Sunday, 05 Sep 2010
UAE: Conflicting jurisdictions
06 February 2009
Internationally it is common for insurance contracts to set out both the law that is to apply to the contract of insurance, as well as the manner in which policy disputes are to be resolved.
The law chosen is often that of an established jurisdiction and not the jurisdiction in which the risk covered by the policy is situated, or where the policy was concluded.
It is also practice for policies to contain dispute resolution provisions that record that the courts of a specific jurisdiction will have exclusive jurisdiction to hear disputes, or that any disputes arising from the policy are to be resolved by way of arbitration.
Having regard to such international practice, it is useful to consider the UAE legal system’s effect on such clauses.
Choice of law
In principle, the UAE courts recognise foreign law clauses. If a dispute arising from an agreement containing a foreign law clause is heard before a local court, the court is required to apply the principles of foreign law governing the agreement. However, the practical difficulty that often arises is how to prove before the UAE court what the relevant foreign law principles it should apply are.
UAE court proceedings are largely document based. In practice, in order to prove to a UAE court what the position is say under English law, an expert’s report will be required to be prepared and presented to the court in the form of a certified Arabic translation.
The practical reality is that it difficult to convey the principles to be applied, particularly where the other party may allege a slightly different interpretation, to judges schooled in a different (civil) law system. The result can often be that the UAE courts still find themselves guided by local legal principles.
This has the effect that mere “lip service” is paid to the foreign law provisions and local law principles still play an important part in the court’s reasoning.
Foreign jurisdiction causes
To avoid the pitfalls described above, the parties may seek to make their agreement subject to the exclusive jurisdiction of a foreign court. This creates two separate difficulties.
The first difficulty is that the UAE courts tend to guard their jurisdiction over a matter jealously and view the retention of jurisdiction as a matter of public policy. As a result, clauses purporting to grant exclusive jurisdiction to a foreign court are deemed to be contrary to public policy and will not be upheld.
In practice, very little justification is required by the UAE courts to assert jurisdiction. The fact that a defendant has assets in the UAE, would typically satisfy the UAE court that it has jurisdiction, irrespective of a clause purporting to grant jurisdiction to a foreign court.
The second difficulty with foreign jurisdiction clauses relates to the enforcement of a foreign award in the UAE. Article 235 of Federal law 11 of 1992 (“the Civil Procedure Code”) governs the enforcement of foreign judgments in the UAE (except in circumstances where a bilateral treaty exists between the UAE and the country in which the judgment was issued – countries with such bilateral treaties are limited outside the Arab world, with presently France being the only European country with such a treaty).
Article 235 sets out the requirements that would have to be met for the enforcement of foreign court awards which include:
- That the foreign court will recognise a ruling of a UAE Court in similar circumstances to the request made to the UAE court -Article 235(1).
- That the courts of the UAE did not have jurisdiction in the dispute that gave rise to the foreign courts award Article -235(2)(b).
- That the foreign ruling is a final award -Article 235(2)(d).
- That the award does not conflict with a ruling issued by a UAE court or contravene local public order -Article 235(2)(e).
In practice the biggest difficulty in enforcing a foreign award is to show that the UAE courts do not have jurisdiction and that a UAE court’s award would be applied by the courts in the country who’s award the claimant is trying to enforce.
As highlighted above, under UAE law, the UAE courts have broad jurisdiction including, inter alia, in respect of foreigners resident in the UAE, claims connected to monies within the UAE and claims arising / connected with obligations or contracts entered into or to be performed in the UAE. Consequently, it has proven difficult to convince a court that Article 235 (2)(a) of the Civil Procedure Code has been satisfied.
Arbitration provisions
Unlike foreign court judgments, and as a result of the recent ratification of the New York convention by the UAE, foreign arbitration awards are in theory likely to be more easily enforceable than the awards of foreign courts. In an insurance context, however, dispute resolution clauses providing for resolution by way of arbitration have their own pitfalls.
The UAE Civil Code (Federal Law 5 of 1985) specifically recognises insurance contracts and contains specific provisions that are of application to insurance contracts. One of these provisions, Article 1028 (1(d)), provides that an arbitration clause contained in an insurance contract will be void “…unless contained in a special agreement separate from the general printed conditions contained in the policy…”
It has been our experience that for an insurer to overcome the requirements of the Civil Code and to successfully rely on an arbitration provision contained in an insurance policy, it is necessary for the arbitration clause to be contained in a separate document to the policy wording, and for this to be separately initialled by the insured.
However, in circumstances where a valid arbitration clause does exist, provided the arbitration clause is raised at the first hearing before a UAE court, the local court will typically stay proceedings and refer the matter to arbitration. This applies even if the clause in question is a foreign arbitration clause.
In order to ensure a valid arbitration clause it is also important to be aware that arbitration is viewed as requiring special authority in the UAE law. In the circumstances, unless the signatory to the arbitration provision (in the event that the signatory is signing in a representative capacity) has specific authority, a party which does not wish to proceed to arbitration may raise that the arbitration agreement was signed by person who was not properly authorised.
In Summary
- Foreign law clauses are recognising by the UAE, however, practically it is extremely difficult to prove the foreign law to the court and UAE courts invariably have regard to local law principles even when “applying” foreign law clauses.
- Exclusive foreign jurisdiction clauses will not be recognised by the UAE courts in circumstances where the UAE courts would ordinarily have jurisdiction.
- It can prove difficult practically to enforce a foreign court’s judgment in the UAE, unless there is a reciprocal treaty in place with the country where the judgment was made.
Arbitration provisions contained in insurance policies must be separate from the general policy wording and should be signed by a duly authorised signatory in order to be enforceable.
Alfred Thornton is a lawyer at Clyde & Co.
