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I. INTRODUCTION

This study seeks to provide an overview of the form validity of arbitration agreements and the legal capacity of parties to enter into arbitration agreements under UAE law. It also examines the provisions of internationally-recognised principles of arbitration such as the separability doctrine of arbitration agreements, the non-arbitrability of certain disputes and the doctrine of compétence-compétence in connection with the validity and effectiveness of arbitration agreements. This article provides insight on various UAE court judgments in connection with the authority to sign an arbitration agreement on behalf of an entity. This may differ depending upon the entity’s legal form such as sole proprietorship, limited liability company or joint stock company. Finally, this article further identifies the prevailing case law of the UAE courts in connection with the lack of legal capacity as a ground for challenging the validity of arbitration agreements adopted by the parties to oppose the ratification and enforcement of awards.

An agreement to arbitrate is the cornerstone of any arbitration and commands the essence and existence of arbitration. The majority of international commercial arbitrations are conducted pursuant to an arbitration clause in a commercial contract.¹ In fact, an arbitration agreement confirms the parties’ wish to arbitrate their dispute. Accordingly, an arbitration agreement may be perceived as a waiver of immunity from the jurisdiction of national courts.² It is the arbitration agreement that establishes the jurisdiction of the arbitral tribunal and, therefore, the parties must have a valid arbitration agreement for the conduct of any arbitration.

An arbitration agreement may be defined as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”³ In other words, the arbitration agreement is an agreement whereby two or more parties agree that a dispute, which has arisen or may arise in connection with a particular legal relationship, will be finally settled by one or more arbitrators.⁴

The arbitration agreement establishes an obligation between the parties to arbitrate disputes arising out of the contract. This obligation arises from the application of the principle pacta sunt servanda whereby the parties are bound by their contracts.⁵Furthermore, it is the arbitration agreement that empowers the arbitral tribunal to conclude a decision resolving a dispute between the parties and such decision will be binding on the parties.⁶ The arbitration agreement also determines which issues can be examined and decided by the arbitral tribunal.

Parties must provide their consent clearly and unambiguously to arbitrate the dispute, otherwise national courts shall retain the jurisdiction. Normally, a valid arbitration agreement will be given full effect, which means that national courts will dismiss the dispute and refer the case to arbitration. This framework is further supported by the provisions under Article II (3) of the New York Convention⁷ and in accordance with Article 8(1)⁸ of the UNCITRAL Model Law.⁹ Likewise, the principle that state courts have no jurisdiction to hear disputes covered by an arbitration agreement is recognised by several national legislations.¹⁰

To ensure the validity of arbitration agreements, when concluding an arbitration agreement parties should point out their consent in an unequivocal manner with regard to its essential elements so that there is no ground for ambiguity or alternative interpretations.¹¹ It is noteworthy that arbitration agreements can be defective for different reasons, such as by providing incorrect reference to an arbitration body or centre, by proposing a defective mechanism for the appointment of arbitrators or by selecting several contradictory arbitration rules at the same time.¹² However, in general, a party’s commencement of arbitration or its participation without objecting to the arbitration proceedings can be one of the basis for challenging the validity of an arbitration agreement. Similarly, a party’s failure to challenge the jurisdiction of the state court having original jurisdiction to hear a dispute falling within the scope of the arbitration agreement

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can also be considered as a basis for finding that the parties have waived the arbitration agreement.¹³ In such cases, arbitral tribunals and state courts must interpret an arbitration agreement by determining the true intention of the parties applying the general principles of interpretation.¹⁴

In modern times, the equation between national courts’ jurisdiction and arbitration has changed positively to encompass co-operation and complementarity rather than opposition.¹⁵ The rules and regulations applicable to the validity and enforceability of arbitration agreements as per national and international laws have undergone several changes; they have evolved from a position of relative disfavour in some of the jurisdictions to universal favour.¹⁶

II. ARBITRATION AGREEMENTS UNDER UAE LAW

Arbitration in the UAE is progressing rapidly, considering in particular the increase of international and domestic arbitrations. In general, UAE courts have adopted positive steps towards granting enforcement of foreign and domestic arbitral awards¹⁷ and thereby largely supporting the development of arbitration in the UAE. Nonetheless, there are some instances where UAE courts have refused recognition of foreign awards on the grounds of procedural issues.¹⁸

The UAE enacted a separate arbitration law to govern arbitration proceedings: Federal Law No. 6 of 2018 (the “New Law”). Previously the arbitration proceedings in the UAE (onshore) were governed by certain provisions, namely Articles 203 to 218, contained in the Federal Law No. 11 of 1992 Concerning Issuance of the Civil Procedures Code (as amended), commonly-referred to as the Civil Procedures Code (CPC). The New Law repeals the aforementioned articles and provides rules that govern arbitration in its entirety. Among other things, it deals with the validity and enforcement of arbitration agreements, appointment and disqualification of arbitrators, jurisdiction of the arbitral tribunal, issuance of interim measures, arbitration process, validity, enforceability and nullification of arbitral awards.

