Arbitration Clause Drafting in UAE Contracts: Essential Terms and Enforceability

A party that would rather not arbitrate can challenge the arbitration clause itself. Permissive wording, a missing seat or governing law, or appointment terms that favour one side each give it something to argue. The result can be delay, court intervention, or a clause held unenforceable.

Related Services: Explore our contract and agreement drafting services for practical legal support in this area.

Consent must be unequivocal and the scope defined

An enforceable arbitration clause rests on unequivocal consent by the contracting parties to submit disputes to arbitration. UAE courts have repeatedly emphasised that consent to arbitrate must be explicit, reflecting a mutual agreement to resolve disputes outside the court system.

Vague or overly broad language can provoke challenges and cast doubt on whether the clause applies. The clause must clearly delineate the types of disputes covered, whether all disputes arising out of the contract or only specific issues. When drafting the scope:

• Avoid generic terms such as “any dispute” without qualification.
• Define whether the arbitration covers disputes “arising out of or in connection with” the contract.
• Specify whether the clause covers only contract-related disputes or extends to related tort claims.
• Consider including an exclusion list to keep unintended disputes out of the clause.

Ambiguous terms such as “any dispute” without limitations, or imprecise references to arbitration rules, invite interpretations that may nullify the clause. The clause must use clear, unambiguous language that unequivocally expresses the parties’ intent.

Consider a Dubai-based construction firm whose clause stated that disputes “may be referred to arbitration.” When a payment dispute arose, the opposing party argued lack of clear consent, citing the permissive wording. UAE courts sided with the opponent and ruled the clause unenforceable.

An institution, or an ad hoc process

Parties must choose between institutional arbitration and ad hoc arbitration. Institutional arbitration, overseen by established bodies like the Dubai International Arbitration Centre (DIAC) or the International Chamber of Commerce (ICC), provides a framework of procedural rules, administrative support and enforcement mechanisms.

The institution’s administrative oversight reduces the risk of procedural missteps that can invalidate awards or delay enforcement. DIAC’s rules are tailored to the UAE legal environment. Parties engaging in cross-border transactions often benefit from the predictability and neutrality of institutional arbitration. Our international arbitration team advises clients on these options.

Ad hoc arbitration lets parties tailor their own procedures, which can be an advantage where a dispute requires a tailored process. Without institutional oversight, though, it exposes parties to risks such as procedural deadlocks, challenges in appointing arbitrators and uncertainty over enforcement. In one case, parties that opted for ad hoc arbitration without specifying clear procedural rules encountered delays and contested arbitrator appointments. That led to judicial intervention and prolonged litigation.

Parties choosing ad hoc arbitration must draft the clause precisely to address these risks. Our arbitration services include designing tailored ad hoc clauses that withstand judicial scrutiny.

The seat decides which courts supervise the arbitration

The seat of arbitration establishes the legal jurisdiction governing the arbitration procedure and the authority of the supervisory courts. The choice can influence the enforceability of the award and the scope of intervention by national courts.

With its federal structure and various free zones (such as DIFC and ADGM), the UAE offers multiple possible seats. Each has distinct procedural laws and judicial attitudes towards arbitration. An improperly chosen seat risks increased court interference or difficulties in enforcing the award.

Under UAE Federal Arbitration Law No. 6 of 2018, courts generally adopt a pro-arbitration stance when the seat is within the UAE. The DIFC and ADGM free zones, however, operate under separate legal frameworks modelled on English common law and offer more arbitration-friendly judicial environments. Choosing the seat in one of these jurisdictions can reduce court interference and enhance enforceability. Before settling on a seat:

• Assess the nature of the dispute and the parties’ preferences regarding judicial intervention.
• Consider the procedural rules and arbitration law applicable to the seat.
• Weigh the enforceability of arbitral awards under the New York Convention relative to the seat.
• Factor in the court support available for arbitrator challenges or award enforcement.

Take an international trade contract that named a seat outside the UAE, in a jurisdiction with limited treaty relations. After the arbitration, the winning party sought enforcement in the UAE. The courts refused enforcement, citing lack of reciprocity and the absence of New York Convention application to that seat.

