Arbitration - A Challenging Issue

Legal Rule

By force of law an Arbitrator(s) has to suspend the arbitration proceedings with immediate effect if a party to an arbitration process challenges the arbitrator while or during the arbitration processes are going on, until a resolution has been made on the challenge which was has been raised by such party by an authority or court of law which has the right to rule on such a point.

If the arbitrator continues with the arbitration processes despite such a challenge raised by a party or after knowing that such a challenge exists, any actions or decisions made by him pursuant to such challenge shall be considered as null and void as per Article 216 of the Civil Procedures Law of UAE.

Further, the same invalidity shall also apply even if the facts/grounds on which the challenge is based is untrue or incorrect. The arbitrator is bound by law to stop proceedings as soon as the challenge is made irrespective of whether or not the validity of such a challenge is sound. A decision on the challenge can only be made by the competent court.

Additionally, the law also says that for a challenge to be valid it may be based on a rule or law which is not specifically listed as conditions for challenge under the arbitration rules of the arbitration center.

Facts of the case

The claimant filed a case in the Dubai Commercial Court to ratify and recognize the arbitration award passed by the arbitration tribunal on the grounds that it was agreed between the parties that any dispute arising between them shall be settled through arbitration through the Dubai International Arbitration Center (DIAC) in accordance with the DIAC rules by a single arbitrator to be appointed from the DIAC's list of arbitrators.

The Court accepted the request and proceeded to ratify the arbitration award. The defendant in the arbitration proceedings was directed to comply with the award and pay the legal as well as arbitration charges to the claimant.

The defendant was not pleased with this and filed a case at the Court of First Instance seeking to nullify the effect of the ratification and thus the arbitration award.

Petitioner's Arguments

The defendant in the arbitration proceedings petitioned the Court of First Instance that the arbitration awards should be nullified and voided because the petitioner had, during the arbitration processes, filed a civil case (challenge) in the court of law relating to the subject matter of the dispute. He contended that although his case was dismissed by the Court of First Instance, the case was being still being appealed. Accordingly, he argued that as per Article 216 of the Civil Procedures Law of the UAE, the arbitrator was bound to wait till a judgment was made on the appeal or until it was dismissed.

The Court accepted this point of view and ruled that the arbitration awards is void and null since the Appeal was still going on.

The decision of the lower court was upheld by the Court of Appeal when it reached the appeal stage.

Grounds of Appeal

The claimant in the Arbitration proceedings approached the Court of Cassation to set aside the judgments made by the lower courts and to uphold the original arbitration award which was ratified by the competent court.

The claimant contended that the conditions to challenge the arbitrator have been exclusively listed in the DIAC rules. The arbitrator has no reason to uphold a challenge if such a challenge is based on issues which are not specifically listed in the DIAC rules. Additionally, the challenge which was made by the petitioner to the Arbitration center was made after a period of 5 days which is why the arbitrator did not consider it as a serious challenge. More importantly, the claimant argued, the challenge was not based on the list of issues which needs to be mandatorily followed for a challenge to be valid. The Claimant further submitted that the law did not oblige an arbitrator to stop proceedings in the case of a challenge in such a case. The arbitrator has full discretionary powers to make a decision on the validity of a challenge especially if he feels that the challenge was not a serious one which was made with the sole intention of delaying the arbitration processes. The conclusive and sole rule which should be used as the reference in determining the validity of challenges shall exclusively be Article 39 of DIAC rules.

Court Judgment

The Court disagreed with the arguments raised by the original claimant. It ruled that Article 216 of the Civil Procedure Law of UAE allowed for the nullification of an arbitration award if there is any mistake in the arbitration judgment or if there was a mistake in the procedure which led to the judgment. According to Article 39 of Decree No. 2 of 1994, the arbitration proceedings shall be suspended if there is a challenge which is based on cases listed in the said Article. However, the court observed that the same article did not mention these cases on an exclusive and exhaustive basis. The court interpreted that a party may raise a challenge even based on general laws of the country even if they are not specifically mentioned in above-mentioned the DIAC rules as conditions to challenge.

According to general laws of the UAE, a challenge raised by a party to arbitration processes is enough to stop the proceedings till a resolution is made on the challenge. The arbitration proceedings should not proceed even if a challenge is untrue or baseless since the arbitrator is not the authority to make a ruling on such issues. In the event, the arbitrator continues with the arbitration processes despite knowing that a challenge has been raised then his award shall be null and void as per Article 216 of the CPL.

Dr. Hassan Elhais is a legal consultant in Dubai, specializing in the drafting of all statements of claim, memos and consultation on litigation of all manner.