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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Arbitration – ADCCAC arbitration rules – Arbitration procedure – Grounds for setting aside arbitral awards
An action was brought by the Petitioner before the Abu Dhabi Court of First Instance against the Respondent seeking to set aside an ADCCAC arbitral award. The Petitioner contended that the award was void as the award found the Petitioner liable for the full amount of the loss and did not reduce its obligation to reasonable limits pursuant to Article 249 of the Civil Transactions Law. Additionally, it was contended that the arbitral tribunal awarded relief that was not even sought by the Respondent. The tribunal ordered the Petitioner to pay the difference between two prices and awarded the Respondent compensation despite there being no contractual breach by the Petitioner. Additionally, it was argued that the tribunal issued its award in English, without a translation into Arabic and exceeded the time limit for rendering its award and did not include the draft award. The Respondent filed an action to confirm and enforce the arbitral award.
The Court of First Instance set aside the award. The Respondent filed an appeal and the Court of Appeal upheld the First Instance Court judgment. The Respondent then filed a petition to cassation and the Court of Cassation overturned the Court of Appeal’s decision and referred the matter back to the Court of Appeal for determination on merits. The Court of Appeal then re-considered the matter and confirmed the arbitral award. The Petitioner filed a petition to Cassation and the Court of Cassation overturned the Court of Appeal’s decision and remanded the file again to the Court of Appeal for consideration by a different panel. The Court of Appeal, while reconsidering the matter for a second time, confirmed the award as sought by the Respondent and dismissed the appeal filed by the Petitioner.
The Petitioner filed the present petition to cassation based on the following arguments:
The petition to cassation was dismissed.
The arbitrator must issue an award within the time limit the parties have established for the arbitration which commences from the date of their agreement. If the parties have not agreed on a timeframe, the arbitrator shall issue an award within six months from the date of the first arbitration hearing.
The arbitral award may be issued in a language other than the Arabic language. It is sufficient for the arbitral award to state the essence of the arbitration agreement as per the terms of reference to enable the court reviewing the award to exercise its supervisory authority.
It is not necessary that arbitral awards be enclosed in both draft and original form. In ad hoc arbitration, arbitrators are not required to file a copy of the award with the office of the clerks to the court but they must provide each party to the arbitration with a copy of their award.
Conciliation is allowed in commutative contracts, including contracts of carriage.
The grounds for setting aside arbitral awards are set out in Article 216 of the Civil Procedure Law and these grounds cannot be interpreted broadly. The court reviewing the arbitral award for confirmation may not address its substantive aspects or the sufficiency of evidence supporting the award or the extent of its conformity with the law.
The provisions of the UAE Civil Transactions Law shall not apply to commercial transactions unless express provision is not made for a particular commercial transaction in the Commercial Transactions Law.
Ambiguity in the recitals or operative part of the arbitral award does not render the award void.
The court considers the above arguments of the Petitioner as baseless.
First, according to Article 210 (1) of the UAE Civil Procedure Law the parties must agree on the timeframe for the arbitration and establish a time limit. The arbitrator must then issue his award within that time limit which starts to run from the date of the parties’ agreement. If the parties have not agreed on a timeframe, the arbitrator shall issue his award within six months from the date of the first arbitration hearing after asking the parties for documents and briefs. The date of the first arbitration hearing marks the start of the contractual or statutory time limit for an arbitral award.
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In the present case, the tribunal held a preliminary meeting on 14 September 2009 where the tribunal and parties agreed that the arbitration proceedings shall be conducted in the English language. A decision was also taken on the procedure and timeframe for filing a statement of claim and defence. At the first hearing, which was held on 17 November 2009, it was agreed that the award shall be issued within six months from the date of the first hearing. Furthermore, clause 6 of the terms of reference states that the arbitral tribunal shall issue its award within six months from the date of the first arbitration hearing namely, 17 November 2009. The award was issued on 13 May 2010, within the six-month limit as agreed by the parties and therefore the contention raised by the Petitioner is baseless.
