The Gulf states do not have a reputation for establishing user-friendly means of dispute resolution. The courts are generally regarded as slow, ineffectual and hostile to arbitration and enforcement. Some jurisdictions, particularly Dubai and Bahrain, have taken steps to introduce innovative reforms to both:

This article examines the reasons behind these reforms and looks at what is required to increase confidence in the dispute resolution procedures in the region, focusing on:

The Gulf states are made up of Saudi Arabia, Kuwait, Oman, Qatar, Bahrain and the United Arab Emirates (UAE). These states have formed themselves into the Gulf Co-operation Council (GCC), with the long-term aim of legal, political and financial co-operation and integration. In recent years, the GCC states have enjoyed a sustained period of economic development, which has drawn investment and workers from overseas. The region's sovereign wealth funds have invested enormous sums of capital in the developed and developing world. The domestic economic boom, driven in part by high energy prices, brought significant investment in construction, real estate, infrastructure and transport projects, and rapid growth and sophistication of the ambitious and expanding private sector.

However, since 2008, the region has also been deeply affected by the economic downturn, with large and complex disputes arising as a result.

With the exception of Saudi Arabia, where the courts apply law based on the Islamic Sharia, the GCC's legal systems are based on the civil law model. The foundation of these legal systems are civil and commercial codes based on those adopted in Egypt and Ottoman Turkey, themselves adapted to incorporate and conform with Islamic precepts. The courts of the non-Saudi GCC jurisdictions also operate on a Franco-Egyptian model. There is no system of precedent and judgments are often unpublished. Proceedings are in Arabic, mainly on the basis of written submissions, with a heavy emphasis on the primacy of documentary evidence and little reliance on live evidence.

Rapid growth in the region has put pressure on the GCC's legal systems. Legal reform has been unable to keep up with major changes in the business sector, particularly the growth in finance (both mainstream and Islamic) and the real estate sector. The recent financial downturn exacerbated the problems:

There is also a lack of effective tools at the judges' disposal. The UAE courts' civil procedure demonstrates some of the systemic difficulties. The civil procedure rules were enacted recently, in the early 1990s. However, they lack modern case management tools to resolve a dispute in an efficient and cost-effective manner according to the particular requirements of the dispute. For example:

Steps have been taken on a pragmatic basis to divert, where possible, disputes away from the mainstream courts. In particular, Dubai has established a number of ad hoc bodies to deal with specialist consumer and real estate disputes. More generally, Dubai has embraced a form of mediation to encourage settlement of disputes before they reach the courts. The Law of Establishment of Amicable Settlement of Disputes Centre (Law No. 16 of 2009), issued in September 2009, establishes an institution called the Amicable Settlement of Disputes Centre (Centre).

All disputes that fall within the scope of this law must be submitted to the Centre. The Centre then works on settling the dispute amicably within a maximum period of one month.

The Centre has jurisdiction in all non-urgent matters arising after its establishment (except where government parties are involved). The Centre must review the matter and make a decision in the form of a reconciliation order. The Centre's role in the amicable settlement appears to be that of adjudicator (although one who issues non-binding decisions) rather than traditional mediator (who would be expected to act as an intermediate in assisting the parties in reaching a settlement themselves).

In the mid-2000s, the Dubai government decided to attempt to become a world-class financial and legal centre. It understood that it would therefore need to reform existing institutions and laws. Any wholesale reform would be time-consuming and politically difficult if it had general application in the federal UAE. To solve this problem, the Dubai government successfully lobbied to amend the UAE constitution to allow the establishment, in 2004, of the Dubai International Financial Centre (DIFC). The DIFC is a geographical zone located in the centre of Dubai's business district in which both:

The laws and courts of the DIFC were based on those found in the world's most successful financial and legal centres. These include London, Singapore and Hong Kong, all of which are founded in English common law rather than the civil law that prevails in the non-Saudi GCC. However, the DIFC court is a Dubai court and its judgments are enforceable in Dubai, the wider UAE and (at least in theory) the wider GCC under international treaty.

The senior judiciary appointed to the DIFC court also come from common law backgrounds, and all are experienced judges and arbitrators with international recognition in key legal fields such as:

Shortly after the court was established, the DIFC also recruited local lawyers to be trained as the next generation of judges (taking continuity and regional considerations into account).

When Dubai first announced its plans to establish a DIFC court, the business community hoped that it would be possible to contract into the jurisdiction even if the contract had no connection with the DIFC (just as parties can in other leading legal centres). Had this been the case, it is likely the DIFC court would have had a major effect on the region's commercial and financial sectors. However, the right to opt into DIFC jurisdiction was rejected. Instead, the DIFC court can only hear matters in relation to which the parties can demonstrate a geographical connection with the DIFC. The court's first decision on jurisdictional issues, issued in March 2010 (Dr Lothar Ludwig Hardt and Hardt Trading FZE v Damac (DIFC) Company Limited et al ( CFI 036/2009)), indicates that the court takes a strict view of the limits of its jurisdiction. In that case, the court decided that it would respect the parties' contractual election to opt out of the court's jurisdiction, even though parties from outside the DIFC cannot presently opt in.

