In today’s global business environment, disputes are inevitable. Companies operating in the UAE often prefer arbitration over litigation due to its speed, confidentiality, and international enforceability. However, a poorly drafted arbitration clause can lead to challenges, delays, and costly disputes over the jurisdiction or enforceability of the agreement.
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At Dewey & LeBoeuf LLP, we advise clients across Dubai, the UAE, and worldwide on drafting arbitration clauses that are robust, enforceable, and nearly impossible to challenge. This guide will provide an in-depth look at the essential elements, legal frameworks, and best practices for drafting arbitration clauses under UAE law.
Understanding the Importance of an Arbitration Clause
An arbitration clause is a contractual provision that requires parties to resolve disputes through arbitration rather than litigation. In the UAE, arbitration is increasingly popular for the following reasons:
- Speed and efficiency: Arbitration can resolve disputes faster than courts, avoiding lengthy litigation.
- Confidentiality: Arbitration proceedings are private, protecting sensitive business information.
- Enforceability: UAE courts generally enforce arbitration awards under the UAE Federal Arbitration Law (Federal Law No. 6 of 2018), provided the clause and award meet legal requirements.
- International recognition: Arbitration clauses are crucial for contracts involving foreign parties, ensuring awards can be enforced under international treaties such as the New York Convention 1958.
Despite these benefits, arbitration clauses are not immune from challenge. Courts may invalidate clauses due to ambiguity, conflict with UAE law, or failure to meet procedural requirements.
Legal Framework Governing Arbitration in UAE
To draft an enforceable arbitration clause, it is essential to understand the UAE legal framework:
- UAE Federal Arbitration Law (Federal Law No. 6 of 2018)
- Governs both domestic and international arbitration.
- Provides a modern legal framework aligned with the UNCITRAL Model Law.
- Covers arbitration agreements, appointment of arbitrators, conduct of proceedings, and recognition of awards.
- Civil and Commercial Court Oversight
- UAE courts may review arbitration clauses for validity but generally defer to arbitration if the clause is clear and legally compliant.
- Dubai International Arbitration Centre (DIAC) & DIFC-LCIA
- Popular arbitration centers in UAE offering procedural rules and institutional support.
- Clauses specifying institutional arbitration are more likely to be upheld than ad hoc clauses with vague procedures.
Key Elements of a Challenge-Proof Arbitration Clause
Drafting an arbitration clause that cannot be challenged requires precision and adherence to legal best practices. The following elements are crucial:
1. Clear Identification of Parties
- Mention all contracting parties explicitly.
- Avoid ambiguous references such as “the company” or “the supplier” without legal identification.
Example:
“This Agreement is entered into between ABC FZCO, a company incorporated under UAE law, and XYZ Ltd., a company incorporated under UK law.”
2. Agreement to Arbitrate
- Clearly state that disputes will be resolved exclusively through arbitration.
- Avoid language suggesting optional arbitration, which could be challenged.
Example:
“Any dispute, controversy, or claim arising out of or in connection with this Agreement shall be finally settled by arbitration in accordance with the rules specified herein.”
3. Governing Law
- Specify the law governing the arbitration clause and the underlying contract.
- UAE law is preferred for domestic contracts; international contracts may specify neutral jurisdictions like English law, provided it doesn’t violate UAE public policy.
Example:
“This Agreement and the arbitration clause shall be governed by and construed in accordance with the laws of the United Arab Emirates.”
4. Choice of Arbitration Rules
- Specify institutional rules (DIAC, DIFC-LCIA, ICC) or ad hoc rules (UNCITRAL).
- Institutional arbitration clauses reduce the risk of procedural challenges.
Example:
“Arbitration shall be conducted in accordance with the DIAC Arbitration Rules, which are deemed incorporated by reference into this clause.”
5. Seat of Arbitration
- Clearly state the seat (legal place) of arbitration, which determines procedural law and enforceability.
- Dubai or Abu Dhabi are common domestic seats; DIFC is preferred for international parties.
Example:
“The seat of arbitration shall be Dubai, United Arab Emirates.”
6. Number and Appointment of Arbitrators
- Specify the number of arbitrators (usually one or three).
- Include a clear procedure for appointing arbitrators to avoid disputes over appointments.
Example:
“The arbitration tribunal shall consist of three arbitrators. Each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the presiding arbitrator. If the appointment procedure fails, the DIAC shall appoint the arbitrator(s).”
7. Language of Arbitration
- Specify the language in which proceedings and awards will be conducted.
- Ensures clarity and avoids challenges based on interpretation issues.
Example:
“The language of the arbitration shall be English.”
