Headnote

Arbitration – ADCCAC arbitration rules – Grounds for annulment of award – Provisional attachment order

Summary of facts

An arbitration award under ADCCAC arbitration rules was rendered on 23 December 2013 ordering the Petitioner to pay the Respondent damages and arbitration costs within thirty days from the date of issuance of the award. The Respondent filed an action against the Petitioner to validate the provisional attachment order issued on 10 February 2013 and levy attachment upon the Petitioner’s property up to the amount awarded to the Respondent under the award. The Petitioner filed a counterclaim to have the main action dismissed and the arbitral award set aside.

The Abu Dhabi Court of First Instance validated the provisional attachment issued on 10 February 2013 and ratified the award and dismissing the action to set aside the award. The Petitioner appealed the decision before the Court of Appeal which upheld the decision of the lower court.

The Petitioner filed a petition to cassation.

Held

The petition to cassation was dismissed.

The objective behind the requirement under subsection 5 of Article 212 of the UAE Civil Procedure Code, which provides that an arbitral award should contain a copy of the arbitration agreement is to ensure that the arbitrators have acted within the scope of the arbitration agreement. However, it is not necessary to state the exact terms of the arbitration agreement. It is sufficient to state the relevant provisions of the arbitration agreement that would enable the court, when looking to ratify the award, to confirm that the arbitration agreement had been complied with.

An arbitral award may be set aside only in the circumstances specified in Article 216 of the UAE Civil Procedure Code including the arbitrator exceeding his/her authority under the terms of reference or issuing his/her award pursuant to an arbitration agreement that does not define the subject matter of the dispute or an irregularity in the award or a procedural irregularity affecting the award. An arbitrator is not bound by the rules of civil procedure before courts with the exception of the procedure set out under the arbitration chapter of the UAE Civil Procedure Law and the procedures relating to the summoning of the parties, hearing their arguments, and the submission of their documents. While an arbitral award must be reasoned, it is exempted from the types of legal reasoning that apply to court decisions provided that no rule of public policy has been violated.

Although article 252 of the UAE Civil Procedure Law allows a creditor, as a general rule, to seek a provisional attachment order over the assets of debtor when there is a fear that assets will be dissipated, this is not the only basis on which such an order can be sought. Article 227(2) also allows such an order to be granted, and without the need to show fear of dissipation. The judge in such a case has no power to decline issuing the attachment order.

Articles 227(2), 254(2) and 258 primarily refer to seeking an attachment order in reference to a court judgment that is not yet enforceable (as it may be subject to appeal, such as a judgment of the Court of First Instance). Provided the judgment established the debt and the amount, an attachment order must be granted.

Articles 227(2), 254(2) and 258, however, also apply to arbitral awards, which, like decisions of the Court of First Instance, establish that there is a debt that is not yet [Page104:] enforceable (as it must be ratified by the local court). This means an arbitral award can form the basis of an application for a precautionary attachment order prior to its ratification.

Judgment

The Petitioner maintained before the Court of Appeal that the primary decision was void on the basis that it had pleaded before the Court of First Instance that the arbitral award was void for not including the full text of the arbitration agreement. The arbitrator did not state the content and explain the meaning of the terms of the arbitration agreement in full in his award. The arbitrator mentioned only some of the terms while disregarding the remaining terms, including the Petitioner’s claims and the Respondent’s defence as set forth in the agreement. It is not enough to attach the arbitration agreement with the arbitral award or incorporate its content into a procedural order or any other portion of the award or its reasons. The arbitration agreement must be set forth in the preamble to the arbitral award. Yet the Court of First Instance disregarded this plea. In upholding the primary decision and citing its grounds, the Court of Appeal, too, has rendered a void and erroneous decision that ought to be quashed.

The Court of Cassation states that, according to article 212 of the UAE Civil Procedure Law and the settled practice of the Court of Cassation, the intention of the law is not that an arbitral award must include all the particulars of a judge’s decision. However, the law requires compliance with the arbitration provisions of Chapter III, Book III of the UAE Civil Procedure Law, including subsection 5 of article 212, which provides that an arbitral award should, in particular, contain a copy of the arbitration agreement. The objective behind this requirement is to ensure that in issuing the award, the arbitrators have acted within the scope of the arbitration agreement. Therefore, such information is material and essential to the validity of the arbitral award, and omitting it would lead to a nullity of the award. The filing of the arbitration agreement with the arbitrators during the course of proceedings would not dispense the inclusion in the arbitral award of a copy of the arbitration agreement since the award must indicate that the criteria for its validity has been satisfied. On the other hand, it is not necessary to state the exact terms of the arbitration agreement. It is sufficient to state the relevant provisions consistent with the meaning of the arbitration agreement as such indication would serve the purpose of the statement and enable the court, when looking to confirm the award.