The DIFC court may have a wider jurisdiction in the future. The chief justice of the DIFC court, Sir Anthony Evans, has been quoted in local press reports as saying that there are discussions about extending the court's jurisdiction to include specific types of commercial cases such as shipping, banking and financial services.

The international legal and business community would certainly welcome this move. However, it is clear why some prominent members of the local legal community dislike the idea of two-tier justice systems and incremental improvement to the system, rather than the fundamental reform to the mainstream local courts, to address the challenges highlighted above.

The DIFC's laws and court have recently come to international prominence because of their role in the proposed restructuring of the Dubai World Group (the debt-laden quasi-public sector business group) and its subsidiaries. The ruler of Dubai established the Dubai World Tribunal under Decree No. 57 of 2009 (Decree), in which it was decreed that any restructuring of Dubai World would be administered under a special amended version of the DIFC insolvency law. The Decree establishes a three-judge tribunal with jurisdiction to hear any demand or claim submitted against Dubai World (or any of its subsidiaries). The presiding tribunal members are also DIFC judges.

This development surprised the legal community. The Dubai World Group and its subsidiaries were not DIFC entities and had no connection with the DIFC. The official explanation was that there was no other statutory regime that applied to Dubai World if an insolvent liquidation or restructuring was required. This was because Dubai World was itself established by decree rather than as a typical limited liability company. However, this explanation failed to explain why the Decree would also apply to the many prominent Dubai World subsidiaries (such as real estate giant Nakheel, which built the famous Palm Island), which are normal limited liability companies registered in Dubai and subject to the Dubai courts' jurisdiction.

It appears that the more likely explanation is that the Dubai government saw that international creditors were much more likely to understand and accept a tribunal composed of reputable DIFC judges, applying an insolvency law based on international norms. It was a brave step and an important acknowledgement that the DIFC court has acquired the international credibility to take on the most difficult, sensitive and high-profile disputes in Dubai.

The concept of arbitration is understood to have a sound grounding in Islamic jurisprudence. However, international arbitration has been regarded with suspicion by the public sector since the 1950s, when western arbitrators rendered some high-profile arbitration awards in cases involving the ruler of Abu Dhabi and Saudi Aramco. It appears that government circles continue to perceive that arbitration favours foreign parties and should be avoided. Equally, foreign parties have historically lacked confidence in local courts' approach to the recognition and enforcement of arbitral awards.

Despite this background, domestic and international arbitration is an increasingly popular means of dispute resolution in the Gulf. Indeed, sophisticated businesses regard arbitration as an indispensible solution to the problems in enforcing contracts in the region, and these disputes have long been referred to be decided in jurisdictions with well-established arbitration procedures, such as London and Paris.

During the last decade, many Gulf-based arbitration centres have been established or re-organised in an attempt to promote arbitration in the region. Dubai has made an effort to promote itself as an international and domestic arbitration centre in its own right. These efforts have been led by prominent local practitioners and the Dubai International Arbitration Centre (DIAC), a respected body that is linked to the Dubai Chamber of Commerce, but operates independently. DIAC is a busy arbitration centre, particularly in relation to domestic construction and real estate disputes. The arbitration rules that DIAC has adopted are both:

DIAC has also attained credibility by appointing an independent board of trustees that includes some of the international arbitration community's most senior figures. As Dubai's legal community has developed, a critical mass of experienced arbitrators and practitioners has been attained.

Progress in promoting the UAE as an arbitration seat was also made in 2006 when it joined all of the other GCC states in ratifying and implementing the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). This ensured the reciprocal recognition of arbitral awards with more than 150 jurisdictions worldwide. However, efforts to promote the UAE as a credible international arbitration seat are hampered by an outmoded local arbitration law. The arbitration law (contained in the UAE Civil Procedures Law) provides both:

Before an award is enforceable, parties must apply for the court to have the arbitral award ratified. This provides an opportunity to the losing party to raise unwelcome and often unmerited procedural challenges to the ratification process, which can lead to further litigation and expense, with the potential for the dispute to proceed through all three tiers of the municipal courts. This undermines the speed and finality of the arbitration process, which should be one of its principle attractions. A similar law also exists in Qatar and has similarly detracted from the finality of the arbitration process in that jurisdiction.

The UAE courts have demonstrated hostility to the arbitral process, setting aside or refusing to ratify awards on what appear to be trivial grounds. For example, awards have been struck down:

These decisions detract from the UAE's reputation as a seat for arbitration, particularly when there is a state party involved. Although anecdotal evidence suggests that the courts now take a more constructive view of the utility of the arbitral process, more assurance will be required before the UAE can hold itself out as a serious contender for neutral parties as a world-class arbitration seat.

A modern federal arbitration law has been under discussion for many years. It is expected to become statute later this year. The latest draft of the arbitration law, which is not in the public domain, is said to be a modified version of the respected UNCITRAL Model Law on International Commercial Arbitration 1985, as amended in 2006 (UNCITRAL Model Arbitration Law). The UNCITRAL Model Arbitration Law has already successfully been implemented in Oman and Bahrain to deal with international arbitration, as well as in numerous leading jurisdictions worldwide. It is hoped that whatever modifications are made do not detract from the UNCITRAL Model Arbitration Law.

It is extremely important to ensure that the judges applying the new law understand and recognise the precepts that underpin it (that is, to keep judicial intervention to a minimum, promote finality and to enforce awards where possible). Dubai has again taken a lead in attempting to tackle these issues. Dubai authorities have used the DIFC as a vehicle to establish a separate arbitration regime within the free zone. The DIFC arbitration law, which was introduced in 2008, is almost entirely based on the UNCITRAL Model Arbitration Law and is administered by the DIFC court. Parties with no connection to the DIFC can pursue arbitration in the DIFC and disputes need not relate to financial matters. The DIFC has also entered into a joint venture with the London Court of International Arbitration (LCIA) to establish an arbitration centre within the DIFC. The DIFC-LCIA arbitration centre introduced its new rules of arbitration in 2008 and they are closely modelled on the existing LCIA rules.

There are legal uncertainties in the new DIFC arbitration regime. The open door policy to parties outside the DIFC has provoked a rare public debate among some prominent UAE lawyers. Some of these lawyers claim that the DIFC was only ever authorised to promote and regulate financial and ancillary services within its borders and, consequently, the DIFC court does not have jurisdiction to supervise such proceedings. Therefore, there may be scope to challenge the enforcement of any award that does not relate to the provision of financial or ancillary services.

It is too early to tell whether these arguments have a serious basis. A more practical concern is whether the DIFC court has effective powers to support the arbitral process in relation to non-DIFC parties, their assets, evidence and witnesses. This may depend on the degree of co-operation that the DIFC court receives from its "onshore" counterparts in the UAE. Despite these uncertainties, the existence of an alternative arbitration seat within Dubai that is based on international best practice and administered by the respected DIFC court has been widely welcomed by the international legal and business community as an important and necessary step.

Bahrain has long sought to be the acknowledged financial centre of the Gulf. Bahrain already leads much of the Gulf, as it has followed the UNCITRAL Model Arbitration Law since 2004. In 2009, Bahrain introduced Legislative Decree No. 30, which seeks to reform both:

This initiative, which has been promoted in conjunction with the American Arbitration Association (AAA), will result in the establishment of a new institution called the Bahrain Centre for Dispute Resolution (BCDR). This will play a significant role in administering arbitrations and other disputes involving international parties.

The most radical aspect of the reform is the introduction of a form of statutory adjudication for all disputes both:

These cases will automatically be diverted away from the mainstream Bahrain courts to a three-person tribunal. That tribunal will be composed of:

The civil procedure rules to be applied to these disputes are not yet published, but it appears that proceedings will be administered by the BCDR and will not be subject to appeal except in limited circumstances. The tribunal will apply the law chosen by the parties or, if no choice has been made, Bahraini law. Although parties will be entitled to appoint international counsel, they must also be represented or accompanied by a Bahraini lawyer with rights of audience before Bahrain's highest courts. The default language will be Arabic unless the parties agree otherwise.

The civil procedure reforms are still being implemented and it is too soon to judge whether they are effective. In principle, they represent a respectable attempt to create a specialist commercial court that both:

Much will turn on the judges' effectiveness and the practical skill of those involved in case management at the BCDR.

The second important series of reforms seeks to make Bahrain a more welcoming seat for international arbitration. The BCDR has been created as an arbitration centre to administer arbitration proceedings, adopting the model of the AAA. This model, like the DIFC-LCIA, is hoped to bring expertise and credibility to the BCDR. The BCDR will have the power and authority to appoint an interim arbitrator to deal with emergency measures (a role which would otherwise often fall to the national courts of any given seat).

Legislative Decree No. 30 also provides that arbitration awards are both:

This approach is consistent with that adopted in other leading jurisdictions. However, parties can contract out of supervisory jurisdiction of the courts of Bahrain by agreeing in writing to choose a foreign law for the dispute and another competent authority in another state to supervise the proceedings. These reforms have been designed to remove the perception that courts in the region are hostile to or lack comprehension of the arbitral process, by enabling the parties to remove them from the process entirely. Of course, by excluding the courts' role (legitimate or otherwise), the parties also abandon the possibility of any effective oversight of the tribunal. The parties should weigh this risk for themselves.

Bahrain and Dubai have taken encouraging steps to offer genuine choice in dispute resolution. They both recognised that reform was necessary if they were to become genuine world-class financial and commercial centres. It was a credit to the success of the DIFC that the government turned to its laws and judiciary during the Dubai World crisis. It is hoped that the DIFC court's jurisdiction is extended so that more international parties can benefit from its facilities. The reforms in Dubai and Bahrain will also be welcomed by international parties investing in the region, because they provide a credible seat for arbitration. It remains to be seen whether the reforms will be sufficient to meet Bahrain and Dubai's ambition to attract neutral parties away from well-established arbitration centres.