Headnote

Arbitration – Jurisdiction of arbitrator – Grounds for annulment of award – public policy – Arbitration clauses in property sale contracts

Summary of facts

An arbitration award was rendered confirming the termination of an agreement relating to the purchase of a property in Abu Dhabi and ordering the refund by the Petitioner of the purchase price to the Respondent in addition to payment of damages. The Petitioner filed an action to set aside the award while the Respondent requested the ratification of it. The Court of First Instance dismissed the Respondent’s request for ratification of the award. The Respondent appealed before the Court of Appeal which reversed the decision of the lower court and ratified the award.

The Petitioner filed a petition to cassation arguing that the arbitral award was issued contrary to the rules of jurisdiction because the arbitrator exceeded the bounds of his power by determining an issue of public policy where no arbitration is permitted.

Held

The Court of Appeal’s decision was overturned.

The Court must, when the arbitrator has exceeded the bounds of his or her authority and resolved an issue relating to public policy that is outside the realm of conciliation, intervene to investigate the irregularity in the light of the law even if the irregularity is not one of the grounds for setting aside the arbitral award under Article 216. Public policy is a set of guidelines for taking decisions and pursuing actions that are of fundamental concern to society and the basis for the social, political, economic, or ethics laws of the state. Where a mandatory rule of law does not relate to public policy, within the above meaning, or its purpose is the protection of private rights and interests, there would be no justification for invoking a public policy exception.

The effect of Article 3 of the Civil Transactions Law is that provisions relating to the circulation of wealth and rules of individual ownership are rules and principles upon which society is based. A rule of law enacted to regulate the circulation of wealth and individual ownership in the state in terms of possession and the acquisition of rights in rem and the nature and scope of such rights and the means by which they are acquired and extinguished, including rules pertaining to their registration on the property register in Abu Dhabi, are all provisions relating to the monetary system of the state which are essentially public policy. As such, they cannot be a subject matter for arbitration and any related dispute would fall under the jurisdiction of the courts and not the arbitration forum agreed upon in the contract.

Judgment

The Petitioner filed a petition to cassation arguing under the fifth ground of appeal that the arbitral award was issued contrary to the rules of jurisdiction because the arbitrator exceeded the bounds of his power by determining an issue of public policy where no conciliation is permitted. The dispute involves rules of individual ownership and circulation of wealth which are essentially matters of public policy that are not legally subject to arbitration despite the arbitration clause in the sale contracts for the units which have not been registered on the Abu Dhabi Property Register in accordance with the legal rules of Article 6 of Law No. 3 of 2005 concerning property registration in the Emirate of Abu Dhabi and Article 6 of Law No. 19 of 2005 concerning property ownership.

This argument is well taken. While it is well settled in this Court based on Article 216 of the Civil Procedure Law that the parties may, while the award is being reviewed by the court for the purpose of being confirmed, seek to have it set aside in the [Page87:] circumstances specifically outlined in that article which have to do with procedure or terms of reference, and that the court’s jurisdiction does not extend to reviewing the merits of the arbitral award or addressing the extent of its conformity to the law, the Court must, when the arbitrator has exceeded the bounds of his authority and resolved an issue relating to public policy that is outside the realm of conciliation, intervene to investigate the irregularity in the light of the rules of law of the country of the judge even if the irregularity is not one of the grounds for setting aside the arbitral award under Article 216. Public policy is a set of guidelines for taking decisions and pursuing action that are of fundamental concern to society and the basis for the social, political, economic, or ethics laws of the state. However, where a mandatory rule of law does not relate to public policy, within the above meaning, or its purpose is the protection of private rights and interests, there would be no justification for invoking a public policy exception.

The effect of Article 3 of the Civil Transactions Law is that provisions relating to the circulation of wealth and rules of individual ownership are rules and principles upon which society is based. A rule of law enacted to regulate the circulation of wealth and individual ownership in the state in terms of possession and the acquisition of rights in rem and the nature and scope of such rights and the means by which they are acquired and extinguished, including rules pertaining to their registration on the property register in Abu Dhabi, are all provisions relating to the monetary system of the state which are essentially public policy. As such, they cannot be a subject matter for arbitration and any related dispute would fall under the jurisdiction of the courts and not the arbitration forum agreed upon in the contract.

Conciliation is not permitted in matters of public policy and according to paragraph 4 of Article 203 of the UAE Civil Procedure Law, arbitration is not permissible in matters in which conciliation is not allowed. Hence, there can be no arbitration for dispositions of Abu Dhabi property involving existing rights or creating new ones if a mandatory provision (Article 6 of Law No. 19 of 2005 concerning property ownership in Abu Dhabi, as amended by Law No. 2 of 2007) has not been complied with in terms of registering the property on the register specified in Law No. 3 of 2005 regulating property registration in the Emirate of Abu Dhabi since this would be contrary to public policy. If the parties have agreed to arbitrate a dispute involving both matters capable and incapable of conciliation, jurisdiction shall be to the courts of general jurisdiction.

The subject matter of the arbitral award to be confirmed is a claim for termination of the contracts between the Respondent and the Petitioner to purchase the property units in question in Al Reem Island, Abu Dhabi and for the recovery of AED 3,230,219 paid toward the purchase price and damages (on the basis of the petitioner’s failure to achieve timely handover) which to secure would require the termination of those contracts, as sought. The arbitral award is thus void due to the determination of a matter involving the circulation of wealth (public policy) which cannot be the subject matter of an arbitration. The trial court should have therefore dismissed the Respondent’s action to confirm the award but it did not, and instead confirmed the award thereby contravening the law for which reason its decision will be reversed without it being necessary to consider the other grounds of appeal.