Interim Relief in Arbitration and On-Demand Bonds: the Egyptian and UAE Position

Interim measures are a practical necessity, rather than a luxury. Arbitration proceedings are costly, and disputing parties can rarely afford to sit and wait until a final award is issued and either enforced or settled. 

While arbitration proceedings offer some flexibility in terms of the applicant party’s choice of forum to pursue interim relief, changing course after lodging an application with one forum is not always possible.

Moreover, the liquidation of on-demand bonds by the beneficiary is often fiercely contested by the ordering client. Between 2020 and 2022, both Egyptian and UAE courts have delivered important judgments outlining the parameters for granting interim relief concerning on-demand bonds.

The Cairo Court of Appeal’s definition of interim measures emphasises their purpose, which is to provide temporary protection of “apparent” rights through a precautionary order or ruling until the merits of the relevant dispute are decided upon. In this context, when deciding on an application for interim relief, the awarding court or tribunal must limit itself to a prima facie review of the evidence and documents. Further, the requested interim relief must not compromise or undermine the decision on the merits.

Under the Egyptian Civil and Commercial Procedures Law, summary courts can only grant interim relief in certain situations outlined in statutory provisions of Egyptian law. However, Egyptian Arbitration Law adopts a different approach. Like modern arbitration legislation, it broadly empowers the courts to grant interim relief as long as the necessary conditions for granting it, namely seriousness and urgency, are satisfied. Moreover, an arbitral tribunal would only have the power to grant interim relief if the parties to the arbitration agreement have, explicitly or implicitly, conferred upon the tribunal the authority to grant interim relief.

In a judgment issued on 27 January 2021, a summary court granted a contractor’s application to stop the liquidation of an on-demand bond by an employer. However, in a second judgment issued on 3 February 2021, the Court of Appeal dismissed the contractor’s application, citing the complexity of the underlying dispute and the resulting inability to grant the requested interim relief based on a prima facie review of the documents. In a third judgment issued on 16 February 2021, an Appeals court declined jurisdiction due to the domestic and non-commercial nature of the underlying dispute.

These three conflicting appeal-level judgments were subsequently brought before the Cassation Court. In a positive development, the Cassation Court issued consistent judgments, on 28 October 2021 and 13 March 2022 respectively, confirming that, in the context of construction contracts, the fact that the works were substantially complete and/or delivered to the employer is not sufficient to remove the inherent complexities concerning the contractual relationship between the contracting parties and their respective rights and obligations. Consequently, the court denied the contractor’s entitlement to stop the liquidation of on-demand bonds by the employer under Egyptian law, unless a prima facie review of the evidence showed that the employer had no right to claims justifying the liquidation of the bonds. In this regard, the engineer’s findings, supporting either the employer or the contractor, play a significant role in the summary court or arbitral tribunal’s analysis.

Similar to the Egyptian legislature, the UAE legislature recognises the distinct and separate legal relationships arising from an on-demand bond, namely the relationships between the ordering client and the issuing bank, the issuing bank and the beneficiary, and the ordering client and the beneficiary, which is governed by the relevant contract. Further, UAE law provides that interim relief stopping the liquidation of on-demand bonds may be granted in exceptional cases when an application is based on serious and certain grounds.

Consequently, for a UAE court or an arbitral tribunal applying UAE law to grant an application for interim relief concerning the liquidation of on-demand bonds, the deciding body must determine (i) the applicant’s full, timely and specification-compliant performance of its obligations towards the beneficiary, and (ii) that, based on the prima facie review of the evidence, the beneficiary is not entitled to any rights vis-à-vis the applicant.

Moreover, under UAE law, only the summary judge who issued a decision on an application to stop the liquidation of an on-demand bond can amend, vary or cancel their own order. Accordingly, if the tribunal issues a conflicting order, it may be subject to nullification before UAE courts.

In this respect, it is worth noting that, on 17 May 2021, the Abu Dhabi Appeal Court nullified an ADCCAC interim award granting interim relief in relation to on-demand bonds valued at AED1.2 billion. Said nullification was based on the tribunal’s breach of an explicit statutory provision of the UAE Arbitration Law that confines the power to adjust, vary or cancel a UAE summary court order to the same court that issued the previous order. Further, on 12 December 2021, the Abu Dhabi Cassation Court upheld the nullification of the tribunal’s interim award on the same basis mentioned above.

Although initial contradictions can be observed in in first instance and appeal-level rulings, both the Egyptian and UAE cassation courts have adopted a clear stance emphasising the separation of the various legal relationships arising from on-demand bonds. Further, the fact that stopping the liquidation of an on-demand bond is classified as an “exceptional” measure that can only be granted if “serious” and “certain” grounds exist, offers significant reassurance to beneficiaries.