Why Arbitration Is the Preferred Dispute Resolution Method in the UAE

Introduction

When considering the United Arab Emirates’ ever-evolving economic landscape, which has positioned the country at the forefront of international business, trade, finance, and large-scale construction projects, having an effective dispute resolution mechanism is not just a preference for businesses operating within the UAE but an economic necessity. This preference has been particularly evident in the past three years, with the establishment of institutions such as ArbitrateAD and DIAC. Notably, arbitration is emerging as the preferred form of dispute resolution for most businesses, which are steering away from litigation. This is primarily due to the seamless integration of the UNCITRAL Model Law on International Commercial Law into the UAE’s Arbitration laws, which provides it with certain advantages over other modes of dispute resolution. This article will explore these aspects and their impact on the system of dispute resolution.

1. A Modern and Legally Aligned Framework

The adoption of the universally accepted UNCITRAL Model Laws into the UAE Arbitration laws came through the entry into force of the Federal Arbitration Law No.6 of 2018, which repealed Articles 203 to 218 of the UAE Civil Procedures Law No. 11 of 1992 (‘CPC’). This previously governed arbitration in the UAE. The new arbitration laws, largely modelled on the UNCITRAL Model Law on International Commercial Arbitration, were enacted with 61 provisions across six chapters, aiming to modernise the current arbitration process and align the UAE arbitral framework with international standards¹. However, the introduction of amendments in September 2023 has been the highlight of the arbitration landscape in the UAE. These amendments introduced broader default confidentiality of the arbitration proceedings, virtual proceedings, conditions for the members of arbitral institutions’ supervisory and controlling bodies to be appointed as arbitrators and reaffirmed the tribunal’s discretion over the rules of evidence.²

2. Key Advantages Over Traditional Litigation

Arbitration offers distinct benefits that directly address the shortcomings of litigation in complex, cross-border commercial contexts.

a. Speed and Efficiency: Arbitration essentially avoids the procedural delays which are typical of court litigation due to flexible procedures, tailored timelines, expert arbitrators, and limited appeals, offering faster, private resolution for complex commercial cases.

b. Neutrality: Challenges faced by litigation in cases related to personal jurisdiction and services of process can be addressed in a neutral forum for dispute resolution in arbitration. This benefits international businesses engaging in arbitration in the UAE from impartial administration, effectively minimising the risk of bias in the process.

c. Limited ground for Challenging Awards: This feature of arbitration provides a finality to decisions by providing limited grounds for challenge.³

d. Cross-Border Enforcement: The nature of the enforcement of the arbitral awards further provides for a smoother dispute resolution process, while the UAE courts’ judgements are enforceable only within the UAE.

e. Party Autonomy: Parties to the arbitration proceeding have the option to select their arbitrators, seat of arbitration, governing law and procedural rules. This essentially allows for greater party autonomy as compared to traditional litigation.

3. Robust Enforcement of Arbitral Awards

The UAE became a signatory to the New York Convention in November 2006, ratifying it through Federal Decree No 43 of 2006. Although they have ratified the convention in theory without reservation, there are still areas where UAE courts have not been clear on their enforcement of an award rendered in a non-New York Convention country. However, after signing the convention, the UAE courts have relaxed their adherence to the strict provisions of domestic legislation for ratification of foreign awards and there has been a more liberal enforcement regime of the New York Convention.

The UAE’s Arbitration Law also facilitates the enforcement of domestic arbitral awards. The enforceable arbitral award has the same status as a court decision and can be enforced by the UAE courts via an ‘execution order’ (Exequatur). The reasons for refusing to enforce the award are limited to the grounds specified by the New York Convention (e.g., invalidity of the agreement, absence of due process, or violation of public policy).

Conclusion

Arbitration procedures are no longer optional but are now the preferred forum of choice among businesses to settle their disputes rather than proceeding through litigations. It is safe to conclude that the UAE is now home to the most attractive modern “UNCITRAL model” arbitration law, which is combined with the undeniable benefits of speed and flexibility of the chosen method of resolving disputes. With the UAE’s continued advancement as the world’s hub of international transactions of commerce and the future growth of the MENA economy remaining contingent on promoting an attractive and facilitative environment that is conducive to international investment and commerce by adopting the best practices of international arbitration, the UAE’s current undertaking is clear.