Transnational Construction Arbitration

Renato Nazzini

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CHAPTER 11 Recognition and enforcement of domestic and foreign arbitral awards in the Middle East

Introduction

11.1 The present chapter discusses in some detail the practice and procedure of the enforcement of domestic and foreign commercial and investment arbitration awards in the construction sector in the Middle East. It should be noted from the outset that the enforcement of construction arbitration awards is no different from the enforcement of ordinary commercial (or investment) arbitration awards; there is hence no special regime that applies to the enforcement of arbitration awards dealing with construction disputes.1 In terms of geographical coverage, given prevailing constraints of space, the discussion will focus on some of the more prominent arbitration jurisdictions, such as the Gulf countries,2 Lebanon3 and Egypt.4,5 Occasional reference will be made to a jurisdiction

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outside this group of countries if it is felt necessary to do so in order to highlight developments that – albeit unique to it – are instructive for enforcement in the Middle East more generally, for example Jordan6 and Libya.7 11.2 It bears mentioning that some Middle Eastern arbitration jurisdictions are more advanced than others. This may be because the judiciaries of the more advanced jurisdictions have grown particularly experienced in handling arbitration disputes over the years or because the legislature of those jurisdictions adopted a version of the UNCITRAL Model Law8 as their stand-alone arbitration law to provide reliable guidance to users of arbitration both domestically and internationally.9,10 Whatever the reason, following a slow start there has more recently been a general trend in the Middle East in favour of the enforcement of both domestic and foreign arbitration awards. The United Arab Emirates (UAE)11 champion this trend and have developed into one of the most avant-garde arbitration jurisdictions in the Middle East.12 Arbitration practices and techniques prevalent in the UAE are likely to lead by example in the remaining Middle Eastern jurisdictions in years to come and therefore merit closer scrutiny. Egypt, even though once amongst the most progressive arbitration jurisdictions in the Middle East, has fallen behind following recent arbitration reforms that appear to have rendered more difficult the enforcement of foreign arbitral awards (at least against governmental entities in investment arbitration).13 Saudi Arabia has always stood out from the Gulf group of countries as the most arbitration-hostile jurisdiction,14 yet more recent developments, including in particular the adoption of the 2012 Saudi Arbitration Law,15 which is based on the UNCITRAL Model Law, have been a source of hope that arbitration in the Kingdom has reached a turning-point and will be off to a brighter future. Indicative of the Kingdom’s brighter future is no doubt the first appointment of a female to sit as arbitrator in Saudi following the adoption of the Saudi Arbitration Law. For the avoidance of doubt, the appointment of a female arbitrator will no longer invalidate arbitration awards (whether domestic or foreign) and hence no longer thwart their enforcement in Saudi.16

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11.3 Most Middle Eastern jurisdictions operate a civil law system and as such rely on their civil procedures rules for guidance on enforcement of domestic and foreign arbitral awards.17 This said, two Gulf countries, the UAE and Qatar, have established alternative jurisdictions of common law origin in the form of free zones that have an autonomous judiciary and a stand-alone arbitration law. This has given rise to the operation of some of these free zones as ‘conduit’ or ‘host’ jurisdictions for the enforcement of domestic and foreign arbitral awards for onward execution against award debtors outside the free zone. 11.4 Most Middle Eastern countries – apart from a number of bilateral arrangements – are party to multilateral regional enforcement instruments that assist in the enforcement of foreign arbitration awards of Middle Eastern origin, including in particular the GCC Convention18 and the Riyadh Convention.19 In addition, all the Gulf countries and a number of other Middle Eastern jurisdictions20 are a member of the New York Convention,21 the most successful international enforcement instrument in arbitration history. As will be seen, the New York Convention has come to play a significant role in the enforcement of foreign arbitral awards (of both Convention and non-Convention origin). 11.5 Finally, enforcement in the Middle East and elsewhere depends inevitably on the extent to which an award debtor will be able to mount a successful public policy defence. The content of that public policy will usually draw on the concept and understanding of public policy in the enforcing jurisdiction. This, in turn, raises concerns of the role of the Islamic Shari’a in the enforcement of both domestic and foreign arbitral awards in Middle Eastern jurisdictions more specifically.22 11.6 This chapter will give further consideration to these various facets of enforcement across jurisdictions in the Middle East in the hope to dissipate the common misperception that the enforcement of arbitration awards in that part of the world is unpredictable and fraught with insurmountable procedural difficulties. 11.7 The chapter will also explore the regime in place for the enforcement of International Centre for the Settlement of Investment Disputes (ICSID) and non-ICSID awards in the Middle East taking account in particular of the significant practical interest this

