Headnote

Arbitration – Defense of arbitration agreement – Jurisdiction

Summary of facts

The Respondent instituted an action against the Petitioner before the Abu Dhabi Federal Court of First Instance, requesting an order that the latter pay AED 154,707 plus interest. The Respondent entered into a construction subcontract with the Petitioner to perform all the electrical work and install an intercom, central antenna, phones and fire alarms in a building project. The Petitioner was the principal contractor. The contract price was AED 490,000, plus AED 44,510 for additional work. After the Respondent completed all the work that it had been assigned, the Petitioner failed to pay a series of monthly payments amounting to AED 154,707. This was the basis upon which the Respondent instituted the action. The contract between the parties contained an arbitration agreement. The attorney for the Petitioner appeared before the Court of First Instance at the first hearing. The attorney did not raise a plea of the existence of the arbitration clause. Instead, the attorney requested time to submit a reply and to file a power of attorney authorizing his representation of the Petitioner company.

Later, the Petitioner’s attorney raised the plea that the Court did not have jurisdiction over the dispute because of the existence of the arbitration clause. The Court of First Instance dismissed this argument. The Petitioner appealed this judgment before the Abu Dhabi Federal Court of Appeal, which also dismissed the appeal. The Petitioner further challenged the Court of Appeal’s judgment by way of application to the Court of Cassation.

Held

The petition to cassation was dismissed.

Pursuant to Article 203.5 of the Civil Procedure Code, if the parties to a litigation agreed to arbitrate a dispute, an action may not be instituted before the courts. However, if either of the parties resorts to the courts and instigates an action disregarding the arbitration clause, and the other party does not object at the first session, the action may be tried and the arbitration clause shall be deemed void. The party insisting on the arbitration clause should object at the first session of the court and raise the existence of the arbitration agreement. If no objection is made at the first session, the action may be adjudicated.

The first session means the session where the Respondent or its representative appears for the first time before the court. If the defence of arbitration is only raised at a later stage, the court shall consider the party in question to have waived its right to arbitration, even if it insists on this right.

Judgment

There were several facets to the Petitioner’s petition to cassation.

The Petitioner argued that the Court of Appeal had considered that the Petitioner had waived the plea for the existence of the arbitration clause because its attorney did not insist upon it during his appearance at the first session, instead simply requesting a period of time to present the power of attorney and reply to the Claimant’s initial memorandum. The Petitioner argued that at the first session it is premature to expect a party’s attorney to be aware of all the affairs of his client, including whether or not there is an arbitration agreement. As such, the judgment is deemed defective and must be overturned.

[Page65:]

The Court of Cassation dismissed this argument pursuant to Article 203.5 of the Civil Procedure Code, which provides that if the parties to the litigation agreed to arbitration in the case of a dispute, an action may not be instituted before the court. The Court of Cassation held that the party insisting on an arbitration clause should take a positive position by objecting at the first session. If said party makes no objection at this session, the action may be adjudicated.

The Court held that the phrase “may be adjudicated” means that the trial of the action before the Court is permissible and that the arbitration clause becomes void. Importantly, the first session means the session where the Respondent or its representative appears for the first time before the Court. The Court of Cassation found that, if otherwise intended, it would have been expressly stated that the Respondent is allowed to file a counter-appeal, pursuant to Article 164 of the Civil Procedure Code.

The Court of Cassation further held that the challenged judgment did not violate this consideration. Its decision was based upon the appearance of the Petitioner’s attorney at the first session before the Court of First Instance, when he did not raise an objection to the Court’s jurisdiction on the basis of the arbitration clause, but instead requested an adjournment to allow him to formally reply to the Respondent’s initial memorandum and procure a power of attorney.

The Court of Cassation found that the judgment issued by the Court of Appeal had correctly taken this into consideration and had correctly held that the Petitioner had waived its right to arbitration.

Accordingly, the present petition to cassation was dismissed.