Introduction: Understanding Arbitration Agreements from a UAE Business Perspective
In today’s increasingly globalised business environment, contractual disputes are rarely confined to a single jurisdiction. American businesses, often counterparties for entities in the United Arab Emirates (UAE), commonly include arbitration clauses in their agreements. Arbitration is intended to provide a flexible, private, and efficient forum for resolving disputes. However, poorly drafted arbitration agreements—particularly those governed by United States law—pose significant risks. These mistakes can result in unenforceable awards, protracted litigation, and unanticipated costs. For UAE businesses engaging in cross-border transactions or partnerships, avoiding these common pitfalls is crucial for legal compliance and operational resilience.
This analysis is particularly timely, given the increasing convergence between UAE legal standards—as encapsulated in updates such as Federal Decree-Law No. 6 of 2018 on Arbitration and its 2025 revisions—and evolving US arbitration jurisprudence. Understanding the intricacies of US arbitration pitfalls empowers UAE companies, executives, and legal advisers to negotiate robust dispute resolution mechanisms, safeguard their interests, and remain compliant with both local and international regulations.
The following consultancy-grade article, based on authoritative sources and recent legal developments, provides a comprehensive overview of the most prevalent pitfalls encountered in US arbitration agreements. It offers strategic guidance, comparative legal analysis, practical compliance strategies, and actionable insights for UAE-based organisations with exposure to US law.
Table of Contents
- US Arbitration Agreements: Fundamentals and Legal Framework
- Relevance for UAE Businesses: Why These Pitfalls Matter
- Common Mistakes in US Arbitration Agreements
- Ambiguity in Arbitration Clauses
- Omissions and Excluded Subject Matter
- Institutional vs. Ad Hoc Arbitration Confusion
- Failure to Specify the Seat of Arbitration
- Unclear Choice of Law and Procedural Rules
- Multiplicity of Parties and Joinder Issues
- Improper Arbitrator Appointment Mechanisms
- Lack of Interim Relief Mechanisms
- Unenforceable or Pathological Terms
- Public Policy and Non-Arbitrable Matters
- Practical Case Studies and Examples
- Compliance and Best Practice Strategies for UAE Organisations
- Comparison: UAE Arbitration Law Developments
- Conclusion: Ensuring Robust, Enforceable Arbitration Agreements
US Arbitration Agreements: Fundamentals and Legal Framework
Overview
Arbitration in the United States is primarily governed by the Federal Arbitration Act (FAA, 9 U.S.C. §§ 1–16), which establishes the enforceability of written arbitration agreements involving interstate or foreign commerce. Key supplementary frameworks include the Uniform Arbitration Act (UAA) at state level and institutional rules such as those of the American Arbitration Association (AAA) or JAMS. US courts staunchly enforce arbitration agreements in line with the principle of party autonomy, provided they comply with minimum due process standards and public policy limitations.
Key Provisions
| Statute/Regulation | Main Provision | Implication |
|---|---|---|
| Federal Arbitration Act (FAA), 1925 | Written agreements to arbitrate are enforceable and court proceedings may be stayed in favour of arbitration. | Enables court enforcement but does not supersede mandatory statutory rights. |
| Uniform Arbitration Act (UAA) | Model law adopted by several states; governs procedural issues not addressed by FAA. | Local variations in process and enforcement. |
| Institutional Rules (e.g., AAA, JAMS) | Sets out detailed procedural framework if specified in the arbitration agreement. | Fills gaps and provides predictability in process. |
Recent Developments
US Supreme Court rulings, such as Henry Schein, Inc. v. Archer & White Sales, Inc. and Epic Systems Corp. v. Lewis, underscore the strong presumption in favour of arbitration and delegation of arbitrability questions to the arbitrator if so stipulated. However, these standards can create traps if arbitration agreements are inadequately drafted.
Relevance for UAE Businesses: Why These Pitfalls Matter
UAE entities increasingly transact with US companies and are often faced with arbitration clauses rooted in US law, procedural rules, or venues. Failing to understand and address common US drafting pitfalls exposes UAE businesses to the following risks:
- Unenforceable Awards: A pathological clause may render the arbitral award unenforceable either in the US, the UAE, or internationally under the New York Convention (to which both states are signatories).
- Forum Shopping: Ambiguities may prompt litigation over the appropriate forum, contradicting the intention of arbitration as an efficient alternative to courts.
- Unexpected Delays and Costs: Poorly-defined processes, governing law, or seat can result in extensive preliminary litigation over arbitrability.
