Judicial review of arbitral awards on public policy grounds

Middle East Dispute Resolution

JUDICIAL REVIEW of ARBITRAL AWARDS on PUBLIC POLICY GROUNDS: LESSONS FROM the MIDDLE EAST

The objective of this work is to conduct a judicial review of arbitral awards on public policy grounds and specifically in terms of lessons from Middle East. This thesis is confined to public policy as an exception to the enforcement of arbitral awards, which is know as the public policy exception. The proposed research in this study will be of the nature that examines the theoretical underpinning and practical application of public policy within the context of international arbitration. This research will examine public policy in countries in the Middle East. Public policy is a concept that is vague and impossible to define and experiences variation from state to state.

Background

Alec Stone Sweet, in the work entitled "The new Lex Mercatria and Transnational Governance" published in the Journal of European Public Policy in August 2006, states that the medieval law merchant "appeared between the eleventh and twelfth centuries "comprised a relatively comprehensive, relatively efficient, legal regime for trade beyond 'local' borders. This legal system was operated by traders and their agents. The MLM is stated to make provision for merchants to escape conflicts arising between "various customs and rules, and to avoid submitting to the authority of judges attached to pre-existing jurisdictions (the courts of feudal manors, city states, local gilds, the Church)." (Sweet, 2006) According to Sweet the MLM "governed virtually all long distance trade in Europe…" (2006) Sweet states that the MLM regime as of the nature that it was "properly produced, properly adjudicated, and voluntarily enforced." (Sweet, 2006) Certain constitutive principles are contained in this regime including: (1) good faith; (2) reciprocity; (3) non-discrimination between foreigners and locals at the site of exchange; (4) third party dispute settlement and (5) conflict resolution favoring equity settlements. (Sweet, 2006)

Sweet states that the function of dispute resolution "was not so much to declare a winner of punish a loser" but instead its function is the resuscitation of the contractual agreement and to cajole the parties to get on with their business, using norms of 'fairness' between the parties. (Sweet, 2006)

The Law Merchant is stated by Sweet (2006) to make provision of "the institutional underpinning for most long-distance exchange in the trading world. Governments of states are stated to have "by the thirteenth century in England…sought consciously…to emulate the main features of the MLM…[and]…"to subordinate the merchants' regime to state control." (Sweet, 2006)

I. Arbitration Awards & Enforcement in Foreign Countries

The work of Kazutake (nd) entitled: "Confirmation, Annulment, Recognition and Enforcement of Arbitral Awards" states that the enforcement of arbitral awards in foreign countries is "assured by multilateral conventions or bilateral treaties with the only exception to be refused to enforce on the grounds provided by convention or by treaty." (Kazutake, nd) the arbitral award is held to be valid as a court judgment however, this award requires court support for enforcement against the losing party that has not complied under the award. In contrast, following an arbitral award the same may be subject to court annulment in countries where the award "was rendered, upon request by either party if it does not conform to due process of law, non-arbitrarily of the subject matter of the dispute or conflicts with the public policy of the State." (Kazutake, nd) Annulment or setting aside of an award makes the award invalid prior to enforcement in another jurisdiction against the party who lost in the arbitration process. The confirmation of the award is reported to have the same force and effect as does a judgment and claim and issue preclusion, known as (res judicata) and collateral estoppel respectively. (Kazutake, nd) Therefore, the parties are reliant upon the court to support the arbitration and for enforcement of the arbitral award.

II. Recent Developments in Arbitration Law

Dispute resolution in the Middle East region of the world has been historically, problematic as the enforcement of legal rights has been as best "unpredictable, and there was a lack of uniformity." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) the procedures for dispute resolution were not aligned with international standards or best practices and the "need for improvement and change has been recognized for many years." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) That change is finally taking place and is stated to be due to incoming Western construction and engineering firms coming into the country and it is noted that these firms all have "…well-developed notions and expectations about basic fairness and transparency in the resolution of construction diputes." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009)

III. Establishment of Regional Arbitration Institutions

The perception of arbitration on the international level as a method of dispute resolution in the Middle East has been supported by the regional arbitration institutions being established which includes the Cairo Regional Centre for International Commercial Arbitration ("CRCICA"), the Abu Dhabi Commercial Conciliation and Arbitration Centre, the Bahrain Arbitration Centre and the Dubai International Arbitration Centre ("DIAC")." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) in addition, it is reported that the "…accession of several Middle Eastern states to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") also demonstrates a shift in the region's arbitration culture." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) it is important to note that countries in the Middle East have attempted to enact new arbitration provisions that are reported as being "more progressive, accessible, transparent and familiar to foreign entities doing business in the area." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) Information on the commitment of the UAE to become a "significant force in the international economy" is well disseminated with the UAE reported to be the "…138th state to adopt the New York Convention." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009)

There are three significant developments that took place in 2008 which included the following developments: (1) the UAE federal government drafted a new arbitration law, which has been published for comment; (2) the Dubai International Financial Centre enacted a comprehensive and jurisdictionally inclusive new arbitration law; and (3) the Dubai International Financial Centre and the London Court of International Arbitration partnered to create the DIFC -- LCIA Arbitration Centre. (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) it is reported that these three events have greatly bolstered the position of Dubai in its initiative to become an international arbitration center.

