Headnote

Arbitration – Dispute relating to trades on the Securities and Commodities Exchange – Appointment of arbitrator(s) – Rules governing appointment – Article 204 of UAE Civil Procedure Law

Summary of facts

In 2006, the Petitioner deposited funds with the Respondent and undertook various buying and selling trades only to discover that the Respondent had executed a number of trades on his account without his consent or instructions. The Respondent issued various cheques and made various withdrawals from the account in contravention of the law and the decisions which regulate securities trading on the financial market.

The Petitioner brought an action against the Respondent to appoint an expert in securities and financial market issues to review the case file and determine (1) the date of commencement of dealings and opening of an account with the Respondent, (2) the funds received by the Respondent from the Petitioner and (3) whether any buying or selling orders were issued for those funds (whether written or oral). The expert would also review all trading on the Petitioner’s account to establish whether or not the transactions involved had been ordered by the Petitioner and whether they were legally valid, as well as reviewing withdrawals wrongfully made from the account by the Respondent which led to the Petitioner’s loss and damage.

The Court of First Instance ruled that the matter was governed by an arbitration clause. The Petitioner appealed and the Court of Appeal upheld the decision. The Petitioner appealed to the Court of Cassation, contending that he had added a request in the alternative to the Court of First Instance that the matter be referred to arbitration and that an arbitrator be appointed.

Held

The petition to cassation was dismissed.

Article 204, Section 1 of the Civil Procedure Law provides:

If a dispute arises and the parties have not agreed on the arbitrators, or if one or more of the agreed arbitrators refrains from acting, resigns, or is discharged or removed or if an impediment to him so acting arises, and there is nothing agreed between the parties in this regard, then at the request of any of the parties the court originally competent to hear the dispute shall appoint whatever arbitrators are required by normal litigation procedures.

For the above provision to apply, i.e. to be able to approach the court originally competent to hear the dispute for the appointment of arbitrators, the agreement containing the arbitration clause should be silent as to the appointment of arbitrators and the appointing authority. An agreed procedure for appointment (as existed in this case) cannot be ignored by approaching the court for an appointment although it can be amended to such extent and in such manner as would enable the court originally competent to hear the dispute to appoint the necessary number of arbitrators.

Judgment

Article 204, Section 1 of the UAE Civil Procedure Law provides:

If a dispute arises and the parties have not agreed on the arbitrators, or if one or more of the agreed arbitrators refrains from acting, resigns, or is discharged or removed or if an impediment to him so acting arises, and there is nothing agreed between the parties in this regard, then at the request of any of the parties the court originally competent to hear the dispute shall appoint whatever arbitrators are required by normal litigation procedures.

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For the above provision to apply, i.e. to be able to approach the court originally competent to hear the dispute for the appointment of arbitrators, the agreement containing the arbitration clause should be silent as to the appointment of arbitrators and the appointing authority. An agreed procedure for appointment cannot be ignored by approaching the court for appointment although it can be amended to such extent and in such manner as would enable the court originally competent to hear the dispute to appoint the necessary number of arbitrators.

Article 4 of Federal Law No. (4) of 2000 concerning the Emirates Securities and Commodities Market and Authority states:

In fulfilling its objects, the Authority shall have the following powers: 2 —To adopt the following regulations, in consultation and coordination with the Markets licensed in the State: (f) Regulations on the arbitration of disputes arising from trading in securities and commodities.

Article 2 of Resolution (1) of 2001 of the Chairman of the Board of Directors of the Securities and Commodities Authority promulgating the Regulation on the Arbitration of Disputes Arising from Trading in Securities and Commodities states:

Disputes arising from trading in securities and commodities shall be resolved by arbitration whenever the parties have agreed to refer their dispute to arbitration. The provisions of this Regulation shall apply in this regard.

Article 10 of the said Resolution states:

An arbitration panel(s) shall be formed by resolution of the Chairman of the Board, to undertake the task of determining disputes arising between transacting parties in the Market. The panel(s) shall be presided over by a member of the judiciary nominated by the Minister of Justice or the Head of the Justice Department, as the case may be, and have two members, one nominated by the Director General of the Market in question, while the other shall be nominated by the Chairman of the Board.

In other words, arbitrators are appointed under the Regulation on the Arbitration of Disputes Arising from Trading in Securities and Commodities by resolution of the Chairman of the Board of Directors of the Securities and Commodities Authority. Arbitrators may only be appointed after approaching the Securities and Commodities Authority in accordance with its rules and regulations.

The Petitioner acknowledges that his agreement with the Respondent contains a clause stating that:

Any dispute arising out of or relating to this Agreement or the formation, breach, validity or termination thereof shall be resolved by way of arbitration under the Regulation on the Arbitration of Disputes Arising from Trading in Securities and Commodities of the Securities and Commodities Authority where UAE law shall apply.

Therefore, the court may not be approached for the appointment of arbitrators as arbitrators can only be appointed after approaching the Securities and Commodities Authority in order to enforce its rules and regulations. The Respondent had invoked the arbitration clause when it first pleaded its case on the merits and its plea is accordingly accepted. Thus, the action will be ruled barred by the arbitration clause. The Court of Appeal took this view in concurring with the Court of First Instance’s refusal to grant the Petitioner his request to appoint an arbitrator to resolve his dispute with the Respondents. The Court of Appeal has not misapplied or contradicted the law and the exception taken to its decision is baseless.