitration Centre (“EMAC”) with immediate effect (and purports to transfer the management of their ongoing cases to DIAC).  

Decree 34 appears to consider the DAI an “arbitration centre” and even defines it an “abolished arbitration centre”. However, as those familiar with the history of DAI would know, the DAI never administered any arbitration rules or references on its own. The DAI was simply the counterparty to the London Court of International Arbitration (“LCIA”) in the agreement to operate the DIFC-LCIA Arbitration Centre. In that capacity, the DAI was the employer of the staff of the DIFC-LCIA Secretariat. 

The effect of the abolition of the DAI is that there is no counterparty to the LCIA for the purposes of operating the DIFC-LCIA Arbitration Centre or administering arbitrations under the DIFC-LCIA Rules. Unlike the new Founding Law, which specifically stated that the DAI will continue to exist and operate without interruption, Decree 34 abolishes DAI with immediate effect even before the formation of the new DIAC Board or Court of Arbitration. Decree 34 gives DIAC six months to “adjust its positions” to conform to its requirements. 

To be fair, Decree 34 states that the “arbitration and conciliation rules of the abolished arbitration centres” and the “arbitration rules of DIAC” shall “remain in full force and effect to the extent that they do not contradict the provisions of the present Decree and the Statute attached hereto”. Only on 7 October did any clarity begin to emerge as to the conduct of existing DIFC-LCIA arbitration proceedings when the DIFC and the LCIA issued separate press releases. 

Both press releases state that the LCIA will administer existing, ongoing DIFC-LCIA cases. The position with regard to the registration of new DIFC-LCIA cases remains blurred. Both press releases state that DIAC will administer any such cases under the DIAC Rules “unless the parties agree otherwise.” It is not clear whether the prior agreement to DIFC-LCIA Rules is sufficient to ensure that such cases will be administered under the DIFC-LCIA Rules, particularly as Decree 34 states that those rules remain in force: hopefully, a further announcement will clarify this point. 

The DIAC Rules adopt an “ad valorem” costs structure and the DIFC-LCIA Rules adopt a “time spent” model. There is no word yet as to whether DIAC will introduce a “time spent” alternative. The difference between the “ad valorem” model and the “time spent” model is significant enough that both have vocal proponents. If DIAC adopts both alternative models on the lines of HKIAC – this could be a satisfactory result.  

In a previous article in the CIArb UAE Branch newsletter (Are we on the cusp of a new era in Dubai dispute resolution?), I reviewed the new DIFC Founding Law (Dubai Law No 5 of 2021) and made the following predictions: 

• The DAI will become the governing / administrative body responsible for international arbitration in Dubai. 
• Dubai will continue to offer all three arbitration models (ad hoc / light touch, “ad valorem”, and “time spent”). 
• Jurisdictional conflicts between the “onshore” courts and the DIFC Courts will henceforth be viewed through a “client choice” perspective, resulting in enhanced predictability of outcomes for investors. 

Decree 34 immediately puts my predictions to the test, starting with the surprise abolition of the DAI and EMAC. The abolition of the DAI came out of the blue to the global arbitration community – and, by all accounts, even to the LCIA.  

So what does Decree 34 do to my predictions?  

• Firstly, the abolition of DAI leaves one of the new objectives of the DIFC, namely “to promote the position of the Emirate as an international centre for dispute resolution and settlement”, in limbo as it is not clear that the DIFC will have any role in the governance and operation of the future DIFC branch of DIAC.   
• Secondly, the abolition of EMAC casts doubt on the future of ad-hoc maritime arbitration in the DIFC. Strictly speaking, ad-hoc maritime arbitration of the London Maritime Arbitrators Association (“LMAA”) model – a flavour of which EMAC sought to replicate – does not need the support of a decree. However, end-users would probably be justified in being concerned about the validity and enforceability of arbitration awards issued pursuant to ad-hoc agreements providing for a DIFC seat. 
• Thirdly, if the DIFC-LCIA Rules are made unavailable to parties who have existing arbitration agreements incorporating those Rules, parties who had agreed to arbitration under the “time spent” model may be forced to adopt the “ad valorem” model under the DIAC Rules. The consequences of forcing such a drastic shift could be far-reaching. 
• Fourthly, in terms of the client choice between the DIFC and “onshore” Dubai as a seat, Decree 34 takes a prescriptive approach that limits the jurisdiction of the DIFC Courts. Pursuant to Decree 34, reference to “Dubai” as the seat of arbitration automatically means “onshore” Dubai and grants the Dubai Courts supervisory jurisdiction. This seems to limit the ability of the DIFC Courts to interpret a reference to “Dubai” as meaning the “DIFC” in a fact-specific manner.  