In recent years, the UAE courts have demonstrated greater support to arbitration by upholding the parties’ agreement to have their disputes resolved by arbitration. Moreover, the UAE courts show greater acknowledgment to the parties’ arbitration agreement and are less inclined to consider arguments by parties to challenge the existence, validity and/or enforceability of their arbitration agreement.¹⁹

It is an internationally recognised principle that for an arbitration agreement to be valid it must be in writing and clearly evidence the parties’ intention to submit their dispute to arbitration. The UAE legislation is no different. For instance, Article 7 of the New Law provides that an arbitration agreement shall be in writing, otherwise it shall be null and void.

Under Article 8 (1) of the New Law, the competent court shall decline a dispute, which is governed by or is subject to an arbitration agreement, if the party opposing the action raises a jurisdictional challenge to the court based on an arbitration agreement, before submitting any request or plea on merits.

II.1. Requirements for Arbitration Agreements

Most national and international laws provide for arbitration agreements to be subject to several requirements. One of these requirements, and arguably the most significant and universally accepted one, is that an arbitration agreement should be in a “written” form; moreover, it should include a “signature” and/or an “exchange” of written communications.²⁰ The term ‘written” is defined under Article II(2) of the New York Convention as an agreement in writing which includes an arbitration clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.²¹ One reason for requiring that an arbitration agreement be in writing is to increase certainty and avoid any dispute between the parties as to its existence.²² Such requirements are necessary and important to constitute a valid arbitration agreement because if they are not satisfied, the agreement to arbitrate becomes invalid.²³

The UAE courts have established that arbitration is regarded as an exceptional form of dispute resolution; hence it is required that the parties clearly state their consent to arbitration in writing. ²⁴ Arbitration shall be limited to the specific matters mutually agreed upon by the parties to be referred to arbitration.²⁵ It should be noted that the mere silence of a party to respond to the other party’s offer to arbitrate disputes does not amount to any inference for an arbitration agreement because agreeing to arbitration cannot be inferred implicitly.26 An arbitration

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agreement can only be valid if it is proved that the parties have the common intent to refer their dispute to arbitration, which can be inferred from the existence of an arbitration clause within the agreement or from both parties signing a subsequent arbitration agreement.²⁷

Article 7 of the New Law requires that arbitration agreements be in writing. Paragraph 2 of the said Article expressly provides that an arbitration agreement shall be deemed to be in writing, if it is contained in a document signed by the parties or stated in an exchange of correspondence, other written means of communication or through e-mail. Moreover, an arbitration agreement shall be valid where a request is made to refer a dispute to arbitration, as may be pleaded in written submissions statements or memoranda exchanged during litigation and/or arbitration proceedings if the other party does not oppose this request. Under Article 5 of the New Law, reference to any document containing an arbitration clause shall also constitute a valid arbitration agreement.

For an arbitration agreement to be valid in the UAE, notwithstanding whether or not the arbitration clause is contained as a separate agreement, there are certain necessary conditions to be fulfilled. For instance, under Article 203 of the CPC which was repealed by the enactment of the New Law, the following were the essential elements for a valid arbitration agreement:

1. Arbitration agreement must be in writing²⁸ and contained either in the main contract or in a subsequent agreement;²⁹
2. Arbitration agreement should refer to disputes which have already arisen or which may arise in the future between the parties;³⁰
3. It is important that the parties must have the legal capacity to contract.
4. Arbitration agreements shall not be valid unless made by persons having the legal capacity of disposition in the litigated right; ³¹ and
5. The subject matter of arbitration must be arbitrable³² and not illegal or contrary to public policy or State morality.³³

II.2. Types of Arbitration Agreements

A. SEPARATE ARBITRATION AGREEMENT OR REFERENCE TO AN ARBITRATION CLAUSE IN THE MAIN CONTRACT

Under Article 5.1 of the New Law and according to UAE case law, the parties to a contract may agree to refer to any or all disputes to arbitration by either concluding a separate arbitration agreement or may agree upon an arbitration clause in the main contract.³⁴

B. SUBMISSION AGREEMENTS

Similarly, under Article 5.1 of the New Law and the established principles of UAE courts, parties may choose to refer their disputes to arbitration by concluding submission agreements, after the dispute has arisen, even if the matter is pending determination before the court.³⁵ Submission agreements are also referred to as “arbitration deeds”.

