How to Draft a Strong Arbitration Clause in UAE Contracts?
An arbitration clause in a commercial UAE contract is considered the most fundamental inclusion that shapes how a potential dispute can be resolved, prior to its occurrence. However, not every party involved in a commercial transaction pays attention to this clause, assuming that their relationship will always be on good terms.
Ignoring the dispute resolution or arbitration clause in UAE contracts will be the worst avoidable mistake you ever make! A badly drafted clause can lead to unexpected repercussions, especially if you are the one seeking arbitration in the long run. On the contrary, a well-drafted arbitration clause can protect your commercial relationship, streamline the resolution proceedings, and avoid expensive jurisdictional battles.
Therefore, it is always advised that you hire legal consultants to help you with contract drafting in UAE, and clearly specify the enforceable, commercially sensible, and efficient dispute resolution mechanisms in the arbitration clause. However, even with experts’ help, you must have knowledge of what it takes to draft a strong dispute resolution clause in your commercial contracts. Read this article till the end, and you shall find out!
Why does an Arbitration Clause Hold Emphasis in UAE Contracts?
The UAE is considered one of the leading hubs that support arbitration as a strong dispute resolution mechanism. In the country, arbitration is supported by modern laws and internationally streamlined procedures. There are also world-class institutions like DIFC, ICC, and DIAC that conduct arbitrations.
Considering that arbitration is a consensual process of dispute resolution, the arbitration agreement in Dubai, an inclusive part of the complete commercial contract, acts as the foundation of addressing disputes among parties, any time it occurs in the long run.
When a clause is unclear, invalid, or incomplete in UAE contracts, the dispute resolution process can be delayed, challenged, or entirely unenforceable. If that happens, you will be left with no scope of raising a dispute and seeking an outside-the-court solution through arbitration.
For companies operating in industries like real estate, finance, cross-border trade, technology, energy, or construction, an arbitration clause in UAE contracts acts as the single most critical risk-management attribute.
Things to Add in Your Arbitration Clause for Making it Strongly Enforceable
A valid arbitration clause must consist of certain core components, which ensure a lowered risk of procedural disputes, clarity on the dispute resolution mechanisms, and absolute enforceability. Here are some of those arbitration clause elements that you must review in your contract prior to signing it:
Clarity on the Intent
The dispute resolution clause in Dubai contracts must specify that all future disputes in the commercial transaction will be resolved through arbitration. There shouldn’t be any mention of “can” or “may” when you are referring to arbitration as the potential dispute resolution mechanism. Any form of ambiguity in the clause might lead the UAE courts to consider arbitration as an optional method, which will eventually weaken the agreement.
Specify the Arbitration Institution
Both parties should identify if the arbitration proceedings will be conducted on an ad hoc basis or administered by institutions like DIAC, LCIA, ADCCAC, or ICC. It is an important inclusion in the arbitration clause as the institutional rules will reduce the chances of procedural disputes and bring predictability. On the other hand, relying on an ad hoc approach for dispute resolution does offer immense flexibility, but requires very careful drafting.
Choice of Arbitration Seat
Next mention in the clause to make it valid is the determination of the seat, which specifies the procedural law, and the UAE courts are liable for supervising the arbitration process. Some of the popular choices include DIFC, Dubai (Onshore courts), and ADGM. The choice of arbitration seat will have a direct impact on the enforceability of awards and also on challenging them. Thus, you must seek the help of a commercial contract lawyer in the UAE for strategizing the choice of seat while drafting the arbitration clause.
Rules that Will Govern the Arbitration Proceedings
Most of the valid arbitration clauses in UAE contracts specify rules of institutions such as DIAC, UNCITRAL, ICC, and others. In case you miss out on specifying the rules, the parties might argue to decide on the procedural framework that will govern arbitration proceedings for dispute resolution. Due to this, unwanted delays might occur, and the case might demand unnecessary litigation.
Number of Arbitrators and Method of Appointing Them
Your arbitration clause should also specify if your disputes will be heard or addressed by either one or three arbitrators. Following that, the method of appointing them should also be mentioned. If you are from a technical industry such as oil & gas, engineering, or construction, you might need arbitrators with specific expertise.
Arbitration Language
For the cross-border arbitration agreement in Dubai, it is important to specify the language in which the proceedings will happen, Arabic or English. Mentioning this in the clause will avoid language-based disputes in the long run. If the arbitration is being governed by UAE law, the proceedings might still be conducted in English if that’s agreed in the dispute resolution clause.
Scope of the Arbitration Clause
In order to strengthen your arbitration clause in UAE contracts and make it valid in all scenarios at the tribunal’s authority, you must highlight the scope clearly. You can mention, “any dispute arising in or out of connection with this commercial contract…”Adding this statement in the arbitration clause will lower the risk of future jurisdictional challenges associated with the type of dispute.
Seek Expert Assistance for Drafting a Strong Arbitration Clause in UAE Contracts!
You must know that arbitration clauses are strategic inclusions to a commercial contract for managing and resolving disputes of all types and complexity. UAE entertains arbitration across all industries, but the best results in your interest are only possible when you have drafted a valid and strong dispute resolution clause.
The quality of your arbitration clause and how it touches all necessary points to avoid future disputes will determine the enforceability, efficiency, and success of the resolution process. At RH and HALE, we will appoint an arbitration lawyer in Dubai to help you with drafting the dispute resolution clause in commercial contracts, ensuring all critical factors are considered, and important elements are highlighted.
So, if you are about to make a commercial deal anytime soon, and the contract drafting process is due, reach out to us for expert supervision, guidance, and preparation of the arbitration clause.
