Cultural Diversity and International Arbitration: Does It Contribute to Successful Arbitration?

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1.0 Introduction

Litigation, a process of resolving disputes, takes longer in comparison to arbitration. Additionally, the process tends to be expensive when solving any kind of conflict. Thus recognition and endorsement of arbitration as a tool to solve disputes gained reputation in the recent past. UAE opened its local economy to international companies with a motive of extending its global reach.[1] As such, it was pivotal for the legal framework and other pertinent contributors to adjust their methods of dispute solving such that arbitration awards would be fair and equally represent the involved parties. These developments contributed to the change of the framework of arbitration in the United Arab Emirates (UAE). Thus notwithstanding, the changes established in the environment in which different entities with diversified culture, personalities and interests are prone to dispute could cohabitate and live harmoniously.[2]

The core concepts attended to or considered in these arbitrations are the legal issues developing from the need to protect distinctive companies interests. In relation to this, Civil Procedure Code as stipulated in the federal law of UAE’s, Law No. 11 of 1992) (CPC), contains regulations guiding the arbitration process. Further, arbitrations centres in UAE have gained worldwide recognition and awards. Dubai International Arbitration Centre (DIAC) is regarded as a fully functional Gulf arbitrational centre with modern arbitration rules. Further, the proceedings in this centre are normally in English as opposed to the language of the region[3]

Cultural diversity, on the other hand, is the disparity that exists between individuals of different backgrounds or individuals with different experience in their professions and understanding of international arbitration.[4]   Therefore, vast cultural values in UAE may influence the verdict of arbitration. Arguably, it is crucial to contemplate the impact of the cultural diversity evident between the conflicting entities. As such, Zeidan states that international arbitration is broad-spectrum of models that include aspects like classic, inter-governmental, maritime, and merchandises arbitration.[5]  Further, Goodman-Everard stated that different cultures portray divergent political, social, economic, religious, and legal frameworks which may influence the arbitration process.[6]  Thus, the cultural differences that exist amid entities from diverse groups tend to spread towards their interactions as professionals. The modern arbitrative environment considers liberal evolution as a factor that promotes the resolution of conflict amongst different dispositions exhibiting diversified cultural backgrounds. As Franck et al. proposed the process of arbitration has been found to be impeded by the consideration of the laws practised in the foreigners’ countries and several other cultural considerations.[7]

1.1 Justification, Background, and Theory of the Study

Islamic arbitrations are characterised by several aspects like regional and religious aspects.[8] In relation, conflict resolution involves interactions between entities exhibiting different traits of culture thus selecting an arbitrator proves to be cumbersome activity. [9] Evidently, some parties advocate for impartial choices while others prefer mediators who convey their interests.[10] This makes impartiality a pivotal element or adherence in cases of arbitration and consequent interactions. According to the teachings of the Quran, Althabity manifest the Hadiths’ that provide an ethical framework for handling the arbitrations thus resolving conflicts.[11] Just like the encompassment of a legal framework, international forums, experts’ views and other informed sources, a single arbitrator is not unanimously endorsed. Therefore, this makes it fundamental to include an odd number of tribunal members or arbitrators who, apart from offering diversified arbitration verdicts influences the process from the cultural diversity perspective. Further, it is a necessity to withhold the integrity of these tribunal panels by influencing their capability to manifest the impact of cultural diversity on the decisions that the arbitrators make while resolving or managing the conflicts as a way of ensuring unbiased verdict or affiliation to any side.[12]

A single arbitrator can be enough to represent cultural difference in arbitration. Though, employing or considering using several tribunal members is imperative especially when solving the conflicts involving nationalities with differentiated cultural backgrounds. At least three or an odd-numbered panel, albeit not a single arbitrator, have been suggested and endorsed by different dispositions like Hendizadeh. [13] The three-membered tribunal panel in an arbitrative council usually consists of an arbitrator from each party and a neutral member with a diversified culture. This was an approach dedicated to improve or else depict a fair representation of cultural diversity in the arbitrators’ panel. [14]  As Hendizadeh noted selecting arbitrators centring on their personalities can be a contributory move in homogenising the preference given to their nationality, social settings, religion, and other prevalent factors that align their ethnic perceptions with those of the dispositions that they embody.[15] Though, in the contemporary period, few studies have considered evaluating the effect that cultural diversity may have on arbitration. Thus this research gap made it fundamental to carry out this study so as to inform on the influence cultural diversity has on arbitration results.

1.2 Research Aims

The aim of this research is to study the influence of cultural diversity in arbitrative councils and on the ability of the panel members involved to achieve fair results in conflicts involving parties from different cultural or national backgrounds. Cultural diversity in this research referred to the differences in the arbitrators’ nationalities, social settings, ethnicity, expertise and the level arbitrator’s educational background (profession.)

1.3 Research Objectives

In an aim to benchmark the research process the researcher analysed understandings on cultural diversity in international arbitration, the study utilised the following objectives:

  • Critically analysed past instances involving the use of culturally diverse arbitrative panels and the subsequent resolutions chosen.
  • Critically analysed policy change in the UAE and identified the ability of these frameworks to support the selection of culturally diverse arbitrative panels.
  • The study conducted a comparative review of the decisions made by arbitrative panels comprising individuals from one culture compared to those that involve culturally diverse panel membership profiles.

1.4   Methodology Outline

  • Research Methodology

The study was qualitative in nature and consulted past literature to assess the proximity at which cultural differences affect arbitration award. Therefore, evaluation of existing cases that used arbitration panel with diversified cultures was pivotal.  The past cases acted as the source of the required information for this study which espouses sociological approach. The informative nature of this study made it a requirement for the researcher to assess the past literature to come up with a theory of the issue or explaining the hypothesis. Further,  the validity of the research was a necessity. Thus the researcher used the stated methodology for reliable findings whilst consulting as many sources as possible to enhance data saturation.[16]

  • Secondary Research Design and Sampling Method

Past cases in the UAE region, informative articles, and other studies pertaining to arbitration acted as the secondary data sources.  These cases included some resolved company or individual disputes in the UAE region and other parts of the globe. The cases considered were those that had a successful arbitration, culturally diversified arbitrators and the involved members satisfied by the final verdict.

