Stephen Jagusch, James Kwan

Allen & Overy LLP

The world economy is becoming increasingly global. Changing economic relations have seen increased levels of trade and investment in many parts of the world and particularly in the Middle East. Investors there are exploring commercial opportunities beyond the regional oil and gas industry. Today, the region plays an important role in the world’s economy.
Accompanying the increased levels of trade and investment, arbitration has become an important method of resolving disputes in the Middle East. Arbitration has developed in the region to allow parties from different legal and cultural backgrounds to resolve their disputes without the formalities of their underlying legal systems.
There is a long history of arbitration, or tahkim, in the Middle East. During the pre-Islamic period, there was no central power that could maintain order and protect the rights of individuals.¹ Disputes were resolved by arbitration by the chief of the tribe.
The Koran and the Sunnah of the Prophet, the two main sources of Islamic law, also make reference to arbitration.² The ijma or consensus also confirmed arbitration as an Islamic dispute resolution mechanism.³ It was common for Saudi oil concession agreements to provide for arbitration as the method of dispute resolution.⁴ Situated between East and West, Bahrain was historically a centre of international commercial arbitration. At the 1993 International Council of Commercial Arbitration (ICCA) Conference in Bahrain,⁵ his excellency Shaikh Abdullah Bin Khalid Al Khalifa, then Bahrainian minister of justice and Islamic affairs, stated in his welcoming address:
The Arab is conscious of the fact that a case in a court is actually a dispute between two adversaries whereas in the case of arbitration it is a dispute between brothers. This clear distinction makes arbitration harmonise with an Arab’s psychological make-up which is imbued with sentimentalism and which is more at home with a spirit of peace, goodwill and conciliatory brotherhood. This makes arbitration as a method of settling disputes more effective on Arab soil which provides an appropriate environ for the acceptance, strengthening and popularising of this mode and infusing a spirit of respect for it.⁶

Despite this, there has been a history of distrust of arbitration in the Middle East. For example, in Saudi Arabia v Arab American Oil Co (ARAMCO), the arbitral tribunal made an award against the Saudi Arabian government, holding that “the legal system of concessions is still in embryo form in the schools of Moslem Fiqh [Islamic jurisprudence]. [T]he Hanbali doctrine applied in Saudi Arabia contains no particular rules which define mining concessions in general and petroleum concessions in particular.” As a result, Saudi laws had to be “interpreted or supplemented by general principles of law, by the custom and practice in the oil business and by notions of pure jurisprudence” because ARAMCO’s rights could not be “secured in an unquestionable manner by the law in force in Saudi Arabia.”⁷ The decision shaped the development of arbitration in Saudi Arabia. The government enacted a ministerial resolution barring government agencies from entering into an arbitration agreement and requiring that any contract with a Saudi government agency be subject to Saudi law.⁸
However, the significance of arbitration has increased in the Middle East because of the economic boom and unprecedented levels of foreign investment.
The increasing popularity of arbitration as a method of resolving international commercial disputes and the rapid globalisation of the world economy have led to the growth of arbitral institutions in the Middle East, and the adoption of new arbitral rules reflecting international practice. Evidence that arbitration is now accepted as a contemporary mechanism for dispute resolution in the region is the fact that all of the Gulf Cooperation Council (GCC) states⁹ have acceded to the New York Convention 1958; and that all GCC states except Qatar have acceded to the Washington ICSID Convention 1965.

