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October 2006

Construction
Law UAE
Introduction Our third feature entitled The UAEs Accession to the New
York Convention: worth the wait? highlights the implications
This, the first edition of Construction Law UAE, looks at three of the recent accession by the UAE to the New York
issues which have emerged from the white heat of the UAEs Convention on the enforcement of foreign arbitral awards.
construction market. The UAE construction market, although not yet as litigious as
many, will need to consider whether these new developments
First, is the market too hot for traditional lump sum make UAE arbitration more, or less, of a mugs game.
turnkey procurement? With most mega-schemes
half-completed before the design and specification The aim of Construction Law UAE is to stimulate debate. Please
are finalised, could the market benefit from a move take the time to email your thoughts and comments on what
towards cost reimbursable guaranteed maximum price we have said. We would like to publish the best responses. So,
contracting? We look at some of the pros and cons of this when emailing, please indicate if you are unwilling for us to do
approach in UAE: Time for GMP Contracting? so. In future editions we hope to feature guest contributions
from our readers. Please let us know if you would like to be
Second, claims. The FIDIC Fourth Edition remains the contract a guest contributor. Please contact Di McCleland on 04 405
form of choice in the UAE. One of its advantages, of course, 4150 or, alternatively, email her at
is the flexibility it allows for instructing and valuing scope di.mccleland@dentonwildesapte.com.
changes and the consequential re-scheduling. On the other
hand, its antiquated and obscure language can make the Denton Wilde Saptes UAE construction group includes lawyers
meaning of key provisions hard to pin down. This is particularly with many years experience negotiating and concluding major
the case where notice procedures are to be complied with works contracts and handling all kinds of dispute resolution,
as a precursor to claims for additional time and money. How claims and advisory work in the UAE, across the Middle East
should these sometimes imprecise and conflicting provisions and throughout the developed and developing world. We are,
be understood, particularly when read in the light of relevant in Abu Dhabi: Alistair Hirst and Steven Tee; in Dubai: David
articles of the UAE Civil Code? In I thought youd never notice: Courtney-Hatcher, Michael Kerr, Ravinder Bhullar, Andrew
The UAE Civil Code and Claims under the Red Book we Chegwidden, Ashley Hill, Nick Kramer and Matthew Blycha.
suggest some answers.
UAE: time for GMP Contacting? The incentives usually arise by agreement of a target cost
sometimes an evolution of the GMP agreed between the
Clients who ask us to help them draft forms of guaranteed parties when the design has become sufficiently frozen. In
maximum price (GMP) contracts, have a variety of reasons for other words, once the design target is no longer moving, the
their decision to contract on this basis. Fixed price lump sum target cost can be fixed.
contracting, they point out, assumes that the design will be
more or less complete at the time the contract is signed. The The target cost will work in conjunction with a pain/gain share
Contractor will have had time to assess the buildability of regime. So, if actual cost is lower than target cost, the cost
the project, to organise his supply chain and sub-contractors saving is shared on a pre-agreed percentage basis. If on the
and generally to have satisfied himself that the job can be other hand actual cost exceeds target cost, the cost overrun is
completed at a profit, for the contract price and within the only shared between by the Developer and the Contractor to
contract time. the extent of the pre-agreed percentage, with the Contractor
retaining the risk of all cost overruns above the GMP.
In the UAE, of course, precisely the opposite is usually the case.
First, the price and programme are fixed against an outline The advantages are obvious. In order to earn their shares of
design, then a contract of some kind - often just a letter the cost savings or minimise their shares of the cost overruns,
agreement - is signed. Only after that is the design developed both parties will need competent project management,
to a level of detail which enables the Contractor to see exactly efficient design development and drawing issue, tight sub-
what he has committed himself to. The result, not surprisingly, contract procurement and supply chain management and
is a book of variations which quickly runs out of control and a elimination of waste.
completion date without basis in reality.
So much for the underlying principles: what about the
There are signs that the UAEs major developers are starting to practice? Some alarming consequences have resulted from
realise that they cant have it both ways. Fixed price and fixed the unshakeable belief, still widespread in the UAE, that any
time mean fixed workscope. If, on the other hand, an instant construction contract should be drafted using the FIDIC Red
start on site really is essential, with construction following hard Book (4th Edition) as its basis. A quick glance should satisfy
on the heels of design development, a procurement method even FIDICs most loyal users that it cannot easily be adapted
which is more flexible than the rigid fixed price lump sum for use as a GMP/cost reimbursable/target cost contract.
approach is needed. A number of suitable standard form contracts have been
published. These include the UKs JCT Prime Cost contract, the
For these reasons, the UAEs construction industry is seeing NEC Option C, D and E and the ICHEME Green form but none
increasing numbers of contracts awarded on the basis of a of these seems yet to have found favour in the UAE.
GMP. The advantage of GMP contracting, if properly used,
is that it facilitates an early start on site without sacrificing You should, therefore, consider using one of these forms as
reasonable price certainty. It incentivises the Contractor to the basis for your GMP/target cost contract, rather than FIDIC.
be efficient and the Developer to ensure that his design team Or, if you decide to go bespoke remember you will need a
sticks to the design development programme. contract which covers at least the following:
a way of fixing the target cost (if not already fixed in the
So, how does GMP contracting work? Typically, the Contractor contract);
bids against the Developers preliminary or outline design and
specification and the parties agree a guaranteed maximum the criteria for adjusting the GMP and/or the target cost
price. Interim payment valuations are made on an actual and a procedure for agreeing or fixing those adjustments;
cost, open-book basis. The categories of reimbursable costs what will constitute changes in the original scope, sufficient
- labour, materials, plant and sub-contractors are pre- to justify increases in the GMP and/or target cost?
agreed. There is a fee, either a lump sum or a percentage
of the reimbursable cost, to compensate the Contractor for the admissible categories of reimbursable costs;
overheads, profit and preliminaries. As the design develops, how is the fee calculated and what does it include and
often with the benefit of the Contractors suggestions on exclude?
buildability, the GMP remains fixed, subject only to adjustment
in case of major scope or design concept changes, or the usual which cost components are fixed at the date of the
Employers risk events. contract and which are subject to escalation?
how will the advance payment, if any, be apportioned not strictly adhered to by the Contractor, the claim will be dead
between cost and fee? in the water - in other words, the Engineer may be entitled to
reject the claim outright. Building and civil works contracts in
what compensation is payable upon termination? and so
the UAE are generally governed by UAE law and hence the
on.
UAE Civil Code (the Civil Code) will apply. This article considers
To conclude: GMP/target cost arrangements may be part of how, when express notification procedures are read in the light
the answer to the time/cost/scope tensions which are part of applicable provisions of the Civil Code, a more moderate
and parcel of the UAEs fast-track mentality. These contracts and fair outcome may emerge.
can be written simply and clearly but FIDIC, particularly the
modified version of the FIDIC Red Book (4th Edition) which is
still widely used in the UAE, is not the place to start.
Entitlement to Claim
The Red Book provides that in certain circumstances a
Contractors entitlement to claim may be lost if he fails to give
notice of his intention to claim or fails to provide detailed
claim particulars within the timescales prescribed. There
I Thought Youd Never Notice: are two provisions of the Red Book which state that a failure
to comply with the specified notice or particularisation
The UAE Civil Code and Claims procedures for making a claim will justify the rejection of the
claim.
under the Red Book
First, Clause 44.2, which is concerned with applications for
FIDIC in the UAE extensions of time. This clause provides that in case of non-
For all its innovation and spectacular achievements, the compliance with the time limit to provide notice and/or to
construction industry in the UAE has been slow to move on from provide detailed claim particulars, the Engineer is not bound
its close relationship with the FIDIC Red Book (4th Edition) (the to make any determination of a claim for an extension of
Red Book). This was, of course, superseded long ago and it is time. The Engineer, therefore, has a discretion not to make
scarcely used anywhere else in the world, outside of this region. a determination if either the time limit for notice or for
particularisation is not met.
The Red Book provides a number of notoriously tricky
procedures for claim notification and particularisation to be Second, Clause 52.2, which applies to applications for payment
followed by the Contractor. They are not sharply drafted and for variations. This clause states that the varied work will not
their meaning and intent are not always clear. However, it seems be valued unless notice of an intention to claim extra payment
to be implied in some cases that if these procedures are is made within 14 days of the date of the instruction. Strictly
construed, this clause allows for a claim to be disallowed if the
14 day time limit is not complied with.


Clauses which expressly provide procedures for claim notification and
particularisation are:
6.3 Notice of delay or disruption in case of delayed information or
instructions;
12.2 Notice of adverse physical obstructions or conditions;
30.3 Notice of damage to any bridge or road due to the transport of
Materials or Plant;
38.1 Notice of when any part of the Works or foundation is ready to be 
There is no prescribed form of notice. Clause 1.5 of the Red Book
covered up (compliance required for 38.2 to apply); states that notices must be in writing and that the word notify is to
40.3 Notice requesting permission to proceed with work after a suspension be construed accordingly. As such, there is no reason why a monthly
lasting more than 84 days (compliance required for 51.1 to apply); report, for example, could not be construed as a notice. However, it
42.1 Notice containing reasonable proposals regarding access and would be prudent for the Contractor to make two things clear. First,
possession (compliance required - arguably - for 42.2 to apply); that the written information is intended to be a notice under the
contract. Second, the clause under which it is given - this will include
44.2 Notice of an application for an extension of time; in every case at least Clause 53.1or Clause 44.2.
52.2 Notice to claim additional payment for varied work; 
The Red Book is silent as to what constitutes detailed particulars.
53.1 Notice to claim additional payment under any clause of these This will vary case-by-case. It would be good policy, wherever possible,
Conditions or otherwise; for the Contractor to invite the Engineer to confirm that he is satisfied
with the detail provided, or if not, to say so.
65.5 Notice of increased costs arising from Special Risks; and 
Please note that Clause 53.1 states that, notwithstanding any other
69.4 Notice of suspension by the Contractor due to non-payment by the provision of the Red Book, all claims for additional payment under
Engineer. the Red Book require 28 days notice from the date of the event giving
These clauses stipulate a range of notice procedures. There are some slight rise to the claim. This would appear to extend the shorter requirement
differences between them. In any case, Clause 44.2 and/or Clause 53.1 of 14 days under Clause 52.2. We would suggest, however, that the
apply to all of them. Contractor should comply with the 14 days notice period.
The Civil Code the Contractor, Engineer or Employer. Contractual provisions
If the Engineer feels inclined to reject an otherwise meritorious which appear to have drastic consequences as written in the
claim solely by reason of non-compliance with strict Red Book (or in any other standard form contract which may
technicalities of the notification procedures it is important for be used in the UAE) may, in fact, have a modified or different
him to consider the provisions of the Civil Code, which might effect when read together with applicable provisions of the
have a bearing on the issue. Civil Code.

