Recent Pro-Arbitration Judgments from UAE Courts of Cassation
Dispute Resolution / UAE
In 2023, UAE courts upheld pro-arbitration views in two key judgments, affirming the continuity of arbitration clauses in cases of non-payment and their extension to related contracts.
Law Update: Issue 363 - Energy, Utilities, Mining and COP28
Mosaab AlySenior Counsel,Dispute Resolution
Malak NasreddineAssociate,Dispute Resolution
Zane AnaniSenior Professional Support Lawyer, Dispute Resolution
The year 2023 saw the continued development of case law concerning arbitration in the UAE courts, with a number of decisions suggesting that the courts continue to view arbitration favourably. This article will focus on two recent noteworthy decisions by the UAE courts, namely (a) General Assembly of the Court of Cassation judgment 10 of 2023 dated 24 October 2023, and (b) Dubai Court of Cassation judgment 828 of 2023 dated 19 October 2023.
In General Assembly of the Court of Cassation Case No 10 of 2023, the General Assembly of the Court of Cassation reversed an established legal principle in finding that that the decision of the Dubai International Arbitration Centre (“DIAC”) to close a case file due to a failure to pay the arbitration costs does not constitute a waiver of the parties’ rights under the arbitration clause.
In Dubai Court of Cassation Case No 828 of 2023, the court held that an arbitration clause in the main contract was deemed to be incorporated into all other subsequent agreements entered into between the same parties, all of which did not contain an arbitration clause.
BackgroundGenerally, the decisions issued by the General Assembly of the Court of Cassation are significant. This is because, amongst other things, the General Assembly decides cases that involve complex legal issues or settle a legal principle of UAE law. Case No 10 of 2023 involved an application filed by the Technical Office of the Court of Cassation before the General Assembly of the Court of Cassation, in which it sought the General Assembly’s decision to consider overturning a legal principle established by a previous ruling of the Court of Cassation.
The legal principle, which the Technical Office requested to look at and possibly overturn, was a previous decision by the Court of Cassation. The legal principle stated:
“A decision by the Dubai International Arbitration Center (DIAC) to close a case file due to non-payment of the advance on arbitration costs constitutes a waiver of the arbitration clause as the object of arbitration has been defeated by the impossibility of pursuing the same. Thus, the respondent can proceed to court to assert his claims.”
The Technical Office sought the General Assembly’s opinion on a new principle to the effect that (a) a decision by DIAC to close an arbitration case as a result of non-payment of the arbitration costs shall not be deemed as a waiver of the parties’ rights under the arbitration clause, (b) the parties may not initiate court proceedings as a result of non-payment, and (c) neither party is precluded from resubmitting their claims before DIAC.
The General Assembly referred to (a) Article 45(1) of Federal Law No. 6 of 2018 on Arbitration (“Arbitration Law”), which states: “Arbitral proceedings are terminated by an award of the Arbitral Tribunal ending the whole dispute”, and (b) Article 54(4) of the Arbitration Law, which states: “Unless otherwise agreed by the Parties, the Arbitration Agreement shall remain in force according to this Law after the arbitral award is set aside unless the setting aside is based on an Arbitration Agreement that does not exist or has lapsed, or is void or incapable of being performed”.
The General Assembly confirmed that a valid arbitration agreement remains valid, even in circumstances where the arbitral award is considered null under UAE law. The General Assembly of the Court of Cassation therefore decided, by consensus, to reverse the legal principle that an arbitration clause lapses in the event DIAC closes a case file due to non-payment of the advance on arbitration costs. The General Assembly established a new principle that, absent a final award ending the whole dispute (within the meaning of Article 45(1) of the Arbitration Law), the arbitral institution’s decision not to proceed with an arbitration case and to close the case file due to non-payment of the arbitration costs shall not (a) result in the lapse of the arbitration clause, or (b) be deemed as a waiver of the parties’ rights under the arbitration clause. In addition, the General Assembly confirmed that neither party is precluded from resubmitting their claims with DIAC, and either party may invoke the arbitration clause before the courts.
This case involved an application before the Dubai Court of Cassation to set aside the decision of the Court of Appeal, which dismissed the Appellant’s claims because the Main Contract (as defined, below) contained an arbitration clause, which was neither included nor incorporated by reference in subsequent contracts, which had the effect of barring the litigation of the claims before the UAE court.
