Arbitration clauses are often heavily negotiated and complex enough to be referred to as “a contract within the contract”. The reasons for this are obvious (even to us transactional practitioners). The exact terms of a dispute resolution clause can have far-reaching consequences.
One of the goals in crafting such a clause is to mitigate the irreconcilability of disputes as they arise by putting your client in the best possible position in the event of a scenario that triggers termination and subsequent arbitration. Naturally, both sides have this in mind during negotiations. But, what happens in jurisdictions where the enforceability of arbitration clauses may be considered by some, fairly or unfairly, to be a somewhat unsettled question?
Until recently, while the Kingdom of Saudi Arabia (or, KSA) has been a member to the New York Convention (on the enforcement of arbitral awards), this did not always lead one to predict with certainty that a Saudi court would recognize the validity of the arbitration clause in your agreement with a local party and direct that party to resort to arbitration, as per your agreement. In the past, senior judicial officials and other legal professionals in Saudi Arabia have on occasion issued public pronouncements that arbitration clauses are contrary to Shari’ah and are therefore invalid, and should not be enforced by Saudi courts.
That is to say, in Saudi Arabia you may have had the right to enforce an arbitral award granted by a tribunal (keeping in mind the difficulty some may experience in attempting actual collection in the Kingdom), but such public pronouncements may have lead some to wonder if you could successfully assert that the underlying dispute be entered into arbitration in the first place (in the KSA), depending on whether or not the judge in the Saudi court deciding the question deemed your particular arbitration clause (or, arbitration clauses generally) to be appropriate under, or contrary to, Shari'ah.
Today, some are hopeful that the passage of the KSA's new Arbitration Law of 2012 (based on the UNCITRAL Model Arbitration Law) to supplant the KSA Arbitration Law of 1983, and the creation of judicial training centers and the subsequent appointment of judges to serve in a new commercial court system in the KSA, will lead to greater clarity on the subject of the enforcement of arbitration clauses. As with any legal reform, time will tell.
Today, some are hopeful that the passage of the KSA's new Arbitration Law of 2012 (based on the UNCITRAL Model Arbitration Law) to supplant the KSA Arbitration Law of 1983, and the creation of judicial training centers and the subsequent appointment of judges to serve in a new commercial court system in the KSA, will lead to greater clarity on the subject of the enforcement of arbitration clauses. As with any legal reform, time will tell.
In the neighboring United Arab Emirates (UAE), the considerations differ. The validity of the arbitration clause, the formation of the contact, and the nature of the relationship between the parties themselves are just a few of the considerations that a court could measure in weighing the enforceability of a given arbitration clause.
Any Emirati national (individual or corporate) has the right to avail itself of the protection and justice of the courts of the UAE. In the past, this may have prompted some local parties in the UAE to move that a local court should assert jurisdiction, despite the existence of an arbitration clause. It should be said, however, that in the UAE (a commercial hub in the Gulf region that has become famous for the "City of Dreams", Dubai, and increasingly the "Green Emirate" of Abu Dhabi), such motions should rely on more than this basic right if a party wishes to succeed in its attempt to escape arbitration under a valid clause.
Following certain provisions of the UAE (federal) Civil Code, judges in local courts should hold that validly written arbitration clauses are enforceable, except when there exist particular circumstances. For example, in disputes arising from registered commercial agency agreements a judge may deem an otherwise valid arbitration clause unenforceable and declare it void on the grounds that clauses calling for alternative dispute resolution (or, ADR) in such contracts are contrary to, or inconsistent with, "Public Policy". (Please note: the commonly used, colloquial term "sponsorship agreement" is much broader and could refer to several different types of business relationships in the UAE; whereas, "registered commercial agency agreements" refers to a specific type of business relationship, which must also be properly registered with the relevant government office in accordance with both the law and the terms stipulated in the agreement itself.)
Any Emirati national (individual or corporate) has the right to avail itself of the protection and justice of the courts of the UAE. In the past, this may have prompted some local parties in the UAE to move that a local court should assert jurisdiction, despite the existence of an arbitration clause. It should be said, however, that in the UAE (a commercial hub in the Gulf region that has become famous for the "City of Dreams", Dubai, and increasingly the "Green Emirate" of Abu Dhabi), such motions should rely on more than this basic right if a party wishes to succeed in its attempt to escape arbitration under a valid clause.
Following certain provisions of the UAE (federal) Civil Code, judges in local courts should hold that validly written arbitration clauses are enforceable, except when there exist particular circumstances. For example, in disputes arising from registered commercial agency agreements a judge may deem an otherwise valid arbitration clause unenforceable and declare it void on the grounds that clauses calling for alternative dispute resolution (or, ADR) in such contracts are contrary to, or inconsistent with, "Public Policy". (Please note: the commonly used, colloquial term "sponsorship agreement" is much broader and could refer to several different types of business relationships in the UAE; whereas, "registered commercial agency agreements" refers to a specific type of business relationship, which must also be properly registered with the relevant government office in accordance with both the law and the terms stipulated in the agreement itself.)
So, what do you do when doing business internationally, and some of your relationships are with parties in the Middle East?
Negotiate an arbitration clause.
And, retain an experienced attorney with local knowledge (preferably one with a presence in the specific jurisdiction in question: the laws of Middle Eastern jurisdictions, like the laws of countries in other regions of the world, are subject to change).
If the local party with which your company is doing business has attachable assets outside of the Middle East in a country where collections may be deemed less frustrating, that can be a plus. But, as with just about everything else, there is no substitute for experience -- and solid, relevant legal experience may be one of your best assets at the negotiating table.
And, retain an experienced attorney with local knowledge (preferably one with a presence in the specific jurisdiction in question: the laws of Middle Eastern jurisdictions, like the laws of countries in other regions of the world, are subject to change).
If the local party with which your company is doing business has attachable assets outside of the Middle East in a country where collections may be deemed less frustrating, that can be a plus. But, as with just about everything else, there is no substitute for experience -- and solid, relevant legal experience may be one of your best assets at the negotiating table.