Amendments: At What Cost?

Arbitrary amendments in the name of fairness and checks can be counterproductive.

The whole point and principal behind arbitration is that the Arbitral Tribunal (“AT”) must act fairly and without any partiality while formulating the final award. However, does this come at the cost of penalising the arbitrator, or in other words, can an expert witness be penalised for delivering his expert opinion? Due to the recent amendment in the United Arab Emirates (hereinafter referred to as “UAE”) penal laws, this is a possible scenario.

Existence of dispute resolution in the Middle East has been cumbersome, historically speaking, since there was lack of uniformity in laws and the dispute resolution regulations were not in consonance with the standard international law. However, the execution of the International Sense of Dispute Resolution has been established by means of the local arbitration institutions, namely the Abu Dhabi Commercial Conciliation and Arbitration Centre (“DIAC”) and the Cairo Regional Centre for International Commercial Arbitration (“CRCICA”). At the end of 2006, UAE became the 138th State to adopt the New York Convention and in 2008, the UAE government, firstly, enacted a brand new arbitration law; secondly, DIFC enacted a jurisdictionally inclusive arbitration laws; and thirdly, DIFC and the London Court of International Arbitration came together to initiate the DIFC-LCIA Arbitration Centre. From then onwards, Dubai has promoted them as an arbitration-friendly zone in order to lure international investors.

As we speak in the present times, the recent amendments in the penal laws of UAE have put arbitrators and experts into terror and there have been increasing number of arbitrators disengaging themselves with the UAE-seated tribunals and are rejecting nominations at the same time.

Arbitral Tribunal must act fairly...does this come at the cost of penalising the arbitrator, or in other words, can an expert witness be penalised for delivering his expert opinion?

Article 5 of UAE Federal Penal Code No. 3 of 1987 has been amended by the Federal Decree Law No. 7 of 2016 and it has its application in the DIFC and ADGM. The aforesaid amended Article reads as under:
“Anyone who issues a decision, expresses an opinion, submits a report, presents a case or proves an incident in favour of or against a person, in contravention of the requirements of the duty of neutrality and integrity, while acting in his capacity as an arbitrator, expert, translator or fact finder appointed by an administrative or judicial authority or selected by the parties, shall be punished by temporary imprisonment.

The aforesaid categories of persons shall be barred assuming once again the responsibilities with which they were tasked in the first instance, and shall be subject to the provisions of Article 255 of the law.”

Form the bare reading of the same, it becomes evident that the initiation of the criminal sanctions which might lead to a sentence of three to 15 years, places the arbitrator in a position far more dangerous. Further, the scope of the offence is in-definitive, since the terms “integrity” and “impartiality” are not defined under the UAE criminal law. Arbitration proceedings which were far from the horizon of the police, are now under the UAE law, by the way of a complaint to the police authorities alleging that the arbitrator has breached Article 257. As a consequence, it will frustrate the arbitration proceedings and create a ruckus for the arbitrator.

Considering the fact that the statute includes the experts, it is not a shocker that they are resigning from their role in on-going arbitrations in order not to attract such penal charges on the mere ground of their expert opinion on the matter. Because of the great influence of Shariah law and the difficulty in enforcement of schemes and regulations, various foreign investors along with renowned lawyers and experts have recused themselves from seating their arbitrations in UAE. The amendment in the Federal law leaves several questions that would have to be addressed by the courts, leaving the essence of arbitration infructuous and the interest of the companies seaward.

Thus, the idea of ADR friendly UAE becomes vague or rather more costing. It is a known fact that international companies and their investors calculate their chances of dispute resolution and thus the recent change has drawn out potential foreign investors who want to avoid hassles of criminal prosecution.

About the authors
NIKITA CHITALE  is Associate, Advani & Co. & APRATIM ANIMESH THAKUR is Associate, Lis Partners.

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