For instance, the Civil Code makes clear that neither party
to a contract should act in bad faith. Article 246 states that
contracts must be performed in a manner consistent with
the requirements of good faith. This could apply, for example,
The UAEs Accession to the
where a Contractor points to information given in agreed
minutes of a meeting or a periodic report as written notice
New York Convention: worth
of an intention to claim, as required by the Red Book. If, the wait?
as is sometimes the case, a question arises as to whether
information in a formal minute or a written report is strictly The UAE has ratified the Convention on the Recognition and
written notice, consideration of good and bad faith may, as a Enforcement of Foreign Arbitral Awards, know as the New York
matter of UAE law, be relevant. The Contractor may argue, in Convention (the Convention). The date of the UAEs accession is
such a case, that the Employer and the Engineer have actually likely to be soon. The UAE will then join the 137 states which have
been notified of the existence of the claim, in a written form, already acceded.
within the stipulated time period and, as such, the purpose of
the notification provision has been fulfilled and that it would be Until now the UAE has had only limited arrangements for mutual
an act of bad faith not to accept this. recognition and enforcement of foreign arbitral awards: various
treaties with states in the Gulf, the Middle East and North Africa
The Civil Code also states that neither party may exercise its as well as France and India. Those treaties resulted in easier
rights under a contract in a manner which is oppressive or enforcement in the UAE of awards made in those states (and vice
abusive to the other. Article 106 says that the exercise of a versa), but enforcement of awards from non-treaty states was
right shall be unlawful if, among other things, the interests subject to scrutiny by the UAE courts under local laws. This not
desired are disproportionate to the harm that will be suffered only involved burdensome procedural requirements but also an
by the other party. Thus, if an otherwise valid and meritorious often lengthy court process. That said, even the enforcement of
claim is disallowed solely by reason of purely technical breach purely domestic awards in the UAE is not without its difficulties.
of a notice provision, this may well be unlawful, especially if the
likely financial harm to the Contractor is disproportionate to With the UAEs accession to the Convention, enforcing foreign
the interests in upholding the Employers contractual right to awards from Convention states is likely to become easier. Subject
receive timely notice. to any reservations the UAE makes when it accedes, the UAE
courts will then be required to recognise awards made in other
Furthermore, Articles 318 and 319 of the Civil Code provide Convention states as binding and to enforce them under the
that unjust enrichment is unlawful. If, for example, the Engineer conditions outlined in the Convention. The grounds for objection
rejects a claim for additional payment for varied work purely are limited: mainly, lack of arbitral jurisdiction or procedural
on the grounds that the time limit for notice has not been met, unfairness during the proceedings.
it could, as a matter of UAE law, be the case that the Employer
has been unjustly enriched by benefiting from additional work But what practical impact will this have for the UAE construction
while seeking to avoid payment by relying on a procedural industry? Probably not much. It remains the case that only a
technicality. Consequently, the claim may succeed in the eyes very small number of UAE construction disputes reach a formal
of UAE law even if the notice procedures were not complied dispute resolution process. In such cases the UAE construction
with. industry still tends to prefer a domestic arbitration process.
Dubai government bodies are in any case bound to do so by the
Law of Contracts of Government Departments in Dubai 1997.
Comment It is a very rare contractor who, when tendering for a project in
This article highlights only a few examples of how the Red the UAE, will even consider negotiating different terms for the
Book, when read in the context of the applicable provisions dispute resolution clause (eg. foreign venue, international rules
of the Civil Code, might not have the meaning, or at least the etc.). The UAE construction industry therefore remains far more
effect, suggested by the express words used. There are, of likely to generate domestic UAE awards than foreign ones. The
course, numerous other provisions of the Civil Code which are Convention is, of course, no help in relation to domestic awards: it
likely to be relevant and must be considered when advising applies only to foreign awards.
So, does the UAEs accession to the Convention offer any real For further information, please contact:
benefits to the UAE construction industry at all? The answer,
perversely, may be yes, but only if the UAE construction David Courtney Hatcher
industry is prepared to consider opting for foreign arbitration T +971 4 3310220
venues. These would then generate foreign awards. The F +971 4 3310220
obvious benefit is that the Convention would then apply. david.courtney-hatcher@dentonwildesapte.com
Enforcing a foreign award in the UAE under the Convention
may be considerably easier and quicker than enforcing a Michael Kerr
domestic award. Moreover, a party with the benefit of a T +971 4 3310220
UAE award may find it easier to take that award to another F +971 4 3310220
Convention state than to face the hurdles and uncertainties michael.kerr@dentonwildesapte.com
associated with enforcement in the UAE.
Alastair Hirst
These are peculiar and, presumably, unintended T +971 2 6266180
consequences. F +971 2 6266175
alastair.hirst@dentonwildesapte.com
Perhaps the imbalance between these legal regimes will be
corrected in time, leading to a more uniform approach towards
ratification of domestic and foreign awards.

At the time of writing, the full text of the instrument of


accession has yet to be released. This may confirm, among
other things, whether awards made before ratification or
accession will be enforceable under the Convention and
whether the UAE has made any reservations regarding
enforcement of awards. These may include only enforcing
awards which are made in other Convention states and/or
which relate to disputes which are commercial in nature.
The ratifying decree does not contain any reference to
reservations. We hope to be able to address these questions in
our next edition.

2006 Denton Wilde Sapte, unless otherwise indicated. All information correct as at time of printing. Consistent with our policy when giving advice on a non-
specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of a specific problem we recommend that you seek
professional advice.

With effect from 1 November 2006 any references to Denton Wilde Sapte should be taken as referring to Denton Wilde Sapte LLP.
The term partner is used to refer to a member of Denton Wilde Sapte LLP or an employee or consultant with equivalent standing and qualifications.

Denton Wilde Sapte & Co


Denton Wilde Sapte & Co Legal Consultants
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Sheikh Zayed Road Hamdan Street info@dentonwildesapte.com
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United Arab Emirates United Arab Emirates
PU18490 09/06

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Law of Tort in the UAE
COMPANY PROFILE

Al Tamimi & Company is the largest independent law firm in the United Arab Emirates, with offices in Dubai, Abu Dhabi,
Sharjah, Dubai Internet City and Doha, Qatar.

The Firm acts in the all areas of business law, and provides specialized legal services in the fields of shipping, construction,
property, commercial and Islamic banking, project finance, intellectual property, information technology, media law,
arbitration and local and foreign litigation matters.

The Al Tamimi & Company team is comprised of qualified and experienced lawyers from the UK, North America, Europe,
South Africa, the UAE, Iraq and other Arab countries.

Our clients depend on our proficiency in local and regional laws. Within the UAE we enjoy long established contacts within
the public sector, and regularly confer with government departments and ministries, with respect to new legislation and
regulations. Such local contacts and regional knowledge greatly assist our private sector clients and the international
corporations that represent the majority of our client base.
TABLE OF CONTENTS

1 INTRODUCTION TO THE LAW OF TORT IN THE UAE LAW ........................................... 1

2 LIABILITY FOR TORTIOUS ACTS ....................................................................................... 2

3 DAMAGES IN TORT CASES ............................................................................................... 4

4 CRIMINAL ACTS.................................................................................................................. 5

5 TIME LIMITATIONS ............................................................................................................. 6

6 DEATH ................................................................................................................................ 7

7 MINORS .............................................................................................................................. 8

8 THIRD PARTIES ................................................................................................................... 9

9 MISCELLANEOUS CASES .................................................................................................. 10

10 DAMAGES IN TORT & CONTRACT.................................................................................. 11


(1) INTRODUCTION TO THE LAW OF TORT IN THE UAE LAW

What does Tort mean in UAE Law?

A tort in UAE law is a civil wrong resulting from an act or omission that has caused injury or loss to a person or to property,
regardless of whether or not the act or omission constitutes a crime or is caused by a breach of contract. Tort is recognised
in UAE law under Articles 124 and 282-298 of Federal Law No.(5) of 1985 (as amended), the Civil Code. Articles 124 and
282 read as follows:

Article 124

"Personal obligations or rights shall arise out of dispositions, legal events and the law, and the sources of obligation shall be
as follows;

1. contracts;
2. unilateral acts;
3. acts causing harm (tort);
4. acts conferring a benefit; and
5. the law"

Article 282
"Any harm done to another shall render the perpetrator, even if he is a minor, liable to make good the harm."

These articles form the basis of the Law of Tort in the UAE.

1
(2) LIABILITY FOR TORTIOUS ACTS

Who will be responsible for a tortious act?

The person who commits a tortious act (i.e. the tortfeasor) will be the person responsible for compensating the injured party
by paying damages for the loss caused, whether for personal injury or damage to property.

When will a person be liable in tort?

A person will be liable in tort if he has committed an act or omission which has directly resulted in loss or damage to another
person.

Is it necessary for the resulting loss to have been intended, for a person to be liable for a claim in tort?
It is not necessary to prove that the person responsible intended to cause loss in order to establish liability in tort. It is
sufficient for the party claiming compensation to show that the person who committed the act or omission violated a legal
obligation to take reasonable care, whether intentionally or not.

Would a person be liable even if the loss was caused by force majeure?

Article 287 of the UAE Civil Code states, if a person proves that the loss arose out of an extraneous cause in which he played
no part such as natural disaster, unavoidable accident, force majeure, act of a third party, or act of the person suffering loss,
he shall not be bound to make it good in the absence of a legal provision or agreement to the contrary.

If a person is able to show that the loss was caused by circumstances outside that persons control (such as those listed in the
Article) that person would not be held liable, unless of course there existed a prior agreement between the parties to the
contrary.

Would a person be liable to pay damages, if the loss resulted from an act of self defence?

A person who acts in order to defend himself, his family, his property or other individuals and their property, shall not be
liable to pay damages, provided that the act committed and the loss caused was the result of a necessary response to the
situation and was not excessive under the circumstances (Article 288, UAE Civil Code).

Would a person be liable for damages even if he was ordered to carry out the act or omission?

A person who carries out a tortious act will be held personally liable even if he was told to do so by another person. For
'force' to be a mitigating factor, it must be of a type that compels a person against their will to commit the act or omission.

However, an officer working in a government department or in public office would not be held liable for carrying out an act
or omission that caused loss to another person if, by so doing, he was complying with an order given to him by his superior
and was therefore obliged to comply with such an order by virtue of his employment at the time. In this case the act or
omission is legal and permissible provided that he has taken due care in the matter. However, the government department
concerned may itself be liable if a tort has been committed.

Would a person be liable to pay damages even if another person had contributed to the loss?

Article 240 of the UAE Civil Code states that, it shall be permissible for the judge to reduce the level by which an act has to
be made good, or to order that it need not be made good, if the person suffering harm participated by his own act in bringing
about or aggravating the damage.
2
In such cases each person would be liable to compensate the other to the extent of the loss he had caused. Further, if a person
caused or contributed to the loss by his own act of omission, he may not be awarded damages or the damages may be
reduced proportionately.

In the case of loss caused by more than one person, who would be liable to compensate for the loss?
In the event of loss caused by more than one person, each person shall be liable to the extent of the loss caused by their act.
However, the court may order all persons found liable to pay damages jointly and severally.

3
(3) DAMAGES IN TORT CASES

How are damages normally assessed?

Damages are generally assessed according to the extent of the loss suffered by the injured party, including, for example,
material damages and future earnings always provided that the loss was the direct result of the tortious act.

How does UAE Law treat consequential loss?

Article 283 (1) of the UAE Civil Code states harm may be direct or consequential.

Article 283 (2) states that if the harm is direct, it must unconditionally be made good, and if it is consequential there must
be a wrongful or deliberate element and the act must have led to the damage.

Article 283 (2) distinguishes between damages payable for direct loss and damages payable for consequential loss. All
loss of profit and consequential loss requires a malicious element to be present, and this has been interpreted by the Dubai
Court of Cassation as requiring a stronger element than negligence. The claimant is required to prove a malicious element
on the part of the defendant at the time the tort was committed, which may be a difficult burden of proof to discharge.

Would a person be entitled to moral as well as material damages?

It is possible for a person to make a claim for moral damages. These may include violation of a persons freedom, dignity,
reputation, social or financial status.

How is the amount of damages assessed?

