Arbitration is a specifically established mechanism for resolving commercial disputes, concerning a contractual relationship between the parties. Recently, arbitration has become a booster for commercial activities which has completely changed the perception of the judicial system. There are certain disputes which cannot be settled through arbitration. Hence, disputes including a crime, matters opposing the public policy, family matter are some kind of conflicts which can’t be settled through arbitration. The list is non-exhaustive as there are numerous commercial and civil disputes, even having an arbitration clause in the agreement, cannot be settled through arbitration. Through this article, Commercial Lawyers of Dubai & Abu Dhabi, UAE will discuss the matters related to the mandatory rule of Public Policy in which arbitrators fail to hold jurisdiction. Any agreement entered into by parties to resolve the issue through arbitration shall be declared null and void and even if the parties sought an arbitration award.

Following are the four types of disputes that cannot be referred to arbitration institution as it is against the mandatory rule of public policy.

1. Commercial Agency

Federal Law Number 18 of 1981 governs the commercial agencies agreements in UAE. Article 1 of the foregoing law defines commercial agency as “Representing the principal by an agent to distribute, sell, present and provide a commodity or service inside the UAE against a commission or profit.” Further, according to Article 27 and 28 of the Commercial Agency Law, a specialised committee that is Commercial Agency Committee will have the authorisation to have exclusive jurisdiction over such matters and contradictory agreement shall be declared null and void.

The foregoing is evident from a landmark judgment of Court of Cassation case number 814 of 2011, wherein a dispute arose between the principal and a commercial agent. Pursuant to the agency agreement, the agent referred the matter to arbitration where he received a favourable award. The award was thereafter referred to Court of First Instance for ratification. On the contrary, principally raised an objection stating that the award shall not be ratified on the ground that commercial agency disputes cannot be referred to arbitration. The request was rejected by both Court of First Instance and Court of Appeal. The matter was presented before the highest court of Dubai, Court of Cassation, where the judgment of the lower court was overruled and the request of the principal was accepted. Court further held that any dispute pertaining to the commercial agency could not be arbitrated if the concerned agency is registered in the Commercial Agency Register in accordance with Commercial Agency Law. Thus, the award issued by arbitration is null and void.

2. Insurance Matters

Pursuant to Article 1028 of Federal Law Number 5 of 1985 concerning the Civil Transaction Law, an arbitration clause cannot be added in any insurance agreement or policy, unless the provision is in an exclusive agreement severed from the general terms and conditions of the insurance policy. In a recent Court of Cassation judgment 278 of 2015 concerning a dispute between the insurer and the insurance company. The insurer filed a case before Court of First Instance for the appointment of an arbitrator in accordance with the insurance policy. The latter defended the case on the basis of Article 1028 of the Civil Transaction Code stating the agreement for arbitration was not in a special agreement and forms a part of general conditions, thus, shall be declared null and void. The objection raised by the company was rejected by both Court of First Instance and the Appeal.

The matter was later registered with the Court of Cassation wherein it was confirmed that the arbitration clause present in general terms and conditions of an insurance policy should not be considered where Civil Transaction Law is applicable. However, if the dispute is governed by Commercial Transaction Code, it can be referred to arbitration, even if it not framed under an exclusive agreement apart from the general terms and conditions of the insurance policy.

3. Matters related to Public Policy

It is a well-entrenched rule that any dispute relating to the public policy of the country cannot be settled through arbitration and hence should not be referred to arbitration. Thus, arbitration centres within UAE are not allowed to decide on the matters which are in relation to public policy. The foregoing principle is referred to as “Arbitrability”.

In line with the above, any dispute between partners of Limited Liability Company (LLC) registered within UAE cannot be referred to the arbitration, even if there is an arbitration clause in the Memorandum of Association of the company. This is the rule is evident from Court of Cassation case 150 of 2014, where one partner of an LLC filed an arbitration against the other partner in a personal capacity without involving the company, relying on the arbitration clause mentioned in the Memorandum of Association.

The claimant requested the arbitrator to pass an order for his withdrawal from the company and order the existing partners to pay for his shares and outstanding profits, goodwill value in their capacity. While the arbitration, the defendant contended that the centre has no jurisdiction over the said matter as it is against the public policy, however, his contentions were rejected by the centre. The arbitration centre passed an award in favour of the claimant, and the same was registered before the Court of First Instance for ratification. On the other hand, a counterclaim was filed by the respondents to nullify the award. First Court and the Appeal Court ratified the award.

Upon referring the matter to Court of Cassation, the Court opined that in accordance with Article 218, 222 and 322 of the Federal Law Number 2 of 2015 regarding the Commercial Companies Law, the company has an independent existence and owns the shares of the company and the liability of partners are up to their shares, unless otherwise. The claim raised by the Claimant was directed to the company and not on the partners alone. In respect to the foregoing provisions, the liability of each partner is up to their shares, and it is a mandatory public policy. Thus the concerned clauses cannot be referred to arbitration. As a result Court of Cassation overruled the decision passed by Appeal Court and held the arbitration award null and void due to lack of jurisdiction of the arbitrators.

4. Matters regarding Real Estate

It is established under UAE law and more specifically under Dubai Real-Estate Law, Dubai Law Number 7 of 2006 provides that all the agreement pertaining to sale and purchase of an off-plan property must be registered with Dubai land department of Dubai under a particular register. Agreements which are not registered are considered as invalid. The concerned rule is mandatory about public policy. The concerned rule was followed by Court of Cassation in case number 180 of 2011 where the purchaser filed an arbitration against the developer of the property to set aside the sale purchase agreement due to respondent’s failure to register the property with Land Department. The award was issued against the seller. Consequently, the purchaser filed the award for ratification before Court of First Instance. The developer argued that the award is null and void as the case is in relation to the mandatory rule of public policy. The First Court ratified the award, and so did the Appeal Court.

The matter was referred to Court of Cassation highlighted that the disputes about the registration of off-plan property belongs to the mandatory rule of Public Policy and cannot be resolved through arbitration. Accordingly, the award was nullified, overturning the Appeal Court Judgment.