The Abu Dhabi Court docket of Cassation affirms that brokers appearing below an influence of lawyer should have categorical and unambiguous authority to bind a consumer to arbitration | Okay&L Gates LLP
A recent decision by the Abu Dhabi Court of Cassation in Case No. 922 of 2020 has confirmed that an agent of a party (agent) acting under a Power of Attorney (POA) is only authorized to enter into an arbitration agreement on behalf of the party that He represents (the client) if the POA authorizes the representative to do so in clear and unambiguous terms.
A contractor (contractor) has two subcontracts with a subcontractor (subcontractor) for construction work (subcontracts). Both subcontracts contained arbitration agreements. The subcontractor’s agent (subcontractor’s agent) acting under a properly notarized POA (First POA) signed the subcontracts on behalf of the subcontractor. The first POA granted the subcontractor’s agent full authority and authority to act on behalf of the subcontractor, but that authority was stated to be without prejudice to Article 58 (2) of the United Arab Emirates (UAE) Civil Procedure Act. 1 Article 58 (2) of the Civil Procedure Act of the United Arab Emirates states that no admission or waiver of a right, settlement or submission to arbitration may take place without special authorization. A few years later and after completing the subcontracting work, the subcontractor gave his agent another POA (Second POA). The Second POA granted the subcontractor’s representative all management powers and the authority to perform the acts described in Article 58 (2) of the UAE Code of Civil Procedure, including the power to bind the subcontractor to arbitration agreements.
A dispute arose over the contractor’s failure to pay amounts due under the subcontracts. The subcontractor brought an action before the court of first instance, which dismissed the action because of the existence of the arbitration agreements. In the appeal proceedings, the appellate court upheld the judgment of the court of first instance. Relying on the authority given by the second POA to the subcontractor’s representative to perform the acts set out in Article 58 (2) of the UAE Civil Procedure Act, the appellate court found that the second POA had ratified the previous arbitration agreements. After another appeal, the Court of Cassation overturned the judgment and ruled that the arbitration agreements were void and unenforceable. The Court of Cassation has therefore referred the matter back to the Court of First Instance for a decision on the merits of the action.
In making this decision, the Court of Cassation noted that at the time the subcontracts were signed, the subcontractor’s representative did not have the authority to arbitrate disputes, which authority must be clearly stated without ambiguity or doubt. The Court of Cassation rejected the argument that the Second POA was issued to confirm the authority of the subcontractor’s representative to sign the subcontracts and acts as a subsequent ratification of the arbitration agreements. While it is possible to ratify an existing arbitration agreement, there was no such ratification in the present case. The second POA was issued after the subcontracted work was completed and only applied to new orders.
In the United Arab Emirates, an arbitration agreement is still generally considered a derogation where the parties agree to resolve disputes through arbitration rather than litigation. UAE civil procedural law makes it clear that any filing for arbitration requires a special authority (e.g. a POA).
The decision of the Abu Dhabi Court of Cassation in this case confirms that the authority granted under a POA is narrowly construed and that if there is any ambiguity or doubt as to the agent’s authority to bind the principal to arbitration, it is likely to be decided that there is no valid and enforceable arbitration agreement.
This case underscores the importance of clear and precise wording when preparing a POA. If the client intends to authorize its agent to enter into arbitration agreements on its behalf, this authority should be clearly and explicitly stated in the POA in order to reduce the risk of contestations of the enforceability of the arbitration agreement and subsequent disputes over jurisdiction.
1 Federal Law No. 11 of 1992 as amended.