By Eric Teo – Head of International Practice & Special Projects.
In my years of legal practice in the UAE, I have seen many hodgepodge agreements used in the region arising from “recycling” old agreements or clauses that are defective or unsuitable. Such agreements increase the risks of contracting as they may not work as intended. This situation is most apparent when an arbitration agreement or clause is in question.
Since the UAE Arbitration Law came into force in 2018, there have been several Cassation Court decisions on the validity of arbitration agreements where the court had to decide if it has the jurisdiction to rule on the parties’ dispute or should the parties go to arbitration. Issues recurring before the arbitration law became effective continue to emerge, e.g. arbitration agreements are often challenged due to the questionable authority of the person signing the agreement, the way the arbitration clause was included in the agreement and the contents of the clause itself.
No doubt the arbitration law has improved the workings of arbitration in the UAE. But we must not take the law for granted and ignore the basic requirements that an arbitration agreement must be clear and the persons signing up to it must have the authority to do so. It should also clearly specify the language, rules, seat and number of arbitrators for the arbitration.
There are drastic implications for ignoring the basic requirements. For instance, the parties may end up litigating in the court for a long period on the validity of the arbitration agreement and the merits of the dispute simultaneously. Based on past cases, this could lead to the court deciding that the question on the arbitration’s validity has become redundant because the parties have accepted the court’s jurisdiction by litigating. Conversely, a disputing party might incur substantial time and expense running the arbitration to subsequently face the risk of the court nullifying the arbitration award.
Given these harsh realities, I encourage parties to seek proper legal advice before “copying and pasting” arbitration agreements or clauses. There are other aspects to consider too, such as the best choice of seat, rules and governing law of the arbitration for the particular contract.
Please contact us at United Advocates for any further details that you may require for execution procedures in the UAE.