IV. The Middle East -- Overview of Arbitration

It is necessary to gain an understanding of the arbitration systems utilized in the Middle East and toward this end, one must understand the primary role of religion in Middle Easter law and its society. It is related that one scholar stated: "Islamic law pervades the commercial world, as well as a Muslim's way of life. Islam is a complete way of life: a religion, an ethic and a legal system all in one." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) Islamic law or the 'Shariah' is stated to be that which forms the basis for the laws of various Middle Eastern countries to include those of:

(1) Syria;

(2) Egypt;

(3) Kuwait;

(4) Yemen;

(5) Bahrain;

(6) Qatar; and (7) the UAE. (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009)

In fact, the constitution of Saudi Arabia in the Shariah enacted into law. It is stated within the Omani Basic Law that "the religion of the State of Islam and the Islamic Shariah is the basis of legislation." Since the Shariah constitutes the very foundation of Islamic Middle Eastern law and culture, it is not surprising that the Shariah plays a significant role in the region's arbitration processes." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009)

V. The Middle East and Arbitration

Arbitration is reported to have been practice in the Middle East since the very early days of Islam and as well it is reported that the Koran and Sunna of the Prophet which are the primary sources of the Shariah both make reference to the arbitration process and that there has been a great deal of effort in the Middle East to bring about harmonization of the ancient tests of the Shariah and the expectations of foreign investors in the region. (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) There has been a great effort in the Middle East to "harmonize the ancient tenets of the Shariah with the modern expectations of the regions growing number of foreign investors." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) Bifurcation of the religious and civil codes in some countries evidences the attempt to remnant adherent to Islamic Law while simultaneously "responding to the needs of an ever-shrinking commercial world…" (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) the example stated in the work of Weinberg, Wheeler, Hudgins, Gunn and dial is that of Yemen, Jordan and Kuwait's attempt to bring about modernization to their arbitration rules through a requirement on arbitrators to apply the law which is chosen by the parties to the arbitration and this is even if the chosen law is non-Shariah law. The purpose of such bifurcation is the enabling of the parties to the arbitration to maintain control of the impact of the Shariah in the law that they choose for arbitration. Middle East states that have not removed religion from their rules of arbitration will continue to administer arbitrations through strictly adhering with the principles of Shariah law and it is likely that these states will place a prohibition on speculative contracts and provisions of contracts calling for strict adherence to Shariah law.

VII. Shariah Law and the Basis of Arbitration

It is reported that whether the arbitration award is binding on the parties may be dictated by the Shariah and in countries where the Shariah is the basis of arbitration awards there must be four inclusive parts: (1) a description of the dispute; (2) the findings of facts under Shariah rules of evidence; (3) the reasoning of the award with reference to the Shariah source; (4) and the decision itself." (Gemmell, 2006 cited in: Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) it is reported as well that countries in the Middle East have consistently mandated that for an award of arbitration to have a res judicata effect, that the award must be court-approved and this is despite what form of law or methods of enforcement are chosen (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009, paraphrased) the outcome of this mandate is that the rendering of an award in the arbitration process does not make the dispute to be finally resolved since there is procedural room left for "…expeditious judicial management or judicial meddling, procrastination, and delay." (Al-Ayoub, 2006 cited in Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009)

The Middle Eastern Countries that adopted the New York Convention include those of Bahrain, Oman, Saudi Arabia, Jordan, Qatar and the UAE and these countries should make provision of "… straightforward enforcement of foreign arbitral awards in those states." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) the New York Convention however, is also inclusive of "an exception allowing courts to repudiate foreign awards that are "contrary to the public policy of that country." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) This exception is used for the basis of denying enforcement of foreign arbitration awards that fail to comply with the Shariah in Middle Eastern Countries. In fact, it is reported that Saudi Arabia is more likely to refuse recognition of foreign arbitration awards on the basis that the law as policy in Saudi Arabia is opposed to the laws and rules of many member nations or those nations of the New York Convention. (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009, paraphrased)

Therefore, Saudi Arabia may not be under a requirement for enforcement of non-domestic arbitration awards to any greater extent than prior to the 1994 accession to the New York Convention in Saudi Arabia. The influence of the Shariah on the local laws in the Middle East combined with complications associated with enforcing arbitration awards has rendered foreign investors to be somewhat reluctant for their arbitrations to be governed by Middle Eastern laws. Added to this the process and policies of arbitration in the Middle East is still very young and the largest part of attorneys and judges in the Middle East have little experience in this area of the law.