C. ARBITRATION CLAUSE INCORPORATED BY REFERENCE

An arbitration clause may be incorporated by an express reference to a document which contains an arbitration clause. In such a case, the arbitration clause will be deemed to have been incorporated into the contract provided such reference is made clear, i.e. with specific mention of the arbitration clause contained in the referenced document.³⁶This form of arbitration agreement is common in construction contracts where parties refer to the FIDIC General Conditions of Contract.³⁷

However, a general reference to the terms of another document, without specific mention of the arbitration clause and if the parties are not made aware of the existence of the arbitration clause, may not constitute a valid arbitration agreement between the parties.³⁸ Thus, any referral in a main contract to another document that contains the arbitration clause shall be deemed as an arbitration agreement only if such referral is express and explicitly incorporating the arbitration clause.³⁹

The UAE courts have established that such a reference shall not be valid unless it includes a specification of the arbitration clause set out in the referred document. If it is merely general, without any specification to the relevant arbitration clause in the referred document, then, the reference shall not extend to arbitration and thus the parties have made no arbitration agreement.⁴⁰

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Incorporating an arbitration clause by reference to the terms of another document may become problematic. In most cases, parties are unaware of the existence of the arbitration clause contained in the standard terms. Article 5.1 of the New Law stipulates that the contracting parties may agree to submit their disputes to arbitration, either in the main contract or by a subsequent agreement. Further, the parties may agree on any special terms, such as the number of arbitrators.

An arbitration agreement shall be valid only if it is in writing irrespective of whether an arbitration agreement is contained within a contract or as a separate document. The UAE courts have established that an arbitration agreement in writing also refers to any instrument signed by the two parties or any correspondences, letters, or any other means of written communication exchanged between the parties.⁴¹ If there are annexes and schedules to the contract between the parties, it is not essential that the parties sign the annexes and schedules, but it is sufficient if the schedules are referred to in the contract as being an integral part of it. Nonetheless, if a schedule contains an exceptional clause which is an arbitration clause, this condition shall not be binding upon the two parties unless they have signed such schedule.⁴²

II.3. Multi-tier Arbitration Clauses

Some arbitration clauses contain pre-conditions to arbitration, which refer to the requirements to be complied with by parties prior to proceeding with the arbitration. For instance, parties may agree to notify the other party in writing about the existence of a dispute and attempt to resolve the dispute amicably or to refer the dispute to a third party. An example of this would be the requirement to refer any dispute to an Engineer before the commencement of arbitration as provided for under FIDIC contracts.

Condition precedents to arbitration are recognised by UAE courts.⁴³ Pre-conditions to arbitration should contain clearly defined steps that the parties must pursue before the commencement of arbitration. For instance if the parties have agreed that the dispute should be referred to an Engineer with an attempt to amicably settle the dispute, neither of the parties may commence arbitration before referring the dispute to an Engineer.⁴⁴ However, if an arbitration agreement contains a general clause mentioning that the parties must attempt to amicably resolve the dispute, and if the agreement fails to set out any express guidance on the procedure to be followed by the parties to resolve such dispute, it shall be difficult for the competent court to apply any specific test to determine whether any efforts were undertaken by the parties. In such a case, if either party proceeds to arbitration directly, this may imply that the parties’ attempts to resolve the issue has failed.⁴⁵ The burden of proving the fulfilment of obligation with respect to the pre-conditions to arbitration is on the party requesting arbitration.

II.4. The Doctrine of Separability

The arbitration clause is regarded as a separate or autonomous agreement from the main contract containing it.⁴⁶ It is a key principle in many developed jurisdictions⁴⁷ across the world. The effect of the doctrine of separability (sometimes called ‘severability’) is that it prevents arbitration clauses from being systematically stricken off, particularly where the main contract containing the arbitration clause is void for any reason. By applying the doctrine of separability, arbitration agreements are separable from the parties’ underlying contract and accordingly any issues underlying the main contact such as invalidity, illegality, or non-existence of the main contract will not necessarily affect the validity of the arbitration agreement contained in the main contract. This principle also addresses the question of whether an invalid provision in a contract may be severed from the remainder of the contract or whether it is possible for a particular provision in a contract to be governed by another law than that of the original contract.⁴⁸

The separate existence of the arbitration clause is a key issue not only when the contract has come to an end by performance of the parties but also when the agreement comes to an end prematurely, for instance by the occurrence of a case of force majeure or illegality.⁴⁹ The competence-competence doctrine, which is one of the fundamental principles of arbitration empowering an arbitration tribunal to rule on its own jurisdiction, is often presented as a direct result of the separability doctrine. The competence-competence and separability principles have a similar objective and the arbitrator has jurisdiction to rule on any challenge relating to the existence and/or validity of the main contract, provided there are no grounds for declaring the arbitration clause itself as invalid.⁵⁰

The principle of separability is very widely recognised today⁵¹ and this principle is being relied on by international arbitrators irrespective of their seat and of the law governing the proceedings. The New York Convention under Article V(1)(a) states that recognition and enforcement of the

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award may be refused if the party against whom enforcement measures are sought can establish that the arbitration agreement “is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where award was made.” ⁵²

A. THE DOCTRINE OF SEPARABILITY UNDER UAE LAW

The doctrine of separability is recognised under Article 6(1) of the New Law which states:

An arbitration clause shall be treated as an agreement independent from the other terms of the contract. The nullity, rescission or termination of the contract shall not affect the arbitration clause if it is valid per se, unless the matter relates into an incapacity among the parties.

