Much ink was spilled on the matter of setting aside arbitration awards that deal with cancellation of off-plan sale and purchase contracts before UAE courts. It started with the first Ruling in Cassation Petition No 190/2011 dated 12 February 2012 where the Dubai Court of Cassation set aside the award of the arbitrator on the grounds that reliance on Article 3 of Law No 13/2008 Regulating the Interim Real Estate Register in the Emirate of Dubai to nullify a contract for sale of an off-plan unit for non-registration in the Interim Real Estate Register (“the Register”) is a matter of public policy and hence falls under the remit of Dubai courts, and consequently is not subject to arbitration.

The Court reiterated this position later in its Ruling in Cassation Petition No 14/2012 dated 16 September 2012.

However, to the relief of the arbitration circles, the Court sought to limit the application of the principle, or at least to clarify its stance, when it observed later in its Ruling in Cassation Petition No 282/2012 dated 3 February 2013 that an award declaring the cancellation of a contract for sale of an off-plan unit for non-performance of the developer of its obligations can be subject to arbitration. Nevertheless, in the Ruling in Petition No 230/2013 of October 2013 the Court added a public policy argument.
 
The Case
The background of the case concerns a purchaser of two off-plan units who obtained an award in his favour against a developer whereby he was awarded the sum of the money he had advanced on the grounds that the developer had failed to deliver the unit. The purchaser applied to the Court of First Instance in Dubai to enforce the award. The Court granted the applicant the relief sought. The developer appealed, invoking the public policy argument, and obtained a decision from the Court of Appeal in his favour which overruled the decision of the Court of First Instance on the basis that the arbitrator had decided on an issue that was not arbitrable because it dealt with a matter of public policy as provided for in Article 3 of Law 13 for 2008.

The applicant appealed to the Court of Cassation, arguing that the Court of Appeal had erred in its appraisal of the factual background when it set aside the award on the basis that the arbitrator had nullified the award for non-registration whereas the correct interpretation should have been that the arbitrator had cancelled the two contracts on the basis of the developer’s non-performance of its obligations to commence and complete construction. 

The Ruling of the Court of Cassation rectified the erroneous understanding of the facts by the Court of Appeal but it reached the same conclusion as the Court of Appeal, thus upholding the impugned judgment.

It is noteworthy that during the arbitration proceedings the applicant sought relief to annul the two contracts on the basis that they were not registered in the Interim Register (pursuant to Article 3 of Law 13/2008), but the relief was amended later after signing the terms of reference to cancellation of the two contracts for the developer’s non-performance of its contractual obligations following the developer’s tendering of an official document confirming the registration of the sale contract in the Register. The amendment of the relief was due to the developer’s submission of evidence that the two contracts were registered.

In its reasoning the Court of Cassation stated that “ … if the relief of the Claimant includes annulment of the contract for non-registration in the Interim Register, it will render the arbitration clause inapplicable pursuant to Article 203 (4) of the Civil Procedures Code ...”.

In respect of the Claimant’s argument that the relief was amended at a later stage to become cancellation of the contracts on the ground of non-performance, the Court stated that the arbitrator had discussed the issue of nullification of the two contracts for non-registration and had concluded that the two contracts were registered, which:

“indicates that the issue of nullification of the two contracts was raised before the Arbitrator … which mandates that the Arbitrator has no jurisdiction to rule over the matter and her award shall be set aside … [T]he fact that the arbitrator stated in her award that there is no need to discuss the issue of nullification of the two contracts for non-registration has no bearing as long as the issue was raised before her.”

The two salient differences between this Ruling and those in Petitions 180/2011 and 14/2012 mentioned above are:

  in the instant case the contract for the sale of the unit was registered in the Interim Register in compliance with Article 3 of Law No 13/2008, while this was not the case in the previous two rulings; 

  in the instant case the arbitrator cancelled the contract on the ground of the developer’s non-performance of its contractual obligations, while in the previous rulings the contract was nullified for non-registration of the sale contract in the Register. 
 

Conclusion
Therefore, the Court of Cassation ruled that the arbitrator’s cancellation of a contract without reliance on Article 3 of Law No 13/2008 would not grant his award blanket immunity from court review if the issue of annulment for non-registration was raised and discussed during the proceedings.

This ruling imposes another parameter for arbitrators to adhere to when reviewing similar matters, namely, an arbitrator’s cancellation of the sale contract on the ground of non-performance of obligations is not a matter of public policy and can be subject to arbitration; however it will become a matter of public policy if the issue of annulment due to non-registration pursuant to Article 3 of Law No 13/2008 is raised by the Claimant and discussed during the proceedings.

It is submitted that not any argument related to Article 3 will make the arbitration clause inapplicable; rather, it is the reliance of the Claimant on such argument that may render the clause inapplicable; for example, a frivolous defence by a defendant related to Article 3 will not affect the validity of arbitration proceedings. 

Therefore, in this Ruling, notwithstanding that the Applicant amended his relief, it would appear that the Court of Cassation took the view the lack of jurisdiction of the Tribunal was not rectified by the applicant’s later amendment of the relief sought because the Tribunal did not have jurisdiction from the outset.   
 

"Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such."

See also:

How to buy a property in Dubai

Obtaining property finance in Dubai

Cavendish Maxwell release Q2 2017 Dubai and Abu Dhabi Residential Reports