Briefings

Arbitration in the UAE – one step forward, two steps back? November 2017

Recent developments in the UAE legal framework once again call into question the attractiveness of the onshore UAE as a seat and hub for arbitration, as well as the ability of parties to choose their own counsel. We take a look at the developments and how this is likely to impact the arbitration landscape in the UAE.

What is happening?

In September this year, the UAE Minister of Justice released Ministerial Resolution No. 972 of 2017 on the Executive Regulations of the Federal Law No. 23 of 1991 on the Regulation of the Legal Profession and its Amendments (the Resolution).

Much of the Resolution concerns positive and proactive steps to regulate and improve the standard of legal services across the UAE and, as such, is to be welcomed. However, the Resolution comes with a potential sting in the tail; Article 2 of the Resolution provides (in translation):

... arbitration tribunals and judicial and administrative committees shall not accept a person to act as a lawyer on behalf of another person unless his name is registered in the Roll of Practising Lawyers.

Article 17 of the Resolution goes on to set out the criteria for registration in the Roll of Practising Solicitors, which includes the following requirement (in translation):

Those lawyers registered in the Roll of Practising Lawyers shall fulfil the following:

1. Be of UAE nationality.

Taken together, the Resolution appears to prohibit tribunals in arbitrations seated onshore in the UAE from accepting representation of parties by counsel that are not UAE nationals.

Why is this a concern?

A fundamental principle of any contentious proceedings is that a party should be free to choose counsel that will best represent their interests.

Many jurisdictions impose certain, limited restrictions on this right with respect to court proceedings, such as the authority to practice law in that jurisdiction. In the UAE, for example, rights of audience in the local, onshore courts are restricted to UAE nationals and certain nationals of other Gulf sates. Similarly in the Dubai International Financial Centre (DIFC) – an "offshore", common law jurisdiction in Dubai with its own civil and commercial laws and courts – the DIFC Courts limit the rights of party representatives to issue and conduct proceedings and/or to appear before the DIFC Courts on behalf of others.

Arbitration is a different beast altogether. A creature of consensus, party autonomy is a basic but essential principle of arbitration. Parties are free to choose their governing law, their seat (and therefore the applicable procedural laws) and, of course, their representative(s).

The benefits of this autonomy in commercial arbitration are obvious:

• The subject matter may be highly technical, requiring a party's counsel to have specialist expertise.
• Rights of appeal in arbitration are usually heavily restricted, particularly in respect of the merits of the dispute, increasing the importance of a party being able to present its case in the "right" way.
• The arbitral process itself may give rise to technical procedural and jurisdictional matters, requiring counsel with significant arbitration experience to navigate.

Indeed, this fundamental right to choose counsel is sufficiently important to be recognised in most procedural rules. In the UAE, for example, Article 7 of the 2007 Arbitration Rules of the Dubai International Arbitration Centre provides:

The parties may be represented or assisted by persons of their choice, irrespective of, in particular, nationality or professional qualification.

Article 3 of the ADCCAC Procedural Regulations of Arbitration likewise provides:

The parties may at any stage select those who shall act for them, drawn from among lawyers or others.

Article 18 of the DIFC-LCIA Arbitration Rules similarly recognises "the general principle that a party may be represented by a legal representative chosen by that party".

This freedom in arbitration has, historically, also been accepted in the UAE courts. On its face, the Resolution therefore appears to be an alarming departure from the status quo and potentially a severe restriction on party autonomy in arbitrations seated onshore in the UAE.

What are the consequences of the Resolution?

Though the Resolution has caused some disquiet amongst the legal community in the UAE, its precise application is far from clear. On its face, it applies to arbitrations seated onshore in the UAE. This would include both "domestic" arbitrations with a strong UAE nexus, but also international cases where the parties have chosen to seat their arbitration onshore in the UAE without any other connection to it (again a unique feature and benefit of arbitration).

On that basis, the immediate consequences of the Resolution would be two-fold:

• First, and most obviously, it appears to restrict the ability of parties to appoint non-UAE nationals as their lawyers to act on their behalf in onshore-seated UAE arbitration.
• Second, it calls into question the parties' ability to appoint non-lawyers to represent them in such arbitrations, a freedom particularly of major benefit in highly-specialised arbitrations, such as commodities disputes; while Article 2 refers to persons acting "as a lawyer on behalf of another person" it is not clear whether that will extend to anyone performing a role traditionally adopted by external legal counsel.