BackgroundThe Respondent engaged the Appellant to carry out various works according to the main contract between the parties dated 22 July 2018 (which we will refer to in this article as the “Main Contract”). The Main Contract contained an arbitration clause. The Respondent subsequently issued six purchase orders to the Appellant in August and September 2018 for various works within the same project (which we will refer to in this article as the “Subsequent Contracts”). There were no arbitration clauses in any of the subsequent contracts. The Appellant completed the work. However, the Respondent defaulted on its payment obligations.
The Appellant submitted its claims before the Court of First Instance. The Court of First Instance (a) held that the claims under the Main Contract were barred by the arbitration clause in that contract, but (b) ordered the Respondent to pay the outstanding amounts to the Appellant under the Subsequent Contracts (on the basis that the arbitration clause in the Main Contract did not bar the claims under the Subsequent Contracts).
The Respondent appealed the lower court’s decision before the Court of Appeal. The Court of Appeal set aside the lower court’s judgment and dismissed the action, holding that Subsequent Contracts were ancillary contracts to the Main Contract, and hence the claims under the Subsequent Contracts fell under the jurisdiction of an arbitral tribunal.
The Appellant appealed the decision before the Court of Cassation and sought a reversal of the ruling. The Appellant argued that the Dubai Court of Appeal erred in its reasoning and its application of the law. The Appellant further argued that the Main Contract was succeeded by the Subsequent Contracts, which formed as new and successive contracts, each different in cause and subject matter from the Main Contract.
The Court of Cassation dismissed the appeal and upheld the decision of the Court of Appeal.
The Court of Cassation held that the Court of Appeal reached the right conclusion, irrespective of the reasoning it gave, which the Court of Cassation may correct without reversing the Court of Appeal’s decision. It clarified that the issues raised on appeal, however viewed by the court, did not change or affect the outcome of the Court of Appeal. Thus, the Court of Cassation concluded that the appeal was moot.
An arbitration clause in the Main Contract extends to Subsequent ContractsThe Court of Cassation held that the Main Contract and the Subsequent Contracts were connected, “just as an accessory follows the principal”. The court thus held that the arbitration clause in the Main Contract extended to the Subsequent Contracts, which were executed between the same parties in respect of the same project, in chronological succession and with chronological cohesion. Notably, there was no clause in any of the Subsequent Contracts that expressly specified that the UAE Courts enjoyed jurisdiction over any dispute arising between the parties thereunder.
The Arbitral tribunal has jurisdiction to consider the dispute in its entiretyThe Court of Cassation held that the arbitral tribunal had jurisdiction to consider the dispute in its entirety, whether arising under the Main Contract or the Subsequent Contracts.
The Court of Cassation explained that, in principle, where parties have concluded multiple contracts of the same nature in chronological sequence, and an arbitration clause is embedded in the main contract (but not in the subsequent contracts), the arbitration clause covers, by extension, any disputes that may arise between the parties in the subsequent contracts, as long as the content of these contracts are not so diverse that the arbitration clause could not conceivably extend to include them together as a single entity.
The presumption was that the contracts were connected by reason of same parties and subject matter. Thus, the arbitration clause contained in the Main Contract extended to all disputes relating to or arising out of the parties’ contractual relationship under the framework of the Main Contract.
In summary, the foregoing court judgments are notable for a number of reasons.
First, the General Assembly reversed an established legal principle which stated that DIAC’s decision to close an arbitration case file due to the failure to pay arbitration costs results in the lapse of the arbitration clause and entitles the parties to resort to the courts. The General Assembly’s decision in Case No 10 of 2023 confirmed that closing a case file at DIAC due to the parties’ failure to pay the arbitration costs does not constitute a waiver of the parties’ rights under the arbitration clause.
Second, the Court of Cassation confirmed in Case 828 of 2023 that the Main Contract and the Subsequent Contracts are connected, and the arbitration clause contained in the Main Contract, by extension, covers any disputes that may arise between the parties in the Subsequent Contracts.
For further information,please contact Mosaab Aly, Malak Nasreddine, and Zane Anani.
Published in November 2023
