In this post we look at an important issue that affects those who work in the UAE and enter into contracts containing arbitration clauses in the region.

On 29 October 2016 a new law came into force in the UAE with significant consequences for arbitration in the region. This is the UAE Federal Decree Law No. 7 (the “New Law”), which amended Article 257 of the Federal Penal Code to now include arbitrators and expert witnesses acting in arbitrations within the ambit of the clause’s criminal provisions.

The New Law provides as follows:

“Temporary imprisonment shall be inflicted on whoever issues a decision or expresses an opinion or submits a report or presents a case or proves an incident, in favour of a person or against him, contrary to the duty of fairness and unbiasedness, in his capacity as an arbitrator, expert, translator or investigator who is appointed by a judicial or an administrative authority or elected by the parties…”

As a result, any arbitrator or expert witness may be subject to criminal prosecution if either party alleges that they have acted unfairly, or not independently, and if found guilty they will be imprisoned for a period of between 3 to 15 years.  This is substantially more onerous than the general position worldwide that criminal liability will only apply to extreme breaches of these duties, such as cases of fraud and bribery.

It is not yet clear how the New Law will be applied in practice or what will constitute a breach of the duties of fairness and impartiality – these are not defined terms and they have a wide meaning within UAE law. It may well be that the UAE courts choose to apply a narrow definition. However, even in that case, the New Law opens the door for vexatious claims to be made which, at the minimum, pose a serious inconvenience for the alleged offender and the arbitration proceedings.  

"The immediate impacts of the New Law on arbitration in the UAE are already being felt."

For example, even if a claim of impartiality were to result in a finding of “not guilty”, the arbitration would need to be suspended for the period of the investigation, and it is doubtful whether the alleged offender could continue to act in the arbitration because their impartiality would be compromised in relation to the complaining party. The alleged offender would also invariably have their passport confiscated for the duration of the investigation and would suffer some damage to his or her reputation.  

Needless to say, the consequences for both the alleged offender and the arbitration proceedings would be markedly more severe should there be a finding that the New Law was breached.

The immediate impacts of the New Law on arbitration in the UAE are already being felt. We have first-hand experience of expert witnesses resigning, and anecdotal evidence of arbitrators resigning. Furthermore, the pool of arbitrators and expert witnesses has been diminished as persons and organisations have decided that it is not worth the risk, and this is particularly evident amongst persons based outside the UAE. This is a serious blow to the UAE’s reputation as a major centre of international arbitration.

The enactment of the New Law has been met with uproar amongst the arbitration community in the UAE. However, the UAE federal government has, to date at least, been unmoved by these appeals and the law remains in place. We will continue to monitor the situation and update you accordingly. In the meantime, the show must go on.

By Robbie McCrea