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A recent case from the Abu Dhabi Supreme Court serves as an exemplary canvassing several key arbitration concepts, particularly with regard to the validity and enforceability of arbitral awards that fall outside the scope of their underlying arbitration agreement and the role of indirect claims in arbitration. Arbitration under the UAE Civil Transactions Law.
The case revolved around a dispute arising from the contractual relationship between the appellant (contractor) and the three defendants. Respondent 1 had previously brought proceedings against the Appellant under Sections 392 and 393 of the UAE Civil Transactions Law to enforce its rights on behalf of two others. These provisions form the cornerstone of UAE civil and commercial law.
Articles 392 and 393 of the Code of Civil Transactions allow the obligee to exercise all the rights of the debtor, even if the rights are not due to be performed, except rights that are closely related to the personality of the debtor or cannot be attached. The creditor is thus deemed to be exercising these rights on behalf of its debtor, and any benefit derived from such exercise goes into the debtor’s assets and becomes security for all of the debtor’s obligations.
The case focused on the enforceability and validity of the arbitral award rendered in the subsequent arbitral proceedings. The appellant sought to set aside the arbitral award primarily on the grounds that the arbitral tribunal had decided on matters not covered by the arbitration agreement. However, the Abu Dhabi Supreme Court rejected these arguments, upholding the arbitral tribunal’s decision.
Importantly, the court upheld the validity of an arbitral award, noting that even if the award addressed issues not covered by the arbitration agreement, the award would not be invalid if the arbitral and non-arbitral parts of the award could be separated. The court further held that, according to Article 393 of the Civil Transactions Law of the United Arab Emirates, the first respondent has the right to assert the rights of the latter two respondents indirectly against the appellant, including Construction contracts resort to arbitration. .
Accordingly, the arbitral award was upheld, and the appellant was obliged to pay the first respondent the amount awarded in the award, treating the first respondent as the representative of the second and third respondent.
The court’s decision was based on a number of principles. First, it relies on the basic notion that the scope of the arbitration agreement defines the arbitrator’s jurisdiction. However, the Court took a pragmatic approach to recognizing that an award may remain valid even if it concerns matters outside the arbitration agreement, provided those parts can be separated without affecting the overall integrity of the decision.
The court’s decision also involved careful interpretation of sections 392 and 393 of the UAE Civil Transactions Law. The courts recognized that these provisions enable creditors, subject to certain limitations, to exercise all of the debtor’s rights, even those not due to be performed. Accordingly, these provisions empower the first respondent to assert its rights against the appellant on behalf of the other two respondents.
This interpretation created an interesting legal scenario where the first respondent was allowed to go to arbitration based on the construction contract between the appellant and the last two respondents. Therefore, this reasoning enabled the first respondent to assert the rights of the latter two respondents indirectly against the appellant through the arbitration procedure, even though there was no arbitration agreement between the appellant and the first respondent.
The Court’s decision in this case sets several important precedents and provides insightful avenues for future indirect claims, particularly for subcontractors in the UAE construction industry, for example in cases where a subcontractor attempts to act on behalf of the main contractor through Employers are held accountable for arbitration in the following ways.
- Arbitration Agreement and Scope: This judgment highlights the significance of the arbitration agreement in delineating the jurisdiction of the arbitrators. However, it proposes a subtle interpretation that even if an arbitral award goes beyond the scope of the agreement, the arbitral award can still retain its force as long as the parts related to the arbitration agreement can be separated from other parts.
- The role of indirect claims: Perhaps the most striking aspect of the judgment is its interpretation and application of the provisions of the UAE Civil Transactions Law relating to indirect claims. By recognizing the first defendant’s ability to assert its rights against appellant on behalf of the last two defendants, the court provided an important precedent for the applicability of sections 392 and 393.
- Arbitration and Consequential Claims: The Judgment also establishes fundamental principles regarding the status of arbitration in the field of indirect claims. It confirms that a party representing the rights of another party, pursuant to Articles 392 and 393, may resort to arbitration pursuant to the original contract between the debtor and the obligee.
- Enforceability and validity of arbitral awards: The ruling adds further to the ongoing dialogue on the enforceability and validity of arbitral awards. Despite the appellant’s objections, the court upheld the award, strengthening the UAE’s pro-arbitration position and providing assurances of the robustness and reliability of its arbitration system.
The legal implications of the decision are wide-ranging and far-reaching. It increases the amount of legal precedent which will undoubtedly affect future disputes involving similar arbitration issues. It provides important guidance on the interpretation of UAE Civil Transactions Law for indirect arbitration claims under Articles 392 and 393 and provides valuable insight into the UAE arbitration landscape.
The content of this article is intended to provide general guidance on the topic. Expert advice should be sought depending on your specific situation.
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