The research used judgement sampling. Therefore, the evaluated cases in the regions were presumed generalizable at a larger scope. Per se, the cases were assumed fit to represent cultural diversity in the larger international community.

  • Qualitative Content Review

The qualitative data from the observations of these past cases was numerically represented when explaining the results and findings. This was pivotal in gauging the frequency at which the success rate of the cases that had arbitrators with cultural differences in comparison with those exhibiting no cultural difference differed.

  • Limitations

Background Information regarding the cultural diversity of the arbitrators in the arbitrations was hard to obtain. The cases used in this study had to be thoroughly analysed to confirm and ascertain that they were characterised by cultural diversity among the arbitrator(s). Considering this, a lot of time was consumed while compiling the past arbitrated cases.

  • Ethical Considerations

Research activities that adopt a secondary approach to analysing primary research must ensure the reliability of the data that they incorporate to facilitate their conformity to ethical requirements regarding their contributions to their respective fields.[17] In this study, the researcher analysed credible and peer-reviewed information sources only, which improve the validity of the data upon which the subsequent theory formation process bases its decisions. A comprehensive analysis of research findings from researchers that incorporated ethical considerations in their studies enabled this research to maximise its compliance to these requirements. Unlike primary research which has to anonymize participant data, this research has an obligation to publicise the studies and reports that populate its content analysis, which will enable other researchers to review the study’s methods and findings to determine its credibility. However, the researcher redacted personal information obtained from the primary research sources, which includes participants’ names, locations, and occupations. These measuresensured the study’s conformity to the requirements set for researchers looking to engage in ethical research activities.

  • Dissertation Outline

The research is organised into four chapters namely; Chapter 1, Chapter 2, Chapter 3 and Chapter 4.  Chapter 1 introduced the topic under research and provided the background of the study. This chapter further stated the thesis statement and the objectives of the study. Chapter 2 reviewed past literature pertinent to cultural diversity in arbitration outcomes. Chapter 3 presented the results and discussions.  To clearly manifest the findings, this chapter comparatively analysed the awards of culturally limited and culturally diverse arbitrative environments. Finally, Chapter 4 concluded the study’s findings of researcher’s analysis and further outlined the recommendations.

Chapter Two

Literature Review

2.0 Introduction

This chapter reviewed the relevant literature on cultural diversity in arbitration panels.In order to make easier for the reader to understand the concepts of cultural diversity the literature introduced the history of arbitration in UAE and the policy changes that have occurred affecting arbitral awards.  Impacts emanating from the changed arbitration policies on arbitration outcome in UAE were also covered in depth. Factors that affectedarbitrative process and the outcomes were also critically evaluated at international level and in the UAE region. This was essential to show if the factors that affected arbitration awards in the UAE were the same factors that affected arbitration awards elsewhere (international level).  Finally, this chapter evaluated past literature addressing cultural diversity concepts and the possible impact it may have on an arbitration award. Factors that influenced the satisfaction rate of the disputing parties after an arbitration award were also covered.  Therefore, this chapter was structured in such a way that it manifested the concepts of international arbitration, arbitration policies change in UAE, as well as cultural diversity.

2.1 History of Arbitration in the UAE

All the Emirates of the United Arab (UAE) are controlled by the federal judicial system apart from Ras alKhaiman and Dubai.  The region civil court system in the UAE has three divisions which include; court of first instance, court of appeal and cassation court.[18] The court system in the UAE helps in conflict resolution in the UAE, which backdates as far as the pre-Islamic era. After Islam had been introduced in the area, the process of arbitration developed hand in hand with theregion’s economy. Though, by then, arbitration process had qualities closer to mediation and reconciliation than of arbitration.[19] Therefore, the UAE’s ancient arbitration can be classified as dichotomous and imbued by the Islamic Brotherhood and also influenced by emotions. Most approaches to UAE’s arbitration processes were sourced from Sharia which is very influential and integral in the Emirates justice system. Therefore, the framework of Sharia has three aspects in one; it is a complete religion, the ethics system, and the legal system.[20] Additionally, the civil court system in the region is also controlled by the Sharia laws.Therefore, the introduction of modern arbitration framework tends to be heterogeneous and differs in some ways with the region’s framework. However, the encompassments of the proposed law(Article 6), is set to establish a system in which arbitrations based in UAE will be regulated and streamlined in accordance with the New York Convention. This will help homogenise the disparities between the Islamic arbitrations and the modern arbitrations approach.[21]

In the year 2006, UAE acceded to the New York Convection giving the disputing parties a number of statuses that can influence the outcome of arbitration and lead to the satisfaction of the involved parties. Later on, 2008, the Emirates region federal government drafted a number of arbitration laws to strengthen the existing framework.  The new development realisedin the year 2008 was named as law No.1 of the Dubai International Finance Centre (DIFC).[22]

Before the 2008 events, foreign arbitration was enforceable only thoughthe Federal Code of Civil Procedure (FCCP). The local system put in use the Articles 235-238 for awarding the arbitrations. Specifically, Article 235 was the core enforceable statute for foreign arbitrations. Therefore, the local courts used the act’s provision to assess the case details. Thereafter, the New York convection changed the way international arbitrations were held in November 2006, whereby it advises the Emirates legal system the grounds in which it could consider to repudiate an enforcement of international arbitrations. Apparently, article v (2) b, gives the local courts grounds to rejects the recognition and enforcement of an award, as offered by the requirement of the international arbitration award based on the fact that the verdict contradicts the local public policy. [23]