The contract and the arbitration agreement can have different governing laws

Both governing laws must be clearly stated. The two often differ. The contract’s substantive law governs the parties’ rights and obligations, whereas the governing law of the arbitration agreement determines procedural aspects and the validity of the clause.

Precise language on governing law prevents claims that the arbitration agreement is void or unenforceable under conflicting legal principles. Specifying the law of the arbitration agreement can also defeat attempts to circumvent arbitration by challenging the clause’s validity under a different law. Our contract drafting practice prepares these terms.

In the absence of a governing law clause, courts may apply default conflict of law rules. That can lead to uncertain outcomes and potential invalidation. Omitting the seat or the governing law of the arbitration agreement creates uncertainty and can lead to protracted jurisdictional battles.

Balanced appointment terms prevent deadlock

The clause should specify the number of arbitrators and the appointment mechanism. A one-sided clause giving one party unilateral appointment rights invites disputes and challenges that can derail the arbitration. The same risk arises where a clause grants one party excessive control over appointments or fails to provide fallback mechanisms. Addressing that risk requires balanced appointment procedures with default rules.

A balanced procedure often uses an odd number of arbitrators, with each party appointing one and the appointed arbitrators selecting a presiding arbitrator. That counters power imbalances and supports fairness. In drafting the mechanism:

• Specify an odd number of arbitrators (usually one or three).
• Detail the timeline and method for party appointments.
• Provide fallback mechanisms for appointments if parties fail to act.
• Include provisions for the appointment of a presiding arbitrator by the party-appointed arbitrators or an institution.

In one joint venture agreement, the clause gave each party the right to appoint one arbitrator and the co-arbitrators the right to select the chairperson. When a dispute arose, the parties promptly appointed their arbitrators, who then selected the presiding arbitrator. The arbitration proceeded swiftly without court intervention.

Language of the proceedings and confidentiality

The language of arbitration is often overlooked, yet it can influence the efficiency and neutrality of the proceedings.

• Specify a single language for the arbitration process.
• Consider bilingual or multilingual proceedings if the parties operate in different jurisdictions.
• A language clause can head off future disputes over translation costs or procedural delays.

Confidentiality is a key reason parties opt for arbitration over litigation. Explicit confidentiality obligations in the arbitration clause or related agreements can protect sensitive information. A confidentiality provision should:

• Define the scope of confidentiality (for example, proceedings, documents and awards).
• Specify exceptions (for example, disclosure required by law).
• Set obligations for arbitrators, parties and administrators.
• Include mechanisms for breach remedies.

Mandatory provisions of Federal Law No. 6 of 2018

Failure to align a clause with the UAE Arbitration Law (Federal Law No. 6 of 2018) can render it unenforceable. Clauses that contradict mandatory provisions or do not conform to procedural requirements, for example, jeopardise enforceability.

Our commercial litigation and dispute resolution teams audit arbitration clauses to identify and rectify these pitfalls.

A compliance checklist for the clause

Each row below can be marked against a draft clause.

Compliance Element	Yes/No	Notes/Action Required
Explicit consent to arbitrate disputes		Ensure clause states “shall be referred to arbitration” or similar mandatory language.
Clear definition of scope of disputes covered		Specify types of disputes, exclusions and related claims.
Selection of arbitration institution or ad hoc		State institution name or ad hoc framework details.
Specification of seat of arbitration		Include city and jurisdiction (for example, DIFC, ADGM, Dubai).
Governing law of contract and arbitration agreement specified		Differentiate if necessary and specify clearly.
Number and appointment procedure of arbitrators specified		Detail odd number and appointment mechanism with fallback.
Language of arbitration stated		Choose operational language to avoid procedural disputes.
Confidentiality provisions included		Define scope, obligations and exceptions.
Alignment with UAE Arbitration Law (Federal Law No. 6 of 2018)		Review clause for compliance and mandatory provisions.
Inclusion of procedural rules (if institutional)		Reference rules of the selected arbitration institution.

Nour Attorneys drafts arbitration clauses for UAE contracts that address these points.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Please consult a qualified attorney for specific guidance on your situation.

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