Ratification of a DIAC Award for a Fundamental Breach Overruled

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Motei & Associates was instructed by the Respondent in recent legal proceedings between two parties (details for which must remain confidential) before the Dubai Courts in relation to the ratification of an arbitral award issued by the Dubai International Arbitration Centre (DIAC).

Motei & Associates was instructed by the Respondent in recent legal proceedings between two parties (details for which must remain confidential) before the Dubai Courts in relation to the ratification of an arbitral award issued by the Dubai International Arbitration Centre (DIAC).

Appeal Court’s Rationale

An arbitrator is under an obligation to give the parties a reasonable opportunity to present their case. Failure to do so gives legal grounds for the annulment of the resultant arbitral award.

Facts of the Case

In the above case, the Claimant company, a supplier of construction material, entered into an agreement with the Respondent, a subcontractor, in which they agreed to settle any disputes arising in relation to the agreement through arbitration in accordance with the DIAC Rules.

The Claimant claimed that the Respondent failed to perform its contractual obligations and initiated arbitration proceedings pursuant to the DIAC Rules. In finding for the Claimant, the sole arbitrator ordered the Respondent to pay the Claimant damages and legal fees for breach of contract, amounting to about AED 361,486 with 5% per annum legal interest.

The Claimant initiated ratification proceedings before the Dubai Court of First Instance.

The Dubai Court of First Instance Decision

Before the Court of First Instance, the Respondent challenged the ratification action, requesting the annulment of the award on the grounds that the Respondent was not granted a reasonable opportunity to present its case. Respondent argued that:

  1. The Claimant had erroneously stated Respondent’s name in both the request for arbitration and its statement of claim. As a result, the Respondent had never been properly notified, and was therefore unaware of, the arbitration proceedings.
  2. On realizing such error, the arbitrator issued a procedural order to rectify the name of the Respondent and re-notify it with the correct name.
  3. Immediately upon being notified of the arbitration proceedings, the Respondent, on 27 December 2011, through its manager (as stated on the Respondent’s trade license), has responded and requested the arbitrator to be granted time to appoint a lawyer and submit its statement of defense.
  4. On 6 January 2012, the arbitrator dismissed the Respondent’s request, and rendered his award. In the award, the arbitrator stated that “the Respondent’s request for time was submitted without an official power of attorney”, a fact that the Respondent contested in the proceedings.

The Court of First Instance dismissed the Respondent’s arguments, and ordered the ratification of the arbitral award.

The Court of Appeal

On the Respondent’s appeal, the Dubai Court of Appeal ruled that the arbitral award was null and void because the arbitrator had failed to observe the adversarial principle (“principe du contradictoire”) that gives the parties the right to present their case fairly. The Court of Appeal further found that the rejection of the Respondent’s request was made on baseless grounds without legal justification.

The Court of Appeal considered that the arbitrator, based on the submitted trade license, should have, the least, given the Respondent the opportunity to appear before him and present his authority, taking into account the date on which the Respondent has been officially notified of the proceedings (i.e. 27 December 2011), and the date of issuing the award (i.e. 6 January 2012). As such, under Article 216 of the UAE Civil Procedures Law, the Court of Appeal overturned the prior Court’s decision and set aside the award, ordering the Claimant to pay all court and legal fees for both sets of court proceedings. In this regard, in order to recognise and enforce an arbitration award under domestic law in the UAE, such award must be legally valid and free of any flaws.

No appeal was filed by the Claimant before the Court of Cassation within the legal time limit, hence, the above Court of Appeal judgment became final and subject to no further appeal.

Author’s Comments

This case demonstrates that the local courts in the Emirate of Dubai accord fundamental importance to, and respect for, the right of due process in international arbitration, as guaranteed under Article 216 of the Civil Procedure Law. The equivalent ground for a foreign award sought to be enforced under the New York Convention is Article V(1)(b). Merely because the parties have agreed to resolve a dispute outside of the national courts does not mean that either party is deemed to have waived its rights to participate in the proceedings and to put forward its case, and by disregarding such fundamental right, the arbitral tribunal runs the risk that its award shall not be enforced.

Such protection of the right to a fair hearing by national courts is essential since it is impossible for the Claimant to seek some sort of redress against the sole arbitrator for failing to respect the fundamental principle of due process and therefore acting negligently in the process of rendering the award. Indeed, according to Article 40 of the DIAC Rules, “No member of the Tribunal or of the Executive Committee, nor the Centre and its employees, nor any expert to the Tribunal shall be liable to any person for any act or omission in connection with the arbitration.”

National courts are therefore an essential guardian of the due process principle in arbitration proceedings. However, in order to retain its legitimacy, the arbitral system must itself provide due process as well as a fair and efficient method of dispute resolution.

About the author

Ashraf heads the dispute resolution practice in Motei & Associates, a Dubai based law firm (www.motei.com). He specializes in civil and commercial litigation and has particular focus on international arbitration. His practice encompasses a broad spectrum of substantive areas with specific focus on all types of real estate disputes including sale and purchase disputes, distressed/ canceled developments, enforcement of judgments and security, employment, professional negligence and health care disputes.