The DIFC came up with a legal approach encompassing all the matters of civil and commercial aspects structured to integrate with the English common law through harmonisation of the existing civil code which made parties seeking arbitration in the UAE repeal or else consider other suitable methods of settling their disputes.[24]  These efforts depict set standards by the federal government to become the world’s main consulter of modern arbitration. In a motive to steer the vision, DIFC joined with the London Court of International Arbitration (LCIA) creating a channel whereby dispute resolutions could be promoted and administered efficiently in the DIFC-LCIA centre. The DIFC-LCIA, which was the resultant establishment after the collaboration, takes a deeper consideration of the principles LCIA has to offer as it is conceived as internationally reputed, and further ethical in the international matters of arbitrations. [25]

Finally, UAE arbitration represents a cross-functional and dichotomous process which is very slow which beats the purpose of arbitration.[26]  Bottom line, arbitration’s process salient feature is to pave the way for a faster award in comparison to the court system. However, the UAE’s system of arbitrating consults several frameworks like the code of civil procedure, Sharia Law and the provisions of the international arbitration framework.[27]

2.2 Influence of Policy Changes on Arbitration Outcomes

The UAE’s arbitration system lacked legalities and conformance to the international arbitration standards which stripped the framework good practices. It’s due to this consideration that excellent revision and restructuring of the region’s arbitration policies and approaches were conducted.[28]

Change in arbitration policy resulted in satisfaction of the disputing parties. The involved parties were mutually appreciative of the freedom granted to them and streamlining of the arbitration process.  The proposed law (article 17) gave the disputing parties the power to select arbitration panel or the counsel.  There were no limitations as to who would panel the arbitration process, skilled individuals of the majority age were also recognised as potential arbitrators.[29] This connotes and depicts a clear cultural diversity representation in the arbitration panel.  The lack of constrictions in terms ofarbitrator skills in Article 17 shows that arbitrators and counsel with different educational backgrounds and or professions were fit to participate in the arbitration panel and sufficiently represent cultural diversity.Article 17 of the proposed law led to change in policies lead to theintroduction of cultural diversification in the arbitration award.  In cultural diversification individuals of different nationalities, ethnic groups, religion, political affiliation, and or social class were recognised as potential arbitrators by Article 17 of the proposed law encompassments irrespective of the prior named factors. Therefore, there were no any limiting rationales either implied or expressed that could repudiate the disputing parties selection of an arbitrator. The only statute that begged to differ was the selection of arbitrators who were either bankrupt, of minor age, incompetent and those who had been divested their civil rights due to an infringement of the federal constitution. Thus notwithstanding, the disenfranchised dispositions had no legal grounds that could accept their participation in the arbitration process [30]

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However, some aspects of the model law were retained. In this case, the proposed law does not give room to the disputing parties to appeal after an award has been given (Article 48) Even so; the arbitrators have the power to either award which is; partial, interim, interlocutory, preliminary or final award. Additionally, Article 57 of the proposed law states that even if either party annuls the arbitration award, its enforcement is still applicable not unless the court nullifies the award. [31]

The old arbitration methods relied so much on Sharia as opposed to the standardised international framework. A comparative study of the UAE’s arbitration provision with the global arbitration requirements stated that the Hadiths’ and other ethics of the Muslim culture had the necessary foundation of arbitration verdict. [32]  The arbitration policy change resulted in an incorporation of the globally reputed approaches to thearbitration award. As such, the New York convection works in a collaborative manner with the Emirates arbitration framework to introduce recognition of other statuses informing on the influencers of the arbitration award.  Currently, there is confusion in respect to the application of these foreign arbitration frameworks’- due to the local civil procedure code.[33] Therefore, the International arbitration award requirement has to be conformant to the local civil procedure code. This connotes that the westerns arbitrations should adhere to the Sharia encompassments to a greater extent; of which the final verdict will also be influenced.

2.3 Factors Affecting Arbitrative process and the Outcomes

Legal researchers continue to assess the possibility of predicting future arbitration outcomes. Legal research argues that past cases of arbitration, which had been successfully solved, are capable of guiding future cases which have similar aspects. [34]  The central question in this context inquired if the previous proceedings of offers and arbitration awards can act as comparative cases to inform on the course of future disputes and their arbitration award. However, such studies have been limited by the controversial or non-uniform findings and lack of consistent comparative case studies. [35]

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The understanding of the past cases awards can affect the arbitration outcome.  These past events cases include; the terms of theagreement, the transactions involved between the parties, association of the parties, initial bond and the aspects of the original introduction and other pertinent information. Therefore, the impartial arbitration panel considers all these aspects in order to reach adecision which equitably treats the disputing parties.[36]  Notwithstanding the weight of the presented evidence act as a salient feature that influences the arbitrators’ decision. The applicable law is also a very influential aspect that is considered by the arbitrating panel. The international applicability of these laws differs with each region adopting their set principles of guidelines. For instance, Saudi Arabia in the Gulf Region uses Sharia provisions and has currently not let any interference from the international arbitration community indulge in their arbitration process. Therefore the outcome of the UAE’s arbitration cases may differ from the Saudi Arabian award due to the consulted framework of provisions. On another account, the applied law may also repudiate an award leading to influence the outcome. As such, if the applied international arbitration provision contradicts the federal code of civil procedure the award is then depicted as futile in the UAE. [37]

Affinity effect is a psychological behaviour that influences arbitration outcome. Arguably, this scope of psychological facet relies extensively on the emotional considerations as opposed to the factual or legal provision. Like Brekoulakis compared,[38]  the Saudi Arabian rules of Sharia is characterised by moral consideration and complemented by the affinity effect.[39] Therefore, the outcomes of arbitrations in this region may award differently in comparison to other international solved cases comparatives.