Arbitral institutions

Arbitration centres in the Middle East have traditionally been linked to their local chambers of commerce. The GCC Commercial Arbitration Centre (GCC Centre), an independent, non-profit organisation based in Bahrain, was established in 1993 by the chambers of commerce in each of the GCC countries, and has been fully functional since March 1995.
The Centre’s objective is to promote arbitration and dispute resolution procedures in the Middle East, and to establish strong relationships with other Arab and international arbitration centres. In October 1997, the ministers of commerce issued a common statement expressing their desire that all commercial disputes concerning GCC member states should be settled by arbitration administered by the GCC Centre. Despite this vision, the Centre does not administer a high volume of cases.¹⁰
The Rules of the GCC Centre recognise the doctrine of separability of the arbitration agreement from the underlying contract (article 19). The Rules also empower the arbitral tribunal to order interim measures, including preservation of property (article 28).
Chambers of commerce in Saudi Arabia have traditionally supervised arbitral proceedings. Attempts to improve arbitration services have been driven by the king’s advisers, including Prince Bandar bin Salman. This has led to the proposed establishment a national arbitration centre in Riyadh. The centre is to target disputes under Shari’a finance transactions. It is hoped that the introduction of an arbitration centre will enhance arbitral procedures. Accession to the WTO will open Saudi Arabia to international commercial relations and privatisations and increases the possibility of more trade disputes.
Some domestic lawyers in Saudi Arabia view the court system as a quick and cheap forum of resolving disputes. They advise their clients against inserting an arbitration clause in their agreements. However, enforcement of a court judgment can take years.
In January 2007, Qatar opened the International Arbitration and Conciliation Centre. The centre is part of the Qatar Chamber of Commerce and Industry. The centre currently administers 27 arbitration cases and 112 conciliation cases.
Although the Qatari courts have a reputation for being fair and free from bias, the court system is widely regarded as slow and bureaucratic. Arbitration is seen as a way to obviate these deficiencies and encourage international trade.
Two well-established institutions, the Cairo Regional Centre for International Commercial Arbitration (CRCICA) and the Dubai International Arbitration Centre (DIAC), have witnessed an increase in the number of arbitrations referred to them.

CRCICA

CRCICA was created in 1979 pursuant to an international agreement signed between the Egyptian government and the Asian African Legal Consultative Organisation (having more than 45 member states). It opened in February 1980 and since then has administered 551 domestic and international cases. 64 new cases were referred to it in 2006, compared to 37 cases in 2005. As of August, 25 cases have been referred in 2007.
Construction disputes still rank the highest among the types of disputes administered under its auspices.¹¹
CRCICA administers proceedings under the UNCITRAL Arbitration Rules (slightly amended) involving parties from all around the world. Its list of arbitrators number over 1,000 and it is increasingly been requested to act as the appointing authority in arbitration cases.

DIAC

One of the most prominent centres in the region is the DIAC, boasting both capable management and specialised arbitrators. The number of cases it has received from 2003 to 2005 has doubled. As of October, 58 new arbitration cases have commenced in 2007, of which approximately 70 per cent are construction-related. It is expected that the number of cases will rise with the UAE’s accession to the New York Convention, the adoption of new arbitration rules, and the proposed adoption of the UNCITRAL Model Law in 2008.

There are many other arbitration centres in the region, for example the Abu Dhabi Commercial Conciliation and Arbitration Centre, the Bahrain Arbitration Centre, and the Arab Centre for Commercial Arbitration in Rabat. The abundance of centres means that there will be increased competition in the Middle East for arbitration services. This means that institutions in the region must have capable staff to administer arbitrations, its arbitral rules must be easily understood, members of arbitral panels must be of international standard, and their appointment processes must be transparent.
Investment and trade between Asia and the Middle East has resulted in links between arbitral institutions. On 12 June 2007, the Hong Kong International Arbitration Centre (HKIAC) and the Abu Dhabi Commercial Conciliation and Arbitration Centre entered into a cooperation agreement to assist each other with the promulgation and administration of arbitration and alternative dispute resolution services in one another’s region.
International arbitral institutions such as the ICC and LCIA also administer arbitrations in the Middle East. However, parties tend to prefer to submit their disputes to Middle East institutions or to arbitrate outside of the region. In 2006, the ICC had four new arbitrations with the place of arbitration in the Middle East: one each in Saudi Arabia, the UAE, Jordan, and Lebanon. There were five ICC Middle East seats in 2005, three in 2004, and four in 2003.¹²

