Arbitrability & Public Policy: The saga comes to an end and the winners are who knew that a principle of a judgment is in its ‘ratio decidendi’

Instead of going straight to the point to make this article more readable, I am choosing to make this article more sensible and putting the whole “Real Estate registration is a Public Policy issue, hence not arbitrable” into perspective by explaining a little bit about the origin and concept of Arbitration, so instead of parroting back information written in this article, people actually under the concept; and then draw logical and learns conclusions themselves. Because if the readers understand and apply these concepts,

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Instead of going straight to the point to make this article more readable, I am choosing to make this article more sensible and putting the whole “Real Estate registration is a Public Policy issue, hence not arbitrable” into perspective by explaining a little bit about the origin and concept of Arbitration, so instead of parroting back information written in this article, people actually under the concept; and then draw logical and learns conclusions themselves. Because if the readers understand and apply these concepts,

Arbitration was originated because it was an efficient method of solving disputes between merchants, who believed that the procedure to resolve disputes arising out of private and commercial issues amongst themselves must be resolved by a body of rules. Thus, the concept was to have the right to private disputes to be resoled privately. But the extent to which each country granted and restricted this right was varied sharply.

Thus, arbitration has always been subject to the arbitration laws of the country where the arbitration is conducted. Movements of harmonization of arbitration laws underlie the New York Convention and the UNCITRAL Model Law. The Model Law as the name suggests is only a model, an exemplary set of arbitration law that countries are encouraged to adopt as the arbitration law of their country.

Expect for the two restrictions mentioned, parties have the right to agree to refer any type of future or existing dispute to arbitration including non-contractual or those arising from tortious claims; as long as the claim and subject matter of the dispute is not in conflict with public policy of the country where arbitration is conducted or it cannot be settled or waived by the parties under the law of that country; a position accepted by the Model Law itself [take note of the emphasis added on the term ‘claim’ and ‘subject matter’]

As per Article 34(2) of the Model Law “An arbitral award may be set aside by the court specified in article 6 if: the court finds that: The subject-matter of the dispute is not capable of settlement 
by arbitration under the law of this State; or The award is in conflict with the public policy of this State.”

This is precisely the position adopted by the UAE Civil Procedure Law under Article 203(4) “Arbitration shall not be permissible in matters, which are not capable of being reconciled. An arbitration agreement may be made only by the parties who are legally entitled to dispose of the disputed right.”

Dubai Court of Cassation Appeal No. 14 of 2012

In this infamous judgment, the court held that Article 2 of Dubai Law No. 13 of 2008 regulating the Interim Real Estate Register is a public obligation, which is not capable of being disposed off by the Parties; meaning, that if the developer did not register your property, this breach would not be waived because the purchaser waived developer’s obligation to register the unit. This is because a developer’s obligation to register the unit is towards the state, to protect the private property; and while the owner certainly benefits from this obligation, he/she cannot waive it at its own disposal.

This was the limitation of this judgment. Period. However, the manner in which this judgment was publicized was abysmal; to the point that till present date I am ‘informed’ by some developers and investors that real estate disputes cannot be arbitrated under UAE law. Abysmal. In fact, why should we even go that far, lawyers within the same law firms were deeply divided on the understanding – or lack thereof – of this judgment?

It must be noted that whereas in other countries, it is mandatory to pass the bar examination of that country to become eligible to practice law, under the present laws of UAE, national bar examinations are not conducted – at least at present. This leads to a lack of harmonization amongst practicing lawyers. For example, one of the questions in the New York Bar Examination conducted in 2013 presented a factual scenario and asked the candidates “was a contract formed”?

Ask this question to any lawyer in UAE, there will be an endless debate and plethora of articles online. Clearly, there is a need for harmonization amongst the legal fraternity, so they all have the same rules of conduct, professional ethics, they interpret laws and judgments using the same tools (of course the outcome of interpretation will still differ amongst them but at least the tools applied will be the same).

It must be noted that practicing lawyers in UAE are qualified from different jurisdictions, and with no entrance exam or UAE national bar examinations harmonizing their approach to law, the manner in which they analyzed this judgment varied sharply. Those of us who learnt to understand a judgment on the basis of its ratio decidendi “the reason for the decision” understood the limitation of this judgment. This group of lawyers, including myself, insisted that the meaning of this judgment is that if the claim or subject matter of the dispute was arising out of Article 3 of Law No. 13 of 2008 then that claim is not arbitrable.

However, depending on the scope of the arbitration agreement, if the claim or subject matter of the dispute is breach of a provision of contract, damages, consequential losses or even negligence, the dispute will be arbitrable.

Position clarified

This is why after one year of debating over something that a first year law student is expected to understand correctly, I was very pleased to come across a copy of another Dubai Court of Cassation judgment issued on 3 February 2013, which states ‘if the plaintiff confined his claim to claiming termination of the contract for the failure to perform it when the developer did not fulfill its obligation to construct it, the arbitration clause under the contract remains existing and valid’

I would personally want to highlight this judgment and send a hard copy to every lawyer who disagreed with me, but that would be futile as well, because as I am lawyer who uses the ratio decidendi approach, I understand that the reason for their incorrect understanding of the judgment was because they accept a judgment on its “face value” without going behind the concept and logic it is based upon or even looking at the facts of that case to distinguish the judgment and not using it for general application.

This is why, I am confident that if I present the new cassation judgment to them, they would simply argue that this limitation is set under this new judgment but under the previous judgment it applied to all real estate arbitration, and wouldn’t that just make your blood boil

So for all those who knew that the cassation judgment of 2012 was limited to disputes and claims arising from Law No. 13, congratulations we were right. For the rest, I will simply advise that please do not over simplify the law or its interpretation to a point where it becomes ignorance.

Court rulings should be understood in light of the particular facts of that case, understanding of the legal concept it covers and most of all logic behind the law, which it applies.

To explain by analogy, back in 2011 I told everyone to first understand the concept of force majeure, then understand that anything defined as force majeure under the contract is force majeure, and in the absence of contractual definition, any event that passes the three step test is force majeure; and please do not say that an Act of God is force majeure, because that is nothing but, at best an example of force majeure, depending on the wording of the contract.