Controversy surrounds UAE Resolution relating to arbitrations

by Dentons
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New law fuels concern in the legal community

The UAE has spent years investing in international arbitration and has become a well-known hub for large scale disputes. The country has developed well-respected and renowned arbitration centres (such as DIAC and DIFC-LCIA) and international centres such as the ICC and CIArb have very active committees and/or branches in the region.

However, a new Resolution, the effect of which is unclear, is putting this growth at risk. 

The Resolution, passed in September 2017, has generated a great deal of debate and concern in the Dubai dispute legal market. The Resolution has the potential to stop hundreds of foreign lawyers in the UAE from representing clients in arbitrations seated in the UAE. However, its actual effects are far from certain.

This comes while the UAE continues to deal with the effects of the amendment to Article 257 of the Penal Code, which makes it a criminal offence for an arbitrator to act unfairly or with bias.

In this article, we take an initial look at what the Resolution might actually mean and the practical steps that can be taken to deal with it.

What does the Resolution say?

Ministerial Resolution No 972 of 2017 (the Resolution) was published in the Official Gazette on 28 September 2017. However, no-one in Dubai seemed to be aware of it until the GAR Live Event held in Dubai on 16 November 2017.

The Resolution expands upon Federal Law No 23 of 1991 on the Regulation of the Legal Profession (as amended) and together they set out the legislation applicable to Lawyers and the legal profession in the UAE.

The current concern is stemming from a combination of Article 2 and Article 17 of the Resolution. According to the English translation from Westlaw:

Article 2 of the Resolution states that:

"Subject to the provisions of Article 20 hereof, no person may practice the profession in the State unless his name is registered in the Roll of Practicing Lawyers. Furthermore, courts, arbitration tribunals and judicial and administrative committees may* not accept a person to act as a lawyer on behalf of another person unless his name is registered in the Roll of Practicing Lawyers.

A power of attorney, which includes any of the duties of the profession, may* be issued only in favor of practicing lawyers for appearing or pleading in court or taking any other judicial action before any of the authorities stated in paragraph 1 of this article."

*Dentons' Arabic-speaking lawyers have confirmed that this should properly be translated as "shall", rather than "may".

Article 17 provides that:

"Those lawyers registered in the Roll of Practicing Lawyers shall fulfil the following:
1 – Be a UAE national;
2 […]"

What does the Resolution mean for foreign lawyers?

The honest answer to this question at this stage is that nobody actually knows. It does not appear that the Resolution was consulted on (at least not widely) prior to its passing and no commentary has been provided to help explain the intention behind the Resolution. There is currently therefore a debate about whether it restricts foreign lawyers representing clients in arbitrations, or whether it simply tightens the requirements of local lawyers in the UAE.

There has always been a distinction in the UAE between "Lawyers" and "Legal Consultants". Lawyers are registered on the Roll of Practising Lawyers and  (even prior to the Resolution) needed to be a "citizen of the UAE". In contrast, foreign lawyers act as Legal Consultants. There has always been a restriction on foreign lawyers practicing the profession of being a "Lawyer" in the region, but this was largely limited to the onshore courts.

The key difference between the two professions, to date, has been that only Lawyers can represent clients in the onshore courts. This often leads to clients instructing international law firms who then work with local Lawyers to bring cases in the onshore courts. However, the majority of the dispute work of international law firms in the region tends to be international arbitrations, so this restriction has not generally been too problematic to date.

The Resolution appears to extend this restriction so that only Lawyers can represent clients in arbitrations. Given that the UAE has grown into a hub for international arbitrations, this could be a big setback particularly following the amendment to Article 257 in October 2016 (which means that an arbitrator who is biased can be charged with a criminal offence). It also brings into question the fundamental right of clients to chose their legal representative.

Is the concern justified?

There are a number of ways that the Resolution could be interpreted that would not have the effect outlined above. For example:

The Resolution could be construed to apply to Lawyers only and not Legal Consultants.

