Discover why arbitration clauses in Dubai are crucial for businesses. Avoid financial losses & legal battles. Seek expert advice today!
In the dynamic business environment of Dubai, legal disputes are almost inevitable. Companies, whether large or small enterprises, face the risk of disagreements escalating into costly legal battles. A common safeguard against such financial drain is the inclusion of arbitration clauses in Dubai within contracts. Yet, many businesses underestimate the significance of these clauses, leading to substantial financial repercussions. This blog explores why ignoring arbitration clauses can result in million-dirham mistakes and highlights the crucial role of arbitration in the legal landscape of Dubai.
4 minutes read…
Arbitration is a form of alternative dispute resolution (ADR) where a neutral third party, the arbitrator, resolves disputes outside the courts. It is often chosen for its efficiency, confidentiality, and binding nature.
Arbitration Clause: Embedded in contracts before any dispute arises, detailing the method for resolving future disagreements.
Submission Agreements: Made after a dispute arises, outlining the specific terms for arbitration.
Incorporated by Reference: When a contract refers to another document containing an arbitration clause, it makes it part of the main agreement.
Article 8(1) of the UAE Federal Law on Arbitration, No. 6 (2018), mandates courts to dismiss a claim if an arbitration agreement exists and the defendant invokes it before raising any substantive defense.
Despite legislative support, UAE courts sometimes exercise jurisdiction in cases involving multiple defendants, where not all are bound by arbitration agreements.
A developer faced a lawsuit after a hotel fire involving several parties, including an engineer with an arbitration clause in Dubai in their contract. The court, however, took jurisdiction, citing joint liability and the need for unified adjudication, sidelining the arbitration clause.
A sale and purchase agreement dispute led to arbitration under DIAC rules. When parties failed to pay arbitration costs, DIAC closed the case. The claimant then took the matter to court, where the arbitration clause was deemed ‘exhausted’, allowing court jurisdiction.
Courts often rule that construction disputes involving multiple contracts and parties should not be divided to ensure proper justice administration, leading to disregard for individual arbitration agreements.
The UAE courts justify their jurisdiction over disputes involving arbitration clauses by citing the necessity of unified adjudication for justice and public interest, although this is not always explicitly detailed in decisions.
Well, what are the risks of overlooking arbitration clauses?
Ensure arbitration clauses are well-drafted, specifying all necessary details such as the governing rules, seat of arbitration, number of arbitrators, and language.
Consider using submission agreements to define the scope of arbitration clearly, ensuring enforceability and clarity.
Regularly review arbitration clauses with legal counsel to ensure they are up-to-date and aligned with current laws and practices.
Arbitration clauses in Dubai are vital in protecting businesses from costly legal disputes. Ignoring these clauses can lead to significant financial losses, prolonged litigation, and damage to business reputations. For further guidance, contact top corporate law firms or lawyers in Dubai.
© 2024 Crivva - Business Promotion. All rights reserved.