Overview
Contracting parties in the UAE frequently resort to arbitration as a dispute resolution mechanism considering the advantages thereof; however, parties often overlook the fact that not all disputes in the UAE are arbitrable. As a result of certain limitations set out under the UAE Laws, disputes relating to public policy cannot be arbitrated given that such disputes cannot be settled amicably. The developer’s procedures to unliterally terminate a sale and purchase agreement of an off-plan real property before the Dubai Land Department is a matter of public policy.
Resolving non-arbitral disputes through arbitration will eventually lead to the challenge of the final award and in turn to the nullification thereof. The exclusive jurisdiction of UAE local courts is covered under Section I Chapter 3 of UAE Federal Law No. 42 of 2022 on the Promulgation of the Civil Procedure Law. Contracting parties shall keep in mind mandatory rules related to public policy when agreeing on the dispute resolution mechanism in the UAE. Article 3 of the UAE Civil Code defines public policy as the “provisions relating to personal status, such as marriage, inheritance, lineage, provisions relating to systems of governance, freedom of trade, circulation of wealth, private ownership and other rules and foundations on which the society is based, provided that these provisions are not inconsistent with the imperative provisions and fundamental principles of the Islamic Shari'a”.
Developer’s Procedures to Unliterally Terminate a Sale and Purchase Agreement of Off-Plan Real Property
Where a purchaser fails to fulfil its contractual obligations under an off-plan sale agreement concluded with a developer, the developer may follow procedures to unilaterally terminate the sale agreement. The said procedures are deemed mandatory rules as set out in Article 11 of Law No. (13) of 2008 Regulating Initial Property Registration in the Emirate of Dubai substituted by Article 1 of Law No. 19 of 2020 amending Law No. (13) of 2008 Regulating the Interim Real Property Register in the Emirate of Dubai. Matters relating to the termination procedures and dispositions of off-plan real estate properties cannot be arbitrable as they fall outside the sphere of amicable settlement given their nature (mandatory rules). Other similar claims in this connection (for instance, the non-performance of the developer or investor/purchaser) have been found to be arbitrable.
In a recent dispute filed before the Dubai Court of First Instance, the plaintiff, being the buyer, filed a case against the developer who unilaterally terminated the sale and purchase agreement of an off-plan real property concluded with the plaintiff who believed and alleged are not in line with the termination procedures stipulated under Article 11 of Law No. (13) of 2008 Regulating Initial Property Registration in the Emirate of Dubai substituted by Article 1 of Law No. 19 of 2020 amending Law No. (13) of 2008 Regulating the Interim Real Property Register in the Emirate of Dubai. The plaintiff settled circa 40% of the purchased unit. In its relief, the plaintiff requested the Court to oblige the developer to return the paid amount against the units together with monetary compensation and interest. The Court of First Instance dismissed the case due to the presence of an arbitration agreement between the parties. The plaintiff appealed the Court of First Instance’s judgement before the Dubai Court of Appeal, who upheld the decision.
The plaintiff further appealed the Dubai Court of Appeal’s decision before the Court of Cassation under Appeal No. 141 of 2022. On 29 November 2022, the Dubai Court of Cassation accepted the Appeal and overruled the Court of Appeal’s decision on the following grounds –
i. the developer’s procedures to unliterally terminate a sale and purchase agreement before the Dubai Land Department as regulated under Article 1 of Law No. 19 of 2020 – which amends Article 11 of Law No. 13 of 2008 Interim Real Property Register in the Emirate of Dubai (mandatory rule) – are related to public policy;
ii. paragraph 2 of Article 4 of the UAE Arbitration Law No. 6 of 2018 stipulates that arbitration is not permissible in matters that do not permit compromise. Therefore, any dispositions of off-plan real estate properties cannot be a subject matter of arbitration.
iii. in the event that contracting parties agreed to resort their disputes to arbitration and the subject of the dispute relates to matters that cannot be conciliated, the competence to adjudicate over such disputes falls within the local courts’ jurisdiction. Accordingly, it is not permitted for an arbitrator to determine a matter that relates to public policy, otherwise any award issued in this relation will be subject to nullification.
In its decision, the Dubai Court of Cassation overruled the appealed judgement and referred it back to the Court of First Instance since the Dubai Court of First Instance erred in applying the law by dismissing the case initiated before it for the presence of an arbitration agreement due to its nature – does not permit compromise and is a matter of public policy.
Conclusion
Parties to a contract tend to enter into agreements without considering whether arbitration is the appropriate forum for their dispute to be determined or if the chosen forum will provide an effective method of enforcing their contractual rights. Disputes that relate to peremptory rules associated to public policy, cannot be arbitrated. For this, contracting parties must analyze the laws governing their dispute to choose the appropriate mean to claim rights. The developer’s procedures to unliterally terminate a sale and purchase agreement before the Dubai Land Department is a matter of public policy and therefore, is not arbitrable.