Education

As a sign of the high level of interest in arbitration in the Middle East, many arbitration conferences and training programmes have been held in the region in the last few years. Not only have these involved regional institutions, but internationally renowned organisations are seizing the opportunity to promote their services in the Middle East by conducting training courses.
To help promote arbitration and alternative dispute resolution, CRCICA has developed a strategic vision to provide continuous educational programs on international commercial arbitration and dispute resolution. This year alone, it has held courses and seminars on sophisticated topics such as construction arbitration, trade and investment disputes, the revision of the UNCITRAL Arbitration Rules, and the role of state courts in international arbitration. In conjunction with CRCICA, the School of International Arbitration (SIA), Queen Mary University of London, will also be conducting a course on advocacy in international arbitration in December 2007.
CRCICA also provides technical and administrative training for a wide range of regional arbitral institutions in different places such as Djibouti, Bahrain, Yemen, Nigeria, Morocco, Ethiopia and Palestine.
The DIAC has also been active in organising seminars and conferences. In the past year, it has held conferences on banking and dispute resolution (in conjunction with the Union International des Advocats), dispute resolution in the oil and gas industry, and has conducted various arbitration training courses in both English and Arabic in conjunction with King’s College London. Two further King’s College training courses will be held in November this year. In April 2007, Dubai hosted the ICCA meeting and a conference on the international effect of arbitral awards. This was in recognition of Dubai’s growing standing as a place of arbitration, and the importance of Dubai and its strategic significance as an international business hub in the region due to its free economy and open market policies.
The Chartered Institute of Arbitrators is also active in Dubai and the Middle East in organising seminars and training courses.

Legislation

Many Middle Eastern countries have modernised their legislation in the last decade or so. This is evidence that arbitration is coming back into favour in this region.
Initially, Middle Eastern countries included a separate chapter on arbitration in their civil procedure codes. This followed the Egyptian model, which is derived from the French Code of Civil Procedure. In order to keep abreast of developments taking place in international arbitration, nearly all Middle Eastern countries have promulgated separate arbitration legislation.¹³
The initiative to modernise arbitration legislation has ranged from the adoption of the UNCITRAL Model Law in Bahrain, Iran, Jordan, Oman, and Tunisia, and the adoption of Western arbitration models in Qatar and Lebanon.
Saudi arbitration law is influenced only by arbitration under the Shari’a. Arbitral reforms in Saudi Arabia have simplified the elements of the traditional tahkim system. In 1983, Saudi Arabia enacted its own arbitration regulation and two years later issued implementation rules.¹⁴ Although one of the changes has permitted parties to agree in advance to arbitrate their disputes, a number of restrictions remain in place, such as the freedom to choose the governing law and arbitrators. Arbitrators must be male and Muslim. Proceedings are conducted in Arabic.
Unlike in most countries, where a central purpose of arbitration is to obtain an enforceable award without resorting to the state courts, the role of the Saudi judiciary is hands-on supervision of the arbitral proceedings. The Board of Grievances approves the agreement to arbitrate, appoints arbitrators where the parties disagree or fail to do so, hears submissions on objections to the procedure which international practitioners on arbitration would expect to be dealt with by the tribunal, and ratifies the award before it can be executed.¹⁵ Most major contracts are still with government agencies and the Ministerial Decree preventing them from entering into an arbitration clause remains in place.
The UAE’s Ministry of Justice has also reviewed drafts of a new Federal Arbitration Law. The new draft is based on the UNCITRAL Model Law. Curiously, Dubai is in the position where DIAC’s new Arbitration Rules go beyond what is provided for in the UAE’s Civil Procedure Code, which contain only 15 relevant arbitration provisions. The implementation of the UNCITRAL Model Law in UAE domestic legislation, expected in 2008, will provide further incentive for parties to arbitrate in Dubai.
Undoubtedly, the adoption of the UNCITRAL Model Law by all Middle Eastern countries would assist in the unification of legislation governing arbitration in the region and further promote arbitration as a widely accepted method of dispute resolution.

