The United Arab Emirates (“UAE”) has made progress in increasingly accepting arbitration as the dispute settlement mechanism chosen by the parties. It is now well established that courts in the UAE would respect the parties’ agreement on arbitration and maintain valid arbitration clauses. In fact, Article 8 (1) of the Federal Arbitration Law, No. 6 (2018) (“United Arab Emirates Arbitration Law”) obliges the court to reject a claim submitted to it when the parties have entered into an arbitration agreement and the defendant invokes the arbitration agreement before raising a claim or defense on the merits.
Despite all the progress made, courts in the United Arab Emirates still disregard the parties’ choice of arbitration in a specific scenario: they appear to be exercising jurisdiction over a defendant who has a valid arbitration agreement with a plaintiff when legal proceedings are brought against a number of defendants, which include one or more parties who are not party to the arbitration agreement. The Blog recently published an article devoted to a recent case resulting from such a practice, Dubai Court of Cassation No. 209/2021 (dated April 21, 2021). This article will look at a different case where the same practice has been implemented by the courts in Dubai and highlight the prevalence of this practice with reference to other similar cases.
In a recent court case in Dubai, a developer (“Developer”) entered into a consultancy contract (“Agreement”) with an engineering consulting company (“Engineer”) that contained an arbitration clause. The object of the Accord project was a hotel. A few years after the hotel was completed, a fire broke out causing huge losses to the developer. The latter’s losses were paid by his insurer (“Insurer”), who brought an action to recover the sums paid to the Promoter.
The insurer sued the three engineers and the three contractors who participated in the initial construction of the building and subsequent work on the building. In total, there were six main defendants (there were also a number of joined parties) and the claim amount exceeded AED billion.
The Engineer invoked the arbitration clause of the Agreement and contested the jurisdiction of the court on the grounds that the arbitration clause binds the Insurer.1) Some of the other defendants also invoked the arbitration clauses in their contracts with the developer. The Court of First Instance (“CFI”) issued a preliminary decision rejecting the request for non-suit on the basis of arbitration clauses. The CFI concluded that the arbitration clause of the Agreement was null.2) He then explained that there was no need to examine the arbitration defenses raised by the other defendants because the existence of arbitration clauses in their contracts does not prevent the Dubai courts from hearing the case in its together. vis à vis all the defendants.
Although the engineer appealed the decision of the TPI to the Court of Appeal (“COA”), the other parties did not. The COA confirmed the decision of the TPI explaining that when a procedure is brought against several parties to hold them jointly and severally liable in a dispute which cannot be divided, the courts would have jurisdiction in the event that only some of the parties have concluded an arbitration. agreements when the others did not.
Subsequently, the Engineer contested the decision of the COA before the Court of Cassation (“COC”) on the grounds that the insurer initiated proceedings against the Engineer and the other defendants for different legal reasons and that the procedure contains claims based on separate contractual relationships. Therefore, the procedure can be divided. The COC dismissed the challenge and upheld the COA’s decision. It adopted the same reasoning and added that the procedure had been introduced on the basis of the provisions of the Law on Civil Transactions no. 5/1985 (“CTL”) which impose joint and several liability on contractors and engineers.3) She explained that the lawsuits against the Engineer and the other defendants are based on the design, execution and supervision of the work. As such, they are jointly responsible for the compensation due. This makes the complaints linked in a way that requires that they all be heard by the same forum to ensure the proper administration of justice. In this regard, the COC stated that the courts have “jurisdiction of origin ” and that arbitration is the exception.4) Therefore, the court determined, in Dubai Court of Cassation No. 1270/2020 (Commercial) that he has jurisdiction over the entire dispute.
The reasoning adopted in the above decisions is very common. In Dubai Court of Cassation No. 1112/2018 (Commercial), the court explained that arbitration is an exceptional way. Thus, when an action is brought against several defendants and some of them are not bound by an arbitration clause, the good administration of justice requires that the proceedings are not divided and that the dispute be heard by the court. , who have theoriginal”Jurisdiction.
The same logic appears in Dubai Court of Cassation No. 153/2019 (Commercial) where the court quashed an award on the grounds that it had been issued against a number of defendants, only one of whom had signed the arbitration clause. Although the creditor of the award argued that a partial annulment could have been granted, that is, the annulment of the award against the non-signatories, the tribunal set aside the entire award.
These court decisions collectively show that the courts will not exercise jurisdiction over a defendant who has entered into an arbitration agreement even if other defendants have not entered into an arbitration agreement in a single proceeding. : when it becomes clear to the courts that the defendant who has not concluded the arbitration agreement does not have the capacity in the proceedings. In other words, this defendant should not have been a party to the proceedings in the first place. (See Dubai Court of Cassation No.300/2019 (real estate)).
There are concerns about the Dubai courts’ approach. Some decisions mention that the good administration of justice requires that the dispute is not divided. Other decisions state that the case cannot be divided. In either case, the courts do not explain why a certain dispute cannot be divided or why the proper administration of justice requires that the dispute not be divided. The only commonality is that this scenario usually arises in construction disputes where multiple parties were involved in the project and the relationships are commemorated in several disparate contracts that are not consistent with each other.
The fact that the Dubai Court of Cassation explained in Case n ° 1270/2020 (Commercial) that the reason for not dividing the case is the joint responsibility of the parties on the basis of the provisions of the CTL does not bring much consolation for various reasons:
- First, this is a rare occasion where the court has relied on a specific provision of the law to justify its decision. In all other decisions, general statements are made on the need not to divide the dispute or the need for the proper administration of justice.
- Second, by relying on the provisions of the CTL, the court did not verify whether these provisions were indeed relevant. He accepted at face value the Insurer’s assertions that these provisions are applicable.
- Third, in many of these disputes it will be possible to assign responsibility if a detailed examination of the facts takes place, but the courts seem to try to avoid such an exercise.
Moreover, this approach is a violation of Article 8 (1) and a violation of the principle of freedom of contract. The UAE legal system supports the principle that a contract is the law of the parties. Consequently, any agreement concluded by the parties cannot, in principle, be modified by the courts or by law. The law can only interfere with the parties’ agreement when it is necessary to protect the public interest.5)
The decisions examined in this article do not respect this principle because interfering with the agreement of the parties can only be done by law, that is to say legislation, and not by court decisions. In addition, the public interest that is protected is not clearly identified in the decisions reviewed. It could be argued that the public interest is the proper administration of the law, but this is not always expressly stated in decisions. More importantly, courts in the UAE should provide detailed reasoning when deciding to exercise jurisdiction over a party that has entered into an arbitration agreement and aim to avoid exercising jurisdiction over parties that have entered into an arbitration agreement. valid arbitration clauses. This forces the courts to look very closely at the facts of the dispute rather than drawing general and general conclusions.
The author of this blog post was involved in the discussed case as counsel for the party.
This article first appeared on the Kluwer Arbitration Blog here. Written by Nayiri Boghossian of Al Owais lawyers and legal advisers solidify