It is clear and not disputed by the parties that the Respondent’s agreement with the Petitioner to arbitrate took the form of an arbitration deed which the parties signed and presented to the sole arbitrator. According to the arbitral award, the arbitrator prefaced his award (clause 7) with the arbitration clause — sub-clause 16-1 — of the sub-contract which he took verbatim. The arbitrator then goes on to state in clauses 13, 14 that the parties agreed under the arbitration agreement to conduct the arbitration in English under ADCCAC rules (fourth copy) with the governing law of the arbitration being the laws of the UAE and the Emirate of Abu Dhabi, the procedural law governing the arbitration being Articles 203-218 of the UAE Civil Procedure Law, and the place of arbitration being the Emirate of Abu Dhabi. The arbitrator had recorded an accurate summary of the terms of the arbitration deed. Clauses 34-62 of his award set out the details of the dispute, summarising the Claimant’s (Respondent’s) claim and alternate claim and the Defendant’s (Petitioner’s) defence and counterclaim as well as its defence to the Claimant’s alternate claim. The arbitrator also reiterated the parties’ requests for relief in the context of addressing them. It follows that the arbitral award fulfils the requirements of subsection 212-5 of the Civil Procedure Law as far as including a copy of the arbitration agreement by accurately recording its content and reflecting its tenor. In reaching the same conclusion, the Court of Appeal correctly applied the law and the exception taken is [Page105:] baseless. This is not changed by the Petitioner’s argument that the arbitrator should have included a summary of the parties’ requests for relief at a specific place, namely the “statement of arbitration agreement” (clause 13, 14) which normally appears in the body of the arbitral award. The law does not hold the arbitrator to a particular format or a specific arrangement with regard to the paragraphs of his award or indeed to a particular wording of its statements. The Court of Appeal did not err by disregarding the Petitioner’s defence in this regard and the trial court cannot be faulted for ignoring a disingenuous defence. A request or defence which must be addressed by the court has to have a bearing on the outcome of the proceeding. Since the Petitioner’s defence does not rest on a sound basis, the Court of Appeal did not err by not referring to or addressing the defence.

The Petitioner further pleaded several irregularities, namely the arbitrator’s computation of the amount of the award based on the report of the Respondent-appointed expert despite the fact that the expert was only able to examine documents pertaining to half the amount awarded as the other documents were in Beirut. The expert wholly relied upon information prepared and presented by one of the Respondent’s employees. As such, the information may not serve as evidence. The Petitioner was unable to review the documents the Respondent had filed in relation to the cost of variation work in order to submit a defence, bearing in mind the volume of documents in question, because no copy thereof was given to the Petitioner to review and prepare comments. The Respondent was awarded, against the Petitioner, its claim for the cost of the renovation work resulting from the delay in providing air conditioning and the resulting damage to the woodwork due to high temperature despite the certificate the Petitioner had submitted to Tamara Mehyar confirming that no such damage was in evidence. The arbitral award did not deal with this certificate and the arbitrator, based on his personal knowledge, held in clause 213 of his award, that the renovation work was undoubtedly necessary, awarding the Respondent AED 500,000 in damages on account of the renovation work, based on his own appraisal that is not supported. The arbitrator did likewise with acceleration costs when he awarded the Respondent AED 1,620,415.58 which conflicted with the observations of a certain partner of the Respondent. The arbitrator responded to the Petitioner’s assertions by saying that he made the award in exercise of his discretion to determine the facts in issue and understand the evidence even though the above is connected with the arbitration proceeding and its procedural validity.

It is the settled practice of the Court of Cassation according to Articles 212, 216 of the UAE Civil Procedure Code that the Court may not, when looking to confirm the arbitral award, address its substantive aspects and the extent of its conformity with the law and facts. Thus, every dispute raised by one of the parties as a challenge to the arbitral award and related to the arbitrator’s assessment of the dispute or the invalidity or insufficiency of the justification for his award would be unacceptable. An arbitral award may be set aside only in the circumstances specified in Article 216 including the arbitrator exceeding his authority under the terms of reference or issuing his award pursuant to an arbitration agreement that does not define the subject matter of the dispute or an irregularity in the award or a procedural irregularity affecting his award. An arbitrator is not bound by the rules of civil procedure that apply before courts with the exception of the procedure set out under the arbitration chapter of the UAE Civil Procedure Law and the procedures relating to the summoning of the parties, hearing their arguments, and the submission of their documents. While an arbitral award must be reasoned, it is exempted from the types of legal reasoning that apply to court decisions provided that no rule of public policy has been violated, considering that an arbitrator may be a non-legal practitioner. This exclusion also applies to the rules of evidence under the Civil Procedure Law, the Civil Transactions Law, or a separate law.

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The Petitioner never claimed or proved that it had asserted before the arbitrator, as per its contention, that the expert was only able to review half the documents as the rest were in Beirut and that the Petitioner was unable to review the documents the Respondent had filed in relation to the cost of variation work in order to submit a defence despite the volume of documents in question because no copy thereof was given to the Petitioner to review and prepare comments in good time. Hence, the exception taken to this aspect of the appealed decision is not supported by evidence.

