International Arbitration in the Middle East: 2023 in Review and What to Expect in 2024
December 21, 2023, Covington Alert
As a region, the Middle East is no stranger to headline-making developments in international arbitration. 2023 has been no exception, with the overall theme being one of regional jurisdictions taking concrete steps to make themselves more arbitration-friendly as a way to position the region as a global hub for international arbitration. With important amendments to arbitration laws, necessary updates to arbitral institutes’ rules, groundbreaking developments in governing laws, and an increase in the number of critical court cases locally and abroad, it is safe to predict that this theme will continue in 2024. That said, there remain local court decisions, which may give pause to parties looking to select a regional seat, with the important lesson that parties’ intentions must be clearly reflected in the wording of their arbitration clause.
1. Saudi Arabia unveils new Civil Transaction Law
On June 19, 2023, Saudi Arabia enacted the Civil Transactions Law (“CTL”) as promulgated by Royal Decree M/191/1444. The CTL came into effect on December 16, 2023. For the first time in Saudi Arabia’s history, a single piece of legislation codifies contract, property, and tort law, which had previously been governed by a limited collection of separate laws and Shar’ia principles.
The CTL serves to combine traditional and modern legal doctrines into a consolidated framework which provides greater clarity and should bolster the consistency of interpretation in judicial decisions. This increased certainty is a welcome step for foreign investors and domestic companies and plays an important role in Saudi’s Vision 2030.
A detailed discussion of the key features of the CTL may be found in a separate article and a list of ten tips on managing the impact of the CTL on construction disputes is provided in a previous alert.
2. SCCA updates rules and unveils model clause
The Saudi Center for Commercial Arbitration (“SCCA”) continues to gain steam towards its goal of becoming the preferred choice for alternative dispute resolution in the region by 2030.
On May 1, 2023, the SCCA announced the publication of its revised SCCA Arbitration Rules, which came into force that day and apply to arbitrations filed on or after that date. The key features include the establishment of the SCCA Court, expanded tribunal powers, additional grounds for arbitrator challenges, a new mechanism for consolidation, the introduction of a process for early disposition of claims or defences, shortened timelines for rendering awards, the potential for awards publication, and a removal of references to Shar’ia.
On June 6, 2023, the Minister of Finance issued Resolution No. 1321/1444, which introduced a model general arbitration submission agreement and a model SCCA arbitration submission agreement.
3. DIAC updates Court, appoints new Registrar, and unveils metaverse platform
Over the last two years, the Dubai International Arbitration Centre (“DIAC”) has witnessed significant growth in case numbers. While this is due, in part, to the abolishment of the Dubai International Financial Center (“DIFC”) - London Court of International Arbitration (“LCIA”) (DIFC-LCIA) Arbitration Centre, DIAC’s growth can also be attributed to its recent concerted effort to increase its attractiveness as an arbitral institute, which began with the 2022 adoption of its long-awaited new DIAC Arbitration Rules 2022.
DIAC also updated its Arbitration Court in February 2023, which had been originally established in 2021 to replace DIAC’s former executive committee. The new Arbitration Court is made up mostly of well-regarded arbitration practitioners from no less than eight foreign jurisdictions, as well as prominent local practitioners.
Just a few months later, in June 2023, DIAC appointed Robert Stephen as its new Registrar (who had previously been the Registrar of the DIFC-LCIA Arbitration Centre).
In March 2023, DIAC unveiled its own metaverse platform for dispute resolution and continues to explore different ways to integrate artificial intelligence into its processes.
These developments at DIAC are expected to lead to a further increase in its case load and enhance not only its own, but also Dubai’s, attractiveness as a hub for dispute resolution.
4. UAE amends Federal Arbitration Law
In September, the United Arab Emirates (“UAE”) introduced the latest changes to its federal arbitration law, Federal Decree Law No. 6 of 2018 (the “Federal Arbitration Law”). The amendment law, Federal Decree Law No. 15 of 2023 (the “Amendment Law”), came into effect on September 16, 2023.
The Amendment Law modifies Article 10 of the Federal Arbitration Law, which disqualified arbitrators who have a direct relationship with any of the parties that would prejudice their impartiality, integrity, or independence. The newly introduced Article 10 allows individuals with supervisory roles in arbitral institutions to act as arbitrators in proceedings administered by those institutions, subject to certain requirements.