The egocentric bias of the arbitrating parties can influence the arbitration outcome. Brekoulakis defined egocentric bias as the tendency by the arbitrators to best the verdict that benefits their personal interest.[40] As such this is a biased award which was compared to the ethical nature of a doctor which makes a practitioner administer medicine to a patient though unnecessary but beneficial to the practitioner income. Therefore, if the arbitrating panel has vested interest only satisfied by the outcome of the current arbitration, then, the outcome may be unethically bent.

2.4 Rationale of Arbitration Satisfaction Rate for the Disputing Parties and Cultural Diversity Concepts

Not only are the results of an arbitration-influenced by certain aspects, but the satisfaction level of the involved parties is also inclined to several factors listed below.  The decision by the disputing parties to repeal an arbitration award or not – under the current provisions of international arbitration, is determined by the satisfaction level reached.

The state’s law used, and its consideration and adoption of international arbitration clause statutes, or the availability of favourable arbitration award elsewhere – if at all any, affects a disputing parties satisfaction level. Therefore, the disputing parties in UAE may consider another favourable law and arbitration processes available elsewhere (even internationally), and within their reach. If the alternative arbitration centre accepts to solve the disputes, considering the disputing parties regions, then the fair award tend to influence the satisfaction level of the parties.[41]

Cultural diversity in arbitration panel was placed under simulation application, whereby, the same elements of the dispute were presented to aculturally diversified set of arbitrators to derive verdict under certain provisions of law. These scenarios depicted differentiated outcomes with certain idiosyncrasies and divergent views. This showed that cultural diversity is capable of influencing arbitration outcomes.[42] Though the scope of successful arbitration or unsuccessful arbitration was absent owing this to the fact that the simulative environment was not practically applied but heuristically employed.

In another area, South African Department of Environmental Affairs listed its panel of arbitrators claiming that their expertise enabled them to carry out arbitrations successfully in different international arbitration centers.[43] Therefore, these arbitrators created an impression; this could be accepted as an example depicting that; diversified cultures in an arbitration panel were capable of influencing the success and satisfaction of the involved parties.

2.5 Summary

This section assessed literature pertinent to UAE’s history of arbitration, theimpact of policy change on the arbitration outcomes, issues succumbing award satisfaction, and arbitration panel cultural diversity concepts as integrated with the arbitration process success. It was found that the results of arbitration were influenced by several universal factors and other regional factors like the legal provisions and culture. Additionally, the satisfaction rate of the involved parties also differed after considering several aspects which could have favoured the unsatisfied party. The literature showed an existing gap pertinent to the implications on success due to cultural diversity introduced in the arbitration panel.

Chapter Three

Results and Discussion

3.0 Introduction

This chapter; chapter three, showed the main aspects of cultural diversity that influences arbitrative outcomes and all the aspects manifested in arbitration panel with cultural diversity. Consequently, the chapter also outlined the changes in arbitration policies that have occurred in the arbitration framework of UAE.  Past cases, whose award outcomes were through arbitration, were compared. A discussion analysis of these cases was imperative to show if the cultural diversity in the arbitrating panel influenced the award outcomes. In conclusion, these cases formed the basis on which the findings, analysis and discussions werebeing carried out to show if cultural diversity has the capability to influence arbitration outcome.

3.1            Influence of Cultural Diversity on Arbitrative Outcomes

Cultural diversity is conceived to have an influence on the arbitrative outcome. It is viewed as atool capable of introducing fair verdict void of bias or prospects of foreign parallel proceedings commonly referred to as parallel arbitrations.[44] In this case, the disputers aim is to solve the current misunderstandings and foster future relations taking into account their differences. Although arbitration is not meant to overcome cultural and legal backgrounds misunderstandings, Arbitrations are meant to form a framework that plots a way forward while specifying an approach of dealing with their differences. As such, the presence of arbitration panel characterised by cultural diversity tends to influence the outcome of the arbitration.[45]  Therefore, parallel arbitrations in the foreign courts have minimal chances in which they can represent the party’s diversity sufficiently. These arbitrations mostly lead a resolution of the current dispute, leaving more room for future disputes occurrence.[46]

Internationally, when the disputing parties decide to arbitrated by arbitration panel with no cultural differences, they risk the introduction of arbitration award bias. The council may tend to embrace his/her policies and further view the matter explicitly from his/her own experience unchallenged.[47]Such developments connote that the final verdict is characterised by one side judgement known as affinity effects. Berg stated that affinityeffectsis an influential force that arbitrators who come from the same background and culture tend to adopt in passing judgements, the commonality they share translates into acommon perspective in regards to the matter on hand, therefore, overshadowing a justified arbitration outcome. Other cultural difference factors like language, religion and profession further enrich the cultural diversity in arbitration. This makes an arbitration panel rich in cultural diversity and different views of the matter beforehand.[48]

An assessment of cultural diversity in the international arbitrations outcomes shows that cultural diversity can bring about contradictions in the arbitration panel [49] For instance; United States of America (USA) arbitration panel is put in place to solve a dispute between two parties.Theverdict will be agreed unanimously among the American arbitrators with ease and all the arbitration fees (counsel charges) payment undertaken as per the terms.[50] Further, extensive discovery will be agreed upon which involves sharing of crucial information surrounding the case. On the other hand, choosing German arbitration panel takes another approach whereby the hearing of the issues related to thecaseis done in advance, and the presented materials that do not infringe the involved parties’ privacy is evaluated. Additionally, the losing party is obliged to pay all the related costs of the arbitration process. Arguably, if the USA and German arbitrators are conjoined, a contradiction and misunderstanding may occur. [51]The German arbitrators are deemed to argue that extensive discovery is unethical since it violated the subject party rights of confidentiality and further unfair approach of sharing the cost of arbitration fees or deciding which party is to pay. On the other hand, the US arbitrators will argue out that the withheld information is interfering with the delivery of unbiased verdict to the disputing parties.[52] Therefore, diversity in the arbitration panel influences how the arbitration process will be carried out and the arbitral award made.

3.2 Trends in UAE Policy Change Regarding Arbitration

UAE experienced the birth of new developments in the arbitration processes in the year 2008. This hadbeen spearheaded by the urge to become the leading international economy after acceding to the New York Convention. These developments included; the draft of UAE federal arbitration law by the government (proposed law), development of comprehensive arbitration with jurisdictional concepts by the DIFC and the joint formation of DIFC-LCIA centre of arbitration by DIFC and the London Court of International Arbitration. Thereafter several changes have been seen since the year 2008, for example, the amendment of law 3 of 2008 of Dubai law 13 to law 9 of 2009. Additionally, law 3 of 2005 was amended to law 2 of 2007 and law 1 of 2008 amendedtolaw 1 of 2013 (all of them addressing the arbitration awards).[53]

The civil procedure code (article 203 – 218) of federal law II of 1992 that governed the arbitration activities experienced a drastic change thereafter 2006 when UAE acceded to the Convention. Therefore, the proposed arbitration laws are drafted continually and overseen by the ministry of economy. Per se, these recent developments in the proposed law were in the year 2013 and closely related to the UNCITRAL model law and few provisions of the CPC.  The convention had accepted that before the article 138 of CPC was effective thus its provisions are not included in the convention. Article 138 of CPC sets guidelines pertaining how international and local arbitrations should be held.  Due to the absence of these guidelines in the convention, it has been argued that the guidelines of the CPC are not met. To make things easier and clearer why the article 138 guidelines were not incorporated in the convention, the court of cassation passed that the CPC guidelines should not be used in delivering a verdict of an international arbitral award as the guidelines were absent by the time UAE acceded to the convention.[54]  Therefore, this meant that only the appropriate international conventions would be effective in awarding such a case. Article 52 of the draft law recognisesArticle V of the New York Convention and endorses it as a core consideration when handling the domestic and international arbitrations.[55]

On the other hand,Article 17 of the draft law, the disputing parties have more influence in selecting the arbitrators regardless of their nationalities, though, in cases of international arbitrations, the arbitrator’s nationalities tend to be an issue of consideration as contained in the article 18.3. [56]

Finally, the DIFC has laws and processes different from all the other parts of UAE. Commercial and federal laws are not applicable in the DIFC arbitral awards since the DIFCLaw no 8 of 2004is considered for all the arbitrating parties under the framework of DIFC.[57]

3.3 Comparative Analysis of Decisions of Culturally Limited and Culturally Diverse Arbitrative Environments

Considering Buraimi Oasis Case of 1995 between Great Britain and Saudi Arabia which had arbitrators with diversified cultural backgrounds, the final arbitral award was very much opposed by the Britain arbitrators.  The British Government Counsel; Sir Hartley Shawcross was infuriated by the counterpart; Saudi arbitrator conduct, of passing a note containing instructions to the attorney. Though, the Saudi arbitrator chosen by the party did so in good faith as guided by the Muslim religion and its code of ethics to provide all the necessary instructions daily to aid in reaching a verdict. After the bitter protests from Shawcross, the arbitration process took longer time than they had presumed it would take.[58]

Recently, Charles Schwab lost lots of fortune to Morgan Stanley of whom he accused of recruiting brokers from his firm; Schwab San Francisco branch. The brokers had left with confidential data from Schwab capable of crippling the organisation. Morgan Stanley was ordered to compensate $72,000.00 to Schwab which shows that Schwab lost the arbitration case worth $ 15 million. The amount paid to Schwab was too little considering that the dispute was worth $ 15 million. The three-membered arbitration panel from Financial Industry Regulatory Authority but with diversified cultural background failed to provide the basis for their award. [59] The arbitration council from the financial industry had the similar academic qualifications and experience in international arbitrations. Despite their competency, the arbitrators had no concrete reason as to why Morgan Stanley had to pay such amount.

Bazzle reached an agreement with Green Tree after arbitration presided by a single counsel (arbitrator).  The Green tree had breached South Carolina law and the plaintiff; Bazzl, planned to use class certification to settle the matter. In class certification Bazzl wanted to use the court system to make sure Green tree was accountable for its actions and that the defendant was aware of the laws that they had breached. However, Green Tree sought the court to compel Bazzl to forward the case to arbitration centre. The court heeded green tree request, and the arbitration was carried out as per the court’s instructions inclusive of the arbitration award. This means that the court had a direct influence of the award despite the arbitration being said to be independent and presided over by an experienced counsel in South Carolina laws and the legal framework applicable in case the dispute was handled through litigation method. The single arbitrator, however, was not much experienced in arbitrations and the local cultures and majorly relied on the court for guidance. The award was still dissatisfactory to Green Tree who re-appealed to the court decision and its involvement in the arbitral award. Finally, the agreement was delayed and awarded one year later after it was found out that the award had been influenced by the court rather than the arbitration process.  [60]

The dispute between an Asian based Telecommunication Company and a European based software developer whom had formed a joint venture company together reached an agreement after arbitration. The software developer agreed to pay the decided amount whilst returning bank guarantee to the partner (Asian company). The Asian company, on its side, transferred relevant intellectual property rights to the European developer after the single arbitrator’s verdict.[61] The arbitrator had sufficient experience and a good educational background complemented by conformity to different arbitration processes and policies in the international arbitrations. A clear understanding of the cultures and commercial aspects eminent in the two countries (Asia and Europe) was pivotal as it aided the arbitrator in handling the disputers accordingly.

Patent rights holding European inventor in Australia, Europe, Canada and the US had a dispute pertinent to a business deal they had entered to with an Asian company which terminated the license upon the controversies as to who was to renew the patents rights licensing. Three members arbitration panel with necessary skills in the language of the two different cultures was chosen (culturally diversified arbitrators) and reached an award which compelled the Asian company to pay for the damages caused to the European inventor due to termination of their agreement. [62] Additionally, the arbitration council had a clear understanding of the disparities that existed between the two disputing companies from two different nationalities.

