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In a landmark ruling, time limits to file an arbitration case are not deemed as a binding condition precedent.

M&A was retained to represent the purchaser of a real estate property (“Claimant/Client”) in relation to a dispute against a Dubai based renowned real estate developer (“Developer/Respondent”)

Facts

The Claimant and the Respondent had entered into a Sale and Purchase Agreement (“SPA”) for the purchase of a unit located on Al Marjan Island in Ras Al Khaimah (“Unit”) for which our Client has paid 70% of the purchase price (“Paid Amount”). The completion date as per the SPA was 30th June 2011. The Developer breached its contractual obligation by failing to complete the building and handing-over the Unit by the completion date.

The SPA contained a dispute resolution clause which reads: ‘In the event of any dispute between the Parties…, the Parties shall, within ten (10) Business Days of a written notice from any party to the other party hold a meeting at the Seller’s head office (Developer) in Dubai, in an effort to resolve the dispute. Any dispute which is not resolved within twenty (20) Business Days after the service of the notice, whether or not a meeting has been held, shall, at the request of either party made within twenty (20) Business Days of the notice being given, be referred to arbitration under the rules…’.

Upon the Claimant’s instruction, we applied for arbitration before the Dubai International Arbitration Centre (“DIAC”). The application was filed 38 business days after the service of notice for negotiation.

We requested the following on the Claimant’s behalf:

  1. The termination of the SPA and refund of the Paid Amount; and
  2. Order the Developer to pay all legal fees and arbitration costs plus 12% interest on the Paid Amount from the date of the application of the arbitration until full refund.

Parties’ Arguments

A. Respondent’s arguments:

At the outset, the Respondent challenged the admissibility of the arbitration process on the grounds that the Claimants have failed to respect the pre-conditions to arbitrate. The Respondent contended that pursuant to the arbitration clause, the Claimants were obliged, within 20 business days of the notice to the Respondents to refer to arbitration the unresolved dispute. Such obligation constitutes a condition precedent to the service of a valid arbitration claim. Therefore, a failure to fulfill such condition is a breach of the ‘pacta sunt servanda’ principle.

The Respondent argued that since the application was not filed within this time-limit, the Claimant breached the pre-conditions and therefore, the Tribunal should decline jurisdiction to hear the claim and dismiss the claim entirely.

B. Claimant/Our Arguments:

We argued that although the arbitration clause has stipulated the negotiation period to settle the parties’ disputes as a pre-condition prior to refer the dispute to arbitration, it is ambiguous and has failed to provide a clear and precise date on which the dispute could be referred to arbitration should amicable negotiations fail. It is presumed that the “20 Business Days” period is the period during which the parties shall try to reach an amicable settlement, which means, logically, that such negotiation period should be entirely exhausted prior to either party resorting to arbitration.

Further, the time limit referred to in the arbitration clause is not ‘mandatory/binding’ but is ‘regulatory/non-binding’ and wouldn’t justify the dismissal of the case if not respected. In support of our argument, we referred to a landmark judgment rendered by the Dubai Court of Cassation in a labor dispute, in which the Court ruled that: ‘the legislator merely stipulated the initial application to the labor department for possible amicable settlement by either the employee or the employer prior to referring to court and not the compliance with the two-week requirement to refer the case by the labor department to the court, since such date is merely regulatory.’.

We further argued that the legal doctrine has differentiated between a ‘regulatory’ and ‘mandatory’ date. A mandatory date is the date for which the law provides a penalty if disregarded, whether this date is imposed by law i.e. ordered by the Court according to a specific law, or agreed between the parties to comply with. As for the regulatory date, it is the date where neither the law nor the contract has provided a penalty if disregarded.

Tribunal’s Analysis

The Tribunal was of the opinion that the Respondent is challenging the admissibility of the claim on the grounds that the Claimants failed to comply with the pre-conditions to arbitration but is not challenging the jurisdiction of the Tribunal itself. The jurisdiction of the Tribunal was not contested by either party. Accordingly, taking into account the arbitration clause in the SPA, the Tribunal rejected the contention of the Respondent that the Tribunal does not have jurisdiction.

In its analysis, the Tribunal found that the time limit for resorting to arbitration is ambiguous and insufficiently certain, which makes it impossible to give it literal meaning. The Tribunal found that the time limit for resolving the dispute and the time limit for filing the claim overlap as both dates start and end concurrently making it vague and insufficiently certain to create an enforceable and binding obligation on the Claimant. Furthermore, the Tribunal was of the opinion that the pre-conditions to arbitration are procedural steps to be performed prior to submitting the request for arbitration; therefore, concluding that pre-conditions are considered to be purely procedural in nature.

In light of such ambiguity, the Tribunal decided to interpret the arbitration clause based on the real intention of the parties and not the literal meaning of the contractual wording, taking into account the requirements of good faith. In this respect, the Tribunal concluded that the parties intended to devote the entire “20 Business Days” period for the attempt to settle the dispute amicably prior to resorting to arbitration. As such, the time limit of the “20 Business Days” period for amicable settlement should expire before resorting to arbitration in order to ensure that the parties have taken full advantage of the negotiation process period.

In view of the above, the Tribunal decided the following:

  • That the time limit for filling the arbitration is unenforceable and not binding and that the Claimant has satisfied the pre-condition to arbitration;
  • To allow the termination of the SPA;
  • The Respondent to refund to the Claimant the Paid Amount plus 9% interest calculated from the date of the request of arbitration until full payment; and
  • The Respondent to bear the costs of the arbitration.

For further info on the above case, please contact Ashraf El Motei at a.motei@motei.com

Ashraf heads the dispute resolution practice in Motei & Associates, a Dubai based law firm (www.motei.com). He specializes in civil and commercial litigation and has particular focus on international arbitration. His practice encompasses a broad spectrum of substantive areas with specific focus on all types of real estate disputes including sale and purchase disputes, distressed/ canceled developments, enforcement of judgments and security, employment, professional negligence and health care disputes.

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