Case update: arbitration agreements in the UAE

Incorporation of arbitration clauses in contracts by reference has been the topic of numerous cases before the UAE Courts. Many hoped that the enactment of Federal Law No. 6 of 2018 ("the Arbitration Law") would clarify the situation. A judgment recently issued by the Dubai Court of Cassation ("DCC") highlights the risk of incorporating arbitration agreements by mere reference, and confirms that to avoid such jurisdictional challenges, arbitration clauses should be drafted clearly and expressly within the contract. In this article we consider the development in the law on this issue throughout the years.

The legislation - then and now

Articles 203 to 218 of the UAE Civil Procedure Code, Federal Law No. 11 of 1992 ("Law 11/1992") regulated arbitrations until 2018 when it was superseded by the Arbitration Law. Article 203(2) of Law 11/1992 set out the requirements for a valid arbitration agreement which included the requirement that an arbitration agreement had to be "in writing". No mention was made about whether an arbitration agreement was valid if it were simply referenced in the contract with the agreement itself detailed in another contractual document (which we refer to as 'incorporation by reference'), or whether 'in writing' required that the agreement be expressly stated in full within the (signed) main contract. This led to numerous cases being brought in the UAE Courts on this topic, as many parties sought to rely on arbitration agreements incorporated by reference but instead faced a jurisdictional challenge and unenforceable arbitration agreement.

When the Arbitration Law was enacted, it appeared to clarify the "in writing" requirement. Article 7 of the Arbitration Law sets out four instances when an agreement shall be deemed to comply with this requirement. One such instance is if ..."a reference is made in a written contract to a model contract, an international agreement, or any other document that includes arbitration clauses and the said reference is clear in treating such clause as an integral part of the contract." To appreciate what might have led to this detailed article in the Arbitration Law, we consider some UAE cases which grappled with the question of incorporation of an arbitration clause by reference. 

Considering the Case Law

The UAE does not recognise the doctrine of stare decisis and so caselaw does not create binding precedent. This notwithstanding, the cases do give an indication of how UAE Courts have treated the issue of incorporation of arbitration agreements in the past.

In Commercial Appeal Case No. 261-264 of 2009 the DCC found that an appointment letter incorporating un-amended FIDIC conditions by reference was not enforceable. In Commercial Appeal Case No. 173 of 2005 and Civil Appeal Case No. 168/2010 the DCC held in both instances that an arbitration agreement in an appendix had to be explicitly referenced in order for the Court to consider it incorporated in the signed agreement. In Commercial Appeal Case No. 38/2016 the arbitration agreement was set out in a partnership agreement to which a deed of covenant referred. When the deed was signed, the partnership agreement was not appended thereto, so the deed did not refer explicitly to the arbitration clause. In this case, the DCC held that there was no incorporation of the arbitration provision by reference.

These cases were all regulated by Law 11/1992 and focused on the inadequacies of incorporating arbitration clauses by reference. Subsequently, Article 7(2)(b) of the Arbitration Law was enacted, which specifically permitted incorporation of an arbitration clause through reference to a model contract, an international agreement or any other document that includes arbitration clauses, and such would seem to suggest that a reference to a FIDIC model contract General Conditions would be sufficient to bind parties to arbitration.

The UAE Courts considered this exact point in the latest case on this issue, with final judgment handed down by the DCC in March this year (Case No. 1308/2020). In this case, the UAE courts considered whether the parties' agreement and general reference to apply all of the 1987 FIDIC Red Book General Conditions to the transaction was sufficient to bind the parties to the arbitration clause (contained at Clause 67 of the 1987 FIDIC Red Book General Conditions).

Whilst the Court of Appeal found in favour of the arbitration clause being incorporated in the contract by such general reference (and as such that the parties were bound to arbitration), the DCC overturned this judgment. Instead the DCC held that the referral to the FIDIC General Conditions was general and as there was no specific reference to the arbitration clause in particular, the arbitration clause was held to be unenforceable. In this latest case, the DCC therefore appears to have followed its prior decision of Commercial Appeal Case No. 261-264 of 2009, when considering enforceability of an arbitration agreement in a general reference to FIDIC.

Conclusion

This case highlights the risk of incorporating arbitration clauses by reference, given the inherent uncertainty in interpretation and opportunity for jurisdictional challenges in arbitration, even against the background of the Arbitration Law. Consequently, it is best to avoid reliance on a reference to other documents containing arbitration provisions. Instead parties should stipulate their arbitration agreement expressly in the contract in clear concise wording.