3.4 Conclusion

This chapter discussed the outcomes of arbitrations with culturally diversified arbitration panel. It also showed the trends and change of arbitration policies that have changed in the UAE, such as how UAE acceded to the New York convention. Additionally, this chapter compared past arbitration cases and their awards to create an understanding of how the cultural diversity influences arbitration awards.  Finally, the following chapter; chapter four, was structured to show the results analysis, discussion of the reviewed cases, and if the cultural diversity in the arbitration panel influenced the award outcome.

Chapter Four

Analysis and Findings

4.0 Introduction

This chapter contains the results of the research after an assessment and interpretation of the requisite information. It represents the influence cultural diversity has on the arbitration outcome in UAE and elsewhere in the globe. Further, this section outlines the factors that can contribute to changing the arbitration policy in the UAE. The results in this section were analysed and synthesised with the existing theories from chapter two; literature review, such that they sufficiently manifested the transitions realised from a culturally diverse arbitrative panel.

4.1 Findings of Research Analysis

4.1.1    Analysis of the Evaluated cases

Analysing the highlighted cases in chapter three, the arbitration case between DNB Bank ASA v Gulf Eyadah [CA-007-2015] which was carried out in   English Commercial Court favoured DNB Bank and required Gulf Eyedah Corp. and Gulf Navigation PSJC to compensate $ 8.7 to the Bank. [63]The case showed that cultural diversity aspects like education and professional experience were capable of influencing arbitral award.  The arbitrator in the English Commercial Courtwas well versed with Memorandum of Guidance (MOG) that helps the Dubai International Finance Centre -London Court of International Arbitration (DIFC-LCIA) centres in making decisions. As such, when the claimant (DNB Bank) requested the local UAE centre to enforce the English Commercial Court award, the defendant contested that the local Dubai International Finance Centre (DIFC) centre has no legal basis to enforce an international award locally. Enforcing the international awardlocally would have seemed like the local DIFCCentre was carrying its judgement.   After considering the claimant points and views of the matter, the court of first instance decision was similar to that of the court of appeal. The courts in UAE consulted the MOG as well as the Judicial Authority Law (JAL) and found out that the award by European Commercial Courtwas enforceable.  Article 7(2) of the JAL which states that “judgments, decisions and orders rendered by the [DIFC] Courts and the Arbitral Awards ratified by the· [DIFC] Courts are enforceable in Dubai Courts”concluded that it was justified to enforce the international award from the European commercial court.[64]Though the defendant had believed that the local DIFC centre would have erred by recognising and embarking on enforcing the award, the European Commercial Court arbitrator had vast knowledge pertinent to UAE’s religious, economics, politics language and legal systems elements. This explains why the local DIFC Centre ratified the international award as it conformed to the set guidelines.

An Asian based Telecommunication Company and European software developer arbitration concerning a joint venture dispute was chaired by a single arbitrator with vast experience in international arbitration aspects. [65] The arbitrator achieved a satisfactory award characterised by win-win situation. This connotes that the arbitrator’s experience was contributory to the satisfactory outcome. The knowledge the arbitrator had amassed from the international arbitration arena can be said to have taken part while considering the disparities existing between the two companies from different regions and further harmonising their different regional arbitration policies to attain a satisfactory outcome.

On another hand, Asian company compensated European investor for damages emanating from a prematurely cancelled patentright. The arbitration panel comprised of two council members who had differentiated educational levels and experience. The arbitration award from these two arbitrators was satisfactory to the disputing parties.[66] Despite the arbitrators’ misaligned educational backgrounds as well as their different professional experience, the arbitrators were capable of awarding satisfactorily. In this case it was expectable that the two arbitrators could misunderstand each other due to their cultural diversity. In the contrary, their differences were not an issue that could hamper their award.

Buraimi Oasis case involving Great Britain and Saudi Arabian companieshad difficulties in reaching an agreement. The British government council and the Saudi Arabian arbitrators disagreed due to the Saudi Arabian arbitrator conduct of innocently passing a written note to the attorney. Due to the misunderstandings, the award was not successfully reached and further slowed down the arbitration process. [67]

Arbitration Council comprising of financial industry arbitrators failed to provide a satisfactory award. The panel of arbitrators had provided a solution that they failed to explain the reasons behind such an award. The arbitrators were also not capable of explaining why Charles Schwab was compensated $72,000 by Morgan Stanley.[68]

4.2 Findings from the Evaluated Cases

The issue of diversity in the arbitrative panels and the ability to achieve fair result in conflict resolution was found to be multifaceted. Arbitration Council characterised by diversity was found capable of achieving fair results in arbitration and at the same time impending conflict resolution.   However, one important finding that distinguished if the culturally diversified arbitration council was capable of achieving fair results or not was the number of arbitration panel members and their cultural competencies. If the councilpanelling arbitration had more than one council member with diversified cultures in regards to social settings, education and other differences then misunderstandings occurred easily. On the other hand, a single arbitrator characterised by cultural diversity of the said cultural aspects was more likely to achieve a satisfactory award.

Therefore, cultural diversity aspects in arbitrative councils and the ability of the panel to reach fair results in conflicts involving parties from different cultural or national backgrounds showed that misunderstandings are prone to emerge in the panel.  The difference in arbitrators’ nationality, social setting, ethnicity, expertise and the educational background makes the arbitrative council relate in cross-purposes.  In the culturally diversified arbitration panel, the literature and the evaluated case studies showed that there are always different connotations of the East aspects, West aspects, North aspects and southern aspects.[69]The researcher compiled the conspicuous or else the various aspects manifesting disparities capable of arousing misunderstandings among the arbitration panel in chapter three, sub-section 3.0. The aspects summarised included; religion, systems matters, the formation of the arbitration clause in commercial contracts, discovery and evidence presentation, and experts witness statements.