UAE courts have recognised the principle of separability and have established that the arbitration clause is autonomous from the agreement containing the arbitration clause.⁵³ It is settled by the UAE courts that the invalidity, termination or cancellation of a main agreement, which contains an arbitration clause, shall not automatically invalidate such arbitration clause unless such invalidity involves the arbitration agreement per se, to the extent it may lead to the arbitration agreement being declared as null and void.⁵⁴ That is because an arbitration clause is independent of the subject matter of the main contract.

Additionally, Article 6.2 of the New Law provides that a challenge to the invalidity, cancellation and/or termination of the main agreement shall not stay arbitration proceedings and the arbitral tribunal shall determine such challenge.

II.5. Arbitrability under UAE Law

For an arbitral tribunal to have jurisdiction to determine the merits of a dispute and to issue an arbitral award, there must exist a valid written arbitration agreement. In addition to the existence of a valid arbitration agreement, the UAE courts will consider whether the subject matter of the dispute and the claims initiated by the parties in arbitration are arbitrable under UAE law. In case the UAE court finds that an arbitrator has resolved an issue relating to a non-arbitrable matter, the court will be compelled to set aside the award.⁵⁵ Article 203(4) of the CPC states: “it shall not be permissible to arbitrate matters in which conciliation is not possible.” A similar provision is contained in Article 4(2) of the New Law, which provides that “arbitration is not permitted in matters which do not permit conciliation”. There are several matters which are not capable of being reconciled in the UAE. For example, criminal matters and matters of personal status are considered to fall outside the scope of conciliation. Under Article 6 of the UAE Commercial Agency Law (Federal Law No. 18 of 1981), disputes relating to commercial agency are subject to the exclusive jurisdiction of the UAE courts. Additionally, issues relating to labour disputes and other issues relating to public policy are matters which are outside the realm of settlement and cannot be arbitrated in the UAE. Matters relating to public policy, such as registered commercial agencies or intellectual property rights deregistrations, are outside the realm of conciliation. The Court of Cassation ruled that matters pertaining to the registration of property on the property register in the UAE are provisions relating to the monetary system of the State and hence considered as matters of public policy. Therefore such matters cannot be subject to an arbitrator’s jurisdiction and accordingly such disputes are non-arbitrable.

Article 733 of the UAE Civil Transactions Law also sets out some activities that are not permissible as the subject matter of compromise and/or reconciliation and accordingly restricts such transactions to be non-arbitrable.⁵⁶

It can therefore be summarised that, under UAE legislation, the arbitrability of a dispute shall be assessed in accordance with the applicable laws such as the New Law and the CPC, which expressly excludes some disputes as non-arbitrable. The arbitral tribunal has the jurisdiction to decide on a broad range of contractual claims including both civil and commercial matters. However the arbitral tribunal has no jurisdiction to determine matters relating to criminal law, personal status law, labour disputes, commercial agencies and matters of public policy.⁵⁷ Additionally, in some cases, UAE courts have established that disputes relating to the sale and purchase of off-plan units with respect to Article 3 of Dubai Law No. 13 of 2008 cannot be the subject matter of arbitration as it is contrary to the principles of public policy.⁵⁸ In this regard, the UAE courts held that decisions on registering disposals in the property register relate to the monetary system of the UAE and are a matter of public policy, thus they cannot be referred to arbitration and would fall under the jurisdiction of UAE courts.⁵⁹

When an application for recognition and enforcement of arbitration award is filed before UAE courts, these courts will not examine the merits of the award but shall limit their review to ensure that certain procedural requirements are complied with. The New Law Article 53 (1)(a) –(h)

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provides for the grounds for challenging an award. In case an arbitrator resolves a dispute relating to a non-arbitrable matter, the UAE court will annul the award with the rationale that the arbitrator acted beyond the scope of his authority. The concept of arbitrability is important because it is applicable in determining the validity of the arbitration agreement as well as the jurisdiction of arbitration tribunals in the UAE.