IX. Arbitration Clause in International Project Contracts

The work of Michael J. Bond entitled: "The Arbitration Clause in International Project Contracts" states that the New York Convention was implemented in the United States by Federal Statute and has as its basics five pages of a treaty including the following Articles:

Article I -- makes provision that the Convention is applicable and enforced related to arbitral awards that were formed in another state party to the convention. States are permitted to agree to only "two possible reservations upon ratification" in what are actually exceptions to its application:

a requirement of reciprocity; and that the convention will only apply to arbitrations arising from legal relationships which are considered as commercial under the national law of the State making such declaration. (Bond, nd)

Bond states that reciprocity is a "logical condition what is good for you is good for me but whether the dispute arises from a commercial relation may be more esoteric." (Bond, nd)

Article II -- requires that each Contracting State recognize agreements in which disputes to arbitration are submitted. It is required that the agreement is in written form and that all parties have signed the forms or that the agreement be contained in letters or telegrams exchanged by the parties.

Article III -- makes a requirement of contracting states to "recognize and enforce arbitral awards in accordance with local procedure and the Convention's criteria, but in no event can the terms or conditions for enforcement of an international award be more onerous than for the enforcement of domestic awards." (Bond, nd)

Article IV -- makes provision that in order to obtain recognition and enforcement that a party is required to file "…an authenticated original or certified copy of the award and the original or certified copy of the arbitration agreement, which has been translated into the language of the country where enforcement is sought.

Article V -- This is stated to be the "guts of the Convention" as it "sets forth the only grounds on which recognition and enforcement of an arbitral away may be refused." (Bond, nd) Bond reports that the award's validity is based upon the burden of proof in the form of the party that is resisting enforcement of the award.

Grounds for refusal under the Convention are stated to include those as follows:

(1) the parties to the agreement were, under the law applicable to them, under some incapacity, or the agreement is not valid under the law to which the parties have subjected it or the law of the country where the award was made; or (2) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrators or the proceedings or was otherwise unable to present his case; or (3) the award deals with matters not within the scope of the arbitration agreement, provided that if those matters can be separated, then partial enforcement of the award that is within the scope of the parties agreement may occur; or (4) the composition of the arbitral tribunal or its procedure was not in accordance with the agreement of the parties or, absent such agreement, not in accordance with the law of the country where the arbitration took place; or (5) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which or under the law of which the award was made; or (6. The subject matter of the difference is not capable of settlement by arbitration under the law of the country where enforcement is sought; or (7) Recognition or enforcement of the award would be contrary to the public (Bond, nd)

The Arbitration Clause in International Project Contracts" that Article VI states that "an application for enforcement may be adjourned if an Article VI provides that an application for employment may be adjourned Article VI provides that an application for enforcement may be adjourned if an application to set aside the award is pending in the country where the award was made, and the Court may require the posting of suitable security in the event an enforcement proceeding is adjourned." (Bond, nd)

There are stated to be at least four dimensions of international arbitration which include those as follows:

(1) the contract itself will be subject to one law, either that chosen by the parties, or if not chosen, then it will be determined by the arbitraries using choice of law principles;

(2) the arbitral law of the seat or place of arbitration, known as the lex arbitri, will in the first instance govern issues such as the interpretation, validity and enforcement of the arbitration agreement, interim relief, discovery and appeals of awards. Many nations have adopted in whole or part the United Nations Commission on International Trade Law (UNCITRAL) Model Law that the UN General Assembly adopted in 1976. The UNCITRAL Model Law attempts to deal with many of these issues;

(3) if the parties have chosen an institution to administer their arbitration, then the institution s Rules of Arbitration will govern the procedures that are used in the arbitration. Fourth, under the New York Convention, the law of the place where the award is sought to be enforced may determine the ultimate outcome. (Bond, nd)

In the cases where none of the previously listed legal dimensions govern an issue then the "parties and tribunal may look to what is known as 'lex mercatoria' a generalized method of referring to legal principles of the law merchant believed to be common to international commercial relations and not dependent on a single legal order." (Bond, nd)

Bond states that arbitration of investment disputes with a State will result in "…implications into a sixth legal dimensions and specifically that of bilateral investment treaties (BIT) which usually incorporates rules governing expropriation, fair and equitable treatment and the minimum standards of treatment that investors should expect under principals of public international law.

