Dispute Resolution under the Foreign Direct Investment Law

On 30/10/2018, His Highness Sheikh Khalifa bin Zayed issued Federal Decree-Law No. 19/2018 concerning Foreign Direct Investment. The law aims to attract and encourage foreign direct investment and to consolidate the position of the United Arab Emirates as a major hub for foreign direct investment.

The Foreign Direct Investment Law No. 19/2018 sets provisions including definitions of the foreign investor and foreign investment, as well as rules related to the protection the law offers to the foreign investor who fulfills its requirements. The law also defines methods for dispute resolution if the foreign investor suffers damages resulting from actions by the state or any of its agencies. The law gives the foreign investor the choice between resorting to any alternative dispute resolution methods or resorting to the competent court in the state, which must handle the dispute urgently.

This part, the first of three, discusses dispute resolution under the Foreign Direct Investment Law and its impact on the foreign investor, the state, and the region. It provides an overview of the dispute resolution mechanisms stipulated in the law, considering certain factors.

Article 12 of the law states:

“Without prejudice to the right to litigation, disputes and conflicts arising from the foreign direct investment project may be settled by all alternative dispute resolution methods.
Disputes related to foreign direct investment projects shall have urgent status when considered by the competent court in the state.”

The article’s wording is general but allows the foreign investor to resort to alternative dispute resolution methods which may include reconciliation, expert determination, mediation, and arbitration. The law also allows the foreign investor to choose to go to local courts in the state, which must consider the dispute on an urgent basis.

Furthermore, under Article 12, the investor may choose to resort to international arbitration (such as the International Centre for Settlement of Investment Disputes, International Chamber of Commerce, London Court of International Arbitration, and other arbitration institutions). However, this requires the UAE’s approval of this type of arbitration. Below, we will examine whether the UAE has granted such approval through the provisions of the Foreign Direct Investment Law.

Effect of the Dispute Resolution Provision

The extent of the impact of the law’s dispute resolution provisions depends on whether the law represents the state’s acceptance of the dispute resolution method chosen by the foreign investor. Article 12 does not specify a particular mechanism but leaves the choice to the foreign investor. Does this mean that the UAE has pre-approved any dispute resolution method the investor selects? The direct answer is no.

At first glance, if national legislation allows a foreign investor to choose a dispute resolution method from those provided by the legislation, this might be seen as acceptance of the chosen method by the state, since the provision of options may be viewed as an offer to all foreign investors. However, investment laws offering such a choice regarding dispute resolution mechanisms do not mean that the state consents to arbitration or any other method selected by the foreign investor. Instead, it means that the state merely offers options for dispute resolution.

This option is found in many other national investment laws. For example, Seychelles’ Investment Law Article 5/3 states that the foreign investor may “resort to other dispute resolution methods.” Many national investment laws require prior approval, such as an arbitration clause in the investment agreement or a treaty between the host state and the foreign investor, for this option to apply. There can be no claim of prior state consent to any dispute resolution mechanism chosen by the investor without such an agreement.

The UAE Foreign Direct Investment Law does not contain any provision that can be considered prior state consent to a particular dispute resolution mechanism, and such consent requires a separate agreement accepting the chosen method.

The law also allows the foreign investor to resort to local courts in the UAE.

In the second part, we will discuss the law’s definition of the foreign investor and foreign investment, and the impact of treaties ratified by the UAE in light of those definitions.