On a positive note, it is probably a truism that no city really needs three arbitration centres. Dubai was unique not because it had multiple arbitration centres but because it provided a common law seat (DIFC) and a civil law seat (“onshore” Dubai), along with arbitration rules that were administered on the basis of “ad valorem” costs (i.e. DIAC Rules) as well as a “time spent” model (i.e. DIFC-LCIA). The effect of Decree 34 on the seat of arbitration is as noted above. But urgent clarification is needed as to the future of the “time spent” model in Dubai arbitration. 

---

Hari Krishna is a Fellow of the Chartered Institute of Arbitrators. He is the founder and CEO of Nimble Legal and can be contacted on hari@nimble.legal

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Are we on the cusp of a new era in Dubai dispute resolution?

By Hari Krishna FCIArb

New DIFC Founding Law

His Highness Sheikh Mohamed Bin Rashid Al Maktoum, in his capacity as the Ruler of Dubai, recently issued Dubai Law No 5 of 2021 concerning the Dubai International Financial Centre (“DIFC”) (the “New Founding Law”). The New Founding Law was published in Dubai Official Gazette No 514 on 9 May 2021 and replaces Law No 9 of 2004 (as amended) (the “Old Founding Law”).
The New Founding Law expands the objectives of the DIFC and puts in place a clearer regulatory framework based on the experience gained from the functioning of the Old Founding Law over the last 17 years. Of particular interest to members of the CIArb are the following developments:

• the expansion of the objectives of the DIFC to include the promotion of “the position of the Emirate as an international centre for dispute resolution and settlement”;
• the dissolution of the Dispute Resolution Authority and the devolution of its functions to the DIFC Courts, DIFC Authority, and the Arbitration Institute (which is now recognised as an independent “DIFC Body”); and
• the suggestion in the New Founding Law that a new law will be issued to the replace the 2004 Judicial Authority Law (that establishes the DIFC Courts).

The dispute resolution landscape in Dubai

“Conduit” jurisdiction: Article 14(d) of the New Founding Law suggests that a new Judicial Authority Law will be issued to replace the 2004 Judicial Authority Law. This would be a welcome move as it is an opportunity to clear up the difficulties encountered with the “conduit” jurisdiction. A number of practitioners have expressed the hope that this will lead to the dissolution of the Joint Judicial Committee or at least a change of focus of that body, so that the DIFC Courts will no longer be subject to a judicial veto.

Arbitration Institute: Under the old regime, the Arbitration Institute was (albeit briefly) a subset of the Dispute Resolution Authority. Its role seemed to be limited, in practical terms, to managing the operations of the DIFC-LCIA Arbitration Centre. The Arbitration Institute had no role with regard to EMAC, which had its own separate governance mechanisms, or with regard to the DIFC “branch office” of DIAC.

As an independent DIFC Body under the New Founding Law, one would expect the Arbitration Institute to have the ultimate authority and responsibility in respect of arbitral institutions functioning within the DIFC. As EMAC and DIAC are entities formed by a Decree of the Ruler, this is bound to be the most closely watched aspect of the formation of the “new” Arbitration Institute. It is worth mentioning, of course, that the DIAC Arbitration Rules have been frozen in time for some years, and the arbitration community has been waiting for progress on this front.