- Exposure to Parallel Litigation: Vagueness in the scope of arbitration can lead to parts of disputes being handled in court and arbitration simultaneously.
Given recent updates in UAE legislation (notably Federal Decree-Law No. 6 of 2018 as amended in 2025), aligning cross-border arbitration clauses with both US and UAE requirements is vital to safeguard enforceability and efficiency.
Common Mistakes in US Arbitration Agreements
The following sections dissect the most prevalent errors observed in US arbitration clauses and provide actionable guidance for UAE-based stakeholders.
Ambiguity in Arbitration Clauses
Legal Analysis: A common failing is ambiguous language surrounding the parties’ intent to arbitrate. US courts give effect to arbitration agreements only if the language clearly signals that all disputes between the parties are to be resolved by arbitration. Clauses phrased as “may be submitted to arbitration” or “the parties will consider arbitration” create uncertainty over the mandatory nature of arbitration, opening the door for court litigation.
Practical Example: A clause stating, “Any dispute arising from this Agreement may be settled by arbitration” is likely held unenforceable, as the word “may” suggests arbitration is optional rather than compulsory.
Consultancy Guidance: UAE companies should use unequivocal language such as “shall be finally resolved by arbitration,” referencing both the applicable arbitration rules and the exclusive nature of the remedy.
Omissions and Excluded Subject Matter
Legal Analysis: US-style arbitration clauses often fail to specify which disputes are intended to be arbitrated, either through over-broad or excessively narrow language. This becomes problematic in sectors with mandated statutory remedies—employment, antitrust, IP, or consumer rights—where courts may exclude statutory claims from arbitration if not clearly encompassed in the agreement.
Case Study: In AT&T Mobility LLC v. Concepcion, the US Supreme Court upheld arbitration of consumer claims, but only because the clause was sufficiently comprehensive in its scope. Contrast this with EEOC v. Waffle House, Inc., where statutory employment claims were held non-arbitrable absent explicit inclusion.
Consultancy Guidance: For UAE businesses, all-encompassing language such as “any and all disputes, including statutory and contractual claims, arising out of or relating to this Agreement” should be used—with any exclusions or carve-outs expressly stated.
Institutional vs. Ad Hoc Arbitration Confusion
Legal Analysis: Parties frequently neglect to specify whether the arbitration is to be administered by an institution or conducted ad hoc. The practical difference is profound: institutional rules (AAA, ICC, JAMS) offer established processes, fee schedules, and appointment powers, whereas ad hoc arbitration relies on bespoke procedures and mutual cooperation. US courts often “fill the gap,” potentially referring disputes to unsuitable rules or institutions.
| Feature | Institutional | Ad Hoc |
|---|---|---|
| Rules and Procedures | Standardised and published | Parties must agree or risk deadlock |
| Costs | Generally higher, but predictable | Variable, risk of hidden costs |
| Appointment of Arbitrators | Handled by institution | Requires party consensus or court intervention |
| Risk of Deadlock | Low | High if disagreement arises |
Consultancy Guidance: UAE parties should specify their preferred institution, or, if ad hoc, set forth the default appointment and procedural rules to avoid stalemates or the risk of hostile venue selection.
Failure to Specify the Seat of Arbitration
Legal Analysis: The “seat” or legal place of arbitration determines the procedural law governing the arbitration and the jurisdiction of local courts to hear applications relating to the arbitration process or award enforcement. Failure to select a seat can result in confusion, forum disputes, and unenforceable awards. The US legal framework varies considerably between states.
Example: Choosing “New York” as the seat brings into play not only the FAA but also New York state arbitration jurisprudence, which differs from, for example, California. International parties often mistakenly overlook these differences.
Consultancy Guidance: UAE businesses should select seats in jurisdictions recognized as arbitration-friendly (e.g., New York, Delaware, or Washington DC), and cross-reference the chosen seat with the intended arbitral institution and governing law.
Unclear Choice of Law and Procedural Rules
Legal Analysis: Failing to distinguish clearly between the substantive law governing the contract and the “lex arbitri” (law of the arbitration) can generate significant procedural disputes. US agreements may also conflict with UAE’s Article 6 of Federal Decree-Law No. 6 of 2018, which regulates the interplay between procedural and substantive law.