II.6. Compétence-Compétence

The doctrine of compétence-compétence, in general, recognises the power of the arbitral tribunal to decide disputes concerning their own jurisdiction⁶⁰. This doctrine indicates that arbitrators have jurisdiction to decide challenges to their own jurisdiction, namely to decide challenges to arbitration agreements on which their own authority to resolve the parties’ disputes is based.⁶¹

Although the doctrine of competence-competence enables the arbitrators to rule on their own jurisdiction, it does not allow arbitrators to be sole judges; it only permits them to come to a decision on their jurisdiction prior to any court or other judicial authorities. In short, the arbitrators shall have the first opportunity to hear challenges with respect to their own jurisdiction, although this is subject to a subsequent review by the courts.⁶² The compétence-compétence principle is recognised by different international conventions on arbitration, several arbitration legislations and the majority of institutional arbitration rules.⁶³

An award issued by an arbitral tribunal lacking jurisdiction is void and unenforceable.⁶⁴ Lack of jurisdiction is one of the grounds available for a party seeking to set aside an award before the court of competent jurisdiction. Thus, any issue relating to the jurisdiction of an arbitrator is decided in the early phase of the proceedings and before deciding on the substantive issues in dispute.⁶⁵ However, the arbitral tribunal may rule on the above plea either as a preliminary question or in an award on the merits.

The principle of compétence-compétence is contained in Article 19(1) of the New Law. This article provides:

The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement or its inclusion of the subject matter of the dispute. The arbitral tribunal shall rule on the plea either as a preliminary question or in a final award on the merits.

The doctrine of compétence-compétence is recognised by the UAE courts and it is an established principle that UAE national courts do not have jurisdiction to hear a dispute where the parties have agreed to settle their dispute by arbitration. UAE courts recognise that if the parties have agreed to provide the arbitral tribunal with the authority to settle the dispute, the arbitral tribunal shall have the authority to hear any disputes including any questions on the jurisdiction of the tribunal. However, this shall not refrain the court from determining the jurisdiction of the tribunal, subsequently upon the application of one of the parties.⁶⁶

Moreover, UAE courts are barred from deciding on the jurisdiction of an arbitral tribunal prior to such arbitral tribunal deciding on its own jurisdiction. Article 19(2) of the New Law provides that if the arbitral tribunal rules as a preliminary question that it has jurisdiction, a party may within 15 days after receiving the notice of that ruling request the court to decide that matter. The court shall then decide the request within thirty (30) days of receiving the request and such decision shall not be subject to any further appeals or challenges.

II.7. UAE Courts’ Approach towards Arbitration Agreements

It is acknowledged that the overarching and prevailing view of the UAE courts has been to consider arbitration as an exceptional method of dispute resolution and regard it as a departure from the general rule. This means that local courts maintain a default original jurisdiction over all disputes unless a special provision of the law refers such disputes to any other alternative forum.67 The UAE law recognises the parties’ autonomy to enter into an arbitration agreement. The UAE courts will uphold the parties’ arbitration agreement even if such agreement is governed by a foreign law and/or is subject to foreign jurisdiction.⁶⁸

Prior to the issuance of the New Law, UAE courts used to uphold the parties’ agreement to arbitrate if the opposing party raised the arbitration defence at the first court hearing.⁶⁹ If one of the parties recourse to the courts without regard to the arbitration clause, the other party must object to court and raise a jurisdictional challenge at the first hearing at the latest. The first court hearing refers to the hearing where the party opposing the arbitration or its attorney appears before the court for the first time. If, at the first hearing, the opposing party fails to plead, that an

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arbitration agreement exists between the parties, the court shall consider that the parties have waived their right to refer the dispute to arbitration and the court’s hearing of the action shall be deemed as legally valid. If a party files an objection at the first hearing, the court shall be required to dismiss the action on the grounds of the existence of an arbitration clause, thus respecting the parties’ agreement to resolve their disputes by arbitration.⁷⁰

If a party does not challenge the court jurisdiction in a timely manner such as in cases where the party opposing the arbitration fails to object , and/or raise the jurisdictional challenge at a later stage, it would consider this as an acceptance of the court’s jurisdiction. In this event, UAE courts retain jurisdiction to hear the dispute in accordance with Article 8(1) of the New Law (previously Article 203(5) of the CPC.71 Under Article 203(5) of the CPC, a party may not resort to the court if they have already agreed to resolve their dispute by arbitration, and the parties do not have the right to unilaterally dismiss their arbitration agreement.

Article 203(5) of the CPC provided that:

If the parties agree to arbitrate the dispute it shall not be permissible to bring an action in respect thereof before the courts but nevertheless if one of the parties does have recourse to litigation without regard to the arbitration clause and the other party does not object at the first hearing the action must be tried and the arbitration clause shall be deemed to be cancelled.

A similar principle is contained in Article 8(1) of the New Law, which reads:

The court before which a dispute is brought that is subject to an arbitration agreement shall decline to entertain the action if the defendant has so pleaded before submitting any request or plea on the merits, unless the court is satisfied that the arbitration agreement is void or incapable of being performed.

