Dr. Mohamed Hafez

Partner, TMS Law Firm

 

  • Freedom of Choice and Admissibility of Arbitral Awards

All Middle Eastern and Arab legal systems recognize the principle of “freedom to contract” in which a contract forms the law governing the relationship between the parties that have entered into it; it cannot be revoked or altered except by mutual consent of the parties or for reasons provided for by law. Certain Middle Eastern and Arab arbitration laws clearly permit those who are party to a contract to concur on a forum selection clause in order to establish where and how to settle any contractual disputes.

However, in the absence of the parties’ agreement, state courts generally rely on the conflict of law rules contained in their national law to guide or govern their decisions. Interestingly, the Bahraini Arbitration Law stipulates that the provisions of the UNCITRAL Model Law shall be applicable to every international commercial arbitration, except in instances where the parties involved have agreed that it shall be subject to another law.

Enforcement of a particular arbitration award may be refused by Middle Eastern and Arab courts due to its violation of the public policy of the state concerned or its moral standards. The majority of Middle Eastern and Arab countries provide within their laws that one of the grounds for raising an action to set aside an arbitral award can be the non-existence of the arbitral agreement, its nullity or it being subject to annulment or voidness for contract expiry.

As for the arbitration award rendered, the laws governing most Middle Eastern and Arab countries provide that the competent court seized with the action for nullity shall rule sua sponte for the annulment of the arbitral award if its contents violate public policy in the designated country. Saudi Arabian Arbitration Law mentions the same, with the qualification that the award must not violate Islamic Shari’a principles. The matter of the recognition and enforcement of foreign arbitration awards is perhaps further discussed in the New York Convention, to which all Middle Eastern and Arab countries are signatories with the exception of Iraq, Libya and Yemen.

Some Middle Eastern and Arab countries exhibit reluctance towards the recognition and enforcement of arbitral awards. For example, certain countries stipulate that the enforcement of the arbitral award may not be ordered except after verifying that it does not contradict public policy in the enforcing country. Saudi Arabia and Yemen further add the provision that no foreign arbitration award shall be enforced in either country if it violates Islamic Shari’a principles, not just public policy. Prior to the issuance of the new Saudi Arabian Arbitration Law of 2012, the Saudi judicial system generally applied Saudi law even if the parties involved had consented to applying another law. Despite Saudi Arabia being a member of the New York Convention, in practice the Saudi legal system rarely recognizes or enforces the agreements of foreign jurisdictions. By contrast, Syria has adopted a more flexible approach towards the enforcement of international arbitral awards, whereby such awards are to be enforced if they were deemed final, conclusive and enforceable in the country in which they were rendered.

 

  •  Special Form Requirements

With regard to special form requirements, some Middle Eastern and Arab legal systems state, either in their arbitration or procedural laws, that the parties involved can only agree to settle their dispute through arbitration in a document, be it as a stipulation in the main contract or in a separate document. Hence, the arbitration agreement can only be accepted if it is provided in writing.

When it comes to the structuring of arbitration agreements in certain Middle Eastern and Arab countries, national arbitration laws consider the writing requirement to be a prerequisite but may adopt a more lenient definition of “writing” than Article II of the New York Convention, where the law does not require the agreement to be signed, but nevertheless the absence of a signature will support any argument against its existence. Still other Middle Eastern and Arab countries give a special definition to the writing requirement, this being broader and more modern than that of the New York convention. Oman and the United Arab Emirates require that the language of arbitration be Arabic unless the parties agree otherwise, in which case a legalized, or official, translation of the award is to be provided.

Bahrain, Egypt, Jordan, Oman, Tunisia and Yemen have adopted, or were influenced to a large extent by, the UNCITAL Model Law in their national arbitration laws. Hence they adopted the formal requirement of writing, stipulating that if the agreement is not concluded in writing it shall be null and void. Saudi Arbitration Law also necessitates the writing requirement of the arbitration agreement, or else the agreement is void. Further, Moroccan Arbitration Law stipulates that the arbitration clause in any commercial contract should be handwritten. However case law has since superseded that requirement, after Morocco joined the New York Convention. Syrian case law considers that requiring the arbitration clause to be solely in writing makes it rather troublesome to accept other means of evidence. Subsequently, writing is a requirement for the validity of the arbitration clause but not for giving evidence thereof. The Libyan Supreme Court also necessitates such a requirement.

Algerian, Lebanese and Moroccan Civil Procedural Laws provide that an arbitration agreement must include the subject of the dispute and the name of the arbitrators or else the agreement shall be void. Meanwhile the rest of the Middle Eastern and Arab Procedural Laws state that the subject of the dispute must either be provided in the arbitration agreement or mentioned during the hearings, or else the arbitration shall be void.

One striking requirement for the formation of the arbitration agreement is that which relates to the capacity of those who are party to the agreement. The majority of Middle Eastern and Arab countries provide within their laws that one of the grounds for raising an action to not enforce an arbitral award can be admissible in case of the incapacity of one of the parties to the arbitral agreement.

With regard to the capacity of natural persons (or, for non-lawyers, individuals) to choose the applicable law for their agreement, most civil codes refer to the law of the individual’s country of nationality. Similarly, the capacity of foreign juristic persons such as companies, associations, foundations or others is governed by the law of the place where they were constituted, where their head offices are located or where they have their actual principal seat of management. If, however a juristic person carries on its principal activities in a domestic country other than that of its principal seat of management, then the law of the domestic country applies. With regard to obligations arising from the contracts, the law of the state in which the parties to the contract reside shall be applicable (the law of domicile), and in the absence of a common domicile, then the law of the place where the contract was concluded applies, provided that the parties to the contract have not agreed upon the application of a specific law.

 

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