Case in Point: A contract may stipulate that “the law of the State of California applies,” but does not clarify whether this governs contract validity, arbitration procedure, or both. Courts then decide, often contrary to parties’ expectations.
| Key Distinctions | US Practice | UAE Practice |
|---|---|---|
| Substantive Law | Often state law chosen | May default to UAE law absent express provision |
| Procedural Law (Lex Arbitri) | Seat of arbitration dictates | Seat determines unless parties agree otherwise (Article 6) |
Consultancy Guidance: Parties should specify both the substantive law for the contract and the law applicable to the arbitration (procedural law), ensuring alignment with both US and UAE requirements for enforcement.
Multiplicity of Parties and Joinder Issues
Legal Analysis: Cross-border contracts frequently involve several affiliates, suppliers, financiers, or other third parties. If the arbitration agreement is silent on joinder and consolidation, US law typically precludes bringing these parties into a single arbitration, risking fragmented and inefficient proceedings. UAE updates (see Federal Decree-Law No. 6 of 2018, Article 17 as amended in 2025) now expressly address joinder requirements.
Hypothetical: A UAE principal, two US subcontractors, and a local supplier are all part of a project. Only the main contract contains an arbitration clause. US courts may refuse to compel the subcontractors who are not signatories, undermining the purpose of a single arbitral forum.
Consultancy Guidance: Draft clauses to expressly permit joinder or consolidation, and ensure each party’s consent—another key requirement under both US and UAE law for enforceability.
Improper Arbitrator Appointment Mechanisms
Legal Analysis: US arbitration agreements sometimes neglect to provide a workable procedure for selecting arbitrators or deadlock resolution. Absence of mechanism can invite contentious court intervention.
Practical Example: A clause failing to specify the number of arbitrators, appointing authority, or method for breaking appointment deadlocks often forces parties into litigation just to constitute the tribunal.
Consultancy Guidance: Clearly set out the number of arbitrators (preferably odd), the process for selection, a fallback mechanism (e.g., default to the institution’s rules or court appointment), and relevant qualifications for arbitrators.
Lack of Interim Relief Mechanisms
Legal Analysis: If the agreement is unclear as to the powers of arbitrators to grant interim or emergency relief, or does not address recourse to local courts, parties may be denied crucial protections such as asset freezes or evidence preservation. US law, unless explicitly restricted, allows parties to seek court-ordered interim measures even during arbitration, but this must be clear in the agreement.
Consultancy Guidance: Specify whether arbitrators may grant interim or emergency relief and whether parties may seek ancillary relief from courts, ensuring compatibility with institutional arbitration rules and UAE law (see Article 18 of Federal Decree-Law No. 6 of 2018).
Unenforceable or Pathological Terms
Legal Analysis: Provisions that violate public policy, attempt to restrict statutory remedies, or impose manifestly unfair procedural obligations (such as prohibitive costs or biased appointment powers) will be struck down by US courts. Moreover, these pathologies can undermine enforcement in the UAE under the New York Convention and Domestic Arbitration Law.
Example: A clause requiring all arbitrators to be employees of one party, or denying the right to legal representation, is almost certainly unenforceable.
Consultancy Guidance: Avoid adding terms that are likely to be found unconscionable by either US or UAE courts. Importantly, review for compliance with UAE Ministerial Guidelines issued in line with Cabinet Resolution No. 57 of 2018 and subsequent updates.
Public Policy and Non-Arbitrable Matters
Legal Analysis: US law, like UAE law, places certain disputes (e.g., criminal, some IP, employment discrimination) outside arbitration’s reach. If the clause is drafted too broadly without accommodating for non-arbitrable matters, there is a risk of unenforceability or partial referral to courts.
Consultancy Guidance: Carve out non-arbitrable statutory matters explicitly, and cross-reference current judicial guidance in the US and UAE.
Practical Case Studies and Examples
Case Study 1: Ambiguous Arbitration Language
A UAE-based developer enters into a supply agreement with a US technology company. The dispute resolution clause states only, “In the event of a dispute, the parties may choose to arbitrate in California.” A billing dispute arises, but the US supplier initiates court proceedings arguing that the arbitration clause was optional. The California court agrees, compelling costly litigation contrary to the UAE developer’s intentions. The lesson: ambiguity undermines certainty.
Case Study 2: Failure to Specify Institution and Seat
A UAE fintech company partners with a US venture capital firm. The contract merely states, “Disputes shall be resolved by arbitration.” When a dispute emerges, the parties cannot agree on the appointing authority or the applicable rules. Court intervention delays the process. Worse, the UAE side is surprised by the US court’s application of local state arbitration statutes. Clear institutional and seat selection would have avoided both confusion and delay.