Arbitral rules

To meet the needs of investors and the arbitration community, and in an effort to keep abreast of the latest developments and new trends in international commercial arbitration, most institutions in the Middle East have recently amended their arbitration rules.
CRCICA’s Arbitration Rules are based on the UNCITRAL Arbitration Rules 1976, as amended. These amendments were made in 1998, 2000, 2002, 2006, and 2007. New amendments that came into force on 1 June 2007 included the following:
• The Centre may, upon the approval of the High Legal Committee, reject the appointment of any arbitrator chosen, based on the existence of substantial evidence confirming that the arbitrator in question lacks legal or contractual requirements or has not acted in compliance with the Centre’s Code of Ethics in any previous matter (article 7).
• An arbitrator may be removed if he or she fails to act and/or if he or she deliberately delays the commencement or continuation of the arbitral proceedings (article 12).
• The parties may be represented or assisted by lawyers or non-lawyers of their choice (article 4) – this confirms existing practice, whereby parties may be represented in international arbitration by Egyptian or foreign lawyers, and non-lawyers.
• The introduction of principles into the Centre’s Code of Ethics regarding the duty to disclose a fact, circumstance, or a relationship and any doubts should be interpreted in favour of disclosure; the tribunal shall avoid any act or behaviour likely to hinder the deliberation or to delay the settlement of the dispute; and the tribunal shall avoid superfluous expenses that are likely to increase the costs of the proceedings in an unjustified manner.

The DIAC’s latest Arbitration Rules have been in effect since 7 May 2007. The previous rules had been in force from 22 February 1994. The revision of the DIAC Rules was the result of more than a year of consultations between the board of trustees of the DIAC and various eminent arbitration experts. The DIAC Rules were originally based on the UNCITRAL Rules, but with elements of the LCIA, ICC, WIPO and the Stockholm Chamber of Commerce Arbitration Rules incorporated. The new Rules adopt best international practice. They are intended to govern arbitrations that are conducted both within the UAE and elsewhere. The DIAC aims to be the premier arbitration centre not only in the UAE, but the Middle East.
Some features of the new Rules are as follows:
• The formation of the tribunal has been expedited (article 12).• The majority of the tribunal have the power to continue proceedings in the absence of an arbitrator (article 15).
• The default language of the proceedings is the language of the arbitration agreement, and the executive committee has the power to decide which language shall be the initial language of the arbitration in the event that the arbitration agreement is written in more than one language (article 21) – this is unique to the DIAC Rules, and was enacted to overcome the common problem in the Middle East where claimants would serve a request for arbitration in one language (usually English) and respondents would correspond with DIAC in a different language (usually Arabic) because of copies of the agreement in different languages.
• The tribunal has the power to order the production of documents (article 27). In the UAE, there is generally no discovery or disclosure of documents. Parties are free to disclose only those documents that they wish to rely upon to prove their claim. Specific discovery was not addressed in the 1994 rules, and the court only orders it in exceptional circumstances.
• Interim and conservatory measures of protection have been introduced (article 31). The 1994 rules stated that commencement of the arbitration did not prevent the parties from resorting to the state courts for interim or protective measures. The new DIAC Rules provide power for the tribunal to make any provisional orders or take other interim or conservatory measures it deems necessary, including injunctions. This is a big development for arbitration in the UAE. The Civil Procedure Code does not provide power for arbitrators to order interim relief. Moreover, the UAE courts do not recognise the concept of injunctive relief. UAE courts are empowered to order the attachment of assets, before and during court proceedings.

