Is Mediation Mandatory If Parties Agreed on It in the Contract?
- Iana Ilinykh
Mediation has gained popularity in the UAE as an efficient and cost-effective alternative to litigation. Under Federal Decree-Law No. 40/2023, mediation can become mandatory if the parties have explicitly agreed to it in their contract. Here’s how such an agreement operates and its binding effect under UAE law.
Mediation as a Binding Contractual Obligation
When parties include a mediation clause in their contract, they agree to resolve disputes through mediation before pursuing litigation or arbitration. Article 9 of the Decree-Law outlines two key scenarios where a Mediation Agreement becomes binding:
- Before a Dispute Arises: A mediation clause can be inserted in the contract, ensuring that any future disputes are first addressed through mediation.
- After a Dispute Arises: Even after a conflict has emerged, parties can mutually agree to mediate, even if legal proceedings have already commenced.
Once a Mediation Agreement is in place, it becomes legally binding. If one party attempts to file a lawsuit without engaging in mediation, the court may suspend the case and require the parties to mediate as per their agreement.
Legal Capacity and Binding Effect
For a Mediation Agreement to be enforceable, certain conditions must be met:
- Natural Persons must have the legal capacity to manage their rights.
- Legal Entities must be represented by someone authorized to bind the entity to the agreement.
The agreement remains enforceable even after the death of a party or dissolution of a legal entity, unless the contract states otherwise. This ensures that mediation continues, regardless of changes in circumstances.
Formalities for a Valid Agreement
For the Mediation Agreement to be valid, it must:
- Be in writing and signed by all parties involved.
This can be part of the main contract or agreed upon separately through letters, electronic means, or court minutes. Additionally, if a contract references another document containing a mediation clause, it can be incorporated if the reference is clear and explicit.
Court’s Role and Suspension of Legal Proceedings
If parties have agreed to mediation, it becomes a pre-condition for litigation. Should one party bypass mediation and file a lawsuit, the other party can request the court to suspend the proceedings. The court can then enforce the Mediation Agreement, halting litigation until mediation is completed. This ensures that mediation is mandatory when specified in the contract.
Language and Mediator Appointment
The Mediation Agreement should also clarify the following:
- The subject matter of the dispute.
- The language of the mediation (if different from Arabic).
- The appointment of a mediator or the process for selecting one.
These provisions help streamline the mediation process and prevent delays when a dispute arises.
Conclusion
Under UAE law, mediation is mandatory if parties have agreed to it in their contract. Federal Decree-Law No. 40/2023 ensures that courts will enforce Mediation Agreements, requiring mediation before any legal proceedings. By doing so, the law promotes an efficient, flexible framework that respects the contractual obligations of the parties involved.
Legal Insights
- 4 October 2024
- 4 min read
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