Arbitration and Public Policy Considerations in the UAE

Introduction 

International arbitration enshrines party autonomy as an essential basis of the dispute resolution process. The agreement to arbitrate, the choice of the seat, the governing law of the arbitration, and more, are all regarded as indispensable features of the arbitral process that parties must agree on. However, the degree of freedom and independence afforded to parties in arbitration is not without limits as it is crucial to acknowledge that arbitration does not exist in a legal vacuum. The importance given to the wishes of the parties must be balanced against the frameworks of national laws and international treaties that enable international arbitration to exist as a legitimate mode of international dispute resolution. In the hierarchy of legal frameworks that make up the arbitral process, the mandatory rules of the lex arbitri have an overriding weight over the parties’ special procedural arrangements. According to Professor Pierre Mayer, ‘Mandatory rules are laws that purport to apply irrespective of a contract’s proper law, or the procedural regime selected by the parties’ [1]. There is also a duty upon arbitrators to engage in public policy considerations putting the interests of the state and the parties in conflict [2]. This poses interesting questions of where and how state and societal interests fit in arbitration.

Where and When Public Policy Comes into Play

Parties enter into arbitration expecting to receive a final and binding award that could be recognised and enforced by a national court. The fact that national courts, organs of the state, are an inevitable junction in the arbitral process makes it difficult for parties to escape the intersection between public interests and private law. There are two main ways that state and societal interests can be advanced in the international arbitration sphere. For one, Art V(2)(b) of the New York Convention 1958 provides national courts with a public policy ground for the refusal of the recognition and enforcement of an award [3]. This is reflected in Article 53 section 2 of the UAE Arbitration Law 2018 which states: 
The Court shall, on its own initiative, nullify the arbitral award, if it finds any of the following:

a- That the subject-matter of the dispute is not capable of settlement by arbitration.
b- That the arbitral award is in conflict with the public order and the public morality of the State.

Additionally, states may include certain rules in the lex arbitri that deviate from standard practice as a way to advance or safeguard state or societal norms. Such interests, which may include social, economic, and internal or international policy-related tenets, are recognised as important [4]. A losing party in arbitration may challenge the award by utilising the gaps in compliance with these lesser-known rules [5].

Public Policy Constraints on Issues of Arbitrability    

This next section aims to focus on the role of state interests in international arbitration by looking at how states prefer to have a ‘monopoly’ over the resolution of some disputes. There is an international consensus that matters within the public domain such as family law and criminal law cannot be settled by arbitration [6]. Deviations across jurisdictions occur following differences across states’ economic and social frameworks.

Article 203(4) of the UAE Civil Procedures Law stated:

“It shall not be permissible to arbitrate matters in which conciliation is not permissible. An agreement to arbitrate shall not be valid unless made by persons having the legal capacity to make a disposition over the right the subject matter of the dispute.”

On May 3, 2018, the UAE issued the UAE Arbitration Law, which repealed Articles 203 to 218 of the UAE Civil Procedures Law through Article 60. The new Article 4(b) of the UAE Arbitration Law, which replaces the former Article 203(4), states:

“The agreement on arbitration may not be concluded with respect to the matters where conciliation is not allowed.”

The UAE legal framework and its case law have identified matters where conciliation is not permissible, linking these to public policy and mandatory norms.

The Dubai Court of Cassation has defined these mandatory norms as part of public policy, offering a broad explanation of public policy:

“The legal rules that are considered public order are rules intended to achieve a general political, social or economic interest related to the higher society system and override the interest of individuals. All individuals must observe and realize this interest and they may not oppose it by agreements among themselves even if these agreements are achieved for their individual interests, because individual interests do not exist in front of the public interest, and if the phrase or reference to the legislative text indicates the direction of the legislator’s intent from determining the legal base contained therein to the organization of a situation in itself in a specific manner that may not be violated, in compliance with the requirements of the public interest, then this rule is considered one of the peremptory norms related to public order and at the same time it is considered a rule complementary to the will of the contracting parties” [7].

In another ruling, the Dubai Court of Cassation referenced the former Article 203 of the UAE Civil Procedures Law to assert that conciliation is not permissible in disputes involving public policy:

“It is decided – in the judiciary of this court – that it is not permissible to conciliate in matters related to public policy, and the fourth paragraph of Article (203) of the UAE Civil Procedures Law stipulates that it is not permissible to arbitrate in issues in which conciliation is not permissible” [8]. 

Areas that the case law has identified as intertwined with public policy include bankruptcy/insolvency [9], usurious transactions where interest rates exceed those stipulated by law [10], and real estate transactions relating to title registration [11].

In the latest decision addressing the arbitrability of the land ownership, the court reaffirmed that issues relating to wealth exchange and land ownership in real estate transactions are intrinsically linked to public order thus rendering arbitration clauses null and void [12].

Conclusion 

In conclusion, parties engaged in transactions within the UAE must carefully select their dispute resolution methods to ensure the enforceability of arbitral awards, considering the influence of public policy. It is essential for parties to exercise caution when drafting arbitration agreements and initiating proceedings, keeping in mind the governing law of the dispute, the law of the seat, and the laws of the countries where recognition and enforcement may be sought. Arbitrators, too, have a crucial role in ensuring that their awards comply with public policy standards and remain arbitrable, thereby maintaining their validity and enforceability. This is particularly important in the UAE, where public policy considerations are still an evolving notion amists the commercial, social and legal developments in the region. 

1. Pierre Mayer, ‘Mandatory Rules Of Law In International Arbitration’ [1986] 2 Arbitration International 274, 275
2. Andrew Barraclough and Jeff Waincymer, 'Mandatory Rules of Law in International Commercial Arbitration' [2005] 6(2) Melbourne Journal Of International Law 205, 207
3. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) Art V
   
4. Mohammad Reza Baniassadit, 'Do Mandatory Rules of Public Law Limit Choice of Law in International Commercial Arbitration?' [1992] 10(1) Berkeley Journal of International Law 69
5. UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006) Art 34(2)
6. Nigel Blackaby and Constantine Partasides, Redfern and Hunter on International Arbitration, ‘Agreement to Arbitrate’ (7th edn, Oxford University Press 2023) 17
7. Dubai Court of Cassation, Civil Cassation No. 142/2014, 1203/2015
8. Dubai Court of Cassation, Commercial Cassation No. 367/2011, 10/10/2012
9. Supreme Federal Court, Challenge No. 493 of JY18, 26 October 1997
10. Dubai Court of Cassation, Challenge No. 146 of 2008
11. Dubai Court of Cassation, Challenge No. 320 of 2014
12. Dubai Cassation Court 23/06/2019