On December 16, 2024, the Abu Dhabi Court of Cassation – Second Commercial Cassation Circuit issued a landmark decision in Case No. 1154/2024, annulling an arbitral award rendered against a party undergoing bankruptcy proceedings. This ruling establishes a significant precedent, reinforcing the primacy of UAE bankruptcy laws and procedures over arbitration clauses by affirming the exclusive jurisdiction of bankruptcy courts.

Background of the Case

The dispute arose from arbitral proceedings conducted under the Abu Dhabi Conciliation and Commercial Arbitration Centre (ADCCAC), where an award was issued against a company undergoing bankruptcy proceedings in the UAE. Triumph & Co. challenged the tribunal’s jurisdiction and sought bifurcation of the jurisdictional challenge, citing the public order nature of the UAE Financial Restructuring and Bankruptcy Law No. 51 of 2023 (the “Bankruptcy Law“), which grants exclusive jurisdiction to the bankruptcy courts and renders arbitration agreements inoperative in such cases. The tribunal dismissed the bifurcation request, end eventually issued an award including a rejection of the jurisdictional challenge and an award on merits against our client.

Key Legal Issues Addressed by the Court of Cassation

Exclusive Jurisdiction of Bankruptcy Courts

Triumph & Co. sought the annulment of the arbitral award based on Article 53(2) of Federal Arbitration Law No. 6 of 2018, arguing that the UAE Bankruptcy Law constitutes a matter of public order.

The client’s declared bankruptcy should alone be sufficient to render the arbitration agreement inoperable, by force of a compelling law that is part of the public order, granting exclusive jurisdiction to the bankruptcy court over the dispute.

The Court of Cassation, citing Article 5 of the Bankruptcy Law, reaffirmed that disputes arising from bankruptcy proceedings fall within the exclusive jurisdiction of bankruptcy courts. The court emphasized the legislative intent to centralize all bankruptcy-related disputes within a single judicial body to ensure consistency and fairness.

Given the mandatory nature of bankruptcy procedures, the tribunal’s assertion of jurisdiction was deemed a violation of this fundamental principle.

Res Judicata in Bankruptcy Proceedings

The claimant in the arbitration had previously attempted to get listed as creditor in the bankruptcy proceedings by approaching the bankruptcy trustee, but the claim was dismissed. The Dubai Court of First Instance later dismissed the claimant’s grievance for being time-barred.

In its ruling, the Court of Cassation held that the arbitral proceedings and the resulting award contravened the res judicata principle. Article 123 of the Bankruptcy Law explicitly prohibits the reconsideration of claims already adjudicated in bankruptcy proceedings, given the exclusive jurisdiction of bankruptcy courts.

Thus, the arbitral tribunal’s decision to reassess the same claim further violated the exclusive jurisdiction of the bankruptcy courts.

Court of Cassation’s Reasoning

The court interpreted Article 156(1) of the Bankruptcy Law as explicitly prohibiting individual claims against a company declared bankrupt. This prohibition safeguards the principle of collective liquidation, ensuring that creditors do not gain unfair advantages through separate legal actions. The court underscored that these principles form part of the UAE’s public order.

The ruling further clarified that bankruptcy court jurisdiction, as an extension of the UAE judicial system, is exclusive and mandatory in matters involving the application of the Bankruptcy Law.

Since jurisdictional rules concerning bankruptcy are matters of public order, the arbitral award was found to be in violation of UAE law and was therefore annulled.

Final Decision

The Abu Dhabi Court of Cassation ruled that the arbitral award violated public order by breaching mandatory provisions of the Bankruptcy Law, including the exclusive jurisdiction of bankruptcy courts. Consequently, the court annulled the award.

Legal Implications

This judgment sets a critical precedent for legal practitioners and stakeholders in the UAE’s legislative landscape:

• Mandatory Nature of Bankruptcy Laws: The court underscored the binding nature of UAE bankruptcy and insolvency laws, emphasizing their role in ensuring equitable treatment of creditors and serving broader societal interests.
• Exclusive Jurisdiction of Bankruptcy Courts: While the Bankruptcy Law does not explicitly use terms such as “exclusive” or “compelling” regarding jurisdiction, the Court of Cassation affirmed this principle, aligning the UAE legal framework with international insolvency practices, including those of France and Lebanon.
• Impact on Arbitration Agreements: The ruling confirms that bankruptcy matters override arbitration agreements. It establishes that (i) arbitration clauses cannot supersede the jurisdiction of bankruptcy courts and (ii) final bankruptcy court decisions are binding and cannot be revisited in arbitration or other proceedings.

• Clarification of Public Order: While public order remains a broad and often ambiguous legal concept, the court articulated a definition, stating that public order was “one of the essential safeguards the respect of which is a priority in all acts and judgments, for it is relating to the ultimate interest of the society and to the social or political or economic or ethical basis on which the State is founded”.

Conclusion

The Abu Dhabi Court of Cassation’s ruling in Judgment No. 1154/2024 serves as a critical precedent, delineating the boundaries between arbitration and judicial proceedings in bankruptcy cases. This decision reaffirms the UAE’s commitment to upholding public order, ensuring procedural integrity, and protecting creditor rights within a robust bankruptcy framework.

This article has been prepared by:

Cesar Ghaleb– Founding Partner, Dubai
Nour Abi Rashed– Associate, Dubai