Arbitration in the Middle East and North Africa. Is it possible?

11 May 2021 - Christian Steiner

I. What you should know about arbitration in the Middle East and North Africa: It is every entrepreneur’s nightmare when quarrels with a business partner end up in court. The risk of this happening is greater when there is a clash of very different business cultures, and even more so in a volatile economic and political environment such as that found in some country in the Middle East and North Africa (MENA). This makes it all the more important to properly record the agreements and to prevent concomitant risks. The decision on the place of jurisdiction, the applicable law and, if necessary, the recourse to arbitration, represents an important point of departure. It is an understandable reflex of many a company to rely more on their own law and courts, especially when in Europe or North America. However, this choice does not necessarily correspond best to one’s own interests. The enforceability of foreign titles or arbitral awards must also be taken into account, as well as the question of whether it is more likely in the specific contractual relationship that one will sue or be sued.

II. Basics, Advantages and Disadvantages of International Dispute Resolution by Arbitration

The advantages and disadvantages of arbitration can be briefly summarised: Those who have a say in the composition of the tribunal, the choice of venue, the applicable substantive and procedural law, the language of the proceedings, etc., have a greater chance of a fair judgment by an independent and impartial adjudicating body, especially in states with weak jurisdictions. Established arbitration institutions ensure relative efficiency and effectiveness. And the award is enforceable in large parts of the globe, including the MENA region (excluding Libya, Yemen and Iraq), thanks to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The latter cannot be said for the enforcement of foreign judgments. There is a reason why arbitration is popular especially in exporting nations.

With regard to duration and costs, however, a distinction must be made. Arbitration proceedings are rarely shorter than court proceedings at first instance, but they also have only one instance and are therefore regularly shorter than two or even three instances before the state courts. As in the latter, the duration of arbitration proceedings depends not least on the parties themselves, who can artificially prolong proceedings through extensive cross-examination or the use of so-called guerrilla tactics (especially the overloading of the so-called document production phase). It should also not be forgotten that an arbitral award can usually still be challenged before the state courts and must in any case be declared enforceable. The minimum costs of arbitration are relatively high because not only the arbitral institution, but also the judges and the party representatives have to be paid. Everything is private. However, the higher the amount in dispute, the better the proportion between the amount at stake and the arbitration costs, also compared to state courts. If a lot of money is at stake, it is usually advisable to include an arbitration clause in the contract. If the monetary stakes are low, private dispute resolution is not worthwhile unless there are other reasons, such as confidentiality or clearly deficient judicial structures.

III. Important choice of law: Civil law or common law?

Even if the advocates of the Anglo-American legal tradition want to give us the impression that only a 50-page contract is a proper contract, one can do without it with a clear conscience if one succeeds in convincing the contracting party to declare continental European law – German, Swiss or others – to be applicable. The laws on the continent say most of what needs to be said and the courts have decided the rest. This acquis, if included in the contract with the appropriate choice-of-law clause, provides a high degree of legal certainty and saves costs in the drafting of contracts. The ambivalence between civil law and common law also affects arbitration, which is why an explicit choice is also recommended with regard to the applicable procedural rules. 

“Oriental” Arbitration?

But what about arbitration in the MENA region? How should foreign companies position themselves, what can they expect? Extrajudicial dispute resolution also goes back a long way in Arab countries. Deeply rooted in Islamic culture is the duty to resolve conflicts amicably (sulh). In “the West”, the focus is on the individual and his or her freedom. In business, the Western businessman swears by the triad of a fair trial, the steadfastness of contractual agreements and entrepreneurial freedom. Conflict resolution based on contract and law before a court of law or arbitration is standard. 

In Islamic countries, things are (still) different: the personal relationship between contractual partners is more important than the legal one. Business relationships are less subject to clear contractual and legal provisions but have a strong interpersonal component. It follows that conflicts tend to be resolved through negotiation and mediation. The moral duty to settle amicably not only persists in the business world, but also feeds into state dispute resolution mechanisms and arbitration. 

However, in countries with a strong international presence, the Western approach of conflict resolution based on rules has largely prevailed in the specialised courts for trade and investment. By the way: Western legal culture is also no stranger to fair and negotiated solutions in which neither side comes away completely empty-handed.Some MENA states are making efforts to bring their national arbitration law up to date, and the courts are increasingly showing a willingness to enforce arbitral awards, both in application of the New York Convention, but also on the basis of regional agreements, in particular the Riyadh and Gulf Cooperation Council agreements. In contrast, there are still judgments by state courts which, despite valid arbitration agreements, declare themselves competent or refuse recognition and enforcement on the basis of the public policy rule.

V. Arbitration clauses are particularly worthwhile for larger investments with potentially high amounts in dispute.

Consequently, there is much to be said for securing larger investments in the region through arbitration clauses. The decision must then be made whether to use the renowned European institutions or to trust a local or regional body. For these also exist. In the Gulf, the UAE offshore jurisdictions Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) are the preferred arbitration venues. Their arbitration rules are based on the UNCITRAL Model Law with a noticeable infusion of English arbitration law. Egypt has the largest arbitration tradition in the region, having signed numerous relevant conventions and having adapted its arbitration law to international standards as early as 1997. The jurisdiction can also be described as arbitration-friendly. Since 1979, disputes can be submitted to the Cairo Regional Centre for International Commercial Arbitration (CRCICA) for settlement. 

In Morocco, where a major overhaul of the national arbitration law is imminent, there are a number of options such as the Centre de Médiation et d’Arbitrage de Casablanca (CMAC), the Centre International de Médiation et d’Arbitrage de Casablanca (CIMAC) or the new African Mediation and Arbitration Court (CAMAR) in Marrakech for investment and commercial disputes in Africa. There is, of course, also the Moroccan ICC branch for those who are not inclined to experiment. The choice for a local arbitral institution as administrator of the proceedings can significantly reduce costs compared to the European classics and simplify enforceability if the award is treated as a national judgment. The quality of the arbitrators and the proceedings need not suffer, provided that the parties retain influence over the composition of the panel through an appropriate arbitration clause.

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