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Court of Appeal Overrules the Ratification of a DIAC Award

18/9/2020

The Claimant Company, a supplier of construction material, entered into an agreement with the Respondent, a subcontractor, in which they agreed to settle any disputes arising in relation to the agreement through arbitration in accordance with the DIAC Rules.

Motei & Associates was instructed by the Respondent in recent legal proceedings between two parties (details for which must remain confidential) before the Dubai Courts in relation to the ratification of an arbitral award issued by the Dubai International Arbitration Centre (DIAC).

Appeal Court’s rationale

An arbitrator is under an obligation to give the parties a reasonable opportunity to present their case. Failure to do so gives legal grounds for the annulment of the resultant arbitral award.

Facts of the Case

In the above case, the Claimant company, a supplier of construction material, entered into an agreement with the Respondent, a subcontractor, in which they agreed to settle any disputes arising in relation to the agreement through arbitration in accordance with the DIAC Rules.

The Claimant claimed that the Respondent failed to perform its contractual obligations and initiated arbitration proceedings pursuant to the DIAC Rules. In finding for the Claimant, the sole arbitrator ordered the Respondent to pay the Claimant damages and legal fees for breach of contract, amounting to about AED 361,486 with 5% per annum legal interest.

The Claimant initiated ratification proceedings before the Dubai Court of First Instance.

The Dubai Court of First Instance’s Decision

Before the Court of First Instance, the Respondent challenged the ratification action, requesting the annulment of the award on the grounds that the Respondent was not granted a reasonable opportunity to present its case. Respondent argued that:

  • The Claimant had erroneously stated Respondent’s name in both the request for arbitration and its statement of claim. As a result, the Respondent had never been properly notified, and was therefore unaware of, the arbitration proceedings.
  • On realizing such error, the arbitrator issued a procedural order to rectify the name of the Respondent and re-notify it with the correct name.
  • Immediately upon being notified of the arbitration proceedings, the Respondent, on 27 December 2011, through its manager (as stated on the Respondent’s trade license), has responded and requested the arbitrator to be granted time to appoint a lawyer and submit its statement of defense.
  • On 6 January 2012, the arbitrator dismissed the Respondent’s request, and rendered his award. In the award, the arbitrator stated that “the Respondent’s request for time was submitted without an official power of attorney”, a fact that the Respondent contested in the proceedings.

The Court of First Instance dismissed the Respondent’s arguments, and ordered the ratification of the arbitral award.

The Court of Appeal

On the Respondent’s appeal, the Dubai Court of Appeal ruled that the arbitral award was null and void because the arbitrator had failed to observe the adversarial principle (“principe du contradictoire”) that gives the parties the right to present their case fairly. The Court of Appeal further found that the rejection of the Respondent’s request was made on baseless grounds without legal justification.

The Court of Appeal considered that the arbitrator, based on the submitted trade license, should have, the least, given the Respondent the opportunity to appear before him and present his authority, taking into account the date on which the Respondent has been officially notified of the proceedings (i.e. 27 December 2011), and the date of issuing the award (i.e. 6 January 2012). As such, under Article 216 of the UAE Civil Procedures Law, the Court of Appeal overturned the prior Court’s decision and set aside the award, ordering the Claimant to pay all court and legal fees for both sets of court proceedings. In this regard, in order to recognise and enforce an arbitration award under domestic law in the UAE, such award must be legally valid and free of any flaws.

No appeal was filed by the Claimant before the Court of Cassation within the legal time limit, hence, the above Court of Appeal judgment became final and subject to no further appeal.

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