In general, UAE courts have demonstrated a positive approach towards honouring arbitration agreements and reject hearing disputes where parties have agreed to resort to arbitration. UAE courts refuse to enforce arbitration agreements only in circumstances where there is no clear evidence proving the intention of the parties to be bound by arbitration as a means of dispute resolution.⁷²

II.8. Appointment of Arbitrators by UAE Courts

Most of the commercial agreements which contain an arbitration clause provide for the parties’ agreement to determine their disputes in accordance with the rules of a particular arbitration institution. These rules normally specify certain key issues including, but not limited to, the seat, number of arbitrators and the language of the arbitration proceedings. However, if the arbitration agreement does not contain any provision which specifies the manner of appointment of the arbitrator(s) nor grants an arbitration institution the authority to appoint arbitrator(s), the constitution of the arbitral tribunal would be challenging. If one of the parties fails to nominate an arbitrator(s) and/or refuses a nomination by the other party, then the competent court⁷³ will appoint such arbitrator(s) upon the application of one of the parties in accordance with the arbitration agreement.⁷⁴

UAE courts have repeatedly established that when parties have agreed on arbitration, the recourse to the competent court to appoint an arbitrator(s) must be made only if the agreement containing the arbitration clause does not provide any provisions specifying the mode of appointment of the arbitrator(s) or identify the body that shall be responsible for such appointment⁷⁵. In the event the arbitration clause defines the manner of selecting arbitrators, it is not permissible for either party to approach the court for the appointment of arbitrators except by a subsequent agreement that permits the court to determine the dispute to appoint arbitrators.⁷⁶ Moreover, a decision from the court appointing an arbitrator/arbitral tribunal will not be subject to challenge by any means of appeal.⁷⁷

The New Law explains in detail, under Article 11, the procedure for appointing arbitrator(s), the time and the method of appointment.

II.9. Presumption of Authority to Arbitrate

UAE courts has recently established in numerous cases the presumption of the authority to enter into arbitration agreement. For example, if the denomination of a particular company appears in the preamble and the body of a contract and a different person signs at the bottom of the contract, this establishes a valid presumption that whoever signed the contract has done so in the name of that company irrespective of whether the individual signatory is associated with that company or not. In such a case, the effects of the contract, with respect to the rights and obligations, shall devolve directly upon the company.⁷⁸

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II.10. Arbitration Agreements in Government Contracts

A. DUBAI LAW NO. 6 OF 1997

The Dubai Law No. 6 of 1997, as amended by Dubai Law No. 2 of 2009 (Law No. 6 of 1997), stipulates the conditions under which the Dubai Government, its departments and/or agencies may enter into contracts with other entities whether operating within the UAE or outside.

Article 36 of Law No. 6 of 1997 reads as follows:

No stipulation shall be made in any contract in which the Government of Dubai or any of its Departments is a party to conduct the arbitration outside Dubai or to subjugate any dispute regarding arbitration or the procedures thereof to any laws or principles rather than those applicable in the Emirate of Dubai. Any stipulation in violation thereof shall be deemed null and void. Save as the foregoing and wherever the ‘public interest’ may require, the Government or any of its departments, institutions, bodies or authorities may—under a written consent from The Ruler—be exempted from abiding by this provision.

Based on the above, unless the Ruler of Dubai grants an approval, any arbitration agreement with the Dubai Government or its departments must be seated in Dubai. Moreover, the governing law for such contracts shall be the laws applicable to the Emirate of Dubai. In the event the aforementioned provisions are not followed while concluding contracts containing an arbitration clause with the Dubai Government or its departments in violation to Article 36 of Law No 6 of 1997, such arbitration agreements shall be considered as invalid and inoperative.

B. THE CABINET RESOLUTION NO. 406/2 OF 2003

The Cabinet Resolution No. 406/2 of 2003 (Resolution No. 406/2) provides that the UAE Cabinet’s prior approval is required for contracts concluded with government bodies in the event such contracts include an arbitration clause. Moreover, under Resolution No. 406/2, if the contract is an administrative contract, the Islamic Affairs and Awqaf must review the contract in coordination with the Ministry of Finance and Industry, prior to the contract being signed by the Ministry of Justice.

UAE case law construes an administrative contract as a contract entered into by a legal person of public law that includes the State, Ministries, Emirates, public entities and institutions that provide public utility or public service.⁷⁹ Further administrative contracts include exceptional conditions that are different from private law remedies.⁸⁰

III. LEGAL CAPACITY TO ENTER INTO ARBITRATION AGREEMENTS

III.1. Provisions under UAE Law

Arbitration has longstanding been considered as an exceptional mode of dispute resolution as it assumes that the parties waive their fundamental and constitutional right to commence an action before the state courts. The effect of a valid arbitration agreement is that the parties can present their dispute before an independent arbitrator for adjudication of their dispute. In general, there is a dual requirement for arbitration to take place: (i) the will of the parties in agreeing to arbitrate and (ii) the legislator’s acknowledgment of such will. It should be noted that without this permission, there cannot be any arbitration because providing justice through the judiciary is considered a primary right of the state, and no party may pose any prejudice to this right since the judiciary is a symbol of sovereignty⁸¹. Therefore, an agreement to arbitrate may not be concluded unless the parties have the required legal capacity to dispose of the right which is the subject matter of dispute.