Second, it is established that the legal rules which forms part of public policy may not be contravened by agreement. These rules are designed to serve the public interest of a political, social, or economic system of society which supersede private interests. Article 212 of the UAE Civil Procedure Law considers arbitral awards as court judgments although they are not exactly judgments issued by the courts. Article 212 (6) of the UAE Civil Procedure Law provides that, save as otherwise agreed between the parties, the award shall be issued in Arabic. Article 3 (1) of the ADCCAC Rules of Commercial Conciliation and Arbitration states that conciliation and arbitration proceedings before ADCCAC shall be conducted in the Arabic language unless the parties shall agree otherwise. The parties had agreed that the arbitration proceedings (including any award rendered) shall be conducted in the English language. The legislative intent behind the inclusion of this information in the arbitral award is to ensure that the arbitrators have observed their limits under the arbitration agreement. Since the law provides the possibility to agree on the language of the arbitral award and the parties have agreed on the English language, this is not a public policy issue but one related to private interests where the parties can agree to the contrary. The court observed that the tribunal’s quoting of the arbitration agreement is sufficient for its award to meet the requirement. The court reviewing the award is thus able to review the award based on its recitals. The Petitioner did not raise this issue before the trial court, despite not being one of public policy, and cannot raise it for the first time before the Court of Cassation.
Third, the court held that the rulings of the Court of Cassation are final and res judicata regarding the issues which have been explicitly or implicitly determined so as to preclude their re-litigation. Arbitrators are not bound by the rules of procedure applicable in the courts except as provided in the arbitration chapter of the Civil Procedure Law and any specific procedures may be agreed upon by the parties, whether in their contract or during the course of proceedings in accordance with Article 212(1) of the UAE Civil Procedure Law. Here, there has been no breach of that article which allows for such agreement nor does the issuance of the award in the English language render it void under Article 3 (1) of the ADCCAC Rules of Commercial Conciliation and Arbitration which states that conciliation and arbitration proceedings before ADCCAC shall be conducted in the Arabic language unless the parties shall agree otherwise. The tribunal is not bound by the procedural rules set out in the UAE Civil Procedure Law which include the requirement that awards be enclosed in both draft and original form. It follows that arbitral awards are not subject to this requirement applicable to court judgments.
Article 213 (3) provides that, where arbitration is conducted between the parties to a dispute out of court, the arbitrators shall provide each party with a copy of their award within five days of its date of issue and the court shall, upon request of a party filed in the normal manner of filing proceedings, decide whether to confirm or set aside the award. In other words, in ad hoc and institutional arbitration, arbitrators are not required to file anything with the office of the clerks to the court but they must [Page111:] provide each party with a copy of their award. It is then up to the parties to file an action in the normal manner to confirm or set aside the award. The Respondent filed an action to confirm the award while the Petitioner filed an action to have it set aside. Each party submitted a copy of the award with a certified Arabic translation. Therefore, the purpose of the step has been served and the arbitral award cannot be invalid.
Fourth, in accordance with Article 3 of the UAE Civil Transactions Law, provisions relating to the circulation of wealth and rules on individual ownership are part of public policy. Hence, where the subject matter of a contract is contrary to public policy or morals, the contract is void under Article 205 of the Civil Transactions Law. Pursuant to Articles 6, 7, 272, 273 and 274 of the UAE Commercial Transactions Law, transportation is a commercial activity if performed by an individual or company, whatever the method used as long as it is practiced as a profession. A contract for carriage of goods by road means any contract whereby the carrier undertakes, in exchange for payment of a charge, to transport, by its own means, goods overland from one place to another. A contract for carriage of goods by road is formed by offer and acceptance and is a binding commutative contract that creates reciprocal obligations, each party having both rights and duties. The court noted that the contract between the Petitioner and the Respondent is a contract for the loading and transport of molten sulphur from production sites to refining units and other locations. As such, it is a commutative contract and a commercial activity made for the benefit of both parties in which conciliation is allowed and is not related to the circulation of natural resources. Therefore, it is not contrary to public policy or morals and hence the arbitral award cannot be invalid.
Fifth, the essence of Article 177 of the UAE Civil Procedure Law is that a notice of appeal to the Court of Cassation must include the grounds of the appeal, otherwise it will be rejected. The purpose of this requirement is to clearly identify the grounds on which the Petitioner is appealing and consequently the alleged error for which the Petitioner seeks to have the ruling set aside and its effect on the court’s findings. A general reference as in the statement of claim, notice of appeal to the Court of Appeal and the Petitioner’s briefs before the trial court will not suffice. The Petitioner presented its contention in general terms without identifying supporting facts and documents and the effect of the alleged error on the court’s findings. A general reference to documents and briefs filed before the trial court would not dispense with the requirement and the contention is inadmissible as it lacks the clarity and precision required by law.