Gazing into the crystal ball

It is tempting to think that the expanded objectives of the DIFC effectively mean that all disputes of an “international” nature will henceforth fall within the jurisdiction of the DIFC Courts – or that all Dubai arbitration will now be automatically deemed to be DIFC-seated. Historically, no court has willingly given up its own jurisdiction and one ought not to expect anything different from the onshore courts in Dubai. Further, the constitutional nature of the DIFC as a “financial free zone” with definite geographical borders imposes its own limitations.

The expanded objectives of the DIFC need to be seen in the context of the new focus at the federal and local government levels on making the UAE an attractive foreign investment destination. Anecdotal evidence suggests that foreign investors prefer the DIFC over the onshore judicial system. Therefore, it is only logical that “client choice” will prevail in these matters. Accordingly, it seems worth making the following predictions:

• the Arbitration Institute will become the sole governing / administrative body responsible for international arbitration in Dubai;
• Dubai will continue to offer all three arbitration models (ad hoc / light touch, “ad valorem”, and “time spent”); and
• jurisdictional conflicts between the “onshore” courts and the DIFC Courts will henceforth be viewed through a “client choice” perspective, resulting in enhanced predictability of outcomes for investors.

---

Hari Krishna is a Fellow of the Chartered Institute of Arbitrators. He is the founder and CEO of Nimble Legal and can be contacted on hari@nimble.legal

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Recent case law under the UAE Federal Arbitration Law No. 6/2018

by Soraya Corm-Bakhos MCIArb

Dubai Court of Cassation Case No. 990/2019 dated 5 April 2020 on the recoverability of parties’costs in DIAC arbitrations

Since the issuance of a judgment of the Dubai Court of Cassation back in 2013¹, the recoverability of parties’ costs in arbitrations conducted under the DIAC Rules is a persistent issue of DIAC arbitrations.

In a recent ruling dated 5 April 2020, the Dubai Court of Cassation confirmed its previous line of cases on the subject-matter but appears to have added a new requirement for the recoverability of counsel’s fees in DIAC arbitrations².

In this case, the parties’ legal representatives signed terms of reference in which the parties expressly authorised a DIAC appointed tribunal to determine and award fees and costs, including legal costs.

The tribunal issued a final award in which it ordered the claimant (who was partly successful in its claim) to pay the respondent’s legal costs in an amount exceeding AED 4 million. The claimant sought nullification of the award before the Court of Appeal on the basis that its legal representatives were not themselves authorised to agree to grant the tribunal authority to award legal costs in the terms of reference.

The Court of Appeal agreed with the claimant and partially annulled the award insofar as it related to the award of legal costs. Upon further appeal by the respondent, the Court of Cassation upheld the Court of Appeal’s judgment.

In rendering its decision, the Court of Cassation noted that:

• arbitration is an exceptional means of dispute resolution that involves parties waiving their rights of recourse to court (in line with prior UAE case precedent);
• for that reason, the UAE Federal Arbitration Law requires that an arbitration agreement is made by a person specifically authorised to arbitrate (Article 4(1) of the UAE Federal Arbitration Law); and
• parties’ legal representatives in arbitration are only able to exercise powers and duties properly conferred upon them through a power of attorney and cannot exceed those powers.

In this case, the Court of Cassation endorsed the Court of Appeal’s reasoning, which noted that when a party’s representative is authorised by a power of attorney to agree to arbitration, appoint arbitrators, sign terms of reference and with respect to other matters related to a dispute, this authorisation cannot extend to an authority to agree to grant an arbitral tribunal power to award legal costs (even if the legal costs relate to the arbitration in question).

In other words, for a legal representative to agree for an arbitral tribunal to award legal costs, they now require a power of attorney granting them the express authority to do so.

Against this background, to mitigate the risk of annulment of an award of legal or counsel fees, it is essential for parties involved in DIAC arbitrations to:

1. Ensure that their lawyers’ powers of attorneys expressly and specifically state that they have the authority to agree on behalf of their clients that the tribunal has to the authority to award lawyers’ fees.
2. If the arbitration agreement does not include express wording empowering the tribunal to award lawyer’s fees, the parties should ensure that the terms of reference clearly set out and describe the various parties’ costs that the tribunal has authority to award.

