UAE law requires certain formalities for an arbitration agreement to be valid.
One of these formalities is a specific authorization granted by the parties to their representatives who are signing the arbitration agreement on their behalf. Such authorization must explicitly vest the representatives with the power to agree to arbitrate.
When one of the parties to the arbitration agreement is a company, the legal form of the company determines the formalities required to allow the company’s representative to bind the company to an arbitration clause.
In the following judgment, Abu Dhabi Court of Cassation commercial appeal no. 351 of 2014 issued on 26 June 2014, Al Tamimi and Company was successful in obtaining a decision from the Abu Dhabi Court of Cassation in which the court confirmed the formalities required to bind a public joint stock company to an arbitration agreement.
Summary of the facts
The Claimant, the owner of a hotel, initiated proceedings before the Abu Dhabi Court of First Instance for the ratification of an arbitral award issued by the Abu Dhabi Centre for Conciliation and Commercial Arbitration. The dispute had arisen from a concession agreement entered into with the Respondent hotel management company (a Public Joint Stock Company).
The Respondent, represented by Al Tamimi & Co., filed a counterclaim before the Abu Dhabi Court of First Instance seeking to set aside the arbitral award.
The Court of First Instance decided to dismiss both the main and the counter claim for procedural reasons. The Claimant and the Respondent appealed before the Abu Dhabi Court of Appeal which cancelled the appealed decision and returned the case back to the lower court to render a decision.
In the second round, the First Instance Court ratified the arbitral award and dismissed the counterclaim.
The Respondent appealed to the Court of Appeal, which upheld the First Instance Court’s decision.
The Respondent consequently filed an appeal to the Abu Dhabi Court of Cassation, which quashed the Court of Appeal decision and referred the case back to the Appeal Court. The Appeal Court then dismissed the main claim and upheld the counterclaim, setting aside the arbitral award.
The Court of Appeal held that the manager who signed the concession agreement on behalf of the Respondent did not have a specific authority to bind the Respondent to an arbitration agreement.
The Claimant challenged the decision before the Court of Cassation.
The Court of Cassation:
The Claimant argued that the Appeal Court had decided the matter wrongly because the Respondent was a Limited Liability company and as such the signature of the general manager was sufficient to bind the company to arbitration without the need of a special authorization.
The Court however found as follows:
This case is a sharp reminder that it is imperative for both parties to ensure that the signing representatives are entitled to bind their respective companies to arbitration. Otherwise any final award may be annulled
If the parties have doubts about the authority of the other party’s representative, they should request that the agreement be signed before a public notary, part of whose role is to check and confirm the authority of the signatories.
If before filing an arbitral claim a claimant has concerns about the validity of the arbitration agreement, then they should first consider filing the claim before the local court. If the opposing party relies on the arbitration clause the Court will refer the dispute to arbitration, thereby confirming that the clause is valid. This does however incur some costs, and creates a risk that the opposing party will choose not to rely on the arbitration clause, which would result in the dispute being dealt with by the court rather than arbitration as originally agreed.
For more details on these issues and the reported case, please contact Mohammed Al Marzouqi.