Foreign arbitration clauses in charter parties - a UAE prospective

UAE court judgements have recently become contradictory in respect of how UAE judges deal with foreign arbitration clauses in contracts.

The shipping industry in the Gulf region often uses English law and arbitration clauses in charter party contracts due to the preferred use of BIMCO standard- form charter parties. However, recent judgements from the UAE courts, and particularly the Dubai courts, have meant that any attempt to recover monies where a foreign arbitration clause has been signed has become unpredictable for foreign parties against UAE-based companies. This has made owners' recoveries against UAE-based charterers difficult, even in respect of straightforward claims such as those for unpaid charter hire.

Recently, a judgement was handed down by Dubai's highest court, the Dubai Court of Cassation, rejecting an application to enforce a foreign arbitration award for unpaid charter hire against a UAE-based charterer. The application was issued by a sole arbitrator in England. In rejecting the application, the Dubai Court of Cassation judgement was consistent with previous court of appeal and court of first instance judgements on the same issue with regard to the result, although somewhat different in its reasoning.

The reason for the rejection was simply that the UAE, unlike Saudi Arabia, Bahrain and Kuwait, has not signed the 1958 New York Convention. As a result, foreign arbitration awards, where there is no treaty between the UAE and the place of arbitration, cannot be enforced in the UAE courts.

It had been previously decided in other lower UAE courts that it would be possible to enforce a foreign arbitration award if there was genuine reciprocity between the two countries in accordance with the principles for enforcement of foreign arbitration awards set out in Articles 235 and 236 of the UAE Federal Law No 11 of 1992 (the Civil Procedure Code 1992). This should be evidenced by documents showing that the arbitration award was enforceable, and actually enforced, in the country where the award was obtained first.

However, this argument was also rejected by the Dubai Court of Cassation, which stated that it was simply not possible to enforce a foreign arbitration award, in accordance with Articles 235 and 236, due to the UAE not having signed the 1958 convention.

It has long been suspected that it is difficult to enforce foreign arbitration awards as the UAE is not signatory to the convention, although the cases heard in the lower courts have been inconsistent on this point. However, this Court of Cassation judgement contradicts previous consistent judgements of the Dubai and Sharjah courts of first instance, which have rejected the jurisdiction of the UAE courts on the basis that a foreign law and arbitration clause signed and accepted by both parties exists in the charter party.

The contradiction is simple. The UAE courts are rejecting charter party claims filed in the UAE courts due to the presence of a foreign law and arbitration clause in the contract. But later they fail to enforce the same awards on the basis that enforcement is not possible in any event due to the UAE not acceding to the 1958 New York Convention. This offers a foreign claimant no forum to bring claims against a UAE-based defendant.

Some UAE government authorities, such as the Dubai Chamber of Commerce and Industry (DCCI), are well aware of this problem. However, until such time as the law is either amended by the UAE acceding to the convention, or the position is set straight by the Dubai and/or UAE federal courts of cassation, it would be unwise for any foreign party signing a charter with a UAE-based party to sign a foreign law and arbitration clause. At least then the foreign party will have the right to contest a claim in the UAE courts under UAE law.