Generally, parties to a contract must have the legal capacity to enter into an agreement, otherwise the agreement will be regarded as invalid. The same principle applies to an arbitration agreement; thus any legal person (e.g. individuals, corporations, states and state entities) having such capacity under the laws applicable, can enter into an arbitration agreement.⁸²

Under the now repealed Article 203(4) of the CPC, an essential condition for the arbitration agreement to be valid is that the agreement to arbitrate must be signed by a person who possesses the necessary legal capacity to bind the contracting party. On the other hand, Article 4(1) of the New Law provides that an arbitration agreement may only be concluded by a natural person having the legal capacity to dispose of his rights or on behalf of a juridical person by a representative of the relevant person who has a specific authority to arbitrate. In other words, the signatory to an arbitration agreement should have explicit authority allowing him/her to arbitrate, on behalf of the juridical person. If the power of attorney was issued in general terms and fails to delegate the specific power to conclude an arbitration agreement, such power of

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attorney shall not permit the attorney/agent to conclude an arbitration agreement on behalf of the principal (i.e. issuer of the power of attorney). Similarly, a special power of attorney allows an attorney to undertake specific matters as authorised in the power of attorney. But if the holder of the power of attorney acts outside the scope of authority granted by the power of attorney such acts will not bind the principal, unless otherwise approved/authorised later by the principal.⁸³ Likewise, it is not permissible for an attorney to agree to arbitration without specific authority in the power of attorney under Article 58(2) of the CPC.84

Under Article 58 (2) of the CPC, an attorney is required to have explicit authority in order to undertake certain actions such as to conclude a settlement agreement, abandonment of proceedings, arbitration, etc. Article 58 (2) of the CPC reads as follows:

No admission or waiver of a right alleged or settlement or submission to arbitration or acceptance of or requisition for the oath or refusal thereof or abandonment of the proceedings or waiver of the judgment in whole or in part or of any avenue of appeal against it or the lifting of an attachment or abandonment of securities while a debt remains unpaid or allegation of forgery or recusal or acceptance of a judge or expert or true tender or any other disposition in respect of which the law requires special authorization may be made without special authority.

The Dubai Court of Cassation in Case No. 164/2008 held that with respect to UAE companies, it cannot be assumed that the signatory has actual authority to bind the company to arbitration and thus the authority of the signatory to bind a company to arbitration must be explicit.⁸⁵ In case the signatory to an arbitration agreement does not have the legal capacity to specifically sign arbitration agreements, then in accordance with the provisions of articles 58(2) and 203(3) of the CPC, such arbitration agreements shall be declared null and void. As a result, arbitral awards based on such agreements may be annulled by UAE courts.⁸⁶ This means that the signatory to an arbitration agreement must have express authority to sign, otherwise the agreement will not be effective.

Under the provisions of Article 216 of the CPC, one of the grounds relied upon by the parties to request nullification of an arbitral award was that the signatory lacks the necessary legal capacity to agree to arbitration. Under the similarly-worded Article 53 (c) of the New Law, a party may seek to set aside an arbitral award when the signatory does not have the legal capacity to dispose of the disputed right under the law governing his capacity.

Unlike other contract terms, the arbitration clause is considered as a separate agreement. Accordingly, a challenge raised with respect to the invalidity of an arbitration agreement shall not be dependent on the termination or revocation of the main contract between the parties, unless the arbitration clause is itself null and void. However, arbitration clauses may be invalidated for different reasons such as: if the subject matter of the agreement violates public policy or is inarbitrable, or if a person lacking the requisite legal capacity concluded the agreement.

In a recent case, the Dubai Court of Cassation rejected the argument raised by the award debtor who opposed recognition and enforcement of a foreign award issued in London, on the ground that the contract containing the arbitration agreement was signed by a person lacking proper authority and, accordingly, the arbitration clause was not binding.⁸⁷

III.2. Legal Capacity—Sole Establishment, Limited Liability Company and Joint Stock Company

Generally, the representative of a company shall be the manager of the company manager whose name appears on the trade licence and the incorporation documents of the company. The manager usually has the authority to bind the company to enter into contracts including an arbitration agreement. However, the required legal capacity to enter into arbitration agreements by a representative of an entity differs depending on the legal form of such entity, i.e. whether it is a sole establishment, a limited liability company or a joint stock company, etc.

