New restrictions appear to limit clients' choice of counsel in UAE seated arbitrations - but is it a storm in a teacup?

On 27 November 2017, Ministerial Resolution No. 972 of 2017 (the "2017 Regulations") of the Executive Regulations to the Federal Legal Profession Law No. 23 of 1991 came into force, replacing the previous Regulations issued in 1997.

The effect of the 2017 Regulations is arguably that only UAE nationals registered on the Roll of Practicing Lawyers ("Local Counsel") can represent clients in the UAE national courts and arbitration proceedings seated 'onshore' in the UAE. The 2017 Regulations do not, however, apply to Dubai International Financial Centre ("DIFC") Court proceedings, arbitrations seated in the DIFC, Abu Dhabi Global Market ("ADGM") Court proceedings or arbitrations seated in the ADGM.

Non-UAE national lawyers ("International Counsel") have never been permitted to appear before the UAE national courts and so the impact of the 2017 Regulations on these proceedings is limited. But the 2017 Regulations could be of great significance to arbitrations. We explore below the implications of this potentially significant and unexpected legislation on UAE seated arbitration proceedings ("Onshore Arbitrations").

The 2017 Regulations

The 2017 Regulations were issued in Arabic by the UAE Minister of Justice on 25 September 2017 and came into force on 27 November 2017. For the purposes of this bulletin we have relied on the English translation available on Westlaw. Relevant sections of the 2017 Regulations are set out in full at the end of this bulletin for ease of reference.

What do the 2017 Regulations say?

A combined reading of Articles 2 and 17 of the 2017 Regulations suggests that only UAE nationals can represent parties in Onshore Arbitrations. However, as this contradicts both the UAE Civil Code and the region's arbitration centre rules (see below), it is currently not clear how this contradiction will be settled if the issue comes before the courts.

Article 2 comprises three paragraphs, the first of which provides that "no person may practice the profession in the State unless his name is registered in the Roll of Practicing Lawyers.  Furthermore, courts, arbitration tribunals and judicial and administrative committees may not accept a person to act as a lawyer on behalf of another person unless his name is registered in the Roll of Practicing Lawyers".

The second paragraph of Article 2 provides: "A power of attorney, which includes any of the duties of the profession, may be issued only in favor of practicing lawyers for appearing or pleading in court or taking any other judicial action before any of the authorities stated in paragraph 1 of this article".

Article 17 provides (amongst other criteria) that in order to be registered on the Roll of Practicing Lawyers, the lawyer shall "be a UAE national".

Since only UAE nationals can be registered on the Roll of Practicing Lawyers, on their face, the 2017 Regulations permit only UAE nationals to act for clients in Onshore Arbitrations. This would include UAE seated arbitrations governed by local rules such as the rules of the Dubai International Arbitration Centre ("DIAC"), the Abu Dhabi Commercial Conciliation Arbitration Centre ("ADCCAC") and Sharjah's International Commercial Arbitration Centre as well as international rules such as the International Chamber of Commerce ("ICC").

This interpretation is further supported by the words "arbitration tribunals... may not accept a person to act as a lawyer... unless his name is registered in the Roll of Practicing Lawyers", which suggest that it is illegal for an arbitral tribunal to hear submissions from anyone not registered on the Roll of Practicing Lawyers.

Article 58(2) of the UAE Civil Procedures Law No. 11 of 1992 provides that a power of attorney is needed for a lawyer to represent clients in court and Onshore Arbitration proceedings. Article 2 of the 2017 Regulations provides that a power of attorney shall not be issued to a non-practicing lawyer – in other words to a lawyer not registered on the Roll of Practicing Lawyers.

Thus again it seems that a UAE national, ie Local Counsel must be instructed and a power of attorney issued by the client to Local Counsel for the purpose of conducting Onshore Arbitration proceedings.

