The evolving UAE approach to Unilateral Arbitration Clauses
Dispute Resolution / UAE
The validity of asymmetric arbitration agreements, including unilateral arbitration clauses, has been a subject of significant interest in the UAE, a growing hub for legal arbitration.
Law Update: Issue 376 – Transport & Insurance
Naief YahiaPartner, Head of Dispute Resolution - Dubai
Mosaab AlySenior Counsel,Dispute Resolution
Dina AssarKnowledge Lawyer,Dispute Resolution
The validity of asymmetric arbitration agreements, including unilateral arbitration clauses, has been a subject of significant interest in the UAE, a growing hub for legal arbitration. These agreements grant only one party the exclusive right to choose whether to refer a dispute to arbitration or to pursue an alternative forum, such as litigation. Termed "asymmetric" because it benefits only one party, these clauses provide an exclusive right to choose the dispute resolution forum.
Judicial opinions on these agreements also vary; some jurisdictions accept them based on the autonomy of the parties involved, while others reject them for potentially being unfair or violating equality principles among parties. Such clauses often do not reflect a mutual intention to choose arbitration as the exclusive means of dispute resolution.
The dispute in question arose from a commercial relationship between a contractor (the Contractor) and a subcontractor (the Subcontractor). The Subcontractor filed a lawsuit against the Contractor, seeking payment of AED 1,815,022. The Subcontractor claimed that it had fulfilled its contractual obligations, including waterproofing and suspended ceiling installation works, across five different projects. Despite fulfilling these obligations, the Subcontractor alleged that the Contractor failed to make the due payments for the services provided.
The Subcontractor filed a case for appointing an expert, and an architectural engineering expert was appointed who submitted a report concluding the amount claimed is due for the subcontractor.
On 17 April 2024, the Court ruled rejecting the Contractor's plea to dismiss the case based on the arbitration clause.
Judicial opinions on these agreements also vary; some jurisdictions accept asymmetric arbitration agreements based on the autonomy of the parties involved, while others reject them for potentially being unfair or violating equality principles among parties. As such clauses often do not reflect a mutual intention to choose arbitration as the exclusive means of dispute resolution.
This topic was previously discussed in our article published in Law Update Issue 369, which reviewed the previous stance of the Dubai and Abu Dhabi Courts of Cassation on this issue in Dubai Courts of Cassation judgment dated 21 March 2021 and Abu Dhabi Court of Cassation judgment dated 19 August 2021.
Previously, the UAE courts upheld and enforced asymmetric arbitration agreements, demonstrating a tendency to uphold the contractual choices that favour one party over another. This demonstrates that UAE courts generally respect and enforce the parties' agreed mechanism of dispute resolution, even if it favours one party over the other.
However, the Dubai Court of Cassation's recent ruling No. 735 of 2024 dated 29 October 2024 addressed the validity of unilateral arbitration clauses and their impact on the jurisdiction of state courts.
The Dubai Court of Cassation decided in this case, that this clause would not be upheld by the state courts of the UAE and is invalid as it cannot obstruct the jurisdiction of state courts in hearing the dispute. This is because it is considered a discretionary clause.
Furthermore, the court highlighted in its ruling, that this type of clause restricts the other party from seeking a dispute resolution forum and depends on the whims of the party empowered by the unilateral clause, which may favour their own interests.
However, upon a detailed examination of the facts of this case, it is apparent that the Dubai Court of Cassation's conclusion is specifically based on the interpretations and provisions of the agreement in question, rather than establishing a general rule.
While the court's reasoning may suggest a shift in the Dubai Court's approach towards asymmetric arbitration agreements, it is important to recognize that this perspective is evolving. In the specific case discussed below, the court's analysis was specifically grounded in the interpretation and understanding of the agreement between the parties involved.
In this article, we provide an overview of asymmetric arbitration agreements/unilateral arbitration clauses and clarify the Dubai Court of Cassation's stance. It will also serve as guidance for future disputes involving such clauses as we await the general circuit’s approach.
The Court found that the arbitration clause was not binding, allowing the case to proceed in court. The Contractor, in its defense, argued that the dispute should be resolved through arbitration rather than in state court where the arbitration clause in question granted the Contractor the unilateral right to choose between arbitration and court proceedings for dispute resolution.
