Impact of Non-Payment of Advance on Costs in UAE Arbitration

Arbitration is the preferred way of resolving disputes in the UAE due to its effectiveness and confidentiality. However, one key concern is that one of the parties failed to pay the advance on charges. This situation poses a significant question, does failing to pay arbitration expenses constitute a waiver of the obligation to arbitrate?

Understanding Advance on Costs in Arbitration

The term "advance on costs" refers to the initial payments required to cover arbitration expenses such as arbitrator's fees, administrative charges, and other procedural costs. These amounts are normally divided among the disputing parties. If one side refuses or fails to pay, the arbitration process may be delayed or even interrupted, presenting legal difficulties.

Legal Position in the UAE

Under UAE arbitration rules, specifically Federal Law No. 6 of 2018 on Arbitration (UAE Arbitration Law), an arbitration agreement remains binding even if one party fails to meet its financial commitments. The defaulting party's unwillingness to pay does not immediately invalidate the arbitration provision, but it may have an impact on the procedural flow of the arbitration.

Consequences of Non-Payment

If a party fails to pay its share of the advance on costs, the following consequences may arise:

• Other Party Covers the Costs:To ensure that the arbitration may progress, the opposing party may choose to pay the full cost. This can later be claimed as part of the overall award.
• Request for Court Intervention:The paying party might seek assistance from UAE courts in enforcing cost-sharing commitments under the arbitration agreement.
• Arbitration Suspension or Termination:Some arbitration centres, such as the Dubai International Arbitration Centre (DIAC) and the Abu Dhabi Global Market (ADGM) Arbitration Centre, may postpone or terminate proceedings if costs are not paid.

Is Non-Payment a Waiver of the Arbitration Agreement?

Non-payment of arbitration costs does not automatically waive the commitment to arbitrate. Arbitration agreements are upheld by UAE courts unless both parties specifically withdraw them. However, if arbitration cannot begin owing to non-payment, the affected party may seek court intervention in extreme circumstances. Courts may then determine whether arbitration has become ineffective, potentially permitting litigation as an alternative.

The non-payment of an advance on costs in UAE arbitration does not automatically reject the arbitration agreement, although it can lead to significant procedural complications. Disputing parties must ensure that their financial obligations are met to avoid unnecessary delays and legal challenges. Our experienced arbitration lawyers in Dubai can provide valuable guidance in complexities and exploring potential remedies. By doing so, parties can better protect their interests and facilitate a smoother arbitration process.