However, uncertainty surrounds this issue. Firstly, the 2017 Regulations are at odds with key provisions of the UAE Civil Code relating to arbitration.  In particular, Article 212 of the UAE Civil Code states "The arbitrator shall issue his award without being bound by the procedural rules save as is provided for in this Chapter…", which would appear to put arbitration outside the scope of the 2017 Regulations.

The impact of the constitution

Public and Administrative law may have a word to say about the 2017 Regulations.  The UAE has a written constitution which deals with the powers given to the Federal Government, and the powers retained by the individual Emirates.  By Article 121 of the constitution, the individual Emirates have executive jurisdiction (that is, the power to make regulations) on matters of civil procedure.  Arguably, therefore, any interpretation of the 2017 Regulations which suggests they apply outside Federal Courts (and arbitrations which are under the supervisory jurisdiction of those courts) is ineffective – or, to use the Latin tag, ultra vires.

This clash becomes even more stark when we look at the rules of some of the local arbitration centres.  DIAC Rules for example have been issued under a Dubai Decree – and expressly provide for freedom of representation.

Can Parties still use International Counsel?

There is no doubt that parties to Onshore Arbitrations can continue to instruct International Counsel.  The question is, do you also need Local Counsel – and if so, what is the demarcation between the two? Unfortunately, the position is unclear.

The wording as to what is encompassed in the functions of a lawyer in the second paragraph of Article 2 is quite broad and arguably it is not an exclusive list. It potentially only reserves to Local Counsel the role of actual representation before an arbitral tribunal - "appearing or pleading in court or taking any other judicial action before any of the authorities".

The third paragraph of Article 2 provides that "Carrying out administrative works on behalf of the lawyer registered in the Roll of Practicing Lawyers may not be construed as practice of the profession".

So, even if the 2017 Regulations do apply to an Onshore Arbitration – and for the reasons above it may be that they do not apply to the vast majority of them – we interpret this to mean that parties to Onshore Arbitrations can instruct International Counsel who can undertake all work related to the matter such as investigating claims, drafting notes of advice, identifying witnesses and relevant documents and during proceedings undertake document review, draft witness statements and draft pleadings but that Local Counsel must be on the record at the relevant arbitration centre as acting counsel, and must submit all pleadings, applications and correspondence to the court, tribunal and arbitration centre, and conduct all oral advocacy in any hearings. Therefore, while both the reading and application of the 2017 Regulations are not clear, we believe that at most the 2017 Regulations place a different label on International Counsel's work and require some Local Counsel involvement, but the practical impact may be limited, at least for any Onshore Arbitrations not yet commenced.

What are the potential consequences for ongoing arbitrations?

Article 2 of the 2017 Regulations states "… courts, arbitration tribunals and judicial and administrative committees may not accept a person to act as a lawyer on behalf of another person unless his name is registered in the Roll of Practicing Lawyers". If International Counsel has to date been on the record and represented parties in an Onshore Arbitration, (and assuming the Westlaw translation of the 2017 Regulations is accurate), this provision opens up the possibility of guerilla tactics being employed either on appeal or in response to enforcement proceedings, with a party arguing that the tribunal allowed a person who is not Local Counsel to act as a lawyer and so the award is invalid or unenforceable. Arguably, this would not be an unreasonable challenge given that Article 2 makes it illegal for arbitral tribunals to hear submissions from persons not on the Roll of Practicing Lawyers.

However, a challenge to an award under the 2017 Regulations is open to attack. The first counter argument could be that the relevant arbitration centre's rules, to which the parties submitted, provide that parties are free to choose who represents them and so the parties have waived any right to challenge any award or the enforcement of any award under Article 2 of the 2017 Regulations. Indeed, both the DIAC and ADCCAC rules provide specifically that parties are free to choose who represents them, irrespective of nationality or professional qualification such that they need not be a UAE national or even a qualified lawyer. Also, as detailed above, arguably Article 212 of the UAE Civil Code overrides the 2017 Regulations.