8. Scope of Arbitration
- Include a broad clause covering all disputes, including breach, interpretation, or enforcement.
- Avoid limiting the clause to certain types of disputes.
Example:
“All disputes, claims, or controversies arising from, relating to, or in connection with this Agreement, including its formation, interpretation, performance, breach, termination, or validity, shall be resolved exclusively through arbitration.”
9. Confidentiality and Interim Measures
- Optional but recommended: specify confidentiality obligations.
- Allow tribunals to grant interim relief or emergency measures.
Example:
“All arbitration proceedings, including documents, evidence, and awards, shall remain confidential. The tribunal shall have the power to grant interim or conservatory measures as it deems necessary.”
10. Severability
- Include a severability clause so that if any part of the arbitration clause is invalid, the remainder remains enforceable.
Example:
“If any provision of this arbitration clause is held invalid or unenforceable, the remaining provisions shall continue in full force and effect.”
Understanding the Types of Arbitration in UAE
Arbitration in the UAE can be broadly categorized into domestic and international arbitration, each with distinct characteristics and legal requirements. Understanding the type of arbitration is crucial because it determines the enforceability of your clause, procedural rules, and court oversight.
Domestic Arbitration
Domestic arbitration involves disputes where all parties are based in the UAE and the contract is governed by UAE law. Domestic arbitration is usually conducted under the UAE Federal Arbitration Law and may be administered by the Dubai International Arbitration Centre (DIAC) or other recognized centers.
Domestic arbitration is particularly useful for commercial contracts between UAE companies or for disputes in regulated sectors like real estate, construction, or finance. A domestic arbitration clause must clearly reference UAE law, the seat of arbitration within the UAE, and procedural rules to avoid invalidation.
International Arbitration
International arbitration applies when at least one party is foreign, or the contract involves cross-border activities. International arbitration often references neutral governing laws (such as English law, New York law, or Swiss law) and may specify arbitration under DIAC, DIFC-LCIA, ICC, or UNCITRAL rules.
This type of arbitration is preferred for global businesses because it allows awards to be enforced in multiple jurisdictions under the New York Convention 1958, to which the UAE is a signatory. However, the clause must not conflict with UAE mandatory provisions, especially concerning matters like real estate ownership, labor, or public policy.
By clearly defining the type of arbitration in your clause, you reduce risks of procedural disputes and ensure your clause is enforceable in both domestic and international contexts.
Importance of Choosing the Right Seat of Arbitration
The seat of arbitration is not just a technicality—it determines which court’s laws apply to procedural matters, including the validity of the arbitration clause, the powers of arbitrators, and judicial review of awards. In the UAE, selecting the correct seat is essential to create a clause that cannot be challenged.
Domestic Seats
- Dubai, Abu Dhabi, or Sharjah: Choosing a UAE city as the seat ensures that the arbitration is governed by UAE arbitration law.
- The UAE Federal Arbitration Law applies automatically, giving predictability and enforceability within the country.
DIFC Seat
- The Dubai International Financial Centre (DIFC) has its own independent arbitration regime, including the DIFC-LCIA rules.
- DIFC is widely recognized for international commercial arbitration, especially for contracts involving foreign parties.
Strategic Considerations
- Avoid specifying a foreign seat for UAE-only contracts, as it can complicate enforcement in UAE courts.
- Ensure the seat aligns with the nature of the dispute, the parties’ location, and enforceability of awards abroad.
Selecting the right seat strategically reduces the risk of challenge and ensures your arbitration clause is robust against jurisdictional disputes.
Role of Governing Law in Arbitration Clauses
The governing law is a cornerstone of any arbitration clause. It dictates how the arbitration agreement is interpreted, the parties’ obligations, and the enforceability of the award.
Why Governing Law Matters
- Clarity: Prevents disputes over interpretation of the contract or clause.
- Enforceability: Courts generally respect arbitration agreements if they comply with governing law.
- Public Policy: Governing law must not contravene UAE mandatory rules, especially in areas like real estate or labor.
UAE Law as Governing Law
- Often recommended for domestic contracts, since UAE courts uphold clauses clearly governed by UAE law.
- Ensures smooth enforcement of awards and alignment with UAE Federal Arbitration Law.
Foreign Governing Law
- Permissible in international contracts, but ensure it does not violate UAE public policy.
- Neutral laws like English or Swiss law are common for cross-border deals, particularly in finance, tech, or trade.
A well-chosen governing law makes your arbitration clause less vulnerable to challenges, increases certainty, and strengthens the enforceability of awards.
