Newsletter – May 2025

• The Legal Impact of Prior Jurisdictional Rulings on Arbitration Cost Liability: New Dubai Court of Cassation Judgment

The Dubai Court of Cassation has recently issued a significant judgment, which reinforces a vital principle in arbitration: when an arbitral tribunal continues proceedings despite a prior final judgment invalidating its jurisdiction, the party that insisted on continuing the arbitration may be held liable for the full cost of the proceedings. This commentary analyses the legal reasoning behind the court’s decision and its broader implications on arbitration practices in the UAE.

Case Background:

The dispute arose between two contracting parties, where the claimant had previously obtained a final judgment from the Dubai Court declaring the arbitration clause in their construction contract invalid and confirming the arbitral tribunal’s lack of jurisdiction. Despite this, the respondent initiated new arbitration proceedings before the Dubai International Arbitration Centre (DIAC), seeking compensation for alleged contractual breaches.

The arbitral tribunal issued a partial award upholding its jurisdiction. It rejected the case on the merits, subsequently rendering a final award that obligated both parties to share the arbitration costs, which totalled AED 207,500. The claimant challenged the final arbitral award before the Dubai Courts, arguing that it should not be liable for any part of the arbitration costs, given the prior binding judgment on jurisdiction.

 Reasons for the ruling : ( Legal Reasoning)

The Court of Cassation ruled in favour of the claimant, annulling the arbitration award to the extent it required cost-sharing. The court emphasised that Article 6 of the UAE Arbitration Law (Federal Law No. 6 of 2018) permits a party to challenge the jurisdiction of an arbitral tribunal and, if the court confirms the objection, the arbitration must cease. If, despite such a ruling, the opposing party insists on continuing the arbitration, it alone must bear the resulting costs.

The court found that the respondent had misbehaved by initiating arbitration after a final judgment had confirmed the tribunal’s lack of authority. It held that the claimant, having successfully obtained this earlier judgment, should not be penalised by sharing the financial burden of the unauthorized arbitration.

Conclusion:

1.  A final court ruling on jurisdiction is binding and prevents further arbitration on the same matter.

2. When a party proceeds with arbitration in bad faith or against a conclusive judgment, that party may be solely liable for all associated costs.

3. Legal Certainty and Cost Protection: This ruling protects parties who rely on valid court decisions from being financially burdened by improper arbitration proceedings.

Finally, the Dubai Court of Cassation’s judgment in Case No. 88 of 2025 is a landmark decision that underscores the importance of respecting judicial determinations of jurisdiction in arbitration. It sends a clear message that persistence in arbitration, despite prior court findings, will not only result in the invalidation of the award but also incur financial liability for unjustified legal expenses. Practitioners and corporate clients alike should take heed of this ruling when assessing the risks of continuing or challenging arbitration procedures in the UAE.

• The Boundaries of Post-Employment Restrictions and Confidentiality Obligations in UAE Labour Law: New Dubai Court of Cassation Judgment

In a recent labour dispute adjudicated by the Dubai Court of Cassation, the court addressed pivotal issues related to the enforceability of post-employment non-compete clauses and confidentiality obligations. The ruling clarifies several legal principles governing labour relationships and the permissible scope of employer claims in the context of contractual restraints. This article examines the court’s reasoning and its implications for employment contracts and human resources (HR) practices in the UAE.

Case Background:

The dispute arose when the employer (the appellant) filed a claim against a former employee, seeking AED 1,000,000 in compensation for alleged breach of a training agreement and violation of confidentiality and non-compete obligations. The employee had previously signed a contract that included a clause related to professional training, for which the employer claimed reimbursement. Additionally, the employer sought to prevent the employee from joining a competitor in Dubai for one year after termination.

The Court of First Instance had awarded AED 600,000 in favour of the employee for unpaid dues and rejected the employer’s counterclaims. The Court of Appeal upheld the judgment. The employer then filed a petition before the Court of Cassation, alleging procedural and substantive errors in the lower courts’ findings.

 Reasons for the ruling : ( Legal Reasoning)

The Cassation Court rejected the employer’s appeal on multiple grounds:

Firstly, new Claims on Appeal Are Inadmissible:

The court reiterated that new claims, such as the AED 1,000,000 compensation, raised for the first time during the appeal process are inadmissible unless they fall within the narrow exceptions provided by Article 167 of the UAE Civil Procedure Code.

Secondly, lack of a Signed Non-Compete Clause:

The employer’s reliance on a post-employment non-compete clause was dismissed as unfounded, as there was no evidence of a validly signed and enforceable clause. The court emphasized that such restrictions must be agreed upon and signed by the employee to carry legal effect.

Thirdly, Limits on Employer’s Right to Claim Damages:

The judgment further emphasized that under Federal Decree-Law No. 33 of 2021 (on the Regulation of Labour Relations), employers are obligated to bear the cost of minimum vocational training and cannot claim reimbursement unless specific and documented contractual provisions exist. The court found that the employer failed to provide sufficient evidence to prove actual damage or that the training exceeded the statutory minimum.

Fourth, Freedom of Employment and Invalidity of General Restraints:

The court stressed that non-compete clauses must be narrowly tailored in terms of time, place, and scope. Blanket restrictions on employment, especially those not properly executed or justified, contravene the employee’s fundamental right to work and are therefore unenforceable.

Conclusion:

This judgment reinforces the requirement that employers must ensure non-compete and confidentiality clauses are validly signed, reasonable in scope, and directly linked to the protection of legitimate business interests.