Global menu

Our global pages

Close

2021 Dubai Court of Cassation Ruling: A Public Policy Exception to Arbitrability Under UAE Law

  • Middle East
  • International arbitration
  • Litigation and dispute management

16-11-2021

In a recent decision the Dubai Court of Cassation gave further definition to the public policy limitation on arbitrability of dispute under UAE law.

The Court ruled that a dispute was not arbitrable on the basis of public policy where a claim was brought seeking relief on a joint and several basis against two parties acting under two different contracts (one with an arbitration clause and one without). The Court found that, in the interests of justice, the dispute could not be divided and must be heard in one forum due to the closely related nature of the transactions underlying the two contracts and the claims arising from them.

The Court’s ruling appeared to arise from a concern about the potential for conflicting finding of fact and awards of monetary compensation if the dispute had been split between an arbitration case and a court case. For the Claimant, it could have been over- or under-compensated. For the two Respondents, splitting the claims against them between arbitration and court could have led to inconsistent findings of fact and awards of compensation that, taken together, were not commensurate with the overall level of harm.

The Facts

In 2008, the Employer and the Engineer signed a contract for engineering consultancy services for a tower project in Dubai (“Project”), as well as on-site supervising and monitoring services (“Contract 1”). Contract 1 did include an arbitration clause.

In 2009, the same Employer and the Enabling Works Contractor signed a contract for Enabling Works on the Project (“Contract 2”). Contract 2 did not include an arbitration clause.

In 2011, the Enabling Works Contractor handed over to the Main Contractor on the basis that it had completed its scope under Contract 2. The Engineer signed off on the Enabling Works Contractor’s works pursuant to its supervisory/monitoring duties under Contract 1.

Subsequently, the Employer had serious doubts about the quality of the Enabling Works.

Procedural History

In 2018, the Employer submitted Claim No. 454 of 2018 for Commercial Expert Appointment seeking a finding against the Engineer (for failure to supervise/monitor under Contract 1) and the Enabling Works Contractor (for failure to properly carry out the Enabling Works under Contract 2). The Expert Committee found that the Engineer and Enabling Works Contract were in breach of their respective contracts and awarded the Employer approximately AED 8.1 million.

In 2020, the Employer filed a claim against the Engineer and Enabling Works Contractor in Dubai Court of First Instance, for a ruling on compensating and seeking approximately AED 94.5 million on a joint and several basis.

The Engineer pleaded that the case was inadmissible on the basis of the arbitration clause in its contract with the Employer, Contract 1.

The Court of Appeal ruled that the case was inadmissible on the basis of the arbitration clause, but at the same time returned the case to the Expert Committee to examine the objections of the Employer and the Enabling Works Contractor to the Expert Committee’s report.

In 2021, the Employer appealed and the Court of Appeal reversed its previous judgment that the case was inadmissible against the Engineer. The Court of Appeal returned the case to the Court of First Instance to rule on the case.

The Engineer appealed to the Court of Cassation.

Court of Cassation Decision

First the Court of Cassation’s decision begins with the straightforward principle that the agreement to arbitration is binding only on its parties and does not apply to third parties.

Under the UAE Arbitration Law, the Employer’s claims against the Enabling Works Contractor and the Engineer could not be consolidated into a single arbitration unless the Engineer agreed to arbitration after the fact.

Second the Court of Cassation stated the legal principle that if a claim involves several parties under multiple contracts, but the underlying transaction is closely related and the claim related to those closely related transactions; “then the proper conduct of justice requires that the dispute should not be divided and should be heard before one forum…” (in translation).

In this case, the Court of Cassation found that the actions of the Engineer and the Enabling Works Contractor were relevant to the finding of the liability of the other. That is that the finding of liability was intertwined because of the nature of the work under the two contracts. It was first necessary to determine if there was any liability on the part of the Enabling Works Contractor. If there was, then it could be determined if there was any liability on the part of the Engineer. If there was not, then there would be as a matter of logic, no liability on the part of the Engineer.

The Court of Cassation found it was in the interest of justice to have the claims heard in one forum to avoid conflicting judgments.

Conclusion

Following the Court of Cassation’s decision, it will be of interest what prima facie case must be made out for a future court to agree that an underlying transaction is sufficiently closely related and the risk of inconsistent judgements sufficiently high to warrant setting aside an otherwise valid arbitration agreement.

This case is an important reminder for anyone negotiating and drafting dispute resolution clauses to ensure consistency across the entire suite of contracts to optimize efficiency through joinder should closely related disputes arise, and following this court decision, to safeguard the choice of forum (whether arbitration or courts).

 

For more information, please contact: