A recent Dubai Court of Cassation judgment examined this question after an unusual initiative was undertaken by the lower court to dismiss a case on account of an arbitration clause that was, nevertheless, not pleaded previously by any party.

The Facts

The Claimant was employed as an orthopaedic surgeon by the First Defendant, who was a subsidiary of the Second Defendant.

Following his dismissal from employment, the Claimant sought joint and several payment from both Defendants for labour entitlements (including salary and accrued annual leave) in excess of AED 3.2 million, an air ticket or cash equivalent of AED 5,000, costs and interest.

The First Defendant refused to make payment and the matter was referred to the Dubai Healthcare Authority as an initial step towards a potential settlement.

As this stage did not lead to an amicable resolution of the dispute, the matter was referred to the mainland Dubai Courts.

Court of First Instance and Court of Appeal

The Dubai Court of First Instance held that the claim was time-barred and the case was dismissed with an adverse costs order against the Claimant, who then appealed.

The Dubai Court of Appeal overturned the earlier judgment and held that the Claimant’s claim was in fact not time barred.

However, the same court held that the onshore Dubai courts lacked jurisdiction to hear the case, on account of an arbitration clause existing in the underlying employment contract, which nevertheless had not been pleaded by either Defendant.

The Claimant challenged this decision before the Dubai Court of Cassation and sought that it be annulled.

Court of Cassation

It was the Claimant’s position that neither Defendant had invoked dismissal of the case on the basis of the arbitration clause, hence the Court’s decision was defective and should be set aside.

The Dubai Court of Cassation considered Article 8(1) of UAE Federal Law No. (6) of 2018 on Arbitration (the “Arbitration Law”).

This provision states that:

“The Court before which the dispute is brought in a matter covered by an Arbitration Agreement, shall declare the inadmissibility of the action, if the defendant has raised such plea before any claim or defence on the substance of the case, and unless the Court finds that the Arbitration Agreement is null and void or incapable of being performed.”

The Court of Cassation concluded that a court can decline to hear a case if the defendant pleads the existence of an arbitration clause, before arguing the merits of the dispute, i.e., usually during their first court submission.

This is so, unless the court, having heard submissions on an arbitration agreement being present, is satisfied that this is void or incapable of being performed.

As for the Second Defendant, who was not the direct employer of the Claimant, the Dubai Court of Cassation further considered the general rule that third parties are not bound by other parties’ contracts, including where there is an arbitration clause.

It was established from the documents that the First Defendant did not object to the jurisdiction of the Dubai courts, whether on the basis of an arbitration clause existing or otherwise.

Furthermore, it was clear that the Second Defendant was not a party to the employment contract concluded between the Claimant and the First Defendant.

As such, the Court considered that it would be contrary to public order for the Second Defendant to be bound or affected by it in any manner.

Accordingly, the Dubai Court of Cassation vacated the Dubai Court of Appeal judgment and the case was referred back to the Court of Appeal for a reconsideration of the factual background, after all jurisdictional aspects relating to an arbitration clause had been resolved. 

It should be noted that, in accordance with common UAE judicial practice, the Court of Appeal acts as a platform for a complete rehearing of a case on the facts, rather than an appeal on strictly legal issues, as is the Court of Cassation.

Discussion

This is a case of an unusual initiative taken by the court to raise, itself, the existence of an arbitration clause as a reason to stay proceedings.

This was so, at a later stage of the proceedings (Court of Appeal) and in circumstances where the First Defendant, who had a vested interest to do so, had nevertheless omitted to raise any jurisdictional defence.

Under Article 8(1) of the Arbitration Law, the defendant would be deemed to have irrevocably waived the arbitration clause, if this is not raised by the said defendant at the earliest opportunity, usually at its first court attendance or written submission.

In this judgment, the Court of Cassation confirmed that this principle cannot be circumvented by the court interfering in what is a strictly contractual process solely between the parties in dispute.

Those parties may very well opt to silently disregard any prior contractual agreement to arbitrate their dispute and tacitly agree to, instead, litigate.

It would then not be for the court to identify their prior contractual agreement and impose this upon them, against their will and in the absence of any relevant submission on their part.

In any event, in this particular instance, the reference to the arbitration clause was also made far too late by the Dubai Court of Appeal and therefore in breach of the statutory provision of Article 8(1) of the Arbitration Law, requiring an early referral to an arbitration clause/agreement.

As is often the case, the position on this, and in most legal issues, was eventually rectified by this helpful decision of the Dubai Court of Cassation.