Damages are normally assessed by the UAE courts in terms of financial compensation. And a judge at the execution court
stage may order the liable party to provide a guarantee in order to secure payment. However, a judge may, in some
circumstances, order the responsible party to rectify the situation or to carry out certain acts by way of compensation.

Would it be possible for parties to agree to exempt each other from compensation for wrongful acts or to limit the amount
of compensation payable?

It is prohibited under UAE law to enter into agreements which exempt the payment of compensation resulting from a wrongful
act and any agreement to this effect would be declared by the Courts null and void. However, it is permissible for parties to
limit compensation to a certain amount or to a specified remedy, provided that such agreement does not violate an existing
law, regulation or public policy.

There have been Court of Cassation judgments which have indicated that a party cannot claim in both contract and tort if the
party has a contractual relationship with the tortfeasor. There have also been contradictory judgments indicating the opposite.
The current theory is that a claim can be brought in both or either.

Would a person be liable to pay for the whole value of an affected item even if the loss was minor?

If the loss is minor and the item or the affected part of the item is replaceable, the person liable will only have to pay the cost
of restoring the item to its previous condition or for the replacement value of the item. However, if the loss or damage cannot
be rectified, the person liable must pay for the full value of the goods or materials. In cases where a person has paid damages
or replaced the affected items, he is entitled to take the affected goods as consideration for the amount paid.

4
(4) CRIMINAL ACTS

Is it necessary in a claim under tort that the party responsible be found guilty in criminal proceedings?

Criminal and civil jurisdiction are entirely separate in UAE law.

Not every wrongful act constitutes a crime under the criminal law in force in the UAE. Therefore, a person may be found
liable in tort, without being convicted in the criminal (or traffic) courts. It follows that even if a person is found innocent in a
criminal action, he may still be liable for any loss caused by his act or omission under tort in the civil courts. In terms of
evidence however, it may be difficult to prove fault or mistake if the Prosecutor has not been able to establish guilt in the
criminal proceedings.

What is the significance of a guilty verdict in a criminal court to a subsequent claim for damages in tort?

If a wrongful act committed by an individual constitutes a crime under the UAE Federal law No. 3 of 1987 (the Penal Code)
or UAE Federal Law No.21 of 1995 (the Traffic Act), any guilty judgment delivered by a criminal court will be useful in a
subsequent civil claim in tort. Because the guilty judgement will be considered conclusive evidence to show that the person
has committed the act, enabling the other party to use this as evidence to claim damages in the claim in tort.

When would a person be prosecuted in a criminal court for a wrongful act?

If the wrongful act amounts to a crime as specified in the Penal Code, the Traffic Act or any other legislation, a person may
be prosecuted for that wrongful act and may be either fined or sentenced to imprisonment. This is, of course, without
prejudice to the rights of the person who has suffered loss as a result of the act to claim damages through the criminal
proceedings or by filing a separate civil action in tort.

5
(5) TIME LIMITATIONS

When would a claim in tort be time barred?

Any claim in tort will be time barred three years from the date that the person who suffered the loss became aware of the act
or omission of the identity of and the party who was responsible for it. However, if the act constitutes a crime and the criminal
case is still pending before the court even after the lapse of three years, the time will be extended until the date on which the
criminal case is determined.

In the case of other specific laws, the time bar period can be more or less than three years depending upon the act or omission
involved. In Federal Law No.26 of 1981 (the Maritime Code for example, claims for compensation arising out of a marine
collision are time-barred after two years from the date of the incident.

6
(6) DEATH

What would be the compensation payable in tort for causing death to another person?

A person who causes death to another person, whether intentionally or accidentally and without prejudice to any other
criminal proceedings that may be brought against him, will be liable to pay Dhs.200,000 in diyah (blood money) to the
heirs of the deceased. Diyah will only be payable if the person who caused the death is found guilty under criminal
proceedings or liable in tort for committing a wrongful act or omission.

Is diyah compensation or a punishment under UAE Law?

Diyah is compensation that is payable by an individual who has committed an act or omission, which led to a persons death.
However, it is also applied as a form of punishment and as a means of protecting the rights of the heirs of the deceased.
Therefore, it is not required that the heirs of the deceased bring an action in tort for damages in order to be awarded diyah.
The judge presiding over the criminal proceedings may award the diyah when pronouncing a guilty sentence on a defendant
(or defendants).

Can the heirs of the deceased claim diyah in addition to other compensation or is their claim limited to diyah only?

It is unclear in UAE law if the heirs of a deceased person may claim additional compensation if they have been awarded
diyah. Article 299 of the Civil Code states clearly that if diyah is payable, compensation for harm will not be payable, unless
there is an agreement to the contrary. The Dubai Court of Cassation has handed down various judgments on this point, the
last of which however indicates that a party can be found liable in the civil courts for tortious damages despite having already
paid diyah.

Would the diyah awarded as compensation for a deceased male be equivalent to that awarded for the death of the deceased
female?

The diyah payable for a deceased female in all the Emirates and in the UAE Federal Courts is the same as that payable for a
male.

Can a claim for diyah be time-barred?

The Dubai Court of Cassation has held that diyah must be paid by the person who is charged with causing the death and the
obligation to pay it cannot cease unless it is either paid or the allegedly responsible party is acquitted. There is therefore no
time-bar for a diyah claim.

7
(7) MINORS

Would a minor be liable to pay for loss caused to another party?

Persons under the age of 16 are regarded as minors under UAE Law. Minors, however, are liable to pay for loss caused to
another person in tort. Compensation will be paid from their own money or from the money of their guardian. Article 313 of
the Civil Code may render a guardian liable for the acts committed by the tortfeasor if he is a minor or requires supervision.

8
(8) THIRD PARTIES

Would a person who has goods under his custody be liable to compensate for loss?

A person who has goods or materials under his custody (i.e. a baillee) has a duty to take care of those goods and to return
the goods to their owner in good condition, and therefore would be liable to pay the owner of the goods for any loss or
damage.

Would a person be liable to pay damages on behalf of another person who had committed a tortious act?

Normally, a person would not be liable to pay damages or compensation for the act or omission of another person. However,
under UAE law, the following persons would be liable to pay damages for the act or omission of another person:

(a) A person who has under law, or by an agreement, a duty to supervise another person because he is minor and/or suffers
from a mental or physical illness or condition. Unless he proves that he has carried out his duties with proper care and
diligence and that the damages were inevitable notwithstanding the required care; and
(b) A person who has an actual duty to supervise and guide a person who has committed the tortious act or when the act or
omission was committed by an employee in the course of his employment.
(c) However, in both the above instances, the person who paid the damages may have a claim against the person who has
actually committed the tortious act.

9
(9) MISCELLANEOUS CASES

Would a person be liable for loss caused by animals in his custody?

A person who has an animal in his custody, whether he is the owner or not, has a duty to control the animal and shall be
liable for any loss caused by the animal to another party.

Would a person be liable for loss suffered from the collapse of a building?

The owner of a building, or the manager, shall be liable for any loss caused to another person due to the collapse of the
building, unless he could prove that he was not at fault and had taken all due care as required of him by law.
Would a person be liable for loss caused by material or machinery?

If a person has, under his custody, objects or machinery that require special care, he will be liable for any loss such objects
or machinery may cause to another person.

Would a person who, in the exercise of his legal rights, causes loss to another, be liable to compensate for such loss?

The exercise of legal rights is limited by the understanding that the exercise of such rights should not cause loss to others.
Therefore, if any person in the exercise of his legal rights causes loss to others he will be liable to compensate them, if the
act was intentional or excessive in the circumstances, or committed in bad faith.

When is an act or omission considered illegal or harmful?

An act will be considered illegal or harmful if it is committed by illegal means or in violation of the following:

1. If a person has caused loss intentionally.


2. If what was intended to be gained from the act is contrary to the principles of Sharia or public policy.
3. If the right which a person is seeking is limited in relation to the excess of loss which has been caused.
4. If a person has acted contrary to usage or custom.

Unless one of the conditions above is met, a person will not be responsible for loss caused to another person.

10
(10) DAMAGES IN TORT & CONTRACT

What is the difference between a claim for damages in contract and a claim for damages in tort?

A claim for damages in tort is founded upon a breach of a legal obligation by a party that causes loss to another. A claim for
damages in contract is founded upon a breach of a contractual obligation by one party under the terms of that contract.

Can someone who is a party to a contract claim damages from the other party in tort as opposed to claiming damages for
a breach of contract?

It is possible under UAE law for a party to a contract to claim damages under the contract or in tort. Therefore, if a claim in
tort would be more beneficial to the claimant, he may choose to pursue a claim in tort. (of course, not all breaches of contract
will amount to a tortious act.). However, judgements on the point are contradictory as one judgement has been handed down
by the Dubai Court of Cassation ruling that a party cannot claim in the alternative in both contract and tort. Therefore, the
position is still somewhat unclear.

Is there a limit as to how much a person can claim for damages in tort?

There is no limit to the amount of damages that a person can claim in tort. Damages are usually assessed on the basis of actual
loss or injury suffered, and there is no concept of punitive tortious compensation in the UAE.

Can you insure against liability arising from tort?

Liability arising from tort can be insured against in many different forms. For example, insuring motor vehicles vis--vis
damage to third parties or any other form of insurance that covers the negligence, fault or wrongful act of a person. In terms
of UAE civil proceedings, an insurer will take the place of the insured via subrogation, and claim directly against any third
parties who may have caused the loss, showing the letter of subrogation as evidence of the right to sue.

Is it possible to exempt one party to a contract from liability?

Liability is not a matter of public policy, especially in the context of a contractual relationship. Article 390 (1) of the Civil
Code states that contracting parties may fix the amount of compensation in advance by making a provision therefore in the
contract or in a subsequent agreement, subject to the provisions of the law. Hence, it is certainly possible in a contract for
the parties to limit their liability to each other.

This exemption will always be subject to judicial review should a dispute arise at a future date. Normally, the only exception
to this arises if the loss was caused by cheating or gross negligence. In these circumstances the Court will most definitely
review any contractual exemption from liability.

However, it is not possible to exempt liability from tort or limit liability in advance from tortious acts, as any agreement that
attempts to provide for this will be null and void. This may be one reason why a claimant in the UAE court may opt to claim
damages under tort rather than for breach of contract.

Who should be claiming damages for loss in the case of tortious acts of omissions?

The party who has suffered loss will be the only person entitled to claim compensation. Such right however can be subrogated
to an insurance company, which under UAE law is then allowed to bring a claim in its own name. In the case of a death,
only the legal and rightful heirs of the deceased will be entitled to claim compensation. In such a case, evidence of the identity
of the legal heirs must be provided to the Court.
11
Would an employer be liable to pay damages for loss in tort?

An employer will be liable to pay an employee compensation under the UAE Federal Law No. 8 of 1980 (as amended) (the
Labour Law) if the employee dies or is injured or suffers loss during the course of his employment because of a labour accident
or occupational disease (Articles 149, 150 & 151 of the Labour Law). However, under the Labour Law, an employers
maximum liability has been set at Dhs.35,000 for death or injury to an employee. This is irrespective of actual fault or mistake
and without prejudice to the rights of an employees heirs to claim further damages against any person who may be liable in
tort, including the employer.

12
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Newsletters

Tips for Making "Sealed Offers" in International Arbitration to Cap Liability for
Practices Costs Materials of Interest
International Arbitration Winter 2008 International Disputes
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The costs of international arbitration can be considerable.1 The "sealed offer" provides
a potential mechanism for capping those costs. This article briefly outlines some tips to
consider in making a "sealed offer".

The Award of Costs in International Arbitration

An award of costs in international arbitration will be in the discretion of the arbitral


tribunal, regulated only by the specific language of the arbitration clause and any
applicable institutional arbitration rules. However, the most commonly used
institutional arbitration rules impose a positive obligation on the tribunal to make an
award on costs.2 Further, there is a general expectation that the legal and other costs3
of the successful party will form part of the award on costs, with the unsuccessful party
being ordered to compensate the successful party for its reasonable legal and other
costs.4

Three approaches to awarding costs have been observed in ICC arbitration: first, to
order the losing party to bear all of the costs; second, to allocate costs in proportion to
the outcome of the case, taking into account the relative success of each claim; and
third, to require that the costs be shared equally by the parties or that each party
bears its own costs.5 Nevertheless, several international arbitration practitioners have
observed an emerging trend in favor of the first approach.6

In light of this, parties to international arbitration who are at risk of receiving an


unfavorable award must look for a means by which they can cap their potential costs
liability. One potential solution is the "sealed offer."

The "Sealed Offer"

A "sealed offer" (often referred to as a "Calderbank letter" or "Calderbank offer")7 is a


written offer to settle a dispute which has been referred to arbitration, made "without
prejudice save as to costs". What distinguishes the sealed offer from an ordinary offer
to settle a dispute, is the cost penalty (in respect of which see below) which the arbitral
tribunal is expected to attach to it, against the offeree who does not accept the offer
and fails subsequently to achieve a more favourable award by continuing the
proceedings (i.e., "to beat the offer").

The offer is "sealed" and "without prejudice" because it is not to be brought to the
attention of the arbitral tribunal before the determination of the substantive dispute, in
case it influences the decision of the tribunal with regard to the merits of the
substantive case. However, in order that the offer can be taken into account in
assessing liability for costs, it must be brought to the attention of the arbitral tribunal
before the tribunal makes a determination on costs,8 hence the words "save as to
costs."

The Use of a Sealed Offer in International Arbitration

The sealed offer derives from English law and the practice of the English courts and
arbitral tribunals in allocating costs whereby, as a general rule, the party considered to
be the overall loser is ordered to pay the costs of the proceedings and the reasonable
legal and other costs of the overall winner, as well as any sum awarded on the merits.
This has been described as the "loser pays all" or "costs follow the event" principle, and
is generally followed even where the loser has defeated the winner on a number of
points and the recovery of the latter is significantly less than the amount originally
claimed, so long as the recovery is for more than a nominal amount.

The sealed offer alleviates the general rule on costs in England by displacing the "loser
pays all" principle when the winner has failed to beat the offer (in other words, where it
would have recovered the same or more by accepting the offer). In such an
eventuality, the winner will generally be held liable for the loser's costs incurred after
the time when the offer could have been accepted. Accordingly, the offeror can seek to
place a ceiling on its potential costs liability in respect of the period following the offer,
by offering to settle the offerees claims (or certain of them) for such amounts as it
sensibly believes the tribunal would award in respect of those claims, if the proceedings
were not settled.

Common law jurisdictions which follow the English approach towards allocating costs,
most notably Hong Kong, Australia and Canada, also give cognizance to the use of
sealed offers to counterbalance the potentially unfair effect of their approach towards
awarding costs.9 It is submitted that such a mechanism is crucial in any forum where
costs are awarded in accordance with the English principle that "costs follow the
event"; international arbitration, where this principle is increasingly followed, is one
such forum. Anyone conducting international arbitration which has some connection
with England, Hong Kong, Australia or Canada, should certainly use the sealed offer
procedure where appropriate to contend with the potential application of the general
rule on costs normally followed in those jurisdictions.

Tips for Making the Sealed Offer

Tip 1: Make the sealed offer as early in the proceedings as possible

The winner will generally be entitled to its costs up to the date when the offer can be
accepted; any costs protection which the loser derives from the offer will apply only to
those costs that are incurred after that date. Accordingly, the sealed offer should be
made as early in the proceedings as possible to derive maximum protection on costs.

Tip 2: Set out the sealed offer in writing

The sealed offer should be set out in writing in a letter which should be clearly marked
"Confidential and Without Prejudice Save as to Costs". The effect of these words
(which should be explained in the letter) is that the letter should not be revealed to the
tribunal, save with respect to the question of the costs of arbitration after the merits of
the substantive claims have been decided.

Tip 3: State the intended cost consequences of the offer

Any ambiguity in the offer may prevent the tribunal from determining the terms of the
offer and thus, whether or not the loser has "beaten the offer"; this could render the
sealed offer ineffective. The sealed offer letter should therefore contain an express
statement as to the intended costs consequences of the offer, so that there can be no
argument subsequently as to whether the sum offered was inclusive or exclusive of
costs.

Tip 4: State whether interest and counterclaims are taken into account

For the same reason, to avoid any ambiguity in the terms of the offer which would risk
the tribunal disregarding the offer, the sealed offer should state whether or not it takes
interest and any counterclaims into account.

Tip 5: State the period during which the offer remains open for acceptance

The offeree must be given a reasonable period to consider the offer before it is hit by
the costs penalty generally attached to a sealed offer. On the other hand, in order to
place pressure on the offeree to accept the offer and cease incurring further costs, the
offer should not be left open for acceptance indefinitely. Accordingly, the sealed offer
should state a reasonable period during which it remains open for acceptance. This will
also permit the tribunal to determine the date from which to impose the said costs
penalty.

Additional Tips

In addition, the sealed offer should include the date of the offer, the method of
acceptance, and the deemed date of acceptance, to avoid subsequent argument as to
whether it was accepted within the permitted period for acceptance.
Conclusion

In international arbitration, the award of costs is left largely to the discretion of the
tribunal and it is difficult to state with confidence exactly how the tribunal will allocate
costs between the parties. However, the costs of international arbitration can be
significant, with losing parties often having to bear not only their own costs, but also a
considerable proportion of the other side's costs. In this context, the sealed offer can
provide powerful ammunition for parties to international arbitration who are forced to
defend inflated or exaggerated claims.

The cost consequences of sealed offers in England are largely a matter of logic and
common sense; they go to the reasonableness of the conduct of the offeree in declining
to accept the offer. The reasonableness of the conduct of the parties is also an
important consideration for an international arbitral tribunal when exercising its
discretion on costs, therefore it is to be hoped that a tribunal in an international
arbitration will similarly give effect to a sealed offer made.

Parties who are at the contract negotiation stage may wish to consider drafting their
arbitration clauses in such a way as to anticipate the use of the sealed offer
mechanism. For those who are already at the dispute stage, there is no harm in
making any "without prejudice" offer of compromise in the form of a sealed offer, so
that it can be brought to the attention of the tribunal at the appropriate time and used
in argument as to who should be responsible for the costs of the arbitration, where it
was reasonable for the offeree to accept the offer.

1
The costs involved in an international arbitration will generally consist of the fees and
expenses of the arbitral tribunal, the administrative charge of any arbitral institution
involved, the fees and expenses of the lawyers, any experts and any other
professionals whose services may be required (e.g., transcribers and interpreters), the
cost of the hearing room and facilities, witness expenses and any internal costs.
Internal costs are not commonly awarded, save perhaps in respect of in-house counsel.

2
See Article 31 of the International Chamber of Commerce (ICC) Rules of Arbitration
(1998), Articles 38 and 40 of the UNCITRAL Arbitration Rules (1976), Article 28 of the
London Court of International Arbitration (LCIA) Arbitration Rules (1998), Articles 39 to
41 of the Rules of the Arbitration Institute of the Stockholm Chambers of Commerce
(SCC) (1999), Article 31 of the American Arbitration Association (AAA) International
Arbitration Rules (2006) and Rule 28 of the International Centre for the Settlement of
Investment Disputes (ICSID) Arbitration Rules as well as Article 61(2) of the ICSID
Convention.

3
These will include experts' and lawyers' fees and expenses.

4
See Articles 38 and 40 of the UNCITRAL Arbitration Rules, Article 41 of the Rules of
the Arbitration Institute of the SCC, and Article 28 of the LCIA Arbitration Rules which
goes so far as to suggest that there is a "general principle that costs should reflect the
parties' relative success and failure in the award or arbitration, except where it appears
to the arbitral tribunal that in the particular circumstances this general approach is
inappropriate" [emphasis added].

5
Derains & Schwartz, A Guide to the ICC Rules of Arbitration, 2nd edition (2005), at p.
371 et seq.

6
See Micha Bhler, "Awarding Costs in International Commercial Arbitration: An
Overview" ASA Bulletin, Vol. 22 No. 2 (2004), pp. 249-279; Julian Lew, Loukas Mistelis
and Stefan Krll, Comparative International Commercial Arbitration (2003), at pp. 654
655; Fouchard, Gaillard, Goldman, International Commercial Arbitration (1999), at p.
686.

7
The name derives from the English case of Calderbank v. Calderbank [1975] 3 All ER
333; [1976] Fam 93.

8
This will normally be achieved by obtaining a "bifurcated" award, so that the sealed
offer can be revealed to the tribunal during the course of the submissions on costs,
following receipt of the interim award which will have dealt with liability and damages.
The offer can thus be taken into account in the award on costs which will form part of
the final award.

If the award is not bifurcated, the parties will have to inform the tribunal at the end of
the hearing that there has been an offer of compromise from one party to the other
which they would like the tribunal to take into account in exercising its discretion on
costs; the tribunal should be provided with a sealed envelope containing a copy of that
offer on the understanding that the envelope will not be opened before the tribunal has
reached a final decision on the merits of the parties' substantive claims.

9
With respect to Hong Kong, see Order 22, Order 73 (Rule 11 et seq.) and Order 62
(Rules 2 and 5) of the Rules of the High Court which apply in Hong Kong. With respect
to Australia, see e.g., Part 42 (Divisions 1 and 3) and Part 20 (Division 4) of the New
South Wales Uniform Civil Procedure Rules 2005. With respect to Canada, see e.g.,
Rule 49 of the Rules of Civil Procedure of Ontario and Prince Edward Island and Rule
41A and 63 of the Civil Procedure Rules of Nova Scotia.

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White & Case LLP has no responsibility for any websites other than its own, and does
not endorse the information, content, presentation or accuracy, or make any warranty,
express or implied, regarding any other website.

This newsletter is prepared for the general information of our clients and other
interested persons. It should not be acted upon in any specific situation without
appropriate legal advice.

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or translated with appropriate credit.

2008 White & Case LLP


Statutory and other Legal Issues
Paul D Taylor LL.B (Hons), ACIArb
Partner, HBJ Gateley Wareing
Dubai Office
Constitution
Federal Government
Exclusive jurisdiction
Federal Judicial Authority (not Dubai)
Federal law
Seven Emirates
Each may have a legislative body
Ruler has supreme legislative authority
Enactment of local law by Rulers Decree
Constitution
Dubai
No Federal Courts
Determination by local Courts
Appeal to local Courts
Still governed by Federal Law
But also local Law and regulations
Federal Law governs in event of conflict
Legal System
Civil Law system
Statutory Code
Islamic Law and Sharia
Embodied in civil and commercial laws
Governing Law (see below)
Influence of Common Law?
Construction Contracts
Terminology
Legal System
Litigation (except DIFC)
In Arabic before local judges
Court appointed experts
Submission of evidence
Witness statements
Third party experts
Documents
Oral testimony
Legal System
Arbitration
Still governed by UAE law
New York Convention - enforcement
Language and venue
Recognised rules
ICC/LCIA etc
DCCI/DIAC/DIFC Dubai
ADCCAC Abu Dhabi
Legal System
DIFC
Courts
Arbitration
Jurisdiction
Alternative Dispute Resolution
Amicable settlement
Mediation
Dispute Adjudication Boards
Conciliation
Governing Law
Effect of governing UAE Law
Precedent/previous Court decisions
Persuasive but not prescriptive
No oral argument
No cross examination
No discovery/disclosure
No injunctive relief
Memoranda/written submissions only
Legal Framework
The Courts
Criminal and Civil Courts
Court of First Instance
Court of Appeal
Supreme Court or Court of Cassation
Jurisdiction
International jurisdiction
Action against a UAE National
Foreign person or entity domiciled in UAE
Assets located in the UAE
Contract or obligation in the UAE
Defendant has UAE domicile or place of
residence
Jurisdiction
Domestic jurisdiction
Individual Emirates Court
Geographical area and defendants domicile
Place in which damage occurred
Place in which agreement executed or
concluded (N.B. DIFC)
Head or branch office location
Civil Laws
Federal Law number 5 of 1985
The Civil Transactions Code
The Civil Code (see below)
Federal Law number 11 of 1992
The Civil Procedure
How the legal process works
Civil Code
Arabic, not English
Interpretation
Article 124
Personal obligations or rights shall arise out of
dispositions, legal events and the law, and the
sources of obligations shall be as follows:
(1) contracts
(2) unilateral acts
(3) acts causing harm (torts)
(4) acts conferring a benefit; and
(5) the law.
Civil Code
Contracts
Arts 125-128 General Provisions
Arts 129-242 Elements & Validity of a
Contract
Arts 243-256 Effect of the Contract
Arts 257-266 Construction of Contracts
Arts 267-281 Dissolution of Contracts
Civil Code - examples
Article 215(1) Consent may be by any act or
word indicating the same expressly or by
implication

Article 215(2) Silence shall be taken to be


consent if by custom it indicates consent
Civil Code - examples
Article 246(1) The contract must be
performed in accordance with its contents,
and in a manner consistent with the
requirements of good faith
Civil Code - examples
Article 258(1) The criterion in (the
construction of) contracts is intentions and
meanings and not words and form

Article 258(2) The primary rule is that words


have their true meaning and a word may not
be construed figuratively unless it is
impossible to give it its direct meaning
Civil Code examples
Article 267 If the contract is valid and
binding, it shall not be permissible for either
of the contracting parties to resile from it, nor
to vary or rescind it, save by mutual consent
or an order of the court, or under a provision
of the law
Civil Code - Muqawala
Muqawala contract to make a thing or to
perform a task
Articles 872-896
Includes provisions for employer,
contractor, subcontractor, architect
Relevant to all construction contracts and
related professional services contracts
Civil Code - Muqawala
Article 880 Decennial Liability
Ten year strict liability for structural defects
and instability on contractor and consultant
Cannot contract out of it or limit its legal effect
Article 892 A contract of muqawala shall
terminate upon the completion of the work
agreed or upon the cancellation of the
contract by consent or by order of the court
Civil Code - Torts
Acts Causing Harm Articles 282-317
Article 283(1) Harm may be direct or
consequential
Article 283(2) If the harm is direct, it must
unconditionally be made good, and if it is
consequential there must be a wrongful or
deliberate element and the act must have led
to the damage
Article 284 If the harm is both direct and
consequential, the rules relating to direct harm
shall apply
Civil Code - Torts
Article 292 In all cases the compensation
shall be assessed on the basis the amount of
harm suffered by the victim, together with loss
of profit, provided that that is a natural result
of the harmful act
Civil Code - various
Other provisions and issues
Article 390(1) The contracting parties may fix
the amount of compensation in advance by
making a provision therefor in the contract or
in a subsequent agreement, subject to the
provisions of the law
Penalties or LDs?
Civil Code - various
But
Article 390(2) The judge may in all cases,
upon the application of either of the parties,
vary such agreement so as to make the
compensation equal to the loss, and any
agreement to the contrary shall be void
Effect on penalty or LDs clause?
Court decisions on Article 390
Commercial Code
Federal Law Number 18 of 1993
Includes commercial activities, traders,
contracts of supply, and other activities
considered to be similar
Not generally relied on in construction
contracts but certain provisions could be
considered binding
Be aware of it
Conclusions
UAE Law generally governs
Civil Code therefore binds
Common law terms ineffective
Contracts and appointments must be
considered both contractually and under UAE
law provisions
No case-law precedents
Expect uncertainty no cast iron cases
Finally
Prevention is always better than cure
so do take advice
Paul D Taylor LL.B (Hons), ACIArb
Partner, HBJ Gateley Wareing
dt: + 971 4 321 9999
m: + 971 50 5510 474
PTaylor@hbj-gw.com
www.hbjgateleywareing.com
Winter 2009

International Disputes Quarterly


Focus: An Arbitrators Perspective
In This Issue

An Interview with George A. Bermann . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

An Interview with Alfredo Bullard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Client Alerts: Recent Developments in International Arbitration

Non-Exclusive Jurisdiction ClausesEffect in Hong Kong Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Contributing Authors:


Sophie East
No Remedy for an Investors own Mismanagement: Dave Lau
The Award in the ICSID Case Biwater Gauff v. Tanzania. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Epaminontas E. Triantafilou
Christophe von Krause
Second Circuit Limits Discovery from Nonparties to Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Practice Tips: Tips for Fast-Track Arbitration: The Procedural Tools Available . . . . . . . . . . . . . . . . . . . . . . 12 Editors:
Practitioner Recognition, Practitioner Appointments and News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Sophie East
Kirsten Odynski

An Interview with George A. Bermann

George A. Bermann is the Walter Gellhorn Q: Based upon your experience as


Professor of Law and the Jean Monnet arbitrator, are there are any special tips for
Professor of European Union Law at counsel from common law backgrounds?
Columbia Law School. He has been a member Any common law tendencies that counsel
of the Columbia Law School faculty since should try to limit?
1975 and his principal courses at present A: Being of common law training, I generally
are European Union Law, Comparative Law, find common law advocacy appealing.
Transnational Litigation and WTO Dispute However, I often sit with civil-law-trained
Resolution. Professor Bermann has participated arbitrators, and in addressing them,
as arbitrator in numerous arbitrations. common law counsel would do well to
indicate as clearly as possible at the outset
Q: Are there any techniques/strategies of examination (and especially cross-
that you have seen counsel use in an examination) the path of questioning. This
arbitration where you have been arbitrator, will suggest a coherence in questioning that
which you think are particularly effective some arbitrators find lacking in common
to making counsels case? law advocacy. There is a risk with such
A: Graphics which succinctly depict a partys arbitrators that counsels direct and cross-
argument, followed by graphics that depict examination can look disjointed and aimless. White & Case Takes
the defects in the adversarys argument. Top Spot Worldwide
Q: Based upon your experience as
Q: Are there any techniques/strategies arbitrator, are there are any special tips The International Whos Who
that you have seen counsel use in an for counsel from civil law backgrounds? of Commercial Arbitration 2009
arbitration where you have been Any civil law tendencies that counsel
arbitrator, which you think are particularly should try to limit?
ineffective to making counsels case? A: Civil law counsel, especially when White & Case llp
A: The use of expert witnesses who are less appearing before common law arbitrators, 1155 Avenue of the Americas
than cogent and convincing. need to pay special attention to the crispness New York, NY 10036
of their advocacy, which is too often lacking. + 1 212 819 8200

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International Disputes QuarterlyFocus: An Arbitrators Perspective

(Note that my caution to common law counsel Since I would not presume, ex ante, that
is very much the obverse of my caution to civil either of these situations will arise, I would
law counsel). generally not retain an expert for the Tribunal
until after the first opinions have come in,
Q: Under what circumstances should a Tribunal even though this will by definition entail some
consider appointing its own expert? otherwise avoidable delay.
A: Generally speaking, it is unnecessary to do so.
I think it should be avoided unless (a) the technical Q: What is your view of dissenting opinions
character of the expert evidence has made the in international arbitrations? Should they be
contribution of the party-appointed experts less encouraged? Discouraged?
than comprehensible or (b) the Tribunal finds that A: They should be discouraged and I discourage them.
the party-appointed experts were (or appear to
have been) unduly partisan.

An Interview with Alfredo Bullard

Alfredo Bullard is a partner at Bullard, Falla & domestic and international arbitration will help
Ezcurra Abogados in Lima, Peru, a boutique law Peruvians become accustomed to arbitrate under
firm that focuses on competition, regulatory issues international standards. I think it contributes a
and arbitration. Dr. Bullard chaired the drafting great deal towards Peru becoming a competitive
commission for Perus new General Arbitration Law, venue for international arbitration.
enacted in 2008 and has participated as arbitrator,
counsel or expert in over 80 arbitrations, both Q: How has Perus domestic arbitration
domestic and international. He also served for several practice evolved since 1996, when Perus
years as President of the Competition Chamber of previous arbitration law was enacted? (Please
INDECOPI, Perus highest administrative tribunal in refer to changes in demand for arbitration,
issues of competition and intellectual property. the evolution of local counsel and arbitral
institutions and the response to arbitration by
Q: You recently chaired the commission that Peruvian courts.)
drafted Perus new General Arbitration Law, A: Peru is a special case. It is the country with
applicable to both domestic and international the most explosive growth in arbitration in Latin
arbitrations. What are the advantages of this America (and perhaps the world). In the last
new law? To what extent will this law help 12 years we have gone from being a place where
bridge the differences between domestic and nothing was arbitrated to a country that arbitrates
international arbitrations in Peru? almost everything. The State has been very friendly
A: It is a very modern law and has received good to arbitration. The laws for public contracting and
commentary. It protects arbitration and makes acquisitions oblige the State to have an arbitration
it more dynamic and flexible. It reinforces the clause in all its contracts. In any expropriation, the
autonomy of the parties and the arbitrators to expropriated subject can ask for an arbitration to
manage the arbitration. It limits judicial interference. rule on the compensation to which he is entitled.
It protects the arbitration agreement and has And the State has promoted investment in a context
very interesting and new rules, such as those that is very friendly to foreign investment. We live
that regulate the participation of non-signatory in an intense arbitral culture, and practice is very
third parties. Having a similar regulation for intense and I would say, of good quality. Already,

2 winter 2009
legal firms have departments or specialists in Q: What are, in your opinion, the main
arbitration and the Judicial Branch has been very differences between domestic arbitrations and
respectful of arbitrators decisions. Indeed, the international arbitrations, whether procedural
Constitutional Tribunal has developed a consistent or substantive? Which of these differences are
case law that permits arbitrators to cast off judicial a result of the civil law/common law divide
interference that does not relate to the annulment and which are a result of the national v.
of the award. All law schools have arbitration international character of the arbitration?
courses and the congresses and seminars that A: I always tell my students that the difference
they organize are filled by an interested audience. is like reading a book and watching the movie:
Agents already know arbitration is a different world international arbitration is much more vivid. Maybe
from ordinary litigation, and businessmen are happy in international arbitration the principles are
to have escaped complicated and difficult judicial more important than the legal rules and above
processes. The important thing is that we continue all, it is much more factually oriented. Proof is
to advance and that there is much enthusiasm; so more important than legal argument. This makes
much so that we have approved a new law (despite international arbitration more oral (more hearings)
the fact that the old one was working well), because and makes witnesses and experts the principal
we want to advance even faster. In Peru, arbitration proofthis is a clear influence of the common law.
has arrived to stay. But these differences tend to be disappearing. Both
types of arbitration become more alike with each
Q: You have acted as counsel, arbitrator and case and I think that in the near future both will be
expert in several domestic and international cinematic.
arbitrations. What are the main differences in
your approach to arbitrations in each role? Q: In your experience, do arbitrators from civil
A: They are very different, but at the same time law countries approach the resolution of legal
complementary. It is like soccer; the game looks issues differently than those from common law
different depending on where you are standing. The countries? For example, would it be true to say
attorney is the player. The responsibility to try and that civil law arbitrators are more formalistic
win rests with him. The expert is like a technical and that common law arbitrators focus more
advisor who, while maintaining his independence, on equity?
has to give an opinion on how he sees the game A: As I said, common law arbitrators are more fact-
and these opinions help the player understand the based. They are more concerned with the evidence,
match better. The arbitrator is the referee and has the witnesses, and the hearings. It is a natural
to make the decisions that define who wins. Having consequence of a practice where case law is
been a referee helps you play better because you central. In common law, the rules are created based
understand how the decision-maker thinks. But, on concrete cases rather than abstract ideas. The
having been an attorney helps the arbitrator to civil law arbitrator tends to concern himself more
understand the problems facing the parties in with written documents and written legal positions.
proving their case. The experts role seems the This can give the impression that they are more
easiest because it appears to involve the least formalistic. But they are tending to become ever
responsibility, but in reality it is central because more similar. When I comment on the common
you have to lend credibility to a defensive position. laws influence on arbitration with my common
And, a good expert must know that he can only be law colleagues, they answer definitively that it is
credible by maintaining independence. I have been the other way around: that arbitration forces them
lucky to have played all these roles, but the one I to write too much and use a lot of doctrine in
most enjoy is, without a doubt, being an arbitrator. civil law style. It is probable that arbitration is the
genetic offspring of both systems and that those of

White & Case LLP 3


International Disputes QuarterlyFocus
QuarterlyFocus: An
on Arbitrators
ArbitrationPerspective
in Asia and the Pacific Rim

us from each system focus mostly on what we see honest with the tribunal. The majority of arbitrators
as different. The father says it looks like the mother have the experience and the time to discover that
and the mother says it looks like the father, but in you are not being transparent. Lies have short legs in
reality it looks like both. arbitration. It is better to recognize the weaknesses
of your case and not wait for the other party to bring
Q: Based on these differences, what are the them out and destroy you during a hearing. Third,
three most important recommendations you take good care of the evidence. More arbitrations
would give counsel when advising on an are won because you were able to convince
international arbitration? the tribunal of what happened than because you
A: First, never promise your client something you convinced them of a legal position. If you manage
cannot attain. Success is not winning everything, but to have them sympathize with your case, it will be
doing what you promised you would do. Believing in easier for them to accept your legal theory. But, if
a case you dont have irritates arbitrators, disillusions you convince them of your legal theory and not your
your client and damages your reputation. Second, be facts, you will likely lose.

Client Alerts: Recent Developments in


International Arbitration
Non-Exclusive Jurisdiction Clauses
Effect in Hong Kong Law

Dave Lau (Hong Kong)

Non-exclusive jurisdiction clauses are common In Noble Power Investments Limited & Another
provisions in contracts. Typically, they allow the v. Nissei Stomach Tokyo Co Ltd, CACV 398/2007
parties to agree to submit any dispute arising (decision handed down on 24 April 2008), the parties
from the contract to a particular jurisdictions were all companies registered in places other than
courts, while leaving the parties free to commence Hong Kong. None of the parties carried on business
legal proceedings in any other jurisdictions in Hong Kong. However, in a Hong Kong law-
courts. In contrast, exclusive jurisdiction clauses governed Cooperation Agreement made between
are more restrictivein addition to agreeing on a the parties in June 2006, there was a non-exclusive
particular jurisdiction, the clause will also stipulate jurisdiction clause providing for the parties to
that any dispute can only be submitted to that submit to the non-exclusive jurisdiction of courts of
agreed jurisdiction. Hong Kong. The clause stated expressly that
[n]othing contained in this Clause shall limit
The two types of jurisdiction clauses are the right of any party to take any suit, action
clearly different in theory. As to their effect in or proceedings arising under this Agreement
practice, particularly in the context of how the against the other parties in any other court of
Hong Kong Court may give effect to them when competent jurisdiction. About one month after
deciding whether to take jurisdiction over the Cooperation Agreement was entered into, the
a dispute, the differences between them are Defendant sent a letter to the Second Plaintiff
not as straightforward, as explained in a recent effectively stating that the Defendant was not
Hong Kong Court of Appeal decision. going to perform its obligations. The Plaintiffs

4 winter 2009
regarded this as a repudiation by the Defendant circumstances such as the existence of factors
and subsequently commenced proceedings in not contemplated by the parties at the time
Hong Kong claiming damages. As the Defendant the relevant agreement was made. The Court
is a Japanese company based in Japan, under of Appeal commented that in this sense, the
Hong Kong law the Plaintiffs had to get the Hong non-exclusive jurisdiction clause is in practice
Kong Courts permission to serve the writ on the the same as the exclusive jurisdiction clause.
Defendant in Japan. The Plaintiffs obtained such
permission and served the writ on the Defendant. 3. However, where proceedings are commenced in
The Defendant then issued an application in the a jurisdiction other than the named jurisdiction,
Hong Kong proceedings, amongst other things, to although each case would depend on its facts,
set aside the service of the writ, saying that the generally the above contractual submission issue
Hong Kong Court should not have granted the will not arise, so the contesting party may well
permission to serve the writ, on the basis that have a less heavy burden.
Japan was a more appropriate forum than Hong
Kong for the trial of the matter. 4. Accordingly, in the present case, where there
was a non-exclusive jurisdiction clause (providing
At first instance, the Court considered the for submission to the Hong Kong Court) and
Defendants application on the usual forum non proceedings were in fact commenced by the
conveniens basis and regarded the non-exclusive Plaintiffs in Hong Kong, the Court of First Instance
jurisdiction clause simply as one of the factors to was wrong to regard the non-exclusive jurisdiction
be weighed in its decision as to the appropriateness clause simply as one of the factors to be
of Hong Kong as the forum for the dispute in weighed in its decision on the appropriateness of
question. The Court decided that Japan was the Hong Kong as the forum.
more appropriate forum for the dispute and granted
the Defendants application. 5. Instead, simply by referring to the non-exclusive
Hong Kong jurisdiction clause, the Plaintiffs had
The Plaintiff appealed successfully to the Court already discharged their burden of showing
of Appeal. The Honourable Mr. Justice Ma, the that Hong Kong was an appropriate forum.
Chief Judge of the High Court, gave the leading Thereafter, the burden shifted to the Defendant
judgment. In summary, the Court of Appeal held to show strong or overwhelming reasons or
the following: exceptional circumstances as to why the parties
contractual bargain should not be upheld. Since
1. The basic premise is that, save in exceptional the Defendant has failed to do this, its application
cases, the Court will hold the parties to their should have failed.
contractual bargains. In the context of a non-
exclusive jurisdiction clause, the parties have This case is a sound reminder to parties to think
agreed to submit to a named jurisdiction. carefully when agreeing on any kind of jurisdiction
clauses. It is over-simplistic to think that a
2. Accordingly, where proceedings are commenced non-exclusive jurisdiction clause maintains fully
in the named jurisdiction, the party that contests the parties freedom to conduct disputes in any
the appropriateness of such jurisdiction will jurisdiction they may wish. The Hong Kong Court
have a very heavy burden to discharge, has stated clearly that it will hold parties to their
since that party has agreed contractually to contractual bargains, including in a non-exclusive
submit to that jurisdiction. To discharge this jurisdiction agreement.
burden, the contesting party will have to show
strong or overwhelming reasons or exceptional

White & Case LLP 5


International Disputes QuarterlyFocus: An Arbitrators Perspective

White & Case No Remedy for an Investors Own Mismanagement:


International The Award in the ICSID Case Biwater Gauff v. Tanzania
Arbitration practice
ranked tier 1 Epaminontas E. Triantafilou (Washington, DC)

Chambers USA
Introduction German company, and the Republic of Tanzania
over a concession to operate the water and
White & Case On July 24, 2008, a panel of distinguished arbitrators sewerage services of Tanzanias capital, Dar es
International (Gary Born, Toby Landau, Bernard Hanotiau) rendered Salaam. After concluding that Claimant failed to
an award in the case of Biwater Gauff (Tanzania) meet its contractual obligations, Tanzania canceled
Arbitration practice Ltd. v. United Republic of Tanzania.1 The ICSID the contract and regained possession of assets
ranked tier 2 Tribunal refused to award damages to an Anglo- previously leased to Claimant. Claimant brought
German consortium that filed a claim against the an action before ICSID under the UK-Tanzania BIT,
Chambers Europe. Republic of Tanzania under the UK-Tanzania Bilateral claiming that Tanzania breached its obligation to
Investment Treaty (BIT). The Tribunals ruling came afford Claimant fair and equitable treatment, to
in the wake of an award in favor of Tanzania in an provide full protection and security, not to take
UNCITRAL arbitration initiated by the parties to unreasonable and discriminatory measures and to
resolve their purely contractual (i.e., non-treaty) guarantee the unrestricted transfer of funds.
differences. The main thrust of the Biwater Gauff
decision, endorsed by the Tribunals majority, 2 Facts Established By The Tribunal3
is that while Tanzanias actions may have constituted
prima facie violations of certain BIT provisions, they In 2003 several multilateral lending institutions,
did not cause injury to the claimants venture. including the World Bank, the African Development
Consequently, the claimant was not entitled Bank, and the European Investment Bank,
to compensation. In the course of its discussion, granted Tanzania US$140 million to upgrade and
the Tribunal made some important observations expand the water and sewerage infrastructure
with respect to the notion of legal injury and of its capital city, Dar es Salaam. In 2002, to
the proper conceptualization of investment in fulfill some of the conditions imposed by the
ICSID arbitration. It also offered a reminder that multilateral lenders, Tanzania had launched a bidding
ICSID arbitration is not meant to be an insurance process for a private operator of water and sewerage
policy against an investors miscalculations and/or services, who would also serve as a contractor for
fiscal mismanagement. Finally, the Tribunal offered some of the required upgrade and expansion works.
some remarks on the role of amici curiae in the
arbitral proceedings. Tanzania awarded the concession, set to last for
ten years, to a joint venture of Biwater International
Summary of the Dispute Limited (Biwater), a British corporation and HP
Gauff Ingenieure GmbH and C. KG-JBG (Gauff).
Biwater arose out of a dispute between a British In January 2003, Biwater and Gauff incorporated
project company, held jointly by a British and a jointly Biwater Gauff (Tanzania) (BGT), a British

1 Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (July 24, 2008) (Biwater Gauff ).
2 Arbitrator Gary Born filed a separate Opinion, concurring in part, dissenting in part and concurring in the judgment. Mr. Borns narrow dissent
focuses on the distinction between causation and valuation and whether one or the other best supported the Tribunals refusal to award damages
in this case. See Section V below.
3 An elaborate and well-presented account of the relevant facts appears in Award 95-228.

