Public Policy & Liability in Gulf States Arbitration | Youssef + Partners

Public Policy and Liability in Gulf States: Expert Testimony Implications

Introduction

The Gulf legal systems, principally those of Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain, and Oman, share a common structural foundation but exhibit significant divergences in how their liability rules operate in practice and how their public policy frameworks constrain arbitral outcomes. All six are, in a broad sense, civil law systems with private law codes influenced by Egyptian models, which derive from the French civil law tradition..

All six are influenced by Sharia principles to different extents, some at the level of constitutional commitment, others at the level of specific statutory provisions or judicial interpretation. And all six maintain bodies of mandatory law: rules that parties cannot contract around, remedies that cannot be excluded in private agreements, and public interest considerations that courts apply as a matter of course when asked to enforce arbitral awards.

This combination of codified civil law, Sharia-influenced doctrine, and mandatory rules renders the Gulf systems distinctive in international arbitration. As a result, expert testimony on Gulf law is essential. This does not, however, mean that Gulf law is inaccessible; the relevant statutory provisions are available, and competent counsel can identify and apply them.

The challenge is that the statutory text alone does not capture how Gulf law operates. Expert testimony is crucial for courts to interpret Gulf civil codes, apply general principles, and the specific content of public policy.

This article examines the principal areas in which public policy and liability rules give rise to significant demands for expert testimony in Gulf-related international arbitration. It addresses, in turn, the structural role of public policy in Gulf arbitration, the core liability frameworks under Gulf civil codes, the specific challenges of termination disputes, corporate and shareholder liability, damages and financial remedies, and the strategic function of the expert witness across all of these areas.

Throughout, the emphasis is practical: on how these issues arise in proceedings, what tribunals need to understand, and what expert testimony can and cannot provide.

1. Why Public Policy Matters in Gulf Arbitration

Public policy plays a distinctive role in Gulf arbitration that differs materially from its role in the arbitration systems of common law jurisdictions. In England or the United States, public policy is treated as a narrow and exceptional ground for refusing enforcement of arbitral awards.

In Gulf enforcement jurisdictions, public policy is interpreted more broadly, applied more actively, and understood to encompass a wider range of mandatory statutory provisions and Sharia-influenced principles. The practical consequence is that an award which is valid and enforceable under the law of the arbitral seat may nonetheless face serious enforcement resistance when presented to a Gulf court.

The mandatory statutory layer is, in some respects, the more predictable element of Gulf public policy. Gulf legal systems contain a body of non-derogable provisions: rights that parties cannot waive by contract, protections that courts will apply regardless of what the applicable law of the contract provides, and procedural requirements whose breach will taint any award derived from the underlying relationship.

Commercial agency protections, certain labour law provisions, and minority shareholder rights all fall into this category in various Gulf jurisdictions. An international tribunal applying, say, English law as the governing law of a contract may reach a result that is correct under English law but irreconcilable with the mandatory provisions of the Gulf law, and an enforcement court will resolve that conflict in favour of its own mandatory rules.

The Sharia dimension is less mechanically predictable but not less significant. In Saudi Arabia, Sharia principles operate at a constitutional level, and the prohibition on riba (the charging of interest without a permissible commercial basis), has direct consequences for the enforceability of financial awards. In other Gulf jurisdictions, Sharia influence operates more through the interpretive tradition of the courts than through explicit statutory command, but its effects on the content of good faith obligations, on the treatment of unjust enrichment, and on the approach to punitive or exemplary damages are real and consequential.

For international tribunals, the strategic implication is that public policy analysis cannot be left until the enforcement stage. It must be built into the conduct of the arbitration: into the framing of claims, the structure of remedy requests, and the drafting of any settlement. Expert witnesses who can identify, at an early stage, the specific public policy provisions that are likely to be invoked by an enforcement court, and who can advise on how to structure the award to minimise enforcement risk, provide a contribution that extends well beyond the formal expert report.

Key Principle: In Gulf arbitration, public policy is not a last resort, it is a live consideration from the moment the dispute is framed. Expert witnesses on Gulf law should be engaged early enough to shape how claims are structured, not simply to explain the law after the fact.

2. Liability Frameworks in Gulf Legal Systems

Contractual Liability and the Civil Code Tradition

Gulf civil codes impose a framework for contractual liability that is structurally similar across the region but diverges in important details. The general principle is that a party in breach of a valid contract is liable for the direct and foreseeable loss caused by the breach, a formulation that has a surface resemblance to common law remoteness doctrine but operates differently in practice.

Gulf courts applying their civil codes do not engage in the kind of multi-factor remote analysis that characterizes the Hadley v Baxendale tradition; instead, they apply a concept of direct causal connection, which can be both more structured and more flexible depending on the context.

Penalty clauses, a frequent feature of Gulf commercial contracts, occupy a distinctive position in this framework. Gulf civil codes universally permit courts to adjust penalty clauses, upward or downward, where the agreed penalty is disproportionate to the actual loss. This is not merely a theoretical power: Gulf courts exercise it regularly, and the awarded sum often differs from the contractually agreed figure. For international tribunals applying Gulf law, this is a material consideration that expert witnesses must address: the question is not simply whether a penalty clause is valid, but what a Gulf court would actually award under it.