4.3 Factors that Create Controversy in Arbitration Panel with Cultural Diversity

4.3.1    Religion

The assessed past arbitration cases showed that religion was an issue impeded achieving award of arbitration. As such, the Arabian arbitrator in Buraimi Oasis Case of 1995 between Great Britain and Saudi Arabia passed a note to the attorney which had information pertinent to the case. The Saudi Arabian arbitrator, after a stern rebuke from the Britain counterpart, explained that he passed the note in good faith as required by the religion to disclose as much information as possible.[70] Inevitably, the dispute delayed arbitration award.

4.3.2    Legal systems matters

The study findings showed that misunderstandings in the arbitration council could also emanate from a region’s legal system and arbitration policies. As such, DNB Bank ASA v Gulf Eyadah [CA-007-2015] arbitration award by the European Commercial Court was challenged by GulfEyadah about its applicability locally – in UAE.[71] The matter was discussed among the European court – during the arbitration, the court of first instance and lastly the court of appeal. All the parties (arbitration centres) wanted to solve the issue and reach a consensus by incorporating the international award locally.

4.3.3    Aspects of Contract Formation

Contractual agreements were found to differ from region to region. As such, the contractual performance can be the basis of a dispute. For instance, Patent rights holding European investor operating in Australia, Europe, Canada and the US disputed with an Asian company concerning a business deal they had entered into consciously. As the contractual terms had referred the Asian company as the party that was supposed to renew the patent rights, failure to cater for the renewal fees led to patent rights termination.[72]Assuming that the companies disputing about the renewal of patent right were from other regions like America and China then; American arbitrators would blame the China counterpart for failing to meet its contract’s requirement. Consequently, China would also argue that certain unavoidable and justifiable reasons hindered it from fulfilling its part, of which it is admissible in China. Though, in America, the contractual terms are ought to be followed word by word with no exclusion.

4.3.4    Discovery and Evidence preparation

Buraimi Oasis Case of 1995 between Great Britain and Saudi Arabia also acts as a comparative case in which extensive discovery and evidence preparation lead to confrontation between the arbitrators as seen in chapter three section 2.2. As such the difference in both regions manifested that discovery was not permissible in Britain while in Saudi Arabia, sharing of information was quite normal.[73] Therefore aspects of discovery and evidence preparation were depicted by the study as potential sources of misunderstanding.

4.4 Cultural Diversity Contributes to Successful Arbitration

Evidently, the reviewed case studies showed that the experience a counsel has is paramount to the success of arbitration award. Cultural diversity, in this case, represents an arbitrator or arbitrative panel with a broad understanding of different cultures in regards to ethnicity, customs, religion, economics, politics, language, social aspects and legal systems. Likening, DNB Bank ASA v Gulf Eyadah [CA-007-2015] depicts a clear picture of rich cultural understanding – whereby the European Commercial Court arbitrator understood the UAE’s legal framework as well as the political system. Arguably, the European commercial court arbitratorsucceeded in the arbitration, owing this success to the cultural diversity (in terms of experience and expertise) the arbitrator had.  Though the case studies assessed in this research majorly showed that cultural diversity effectivity was superior when a single council (arbitrator) chaired a dispute resolution session(s), different arbitration policies more so in UAE bests arbitration of more than one arbitrator. Culturally diversified arbitration was found by the research to be the most appropriate as most of the assessed cases achieved a fair and satisfactory result.

4.5 Cultural Diversity Contributes to unsuccessful Arbitration

Despite the numerous advocacies by scholars that cultural diversity in arbitration panel can aid in achieving successful arbitration awards, an assessment of past arbitrations case studies shows that cultural diversity can lead to unsuccessful arbitration. These findings revealed that a panel of arbitrators characterised by diversified culture regularly disputed due to their differing aspects such as social setting, religion, economics, politics, language and the understanding of different legal systems. Similarly, Charles Schwab and Morgan Stanley arbitration award was least effectual despite being panelled by culturally diversified arbitrators as manifested in chapter three section 2.2. Further, the arbitrators’ experience differed though their educational background was the same. In the long-run, the arbitrators failed to achieve a favourable award and further had no explanation how they came up with the award. Despite the cultural diversity, the arbitration council award may have been influenced by affinity effect or egocentric bias rather than the council’s competence.

4.6 Considerations for Changes in Arbitration Policy in the UAE

Considering all the arbitration aspects like the legal framework, cultural context, nationality as well as defendant’s and claimant’s differences that surrounded DNB Bank ASA v Gulf Eyadah case, it is admissible that the European commercial court judge had a superior understanding of the DIFC policies. This was the reason why the local UAE DIFC Centre made a swiftdecision as all the policies used by the international judge conformed to the local policies and the requirements of MOG.

 Considering such an effective award of the international arbitration, UAE should consider setting policies regulating the qualities that an arbitrator must possess to become a member of arbitration panel. In this case the attorneys should be competent enough and further exhibit the capability to foresee contradicting issues or policies framework that is dichotomous among other crucial fundamentals that can hamper application of an award. Therefore, only the competent and qualified arbitrators would participate in resolving a dispute – saving both time and the related arbitration costs.

4.7 Conclusion

The researcher evaluated cultural diversity aspects such as ethnicity, customs, religion, economics, politics, language, social aspects and legal systems understanding by an arbitrator.  In this study, the researcher assessed the general influence of cultural diversity aspects mentioned earlier in arbitration panel and its contribution to achieving successful arbitration. This chapter, additionally expound more on the context that this research undertakes, the researcher further recommended that other researchers should evaluate the independent aspects of cultural diversity such as the relationship between ethnicity, customs, religion, economics, politics, language, social aspects and professional background of an arbitrator and the individual impact of the variables on the arbitration award. The differences found in religion, different legal systems, detail of contract formation and discovery elements had sizeable influence in arbitral awards. Since all these variables could all be present in an arbitration activity, the ability of the arbitration panel to reach an award was therefore considered multifaceted.

