Introduction
International arbitration is fast becoming the preferred method of resolving cross-border disputes. In the Middle East, the use of arbitration is on the rise because of economic growth, foreign direct investment and international trade. Recently, there have been significant developments in the GCC region of the Middle East that impact the choice of arbitration as an alternative dispute resolution tool. This blog discusses the following:
Decree 34 and the Dubai International Finance Center.
Arbitration venue trends in the GCC region of the Middle East.
The benefits of a venue that is a signatory to the New York Convention.
General requirements of having a valid arbitration provision.
The pros and cons of arbitration.
Arbitration Venue Trends in the GCC region of the Middle East
Choosing a venue of arbitration is one of the most important decisions businesses make during contract negotiations. The venue typically determines the applicable procedural law; this has important legal implications, including the role of local courts in relation to the arbitration and enforceability of awards. Choosing the wrong seat can delay the arbitration, increase the risk of parallel court proceedings, and allow the award to be challenged in local courts. Over the past several years there have been significant developments to modernize arbitration in GCC region kingdoms, sultanates, and emirates.
Dubai International Finance Center
The Dubai International Finance Center and the London Court of International Arbitration have been resolving commercial disputes through arbitration for 15 years. In September 2021, Dubai Decree 34 (“Decree”) canceled the Dubai Maritime Arbitration Center and the Dubai International Finance Center-London Court of International Arbitration. The Decree mandates that DIAC be restructured as a single unified arbitration center with its headquarters in "onshore" Dubai and a branch in the "offshore" DIFC, with the ability to establish further branches inside and outside the Emirate of Dubai. The objectives for establishing a unified arbitration center are to "Consolidate the position of the Emirate as a reliable global hub for resolving disputes" and "Enhance the position of DIAC as one of the best options for the parties to the dispute to resolve their disputes efficiently and effectively.”1
Oman
International arbitration is widely used in the Sultanate of Oman as a method for resolving disputes. Over the past several years, Oman has been working to modernize its arbitration law. One important step was the establishment of the Oman’s Commercial Arbitration Center (OCAC) as an independent and financially autonomous body that operates under the Oman Chamber of Commerce and Industry. Prior to the OCAC, contracting parties often must arbitrate their disputes under regional arbitration bodies such as the Dubai International Financial Centre, which could be more expensive and logistically challenging. In 2020 Oman issued the Rules of the Oman Commercial Arbitration Center (“Rules”) which are based on best practices and international standards. The Rules have benefits that give parties more autonomy and flexibility in the proceeding; they also have a mechanism to enable a speedier outcome. For example, parties can choose subject-matter experts who can add value to the resolution of the dispute, and parties have the right to be represented by their authorized representatives. In addition, parties can combine disputes or claims raised by more than one contract in a single arbitration request provided that certain conditions are met. Finally, each party is given a short period of time to submit their claims and counter claims, and a procedural timetable for arbitration can be set by an agreement of both parties.
Oman is also focusing on building the expertise of its arbitrators. To this end, it partnered with the Chartered Institute of Arbitrators to offer what is seen as the gold standard for arbitrator training and accreditation courses in Oman.
Qatar
Arbitration in Qatar is growing, and it is increasingly favored as a form of dispute resolution by the construction, infrastructure, real estate, energy, and banking sectors. Recently, there have been several developments that may affect the writing of applicable law clauses and dispute resolution clauses. These developments may also make litigation and mediation a preferable alternative to arbitration.
Law No. 21 of 2021, Establishing the Investment and Commerce Court was issued in October 2021. The most significant provisions that may affect the formulation of dispute resolution are the shortened periods for submissions and for appeal submissions.
On 18 October 2021, Qatar issued Law No. 20 of 2021 on Mediation for the Settlement of Civil and Commercial Disputes, which allows mediation settlement agreements to be directly enforceable by the Court and which enforces confidentiality in mediation. The court’s role in the enforceability of settlement agreements may lead parties to view mediation as a more cost-effective and time-efficient method of dispute resolution as litigation and arbitration can take two or more years.
