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New arbitration rule a step backward for law, business in Gulf

The Arabian Gulf is all about doing business, and regional policymakers take great pride when their country climbs up the “ease of doing business” rankings compiled by the World Bank.

One essential component of this league table is the legal culture and structure of the country being ranked, and it is in this area that the Gulf has often had a problem in the past. Maybe it is unfamiliarity on the part of international partners with the legal norms of the region, maybe it has to do with lingering suspicions about corruption and graft that still figure high on the list of concerns about the business environment in the Gulf.

Whatever it is, before international trading partners sign a deal they want to know that there is a method of resolution should things go wrong. The civil and criminal courts are the ultimate backstop, but increasingly Gulf states have been putting their faith in independent and binding arbitration as a more equable, less hostile and more efficient method of dispute resolution.

Why have all the cost and possible reputational risk of litigation when you can agree a binding resolution to a dispute? It is always better to jaw-jaw than to war-war, as a wise man once said. 

With the low oil price putting pressure on the payments system, legal experts believe that arbitration cases across the GCC will spike in the second half of this year as frustrated finance departments seek speedy and discreet settlement of unpaid invoices.

Regional policymakers have taken to the principle of commercial arbitration enthusiastically. There are more formal arbitration arenas in the Middle East and North Africa than there are central banks, with around 50 recognized arenas for what has become a standalone branch of the legal profession — ADR, or alternative dispute resolution.

Saudi Arabia has taken some big steps in this area. The Saudi Centre for Commercial Arbitration, set up along international lines and recognizing best practice in arbitration hubs like New York and London, is a step in the right direction. Lawyers have respect too for the Egyptian arbitration courts, which effectively blends Islamic and conventional legal practices.

But the regional leader in the ADR field is the UAE, which 20 years ago set out early on to become the regional hub for arbitration alongside its ambition to be the premier financial marketplace.

There are at least five arbitration arenas in the UAE, with the Dubai International Arbitration Center and the Dubai International Financial Center (in partnership with the London Court for International Arbitration) the best known. The UAE, and Dubai in particular, has become the go-to place for commercial arbitration in the Middle East, and one of the leading world centers.

The UAE is the regional hub for commercial dispute resolution, but a new rule that could criminalize aspects of the work has alarmed lawyers in the field.

Frank Kane

This makes a recent change of UAE federal law all the more frustrating for the international legal community.

Last summer, a decree effectively threatened to criminalize large parts of the arbitration community. It is worth reading the relevant section of article 257 in full:

“Anyone who issues a decision, expresses an opinion, submits a report, presents a case or proves an incident in favor of or against a person, in contravention of the requirements of the duty of neutrality and integrity, while acting in his capacity as an arbitrator, expert, translator or fact finder appointed by an administrative or judicial authority or selected by the parties, shall be punished by temporary imprisonment for between three and 15 years.”

Lawyers are alarmed at the suggestion that, after giving honest and impartial advice in a complex commercial matter, they may find themselves doing 15 years as a result of a “vexatious complaint” by whichever side perceives itself to have lost out in the adjudication.

Expert witnesses of course have a duty to act with neutrality and integrity, and the new law may be a genuine attempt to ensure corruption, bribery or influence have no place in UAE courts. But lawyers point out that hardly any other jurisdiction in the world criminalizes arbitration experts in such a way.

Several lawyers are believed to have already resigned from tribunals and other bodies in the UAE; some are talking about moving to other centers within the Gulf where there is no such sanction, or even moving their arbitration practice out of the Middle East altogether, back to one of the established legal centers in the US or Europe.

In the words of one of the biggest UAE law firms, Al Tamimi & Co: “Article 257 means that the UAE can no longer be considered a desirable place to conduct arbitration, and fewer and fewer arbitrators will agree to take up appointments here. Without a viable and effective arbitration system, international companies will feel less comfortable doing business and may go elsewhere.”

That is the crux of it. The change in the law is bad for business in the country, and bad for the reputation of the Gulf as place to do business. The UAE should think again.

• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai