Nullification of another DIAC Arbitration Award – Have thefloodgates opened? No, says Clyde & Co.Written by Nassif BouMalhab and Susie Abdel-Nabi

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There have been a number of negative reports in the press in the last few weeksstating that a recent Dubai Court of Cassation judgment nullifying a DubaiInternational Arbitration Centre (DIAC) arbitration award will have far reachingimplications and jeopardise Dubai’s position as an international arbitration hub.

Clyde & Co does not share that view. We do not consider that the judgment has any internationalbearing and it should not affect Dubai's standing as a reputable arbitration centre.

Earlier this year, we reported that the Dubai Court of Cassation had nullified three DIAC arbitralawards on the basis that those awards ran contrary to public policy within the meaning of the CivilCode (Federal Law No. 5 of 1985) and Civil Procedure Code (Federal Law No. 11 of 1992) of theUnited Arab Emirates.

The judgments nullified DIAC awards in which the arbitrator (it was the same sole arbitrator in allthree cases) applied Article 3 of Law No. 13 of 2008 Regulating the Interim Real Estate Register inthe Emirate of Dubai (the Property Law) and concluded that the off-plan sale and purchaseagreements in dispute were void despite being registered in the Interim Real Estate Registermaintained by the Dubai Department of Lands and Properties (albeit after the 60 day deadline set outin Article 3). In arriving at the conclusion that the DIAC awards should be set aside, the Courtconsidered that the application of Article 3 of the Property Law is a matter of public policy whichcannot be resolved through arbitration.

Clyde & Co advised the property developer in each of the three DIAC arbitrations as well as in theproceedings before the Dubai Courts seeking to set aside the ensuing arbitral awards. For thisreason, we feel that we are able to provide noteworthy insight into the specific context in which theDubai Court of Cassation concluded to the annulment of the awards. In our view, by concluding as itdid, the Dubai Court of Cassation has not provided (as others have suggested recently) that anyarbitration disputes relating to the disposition of property or, generally, arbitration disputes involvingan element of public policy are liable to be invalidated by the Dubai Courts. In context, the DubaiCourt of Cassation merely held that parties cannot validly agree to submit disputes concerning theregistration of off-plan sales within the meaning of Article 3 of the Property Law to arbitration to theexclusion of the Dubai Courts because the application of Article 3 of the Law is a matter of publicpolicy. The Court arrived at this conclusion in circumstances where the property developer arguedthat the arbitral tribunal misapplied a provision which was enacted for the protection of the public(Article 3 of the Property Law) in a manner which is inconsistent with:

(i) the Dubai Department of Lands and Properties' decision to accept the registration of eachof the sale and purchase agreements which were in dispute;

(ii) the legal principles previously set out by the Dubai Court of Cassation holding that the

registration of off-plan sale and purchase agreements after the 60 day deadline provided inArticle 3 of the Property Law is valid; and

(iii) the purpose of Article 3 of the Property Law which is to ensure that a purchaser of off-planproperty located in Dubai has the means of verifying that the property purchased is accountedfor in the register maintained by the Dubai Department of Lands and Properties and not, forexample, the fraudulent sale of a property which does not exist.

The principles set out in the Dubai Court of Cassation judgments we reported were recently echoedby another Dubai Court of Cassation judgment (Case No. 14 of 2012) dealing with the application ofArticle 3 of the Property Law. It is noteworthy that in rendering its judgment, the Court acknowledgedthat it is not for the Court to review the merits of an arbitral award but indicated that it would takeexception where the arbitral tribunal has exceeded its jurisdiction and "resolved a matter of publicpolicy":

"Whilst it is not for the Court to investigate the subject matter of an arbitral award, if it is shown that anarbitrator exceeded the limits of [his/her] jurisdiction and resolved a matter of public policy, the Courtshall intervene by investigating and scrutinizing this contravention of the law in light of the applicableprovisions." (unofficial English translation)

In our view, contrary to what others have suggested recently, the Court is not opening the floodgatesto review arbitral awards every time that a provision of public policy is interpreted. The Court is not,as others have suggested, instructing that property disputes cannot be validly submitted toarbitration. In context, the Court has determined a particular type of property dispute - relating to theregistration of off-plan sales - and found, in the context only of that particular type of dispute, that anarbitral tribunal's decision will be subject to the Court's review (and set aside if the award concludesthat an off-plan sale and purchase agreement subject to registration under Article 3 of the PropertyLaw is invalid despite the agreement being validly registered with the Dubai Department of Lands andProperties).

There is no wide-reaching analogy to be drawn from the judgments with an eye on challenging thevalidity of arbitral awards at large, particularly in a civil law jurisdiction such as the UAE where thedoctrine of binding case-law precedent does not apply.

The judgments should not affect the ratification and enforcement in the UAE of foreign awards. Thejudgments deal only with ratification of domestic awards, applying conditions for ratification set out inthe Civil Procedure Code and the notion of public policy in domestic UAE law. The provisions of UAElaw applied by the Dubai Court of Cassation are separate and distinct from the provisions of the NewYork Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the notion ofinternational public policy within the meaning of the Convention and as developed in accordance withinternational obligations.

The floodgates for challenges to arbitration awards in Dubai have not opened merely because certaindomestic DIAC arbitration awards dealing with the registration of off-plan sales were (in our viewcorrectly) invalidated. The lesson to be drawn from these recent judgments is not that Dubai hascompromised its reputation as a hub for international arbitration.

On the contrary, the lesson to be drawn here is a positive one: investors, property developers andpurchasers alike can take comfort in the fact that the Dubai judiciary has adopted a consistentapproach and that they can expect registered off-plan sale and purchase agreements to continue tobe legally binding.

Should you have any questions in connection with this article or the legal issues it covers, pleasecontact Nassif BouMalhab or Susie Abdel-Nabi.

Published on 29 October 2012 Jurisdictions: Middle East Areas of expertise: Dispute resolution

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