Drafting Clear and Comprehensive Scope of Arbitration
Ambiguity in the scope of arbitration is a leading cause of disputes and challenges. A clause must define exactly which types of disputes are subject to arbitration to avoid later claims of unenforceability.
Broad vs Narrow Scope
- Broad scope: Includes all disputes, claims, or controversies arising from or related to the contract, including breach, interpretation, or enforcement.
- Narrow scope: Only covers specific disputes (e.g., payment defaults). Narrow clauses can be challenged if parties disagree whether the dispute falls under arbitration.
Essential Elements to Include
- All types of disputes: Include contractual, tort, and statutory claims connected to the agreement.
- Dispute triggers: Include disagreements over formation, performance, breach, termination, and validity.
- Exclusions (if any): If certain matters are excluded, specify them clearly.
Example of Clear Scope Clause:
“All disputes, controversies, or claims arising from, relating to, or in connection with this Agreement, including its formation, interpretation, performance, breach, termination, or validity, shall be resolved exclusively through arbitration.”
A well-defined scope prevents parties from circumventing arbitration and makes your clause much harder to challenge in UAE courts.
Selecting Arbitrators and Appointment Procedures
The selection and appointment of arbitrators is one of the most sensitive areas in arbitration clauses. Ambiguity here often leads to challenges and delays.
Number of Arbitrators
- One arbitrator: Faster and cheaper for simple disputes.
- Three arbitrators: Recommended for complex or high-value contracts to ensure impartiality.
Appointment Procedure
- Specify who appoints arbitrators and the timeline for appointments.
- Provide a default mechanism if parties fail to agree (e.g., DIAC appointment).
Example:
“The arbitration tribunal shall consist of three arbitrators. Each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the presiding arbitrator. If the appointment procedure fails, the DIAC shall appoint the arbitrator(s).”
Qualifications of Arbitrators
- Specify professional qualifications or experience if necessary.
- Ensures parties cannot later challenge appointments based on perceived bias or incompetence.
Clear procedures for the number, appointment, and qualifications of arbitrators drastically reduce the risk of challenges and reinforce the enforceability of your clause.
Best Practices for Drafting Challenge-Proof Clauses in UAE
- Seek local legal expertise: UAE law has nuances that foreign lawyers may overlook.
- Use institutional arbitration when possible: Reduces procedural disputes.
- Avoid conflicting clauses: Ensure no court jurisdiction clauses contradict arbitration provisions.
- Use precise language: Ambiguity is the most common reason for challenge.
- Consider enforceability in other jurisdictions: Especially for international contracts, ensure awards are recognized under the New York Convention.
Common Mistakes That Lead to Challenged Clauses
- Ambiguous wording: “Parties may resolve disputes through arbitration” is weak.
- Failure to specify seat or rules: Courts may refuse to enforce.
- Contradictory governing law: Conflicts with UAE mandatory rules.
- Vague appointment procedure: Delays and challenges over tribunal composition.
Avoiding these pitfalls is critical for drafting a clause that withstands legal scrutiny.
FAQs: Arbitration Clauses in UAE
Can an arbitration clause be challenged in UAE?
Yes, primarily if it is ambiguous, violates public policy, or conflicts with mandatory UAE law. A well-drafted clause following UAE Federal Law No. 6 of 2018 is rarely challenged.
Is institutional arbitration better than ad hoc arbitration?
Yes, institutional arbitration provides clear procedural rules and reduces disputes over appointments, venue, and process.
Can I choose a foreign governing law for my UAE contract?
Yes, but the clause must not violate UAE public policy. Often, parties choose UAE law for enforceability within the country.
How many arbitrators should I appoint?
Typically one for simpler contracts or three for complex, high-value disputes. The clause must clearly outline appointment procedures.
What happens if one part of the arbitration clause is invalid?
A severability clause ensures the remainder of the arbitration agreement remains enforceable.
Conclusion
Drafting an arbitration clause that cannot be challenged in UAE requires precision, knowledge of local and international law, and careful consideration of procedural and jurisdictional factors. From choosing the governing law and arbitration rules to specifying the seat, tribunal composition, and scope, every detail matters.
At Dewey & LeBoeuf LLP, we specialize in helping businesses in Dubai, the UAE, and worldwide craft arbitration clauses that are robust, enforceable, and strategically advantageous. Our legal experts ensure your contracts minimize risks, avoid costly disputes, and maximize enforceability across borders.
Book a consultation with our arbitration experts today to ensure your arbitration clauses are challenge-proof and fully compliant with UAE law.
E-mail: info@deweyleboeuf.com
Phone: +971 58 690 9684
Address: 26B Street, Mirdif, Dubai, UAE