In addition, the UAE's arbitration law, which is expected to come into force in early 2018, contradicts the 2017 Regulations. Article 33 of the current draft provides that parties may use "lawyers and others, to represent them before the Arbitral Tribunal". When it comes into force, the arbitration law will override the 2017 Regulations.  It is hoped that even the fact of the terms of the current draft will discourage challenges to awards under the 2017 Regulations.

How a court or tribunal will respond to a challenge will depend on the particular facts of the case and, in the case of enforcement, where the application for enforcement is being heard. Thus, how the contradiction between Article 2 and relevant arbitration centre rules and its status against the UAE Civil Code will be settled is uncertain.

What can Parties do to avoid an award being challenged under the 2017 Regulations?

The easiest solution is to change seat.  Arbitration only comes about because the parties have agreed to arbitrate, and if the parties have agreed to arbitrate in, say, Dubai, they are free to change that agreement to DIFC and thus avoid the issue altogether.

If parties wish to engage International Counsel from the outset of any Onshore Arbitration all parties to the proceedings could acknowledge in writing the parties' right under the relevant rules to freely choose their legal representatives. If the relevant rules do not offer any assistance, a written agreement to the parties being represented by International Counsel could be signed. If a party later challenges the award using the 2017 Regulations, these measures will provide an additional argument in support of the award.

Finally, cases can be co-counseled with both International Counsel and Local Counsel acting – though obviously this may have cost implications.

Conclusion

The 2017 Regulations appear to provide that Local Counsel must be on the record in any Onshore Arbitration. However, it is far from clear that they actually have that scope.  A broad interpretation of the 2017 Regulations appears to contradict the UAE's constitution, many of the region's arbitration centre rules, the Civil Code and, when it is enacted, the new Arbitration Law.

We hope that the position will be quickly clarified but, in the meantime, the 2017 Regulations can be avoided by choosing a UAE seat other than Onshore Arbitration (DIFC, ADGM) and in any case, the practical impact of the 2017 Regulations may be limited, as International Counsel can still provide the legal and strategic advice and undertake many of the tasks that clients look to them with their specialist expertise to perform. However, in the short term, this is another disincentive for practitioners to recommend the onshore UAE as a seat for arbitration when drafting contracts and a reason to opt instead for the DIFC or ADGM as the seat for arbitration.

Relevant Sections of 2017 Regulations

For the purposes of this bulletin we have relied on the English translation available on Westlaw.

The 2017 Regulations provide:

Article 1 Definitions

Upon applying the provisions hereof, the following terms and expressions shall have the meanings assigned against each, unless the context requires otherwise:

State: The United Arab Emirates.

Article 2 Practice of the Legal Profession

Subject to the provisions of Article (20) hereof, no person may practice the profession in the State unless his name is registered in the Roll of Practicing Lawyers. Furthermore, courts, arbitration tribunals and judicial and administrative committees may not accept a person to act as a lawyer on behalf of another person unless his name is registered in the Roll of Practicing Lawyers.

A power of attorney, which includes any of the duties of the profession, may be issued only in favor of practicing lawyers for appearing or pleading in court or taking any other judicial action before any of the authorities stated in paragraph 1 of this article.

Carrying out administrative works on behalf of the lawyer registered in the Roll of Practicing Lawyers may not be construed as practice of the profession.

Article 17 Requirements of Registration in The Roll of Practicing lawyers

Those lawyers registered in the Roll of Practicing Lawyers shall fulfill the following:

1- Be a UAE national;

2- Be at least twenty one years old;

3- Has full legal capacity, with good attitude and reputation, and no court judgment has ever entered against him for a felony or misdemeanor involving moral turpitude or breach of honor, or disciplinarily convicted for any of the said crimes;

4- Be Holder of a license in Law or Sharia from an accredited university or higher institute in the State or an equivalent thereof;

5- Has obtained the training completion certificate set forth in Article (15) hereof.

For more information, please contact Craig Shepherd, Partner, Caroline Kehoe, Partner, Michael Hartley, Associate or your usual Herbert Smith Freehills contact.