Arbitration in the Middle East: Dubai Court of Cassation clarifies the distinction between jurisdiction and admissibility for the first time

Chatura Randeniya
Afridi & Angell, Dubai
crandeniya@afridi-angell.com

Ramesh Fernando
Afridi & Angell, Dubai
rfernando@afridi-angell.com

Although issues of jurisdiction and admissibility are frequently contested in arbitration, it is not uncommon for the distinction between jurisdiction and admissibility to be blurred by practitioners, tribunals, and domestic courts. Keith Highet, in his dissenting opinion in Waste Management, Inc v United Mexican States, provides a helpful and oft-quoted explanation of the difference between the two concepts: ‘[j]urisdiction is the power of the tribunal to hear the case; admissibility is whether the case itself is defective – whether it is appropriate for the tribunal to hear it.’[1] Michael Waibel provides some further clarity in his observation that, ‘ […] jurisdiction usually involves permanent defects which imply that tribunals are unable to exercise their mandate in line with the directions of the parties, whereas objections as to the admissibility of claims usually involve more transient circumstances which mean that a claim is not yet ready for adjudication.’[2]

In practice, the distinction may not always be easy to draw, particularly in complex disputes or where a convoluted dispute resolution clause is involved. This may, among others, be the result of a perceived lack of consequences of not properly drawing the distinction. Jan Paulsson’s observation that international courts of last resort commit terminological digressions in this regard ‘because they have no reason to see the importance of the distinction in terms of reviewability’, and that therefore, they tend to ‘fire harmless shots from the hip’[3], while dated, still resonates in many jurisdictions.

This article examines the position in on-shore UAE[4] with regard to the distinction between jurisdiction and admissibility, and a recent judgment of the Dubai Court of Cassation in Case No 1514 of 2022, delivered on 8 July 2023 (the ‘Judgment’) which appears to signal a greater recognition of the distinction. The position in the UAE may be of interest to a wider audience outside of its territory, as it is a popular seat of arbitration for many parties doing business in the Middle East.

Background

The matter before the Dubai Court of Cassation was an appeal from an application to set aside an award issued in an on-shore Dubai-seated arbitration conducted under the Dubai International Arbitration Centre (DIAC) Rules. The underlying dispute between the parties arose from a FIDIC construction contract. The claimant in the arbitration (the ‘Claimant’) instituted proceedings claiming that, among others, that the respondent in the arbitration (the ‘Respondent’) failed to pay amounts certified as being payable by the engineer under the contract. The Claimant prevailed in its claims, and the Respondent filed an application to set aside the award in the Dubai Court of Appeal.

The Respondent’s case for setting aside rested on three principal arguments, the relevant one for the purposes of this article being that the Claimant had failed to comply with the contractual pre-conditions to arbitration. The Respondent relied on Clause 67 of the contract which required the Claimant to first refer any dispute arising under the contract to the engineer for a determination and, if the determination is not issued within 90 days of the referral or if either party is dissatisfied with the engineer’s determination, the dispute may then be referred to arbitration.

The Respondent’s argument was in line with the approach of the Dubai Courts prior to the Judgment, which consistently held that failure to satisfy contractual pre-conditions to arbitration undermined the arbitral tribunal’s jurisdiction to hear the dispute.[5]

The Dubai Court of Appeal dismissed the Respondent’s application to set-aside the arbitration award, on the basis that the issue of jurisdiction in this dispute had already been settled by a previous decision of the Dubai Courts which decided that the arbitral tribunal had jurisdiction. The Respondent appealed to the Dubai Court of Cassation, Dubai’s court of last resort.

The Judgment

The Dubai Court of Cassation affirmed the Court of Appeal’s decision to dismiss the Respondent’s application, but corrected the Court of Appeal’s reasoning. The Dubai Court of Cassation held that contractual pre-conditions to arbitration do not go to the arbitral tribunal’s jurisdiction, explaining that they are not determinative of whether arbitration is the proper forum to hear the dispute. Rather, the Court explained, such pre-conditions to arbitration relate to the admissibility of the claims brought in arbitration, that is, whether the claims raised can be heard at that point in time, or whether such claims have been referred for arbitration prematurely. The Court of Cassation, specifically using certain English terms in the Judgment, clarified that the failure to satisfy contractual pre-conditions to arbitration does not result in the UAE courts being seized with jurisdiction, unlike the case where a dispute is found to be beyond the scope of an arbitration clause or where an arbitration clause is found to be invalid.