Article 28 of the Amendment Law allows parties to agree to conduct their hearings virtually. While this was already possible under the Federal Arbitration Law, the amended Article 28 now obliges arbitral institutions to provide the necessary technology.
The Amendment Law also modifies Article 33 of the Federal Arbitration Law, which concerns hearings and the production of evidence. The previous version of Article 33 stipulated that hearings should be confidential. The Amendment Law now extends the scope of this confidentiality provision to the entire arbitration proceedings.
The Amendment Law implements important changes, taking into account users’ comments and changing realities since the Federal Arbitration Law entered into force in 2018, all of which should provide increased flexibility and efficiency and enhance the UAE’s attractiveness as a seat.
5. Abu Dhabi court rules on seat based on location of ICC office
The Abu Dhabi Court of Cassation ruled that the seat of an International Chamber of Commerce (“ICC”) arbitration was the Abu Dhabi Global Market (“ADGM”), on the basis that an ICC office was present there, notwithstanding that the arbitration agreement stated that the seat was the Emirate of Abu Dhabi.
The Emirate of Abu Dhabi is host to two separate jurisdictions, which may be chosen as a seat of arbitration: for proceedings seated in ‘onshore’ Abu Dhabi (a civil law jurisdiction), the Federal Arbitration Law applies and the Abu Dhabi courts act as the supervisory courts; for proceedings seated in the ADGM (a common law jurisdiction), the Arbitration Regulations 2015 apply and the ADGM Courts act as the supervisory courts.
The case related to a dispute which arose out of a contract (the “Contract”) that provided for disputes to be resolved by arbitration under the ICC Rules and seated in the Emirate of Abu Dhabi. The Tribunal issued its award and the appellant commenced proceedings in the onshore courts of Abu Dhabi to annul the award. The appellant sought to rely on a number of grounds for annulment under the Federal Arbitration Law, including (among others) an incorrect determination of the seat of arbitration.
The Abu Dhabi Court of Appeal held that it did not have jurisdiction to consider the appeal and dismissed the application. It concluded that, as a representative office of the ICC was present in the ADGM, the ADGM was the seat of arbitration (notwithstanding that the ICC office in question had only opened during the course of the arbitral proceedings).
The appellant appealed to the Abu Dhabi Court of Cassation and argued that the arbitration clause in the Contract provided for the Emirate of Abu Dhabi as the seat of arbitration, with no reference to the ADGM. The appellant argued that the selection of the ICC Rules alone did not amount to an agreement that the seat should be determined by reference to the location of the ICC representative office and therefore that the onshore Abu Dhabi Courts should have supervisory jurisdiction.
The Court of Cassation rejected the appeal and concluded that the ICC representative office should be considered as the seat of arbitration, with the ADGM Courts therefore having supervisory jurisdiction. Importantly, the Court suggested that the reference to “the Emirate of Abu Dhabi” lacked specificity because both the onshore Abu Dhabi Courts and the ADGM Courts are considered courts of the Emirate of Abu Dhabi. Therefore, the Court could not conclude that the default position should be that the seat of arbitration was onshore Abu Dhabi.
The parties subsequently agreed to submit their dispute to the ADGM Courts. In A6 v. B6 [2023] ADGMCFI 0005, the ADGM Court accepted jurisdiction based on article 13(8) of the ADGM Founding Law, which allows parties to refer their disputes to the ADGM Courts notwithstanding a lack of connection to the ADGM. Ultimately, the ADGM Court determined that the Federal Arbitration Law, rather than the Arbitration Regulations 2015, should apply, as the seat of arbitration was in fact ‘on-shore’ Abu Dhabi. The ADGM Court declined to set aside the award.
The lesson to be drawn from this case is that, in drafting arbitration clauses, where the parties’ intention is for the seat of arbitration to be either ‘on-shore’ Abu Dhabi or the ADGM, to avoid possible ambiguity, those parties may wish to state expressly which arbitration law and supervisory courts apply.
6. DIFC Court of Appeal declines jurisdiction to grant interim relief in foreign proceedings
In Sandra Holding v Al Saleh [2023] DIFC CA 003, the DIFC Court of Appeal declined jurisdiction to grant injunctive relief in support of foreign proceedings.
A dispute had arisen between two Kuwaiti brothers under a shareholders’ agreement in relation to a Cayman Islands entity. In addition to commencing proceedings in the United States, Kuwait, and France, the claimant applied for a worldwide freezing order (“WFO”) in the DIFC in relation to the Kuwaiti proceedings.
The Court of First Instance granted the WFO. The judge held that Article 5(A)(1)(e) of the Dubai Judicial Authority Law (the “JAL”), read in combination with Part 25.24 of the Rules of the DIFC Courts (the “RDC”), allows injunctive relief in support of foreign proceedings, irrespective of whether the defendant has any connection with the DIFC. In doing so, the judge relied on his own previous decision in Jones v Jones [2022] CFI 043 and on the ruling of the Court of Appeal in Nest Investments v Deloitte & Touche [2018] CA 011.
The Court of Appeal disagreed and overturned the WFO. The Court explained that “RDC 25.24 should not be read on its own, but rather in parallel and consistent with the gateways of Article 5 of the JAL” and that the first instance decision would “ultimately lead to the prospect of the DIFC Courts having jurisdiction over any foreign proceedings anywhere in the world, whereas in fact the Court’s jurisdiction has been constrained to the circumstances outlined in Article 5 of the JAL and is therefore neither wide nor expansive enough to cover any party around the world under any circumstances.”
This appeal judgment narrows the wider interpretation in Jones v Jones and clarifies that the DIFC courts will only grant injunctions in support of foreign proceedings where one of the jurisdictional gateways in Article 5 of the JAL is satisfied.
7. Louisiana Court refuses to enforce DIFC - LCIA clause
A U.S. court refused to enforce an arbitration agreement by which the parties had agreed to resolve their disputes under the Arbitration Rules of the DIFC-LCIA Arbitration Centre.
A Saudi subsidiary of the Louisiana-based Dynamic industries had subcontracted a subsidiary of the Texas-headquartered Baker Hughes to supply products and services for an oil-and-gas project in Saudi Arabia. Baker Hughes claimed it was owed $1.3 million by Dynamic Industries and sued several subsidiaries of the Dynamic Industries group in the Louisiana courts.
The defendant filed a motion to dismiss the proceedings based on the doctrine of forum non conveniens since the arbitration clause in underlying contract provided for the DIFC-LCIA Arbitration Rules, with a DIFC seat (not the Louisiana courts). On September 20, 2021, the DIFC-LCIA Arbitration Centre had been abolished a Dubai decree, which deemed all arbitration agreements concluded by that date and referring to the DIFC-LCIA Arbitration Centre as valid and any cases assigned to DIAC, unless otherwise agreed by the parties.
On November 6, 2023, the Louisiana Eastern District Court rejected the defendant’s forum non conveniens argument on the ground that the DIFC-LCIA Arbitration Centre no longer existed. The judge commented that ‘[w]hatever similarity the DIAC may have with the DIFC LCIA, it is not the same forum in which the parties agreed to arbitrate. That forum is no longer available, and this Court cannot compel Plaintiff to arbitrate.’
Baker Hughes is the first reported case in which a foreign court dealt with the consequence of the abolition of the DIFC-LCIA Arbitration Centre. It is unclear how other jurisdictions would approach this issue, but the Louisiana judgment underlines the risk of parties bringing similar challenges in the future and highlights the importance of careful drafting of their dispute resolution clauses.
8. Supreme Court of Oman allows review of London-seated arbitral award
Oman’s Supreme Court allowed a lower court to review the validity of a London-seated arbitral award, raising questions about the enforceability of arbitral awards involving Omani parties.
Vijay Tanks, an Omani engineering company, had entered into an agreement relating to storage tanks at Hamad International Airport in Doha with a Qatari subcontractor, Cape East. The subcontract provided for arbitration seated in London under the ICC rules.
In 2021, Cape East commenced arbitration for unpaid work and, in 2022, the arbitral tribunal rendered an award in favor of Cape East. Vijay Tanks challenged the award in Oman, but the Omani Court of Appeal declined jurisdiction on the basis that the arbitration was seated abroad.
In June 2023, the Supreme Court of Oman annulled the Court of Appeal’s ruling and remanded the case to the lower court. The Supreme Court held that, pursuant to the sultanate’s Code of Civil Procedure and its Arbitration Act, Oman’s courts had jurisdiction because Vijay was an Omani entity and the defendant in the arbitral proceedings.
This decision highlights the need for parties to consider the enforceability of arbitral awards in Oman where the dispute involves a local party.
If you have any questions concerning the material discussed in this client alert, please contact the members of our International Arbitration practice.
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