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topic has raised in the aftermath of the Arab Spring.23 Finally, it bears mentioning that other incisive socio-political developments elsewhere in the world, such as Brexit, will be unlikely to have any impact on the de facto enforcement of arbitration awards in the Middle East24 and, as such, do not require further consideration here.

Enforcement of domestic arbitral awards 25

Domestic ratification processes

11.8 In most Middle Eastern jurisdictions, the recognition and enforcement of domestic arbitral awards takes the form of a so-called ratification or validation process.26 This essentially means that the subject arbitral award is submitted to a full procedural review before the competent court of first instance, which, in turn, is subject to appeal to the competent court of appeal and in a final instance the competent court of cassation. This said, in some of the Gulf countries, in particular Bahrain,27 Oman28 and Saudi,29 ratification proceedings are initiated before the competent court of appeal or equivalent. In Lebanon, a judgment of the court of first instance granting leave to enforce cannot be challenged before the higher courts,30 the only recourse available to an award debtor being an action for nullification.31 Some jurisdictions, including Egypt,32 Kuwait,33 Libya34 and Qatar,35 require the registration of a domestic award with the clerk of the court having original jurisdiction over the underlying dispute for the enforcement process to go ahead. In Egypt more specifically, awards that qualify as of an international commercial nature within the meaning of Articles 2 and 3 of the Egyptian Arbitration Law36 are submitted to the Cairo Court of Appeal for exequatur.37 In Saudi, by virtue of the adoption of the new

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Enforcement Law,38 enforcement responsibilities have passed from the Board of Grievances to the Saudi enforcement courts: Importantly, decisions of the enforcement courts cannot be appealed and as such are anticipated to speed up the process of enforcement of both domestic and international arbitral awards in Saudi; for the avoidance of doubt, the enforcement courts scrutinise the subject award against the usual enforcement criteria that apply in other civil law jurisdictions in the region, including in particular reciprocity and compatibility with domestic (ie Saudi) public policy.39 Following adoption of the 2017 Qatari Arbitration Law, the parties are free to choose between the Qatari Court of Appeal and the Qatar Financial Centre (QFC) Court of First Instance as the curial courts in an arbitration process, including for purposes of recognition and enforcement.40 Whereas the UAE do not prescribe a time-limit within which an application for enforcement after issuance of the award must be made,41 other Middle Eastern42 jurisdictions do. 11.9 It is well established in the majority of the aforementioned jurisdictions that the review of the subject award is limited to procedural irregularities only and does not extend to the merits,43 subject to grounds of public policy, which warrant a full substantive review of the subject award,44 even ex officio, ie where the public policy exception has not been raised by either party to the enforcement process.45 For the avoidance of doubt, awards are generally considered res judicata upon issuance46 and can therefore not be re-opened on the merits for consideration of new legal arguments or material facts that have only come to light ex post.47 Nevertheless, given that awards commonly pass through two levels of appeal before being confirmed for enforcement, the ratification process may take in excess of one year to complete. This said, given the fact that arbitration awards take immediate effect upon issuance,48 enforcement is not mandatorily suspended pending an action for appeal.49,50 It should also be noted that there is frequently no distinction

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between recognition and enforcement in Middle Eastern jurisdictions.51 This said, some of the UNCITRAL Model Law based jurisdictions and in particular the Dubai International Financial Centre and the Abu Dhabi Global Market do distinguish between recognition and enforcement as clearly borne out by the wording of their provisions on ‘recognition and enforcement’ contained in their respective arbitration laws.52 11.10 Despite the limited scope for procedural review, the meaning of procedural irregularities under most Middle Eastern arbitration laws is considerably wide:53 It includes common formalities that relate to (1) the drafting and issuance of an award, such as a number of form and content requirements (including the requirement in writing, signature requirements, the indication of the date and place of issuance of the award, the inclusion of a summary of the underlying arbitration agreement, a summary of the parties’ respective cases, a reasoning and a dispositive part, etc.),54 (2) some standard procedural requirements in relation to the conduct of the arbitration process, including compliance with pre-arbitral conditions precedent (such as compliance with a pre-arbitral referral for a decision by the Engineer under Clause 67.1 of the FIDIC Standard Form),55 the proper execution of the underlying arbitration agreement56 (requiring the arbitration agreement to be in writing),57 the holding of a preliminary meeting at the inception of the arbitration