The Abuse of Rights Doctrine

All Gulf civil codes incorporate the abuse of rights doctrine, derived from the Egyptian civil law and, ultimately, French civilian principles. In formal terms, the doctrine provides that a party who exercises a formally valid right in a manner that causes disproportionate harm to another, without a legitimate interest proportionate to that harm, commits an actionable wrong.

In practice, Gulf courts have applied this doctrine in ways that significantly constrain the exercise of contractual rights, including termination rights, majority shareholder rights, and rights to enforce performance obligations, where those rights are exercised in bad faith or for collateral purposes.

The expert testimony challenge here is that the doctrine does not operate mechanically. Whether a particular exercise of a contractual right constitutes an abuse depends on a fact-intensive assessment of the party’s purposes, the proportionality of the harm, and the availability of less harmful means of achieving the same legitimate objective. Expert witnesses must do more than confirm that the doctrine exists; they must explain how Gulf courts have characterised analogous conduct, what evidence courts have found persuasive, and what remedies, specifically, whether compensation is awarded and on what basis, follow from a finding of abuse.

Good Faith as a Substantive Constraint

The good faith obligation in Gulf civil codes is not merely a principle of contractual interpretation; it is a substantive constraint on how contracts are performed and terminated. Gulf courts have treated good faith obligation as requiring transparency, proportionality, and, in long-term commercial relationships, conduct that respects the legitimate expectations that the other party has formed in reliance on the relationship.

This has significant implications for disputes arising from the termination of joint ventures, agency relationships, and long-term supply contracts, where the reasonable expectations generated by years of commercial practice may not be fully captured in the written contract.

3. Termination Liability and Compensation

Termination disputes are the most common of Gulf law disputes before international tribunals, and they present the most varied range of expert testimony requirements. The reason is that termination in Gulf legal systems engages multiple overlapping legal frameworks simultaneously, including, the civil code’s general provisions, sector-specific statutory regimes, and the mandatory compensation provisions that apply to certain terminations regardless of what the contract provides.

Commercial Agency and Distribution Termination

Commercial agencies and distribution relationships are subject to specific statutory protection in every Gulf jurisdiction. The protections vary in their scope and stringency, but the common feature is that the termination of a commercial agency or distribution relationship, even where contractually permitted, may give rise to a mandatory compensation entitlement that cannot be excluded by agreement and that is calculated by reference to statutory criteria rather than contractual terms.

In several Gulf jurisdictions, this entitlement arises regardless of contractual fault and operates as a form of investment protection for the agent or distributor.

For international tribunals, this creates a recurring difficulty. A claimant may seek termination compensation under a governing law, English or Swiss law, say, that provides no equivalent remedy, or provides it on materially different terms. The respondent may invoke the Gulf jurisdiction’s mandatory agency law to assert that the contractually agreed governing law cannot displace the statutory entitlement. Resolving that conflict requires expert testimony on the scope of the statutory entitlement, the circumstances in which Gulf courts have treated it as mandatory in cross-border contexts, and how the compensation should be calculated.

Executive Dismissal and Hybrid Arrangements

The dismissal of senior executives in Gulf-based businesses raises distinct issues where the individual’s arrangements combine employment and shareholder or governance dimensions. Gulf labour laws provide mandatory minimum compensation entitlements for dismissed employees that cannot be waived, and in several jurisdictions the courts have applied these protections to senior executives even where their arrangements were structured as director or management appointments rather than employment contracts.

Expert witnesses are regularly required to advise on whether the Gulf labour law protections apply, whether the executive’s removal from governance roles gives rise to additional claims under the companies’ law, and how the two frameworks interact when both are engaged.

Practitioner Note: The interaction between Gulf labour law protections and companies law remedies in senior executive dismissal cases is one of the most technically demanding areas of Gulf law for international tribunals. Expert testimony that addresses both frameworks, and the question of which governs, is essential in any case with these features.

4. Corporate and Shareholder Liability

Gulf company laws have undergone substantial reforms over the past decade, and the reforms have introduced clearer frameworks for director liability, minority shareholder protection, and governance obligations. But the reforms have also created new areas of legal uncertainty, as courts in each jurisdiction work through the application of new provisions to factual situations that the legislators may not have fully anticipated.

For international tribunals dealing with corporate and shareholder disputes governed by Gulf law, this makes expert testimony on the current state of the law, including the direction in which it is developing, particularly important.

Director Liability

Gulf company laws impose duties of care, loyalty, and non-competition on company directors and managers that, while familiar in structure to common law practitioners, operate within a civil code framework that produces different outcomes in specific cases.

The duty of care standard in Gulf company laws is generally framed by reference to the conduct of a prudent person in the same circumstances, a civil law formulation that Gulf courts have applied with varying degrees of rigour depending on the jurisdiction and the factual context.