Enforcement

As a further indication that arbitration has become widely accepted in the Middle East, all GCC states have acceded to the New York Convention. Lebanon, Oman, Iran, Qatar, and the UAE recently acceded in 1998, 1999, 2001, 2002, and 2006 respectively.
There are virtually no treaties for the reciprocal enforcement of court judgments between Middle Eastern countries and Western nations; an enforcement treaty between France and the UAE being one of the few. Accordingly, parties wishing to litigate in the courts of a Western country are likely to end up having a ‘paper tiger’ at the end of the process, if all assets are located in the Middle East.
Arbitration in the UAE has gained momentum as a result of the UAE’s accession to the New York Convention, which has been in effect since 19 November 2006.
Still widely discussed among arbitration practitioners is the Dubai Court of Cassation decision of International Bechtel Co Ltd v Department of Civil Aviation of the Government of Dubai,¹⁶ where enforcement of an award in Bechtel’s favour was refused on the grounds that the Swiss arbitrator failed to administer an oath to the exact letter of a formula prescribed for UAE court hearings. However, that award relating to a domestic award sought to be enforced in the UAE, which contains its own procedures of ratification and annulment. Despite announcing as early as 2005 that it would adopt the New York Convention, the UAE took time to consider the effect of doing so before finally acceding in July 2006. There has been no reported case as to enforcement in the UAE under the New York Convention. It is hoped that UAE judges will recognise the importance of international comity and trade in relation to enforcement, especially in applying the public policy ground for refusal of enforcement contained in article V2(b) of the New York Convention.
Saudi Arabia acceded to the New York Convention in 1994, but enforcement has proved problematic. A foreign award needs to be ratified by the Saudi Arabian Board of Grievances, which is the commercial court having jurisdiction to enforce foreign judgments and arbitral awards. In so doing, the Board of Grievances would likely consider the issues ab initio, thus adopting a merits review of the award. This has been a disincentive for arbitration practitioners to recommend arbitration in Saudi Arabia as it practically adds another layer to the dispute resolution process. The Board of Grievances has refused to enforce foreign awards on the ground of public policy if the awards do not comply with principles of Islamic or Shari’a law.
As far as the authors are aware, no foreign arbitration award has ever been enforced in Saudi Arabia.

* * *

Scepticism of arbitration is fast disappearing in much of the Middle East. Middle Eastern nations have acceded to international arbitration conventions such as the New York and ICSID Conventions as an indication of their growing acceptance of the importance of arbitration and international rule of law in their legal systems. Some nations have already adopted modernised arbitration-friendly legislation, while others are in the process of doing so. Despite this, however, enforcement remains problematic in some jurisdictions.
Other developments indicate that arbitration is becoming more palatable, including the adoption of institutional arbitral rules which reflect best international practice, the growth of arbitration centres, and the large number of training events and arbitration conferences taking place in the Middle East.
On the whole, the perception that the future is bright for arbitration in the Middle East seems reasonably well founded.

Notes

1 See Abdul Hamid El-Ahdab, Arbitration with the Arab Countries (2nd ed, 1999), p11-12.
2 Verses 35 and 58 of the Surah of the Women. The Sunna is the Prophet’s deeds, utterances and unspoken approvals.
3 El-Ahdab, p13, supra n1.
4 F Kutty, ‘The Shari’a Factor in International Commercial Arbitration’, Loyola Los Angeles International and Comparative Law Review 28 (2006), p565.
5 14-16 February 1993.
6 ICC Congress Series No. 6 International Arbitration in a Changing World, General Editor: Albert Jan van den Berg (1994, Kluwer Law), p2.
7 Saudi Arabia v Arab American Oil Co (ARAMCO) 27 ILR 117 (1963). See also F Kutty, p592, supra n4; El-Ahdab, p601, supra n1.
8 Council of Ministers Resolution No. 58, of June 25 1963, article 2.
9 An alliance of six countries: the UAE, Saudi Arabia, Kuwait, Bahrain, Qatar, and Oman.
10 In 2005, only six disputes were referred to the GCC Centre. Disputes referred to the GCC Centre have mainly been in the banking sector concerning Islamic loans.
11 19 out of the 64 new cases referred to CRCICA were construction disputes (approximately 30 per cent).
12 2005: two in Jordan, one each in Qatar, Syria, and the UAE; 2004: two in Lebanon and one in Jordan; 2003: one each in the UAE, Iran, Israel, and Syria.
13 For a more detailed discussion, see Y Zainal, ‘The Prevalence of Arbitration in the Gulf Cooperation Council Countries’, Journal of International Arbitration vol 18, no. 6 (2001), p657.
14 Royal Decree M/46 dated 25 April 1983 and Ministerial Resolution No. 7/2021/M dated 27 May 1985.
15 N Turck ‘Arbitration in Saudi Arabia’, Arbitration International, vol 6, no. 3 (1990), p281.
16 Decision of the Court of Cassation of 15 May 2004.