As to the Petitioner’s contention that the arbitral award failed to deal with the testimony of a witness or that the decision on acceleration costs was in conflict with the observations of a certain partner of the Respondent, or that the costs of renovation work and acceleration were assessed without any substantive criteria; all this delves into the substantive issues decided in the award. There is no better proof than the fact that the arbitrator only used these expressions (clause 213) in highlighting the Respondent’s inflated claims for the recovery of the costs of renovation associated with the delay in installing air conditioning and the arbitrator’s rejection of accounts lacking supporting documentation. The arbitrator exercised his discretion in reassessing only the amount owed to the Respondent. In addressing acceleration costs (clause 236), the arbitrator mentioned that he had reviewed the appraisal of the Respondent’s quantity surveyor and examined the pertinent comments of the Petitioner’s quantity surveyor and found the appraisal of the Respondent’s quantity surveyor to be fair and acceptable for the costs in question.

The Petitioner further pleaded that the provisional attachment order issued pursuant to Application No. 437-2013 — Summary Petitions was invalid and void on the basis that unenforceable decisions pursuant to which a provisional attachment may be levied are judicial decisions of courts to the exclusion of arbitral awards. The general rule in provisional attachments is that there must be a fear that the creditor might lose the security for his claim. There is no evidence of the existence or occurrence of such fear. Yet the Court of Appeal responded to this defence by contenting itself with the Court of First Instance’s reasoning on the matter and upholding its decision despite being void, as noted earlier. The Court of Appeal did not reply to the argument that the attachment was void due to a lack of fear, which argument was raised only before the Court of Appeal.

It is well settled according to Article 252 of the Civil Procedure Law that while the law, as a general rule, allows a creditor to seek a provisional attachment over his debtor’s assets in every case where the creditor is apprehensive that he may lose the security for his claim, citing by way of example not limitation, three instances in paras a, b, c, the creditor may also assert that right in two other instances specifically mentioned where he does not have to demonstrate such fear. The test of fear of lack of security in this case is a question of fact for the trial court to evaluate on the face of the documents before it without taking up issues at the substantive level.

Article 227 of the Civil Procedure Law Provides: “1- Appealable decisions may not be compulsorily enforced unless summary enforcement is provided for by law or awarded, 2- Nevertheless, preventive measures may be taken in accordance therewith.” Article 254(2) of the said Law states: “The Judge of Summary Proceedings shall order attachment if the creditor holds a judgment, even if not enforceable, on a claim of specified amount.” Article 258 of the said Law states: “The Judge of Summary Proceedings shall order attachment if the creditor holds a judgment, even if not enforceable, on a claim of specified amount.” This means that a creditor relying upon a court judgment in seeking a provisional attachment against the personal assets of his debtor in the hands of the debtor or a third party has a valid application, notwithstanding that the judgment is a primary judgment that is not enforceable as long as the judgment debt is of a specified amount even if disputed by debtor before [Page107:] the court that issued the judgment. This also applies to arbitral awards. While an arbitral award is not self-executory, it has precautionary power to enable the issue of provisional measures such as provisional attachment against personal assets in the hands of the debtor or garnishment, without needing the judge’s permission for an attachment or an action to validate attachment given that an arbitral award is not enforceable.

According to the statement of claim filed in Action No. 468-2013 to validate and confirm the provisional attachment, the Respondent based its application, not on a fear that it may lose the security for its claim, but on the arbitral award it had obtained for AED 10,119,859. As per the recitals of the primary decision, the Petitioner, contrary to what it alleges in its contention, had asked the Court of First Instance not to validate the provisional attachment on the grounds that the Respondent did not provide any evidence of a genuine apprehension that the Petitioner might flee with its property. The Court of First Instance, whose decision was upheld on appeal, based its decision in the joined action, on the Claimant (Respondent) having obtained an order of provisional attachment against the property of the Defendant (Petitioner) pursuant to Articles 227, 254, 258 of the UAE Civil Procedure law and the fact that the attachment order was directed against property that was capable of being attached. The Court of First Instance ruled that the Respondent’s rights were established and that the attachment order was issued by a competent judge and was therefore valid. The Court of First Instance proceeded to grant the Respondent’s application by validating and confirming the attachment against the Petitioner’s property. The Court of First Instance dismissed the Petitioner’s argument that a provisional attachment may not be issued pursuant to an arbitral award, stressing that a garnishment order may be obtained on the basis of an arbitral award that does not necessarily have to be enforced for while such award is not self-executory, it does have precautionary power. These reasons are legally sound and supported by evidence and are sufficient to indicate that the requirements for attachment have been satisfied and sustain the Court of Appeal’s decision on the matter. The Court of Appeal did not err by disregarding the Petitioner’s argument of lack of a fear that it might flee with the Respondent’s property. A defence the trial court must address is a defence that has a bearing on the outcome of the proceedings.