Arbitration in Dubai: two steps forward, one step back

Introduction

Dubai promotes itself as an arbitration-friendly jurisdiction, in line with its objective of attracting international business. A recent, much-publicised change to the UAE Federal Penal Code which introduces potential criminal sanctions for arbitrators, threatened to undermine this reputation.

It would now appear that this threat is real, as arbitrators are in increasing number withdrawing from UAE-seated tribunals and refusing nominations to sit as arbitrators on such tribunals.

While the apparent policy behind the new amendment is understandable, since it requires that arbitrators act with impartiality and integrity, the drafting has far-reaching and perhaps unintended consequences.

New Law and Policy Basis

Federal Law No. 7 of 2016 amends Article 257 of the UAE Penal Code to read:

Any person who issues a decision, gives an opinion, submits a report, addresses a case or proves an incident for the benefit or against a person, failing to maintain the requirements of integrity and impartiality, in his capacity as an arbitrator, expert, translator or investigator, appointed by administrative or judicial authority or selected by parties, shall be sentenced to temporary imprisonment.

Said categories shall be banned from being re-assigned to such tasks, and shall be subject to the provisions of Article 255 of the present Law. (emphasis added)

This means that arbitrators that fail to maintain requirements of integrity and impartiality may now be guilty of a criminal offence and sentenced to imprisonment. Article 257 previously only applied, in less stringent terms, to translators, experts and investigators.

Most institutional arbitration rules already set out requirements of independence or impartiality of arbitrators. For example, under the Dubai International Arbitration Centre (DIAC) Rules, Article 9.8 provides that arbitrators have a continuing duty to disclose any circumstances that are likely to give rise to justifiable doubts as to their independence or impartiality. Under Article 13.3, an arbitrator can be challenged if such circumstances exist. In addition, in the UAE, arbitrators can be recused or disqualified for the same reasons as a judge under Article 114 of the UAE Civil Procedure Code (for example, for being the spouse, agent, trustee or guardian of one of the parties).

The introduction of criminal sanctions creates far greater risk for arbitrators, particularly in circumstances where the scope of the offence has not yet been defined. The words 'integrity'  and 'impartiality' are not defined in UAE criminal law, and no evidence of a conscious or positive intention appears to be required under the new law for an offence to have been committed. Inevitably there is potential for misuse by respondents in UAE seated arbitrations who may seek to rely on the law to disrupt proceedings.

By making a complaint to the UAE police that an arbitrator has breached Article 257, it is possible to make life very difficult for the arbitrator as well as frustrate the arbitration process in the meantime. The arbitrator may be temporarily imprisoned or at least be required to surrender his or her passport. The investigation stage may take several months and the court process (with two levels of appeal) may take at least two years.

The scope of Article 257

The scope of integrity and impartiality is not defined in the proposed amendment and it is unclear whether further guidance will be introduced. A number of consequences of the new law will need to be clarified:

• Under the IBA Guidelines on Conflict, after disclosure of any circumstances that may give rise to doubts as to an arbitrator's impartiality, it is possible for parties to accept the appointment of the arbitrator in any event, provided all parties agree and are fully informed. Proceeding on this basis in the UAE would not negate the applicability of criminal liability under Article 257. This in turn would undermine the application of the IBA Guidelines and the arbitral process agreed between the parties.
• Moreover, arbitrations are dealt with on a confidential basis, which is an important factor for businesses when they agree to settle disputes via arbitration; it avoids the reputational damage of publicly adjudicating disputes, and ensures there is less risk of confidential or commercially sensitive information falling into the hands of competitors. Commencing criminal proceedings against an arbitrator under Article 257 could potentially put at risk the confidentiality of the arbitration, given that the nature of the dispute is likely to be relevant to whether an arbitrator is impartial, and therefore would be disclosed in the UAE's criminal courts (albeit in Arabic). It is unclear how such criminal proceedings will be conducted, and whether the details of the arbitration can and will be kept confidential.
• As mentioned above, there is currently no clear indication as to the meaning of the "requirements of integrity and impartiality".  While the arbitration community is right to be concerned given the lack of guidance around Article 257, the strong initial reaction may not be entirely warranted.  Under Articles 275 and 276 of the UAE Penal Code, false reporting of a crime is punishable by imprisonment and/or a fine.  This means that dissatisfied parties should not pursue frivolous Article 257 claims as there may well be personal criminal sanctions if such claims are found to have been wrongly reported.

Comment

The arbitration community in the UAE has reacted with alarm to the new law. It is clear that the introduction of this new criminal offence will introduce considerable risk, both for arbitrators and parties. Arbitrators will need to be cognisant of their obligations and parties will need to understand the impact the law will have on their arbitral proceedings. It will be interesting to see what guidance will be published (if any) to outline the scope of the offence and to explain how it will be applied in practice. While the policy basis for introducing the offence may be sound, it is inevitably likely to weaken the image of Dubai as an arbitration-friendly jurisdiction, and provide a weapon to machine-gun practitioners who seek to intimidate arbitrators through the threat of (or actual) vexatious criminal proceedings.

Since the introduction of the law, we have seen first-hand the detrimental effects of the new law: in a UAE-seated DIAC arbitration, a nominated arbitrator recently withdrew from the process when lawyers for the respondent raised the possibility of relying on Article 257 on spurious grounds. Anecdotally, we are also aware of a number of arbitrators in the UAE resigning from their mandates, citing the new law. Experts are also resigning/not taking on new mandates, based on the wider scope of the provision as it now applies to them.

Whether the new law remains in effect for long is yet to be seen. In response to its introduction, a number of UAE-based arbitrators and practitioners have asked the UAE Cabinet of Ministers to review Article 257 with a view to amending or repealing it. Watch this space.

For further information, please contact Stuart Paterson, Partner, Benjamin Hopps, Senior Associate, Robert Stephen, Senior Associate and Janine Mallis, Associate.