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Sat 18 Nov 2006 04:00 AM

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Convention will benefit the UAE’s international players

In our second analysis of the UAE’s forthcoming accession to the New York Convention, Craig Sida, senior consultant, EC Harris International Contract Advisory Service, outlines why the move should improve co-operation between contractual parties and benefit cross-border companies.

If you are not aware that on the 13 June 2006, the UAE decreed its intention to become the 138th signatory of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards – The New York Convention, then you have had a far longer summer break than most of us.

The UAE has also deposited its ‘instrument of accession’ with the United Nations. We now await the expiry of the 90-day period that will mean the convention has become internationally binding on the UAE. There is some debate as to exactly when that period will expire but the general consensus is sometime this month. After that the UAE should pass the implementing legislation.

The New York Convention treaty facilitates the recognition and enforcement of arbitration agreements and arbitral awards across the territories of the signatories to the treaty. Naturally the courts of the member states retain a right of censure in terms of the recognition of arbitration agreements and enforcement of arbitral awards. But this right is generally limited to matters of capacity, consistency with the parties’ arbitration agreement, due process, arbitrability and public policy.

The treaty does not apply to awards that are considered to be domestic awards. In other words, it applies only to “foreign” and “non-domestic” arbitral awards, and it is for the country where enforcement is being sought to decide what the interpretation of those words are. Article one of the UNCITRAL model law may be of some assistance in the matter.

For centuries arbitration has been accepted by the commercial world as the appropriate system for dispute resolution of international trade disputes. It avoids the perceived bias of national court systems, and it is private. Of course, for as long as arbitration has been accepted by the commercial world, there have been justifiable concerns over the enforcement of arbitral awards across national boundaries.

The success of the 1958 New York Convention treaty is evidenced by its international popularity, but also by the fact that it is now generally accepted that agreements to arbitrate, and arbitral awards, will be enforced by the courts of most of the countries who have signed-up to the treaty.

The treaty is important for any business that operates globally. It is especially important when that business operates in an industry with a fondness for complicated contractual relationships, and messy disputes, a description that fits the international construction industry all too readily.

There are a number of grounds for optimism with regards to what full implementation of the treaty will mean for the construction industry in the UAE. Foreign arbitral awards from other treaty member states are more likely to be enforceable here. This reduces the risks for those external financial institutions, banks, specialist suppliers, and the larger more risk-conscious international contractors that maybe looking to invest in the UAE. Their standard forms of contract, which generally require arbitration in Switzerland or one of the other major arbitration centres, will now work in the UAE. Any award made there will be enforceable here. This should encourage them to do more business in the UAE. If they do, then financial costs should reduce, and a broader choice of building procurement options may become available. Also less risk means less risk provision, which may have a more widespread and general impact on construction costs.

Non-domestic arbitral awards that are issued in the UAE are more likely to be enforceable in the territories of other member states. The foreign assets of international developers, contractors and subcontractors may therefore come within the reach of a UAE-based arbitral tribunal.

Some employers feel at risk vesting money in contractors with limited ties to the UAE, which is perhaps unsurprising when one considers that the first thing that many contractors do on a project is shepherd the advance payment offshore. An employer’s perception of risk has a direct impact on the terms and conditions of contract employed, and the way the payment account is managed.

Those main contractors in possession of non-domestic arbitral awards against their employer may have the choice of where they would like that award enforced. Contractors may also re-examine their options in respect of recalcitrant international subcontractors with assets in other treaty countries.

By broadening the implications for failure on a project, the treaty may help to bring about what the construction industry here really needs: better co-operation between all the parties on construction projects. Membership of the convention also offers up the potential benefit to the UAE of it becoming an arbitration centre of choice. Choice by the parties is an essential and carefully protected characteristic of arbitration.

The UAE is already a popular destination in the Middle East. With its excellent communications, simultaneous translation capable arbitration centres, and its more recent innovations such as the Dubai International Financial Centre, the temptation to declare it as an obvious choice for arbitrations in the Middle East is almost irresistible.

But the extent to which the UAE can or will become an international centre for arbitration will be dictated by the legislation implementing the treaty, and how the treaty is operated within a UAE legal context. That is a subject for the lawyers, and I refer you to Michelle Nelson of Masons Galadari, (Construction Week 21 October 2006) and Essam Al Tamimi of Al Tamimi (