The Contractor appealed the judgment for rejecting the plea of the existence of an arbitration clause. On 13 June 2024, the Court of Appeal upheld the lower court's ruling.
On 25 June 2024, subsequently, the Contractor took the matter to the Court of Cassation, arguing that the contracts provided them the sole discretion to decide the dispute resolution forum either arbitration or state court.
However, the Court of Cassation upheld the lower’s court rulings, stating that the arbitration clause did not conclusively bind the parties to arbitrate and therefore did not prevent the state courts from hearing the dispute.
The Court of Cassation clarified that under Articles 1, 2, 4, 5, 6, and 7 of the Arbitration Law No. 6 of 2018, arbitration is explicitly agreed upon by the parties to handle either existing or potential disputes, serving as an alternative to local courts. The Court emphasized that such an agreement must be explicit, clear, and unambiguous, and it cannot be assumed or inferred indirectly; explicit consent is required for an arbitration agreement to be applicable.
Furthermore, the Court of Cassation stated that: As clear from the papers and the translation of the two subcontracts provided and relied upon by the Appellant, the relevant clause in the subcontracts reads:
“Any dispute arising out of the interpretation or performance of any clause in this contract shall be amicably settled between the parties, failing which, the same shall be referred either to (a) arbitration at the Dubai Chamber of Commerce or (b) the local court in the UAE. The method to be adopted shall be decided by the Contractor (Appellant).
The above clause is not a binding agreement to arbitrate precluding the State Courts from hearing the dispute. Any arbitration clause that offers a parallel or alternative to State Court jurisdiction (while containing only the principle of recourse to arbitration but not a definitive agreement to use binding arbitration as an exclusive process) is non-binding. There is no merit in the Appellant’s contention that the relevant clause in the subcontracts grants only them a choice between the State Courts and arbitration for the resolution of their disputes with the Respondent. As it stands, the said clause denies the Respondent the benefit of the choice of forum, confining the Respondent to the specific forum of the Appellant’s choice. The fact remains that a unilateral arbitration clause is a discretionary clause that does not properly oust the jurisdiction of the State Courts.”
Accordingly, the Court of Cassation examined the validity of unilateral arbitration clauses based on the agreement between the parties, which allows one party the choice between state courts or arbitration in the event of disputes. Where the Dubai Court of Cassation decided that this clause will not be upheld by the state courts of the UAE, it is invalid as it cannot obstruct the jurisdiction of state courts in hearing the dispute. This is because it is considered a discretionary clause, based on the principle that the arbitration clause in the agreement coexists alongside or allows a choice between the jurisdiction of the state judiciary and arbitration, without definitively committing to arbitration alone. Thus, it is not binding.
Therefore, such a clause is not enforceable, as it did not establish a definitive agreement to forgo court jurisdiction exclusively in favour of arbitration.
Previously, UAE courts have shown a tendency to uphold asymmetric arbitration agreements, respecting the contractual choices that favour one party over another. This approach was based on the principle of party autonomy, where the courts generally enforced the agreed mechanism of dispute resolution, even if it provided one party with the exclusive right to choose between arbitration and litigation. This stance was evident in previous judgments, where the courts upheld the validity of such clauses, demonstrating a willingness to respect the flexibility and discretion granted to one party in the agreement.
However, the recent ruling by the Dubai Court of Cassation indicates an evolving approach to this matter. The court has declared in this case that the unilateral arbitration clause is invalid based on the interpretation of the agreement between the parties, emphasizing that such a clause does not conclusively bind the parties to arbitrate and cannot obstruct the jurisdiction of state courts. The court highlighted that this clause in the agreement is discretionary and does not reflect a mutual intention to exclusively resolve disputes through arbitration.
This new stance highlights the importance of explicit, clear consent in arbitration agreements, ensuring that both parties are equally committed to the chosen dispute resolution mechanism. This ruling indicates a move towards greater fairness and equality in arbitration agreements, aligning with judicial opinions that view unilateral clauses as potentially oppressive and undermining the principle of mutual consent. It must be noted that this approach may also change and the legal landscape may evolve further if the issue is referred to the general circuit.
For further information,please contact Naief Yahia, Mosaab Aly and Dina Assar.
Published in April 2025