Significantly, the court addressed the consequences that may flow from a finding of inadmissibility. The court stated that where an issue of inadmissibility is correctly invoked, the most likely result is that the arbitration proceedings should be adjourned pending fulfilment of the conditions precedent by the parties, though arbitration remains the proper forum to resolve the dispute (ie,the arbitral tribunal remains vested with jurisdiction).

Applying this reasoning to the facts, the court found that since the interim payment invoices (which underpinned the dispute) had already been certified by the engineer, that certification constituted acknowledgment of the Claimant’s entitlement to payment for completed works, and therefore it was illogical to assume that the parties had to refer the same matter to the engineer again. This reasoning, taken in isolation, may not necessarily constitute strict compliance with the precondition of referring a dispute, once it has crystallised, to the engineer, however, the Court of Cassation took into account several factors in reaching its conclusion. The Court had regard to the fact that the Claimant had submitted a notice of intention to arbitrate on 28 November 2019 pursuant to Clause 67(1) of the contract, inviting the Respondent to settle the dispute amicably. The Claimant had also sent a follow-up message on 15 December 2019 to the Respondent and the engineer, suggesting a meeting between all parties, but no response was received by the Claimant. The court gave further consideration to the fact that there was ample time until 14 April 2020, when the Claimant filed its request for arbitration, for the engineer to have intervened to bring about an amicable settlement of the dispute. On this basis, the court held that the steps followed by the Claimant were sufficiently consistent with the preconditions to arbitration under Clause 67 of the contract.

The Respondent also argued that the award should be set aside on the basis that the parties had waived or forfeited the arbitration agreement because neither party had paid the advance on costs to the DIAC. However, the Court of Cassation found this line of argument to be invalid and inaccurate. It was revealed that the Claimant had paid the Respondent’s share of the advance on costs. Apart from this, the court held that in any event the failure to pay fees due to the DIAC does not result in the waiver of an agreement to arbitrate, particularly because it is not one of the recognised grounds for setting aside an arbitral award under the UAE Federal Arbitration Law.

Why the distinction matters

Arbitral jurisdiction is based exclusively on consent. Lack of jurisdiction of an arbitral tribunal, therefore, means there was lack of proper consent by the parties to refer a dispute for arbitration. The Permanent Court of Arbitration explained the consequences of a tribunal finding that it lacks jurisdiction: ‘[o]nce a tribunal has conclusively determined that it has no jurisdiction, it is rendered functus officio and ceases to exist and act in relation to the dispute.’[6] For this reason, international tribunals and procedural rules at times expressly point out that issues of admissibility should come into play only after jurisdiction is established.[7] By contrast, where admissibility is concerned, tribunals have ‘some discretion on how to deal with its non-fulfillment, such as by staying instead of terminating the proceedings.’[8] The option of staying the proceedings is not available for jurisdictional requirements that are absent. Therefore, while a finding of lack of jurisdiction necessarily leads to termination of the arbitral proceedings, a point of admissibility does not. This was recognised by the Dubai Court of Cassation in the Judgment.

The Judgment of the Dubai Court of Cassation also recognises another important reason for getting the distinction right: reviewability. The Court of Cassation observed that a court’s supervisory powers should be exercised sparingly over an arbitral tribunal’s findings on matters of admissibility to ensure that there are no violations of due process or public policy, unlike the court’s review of the tribunal’s decisions relating to its jurisdiction, the latter evidently requiring closer scrutiny in the Court’s view. This is consistent with the internationally accepted view. As Jan Paulsson explains, ‘[d]ecisions of tribunals which do not respect jurisdictional limits may be invalidated by a controlling authority. But if the parties consented to the jurisdiction of a given tribunal, its determinations as to admissibility of claims should be final.’[9] Therefore, treating a jurisdictional matter as a question of admissibility narrows the scope for challenging arbitral awards, while treating admissibility related questions and jurisdictions points may unjustifiably enhance a party’s ability to reopen issues that have already been decided.[10]

In recent years, the UAE has been particularly liberal and proactive in promoting arbitration as an alternate dispute resolution mechanism.[11] The Judgment takes the UAE closer towards making the UAE Federal Arbitration Law harmonious with international practice, and paves the way for arbitration related jurisprudence of the on-shore UAE courts to develop further. Moreover, it indicates a more arbitration-friendly approach by the courts of the UAE, particularly Dubai, since the Judgment effectively means a self-imposed limitation on the Courts’ scope for review of arbitration awards.