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process,58 the proper competence of the tribunal (including typically the proper constitution of the tribunal and its empowerment to rule on the subject-matter of the dispute)59 and the oath-taking requirement,60 and (3) a residual category of procedural due process requirements (including, eg, a minute-taking requirement of any oral hearings61). This latter category of requirements is fairly wide in scope and contains anything that could affect an arbitrating party’s right to a fair hearing.62,63 Importantly, in some jurisdictions, foreign lawyers are proscribed from serving as party representatives in arbitration64 and their appointment as representing counsel may operate as a defence to enforcement in its own right.65 11.11 Further, it bears mentioning that some procedural irregularities may qualify as public policy in most Middle Eastern jurisdictions, such as the even number of arbitrators,66 the independence and impartiality of arbitrators,67 the right to be heard (also known as the right to a fair hearing or the audi alteram partem rule, which is enshrined in all UNCITRAL Model Law based regional arbitration laws68) and the proper execution (ie signing) of the arbitral award.69 To the extent that this is the case, the concept of a procedural public policy violation that jeopardises the ready enforceability of a resultant award has gained some currency in the Middle East.70 For the sake of completeness, it should be cautioned in this context that intentional bias in, for example, rendering arbitral awards might attract

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criminal liability of arbitrators in some Middle Eastern jurisdictions.71 This said, claims for professional negligence against arbitrators accused of a violation of due process have met with disapproval before the competent courts.72 11.12 Last but not least, some Middle Eastern jurisdictions do not accept the enforcement of partial or interim awards, such as an award confirming a tribunal’s jurisdiction;73 in those jurisdictions, to be fit for enforcement, awards must be final.

Applications for nullification and public policy considerations

11.13 Importantly, in response to an application for recognition and enforcement, an award debtor may file for the nullification of the subject award.74 Given that award debtors in the Middle East rarely comply with the terms of an award voluntarily, an application for nullification is routine practice in most Middle Eastern jurisdictions. Typical grounds for nullification include: (1) the invalidity of the underlying arbitration agreement, including insufficient capacity to enter into the arbitration agreement (for example failure to provide a special power of attorney);75 (2) the improper constitution or deficiencies in the mandate of the tribunal (including concerns about the independence and impartiality of tribunal members76); (3) a violation extra petita by the tribunal (ie the tribunal ruling outside the strict boundaries of its mandate77);78 (4) a violation of the content and/or form requirements of the arbitral award79 and in particular failure to render an award within the prescribed statutory time-limit, which varies across jurisdictions and are usually subject

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to a power of extension on part of the tribunal and/or the competent curial court;80 and (5) the violation of any (other) due process requirements, eg a tribunal’s failure to give a fair hearing (sufficient opportunity to be heard).81 In Egypt, failure to apply a law on the merits expressly agreed by the parties has also specifically been identified as a source of nullification.82 Other than that, the Egyptian courts have been praised for their arbitration-friendliness in taking a minimalist approach to the review of arbitral awards on the ground of public policy.83 11.14 Albeit often not listed as an express ground for nullification,84 a violation of public policy will be a strong ground for challenging an award in most Middle Eastern jurisdictions.85 The chance of success of a public policy defence to an action for enforcement will largely depend on the definition given to public policy under the prevailing domestic laws. By way of example, the UAE concept of public policy86 is derived from Article 3 of the UAE Civil Transactions Code, which provides that public policy includes matters such as

marriage, inheritance, and lineage, as well as provisions relating to sovereignty, free trade, distribution of wealth, rules of private ownership and the other rules and foundations upon which society is based, in such a manner as not to conflict with the definitive provisions and fundamental principles of Islamic Sharia’a.

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