It is to be hoped that the DIAC Rules will soon be amended to include an express power for the tribunal to award and allocate parties’costs, including counsel fees. Pending such a revision, parties may wish to reconsider arbitrating disputes under the DIAC Rules; instead, they may opt in their contracts to submit disputes to arbitration under other institutional rules such as the ICC Rules or the DIFC-LCIA Rules, which expressly provide for the recovery of legal costs.

Dubai Court of Cassation No. 284/2020 dated 3 June 2020 on the competent authority to issue interim measures

In a ruling dated 3 June 2020, the Court of Cassation clarified the procedure for challenging interim orders issued in support of arbitration proceedings.

In this case, the claimant subcontractor successfully applied to the President of the Dubai Court of Appeal under Article 18(2) of the Federal Arbitration Law³ for an interim order imposing a precautionary attachment on two bank guarantees issued in favor of the respondent real estate development company to prevent the latter from calling the guarantees. The respondent real estate company challenged the interim order by filing a grievance before the Court of Appeal, which dimissed the grievance on procedural grounds for failure to follow the required procedure. Upon further appeal to the Court of Cassation, the respondent argued that the Court of Appeal had erred in deciding that under Article 18(2) of the Federal Arbitration Law only the President of the Court of Appeal was competent to amend and/or cancel its order. The Court of Cassation upheld the decision of the Court of Appeal and confirmed, by reference to Articles 18 and 21(1)⁴ and (4)⁵of the Federal Arbitration Law, that an interim or precautionary measure related to arbitration proceedings governed by the Federal Arbitration Law may not be nullified except by a decision issued by the authority which made the order, be it the arbitral tribunal or the President of the Court of Appeal. Therefore the ordinary procedures under the UAE Federal Civil Procedure Code (and its Executive regulations) related to interim and convesrvatory measures do not apply where parties have agred to resort to arbitration to resolve their underlying dispute.

This decision essentially clarifies that unless the contracting parties have expressely agreed to seeking and obtaining interim measures from the summary judge under the UAE Federal Civil Procedures Code, the jurisdiction to decide on interim measures will remain with the arbitral tribunal or the President of the Court of Appeal.

Dubai Court of Cassation Case No. 1308/2020 dated 3 March 2021 on the incorporation of an arbitration clause by reference to FIDIC general conditions

In a recent judgment dated 3 March 2021, the Dubai Court of Cassation ruled that incorporation by reference into a construction contract of the 1987 FIDIC Red Book General Conditions of Contract (the “FIDIC Red Book”), does not not automatically mean that the parties are bound by the arbitration clause at Clause 67 of the FIDIC Red Book.

In this case, the underlying dispute related to the construction of a villa. The amount in dispute was around AED 20 million.

The employer sued the contractor before the Dubai Court of First Instance, which found that the Dubai Courts have jurisdiction over the dispute. The contractor appealed and the Court of Appeal overturned the first instance judgment on the basis of the arbitration clause included at Clause 67 of the FIDIC Red Book, which the Court considered had been incorporated by reference. The employer challenged the Court of Appeal’s decision. The Court of Cassation overturned the Court of Appeal’s decision and ruled that the arbitration clause was not enforceable.

In reaching its decision, the Court of Cassation relied on Article 7 of the Federal Arbitration Law, which provides that an arbitration agreement must be in writing, otherwise, it shall be null and void. This provision of the law confirms that the arbitration agreement is a “formal” contract that should be concluded in a written document. The “in writing” requirement under UAE law is not simply a matter of proof but a formative element of the agreement to arbitrate. Article 7(2)(b) of the Federal Arbitration Law has expanded the meaning of “in writing” to include the validity of an arbitration agreement incorporated by reference to standard conditions or to any other document that includes an arbitration agarrement but provided that such referral is “clear as to make that clause part of the contract”.