Importantly, the Resolution also seeks to impose a positive duty on tribunals to refuse to allow non-registered representatives to appear before them.

However, the Resolution is, arguably, subordinate to conflicting Federal and Emirate-specific legislation. For example, Article 212 of the UAE Civil Procedure Code (Federal Law No. 11 of 1992), which is contained within a Chapter of the law addressing arbitration, provides that:

... The arbitrator shall issue his ruling unconstrained by legal procedures other than those specified in this chapter.

That chapter contains no restrictions on parties' representation, arguably limiting the application of the Resolution to onshore arbitrations.

Similarly, legislative provisions in Dubai, which maintains its own court system pursuant to Dubai Law No. 3 of 1992, conflict with the Resolution. For example, the Statute Rules of the Dubai International Arbitration Centre (as amended by Decree Number 58 of 2009) provide that:

The Centre shall apply the arbitration rules that are in effect to all disputes.

As noted above, those rules allow the parties freedom of representation.

How the Resolution will be interpreted by the local courts in the context of these laws remains to be seen, but therein lies a potential problem. In muddying the waters, the Resolution opens the door for opportunistic challenges by recalcitrant parties already engaged in arbitrations, at least until such time as this issue has been determined by the courts once and for all. In the meantime, we are likely to see:

• Challenges being raised in current proceedings where non-UAE-nationals or non-lawyer representatives are already appointed and acting.
• Challenges to enforcement of awards in the UAE where a tribunal has "failed" to refuse such representation.
• More generally, an increase in duration and costs of both arbitration and enforcement proceedings at a time when efficiency in such proceedings remains a key concern.

Longer term, the Resolution may be damaging to UAE arbitration as a whole unless swiftly clarified or amended. Its timing is certainly unfortunate, coming shortly after the introduction of criminal sanctions for arbitrators in the UAE Penal Code (see our briefing here). These caused considerable concern amongst the UAE arbitration community but have yet to be formally clarified or repealed at the time of writing, over a year after their introduction.

Together, the Resolution and changes to the UAE Penal Code may reduce the attractiveness of the onshore UAE as a regional hub for arbitration. This is because contracting parties generally favour certainty where possible, particularly when choosing where and how to resolve their disputes and whether and how easily any resolution or determination can be enforced. However, in the current circumstances:

• It is unclear how the Resolution will be interpreted in the context of existing laws.
• It is unclear whether the parties' agreement to adopt a particular set of arbitration rules – which may allow freedom of representation – would supersede the Resolution.
• It is similarly unclear whether and when the situation will be remedied or clarified.

More generally, and perhaps unfairly, parties may be put off the UAE as a seat of arbitration by the prospect of future measures, akin to the amendments to the Penal Code and Resolution, that either directly impact their proceedings or potentially increase the difficulty, time and costs of enforcing any award.

As such, the longer-term consequences of the Resolution, regardless of whether or not it does impact parties' ability to choose their representatives, may be to drive parties (and their advising counsel) across the region to consider a seat of arbitration away from the onshore UAE to preserve their freedom of choice and avoid either the risk of falling foul of Article 2 or opportunistic challenges to enforcement.

What can parties do?

It is hoped that the Resolution will be clarified or amended quickly in keeping with the UAE’s continuing objective to promote itself as a hub for international arbitration in the Middle East. In the interim, there are various steps that parties can take to mitigate its potential effects. For example:

• As an initial point, it is worth remembering that arbitration arises out of the parties' agreement. As such, even where the parties have agreed to seat their arbitration onshore in the UAE, they can – assuming both parties are willing – similarly agree to amend their contract to choose a different seat, avoiding the Resolution altogether.
• For new contracts, parties should consider (and possibly insist on) seating their proceedings in arbitration-friendly jurisdictions. We expect to see an increase in parties choosing foreign seats for their arbitrations where there are international-standard arbitration laws, or taking advantage of regional pro-arbitration jurisdictions such as the DIFC and the ADGM (where the Resolution should not apply).

Finally, it is hoped that the UAE's long-mooted, international-standard arbitration law will address this and other issues when released. However, with the publication date of that law still unclear, arbitration as a viable and efficient alternative means of dispute resolution in the UAE is sadly once again called into question.