In a recent ruling, the Dubai Court of Cassation (the “DCC”) addressed the enforceability of unilateral arbitration clauses, which permit only one contracting party the discretion to opt for arbitration as the dispute resolution mechanism (the “DCC Decision”). The DCC Decision emphasizes the legal position surrounding unilateral arbitration clauses in the UAE, providing important insights for contract drafters and businesses operating in the jurisdiction of the UAE.
Background of the Case
According to the DCC Decision, a dispute arose between the subcontractor and the main contractor over unpaid dues. The subcontractor commenced proceedings before the Dubai Court of First Instance (the “CFI”) against the main contractor. Central to this dispute was a unilateral arbitration agreement which allowed only the main contractor to choose between arbitration or litigation as the dispute resolution forum. The arbitration clause specifically stated that any dispute between the parties shall be referred either to (i) arbitration or (ii) litigation and “the method would be determined by the main contractor”.
The arbitration clause was invoked by the main contractor but was further dismissed by the CFI, prompting the main contractor to appeal the decision before the Dubai Court of Appeal (the “DCA”), which upheld the CFI’s decision. When brought before the DCC, the main contractor argued that the arbitration clause should be honored, as it granted the main contractor exclusive discretion to decide on the dispute resolution mechanism.
Findings of the Dubai Court of Cassation
The DCC upheld the decisions of the CFI and the DCA, dismissing the main contractor’s defense. The DCC found that a unilateral arbitration clause does not constitute an enforceable arbitration agreement under the UAE laws. It was further reasoned that the arbitration clause failed to mutually bind both parties unequivocally to arbitration, instead creating an optional, non-binding arrangement that conflicted with the mutually binding nature of valid arbitration agreements.
The DCC’s reasoning aligns with the established principle that arbitration clauses must be clear, specific, and binding upon both parties. In this case, the arbitration clause’s structure, offering the main contractor alone the sole discretion to decide the dispute forum, effectively deprived the subcontractor of its right to an impartial forum and was deemed incompatible with the concept of equal party autonomy in arbitration. The DCC concluded that such a unilateral structure could allow one party to delay or obstruct the dispute resolution process by withholding its choice, thereby compromising procedural equity.
Analysis and Conclusion
Unilateral jurisdiction clauses, in general (also known as asymmetric jurisdiction agreements), are common in contracts where there is a higher bargaining power for one of the contracting parties. Such clauses create an asymmetry in dispute resolution rights, often favoring the party with greater bargaining power (such as employers, banks, or insurers) while restricting the less powerful party to a single dispute resolution mechanism.
While the DIFC Courts may consider unilateral jurisdiction clauses enforceable if both parties have clearly agreed to their terms, the UAE courts generally view unilateral arbitration clauses less favorably and tend to assert their own jurisdiction. In the DCC Decision, the court expressly stated that a unilateral arbitration clause is optional and does not suffice to take away the jurisdiction from the court.
Arbitration remains widely recognized and accepted in the UAE, however, the validity of an agreement to arbitrate must be established with a high degree of certainty. The UAE courts mandate that arbitration agreements must be clear, unequivocal, and in writing, requiring explicit consent from both parties. The DCC Decision serves as a reminder of the importance of fairness in drafting arbitration agreements, where the joint intention and bilateral agreement of all contracting parties shall be reflected in order to remove the court’s jurisdiction over the matter.
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: Roaa Abou Assi (Senior Executive Associate)