This judgment of the Court of Cassation is significant in that it confirms that the reference to the arbitration clause in another document must be explicit and specific both in its meaning and in expressely stating that the arbitration clause forms part of the parties’ agreement. Contracting parties who wish to adopt general conditions in a model contract should make sure to explicitly mention the arbitration clause referenced there as otherwise the UAE courts are likely to retain jurisdiction. In other words, it is not sufficient for contracting parties to make a general referral to all the provisions of the model contract to be bound by the arbitration clause. Parties should instead either (i) agree a separate arbitration clause in the signed special conditions of contract or (ii) make sure to explicity state in their special conditions of contract that the arbitration clause in the FIDIC Red Book (or any other model contract) that is incorporated by reference is explicitely agreed and intended to apply.

---

Soraya Corm-Bakhos is a Member of the Chartered Institute of Arbitrators. She works as Counsel for Watson Farley & Williams (Middle East) LLP and can be contacted on SCorm-Bakhos@wfw.com

1. Case No. 282/2012 dated 3 January 2013.
2. See Nayiri Boghossian, “Is an Award on Attorneys’ Fees Enforceable in the UAE?”, Kluwer Arbitration Blog, October 28 2020, at http://arbitrationblog.kluwerarbitration.com/2020/10/28/is-an-award-on-attorneys-fees-enforceable-in-the-uae/, for an exhaustive commentary of this ruling.
3. Article 18(2) provides: “The president of the Court may order, upon request of a party or upon request of the Arbitral Tribunal, interim or precautionary measures, as he may deem necessary, for the current or future arbitration proceedings, whether before or in the course of the arbitration proceedings”.
4. Article 21(1) provides in relevant part: “Subject to the provisions of Article 18 of the present Law, and unless otherwise agreed by the Parties, the Arbitral Tribunal may, upon request of a party, or on its own initiative, order either one to take interim or precautionary measures as it may deem necessary and as required by the nature of the dispute, and in particular […]”.
5. Article 21(4) provides: “A party in whose interest an interim order is granted and upon a written authorisation from the Arbitral Tribunal, may request the Court to grant an order for the enforcement of the order issued by the Arbitral Tribunal or any part of the same, within fifteen (15) days after having received the request, and copies of the authorisation or enforcement request under this Article shall be sent to all other Parties at the same time”.

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Differing Site Conditions: are Geotechnical Baseline Reports a step in the right direction?

By Nebojsa Pavlovic FCIArb

Differing Site Conditions are just one of many risks in construction projects. Softer than anticipated soil / presence of rock, higher level of groundwater, methane or running sand in tunnelling, aggressive groundwater, cobbles, clay layers, voids, expanding soil and fossils are caused by nature. Manmade obstructions such as utility lines, foundations, archaeological remains, contaminated soil / groundwater, asbestos, toxic waste, may create the very same problems as natural causes.

Differing Site Conditions may negatively impact a Contractor’s progress as he may need to change the working methodology, planned resources may not progress at the planned rate, extra works may be required and, in some cases, the execution of the contract may become impossible. Change in the quantities, increased cost of (imported) material or reduced profit, may also come under a wide umbrella of Differing Site Conditions.

For more than 100 years, ways of covering this risk have been evolving: the industry recognized the importance of this issue; Contract Law paved the way for the development of Differing Site Condition Clauses, and in recent years, there has been the development of a formalized interpretative report called Geotechnical Baseline Report (GBR) which serves to properly share the risk of differing site conditions.

The aim of this paper is to evaluate if an addition of GBRs into most often used Standard Conditions of Contract in the UAE improved the risk sharing mechanism that existed before and what improvements are necessary to maximize the benefits that the addition of GBRs may add to future projects. The findings are based on the author’s experience on two projects in Dubai that included tunnelling and heavy excavation works.

Risks

Common Law does not recognise risk sharing per se. Contracts, in their basic form, treat the risk of differing site conditions as any other risk that might materialize on the Project. One Party agrees to deliver (build) the product and hands it over within agreed time for a fixed price. In case any risk materializes, the same Party is obliged to deal with it and, if necessary, compensate the other party for the damages associated with that risk.

Protection from differing site under common law is possible only when a Contractor can prove breach of contract. There are several legal doctrines that are available to the Contractor in his effort such as misrepresentation, mistake, frustration, hardship and even making the contract voidable¹.

