(This article is republished from Linkedin, originally posted on 8 January 2017.)
The UAE has been thriving as a regional arbitration hub, perhaps until now.
We saw the inception and success of the Dubai International Arbitration Centre (‘DIAC’); establishment of the DIFC-LCIA in the DIFC; and as recently as last month the launch of the Emirates Maritime Arbitration Centre (EMAC). Must we say DIAC is also set to open a branch in the DIFC.
Amidst the above developments has come a legislative amendment in the UAE law that has sent shockwaves and immense uncertainty in the arbitration community.
On 29 October 2016, Article 257 of the UAE Federal Penal Code No. 3 of 1987, was amended by Federal Decree Law No. 7 of 2016 to read:
“Anyone who issues a decision, expresses an opinion, submits a report, presents a case or proves an incident in favour of or against a person, in contravention of the requirements of the duty of neutrality and integrity, while acting in his capacity as an arbitrator, expert, translator or fact finder appointed by an administrative or judicial authority or selected by the parties, shall be punished by temporary imprisonment.
The aforesaid categories of persons shall be barred assuming once again the responsibilities with which they were tasked in the first instance, and shall be subject to the provisions of Article 255 of this Law.” [emphasis added].
Article 255 provides:
“Pardon from a penalty shall be granted to:
A witness who – if he tells the truth – may suffer serious damage which affects his freedom or honor, or may endanger his wife, even though they are divorced, or any of his ascendants or descendants, siblings or in-laws at the same degree of relationship.
A witness who divulges before the courts his name, surname and nickname when he is not supposed to give his testimony as a witness, and who has been warned that he may abstain from testifying if he wishes to do so.
In both the preceding cases, if a perjury subjects a person to criminal prosecution, he shall be punished by imprisonment for a period of at least six months.”
The above law, introduces criminal sanctions on those acting in capacities listed in the provision for failing to act with neutrality and integrity. It potentially puts an end to their career too.
Comparison with the old law
Prior to the amendment, Article 257 was limited in its application, both in terms of who it exposed to criminal sanctions and the threshold of mens rea or the mental element it required for Article 257 to bite.
Article 257 previously read:
“An expert who is appointed by a judicial authority in a civil or criminal action, and who knowingly resolves a matter contrary to the truth, shall be punished by detention for a period of at least one year, and shall be precluded from being an expert in future.
The expert shall be sentenced to imprisonment for term if his duty involves a crime. Provisions of the preceding two paragraphs shall apply to an interpreter who willfully translates incorrectly in a civil or criminal action. Provisions of Article (255) shall apply to the expert and the translator.”
The policy behind the old article 257 is relatively justifiable because its scope was limited to only court appointed experts and interpreters, both of whom deal with matters and statement of facts. The old article also required an intention to conceal the truth and to make incorrect translation of statements. A matter of fact or a statement to be translated can be either true or false. Either it is or it is not.
However, the new law expands criminal sanctions to court appointed and party appointed, arbitrators, experts, translators and fact finders.
Moreover, the liability is not restricted to intentionally acting untruthfully. It seems that the law imposes absolute liability, if the judge finds the arbitrator lacked impartiality or integrity, he/she would be criminally liable inspite of his/her intentions.
It also ought to be noted that the correlation between Article 255 and 257 may have been sensible under the previous provision of Article 257, because Article 257 previously dealt with matters of truth and false, and so does Article 255. Thus, a lying expert or translator under Article 257 could be treated in the same manner as a lying witness under Article 255.
However, now the criminal liability under Article 257 is not for acting untruthfully in matters of statements and facts. The scope of Article 257 now extends criminal liability for one’s conscience and impartiality. It remains unclear how Article 255 now sits neatly with the application of Article 257.
Policy, issues and difficulties in the application of the new law
Could it include mediators? Although the provision expressly applies to anyone acting in the capacity as arbitrator, expert, translator or a fact finder, it is unclear whether a mediator would also be caught by this provision. A mediator clearly expresses opinions and submits reports, and clearly does some fact finding in order to reach those opinions and make those reports.