Arbitration centers in the Middle East are stated to have historically been linked to local chambers of commerce. One such center is the GCC Commercial Arbitration Center stated to be "an independent, non-profit organization based in Bahrain which was established in 1993 by the chambers of commerce in each of the GCC countries…" (Jagusch and Kwan, 2008) the objective of the center is the promotion of arbitration and dispute resolution procedures in the Middle East as well as the establishment of strong relationships with other arbitration centers both those in Arab countries and international arbitration centers. There are two institutions which are reported to be well-established and those two are the Cairo Regional Center for International Commercial Arbitration (CRCICA) and the Dubai International Arbitration Center (DIAC) with both seeing an increase in the volume of arbitration referrals. CRCICA was created in 1979 by an international agreement between the Asian African Legal Consultative Organization and the Egyptian government and since February 1980 has administered a total of 551 domestic and international arbitrations. The highest ranking disputes are construction disputes.

The DIAC is reported to be one of the primary arbitration centers in the region and there are other arbitration centers including the Abu Dhabi Commercial Conciliation and Arbitration Center, the Bahrain Arbitration Center and the Arab Center for Commercial Arbitration in Rabat.

It is reported that the institutions in the Middle East have amended arbitration rules very recently and that the CRCIA Arbitration Rules are based on the UNCITRAL Arbitration Rules 1976 as amended in 1998, 2000, 2002, 2006, and 2007. new amendments came into force on June 1, 2007 and are stated to have included the following rules:

(1) the Centre may, upon the approval of the High Legal Committee, reject the appointment of any arbitrator chosen, based on the existence of substantial evidence confirming that the arbitrator in question lacks legal or contractual requirements or has not acted in compliance with the Center's Code of Ethics in any previous matter (article 7).

(2) an arbitrator may be removed if he or she fails to act and/or if he or she deliberately delays the commencement or continuation of the arbitral proceedings (article 12).

(3) the parties may be represented or assisted by lawyers or non-lawyers of their choice (article 4) -- this confirms existing practice, whereby parties may be represented in international arbitration by Egyptian or foreign lawyers, and non-lawyers.

(4) the introduction of principles into the Center's Code of Ethics regarding the duty to disclose a fact, circumstance, or a relationship and any doubts should be interpreted in favor of disclosure; the tribunal shall avoid any act or behavior likely to hinder the deliberation or to delay the settlement of the dispute; and the tribunal shall avoid superfluous expenses that are likely to increase the costs of the proceedings in an unjustified manner. (Jagusch and Kwan, 2008)

Jagusch and Kwan (2008) report that the latest Arbitration Rules of the DIAC went into effect the 7th day of May 2007 and that the revision of the rules resulted from a year of consultation ongoing between the board of trustees of the DIAC and several arbitration experts. Originally, the DIAC Arbitration Rules were based on the UNCITRAL Rules but contained elements of the LCIA, ICC, WIPO and the Stockholm Chamber of commerce Arbitration Rules. International practice was adopted by the new rules and includes the features as follows:

(1) the formation of the tribunal has been expedited (article 12)

(2) the majority of the tribunal have the power to continue proceedings in the absence of an arbitrator (article 15).

(3) the default language of the proceedings is the language of the arbitration agreement, and the executive committee has the power to decide which language shall be the initial language of the arbitration in the event that the arbitration agreement is written in more than one language (article 21) -- this is unique to the DIAC Rules, and was enacted to overcome the common problem in the Middle East where claimants would serve a request for arbitration in one language (usually English) and respondents would correspond with DIAC in a different language (usually Arabic) because of copies of the agreement in different languages.

(4) the tribunal has the power to order the production of documents (article 27). In the UAE, there is generally no discovery or disclosure of documents. Parties are free to disclose only those documents that they wish to rely upon to prove their claim. Specific discovery was not addressed in the 1994 rules, and the court only orders it in exceptional circumstances.

(5) Interim and conservatory measures of protection have been introduced (article 31). The 1994 rules stated that commencement of the arbitration did not prevent the parties from resorting to the state courts for interim or protective measures. The new DIAC Rules provide power for the tribunal to make any provisional orders or take other interim or conservatory measures it deems necessary, including injunctions. This is a big development for arbitration in the UAE. The Civil Procedure Code does not provide power for arbitrators to order interim relief. Moreover, the UAE courts do not recognize the concept of injunctive relief. UAE courts are empowered to order the attachment of assets, before and during court proceedings. (Jagusch and Kwan, 2008)

Summary and Conclusion

Arbitration laws and policy in the Middle East is stated to be complex due to the variations among countries of these laws and policy matters. There is presently an initiative being attempted in the Middle East to enact new arbitration provisions that are more progressive, accessible, transparent and familiar to foreign entities doing business in the area." (Weinberg, Wheeler, Hudgins, Gunn and Dial, 2009) Arbitration laws and policies have historically played a primary role in commercial business and it is certain that this will continue to be the case and particularly in light of modernization and globalization of commercial business ventures and operations. There is presently a push for better alignment of local arbitration laws and policies with the International law and policies government arbitration of disputes.