Arbitrating in the Middle East – trends, tips and traps

With the establishment of new seats, new institutions and the continued modernisation of arbitration laws, Middle Eastern parties are increasingly looking towards local options for arbitration. Dyfan Owen and James MacDonald outline key practical considerations when arbitrating in the Middle East or with a Middle Eastern counterpart.

Arbitration laws

Arbitration laws in the region are continuing to modernise; the UNCITRAL Model Law has been adopted either in whole or in part in a number of jurisdictions. In 2015, Bahrain enacted a new standalone arbitration law which directly adopts the UNCITRAL Model Law. Egypt, Jordan, Oman and Saudi Arabia also have arbitration laws which are based on the UNCITRAL Model Law. 

However, there are still some gaps in the application of standalone arbitration laws based on the UNCITRAL Model Law. In the UAE and Qatar, for example, arbitration is regulated by articles in the countries' civil procedure codes, which are not based on the UNCITRAL Model Law. However, arbitration laws based on the UNCITRAL Model Law do apply in certain free zones in the UAE and Qatar.

In Qatar separate arbitration laws apply to arbitration seated in the Qatar Financial Centre (QFC). In the UAE, separate arbitration laws apply to arbitrations seated in the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM). These free zones each have their own independent English language courts, with judicial panels of renowned commercial and civil law judges. They therefore offer an attractive choice of seat in the region, due to the application of modern arbitration laws and the option to have recourse to the free zone courts if required.

Arbitral institutions

The Middle East has a number of well-established and active arbitration centres. The Cairo Regional Center for International Commercial Arbitration (CRCICA) is one of the oldest centres in the region (and globally), having been established in 1979. In 2015, 54 arbitrations were filed before CRCICA. The Dubai International Arbitration Centre (DIAC) is another active arbitration centre in the region, particularly in respect of real estate and construction disputes. Following the global financial crisis, DIAC saw a spike in its caseload, with 440 cases registered in 2011. Although more recently its caseload has dropped to around 150 cases per year.

There are also arbitration centres in the region which have been established in partnership with international arbitration centres. For example, the DIFC-LCIA Arbitration Centre is an independent and well regarded arbitration centre located in the DIFC. It was established in 2008 in partnership with the London Court of International Arbitration (LCIA). Under the DIFC-LCIA Arbitration Rules (which were recently updated to bring them in line with the 2014 LCIA Rules), a number of functions, such as the appointment of arbitrators, are performed by the LCIA Court. This means that the DIFC-LCIA has access to the LCIA's database of arbitrators with a wide range of professional qualifications and expertise (legal and non-legal). 

The number of arbitration institutions in the Middle East continues to grow, reflecting the growing interest in and use of arbitration in the region. In Saudi Arabia a new arbitration centre, the Saudi Center for Commercial Arbitration, opened in 2016. Its arbitration rules are based on the UNCITRAL Arbitration Rules and it also has a set of mediation rules (the AAA-ICDR Mediation Rules). In Dubai, a new arbitration centre specialising in maritime disputes, the Emirates Maritime Arbitration Centre, was officialy launched in November 2016. It is also expected that an arbitration centre will be set up in the recently established ADGM.

Relevant Treaties

Enforcement of awards is a key consideration in respect of any arbitration. Most countries in the Middle East are signatories to the New York Convention (including Egypt, Iran, Jordan, Qatar, Oman, Saudi Arabia, Syria and the UAE). However, despite the New York Convention being applicable, it is not unusual for some first instance courts in the region to refuse enforcement or to re-open the merits of the dispute. In general, such action by local courts is becoming less common as jurisdictions become more arbitration-friendly and courts become more knowledgeable about arbitration as a form of dispute resolution.

There are also two regional treaties which govern the enforcement of arbitration awards between member states (the 1983 Riyadh Arab Agreement for Judicial Cooperation (the Riyadh Convention) and the 1996 GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications).

The Riyadh Convention has been ratified by a number of countries which are not signatories to the New York Convention, such as Iraq, Libya, Sudan, Somalia and Yemen. Accordingly, where enforcement of an arbitration award may be required in one of these countries, there may be advantages to seating an arbitration in another Riyadh Convention member state, such as the UAE. However, it is worth bearing in mind that the Riyadh Convention does not apply to awards against a government. In addition, it requires a party attempting to enforce in the jurisdiction where assets are located to obtain a certificate from a judicial authority where the award was granted confirming that the award is enforceable.

Recent developments

In Saudi Arabia, 2016 saw the first known enforcement of a foreign arbitration award since the enactment of Saudi Arabia's new Arbitration Law in 2012. The award was a US$18.5 million award obtained by a UAE subsidiary of a Greek telecommunications company in an ICC arbitration seated in London. This is a significant development, given that Saudi Arabia is the region's largest economy, and reflects a growing understanding and acceptance of international arbitration by local courts in the Middle East.

In the UAE, however, there has been recent cause for concern among the arbitration community after changes to Article 257 of the Penal Code introduced a punishment of imprisonment for arbitrators who fail to "maintain the requirements of integrity and impartiality" in their capacity as arbitrator. There is concern that the law, which had previously applied only to translators and court appointed experts, may be abused by disgruntled parties making unsubstantiated criminal complaints against arbitrators. A number of arbitration practitioners have called for the amendment to the Penal Code to be reviewed, and it remains to be seen whether any further changes will be made to the law or guidance issued to clarify how the law will be applied in practice. 

Tips and traps 

The existence of multiple arbitration seats within one country is a frequent cause for confusion among parties and practitioners. It is therefore important when drafting an arbitration clause to clearly specify the intended seat. For example, if parties wish to seat their arbitration in the DIFC (to take advantage of the DIFC's modern arbitration law and to have recourse, if required, to the DIFC Courts), the arbitration agreement should specifically refer to the DIFC as the seat of arbitration rather than simply referring to "Dubai" or "the UAE".

When entering into an arbitration agreement with a Middle Eastern counterparty, it is also important to be aware of any applicable requirements regarding authority to enter into an arbitration agreement (which may vary from jurisdiction to jurisdiction). For example, in the UAE, federal government departments must obtain approval from the Council of Ministers and the Ministry of Justice before entering into an arbitration agreement. When entering into agreements with commercial entities in the UAE, it is advisable to ensure that the individual signing the contract containing an arbitration agreement has specific authority to enter into an arbitration agreement (rather than just a general authority to sign the contract). 

Finally, it is important that any award complies with any formal requirements applicable in the country where the arbitration is seated and where enforcement may be sought (such as the arbitrators signing each page of the award in the jurisdiction where the arbitration is seated) and, in some cases, with sharia law. If enforcement of an award may be required in Saudi Arabia, it is advisable to ensure that the award clearly distinguishes between any order for the payment of interest and payment of principal, or that a separate award is rendered which does not provide for the payment of interest (as the charging of interest is considered contrary to sharia law).

Our interactive PDF has been designed to assist in deciding which disputes forum is most suitable when negotiating dispute resolution clauses with Middle Eastern counterparties. If arbitration is preferred, it also provides guidance on the options in terms of the place of arbitration and the institutional rules to apply.