In May 2010 Sultan bin Saeed Al Mansouri, the UAE Minister of Economy, said that by the end of the year the Government expected to pass a law governing commercial arbitration.
The idea was to strengthen the country's investment environment. The minister said arbitration "is one of the key instruments to resolve disputes amicably, and thus enhance investor confidence". And, he added, the law would "help prevent accumulation of cases in courts".
But 13 months later, the proposed law remains a work in progress, its final form still being debated.
The lack of a federal law is no doubt the biggest challenge to arbitration in the UAE. Although several drafts have been circulated among local authorities for consultation over the years, there is still no law. This is supposedly because of the UAE's caution about foreign arbitration awards, but that would be quite puzzling, since the UAE is already a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The UAE signed on in 2006, a move which curtailed the courts' ability to interfere with foreign arbitration awards.
The current problems with arbitration are due to the limited number of arbitration provisions in the UAE legal code; the lack of certainty about how those provisions are to be applied; and the fact that in many cases arbitration proceedings are subject to the intervention and supervision of the courts, which undermines the authority of arbitrators.
The precondition of court validation renders arbitration - which after all is intended to avoid litigation - a waste of time and money. Local courts, guarding their jurisdiction jealously, accept challenges of arbitral awards and can impose hefty fees. There is also the cost of translating all documents into Arabic.
No wonder there is near-unanimous agreement that the existing law does not provide an adequate framework for either domestic or international arbitration.
In May 2010, amid talk of the promised new arbitration law, some criticisms of the then-current draft were heard. One contributor was quoted as saying that "the point (of arbitration) … is beaten if things get complicated".
A review of the current draft suggests that such criticism remains valid. The current draft appears to rely heavily on a so-called model law provided by the United Nations Commission on International Trade Law (UNCITRAL).
Notes introducing that model law say "the smooth functioning of … arbitral proceedings would be enhanced if states were to adopt the model law, which is easily recognisable … and provides an international standard … acceptable to parties from different states and legal systems".
But the UAE draft law attempts its own version of the model law, rather than heeding the advice to "adopt the model law" outright.
The review also says the draft UAE law leaves it unclear whether a standard form arbitration clause can be inferred in a contract to arbitrate, and notes that Article 56 of the draft seems to contradict the most important feature of arbitration, namely the need for arbitral awards to be final and binding.
While drafting of the new federal arbitration law continues, and the local courts continue to look into arbitral awards being challenged, a 2009 protocol between the Dubai International Financial Centre (DIFC) and the Dubai courts ensures that the Dubai courts will enforce DIFC awards without reviewing the merits of the judgement.
In addition, DIFC has signalled a general desire to minimise judicial intervention in arbitrations by adopting the UN model law as the basis of its own arbitration law, setting a new benchmark for arbitration in the region.
Geographically, the UAE makes sense as a seat for arbitration involving companies based in Eastern Europe, Africa and Asia. The agreement between DIFC and the Dubai Courts, and provisions of the 2008 law, should mean that parties covered under it will have access to comparably high quality arbitration resources - such as those found in Europe or the US - but with less hassle, travel, cost and inconvenience.
In addition, there are high hopes for greater transparency, fairness and consistency in arbitration proceedings in the region.
However, the vast majority of UAE-based contracts entered into outside DIFC, and prior to September 2008, are still subject to the comparatively archaic and unpredictable UAE code, since before September 2008 parties could not select DIFC as an arbitration seat.
So what can such parties do, and what is the future of the other arbitration centres in the UAE? Passage of a federal arbitration law might help answer these questions.
Diana Hamade is an Emirati lawyer based in Dubai