Chapter Five

Conclusion and Recommendation

5.0 General Overview

Litigation in comparison to arbitration takes longer in solving disputes. Such considerations make arbitration the most popular approach to settling differences between different entities. Though, for a satisfactory award, several aspects are considered and their ability to come to a satisfying and unbiased award.  Among the factors influencing arbitration award, cultural diversity has not been adequately addressed which makes it fundamental to assess the impact the diversity has on arbitrations.

Therefore, chapter one addressed the research question background as well as the justification of the study and further listed the aims and objectives of the study. The chapter also outlined the constructs of cultural diversity which were the educational level, culture, social aspects, and the professional experience of the attorneys. The section also showed how the changes in UAE arbitration framework were related to the revision of the federal laws along with the power given to the disputing parties to choose their arbitration panel. Such developments were not only depicted as improvements in the arbitration processes but also as the introduction of cultural diversity in arbitrations. Finally, the research methodologies were also covered in this chapter.

Chapter two assessed literature review of past informative articles and other studies pertaining to arbitration and acted as the source of secondary data. The section considerably improved the understanding and manifested other scholars’ opinions. Additionally, the chapter also outlined the history of UAE arbitrations and the influence of policy changes on arbitration accompanied by the factors affecting the arbitrative process and the outcomes.

Chapter three covered the primary sources of information which were the past arbitration cases in UAE and elsewhere and their arbitral awards closely relating their arbitration panel cultural diversity to the awards reached. Chapter four gave the analysis of the findings from chapter two along with chapter three while considering the cultural diversity aspects portrayed by the arbitration panel from the assessed accounts.

5.1 General Findings

The influence of cultural diversity in arbitrations was seen as multifaceted and could take any direction by either satisfactorily or else unsatisfactorily awarding the disputers. Arguably cultural diversity in arbitration can be classified as a tool capable of either settling a dispute or else lengthening the arbitral process. Misunderstandings were seen to emanate from the arbitrators speaking cross-purposes particularly when regional cultures of arbitration and the legal policies differed. The main factors that were considered as the core elements influencing either the success or failure of an arbitration included; religion, legal system and regional aspects, and finally the discovery and evidence formation experience.

However, the overall cultural diversity issue capable of influencing arbitral award positively though not always was the arbitrators’ experience. Vast knowledge of different legal systems along with culture was a reliable tool in arbitration awards as seen in DNB Bank ASA v Gulf Eyadah case[74]. The more experience an arbitrator has on different legal frameworks of arbitration, the better the chances that the arbitration award will be satisfactory.

Available literature shows that UAE has accepted diversity after it revised its arbitration structure, though, the cultural diversity implications have not been sufficiently considered. The evaluated literature further confirms that arbitration awards have not been uniform considering the cultural diversity aspects available[75]. However, these disparities were associated with the applicable legalities and other cultural difference constructs.

The literature broadens the understanding that the affinity affects and egocentric factors are more prevalent in arbitrations despite the existence of cultural diversity aspects in the arbitration panel and were much fostered by arbitrators from the same background.

5.2 Recommendations and Conclusions

Considering the possible influence cultural diversity has on the arbitration outcome, it is recommendable for the arbitration panel to take into account several elements of cultural diversity. Per se, during discovery and evidence formation, the involved parties should put into consideration the possible factors that may surface due to their differences.  However this process of harmonising cultural diversity have been in use for long, no notable progress has been attained as nationality and personality factors among others differ substantially making the harmonisation activity unfruitful [76]. Despite such drawbacks, other approaches present a conceptual but gradual approach capable of transpiring into success. Namely, International Bar Association (IBA) is at the forefront of enhancing that culturally diversified attorneys benchmark each other practices with a motive of bridging the gap. After bridging the gap, the involved dispositions can stand a chance of awarding satisfactory awards in arbitrations. Therefore, it’s recommendable for the attorneys specifically those interested in international arbitrations to consistently participate in the International Bar Association forums as a move to understand better different aspects eminent in international arbitrations.

To minimise the occurrence of misunderstandings, arbitration panels should consist of the disposition with competitive and relevant skills and outstanding competencies.  That means that the arbitrators panelling arbitration should have the expertise complemented by other aspects of cultural diversity issues. As such, arbitrators chairing commercial disputes should explicitly deal with international commercial disputes while arbitrators specialising in international employment disputes should also stick to their specialisation.

Additionally, Marburger and Burgess Study advice arbitrators with limited experience to follow-up arbitration proceedings closely and familiarise themselves with different concepts from different regions. This helps them garner desirable cultural diversity expertise in the international arena. However, this study finds it better and recommends the arbitration council member to learn how to present evidence professionally to prevent arguments and misunderstandings in the arbitration committee.[77]

Finally, due to the drastic change of arbitration processes in the international arena and especially in UAE, several arbitration aspects keep on changing. [78] Therefore, the researcher perceived seminars as very crucial in sensitising other arbitrators on the potential encounters that they may face in the international arena of arbitration.

Arbitrations characterised by cultural diversity have been found to influence both the arbitration award either positively or negatively. Arbitrations conducted by culturally diversified arbitration panel are marked by a multifaceted award. Therefore, the more the number of arbitrators in an arbitration council exhibiting cultural differences, the higher the chances of misunderstandings arising.[79]

Additionally, other aspects influencing the arbitration award like biased outcome can be contained successfully. The use of arbitration panel with cultural diversity explicitly denoting different nationalities, ethnicity or religion successfully harmonises the differences and eliminates the traces of bias.

Finally, as previously stated that arbitration policies are drastically changing globally, it becomes advisable for the law scholars to continually carry out studies assessing the changing impact of arbitration panel cultural diversity and structure sound approaches to address this diversity concern that is capable of influencing arbitration outcomes.


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