On 1 September 2021, the Qatari government enacted amendments to Law No. 34 of 2005 on Free Zones (the Free Zones Law) and Law No. 7 of 2005 (the QFC Law), that expanded the jurisdiction of the Civil and Commercial Court of the QFC Court (the QICDRC). Because of this, the QICDRC’s jurisdiction expanded to cover the Qatar Free Zones, the Qatar Free Zones Authority and companies registered at the Free Zones.
The Qatar International Court issued a new Practice Direction (No. 1/2022) on Small Claims that shortened the time frame from the issue of a case to reaching a judgment. The Practice Direction establishes a standard procedure for dealing with small claims up to and including 100,000 Qatari pounds, without limiting the Court’s general power to issue case management directions, including decisions to allocate claims that exceed the 100,000 Qatari pounds amount to the small claims track in appropriate cases. With this new direction, the time frames to serve the claim and to respond to the claim are reduced.
There have also been changes in arbitration rules. In 2021, the Qatar International Chamber of Commerce implemented new rules of arbitration that focus on modernization, efficiency, integrity, and enforceability. They key changes are summarized below.
Mandatory disclosure of third-party funders with an economic interest in the outcome of the case to the tribunal, other parties, and the ICC Secretariat.
Expanded provisions regarding joinder of parties and consolidation of proceedings to efficiently deal with complex disputes.
Empowerment of the Court to reject unfair or unequal agreements regarding tribunal constitution and to itself appoint each member of the tribunal to protect the validity of a future award.
Specific provisions for investment treaty arbitrations aimed at ensuring arbitral independence and excluding treaty-based arbitrations from the ICC emergency arbitration provisions.
Empowerment of a tribunal to decide whether a hearing should be conducted in person, or remotely by videoconference or telephone. The requirement of paper filing was removed and replaced with a presumption of electronic transmission.
Saudi Arabia
Through the Saudi Vision 2030 initiative, Saudi Arabia is looking to enhance the credibility and effectiveness of alternative dispute resolution, with arbitration at the forefront. There have been several recent laws that will help facilitate this.
The 2020 Commercial Courts Law and the 2021 Judicial Fees Law could encourage parties to select arbitration and mediation for dispute resolution. The Commercial Courts Law modernizes the court system by encouraging parties to resort to alternative dispute resolution tools. The Judicial Fees promotes the use of alternative dispute resolution and out of court settlement of disputes by imposing an ad valorem approach on court cases in the amount of 5% of the value of the claim and with a cap of SAR 1 Million.
The Government Tenders and Procurement Law (“GTPL”) provides that, subject to approval by the Minister of Finance, Saudi governmental bodies may agree to resolve disputes through arbitration. This development helps ease the Saudi Arabian governmental bodies that require prior authorization from the Prime Minister to enter into arbitration agreements (unless authorized by existing legislation). The GTPL sets forth three cumulative conditions that must be satisfied for Saudi Arabian government bodies to validly enter into arbitration agreements:
The estimated value of the contract subject matter of the arbitration has to exceed 100 million Saudi riyals. Adjustments to the limit are within the discretionary powers of the Kingdom of Saudi Arabia Ministry of Finance.
The governing law of the contract must be the laws of the Kingdom of Saudi Arabia and the arbitral proceedings may be conducted in accordance with arbitration rules of international arbitration centers located outside the Kingdom of Saudi Arabia only if the dispute is with a foreign contracting party.
The arbitration agreement and its terms must be written in the contract.
UAE
One of the most impactful changes in arbitration in the UAE was the abolition of the Dubai International Finance Center and the London Court of International Arbitration (discussed earlier in this blog). In addition to this change, Decree 34 also introduced a new statute for the DIAC, which made material changes to the institution’s structure (including the introduction of a new DIAC board and arbitration court) and the introduction of new DIAC Rules. These are the key provisions and their impact on arbitration proceedings. The new rules:
designate the Dubai International Financial Centre as the default seat. This is important because if the parties do not specify the seat of the arbitration, the seat of arbitration will be the DIFC, the DIFC Arbitration Law will apply, and the DIFC courts will act as the supervisory courts.
confirm that the arbitration award was issued in the seat of the arbitration even if it was signed by the Tribunal outside of the seat of arbitration. This resolves the issue whereby tribunal members were required to sign the award in the UAE as the seat of arbitration to prevent the award from being set aside because it was issued in a foreign jurisdiction other than the seat of arbitration.
look to have disputes resolved within a very short period as opposed to an ordinary arbitration action.
allow a party, prior to the constitution of the Tribunal, to file an application for the arbitral proceedings to be conducted on an expedited basis. The tribunal will then be formed on an expedited basis and the award will be made within three months from the transfer of the file to the Tribunal unless extended by the Arbitration Court on exceptional grounds.