The test for setting aside an arbitral award for breach of the rules of civil procedure under Article 212(1) of the UAE Civil Procedure Law is deviation from the basic rules of litigation procedure. Additionally, the arbitrator must also respect rights of due process by allowing each side to present his requests and arguments, prove its claims and refute the other side’s claims. It is established by the Court of Cassation that an action to set aside an arbitral award, within the meaning of Article 216 of the Civil Procedure Law is based upon an error of procedure rather than an error of judgment. The defects which a party alleging irregularity may assert are strictly defined in Article 216 of the Civil Procedure Law and cannot be interpreted broadly or deduced through analogical reasoning. They pertain either to the agreement to arbitrate or the arbitration proceedings. Irregularity relating to the agreement to arbitrate and constituting a ground for setting aside the arbitral award includes the award being issued based on invalid terms of reference or terms of reference that have expired, by the prescription of time, the arbitrator exceeding his limits under the terms of reference or contravening a rule of public policy. Irregularity relating to the arbitration proceedings and providing justification for setting aside the arbitral award includes [Page112:] the award being issued by arbitrators who were not appointed in accordance with the law, or by a number of the arbitrators who were not authorised to issue the award in the absence of the others, or without regard to the aforementioned rules of procedure or an irregularity in the award itself or in procedure that has affected the award. Any dispute other than the aforementioned grounds relates to the rules of evidence, the arbitrator’s judgment, arbitrator’s failure to decide certain issues, or the invalidity or insufficiency of the reasoning in the award cannot be pleaded as grounds for setting aside and would be unacceptable.
The trial court, when reviewing the arbitral award for confirmation, may not address its substantive aspects or the sufficiency of evidence supporting the award or the extent of its conformity with the law. This is because the trial court hears the action for confirmation of the award not as a challenge to the award, but only in terms of the procedural aspects. Accordingly, challenging an arbitral award based on the arbitrator’s judgment is impermissible.
The appeal court confirmed the arbitral award based on the above approach, providing sound reasons which are supported by sufficient evidence and are consistent with law and constitute an adequate reply to all of the Petitioner’s arguments.
Moreover, the legislative intent behind judicial review of arbitral awards that are submitted for confirmation is to ensure arbitrators comply with the requirements of law. The purpose of confirmation, therefore, is to ensure that there is no impediment to domestic enforcement of arbitral awards that meet the formal requirements which are as follows: the award shall be made in writing and shall contain a copy of the arbitration agreement, a summary of the statements of the parties, their documents, the grounds and context of the award, the date and place of issue and the signatures of the arbitrators. The award must also uphold the adversarial principle and must not conflict with an award previously issued on the same issues between the same parties or deal with any issues in conflict with public policy or morals. The court does not look at the merits of the arbitral award or the validity of its findings or decide any issues apart from confirmation whether an arbitral award met the requirements for a valid award. When the operative part of the award is ambiguous or unclear recourse shall be had to the tribunal that issued the award to resolve the ambiguity on the parties’ own initiative, or at the request of the execution judge. In such case, the arbitral award would not be void since the court reviewing the award has no authority to retry the issues or address the validity of the award’s findings.
Under Article 184 of the UAE Civil Procedure Law, a remand court is identified as the court that issued the ruling appealed from, i.e. the Court of Appeal. If the Court of First Instance did not determine the merits and has had its decision vacated on remand, the Court of Appeal must also remit the matter back to the Court of First Instance for consideration on its merits, in compliance with the two-tier approach to due process. In the present case, while deciding the case on its merits and by declining to confirm the arbitral award, the Court of First Instance has had its say and therefore to entertain a remand from the Court of Appeal on the pretext that the Court of First Instance did not address all the grounds for setting aside the arbitral award is not required. Thus, the Appellant’s argument that the Court of Appeal ought to have referred the matter again to the Court of First Instance is rejected.
Finally, it is established that according to Article 292 of the UAE Civil Transactions Law, compensation is to be assessed on the basis of the loss and/or damage the aggrieved has incurred and the gain he has foregone provided that they are a direct result of a tort and have or will certainly occur. Prospective damages would only be recoverable if they actually occur although the law does not prevent including, in [Page113:] foregone gain, what the aggrieved reasonably anticipated would be his gain. The arbitral tribunal awarded the Respondent compensation that is equivalent to what it would have obtained under the contract up to the expiry of the contract. The Respondent anticipated that the contract would be performed and completed and the Appellant never claimed otherwise or that it was terminated by agreement of the parties or by operation of law. Therefore, the Petitioner’s contention is rejected.
Based on the above, the petition to cassation is dismissed