By Mark Hoyle, King & Wood Mallesons’ Dubai Office

Mark HoylePublic policy, as any student of English law knows, is “an unruly horse” which, depending on the rider, can either turn out to be one of the four Horsemen of the Apocalypse or a shining knight. After the issue of an award, just as a tribunal or the successful party feels that it is safe to relax and exit the psychological bunker that often shadows arbitrations in the UAE, the ace in the pack, high of course, is played and the immortal words “public policy” send a shiver through the process.

Once upon a time the arbitrators could sign at the end of the Award and breathe a sigh of relief that their job was done. But gradually, and with creeping vigour, the drums beat and the Tribunal is told that additional requirements must be fulfilled, such as initialling each page of the award in order for it to be valid. Nobody is able to point to a real legal basis of course, but never mind. Then, as if there is enough unpaid work for a tribunal, the watch phrase is “sign on each page” of the Award. At last, some might say – surely that is the end of it! But no, the latest wheeze is that each page of the award and the appendices must also be signed. No Court decision of course, no legal ruling, no change of the law.

So in the light of that, singular, illustration of what is whispered to be “public policy” (there are many other illustrations), it was not too much of a surprise that the question surfaced of a public policy point about arbitrations concerning real estate.

Property disputes are have been a prominent feature of the Dubai market in recent times. In the wake of the enactment of a number of laws relevant to the property market, which market is significant to the economy of Dubai, and the UAE generally, several recent cases in the Dubai courts have cast light over how the consideration of Dubai’s public policy might affect property disputes, in particular those governed by arbitration agreements.

The somewhat surprising conclusions reached by the Dubai Courts as noted below, especially with regard to how the public policy of the UAE and Dubai are being deployed to set aside arbitral awards relating to property disputes, can so easily set to shape and mould the ever developing and burgeoning Dubai construction and real estate landscape.

However, the much heralded (but rather delayed) new UAE Arbitration Law, which may alter the position, is expected to be enacted within the coming months. Until then, although there is no system of legally binding precedent in the UAE, these judgments are likely to be followed by the UAE’s inferior courts.

1. Case law / Factual Background

  • Dubai Court of Cassation judgment 43 of 2009

This case turned on the interpretation of Article 3 of Dubai Law 13 of 2008, concerning the obligatory requirement to register dispositions over real estate units sold ‘off plan’, which informs the subsequent cases. The Court held that the person who was responsible for submitting the necessary documents for the application was the developer. However, the actual task of completing the registration lay with the Dubai Land and Property Department.

Although the time limit for registration is 60 days, going beyond that limit will not render the disposition void. This will only occur if the disposition is not registered at all. This is when it becomes a matter of public policy, as a failure to register is likely to eliminate the parties’ rights, and scupper arbitration.

  • Dubai Court of Cassation Judgment 180 of 2011

This decision concerned ratification proceedings for an arbitral award rendered in favour of the Respondent, who was seeking cancellation of the contract and a refund for payments made due to the fact that the contract had not been registered on the interim property register.

The Dubai Court of Cassation held that Article 203(4) of the Civil Procedure Code (the ‘CPC’), which, in part, states that Arbitration shall not be permissible in matters, which are not capable of being reconciled…”, has the result that the sale and purchase of off-plan units, without complying with the provisions of Article 3 of Dubai Law 13 of 2008 (‘Regulating the Interim Real Estate Register in the Emirate of Dubai’), that is to say, the mandatory requirement for registration, cannot be the subject of an arbitration as the dispute is not subject to conciliation and is therefore contrary to the principles of public policy.

  • Dubai Court of Cassation Judgment 14 of 2012

Perhaps the leading judgment on this subject, this decision concerned a claim to enforce three DIAC arbitral awards in respect of a disagreement relating to private property. Again, it turned on the interpretation and application of Dubai Law 13 of 2008. The Dubai Court of Cassation decided that the awards should be set aside on the grounds that the application of this law was a matter of public policy and, consequently, could not be determined by arbitration.

This contradicted the earlier Court of Appeal decision which held that the sale contract was void (not voidable), since it had not been registered on the interim property register pursuant to Dubai Law No. 13 of 2008 (as amended by Law No. 9 of 2009). Registration was a matter of public policy. In fact the Court of Cassation held that the arbitrator had mistakenly applied this law when it was not within the arbitrator’s jurisdiction to decide on such a matter and therefore nullified the award.

The Court of Cassation’s decision was based on the following tenets. The parties cannot agree to arbitrate, nor can the arbitrator decide, on matters, which cannot be amicably settled between the parties. On matters concerning public policy, such as the circulation of wealth or lack of registration for a plot of land, there can be no arbitration. Real estate property, and therefore, to a certain extent, national wealth, cannot be within the remit of an arbitrator. So, an award that determines the validity of a real estate transaction cannot be valid and must therefore be set aside.

  • Abu Dhabi Court of Cassation Judgment 663 of 2012

In this case, although referring to the laws of the Emirate of Abu Dhabi, in particular, Law 3 of 2005, as amended by Law 2 of 2007, is similar to the provisions contained in the corresponding Dubai laws, the Respondent had purchased several units in the Appellant’s building and, upon the failure to complete construction of the building, the Respondent commenced arbitral proceedings for the purpose of cancelling the sale and purchase agreement (‘SPA’), requesting a refund of the payments already made. As a consequence, an arbitral award was rendered, ordering the cancellation of the SPA.

However, the Court of Cassation held issues of public policy are exclusively the jurisdiction of the courts and, even if there are no explicit, applicable grounds for setting aside an award under Article 216 of the CPC, a court can still nullify an award if an arbitrator acts ultra vires, exceeding his authority / jurisdiction by proceeding to decide issues of public policy.

  • Dubai Court of Cassation Judgment 282 of 2012

Similarly to the other cases, this dispute involves a party’s request to render an SPA invalid and obtain a refund of monies paid. The Respondent then attempted to resist ratification in the Dubai Courts based on the grounds that the arbitrator had determined matters allocated to public policy and that the award consequently should be set aside.

In its decision the Dubai Court of Cassation distinguished the facts in this case, holding that, since the purchaser was attempting to cancel the contract based on the seller’s failure to comply with the provisions in the SPA and deliver the property on the date agreed, this did not constitute a matter of public policy. Public policy is only invoked when a party requests that the contract be invalidated, due to non-registration at the Land Registry. This case results in a lessening of the rigour of the earlier cases, thereby limiting the scope of Article 203 of the UAE Civil Procedures law and Dubai Law No. 13 of 2008.

  • Abu Dhabi Court of First Instance judgment numbered 2847 of 2013

In the most recent case, an arbitral tribunal ordered that a property SPA be rescinded and a refund and damages paid to the claimant. The Abu Dhabi Court held that, as the matter only concerned the interests of private parties, they are entitled to act and pursue conciliation and the matter did not constitute one of public policy.

The trend can be seen. There is a clear distinction between private rights and public policy. The idea that a dispute about real estate cannot be arbitrable per se is wrong. Each case involving real estate needs to be considered and analysed carefully. There will be obvious and egregious instances where a lack of consonance with the law will result in a public declaration that an arbitration cannot be the pathway to solving the parties’ dispute. For the present, though, it seems that a more mature analysis is taking hold, whereby the real issues in a dispute are subject to proper assessment.

For more insights, please click here.