Arbitration: Valid or invalid

October 19, 2016

Author: Hassan Elhais

Legal Principle

A party to an arbitration contract has right to request the annulment of arbitration award if arbitrator did not follow the procedures contained in the arbitration contract or the agreed terms of reference.

Terms of reference

Terms of reference are the agreement between the arbitrator(s) and the parties containing the rules applicable to arbitration, procedural timetable, and the list of issues to be decided by the arbitration tribunal.

Facts

The claimant filed a case in court requesting the ratification of a final arbitration award to enforce the respondent to pay the awarded amount. The claimant in its claim also requested the court to direct the respondent to pay an extra 5% of the awarded amount for not following a court order. The court of the first instance accepted the claimant's request and ruled that the respondent shall pay the awarded amount and the extra 5% as claimed by the claimant.

The respondent at this stage appealed the court of the first instance judgment. The court of appeal accepted the respondent's appeal only to that extent so as to strike down the extra 5% payment which was granted by the lower court, and confirmed the lower court's judgment to ratify the arbitration award.

Appeal and grounds of appeal

The respondent still not being satisfied with the decision of the court of appeal brought the case to the court of cassation on the following grounds:

1. It was submitted by the respondent that the contract which included the arbitration clause had in fact been terminated through another court order. Accordingly, the respondent alleged that the arbitration clause contained in the said agreement along with the said agreement itself had ceased to exist and is not valid anymore.

Court ruled:

The court held that the grounds for annulment of an award are listed exclusively as:

a) Arbitration where there were no Terms of Reference;

b) Arbitration where there was a technical mistake in the Terms of Reference;

c) Arbitration where Terms of Reference was invalid/expired;

d) Arbitration where the tribunal used powers listed outside the scope of the Terms of Reference;

e) Arbitration where the award is against public order;

f) Arbitration where parties were not given equal chance to present their cases;

g) Arbitration where the appointment of arbitrator was not done as required by law and agreement; and

h) Arbitration proceedings where there was breach/error in the procedures leading to the award.

The court ruled that no other reasons beyond those listed above will be considered in a request to nullify final arbitration award. Moreover, the court observed that the contract which the respondent claimed to have terminated is not the same one being referred to in the current case. It was the court's findings that the contract concerning the present dispute was signed after termination of the contract being referred to by the respondent. Accordingly, the court concluded that since the new contract replaced the previous contract between the parties, the new contract along with the arbitration agreement shall be valid and effective in the present dispute.

2. The respondent argued that the Arbitrator issued its award after the agreed arbitration date as contained in the Terms of Reference. The respondent further submitted that the said point was raised in the court of the first instance but the lower court failed to give the issue due consideration.

Court ruled:

The court of cassation held that, as per article 210 of the Civil Procedures Law of UAE, if parties to an arbitration procedure had agreed on a period for issuance of the final award, such agreement does not restrict them from agreeing to extend the period later. Such extension can be through an express or implied agreement.

The court further observed that it is vested with the power to make a decision on whether or not to extend the said period if a party or arbitrator requests. Any extension to the agreed period has to be continuous with the first period.

In the present case, it was held by the court that the court of the first instance had correctly observed that the arbitrator has the right to extend arbitration for a period of additional 3 months as per the Terms of Reference agreed by the parties. It was held by the court that since the arbitrator issued its award after 2 months of expiry of the original period the award shall be considered as valid. The court thereby dismissed the respondent's allegations.

3. The respondent challenged the validity of the award since the Arbitration award issued by a tribunal of three arbitrators contained only the decision of the majority and failed to record the objections of the minority.

Court ruled:

It was held by the court in the current case that the final award shall be considered as valid and effective once agreed by a majority of the arbitrators. The court dismissed the respondent's arguments and ruled that it was not mandatory to record the objections or reasons of an objection of the minority in the arbitration award.