6 winter 2009
corporation that would become the Claimant in of projected tariff revenues at the bidding stage,
this case. In turn, as required by the terms of the combined with the failure of the BGT-appointed
bid, BGT partnered with a Tanzanian company, management of City Water to successfully handle
Super Doll Trailer Manufacture Co. (T) Limited the projects numerous challenges. The operating
(STM), and incorporated the operating company, companys failures were borne out in Claimants
City Water Services Limited (City Water), under own internal evaluation of the project, in reports by
the laws of Tanzania. To implement the project, independent auditors employed to evaluate whether
City Water entered into three key contracts (jointly, a tariff renegotiation was warranted (it was not) and
Project Contracts) with the Dar es Salaam Water the decision of a mediator employed by the parties
and Sewerage Authority (DAWASA). in the course of subsequent negotiations on how to
revive the moribund project.
Under the terms of the Project Contracts, City Water
would lease DAWASAs existing pipeline network, Despite good faith negotiations during the first
which City Water would use to provide water and months of 2005, Claimant and the Government of
sewerage services to customers. Customers would Tanzania failed to reach agreement on how to salvage
pay a tariff that would remain fixed under a contractual the project. Contemporaneous documentation cited
indexation formula for the first five years of operation. by the Tribunal provides further evidence that the
City Waters portion of that tariff was subject to project was in dire straits, since solutions that were
three levels of review: annual, interim and major. The considered potentially viable during the negotiations
main reason the parties agreed to elaborate tariff- were simultaneously characterized as radical or
review provisions was that neither City Water nor last resort by the parties themselves.
DAWASA had extensive or sufficiently reliable data
on customer demand and revenue projections. In While the contractual relationship was headed
addition to providing services previously rendered inevitably towards dissolution, Tanzanian
by DAWASA, City Water would undertake, on a Government officials, motivated by electoral
priority basis, the performance of upgrades to the concerns, among others, took a series of drastic
water supply system and would install water meters measures that went far beyond the contractually
in all customer locations, to attain accurate data on mandated process for termination of the Project
water consumption. City Water would also act as the Contracts. In May 2005, Tanzanian Government
main contractor for the expansion of Dar es Salaams officials, causing public furor, repudiated unilaterally
water supply network and for other improvements and rather publicly the lease agreement with City
necessary for the implementation of the project. Water, while calling on the performance bond
posted by BGT, reinstated the previously waived
Eleven months after the commencement of City VAT on purchases by City Water, repossessed forcibly
Waters operations, however, it was apparent that the the assets previously leased to City Water and
project was facing significant financial difficulties and deported City Waters BGT-appointed management.
was in danger of shutting down. City Water concluded
that it would need to call for an interim review of the The Tribunals Holdings
tariff it was receiving under the Project Contracts.
Critically for Claimants claims against Tanzania, The Biwater Gauff Tribunal addressed exhaustively all
although the water and sewer systems were in bad arguments raised by the parties. The more significant
condition before City Water took over, shifting part of aspects of the Tribunals Award are listed below.
the blame for increased operating costs to prior acts of
DAWASA, the main source of City Waters problems Jurisdiction:4 The Tribunal found that it was properly
was the Claimants (BGTs) gross overestimation vested with jurisdiction. A notable objection by

4 Award 307-353.

White & Case LLP 7


International Disputes QuarterlyFocus: An Arbitrators Perspective

Tanzania to the Tribunals jurisdiction was that, since Fair and Equitable Treatment:6 The Tribunal
City Water had been unprofitable from the start ruled that several of Tanzanias actions breached
and was likely to remain as such for the duration its treaty obligation to accord BGTs investment
of its concession, it could not be considered fair and equitable treatment, despite the relatively
an investment under the ICSID Convention. In high bar State activity needs to meet to violate
support of this proposition, Tanzania cited the that standard. Specifically, the Tribunal cited as
regularity of profit requirement of the so-called violations: Tanzanias publicity campaign against
Salini test, according to which the hallmarks of City Water in May 2005, including the public
an investment are i) duration; ii) regularity of profit repudiation of the lease contract; the withdrawal of
and return; iii) assumption of risk; iv) substantial the VAT exemption; the forcible occupation of City
commitment and v) significance for the host States Waters offices; the assumption of management
development. The Tribunal, nonetheless, ruled control by the Government and the deportation of
against a strict application of the Salini test, and City Waters BGT-affiliated senior management.
in favor of a flexible approach that would allow
consideration of all relevant circumstances in a given Unreasonable and Discriminatory Measures:7
case. The Tribunal opined further that the mere fact To be reasonable and nondiscriminatory, a States
that an investment is unprofitable does not render actions need to bear a reasonable relationship
it unfit for protection by the ICSID Convention and to a rational policy, while any differential
the provisions of the applicable BIT. It was sufficient treatment of a foreign investor must have a
that the Claimant had in good faith expected to rational justification. Because this treaty standard
receive a positive return on its investment. bears a close relationship to that of unfair and
inequitable treatment, the Governments acts
Expropriation:5 The Tribunal found that Tanzania that the Tribunal ruled to be unreasonable or
had committed an indirect expropriation of BGTs discriminatory overlapped with those that it
investment through a series of actions that characterized as unfair or inequitable. Among
transcended the behavior expected of a party such acts were the public repudiation of the lease
to the Project Contracts and entered the realm contract in conjunction with derogatory public
of exercise of sovereign authority that violated remarks directed towards City Water and BGT; a
Tanzanias treaty obligations. Specifically, instead speech delivered by a Tanzanian Minister to City
of following the contractually prescribed course for Water staff that undermined BGTs managerial
termination of the Project Contracts, the Tanzanian control; the withdrawal of the VAT exemption and
Government openly repudiated the lease contract the seizure of City Waters assets and subsequent
with City Water causing public furor, called on deportation of its senior management.
the performance bond, canceled the VAT waiver
and deported City Waters expatriate staff. In the Full Protection and Security:8 The Tribunal held
Tribunals view, the cumulative effect of these acts that a state affords full protection and security
amounted to an unlawful expropriation of BGTs when it guarantees a stable and secure physical,
rights in the lease contract and in the project commercial and legal environment. The Tribunal
because BGTs rights, although due to expire a found that Tanzanias seizure of City Waters
short time thereafter under the contracts Notice of offices and deportation of City Water staff violated
Termination, were still technically valid. Tanzanias obligation to provide a safe environment.

5 Award 451-520.
6 Award 584-676.
7 Award 691-710.
8 Award 724-731.

8 winter 2009
Remedies:9 The majority of the Tribunal (Messrs. broad plea for relief, it had requested legal redress
Landau and Hanotiau) ruled that, although some of for all types of injury recognized under the BIT. Thus,
Tanzanias acts met the treaty-established elements a facial violation of the BIT by Tanzania automatically
for breach of Tanzanias treaty obligations, BGT had amounted to compensable injury to the Claimant and
failed to establish a causal link between that breach the causal link between act and injury was actually
and the diminution in value of BGTs investment. present. One of the ways Tanzania had injured
The majority found, specifically, that Tanzanias Claimant was by depriving it of the enjoyment of
actions were neither the proximate cause nor the its investment before the contractually determined
cause in fact of City Waters economic failure. The termination of the Project Contracts. Tanzanias
Tribunal proceeded to demonstrate that, at the time expropriatory act was a legally cognizable injury
Tanzania committed the acts violative of the BIT, under the Treaty. Yet, because the investment was
City Water was already worth nothing due to BGTs worthless, the injury resulted in zero damages.
mismanagement. Thus, according to the majority, Accordingly, Mr. Born concurred in the judgment that
Tanzania had not injured Claimant. Claimant should receive no compensation.

Amici Curiae:10 The Tribunal noted with approval The majoritys response was that both its and
arguments made by amici curiae, which the Tribunal Mr. Borns approaches were tenable and led to
allowed to participate by applying the new ICSID the same resultnamely that the Claimant was not
Rules.11 In fact, the Biwater Gauff Tribunal was the entitled to compensation.
first ICSID Tribunal to permit amicus participation
under the new Rules. The Tribunals extensive Conclusion
discussion of the points raised by the amici, and
its reference to the usefulness of the amicus Biwater Gauff is an important case, which first and
submission, affirmed the active role amici are foremost illustrates the maxim caveat investor.
expected to play in investment arbitration, and ICSID claims are not insurance policies for investment
vested third-party participation with additional decisions that fail to yield desirable outcomes
institutional legitimacy (beyond that conferred by because of poor planning and/or mismanagement.
the Rules themselves). Notably, in this instance, the The Award itself serves as a model of reasoning
amici did not confine themselves to broad policy and exhaustive analysis. In addition to promoting a
considerations, as the Tribunals initial decision to flexible view as to the notion of investment under
allow their participation suggested. Rather, they the ICSID Convention, the Tribunal offered clear and
addressed several substantive issues, including, compelling insights on several legal standards, such
inter alia, the possibility that BGTs bid for the as fair and equitable treatment, which otherwise
project was artificially (and unsustainably) low with remain hotly debated in international investment
an eye to renegotiation at some future point. law. Furthermore, the Tribunal helped solidify the
legitimacy of amicus submissions, a practice that
The Partial Dissent is nascent in ICSID arbitration. Finally, the debate
between the majority and Mr. Born on the issue
As mentioned above, one of the arbitrators, Gary Born, of causation highlighted several nuances of a
disagreed with the Tribunal majoritys conclusion that less discussed aspect of ICSID claims. In all, the
BGT had failed to establish a causal link between Biwater Award is an important addition to ICSID
Tanzanias actions and BGTs injury. According to jurisprudence that is certain to serve as a guide for
Mr. Borns partial dissent, since BGT had made a many tribunals in the years to come.

9 Award 773-808.
10 Award 370-392.
11 See Biwater, Procedural Order No. 5 (Feb. 2, 2007).

White & Case LLP 9


International Disputes QuarterlyFocus: An Arbitrators Perspective

White & Case was Second Circuit Limits Discovery from


named as a leading Nonparties to Arbitration
law firm with the
Construction and
Sophie East (New York)
Engineering practice
The US Court of Appeals for the Second Circuit arbitration, Syndicate 102 sought discovery from
highlighted as
which includes New Yorkhas ruled that the both Life Receivables and a closely related entity,
one of the Federal Arbitration Act (FAA) does not authorize Peachtree Life Settlements, which bought life
an arbitrator to compel pre-hearing document insurance policies on Life Receivables behalf. Life
pre-eminent outfits
discovery from nonparties to the arbitration. The Receivables argued it did not control Peachtree
for construction decision in Life Receivables Trust v. Syndicate 102 at and had no ability to compel the production of
Lloyds of London,12 issued on November 25, 2008, documents from it. The arbitration panel issued
arbitration.
is significant in that it is a definitive ruling by a subpoena requiring Peachtree to produce its
Whos Who in Legal the Second Circuit on an issue which has divided responsive documents and Peachtree moved to
other circuits. quash the subpoena in federal court. The District
Construction Lawyers
Court upheld the subpoena and the appeal to the
2008 The Life Receivables case arose out of what Second Circuit followed.
the Court described as the somewhat macabre
market where companies take over the life The case turned on the language of section 7 of the
insurance policies of elderly people in return for a FAA, the only FAA provision to address discovery.
cash payment. As a hedge against the possibility This states that:
that an insured person might live past his or her
life expectancy, the purchasers of these policies, The arbitratorsmay summon in writing any
such as Life Receivables Trust, buy contingent cost person to attend before them or any of them as
insurance policies from insurers like Syndicate 102. a witness and in a proper case to bring with him
If the insured person lives more than two years or them any book, record, document, or paper
beyond his or her life expectancy, Syndicate 102 which may be deemed material as evidence in
would pay Life Receivables the net death benefit the case.
and assume the policy itself. A dispute arose over
the purchase of a policy covering a Mr. Wang. The Eighth Circuit has previously ruled that although
Mr. Wang outlived his life expectancy by two the FAA does not explicitly authorize the production
years, but when Syndicate 102 was called on to of documents from entities not party to the
pay the net death benefit, it refused and claimed arbitration proceedings, an arbitration tribunal has
that Life Receivables misrepresented the date on an implicit power to subpoena relevant documents
which it acquired the Wang policy and fraudulently from such third parties.13 The Fourth Circuit has said
calculated Mr. Wangs life expectancy. During the that arbitral tribunals have this power where a party
ensuing American Arbitration Association (AAA) can prove special need or hardship arising from

12 Life Receivables Trust v. Syndicate 102 at Lloyds of London, No. 07-1197-cv, 2008 WL 4978550 (2nd Cir. 2008).
13 In re Arbitration Between Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-71 (8th Cir. 2000).

