Foreign arbitration option may soon become more attractive as there is a new UAE arbitration law being drafted which plans to simplify a number of aspects, including the enforcement of foreign arbitral awards, according to Hadef and Partners.

Many foreign companies entering into contracts with local companies in the UAE may naturally be concerned that should a dispute arise, it will end up in the local courts where the foreign company perceives the local company to have an advantage.

This perception is true in almost all countries in the world and is not peculiar to the UAE, the legal firm wrote in the monthly legal update.

One option that is sometimes chosen by foreign companies in these circumstances is to provide for foreign arbitration as a method of dispute resolution, for example, arbitration in a neutral foreign country such as Sweden.

“If the local UAE company is prepared to agree to such an arrangement, and this may not be a bad choice for the local company, then the next matter that the foreign company must consider is how easy or difficult it will be to enforce a foreign arbitration award in the UAE,” Michael Dark and Mahmoud Awad, authors of the report, said.

The UAE signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the “New York Convention”) in August 2006.

To date, some 142 of the 192 United Nations member states have signed the Convention including in the Middle East, Saudi Arabia, Qatar, Oman and Bahrain.

The convention came into being in 1958 and has been used extensively and effectively in many countries since then to enforce arbitration awards.

Broadly speaking, the intention of the convention is to ensure that an arbitral award obtained in one of the Convention countries can be enforced in any of the other convention countries as easily as if it were a domestic arbitration award in the country in which it is being enforced.

“The outcome of a foreign company pressing for arbitration outside the UAE in another convention country may be that the foreign company ends up with an arbitration award that is time consuming and expensive to enforce in the UAE and, possibly, that will ultimately be rejected by the Dubai courts as unenforceable because of non-conformity with one of the requirements for enforcement under the laws of the UAE,” the authors said.

Although initially attractive, foreign arbitration may not in fact be the best dispute resolution method to choose, the legal firm added.