Lawyers are up in arms over an amendment to the UAE Penal Code last year that increases the risk of criminal action being brought against them.
Sources told Arabian Business the “chilling” amendment applies to arbitrators – lawyers appointed independently to hear cases via arbitration, which is a form of alternative dispute resolution that takes place outside the courts.
The amendment criminalises arbitrators who act ‘unfairly’ and ‘without integrity’ even if such action was not carried out ‘knowingly’.
The changes have made many UAE-based arbitrators nervous and prompted some to resign from tribunals in recent months.
Several global law firms* have reportedly asked partners and executives to refrain from independent arbitrating because of the perceived higher risk entailed.
The new provision is a change to Article 257 of the UAE Federal Penal Code. It applies to all emirates, including freezones such as Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM).
While the law is only published in Arabic and there is no definitive English text, lawyers pointed Arabian Business to one translation: “Any person who issues a decision, gives an opinion, submits a report, addresses a case or proves an incident for the benefit or against a person, failing to maintain the requirements of integrity and impartiality, in his capacity as arbitrator, expert, translator or investigator, appointed by administrative or judicial authority or selected by parties, shall be sentenced to temporary imprisonment.
“Said categories shall be banned from being reassigned to such tasks, and be subject to the provisions of article 255 of the present law.”
In practice, the amendment means a party that wishes to disrupt proceedings could threaten the other party’s co-arbitrator with a criminal allegation on vague grounds of a lack of neutrality or lack of integrity, lawyers said. That co-arbitrator would have to choose to resign or carry on at risk of action being brought.
There is no clear definition as to what ‘integrity’ or ‘impartiality’ means in this context, which further complicates the position, lawyers added.
Dubai-based chartered arbitrator Victor Leginsky said: “This is a big threat to arbitrators, and has a chilling effect on many arbitrators taking UAE appointments.
“Many international law firms whose lawyers take arbitral appointments have banned their members from taking appointments in the UAE because, typically, insurance doesn’t cover criminal prosecutions and they simply don’t want the hassle and negative publicity of a criminal prosecution even if, at the end of the day, the lawyer is acquitted.
“Further, law societies and other professional associations would likely investigate a member that was criminally charged in the line of duty. Again, even if the investigation exonerated the member, it is still hassle and perhaps [involves] a period where the person’s membership is in question. So, yes, it’s an issue.”
Stuart Paterson, partner and head of the Middle East at Herbert Smith Freehills, said: “The amendments to Article 257 of the Federal Penal Code are of real concern for those involved in arbitration in the UAE.
“The possibility that an arbitrator may be subject to criminal proceedings creates a situation whereby allegations of a lack of impartiality or integrity could be made in bad faith by a party as a tactic to disrupt the progress of the arbitration.
“Although there are regulatory rules which lawyers must observe and which may limit the use of such ‘guerilla’ tactics, they cannot prevent their clients from making such allegations directly. The penalties under UAE law for making an unfounded [or spurious] allegation are unlikely to be a deterrent.”
Thomas Snider, partner and head of arbitration at Al Tamimi & Co, said his firm – a local, UAE-based company – had not imposed a ban on its lawyers acting as independent arbitrators but was “monitoring the situation closely”, and holding private talks with government officials to highlight the issue.
“The amendment caught the legal community by surprise and is of real concern,” Snider said. “Even if the claim is frivolous it could still be investigated, suspending proceedings and forcing the arbitrator to give up his passport.”
The UAE has been working to establish the country as an international centre for commercial arbitration to rival other such hubs in the UK, Singapore and Hong Kong. As a result, the number of arbitration cases heard in the country is rising. The DIFC Courts’ arbitration tribunal (the DAI) handled a 10 percent year-on-year increase in the number of cases in 2016, while the Dubai International Arbitration Centre, an initiative of Dubai Chamber, registered a 13 percent increase to 214 cases in 2016.
However, lawyers suggested the amendment could be unhelpful to the UAE’s objectives. “Companies may feel it is wiser to provide for arbitration outside the UAE when negotiating contracts,” said Paterson, while Alec Emmerson, a partner at Clyde & Co and CEO of the DAI, said: “There is an urgent need to fix these own goals which have generated enormous negative publicity.”
Tamimi & Co’s Snider added: “While the amendment is having the practical effect of prompting some arbitrators to withdraw from tribunals, I don’t think it will mean fewer arbitration cases being brought in the short term.
“However, we may see a drop in 2-3 years’ time – the longer-term impact of firms becoming reticent about adding clauses in commercial contracts providing for disputes to be heard through arbitration in the UAE.”
The British Irish Commercial Bar Association (BICBA), together with the University of Dubai and DIAC, is staging a seminar next month to discuss the strengths and failings of the UAE as a venue for dispute resolution.
*This article originally wrongly stated that Clyde & Co was one of the firms that had barred its lawyers from sitting as independent arbitrators. A statement from the firm clarifies its position: "Clydes' position is that it has neither requested nor required partners or other lawyers employed by the firm to resign from current arbitrator appointments nor imposed any ban on their accepting future appointments.
"All future potential appointments will be considered on a case by case basis (as has been the case in the past). Clydes will also continue to represent clients in existing and future cases wherever in the world they arise." Arabian Business apologises for any confusion.
For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.