10 winter 2009
the lack of evidence.14 However, the Third Circuit Circuit pointed out that this did not leave arbitrators
has held that section 7 of the FAA unambiguously powerless to order the production of documents
restricts an arbitrators subpoena power to situations from non-parties; in fact they have a variety of
in which the non-party has been called to appear in tools to do so. Arbitrators could, consistent with
the physical presence of the arbitrator and to hand section 7, subpoena a party to appear before
over the documents at that time.15 the panel and then order that person to produce
documents (given the party would then be a
Like the Third Circuit, the Second Circuit in Life testifying witness). Arbitrators could also compel
Receivables held that the language of section 7 is a third-party witness to appear with documents
straightforward and unambiguous. Documents before a single arbitrator, who can then adjourn the
are only discoverable in arbitration when brought proceedings. Separately, where a non-party to the
before arbitrators by a testifying witness. The Court arbitration is a party to the arbitration agreement,
therefore joined the Third Circuit in holding that formal joinder may be appropriate which would
section 7 of the FAA does not authorize arbitrators enable arbitrators to exercise their contractual
to compel pre-hearing document discovery from jurisdiction to compel discovery from the parties
entities not party to the arbitration proceedings. before them. However, to the extent parties in the
This is the case even where those third parties, like Second Circuit wish to rely on section 7 of the FAA,
Peachtree, had signed the underlying arbitration the decision in Life Receivables has made it clear
agreements. In making this finding, the Second that documents ordered to be produced must be
documents held by a testifying witness.

14 Comsat Corp. v. Natl Sci. Found., 190 F.3d 269, 275 (4th Cir. 1999).
15 Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3rd Cir. 2004).

White & Case LLP 11


International Disputes QuarterlyFocus: An Arbitrators Perspective

Practice Tips
Tips for Fast-Track Arbitration:
The Procedural Tools Available
Christophe von Krause (Paris)
and Sophie East (New York)
are outlined below.
Fast-track (or accelerated) arbitration can be an
effective way to help parties reduce the time taken
to reach a solution to their dispute. This article seeks Tip 1: Select the right Arbitral Tribunal
to identify examples of procedural mechanisms
and techniques that parties might use in order to The cooperation of the parties and, in addition,
achieve fast-track arbitration. These procedural of the Arbitral Tribunal (or a single arbitrator) is
tools are designed to accelerate arbitration either essential to a fast-track procedure. If the parties
by reducing the time between the Request for intend to employ a fast-track procedure, or
Arbitration and the Award, or by helping encourage consider that the need to fast-track proceedings
settlement in the course of the arbitration. could arise, they would be well-advised to:
(i) select experienced arbitrators with available time;
The procedural tools for a fast-track arbitration (ii) select arbitrators with strong case-management
come from two main sources: (i) the rules of skills and (iii) select arbitrators who will render their
arbitration institutions (for example, the Rules for Award in a timely manner. Inexperienced or overly
Expedited Procedures of the American Arbitration busy arbitrators may have difficulty employing or
Association (AAA)); or, more importantly, (ii) the conforming to a fast-track procedure.
agreement of the parties. The ability of parties to an
arbitration to define and agree on their own procedure Tip 2: Select time limits
is one of the distinctive features of arbitration. This
gives parties room for procedural creativity, including Time limits in any fast-track procedure should be
shortening time frames between steps in the arbitral reasonable and realistic. No matter how quickly the
process, or removing certain steps entirely.16 parties may want the dispute resolved, they should
not curtail their ability to state their case fully. The
How and when should parties agree to a fast-track arbitrators, in consultation with the parties, should
procedure and the procedural tools to achieve it? define milestones for the steps in the proceedings
There are two main options: (i) in the Arbitration and the Award. These milestones should be flexible
Agreement itselfwhich expresses an intent that where necessary to ensure due process and thus
arbitration be expedited and/or (ii) at the outset of ensure the validity of the Award.
the arbitration of a dispute, because the resolution of
the dispute is of some urgency. In such cases, the It is possible that time limits are identified in the
parties may invoke certain procedural tools to tailor arbitration clause itself. For example, a clause might
the arbitration to their needs. Some practical tips and provide that:
procedural tools that the parties may keep in mind
or use for accelerating the resolution of their dispute The Award shall be rendered within [] months
of the commencement of the arbitration, unless
16 For example, Article 32.1 of the Rules of Arbitration of the International Court of Arbitration of the International Chamber of Commerce (the ICC
Rules) provides: The parties may agree to shorten the various time limits set out in these Rules ().
17 Paul Friedland, Arbitration Clauses for International Contracts 88 (2d ed., 2007).

12 winter 2009
the arbitral tribunal determines that the interest of Each party shall submit to the arbitrator and
justice requires that such limit be extended.17 exchange with the other, in accordance with a
procedure to be established by the arbitrator,
Otherwise, time limits are generally defined at its best offer. The arbitrator shall be limited
the beginning of the arbitration when the parties to awarding only one or the other of the two
and the Arbitral Tribunal discuss and agree on the positions submitted.18
arbitration timetable.
The advantages of baseball arbitration are that
it can expedite the resolution of disputes and
Tip 3: Provide procedural rules to encourage settlement. This is a procedure that
adjust/accelerate the conduct/steps commercial parties are more likely to adopt after a
particular dispute has risen. It would be difficult to
of the proceedings
anticipate at the contract drafting stage whether or
not this procedure would work for all disputes.
It is possible at every step of the arbitral procedure
to make adjustments in order to accelerate the
case. These could include:
Tip 5: Consider the use of a sealed offer
n Placing a limit on the length of submissions;
A sealed offer is a written offer to settle a dispute
n Limiting the number of submissions; for example which has been referred to arbitration. It is an offer
providing for one round of memorials rather than which is expressly made without prejudice save
the usual two rounds, or excluding the need for as to costs.19 The offeree who does not accept
the parties to submit post-hearing memorials; the offer and subsequently fails to achieve a more
favorable award by continuing the proceedings, is
n Ruling out a document production phase; liable for all the costs of the arbitration as of the
date of the submission of the sealed offer. The
n Providing that the matter be decided on the basis sealed offer can therefore provide an incentive to
of the written submissions without the need for a settlement and thus fast-track the dispute.
a hearing; However, the sealed offer comes from dispute
practice in the United Kingdom and is not yet
n Limiting the number of witnesses or experts that standard practice in international arbitration.
the parties may put forward (or even providing that
there shall be no witnesses or experts).
Conclusion

Tip 4: Consider the utility of The appropriate procedural tools for a fast-track
arbitration will depend on the specificities of each
baseball arbitration
dispute. Whilst the tools outlined in this article are
by no means exhaustive, they can help to facilitate
In a final offer or baseball arbitration, the
efficient procedures in which time and cost can be
powers of the arbitrators concerning the award
better controlled.
are narrowed down to a choice between two final
offers submitted by the parties, after an exchange
of written pleadings. The following is an example of
a baseball arbitration clause:

18 Id., 119.
19 www.whitecase.com/idq/winter_2008_tips

White & Case LLP 13


International Disputes QuarterlyFocus: An Arbitrators Perspective

Practitioner Recognition,
Practitioner Appointments and News
Practitioner Recognition Practitioner Appointments

Thirteen White & Case partners were ranked Paul Friedland (New York) has been appointed as
among The International Whos Who of Chairman of the AAAs Law Committee.
Commercial Arbitration 2009, tying the Firm
for the top spot worldwide for most lawyers Jonathan C. Hamilton (Washington, DC) has
recognized by the publication, which identified been named Chair of the Americas Initiative and a
White & Case as a global player in the member of the Executive Board of the Institute for
field. White & Case partners ranked were: Transnational Arbitration.
Paul Friedland, Carolyn Lamm, Abby
Cohen Smutny, Andrea Menaker, Jonathan Andrea Menaker (Washington, DC) has been
Hamilton, Phillip Capper, John Bellhouse, elected as Co-Chair of ASILs Dispute Resolution
Claes Zettermarck, Michael Polkinghorne, Interest Group.
Christopher Seppl, Stephen Bond, Patricia
Nacimiento and Kim Rooney. Ank Santens (New York) has been appointed to
the Executive Committee of the Foundation for
White & Case International Arbitration practice International Arbitration Advocacy (FIAA).
ranked tier 1 in Chambers USA and tier 2 in
Chambers Europe. Carolyn Lamm, Abby Cohen Anders Reldn (Stockholm) has been appointed
Smutny, Paul Friedland, Darryl Lew, Claes Chairman of the Arbitration Association for Young
Zettermarck, Stephen Bond, Christopher Lawyers at the SCC Institute (SYJ).
Seppl, Phillip Capper, John Bellhouse,
John Reynolds and Michael Polkinghorne News
were also ranked individually.
White & Case achieved a significant victory
White & Case was named as a leading law for the Republic of Bulgaria in the first Energy
firm in the recently published Whos Who in Charter Treaty arbitration to reach an award on
Legal Construction Lawyers 2008, with the merits at ICSID.
the Construction and Engineering Practice
highlighted as one of the pre-eminent outfits Patricia Nacimiento, formerly of German firm
for construction arbitration. Five partners from Nrr Stiefenhofer Lutz, joined White & Cases
across our European offices, Phillip Capper, International Arbitration Group as a partner
John Bellhouse, Ellis Baker (London), in its Frankfurt office.
Christopher Seppl (Paris) and Claes
Zettermarck (Stockholm), were singled
out as leading individuals.

14 winter 2009
White & CaseWorldwide

If you have any comments or questions regarding this newsletter or any of the matters discussed herein,
please contact any of the following members of the International Dispute Resolution Group:

New York + 1 212 819 8200


Paul D. Friedland pfriedland@whitecase.com
Ank Santens asantens@whitecase.com

Washington, DC + 1 202 626 3600


Peter Carney pcarney@whitecase.com
Jonathan C. Hamilton jhamilton@whitecase.com
Carolyn B. Lamm clamm@whitecase.com
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Andrea J. Menaker amenaker@whitecase.com
Abby Cohen Smutny asmutny@whitecase.com
Frank Vasquez fvasquez@whitecase.com

Paris + 33 1 55 04 15 15
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John S. Willems jwillems@whitecase.com

London + 44 20 7532 1000


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Robert Wheal rwheal@whitecase.com
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Stockholm + 46 8 506 32 300


Bengt ke Johnsson bengtake.johnsson@whitecase.com
Anders Relden anders.relden@whitecase.com
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White & Case LLP 15


International Disputes QuarterlyFocus: An Arbitrators Perspective

Almaty + 7 727 250 7491


Yuriy Maltsev ymaltsev@whitecase.com

Beijing + 86 10 5912 9600


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Tokyo + 81 3 3259 0200


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16 winter 2009
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