Author(s):F Sakaf

Arbitration Award Vs Public Order

“Public order is a fragile thing, and if you don’t fix the first broken window soon all windows will be broken”

James O Wilson

Many of us flinch at the thought of court proceedings, given its costly and lengthy nature. But luckily for us, alternative methods of settling disputes exist such as arbitration. Arbitration in the modern world has become the most favorable option for many investors and is today welcomed by developed countries that are eager to attract international investments in their region. It is not difficult to see why arbitration is the most appropriate resolution when it comes to handling disputes between parties and their delicate issues. When you as a litigant, choose arbitration, you can rest assured that your case will be handled diligently by an expert who understands the technicality of the subject. This is in contrast to giving the case to a judge and crossing fingers that he will hand it to the right expert! Not to mention that arbitration proceedings are faster than court procedures and that one can rely on arbitration especially when the deal is between parties from different territories and jurisdictions and they do not trust litigation in any of each country.

Domestic Matters

Each side can appoint the arbitrator(s) or the selected arbitration center. When the appointed arbitrator(s) receives the claims and responses of the parties, he issues an award, which according to UAE law is binding and final. It is true that the UAE Federal Law Number (11) of 1992 concerning Civil Procedures (the Civil Procedures Code) has given the power to arbitration awards to be final, binding and ready for execution in courts. This means that no party after receiving the Arbitration award can seek an appeal as it cannot be modified, which leaves the defeated party with one card left which is the annulment of the award. In contrast, the civil procedures code has given an exception in certain cases mentioned in article 216 where the court can annul an arbitration award. One of the reasons why the courts decided to annul arbitration awards was based on the violation of public order. This was clearly mentioned in the civil procedures code which states that “the litigant parties may request the nullity of the arbitrators' decision when the court examines its authentication, and that shall be in the following circumstances: If a nullity in the decision or a nullity in the procedures which has affected the decision has occurred”. As per this article and according to the courts, violation of public policy leads to the nullity of the judgment.

What’s Said is Said

Unlike the UAE, the French took a further step, they did not want to give arbitrators’ awards power over court judgments and allowed arbitration awards to be appealed, although only for internal arbitration awards. As for international arbitration awards, they are final and binding according to the French law.

Moreover, as per Article 203 of the UAE Civil Procedure Code which states that “Arbitration is not permitted for matters which cannot be settled” and a matter which cannot be settled becomes a matter of public policy. This means that if an Arbitration award was found to be in violation of public order, then it will be annulled. One might think that a violation of federal policy is a rare and non-applicable case; however, this subject matter has appeared in courts many times, especially in real-estate and constructions cases, and has raised eyebrows as it seems that it can apply to anybody!

It is essential to understand what public policy is according to the UAE laws. As defined, Public Policy is a group of fundamental interests which society stands for be it political, economic or social and it is found to protect the interests of the public and must be respected and followed by all members of the society even when it is unfavorable to some. The term public policy is broad and could differ from one community to another and what is considered a violation of public policy in the UAE could be deemed acceptable outside UAE. One should also bear in mind that any agreement or award which is in violation of public policy shall be deemed null and void by the higher courts of the UAE. Federal Law Number (5) of 1985 concerning Civil Transactions defined the term public policy in Article (3) by stating that “Shall be considered of public policy, provisions relating to personal status, such as marriage, inheritance, lineage, provisions relating to systems of governance, freedom of trade, circulation of wealth, private ownership and other rules and foundations on which the society is based, provided that these provisions are not inconsistent with the imperative provisions and fundamental principles of the Islamic Sharia” . Given this, one might wonder how an arbitration award could violate public policy?

In a compelling real estate case raised before the Dubai Court of Cassation under the number 190/2011, the Court decided to annul an arbitration award. The award was rescinded since the contract signed between the purchaser and the developer for the sale of an off-plan unit was not registered in the Interim Real Estate Register “the Register” thus making it a contract in violation of public policy. The purchaser sought relief to the arbitrator to annul two purchase contracts entered into with the developer because the purchase contracts were not registered in the Register as required by Article 3 of Federal Law Number 13 of 2008 on the Interim Real Estate Register in Dubai which states as follows:

‘The Interim Real Estate Register is used to record all disposals of Real Estate Units off plan. Any sale or other disposition that transfers or restricts title or any ancillary rights shall be void if not recorded on that Register’.

In its judgment, the court stated that since the arbitrator who handled this case knew during the proceedings that the contracts were not registered, the Arbitrator was aware of the violation of public order and did not have jurisdiction over the case. Accordingly, this made his arbitration award null and void. The Dubai Court of Cassation also took a similar position in case number 14 of 2012. It follows that investors and developers must be aware that off-plan units which are not registered in the real estate registry will eliminate the jurisdiction of arbitration due to the lack of registration of the unit and will become a matter of public policy which will be within the sole jurisdiction of the courts. Any agreement relieving the courts from their jurisdiction in such cases will also be annulled.

This shows how strong public policy is against an arbitrator's final awards. It is clear that the UAE laws have set the position that nothing will supersede the UAE public policy and that no arbitration award violating public policy shall be executed whether such award was issued inside or outside the UAE. Also, a judge can look into the matter of public policy and annul the arbitration award without restrictions to litigant’s request. Such annulment cannot be rectified, canceled, and a litigant can claim annulment under public policy even at the cassation stage.

What Should the Arbitrator Do in Event of Violation of Public Policy?

Generally, in such matters, the arbitrator states that he does not have jurisdiction over the matter. Nevertheless, some experts believe that the arbitrator should dismiss the case and others think that the arbitrator should issue his award for the annulment of the contract. Regardless of arbitrators’ opinions, investors should be careful when filing their case due to non-registration of their units by developers. One must first check with a real-estate lawyer to understand the correct process of filing a real estate case to assure no time and effort are wasted. The bottom line is that in the event where the developer sells you a non-registered unit you go to the court to annul the arbitration jurisdiction in your contract and to demand the termination of the signed agreement. Usually, developers in such cases will not say anything during the process of arbitration until you receive the arbitration award in your favor and go to the Court. Once the Court executes the award, the developer will have the right to request the annulment based on the violation of public policy. Therefore, it is recommended to go to Court directly in such cases.

Eventually, there has to be a balance between protecting the public order, which preserves the values of the community, and arbitration which supports investors from around the globe to invest in the country, and which is a gate to international investments and economic development in the region. The UAE has indeed taken a significant step in terms of creating platforms for arbitration through global arbitration centers. However, we need to set clear standards on what is to be deemed as part of the public order rather than just giving examples in the law and leaving it up to the Court to decide, and most importantly the public must be educated on what is considered a public policy and a violation.