LexisNexis

Arbitration clauses and payment orders: practice of UAE courts

Friday 4 March 2022

Nayiri Boghossian
Al Owais Advocates and Legal Consultants, Dubai
nayiri@alowaislegal.com

​​​​​​​Introduction

​​​Over the last couple of years, payment orders became very popular in the United Arab Emirates (“UAE”). This article examines how and when a party can apply for a payment order and how the UAE courts deal with such application when the parties have concluded an arbitration agreement. 

Payment Order Proceedings

The Civil Procedures Law No. 11/1992 (“CPL”) was amended through Cabinet Resolution no. 57/2018 issuing the Executive Guidelines of the CPL[1] (“Guidelines”). The Guidelines provide for a procedure called “payment order”. The payment order has always existed but it was very narrowly implemented as it was almost exclusively applied to cheques.[2]

According to Articles 62 and 63 of the Guidelines, a creditor may apply for a payment order if the debt is established in writing and is due. The debt should be a specific amount of money or a movable defined in kind and quantity. The application is ex-parte and a decision should be rendered within three days. Although the decision is not final, this route remains a very swift and a low-cost process.[3] Hence, its popularity amongst clients. This is particularly useful under the current circumstances where a lot of businesses are financially under strain and would be reluctant to engage in full-fledged proceedings and incur litigation costs. 

Since its implementation, the payment order process has been widely implemented by the courts. Dubai courts have issued payment orders simply on the basis of invoices and sometimes on the basis of statements of account provided often (but not always) there is an acknowledgment of the debt by the debtor. 

What if there’s an arbitration clause? 

If the parties have concluded an arbitration agreement, a question arises about whether the courts would uphold the arbitration agreement. Another question is when and how the courts will become aware of the arbitration if the proceedings are ex-parte

The payment order process assumes that the debt is not under dispute. This is so because the Guidelines require that the debt be established in writing and be due. Consequently, one can argue that there is no dispute around the existence of the debt. Given that an arbitration clause is an agreement on how to settle a dispute, the arbitration clause should not come into play. In other words, if there is no dispute, there will be no need to arbitrate and the creditor should be able to seize UAE courts through the payment order procedure. This logic is reinforced by the fact that the Guidelines require that the debt be a specific amount of money. As a result, there is no need for the forum, be it courts or arbitral tribunals, to assess or quantify the debt. 

Additionally, if the proceedings are ex parte, the creditor does not have to produce the arbitration agreement included in the contract between the parties. The creditor should only submit documents that prove the debt such as an acknowledgment of the debt. In such circumstances, the judge examining the application will not become aware of the arbitration clause. At the appeal level, the case turns into full-fledged proceedings (although it remains swifter than usual proceedings) and the debtor would produce the agreement containing the arbitration clause. 

How are the courts reacting?

In a decision rendered in 2020, the Dubai Court of Appeal dismissed the application for a payment order filed by a sub-contractor in a claim against the main contractor for an amount exceeding twenty-four million dirhams on the basis of the arbitration clause. The contractor produced the contract between the parties which included the arbitration clause and the Court of Appeal dismissed the sub-contractor’s claim. The Court of Appeal did not engage into an analysis on whether a dispute indeed exists or not. It simply relied on Article 8 of the Federal Law no. 6 year 2018 on Arbitration  (“Arbitration Law”). Article 8 requires the court to dismiss a claim brought before it when the parties have concluded an arbitration agreement and the defendant invokes the arbitration agreement (Dubai Court of Appeal Case no. 3228/2019 Commercial).

In another decision rendered in 2020, Abu Dhabi Courts issued a payment order for a claim filed by a consultant against a contractor for an amount exceeding seven million dirhams. In its application for payment order, the consultant did not produce the agreement with the contractor which included the arbitration clause. The court issued a favourable order, which was not appealed by the contractor. Hence, the court was not made aware of the arbitration clause and the decision became final (Abu Dhabi Case no. 645/2020 Payment Order). 

Similarly, in a decision rendered by the Dubai Court of Appeal in 2021, the creditor which was a chain of hotels obtained a payment order against a tour operator although an arbitration clause existed in the contract between the parties. Although the debtor had the opportunity to produce the contract before the Court of Appeal and invoke the arbitration clause, the debtor did not do so. Given that the Court of Appeal was not made aware of the arbitration clause. The creditor obtained a payment order. (Dubai Court of Appeal Case no. 795/2020 Payment Order).

Concluding remarks

Payment orders will continue to be used by parties and clients will prefer to use the swift route of payment order proceedings as opposed to usual proceedings. Practitioners advising their clients will need to think through the question of how to deal with an arbitration clause in the context of payment orders. It is clear from the reviewed cases that the arbitration clause will not necessarily come to light in which case an application for a payment order could be successful. But this is not guaranteed. Should the arbitration clause be invoked, it appears that the court will dismiss the application for a payment order. The client and the practitioner should think through these issues and take a decision on how to proceed. 
 

[1]The Guidelines were further amended by Cabinet resolution no. 33/2020 and resolution 75/2021.

[2]The key amendment made to the relevant provision of the law was to expressly state that the payment order process can be used to enforce a commercial contract. On these bases, the courts expanded the scope of application of the payment order procedure.

[3]The decision can be challenged either through filing a grievance or an appeal depending on the amount involved. In the case of grievance, the decision rendered is final.