The Judgement of Dubai's Cessation court: An Analysis
In a recent judgment, the Dubai Court of Cassation, which is additionally the foremost senior judicial authority within the Emirate of Dubai, ruled that incorporation into a contract, by reference, of the FIDIC Red Book General Conditions of Contract ("Red Book Conditions"), does not automatically mean the parties are bound by the clause found within the Red Book Conditions. This judgment provides insight to the appliance of Article 7(2)(b) of United Arab Emirates ("UAE") Federal Law No. 6/2018 on Arbitration ("Arbitration Law"), which allows arbitration clauses to be incorporated into contracts, where that contract references a model contract (such as the Red Book Conditions), international agreement or the other document containing an article.
The underlying dispute is associated with the development of a villa. The quantum at issue was approximately AED 20m. Legally argumentative topics included points like variation, site discharge, termination for convenience and other construction-related matters.
The parties to the contract agreed that the Red Book Conditions were incorporated. Clause 67 of the Red Book Conditions contains a multi-faceted dispute resolution clause which needs that each dispute is, first, mentioned an engineer and, second, submitted to arbitration under ICC Rules.
In this case, the employer sued the contractor before the Dubai Court of First Instance. And subsequently, the Court of First Instance ruled in favour of the employer and found that the Dubai Courts had jurisdiction over the dispute. The contractor appealed to the Dubai Court of Appeal, which overturned the primary instance judgment. The Dubai Court of Appeal ruled that the Dubai Courts had no jurisdiction over the dispute because of the arbitration clause found within the Red Book Conditions.
The employer appealed against the Dubai Court of Appeal's ruling within the Dubai Court of Cassation.
The Dubai Court of Cassation overturned the Court of Appeal's ruling acknowledged that the clause within the Red Book Conditions wasn't enforceable. Therefore, the Dubai Courts had jurisdiction to listen to the dispute. The Court of Cassation reviewed Article 7 of the Arbitration Law, which needs arbitration agreements to be in writing. The Court of Cassation ruling also considered Article 7(2)(b) by reviewing the extent to which it's valid to include an arbitration clause into a contract concerning other documents.
The Court of Cassation ruled that, even though the parties during this case agreed to be bound by the Red Book Conditions, they had not agreed to be bound by the clause within the Red Book Conditions. This was because the contract between the parties failed to contain an arbitration clause explicitly, nor did it ask the clause within the Red Book Conditions. The Court of Cassation approved the subsequent passage commenced within the ruling of the Court of First Instance:
"An agreement to arbitration is taken into account when it is a referral contained within the original contract to the document that has the clause if the referral is obvious and explicit in adopting this condition, and therefore the effect of the referral is merely achieved if it includes a sign to the clause included within the document pertaining to it, yet if the referral to the aforementioned document is simply a referral generally for the texts of this document without specifying the aforementioned article especially that establishes the parties’ knowledge of its existence within the document, the referral doesn't reach such clause, and therefore the arbitration isn't deemed prescribed between the parties to the contract."
This judgment is critical for any party in Dubai and/or the UAE to draft a contract to refer disputes arising from that contract to arbitration. It is not sufficient for the contract to merely ask the Red Book Conditions, international agreement or another document that contains a clause. Mere reference will likely mean the contract isn't subject to arbitration and, instead, are going to be within the jurisdiction of the Dubai courts.
If parties need a dispute under their contract to be mentioned arbitration, they must:
(i) at the very least, explicitly state that they intend for the clause within the Red Book Conditions or another document they're incorporating by reference to use, preferably under a dispute resolution or arbitration heading within the main contract; and/or
(ii) preferably, provide a separate clause in their signed contract to avoid all ambiguity.
(This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, or Religion, Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre Foundation shall not be responsible for any errors caused due to human error or otherwise.)