A judgment of the Qatar Court of Appeal in 2022 (reaffirmed by the Court of Cassation), which remains of particular relevance today, has provided clarity on the limits of arbitral jurisdiction, specifically in relation to interim measures concerning bank guarantees.
The case involved a construction dispute referred to arbitration. In response to a request to restrain the call of certain bank guarantees, the arbitral tribunal ordered that the proceeds of those guarantees be held in escrow, pending resolution of the dispute. This step was challenged before the Qatari courts on the basis that it exceeded the tribunal’s powers and conflicted with Qatari legal principles governing the autonomy of bank guarantees.
The Tribunal’s Intervention
The tribunal’s order was made under Article 17 of Qatar’s Arbitration Law (Law No. 2 of 2017), which permits arbitral tribunals to grant provisional or conservatory measures. The intention was to preserve the status quo by paying the proceeds into an escrow account.
The party opposing the measure argued that the tribunal lacked jurisdiction to make such an order, on two principal grounds:
- That the guarantees were governed by separate instruments which were not subject to the arbitration agreement.
- That the order conflicted with established Qatari jurisprudence which treats letters of guarantee as independent and irrevocable financial obligations.
The Court’s Findings
The Court of Appeal accepted the challenge and declared the tribunal’s order invalid. Its reasoning addressed both procedural and substantive points of law.
While recognising the general authority of arbitral tribunals to grant interim relief under the Arbitration Law, the Court emphasised that such power must be exercised within the bounds of the parties’ arbitration agreement and Qatari laws. In this case, the guarantees were not covered by the clause referring disputes to arbitration, and no clear consent had been given to extend arbitral jurisdiction over those instruments.
Moreover, the Court reaffirmed the settled principle under Article 406 of the Trading Regulations (Law No. 27 of 2006) that a letter of guarantee is a self-contained legal instrument. It establishes a direct obligation by the issuing bank to pay the beneficiary on demand, independent of the underlying contract or any disputes arising from it.
Citing judgments of the Qatar Court of Cassation, the Court underlined that the legal relationships between the applicant, the bank, and the beneficiary are distinct and autonomous, and that the bank’s duty to honour the guarantee is not affected by the status of the underlying transaction. Accordingly, the tribunal was not empowered to intervene in the performance of that obligation.
Practical Implications
This judgment reaffirms several key legal principles that remain highly relevant to parties involved in arbitration in Qatar:
- Jurisdiction Rests on Consent: The scope of an arbitral tribunal’s powers is determined by the arbitration agreement. Instruments or disputes not expressly or implicitly included within that agreement fall outside the tribunal’s remit.
- Autonomy of Bank Guarantees: Letters of guarantee are independent financial commitments. Tribunals and courts alike are not permitted to restrict or condition their operation unless explicitly authorised by law or agreement.
- Judicial Oversight: The Court’s intervention underscores the importance of maintaining appropriate judicial oversight over arbitral measures, especially where third-party financial obligations are concerned.
Conclusion
This decision will continue to resonate in sectors such as construction and infrastructure, where bank guarantees play a central role. It serves as a reminder that while arbitral tribunals are afforded broad procedural tools, tribunals must exercise caution when dealing with financial instruments, ensuring such measures fall squarely within their jurisdiction as defined by the arbitration agreement and Qatari law.
The Court of Appeal’s approach reflects a commitment to both upholding commercial certainty and ensuring that arbitration remains tethered to the consent-based framework from which it derives its legitimacy.
This article is provided for general information purposes only and does not constitute legal advice. Each case in Qatar is assessed on its own facts and merits, and nothing herein is intended to be an authoritative statement of the law