Global Development

Exploring two guerrilla tactics regarding arbitration agreements under UAE law

Prior to the introduction of the current UAE arbitration law (Federal Law No. 6 of 2018) (the UAE Arbitration Law), which came into force in June 2018, there were, amongst others, two features of the onshore UAE arbitration law¹ relating to arbitration agreements that could be abused by parties looking to set aside an unfavourable arbitral award:²

1. If an onshore UAE company’s signatory to the arbitration agreement was found not to have had the requisite specific corporate authority, the arbitration agreement was void.
2. Once a decision had been rendered by way of an arbitral award (including dismissal of the claim), the arbitration agreement was at risk of having been ‘exhausted’, in which case the tribunal no longer had jurisdiction to issue any further award.

Has the UAE Arbitration Law now effectively dispensed with these arguments, relegating them to being of historical interest only?

Lack of company signatory authority

Under onshore UAE companies law, a company’s signatory to an arbitration agreement must have specific authority to enter into such agreement on behalf of the company. In particular:

• As to a public or private joint stock company (PJSC), while the Board of Directors has general powers to act on behalf of the company, the Directors cannot ‘agree on arbitration, unless such acts are authorized under the articles of association of the company’ or otherwise the shareholders have issued a ‘special decision’.³
• As to a limited liability company (LLC), only the general manager has power to represent the company in concluding an arbitration agreement, unless the company’s articles of association state otherwise.⁴

In principle, other than in respect of the general manager of an LLC, a general authority to sign agreements on behalf of the UAE company did not suffice for entering into arbitration agreements. If it was found that, at the time of signing the contract containing the arbitration agreement, the signatory did not have the company’s specific authority to enter into an arbitration agreement, that agreement was deemed to be void. It is not difficult to see how this requirement could be used to attack an unfavourable award.

There is conflicting case law in Dubai regarding the practical operation of this requirement for specific authority.

Dubai Court of Cassation, Case No. 889 of 2016,⁵ involved a dispute between a UAE contractor (an LLC) and a subcontractor, which was resolved by arbitration in favour of the subcontractor. The contractor challenged the award on the basis that its signatory to the arbitration agreement was not the Director registered on its trade licence. While this was factually correct, there was strong evidence in support of upholding the award: the contractor’s signatory was involved in negotiating the contract containing the arbitration agreement, the contractor had participated in the arbitration proceedings without objecting to the validity of the arbitration agreement, the contract was stamped with the seal of the contractor, and the Director named on the contractor’s trade licence had subsequently issued a power of attorney to a separate individual that authorised the company’s participation ‘in arbitration’. The Dubai Court of Cassation, however, determined that there was no valid arbitration agreement for the following reasons:⁶

• Only the Director registered on the trade licence has the capacity to enter into an arbitration agreement on behalf of the UAE LLC – factually, that had not occurred.
• The power of attorney was not enough to convey authority because it was general rather than specific; it had referred to arbitration, but not to the specific arbitration in question.
• The contractor’s participation in the arbitration proceedings did not constitute its deemed approval of the arbitration agreement if the agreement was defective. Moreover, a party did not lose its right to argue that the arbitration agreement was invalid even if such argument had not been raised during the arbitration proceedings.

In contrast, there are numerous Dubai Court of Cassation cases that indicate there is a legal assumption of a binding arbitration agreement even if the signatory for an onshore UAE LLC did not have specific authority to arbitrate. For instance, in Case Nos. 547 of 2014⁷ and 386 of 2015,⁸ the Dubai Court of Cassation said that ‘it is established in the jurisprudence of this court’ that there are two relevant legal assumptions on this issue:

• If the preamble to the contract lists the name of the UAE LLC but does not give the name of its legal representative, there is an assumption that the person who signed the contract containing the arbitration agreement has the necessary authority on behalf of the LLC – even if that signature is illegible.
• If the preamble to the contract lists both the name of the UAE LLC and the name and capacity of its legal representative, but that representative is not the eventual signatory to the contract, the LLC may assert that the contract (and the arbitration agreement therein) is a nullity.

In Case No. 386 of 2015, the losing party sought to set aside the award on the basis that its signatory to the arbitration agreement did not have the requisite authority. Factually, this case fell into the first category described above (no name was given in the contract containing the arbitration agreement of the legal representative who was to sign on behalf of the UAE LLC) and it was argued that the general manager, who was not the eventual signatory, was the only person with the LLC’s authority to enter into an arbitration agreement. The Dubai Court of Cassation determined that there was a valid arbitration agreement. The court said that ‘subject to the aforementioned legal rules’ (i.e. the two legal assumptions stated above), ‘the one who signed on [the company’s] behalf shall have the capacity to agree upon arbitration’. In its reasoning, the court relied on principles of good faith under the UAE Civil Code⁹ and the rule under Article 70 of the UAE Civil Code ‘that the litigant who seeks to resile from what he has conclusively established previously, his seeking shall be invalid. A litigant may not use his own action as an evidence for himself concerning his allegation against another party’.

The conflicting case law from Dubai’s highest court on the question of corporate authority created much uncertainty with respect to UAE companies, and encouraged parties to attack unfavourable awards by raising invalidity assertions as a form of guerrilla tactic. Has this situation been overcome by the UAE Arbitration Law?

In short, the answer is no. But that is because it is not the place of the UAE Arbitration Law to do so.

Article 4(1) of the UAE Arbitration Law provides that: ‘[a]n Arbitration Agreement may only be concluded, on pain of nullity, … on behalf of a judicial person [i.e. a company] by a representative with specific authority to arbitrate’.¹⁰ There is no explanation of ‘specific authority’ in this regard nor prescription of the law that applies in determining whether this requirement has been met. Importantly, though, the relevant provisions regarding annulment provide clarity. Article 53(1)(c), in particular, provides that an award can be set aside where ‘a person does not have the legal capacity to dispose of the disputed right under the law governing his capacity, as provided for in Article 4 of this Law …’ (emphasis added).¹¹ In the case of a signatory for a UAE PJSC or LLC, that takes the analysis back full circle – to the relevant onshore UAE companies law provisions and, unfortunately, the conflicting case law referred to above.¹²

So, while the UAE Arbitration Law has not clarified the requirement for ‘specific authority’ (and nor would one expect it to given its application to international arbitration and hence counterparties from all around the world with differing corporate governance legal requirements), its enactment has coincided with the development of a clear trend in Dubai Court of Cassation cases in favour of the legal assumptions approach set out above (so that UAE company signatories are deemed to have the requisite authority to agree to arbitration), rather than requiring evidence of specific authority. Indeed, this was the outcome in the most recent Dubai Court of Cassation cases after the introduction of the UAE Arbitration Law that considered this issue.¹³ This puts the prevailing onshore UAE legal position (at least in Dubai) on a similar – but not the same – footing as the doctrine of apparent authority in common law jurisdictions. Nonetheless, caution is required given, as noted above, there is a relatively recent 2016 Dubai Court of Cassation case that found the arbitration agreement was void in the absence of strict evidence of specific authority (and that was the finding of the Dubai Court of Appeal in a 2019 decision,¹⁴ albeit this was subsequently overturned by the Court of Cassation).¹⁵

What the UAE Arbitration Law did helpfully do, though, is make it clear that if a party knows that any requirement with respect to the arbitration agreement (amongst other requirements) has not been met and does not state its objection within seven days (or other agreed time) of becoming aware, it is deemed to waive its right to object.¹⁶ That means if the lack of specific authority in an onshore UAE company signatory to an arbitration agreement was known and not addressed contemporaneously, in principle, the ability to subsequently set aside the award on this ground is lost. Given the amount of scrutiny given to a contract during a contractual dispute referred to arbitration, a UAE company has ample opportunity before an award to realise if its signatory did not have specific authority to agree to arbitrate. But this will be a factual question, and one which a party intent on mischief may seek to exploit in its favour (for example, by bringing in a new Director after the award to review the situation and who then ‘discovers’ the lack of specific authority of its signatory in relation to the arbitration agreement). Moreover, given it appears that this Article has not yet been tested in the Dubai Court of Cassation, it remains to be seen where the burden of proof will lie in showing that a party has lost its right to object.

Despite the helpful direction of travel in the Dubai Court of Cassation case law towards greater consistency regarding onshore UAE company signatory authority, it is wise for practitioners to initiate upfront discussions about authority when anticipating an onshore UAE company entering into an agreement to arbitrate. For a UAE LLC, that would also include matching up the name in the contemporaneous trade licence with the proposed signatory of the contract containing the arbitration agreement. For other UAE companies, consideration should be given to issuing specific authority to the signatory to avoid any argument in the future that imperils an award or at least prolongs the legal debate (and costs) associated with the award. This point also applies to terms of reference, if any, in an arbitration if that effectively constitutes a new arbitration agreement.

Exhaustion of an arbitration agreement

Prior to the UAE Arbitration Law, there were cases from both the Dubai and Abu Dhabi Courts of Cassation¹⁷ that decided that if a dispute is referred to arbitration and a decision rendered on the merits of the dispute, the arbitration agreement would be ‘exhausted’. In the words of the Abu Dhabi Court of Cassation in 2014:¹⁸ ‘[t]he issuance of the arbitrator’s award terminates the purpose behind the arbitration clause, whether the court decided to ratify that award or set it aside for any reason, including on grounds pertaining to formal requirements. Therefore, it is not permissible to raise the same dispute before the prior arbitrator or any other arbitrator unless it is by virtue of a new agreement between the parties’.

This created the risk that any partial or interim award on the merits (which was not expressly contemplated under the old arbitration law) would ‘exhaust’ the arbitration agreement. It was possible for a party to raise such an argument to set aside subsequent awards in the arbitration.

Thankfully, the UAE Arbitration Law has gone a long way towards diffusing this tactic.

First, the tribunal now has an express right under Article 39 to render partial and interim awards.¹⁹ This means that it will be difficult to successfully argue that the arbitration agreement has been exhausted through a first partial or interim award on the merits. Second, Article 54(4) provides that the arbitration agreement remains in force after an award has been set aside, unless the award was set aside because the arbitration agreement was void.²⁰

Therefore, whilst the UAE Arbitration Law does not expressly deal with the question of whether an agreement to arbitrate can be exhausted, it contains helpful provisions in overcoming this particular tactic.

Conclusion

General speaking, unscrupulous parties intent on annulling an unfavourable arbitral award look to deploy guerrilla tactics. The UAE Arbitration Law has gone a long way to overcoming various arguments that might otherwise have been advanced before the onshore UAE courts to undermine an arbitral award rendered following a procedurally compliant process. Thankfully, that includes the novel argument that a partial or interim award on the merits exhausts the arbitration agreement, thereby denuding the tribunal of any further jurisdiction. Conversely, the UAE Arbitration Law did not of itself clarify the specific authority requirements for the purposes of an onshore UAE company signatory to an arbitration agreement. But, it was not its place to do so. On this issue, though, the UAE Arbitration Law has helpfully sought to front-end any objections by a party that an arbitration agreement is void because of a lack of company signatory authority and its enactment has coincided with a recent trend in Dubai Court of Cassation case law towards a consistent and practical approach. Caution, though, remains necessary given the inherent risk of a different outcome in a given case.

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