  • Article 2 only restricts persons acting "as a lawyer". Strictly speaking, Legal Consultants in the UAE are not acting "as a lawyer" (due to the distinction referred to above). This is particularly arguable in the context of arbitrations where clients do not need to be represented by a lawyer, but can choose who they wish to represent them.
  • The first sentence in Article 2 existed in the previous law. On a literal reading, this could mean that "no person may practice the profession" in the UAE at all unless they are on the Roll of Practising Lawyers. However, it has long been accepted that a Legal Consultant is a different profession, and therefore, this restriction does not apply to them. As such, the same could (at least arguably) be said regarding the new addition to Article 2.
  • Article 30 of the Resolution refers to Legal Consultants separately and says that (amongst other things) "[a] decision of the minister shall be issued determining the requirements and procedures of registration and deregistration of this log" (which refers to a log created for the purposes of registering Legal Consultants at the "Competent Department"). Therefore it could be that another Resolution is to follow which will clarify the role of Legal Consultants. However, Article 30 is very unclear and so cannot be relied upon to clarify matters. 

The law was gazetted on 28 September 2017, which means it came into force on that date. Since then Dentons' Legal Consultants, along with many other international lawyers in the region, have obtained Powers of Attorney to act for clients in Dubai-seated arbitrations. If the Resolution does apply to Legal Consultants then these Powers of Attorney could not legally have been granted (see paragraph 2 of Article 2). The fact that they were granted by the Public Notary suggests that the Resolution may not have the effect that is now being read into it.

The Courts may interpret the law so it does not have the effect of restricting the activities of Legal Consultants. We understand that a similar law was enacted in Egypt several years ago (UAE laws are often heavily based on the laws of Egypt) and this was interpreted so as not to have the effects that are now feared in the UAE.

We understand that the Federal Government is already under considerable pressure to amend, or at least clarify, the effect of this Resolution. As this is an Executive Ministerial Order (rather than a Federal Law), it means that the Minister of Justice can reverse it without the lengthy process needed for an amendment to Article 257 of the Penal Code, which was passed by the UAE legislature.

A new arbitration law is expected (and has been expected for some time), which was anticipated to further bolster the UAE's increasing presence in the world of international arbitration. It is hoped that this new law may help to clarify the position, if it has not been clarified before then.

However, the literal reading of the Resolution is in line with the UAE's "Emiratisation programme". The Emiratisation programme was launched about a decade ago as a strategic plan to effectively assimilate the UAE national workforce in the labour market. To date, this has involved numerous initiatives and incentives to help create sustainable employment opportunities for UAE nationals.

What are the risks and practical considerations?

The current problem is that until the law is clarified (either by the Minister of Justice, the new Arbitration Law, or the Courts), we simply do not know what the effect will be and the UAE arbitration world is left in a state of flux.

The risk of "doing nothing" is that there could be a challenge of enforcement of any Awards that are obtained where a local lawyer was not officially representing the client.

In any event, Article 2 potentially places a restriction on arbitral tribunals accepting cases from a Legal Consultant. We are already responding to queries from arbitrators as to how they should deal with this Resolution, which may become another reason for arbitrators to stop accepting appointments in the region.

One practical solution is that the parties could agree to change the seat of the arbitration to the DIFC or ADGM (which are separate jurisdictions to that of the UAE), or to another jurisdiction outside the UAE. This is feasible where both parties are keen to resolve the dispute (and would save the cost of both parties having to instruct a local lawyer in addition to their international legal team). However, respondents to any arbitrations may seek to cause difficulties for the claimant starting the arbitration by refusing to agree this.

The other option is that international law firms engage a UAE national Lawyer as co-counsel on any arbitrations. This will add cost to the arbitration and, again, make the UAE a less attractive place for arbitrations. The UAE national Lawyer would not necessarily need to take a full role in the arbitration (in an effort to keep costs to a minimum) but would appear on the Power of Attorney and at hearings.

Further clarification needed

While the Resolution may not have the effect that many fear, until further clarification is provided, it is prudent to take extra precautions to ensure the enforceability of an Award.

We are still considering the interpretation and effect of this Resolution and will provide an update when further information comes to light.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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