A. SOLE ESTABLISHMENT

A sole establishment does not have a separate legal entity independent of its owner. Likewise, a sole establishment has no separate finances from those of its owner and accordingly it is not regarded as a corporate body with its own separate finances or legal personality. The owner of a sole establishment is responsible for its obligations. It is therefore the owner who has the capacity to bring an action on its behalf⁸⁸ and to enter arbitration agreements. It is important to note that where the owner of a sole establishment authorises a manager (Manager) to conduct the affairs of the said establishment, the authority of such Manager shall be limited to conducting the administrative, financial and other matters necessary for the management of the affairs of such establishment. In such case, the Manager shall not enter into arbitration agreements on

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behalf of the establishment unless the owner expressly delegates such authority to the Manager. If the authorisation provided by the owner of the sole establishment is limited to conducting the affairs of the establishment, its Manager shall have no authority to agree to arbitrate.⁸⁹

B. LIMITED LIABILITY COMPANY

For a limited liability company, UAE courts have established that the Manager of a limited liability company has full authority to manage the company. Consequently, the Manager shall be the person competent to make dispositions over the rights relating to the company’s activities, including an agreement to arbitrate, in contracts made between the company and third parties, unless the articles of association of the company restrict the Manager’s authorities. These restrictions may include prohibiting the Manager from making certain dispositions or by expressly prohibiting him from agreeing to arbitration.⁹⁰ In other words, the UAE courts recognise that the management powers include capacity to agree to arbitration on behalf of a limited liability company unless such authority is restricted by the company’s constitutional documents.⁹¹

In this context, Article 83(2) of the UAE Companies Law (Federal Law No. 8 of 1984 amended by Federal Law No 2 of 2015) (CCL) provides:

Unless the contract appointing the manager of the Company or its memorandum of association or articles of association grants specific powers to the manager, he shall have full power to manage and bind the Company, provided that the capacity in which he acts is always stated.

The Manager’s authority to agree to arbitration on behalf of the company shall not be affected by Article 58(2) of the CPC, as this Article applies only to an attorney appointed to represent another party before courts. Nonetheless, to enable any person, other than the Manager, to agree on arbitration on behalf of a limited liability company, it is required to obtain a special power of attorney in order to agree on arbitration on behalf of the Manager.⁹² In general, UAE Courts have laid down that the legal capacity to enter into contracts on behalf of a corporate entity is limited to its authorised legal representative or to a person authorised and/or delegated to carry out such acts by the relevant person who has the requisite authority.⁹³

C. JOINT STOCK COMPANY

For joint stock companies, the Board of Directors of the joint stock company shall have all powers to perform the acts required for managing the affairs of the company. However the Board of Directors may not agree on arbitration, unless it is authorised to do so as may be stated in the Articles of Association of the company. In case the Articles of Association do not specifically provide for such authorisation, the consent of the General Assembly shall be required to conclude an arbitration agreement.⁹⁴

Article 154 of the CCL provides that

The Board of Directors shall have all the powers specified in the Articles of Association of the company, other than as reserved by this Law or the Articles of Association of the company to the General Assembly. However, the Board of Directors may not enter into loans for a period in excess of three years, sell the property of the company or the store, or mortgage movable and immovable property of the company, discharge the debtors of the company from their obligations, make compromise or agree on arbitration, unless such acts are authorized under the Articles of Association of the company or are within the object of the company by nature. In cases other than these two ones, such acts require to issue a special resolution by the General Assembly.

Consequently, the Board of Directors of a joint stock company has full competence to conduct business to promote the company’s objectives. As a result, the authority to sign an arbitration clause on behalf of a joint-stock company belongs to its Board of Directors if so authorised in its Articles of Association, in the absence of which such arbitration agreement is subject to the approval of the General Assembly.

IV. CONCLUSION

Traditionally, UAE Courts viewed arbitration agreements through a conservative lens and interpreted parties’ agreement to arbitrate from a narrow perspective. In such cases, it was necessary for the parties to provide their consent to arbitration in an unequivocal manner, without any grounds for ambiguity with respect to the essential elements for arbitration agreement.

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However, with the issuance of the New Law, several positive changes were introduced on the validity of arbitration agreements in line with the internationally accepted best standards. The New Law has adopted most of the recognised principles in the field of international arbitration such as the doctrines of separability and compétence-compétence.

The New Law confirmed the writing requirement for arbitration agreement in Article 7. As a result, an arbitration agreement can be concluded if it is contained in a document signed by the parties, in an exchange of correspondence or in an e-mail. Moreover, a valid arbitration agreement can be concluded by reference to any document containing an arbitration clause.

Yet, certain aspects require particular attention by the contracting parties at the time of concluding an arbitration agreement. Article 4 of the New Law provides that an arbitration agreement may only be concluded by person with the requisite legal capacity. Thus, it is important to ensure the legal capacity of the signatory to the arbitration agreement by reviewing the parties’ documents of incorporation. This would save many arguments in relation to the validity of the arbitration agreement, as defending an arbitration case could be more challenging: in particular, certain challenges should be raised in a timely manner, otherwise parties may lose their right to raise them at a later stage under the New Law.

NOTES

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