As a measure of risk reduction, site investigations were often included to accompany construction tenders. Risks associated to differing site conditions may have decreased to a certain extent but not entirely removed by providing site investigations. There are issues related to ownership of the site data information, their interpretation and responsibility of their correctness. Results of geotechnical tests are facts, but their interpretation is a critical part of this equation.

The addition of a Differing Site Condition Clause has brought some relief as the Contractor got the path within the contract, to administer claims related to differing site conditions, as the proof of breach of contract was no longer needed. Original clauses, developed by the US Federal Government, recognised two groups of conditions:

• Conditions that materially differ from the ones given in the Contract (Unforeseen)
• Conditions that differ from the conditions ordinarily encountered in the area (Unforeseeable)

Again, it was not sufficient, as the major disagreement between factual and interpretive data remained to be a stumbling block for the parties to resolve the disputes related to differing site data. There was a need to have some document, within the Contract, that would serve as a basis for the comparison between “contracted” site conditions and the actual ones.

Geotechnical Baseline Report

Geotechnical Baseline Report (GBR) is a baseline or a reference that serves as a comparison tool where the Contractor wishes to establish that the actual conditions are materially different from the anticipated conditions. This document would serve as agreeable interpretation and would therefore be seen as fact rather than interpretation.

It was expected that GBRs would appear in the tenders for heavy civil engineering works in the UAE. A rise of metro, deep stormwater and wastewater tunnels paved the way for various government organizations in the GCC to look closely to minimizing the risks associated with differing site conditions, and the inclusion of GBRs seemed logical.

The problem was that most of these employers (predominantly government bodies) use a heavily amended FIDIC Set of Contracts for the Design-Bid-Build Contracts (Red FIDIC 1987). The first major change of these conditions was its adjustment to the Design-Build type of contracts where the original document was heavily modified in order to suit a new type of certification and sometimes new parties (Design Professional appointed by the Contractor).

The addition of GBRs provided another layer of uncertainty as it appears that the clients considered GBRs as a more detailed soil investigation report and not a powerful tool that may minimize disputes related to changed site conditions.

Development of GBRs

There are several steps in the development of the GBRs:

• Geotechnical Factual Report (GFR) that contains the results of the investigations
• GBR for Bidding (GBR-B) that contains interpretation by the Employer’s Designer
• GBR for Construction (GBR-C) which is the document developed further by the Bidder and agreed with the Employer

GBRs may be fully prepared by the Employer (Design-Bid-Build), but as they are predominantly used on the Design-Build projects in the UAE, this means that GBRs go through all three steps.
GBRs, in their most sophisticated form, may, apart from representation of contractually accepted interpretation of the site data, provide the following:

• A mechanism for the price adjustment for experiencing the broadest range of conditions and variations in ground conditions. The Contractor should develop, and incorporate in the GBR, unit price facilities, for all possible conditions resulting from the GFR. Dedicated cost breakdowns should be provided for various parameters, such as earth pressure, number of cables, amounts of groundwater inflows, grouting volumes used, amongst others.
• The basis for the adjustment of a Project Schedule requires sophisticated progress update and developed metrics for adjustment of the Contractor’s performance.
• In both cases, the Employer’s risks may become opportunities as the Employer may benefit in both time and cost².

The problems found, as per the author’s experience, are:

