Q: Do property buyers have the option of including an arbitration clause in their sales and purchase agreements?
A: An arbitration clause, which is a form of alternative dispute resolution, is a contractual provision. This means that it is subject to the parties’ agreement. Therefore property buyers, being a party to a contract, have the option of including an arbitration clause in their sales and purchase agreement.
Q: How can an investor/buyer include such a clause and does it cost them anything?
A: Choosing an arbitration clause in a contract is subject to the parties’ agreement. There is no cost to it. Investors/buyers can freely request it. A developer may not agree to it, however. Then, it is up to the parties to negotiate for it. In other words, a developer may request investors to give something up in exchange for agreeing to arbitration, be it on price, penalty or payment plan. Investors can always refuse to sign a contract if the developer does not agree to arbitration.
Q: How many investors/buyers, do you think, have included such an option?
A: Because most sales and purchase agreements are drafted by developers/sellers, in the past, it has been up to them to include an arbitration clause. Buyers always had a choice in requesting arbitration before signing. Most, however, did not do so because, among other things, most developers in the past were not willing to negotiate. And investors accepted the terms of the agreements in their original form. Some developers, however, included arbitration in their sales and purchase agreement. Roughly speaking, around 10% of sales and purchase agreements out there may provide for arbitration.
Q: How will investors/buyers benefit from arbitration? Is it a fast or lengthy process?
A: There are many benefits to arbitration. By way of example, they are as follows. One, it is a more efficient and expeditious process because, by design, it is less formal than a court proceeding. Two, arbitrators are often experienced in the area of law that is at the heart of the dispute and, therefore, can be more knowledgeable and practical about a particular issue. Also, arbitrators are often, among other things, Western educated and experienced lawyers. Three, depending on the parties’ agreement, they can have a choice at appointing an arbitrator. Four, under the Dubai International Arbitration Center (DIAC), parties can bring collective action, or a form of class action, which, among other things, allows them to split legal costs and work in concert. Five, arbitration, can be a lot cheaper than a legal action in Dubai Courts. For example, in Dubai Courts, a party must pay either 7.5% of the claim value or maximum of AED 30,000 for each SPA at issue. Where parties have multiple SPAs for the same developer, the same property and even the same price, paying AED 30,000 for each such SPA can be very costly. In arbitration, on the other hand, a party can combine all of these claims into one action.
Q: Can one file for arbitration even if there is no such clause in the SPA?
A: An arbitration clause is governed by the parties’ express agreement. Therefore, if a contract does not provide for it, the default choice of forum is Dubai Courts. The parties can, however, agree to resolve their differences by arbitration even if they did not provide for it originally. But they both have to agree.
Q: How can the arbitration awards be enforced in the UAE? Do the UAE courts recognise such an award?
A: An arbitration award can be enforced easily in the UAE. UAE Courts recognize such an award as just another form of a judicial verdict. This is especially so if a particular arbitration provision expressly states that the arbitration award is not subject to appeal in Dubai Courts and is an exclusive remedy to the parties’ dispute. In such cases, the UAE Courts will treat an arbitration award as binding and will simply enforce it. In other words, there is no need to re-argue it or re-validate it in Courts.
Q: Can you share any case studies with us?
A: At least three large Dubai developers included arbitration in their sales and purchase agreement. They are ACI, MED (Middle East Development Corporation) and ACW. The ACI sales and purchase agreement, for example, provided for a panel of three arbitrators, one chosen by each party and one chosen by the two arbitrators. The MED arbitration clause, on the other hand, provided for one arbitrator.
Once a request for arbitration is filed with the DIAC (Dubai International Arbitration Center), DIAC will provide a list of DIAC approved arbitrators for the parties to choose from. The party requesting arbitration needs to file a Request for Arbitration, a DIAC Arbitration Application and pay AED 2,500 to get the cases filed. After that, the DIAC notifies the responding party and gives it 30 days to respond. Then, once the arbitration panel is formed, it sets the rest of the timelines and costs for the arbitration proceedings.
Q: If arbitration is fast process, then why are investors filing complaints with the property court?
A: Only those agreements that provide for arbitration as a form of alternative dispute resolution can be resolved by arbitration, unless the parties both agree to it afterwards. Since most sales and purchase agreements did not provide for arbitration, investors now have to rely on the UAE Courts to resolve their disputes. The reason why investors did not request arbitration at the outset is most likely because at the time developers were not willing to negotiate on the terms of the sales and purchase agreements. So, the investors had to either sign SPAs in their original form or walk away from the deal.