Case Study 3: Multiparty Projects and Joinder Errors
A multinational group, including UAE and US affiliates, signs a collaboration framework. Arbitration is referenced only in the main agreement and not in subcontracts. When a dispute implicates all parties, US courts refuse to compel arbitration for non-signatory subcontractors, resulting in splintered proceedings and inconsistent outcomes.
Compliance and Best Practice Strategies for UAE Organisations
| Mistake | Risk | Compliance Strategy |
|---|---|---|
| Ambiguous or Optional Clauses | Unenforceable awards, forum shopping | Use mandatory language (“shall be finally settled”) |
| Failure to Specify Seat/Institution | Jurisdictional disputes, confusion | Name venue and arbitration provider expressly |
| Unclear Governing Law | Procedural disputes | Specify both substantive and procedural law |
| Exclusion of Non-Signatories | Fragmented enforcement | Draft mechanisms for joinder, consolidation |
| Improper Appointment Process | Litigation to constitute tribunal | Set out clear process; use fallback mechanisms |
| No Interim Relief Terms | Loss of protective measures | Address in clause and align with rules |
| Public Policy Violations | Unenforceable terms/provisions | Review for compliance with both US/UAE law |
Recommendations:
- Align arbitration clauses with the requirements of Federal Decree-Law No. 6 of 2018 and its 2025 amendments for enforceability in the UAE.
- Consult with legal counsel experienced in US and UAE arbitration frameworks before signing any agreement referencing international arbitration.
- Regularly audit and update standard contract templates to reflect current law and institutional rule changes.
- Involve HR and compliance teams in the review of arbitration provisions in employment and supply agreements.
- Prepare an internal arbitration clause checklist (a visual compliance flowchart or table can be placed here for internal training purposes).
Comparison: UAE Arbitration Law Developments
The UAE’s arbitration regime, extensively reformed by Federal Decree-Law No. 6 of 2018 and further clarified by the 2025 updates, shares many structural principles with the US but also imposes unique requirements. Understanding these differences is essential for cross-border dispute resolution planning.
| Aspect | US Law (FAA/State Law) | UAE Law (Decree-Law No. 6/2018 & 2025) |
|---|---|---|
| Governing Framework | FAA; State UAA | Federal Decree-Law No. 6 of 2018; Cabinet Resolutions |
| Enforcement of Awards | Strong, unless violates public policy | Aligned with NY Convention; courts may review for compliance |
| Party Autonomy | Very strong | Subject to express statutory limits |
| Joinder/Consolidation | Usually requires express consent | More flexibility post-2025 updates |
| Interim Relief | Court or arbitral tribunal can grant; varies by state | Permitted under Article 18, but requires clarity in clause |
UAE legal updates reinforce the importance of precise, internationally-aligned drafting, ensuring that arbitral awards are enforceable both locally and internationally. Failure to incorporate these best practices risks losing the benefits of arbitration altogether.
Conclusion: Ensuring Robust, Enforceable Arbitration Agreements
For UAE businesses operating internationally, particularly those engaging US-based partners, the technical details of arbitration clauses can determine the speed, cost, and outcome of dispute resolution processes. As the UAE’s own legal environment becomes increasingly aligned with international standards—including those set by recent federal decrees and ministerial resolutions—there is no room for casual, boilerplate drafting.
Key lessons include: unambiguous commitment to arbitration, explicit specification of seat, rules, and applicable law, careful provisions for multiparty disputes and arbitrator appointment, and scrupulous compliance with statutory and public policy limitations across jurisdictions. By proactively auditing and updating cross-border arbitration agreements in light of both UAE and US pitfalls, businesses can ensure their dispute resolution strategies are both enforceable and strategically advantageous.
Moving forward, the interplay between evolving arbitration standards in the UAE and those in the US will continue to shape contract negotiations, dispute management strategies, and ultimately, business success for UAE-based stakeholders. We recommend UAE clients adopt a dynamic approach: periodically reviewing contracts, securing expert legal review, and investing in internal compliance controls. This will ensure not only legal compliance but also future readiness in the face of an ever-changing international legal landscape.
Suggested Visuals
- Penalty Comparison Chart: Illustrate key risks and legal consequences of improper arbitration drafting across US and UAE frameworks.
- Arbitration Compliance Checklist: Simple table for legal and HR teams to review draft arbitration clauses.
- Arbitration Clause Process Flow Diagram: Steps for drafting and reviewing international arbitration clauses from a UAE perspective.