1. GBR-Bs are prepared by Designers who did not want to make any conclusion unless absolutely necessary, although they were well respected specialists in the field. The solution might be that professional companies, detached from the main designer, are appointed instead, so the GBR-Bs are prepared in way that Employers benefit from their special knowledge, expertise and unbiased approach. In that case, the bidders may minimize expenses associated with preparation of GBR-C, so they can also appoint more costly experts and provide a robust baseline.
2. A common practice for many construction contracts in the region is that the Bidders are encouraged to perform their own investigations. This clause remained unchanged but should be deleted. It is the Employer, following the suggestions of the bidders, who should update the investigation results and their interpretation, as recommended by ASCE³.
3. Differing site condition clauses (originating from Red FIDC) are also heavily amended and the shift was towards stricter time bars and more complicated administering of differing site conditions, resulting in almost all differing site conditions ending with severe disruption and delay and never-ending claims. These clauses need full revision, in order to accommodate the reference to GBR-C and their impact to the process of the assessment of change and its influence to cost and time. FIDIC’s references to foreseeability and Experienced Contractor are redundant with the existence of a carefully crafted GBR.
4. Submission of the GBR-C must take place before the signing of the contract and ideally during contract negotiations when both parties are willing to accept a balanced share of the risks. The current practice is that the Contractor can submit a GBR-C whenever he wishes, thereby losing the opportunity to set the baseline when all parties are willing to agree; the best time for closing the GBR-C is during contract negotiations.
5. Incorporation of a Schedule Adjustment, developed under the Emerald Book might be far in the future but, adjustment of costs, determined by the GBR-C should be an immediate target for all employers that wish to use GBRs. They should also think about appointing a specialist company to develop minimum requirements or standard template for GBR-Bs that would accompany their tenders in the future.
6. The rule “if not in the GBR, is not relevant” can hurt both parties. So, careful control from both parties is essential for success of GBRs’ incorporation in the Contract.

Conclusion

A sharp turn towards new standard conditions (Yellow Book 2017) would be the best choice for the large Design-Build Projects. However, one should not wait for that to happen to incorporate GBRs; employers should invest in finding the best way to incorporate them into their existing conditions of contracts. The phase of GBRs’ full implementation, in accordance with the latest Emerald Book, should be the aim for all employers that encounter works heavily affected by physical conditions.

---

Nebojsa Pavlovic is Fellow of the Chartered Institute of Arbitrators and a Committee Member of the CIArb UAE Branch. He is the General Manager of Ad Litteram Consultancy FZ LLC and may be contacted on nebojsa.pavlovic@adlitteramco.com.

1. J. Bailey, What lies Beneath: Site Conditions and Contract Risk, SCL (No. 137, issued in 2007)
2. This is the feature of the latest FIDIC Conditions of Contract for Underground Works (the Emerald Book)
3. J. Essex, Geotechnical Baseline Reports for Construction, Suggested Guidelines, (2nd edn ASCE 2007)

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.

Without prejudice

by Mohieeldin Elbana MCIArb

One of the cardinal principles in the space of amicable settlement discussions between commercial entities is the ability to openly negotiate and communicate without the fear that whatever they discuss can somehow be used against them later on, if negotiations fall apart. The way these discussions are precluded from reproduction in the realm of a formal dispute is the principle, which is commonly referred to as, “without prejudice”.

As many will know, however, this principle is not recognised under onshore UAE Law. In fact, lawyers in onshore courts and onshore-seated arbitrations are permitted to use, and rely on, any communication even if they were exchanged in the context of good faith negotiation discussions and referred to as being “without prejudice”.

A new development in the UAE Federal Courts may bring about winds of change. This is very positive news.

By virtue of the Federal Law no. 17 of 2016, court mandated pre-trial mediation and conciliation centres have been established. More recently, however, the Federal Law no. 5 of 2021 issued on 29 April 2021 (the “Amending Law”) amended the said law. One primary change introduced was the explicit reference to the creation of a forum where parties can have open settlement discussions without the fear that anything they discuss can be reproduced later. Indeed, Paragraph 2 of Article 10 of the Amending Law explicitly states that any discussions or negotiations shall not be reproducible before the courts.

The Amending Law is relatively new. It will be interesting to see how the courts deal with attempts of parties to contravene the new rules and what measures will be applicable to parties, or their lawyers, when such a contravention does occur.

This is, no doubt, a reflection of the UAE legislator’s objective to encourage parties to settle their disputes amicably. We hope to see a significant increase in the appetite for amicable settlements and for sister courts in the UAE, as well as in the region, to follow this model or introduce similar settlement friendly legislation.

---

Mohieeldin Elbana is a Member of the Chartered Institute of Arbitrators and a Committee Member of the CIArb UAE Branch. He is a Senior Counsel at OGH Legal and can be contacted on mohieeldin.elbana@oghlegal.com.

The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.

To submit an article for publication please contact our editors, Sadaff Habib, Fatima Balfaqeeh or Reshma Oogorah.