Mens rea: The law does not specify the threshold of mens rea or mental element of arbitrators required for criminal liability. Under the previous law the mens rea or the mental element required for criminal liability was specific intention. The new law seems to impose a strict liability on arbitrators for not acting impartially or with integrity in view of whoever judges them.
Proving culpability: Proving lack of impartiality and integrity is to prove one’s conscience. The new law does not define or contain the meaning it attaches to the terms ‘neutrality’ and ‘integrity’. When dealing specifically with arbitrators, their role inherently gives them powers of discretion in decision making. Proving whether discretion was exercised with neutrality and integrity would not be as black and white as proving whether an interpreter translated a document or statement correctly. Unlike the interpreter’s translation of a statement from let’s say French to Arabic, which could be judged as either correct or incorrect; an arbitrator’s discretionary power to decide in favour or against a claim cannot be strictly demarcated as right or wrong.
Integrity is a matter of morals and principles, far less easily to be judged against that of an interpreter’s translation of words from one language to another. It has various layers and shades. My definition of fairness could differ from yours. However, under the new law it appears irrelevant whether an arbitrator’s neutrality or integrity was lacking according to the standards with which he was judged or when the arbitrator genuinely believed that he was acting neutrally or with integrity as per his discretionary standards.
Burden of proof: At least we hope that the burden of proving lack of integrity and impartiality will be upon the claimant and will have to be proven beyond reasonable doubt. The claimant must bring vital proof of dishonesty, corruption or prejudice, all of which are hard to prove in frivolous claims.
Frivolous and vexatious claims: The major concern for arbitrators is not one of being caught for acting partially and without integrity, but for vexatious claims by disgruntled parties.
It is not uncommon for the party with the unfavorable award to quickly make up its mind that the arbitrator was not impartial. While it may be true in rare cases, in the vast majority of cases it is not true to say that the arbitrator lacked neutrality. Parties could have a very subjective and emotional attitude towards the decisions of the arbitrator. An arbitrator could simply be applying the agreed rules of arbitration or the letter of the law, but may also be receiving subtle accusations of unfairness. It is not uncommon for the parties to scrutinise arbitrators with an emotional and subjective viewpoint. If one adds the new Article 257 to the mix, arbitrators could not only face subtle accusations but also vexatious or frivolous claims and constant threats.
Frivolous claims would, to say the least, frustrate the arbitration process.
Workability: As said, arbitrators have an inherent discretion given to them by the partiesand the very role of the arbitrator is to exercise that discretion in his/her decision making. Arbitrators act with their conscience when exercising discretion. It is not workable for an arbitrator to be held accountable to prove his/her state of mind, integrity, even-handedness and conscience each time he/she exercises that discretionary power.
Reputational damage: But even if an arbitrator is not found culpable, a frivolous legal proceeding would have a detrimental impact on an arbitrator’s professional reputation. Reputation plays a vital role in the arbitrators’ nomination and appointment. Under the rules of most arbitral institution, arbitrators have to simply sign a declaration of impartiality and no conflict, and the arbitrator’s word equates to prima facie evidence. This is the professional standard of integrity inherent in being an arbitrator. The reputation of arbitrators precedes them. Arbitrators are nominated by virtue of their good reputation, technical expertise, knowledge and application of fairness and justice. A frivolous claim could damage that reputation. Even if not found culpable, only a claim of impartiality is enough to taint the delicate nature of the reputation of administrators of justice: judges, lawyers, experts and indeed arbitrators.
Pool of arbitrators: Until there is further clarity on the scope and application of the change in law, I am quite confident to say that non-lawyer and international arbitrators might steer clear of the UAE arbitration scene for a while. If the stakes of being an arbitrator in a UAE arbitration are set too high, it could keep the pool of world accredited arbitrators away from the UAE.
The questions are, could an arbitrator really act more impartially and as per his/her sense of justice if being under pressure of criminal sanctions? What could be the impact of the pressure of criminal or reputational consequences if he presses a wrong nerve or upsets the party quite likely to initiate legal proceedings under Article 257?
The question is quite simple, could a hanging sword and constant threat of criminal proceedings improve decision making or affect it adversely?
If in the course of exercising that discretion, one party feels it has been treated unfairly, should it open flood gates for criminal penalties?
The new law opens flood gates for abuse of process.