Advantages of Arbitration with a Venue that is a Signatory of the New York Convention
Most GCC countries have adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the "New York Arbitration Convention", one of the key instruments in international arbitration. New York is an attractive center for international arbitration for many reasons. It has a well-developed body of contract law that adheres to international commercial standards. Its courts are neutral and consistently enforce arbitration agreements and awards with deference to arbitrators’ decisions. New York also has a strong bench of sophisticated arbitrators who are well-versed in New York law and cross-border transactions, and who have practical experience across a broad spectrum of industries. In arbitration training and continuing education, New York also emphasizes the need to contain costs and avoid duplication. New York courts also offer a range of provisional remedies to aid arbitration so that arbitral awards are not rendered ineffectual.
General Requirements for Having a Valid Arbitration Provision
Regardless of the instrument in which it exists, there typically core elements that should be included in an arbitration provision. These elements are:
An explicit referral of disputes to arbitration.
The governing law of the arbitration agreement.
The seat of arbitration.
The rules governing the arbitration.
The number of arbitrators and their method of selection.
Language of the arbitration.
If applicable, the institution governing proceedings.
Pros and Cons of Arbitration
Arbitration can be an effective tool for resolving disputes. Parties should consider the pros and cons before deciding whether it is right for them.
Cost: Arbitration can be a more cost-effective way to resolve disputes.
Speed: Arbitration is typically faster than a trial because it follows defined timelines, arbitrators don’t usually have large caseloads, and the proceedings aren’t dependent on a court calendar.
Fairness: Often both parties agree to the arbitrators or the arbitrators are selected by a third- party arbitration service.
Finality: For the most part, arbitration rulings are final and cannot be appealed.
Simplified procedures: Arbitration is less formal, more flexible for scheduling, and has a simpler discovery process.
Confidential: Arbitration hearings do not take place in open court and transcripts are not part of the public record.
Cons
No Appeals: The arbitration decision is final.
Rules of Evidence: A judge in a trial must follow the rules of evidence. Arbitrators can utilize any information.
No Cross-Examination: The arbitration process generally includes documents and not witnesses, voiding the ability to cross-examine.
Limited Discovery: If arbitration is not filed until litigation has already begun, both parties lose the cost-saving advantage of limited discovery.
Lack of Consistency: There are no set standards for arbitration, making it difficult to find consistency. It is possible that an arbitrator can be biased, which is sometimes the case in mandatory arbitration contracts.
Not Public: The level of confidentiality involved in arbitration cases could potentially be disadvantageous to one party. There is also a lack of transparency, which is not the case in public courtrooms.
Conclusion
We expect that the use of arbitration as an alternative dispute resolution will continue to grow in the GCC region of the Middle East. Arbitration-friendly legislative changes, the advantages of arbitration as an alternative dispute resolution tool, and the region’s focus on becoming a leading international hub for arbitration make it an attractive choice for the resolution of commercial disputes.
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Sources
1https://dlp.dubai.gov.ae/Legislation%20Reference/2021/Decree%20No.%20(34)%20of%202021.pdf
https://www.cms-lawnow.com/ealerts/2021/05/arbitration-law-in-oman-recent-developments?cc_lang=en
Qatar https://globalarbitrationreview.com/insight/know-how/commercial-arbitration/report/qatar
https://www.tamimi.com/law-update-articles/arbitrating-in-the-kingdom-of-saudi-arabia-a-new-frontier/
https://www.findlaw.com/adr/arbitration/arbitration-pros-and-cons.html