Country focus: Arbitration in the Middle East

Businesses in the Middle East are increasingly seeing the advantages of arbitration over litigation. This demand has led to widespread arbitration law reform, so an understanding of national legislation and the Rules of local arbitral institutions is vital.

By Philip Punwar, Barrister (England & Wales), Chartered Arbitrator and Accredited Advocate of the Dubai International Financial Centre Courts

The legal and cultural diversity of the Gulf and wider Middle East makes it difficult, if not unwise, to generalise about the practice of arbitration in the region. Suffice it to say that just as arbitrating in Tokyo may give rise to very different considerations to those arising when arbitrating in Hong Kong, so arbitrating in Riyadh may differ markedly from arbitrating in Beirut, Cairo, Doha or Dubai.

Arbitral proceedings with their legal seat in any of the above jurisdictions can only be effective to the extent that the seat chosen is strategically appropriate to (i) the parties concerned (ii) the particulars of their contractual obligations (iii) the governing law of their contract and (iv) each party’s assessment of the most likely enforcement scenario. If expert arbitration advice is not sought prior to the finalisation of the parties’ arbitration clause, little can be done to unilaterally alleviate the ill effects of an inappropriate choice of seat or arbitration rules.

In choosing an arbitral seat in the region it is crucial to consider the modernity of the national arbitration law at the seat and whether or not the chosen jurisdiction is party to relevant bi-lateral or multi-lateral treaties for the recognition and enforcement of foreign judgments and arbitral awards.

National Arbitration Laws

Many states in the region would claim to be arbitration friendly in that they permit the arbitration of civil and commercial disputes, strive to respect party autonomy in the choice of arbitrators and procedure and, most importantly, provide mechanisms for the recognition and enforcement of domestic and foreign arbitration awards through their courts. National laws do, however, vary considerably. Saudi Arabia is almost alone in requiring arbitrators to be Muslim males, but laws that circumscribe the powers of arbitrators and require arbitral proceedings to be suspended pending applications to the court are still found, albeit with decreasing frequency. Not all arbitration laws provide a default procedural framework for ad hoc arbitrations and, even where appeals on points of law are prohibited, awards may still be susceptible to review on the merits at the ratification/enforcement stage. In a number of jurisdictions certain parties may be limited in their choice of substantive law.

The selection of an appropriate seat is helped by knowing that an increasing number of states throughout the region have arbitration laws based on the UNCITRAL Model (Arbitration) Law. To date these include Bahrain, Egypt, Iran, Jordan and Oman. It is important to note, however, that Egypt, Jordan and Oman’s legislation incorporates significant changes to the Model Law’s basic text. Lebanon’s arbitration law draws heavily on similar French law and is well regarded, particularly where the enforcement of foreign awards is concerned. Both Kuwait and the United Arab Emirates (UAE) look likely to soon introduce arbitral legislation based on the Model Law. A draft of the UAE’s proposed new arbitration law was released for public discussion by the Ministry of Justice in September 2006.

Arbitral institutions

For parties wishing to have their arbitrations administered regionally, important arbitration centers may be found in Cairo, Dubai and Bahrain. Less high profile centers may be found attached to Chambers of Commerce throughout the region. New centers are in the process of being established in Saudi Arabia and Qatar.

In the UAE, the Dubai International Arbitration Centre (DIAC) has ambitions to be the leading arbitration center in the region; a position traditionally held by The Cairo Regional Centre for International Commercial Arbitration. The DIAC looks well placed to succeed over the Cairo Centre, largely because Dubai itself is an increasingly important, attractive, convenient, secure and technologically advanced regional business hub with an ever increasing pool of legal, financial and construction professionals drawn from around the world. Equally significant, however, is the high level of support the DIAC is receiving from the wider international arbitration community.

A jurisdictionally more specialised arbitration center currently in the process of establishment in Dubai is that attached to the Dubai International Financial Centre (DIFC). The DIFC is a financial free zone with its own English language commercial laws and an English language Court of First Instance and Court of Appeal modeled on the English Commercial Court and Court of Appeal. The current Chief Justice of the DIFC Courts is the retired English Court of Appeal Judge, Sir Anthony Evans. The DIFC Arbitration Law closely follows the wording of the Model Law and came into force in 2004. Awards made in arbitral proceedings with their seat in the DIFC (and which are governed by the DIFC Arbitration Law) will be ratified by the DIFC Court and thereafter enforced by it within the DIFC or by the Dubai Courts elsewhere within Dubai.

Enforcement of Foreign Arbitration Awards

The UAE is the most recent state in the region to accede to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Other New York Convention states include Bahrain, Egypt, Iran, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and Syria. Unlike in the European Union, there is no multilateral recognition and enforcement treaty for the wider Middle East region. The 1983 Riyadh Convention on Judicial Cooperation between States of the Arab League does, however, provide for the mutual recognition and enforcement of judgments and awards between a limited number of states in the MENA region.

The ease with which arbitration awards can be enforced varies considerably from state to state and should be investigated at the contract drafting stage. Domestic arbitration awards applying domestic law will generally be more easily enforced than foreign awards, particularly those applying foreign law. The chances of enforcing foreign awards will be greater in states that have ratified or acceded to the New York Convention, particularly if the award to be enforced itself originates from a New York Convention state.

Conclusion

Foreign and domestic pressure on regional governments to improve their country’s investment climate has produced widespread and competitive arbitration law reform throughout the Middle East. As with anywhere, however, careful research must be carried out before committing to any particular seat in the region.