The Abu Dhabi Court of Cassation (the “ADCC”), in its recent Decision Case No. 902 of 2024, dated 23 December 2024 (the “Decision”), annulled an arbitration award due to the invalidity of the arbitration agreement, highlighting procedural and substantive principles under UAE Federal Law No. 6 of 2018 (the “Arbitration Law”). The Decision emphasizes the authority to enter arbitration agreements, the formal requirements for such agreements, and the limit of waiver of procedural objections.
Background
The case revolved around a dispute between two companies, where the appellant sought to nullify an arbitral award issued under the rules of the Abu Dhabi Commercial Conciliation and Arbitration Center.
The appellant argued that the arbitration agreement was invalid as it was signed by the company’s CEO, who lacked the requisite authority under the company’s articles of association. The authority to bind the appellant to arbitration agreements was reserved exclusively for the chairman of the board of directors. The appellant challenged the award on grounds of procedural irregularities and non-compliance with public policy.
In its Decision, the ADCC reversed the initial judgment, providing significant clarification on the application of Articles 4, 7, and 25 of the Arbitration Law:
Authority to Enter Arbitration Agreements
Article 4 of the Arbitration Law mandates that arbitration agreements must be entered into by individuals or representatives possessing the requisite legal capacity to dispose of the subject rights. The ADCC ruled that the appellant’s CEO’s lack of authority to bind the appellant to arbitration rendered the arbitration agreement invalid. The Decision emphasized that Article 4 of the Arbitration Law is a mandatory rule that reinforces the principle that arbitration, being an exceptional consensual mechanism, must be grounded in proper authority.
Requirement of Written Form
Article 7 of the Arbitration Law stipulates that arbitration agreements must be in writing. This requirement extends beyond traditional documents to include emails and other forms of electronic communication. The ADCC emphasized that the writing requirement is not a mere evidentiary or procedural formality, but rather a substantive precondition for validity. The Decision highlights that adherence to Article 7 of the Arbitration Law ensures that arbitration agreements unequivocally reflect the parties’ intent to arbitrate.
Waiver of Procedural Objections
Article 25 of the Arbitration Law provides that a party may waive the right to object to procedural irregularities if objections are not raised promptly. However, the ADCC submitted that such a waiver does not extend to foundational defects, such as a lack of authority to enter an arbitration agreement. The judgment distinguished between procedural and substantive issues, holding that participation in arbitration proceedings cannot remedy defects related to authority or capacity.
Implications
In its Decision, the ADCC held that the requirements of Article 4 (Capacity and Authority) and Article 7 (Written Form) of the Arbitration Law as prerequisites for the validity of an arbitration agreement have been deemed by the legislator to be fundamental and essential pillars for its formation, and therefore, the absence of either renders the arbitration agreement void.
In this context, the ADCC further stated that the continued participation of the authorised representative of a legal entity in the arbitration proceedings—despite being aware that the agreement was concluded by an unauthorized party— does not constitute a waiver of the right to object to this irregularity under Article 25 of the Arbitration Law, because the legislator conditioned such a waiver on the irregularity being related to a factual or legal matter that is permissible to waive by agreement and not on a mandatory provision. Article 4 of the Arbitration Law is not supplementary to the will of the parties but is a mandatory provision that cannot be contravened.
Conclusion
The ADCC focused in its Decision on the need for proper authority and capacity to enter arbitration agreements and for such agreements to be in writing, thus making it clear that these rules are essential and cannot be disregarded. It also confirmed that procedural waivers under Article 25 of the Arbitration Law do not extend to mandatory rules such as the lack of authority to enter into an agreement.
Disclaimer
This publication does not provide any legal advice and it is for information purposes only. You should not rely upon the material or information in this publication as a basis for making any business, legal, or other decisions. Therefore, any reliance on such material is strictly at your own risk.
Author: Dr. Mahmood Hussain (Founding Partner) & Roaa Abou Assi (Senior Executive Associate)