The duty of loyalty, and in particular the treatment of conflicts of interest and related-party transactions, has been the subject of significant judicial development in the UAE and Saudi Arabia in recent years, producing a body of case law that expert witnesses must engage with when advising on whether a director’s conduct gives rise to liability.

Minority Shareholder Remedies

The remedies available to minority shareholders under Gulf company laws differ significantly across the region, and in some jurisdictions differ significantly from what international investors may expect based on their experience with common law minority protection remedies.

Gulf company laws do not generally provide direct equivalents to the English unfair prejudice remedy or fully developed derivative actions. The statutory remedies available, typically rights to call general assemblies, to request special audits, and in limited cases to seek judicial dissolution, are more constrained, and the compensation available for governance abuse is calculated by reference to civil code damages principles rather than the equitable principles that govern common law minority remedies.

Expert testimony in Gulf shareholder disputes must address not only whether the claimed conduct constitutes a breach of the applicable company law, but what remedies are realistically available. There is a significant risk, in cases where counsel are experienced in common law minority protection practice, that remedy claims are framed in terms that do not correspond to anything a Gulf court would award. The expert’s role includes correcting that framing before it finds its way into an award that will face enforcement resistance.

5. Damages, Interest, and Sharia Considerations

The Interest Prohibition and Its Practical Consequences

The treatment of interest is one of the most practically significant areas of divergence between Gulf law and the international arbitration norms that practitioners trained in common law or continental European systems may take for granted. In Saudi Arabia, the prohibition on riba is treated as a matter of public policy, and awards of interest, including pre-award and post-award interest, face serious enforcement resistance before Saudi courts.

In other Gulf jurisdictions, the position is more nuanced: the UAE, Qatar, and Kuwait all permit judicial interest in commercial disputes, but at statutory rates that may differ substantially from the rates claimed in arbitration, and subject to limitations on compounding and on the period for which interest can be claimed.

The practical consequence for international tribunals is that interest claims must be carefully structured if they are to survive enforcement. An award of compound interest at a commercial rate, which would be entirely conventional in LCIA or ICC arbitration with an English governing law, may not be enforceable in a Gulf jurisdiction without material adjustment.

Expert testimony on the specific interest treatment in the enforcement jurisdiction, what is permitted, what is subject to judicial adjustment, and what will be refused outright, is an essential input in any case where substantial interest is claimed, and Gulf enforcement is a realistic possibility.

Moral Damages and Unjust Enrichment

Gulf civil codes permit the award of moral damages, compensation for harm to reputation, dignity, and non-economic interests, in circumstances where common law systems would not.

In commercial disputes, moral damages claims arise most frequently in cases involving wrongful termination of long-standing commercial relationships, public disclosure of confidential information, and governance conduct that has caused reputational harm to a shareholder or commercial partner.

The quantum of moral damages awards by Gulf courts is typically modest by international arbitration standards, but their availability is a feature of Gulf law that international tribunals must account for when assessing the full scope of a claimant’s remedy.

Unjust enrichment claims, similarly, operate within a Gulf civil code framework that differs from both common law restitution doctrine and continental formulations. The conditions for an unjust enrichment claim under Gulf law, and in particular the relationship between unjust enrichment and contractual claims where a void or unenforceable contract is involved, require expert analysis that goes beyond the general civilian principles on which a non-specialist tribunal might otherwise rely.

Damages Limitations and Proportionality

Several Gulf jurisdictions impose specific limitations on the recoverable quantum of damages in certain categories of commercial dispute, either through explicit statutory caps or through a judicial tradition of applying proportionality principles that reduces awards to what the court considers reasonable in the circumstances. These limitations interact with the civil code’s general damages framework in ways that are not always predictable from the statutory text alone.

Expert witnesses must be prepared to address not only the legal basis for damages limitation but also the range of outcomes that Gulf courts have produced in comparable cases, because it is the actual range of outcomes, rather than the theoretical maximum, that is most relevant to the tribunal’s assessment.

Award Structuring: Awards that include financial remedies in Gulf-related disputes should be reviewed by an expert on the relevant enforcement jurisdiction before finalization. The difference between an award structured for enforceability and one that is not can be the difference between a remedy and an expensive document.

6. The Strategic Role of the Expert Witness

The discussion above identifies a range of technical legal issues on which expert testimony is required in Gulf-related arbitration. But the expert witness’s role is not simply to produce a report on specific legal points at the merits stage.

In complex Gulf disputes, and in particular in disputes involving ultra-high-net-worth (UHNW) shareholders, major commercial agency relationships, or significant financial awards, expert engagement from an early stage in the proceedings provides a strategic advantage that shapes the trajectory of the case.

At the outset, expert advice on the public policy and mandatory law landscape enables counsel to identify the claims and remedy structures that are most likely to succeed, not merely in the arbitral proceedings themselves, but through enforcement. It also enables early identification of jurisdictional questions that could undermine the arbitration if left unaddressed: whether particular claims are arbitrable under the applicable Gulf law, whether the parties’ choice of seat or governing law is consistent with mandatory rules, and whether the tribunal’s jurisdiction extends to all of the relief claims. These questions are far cheaper to address before the arbitration commenced than to litigate as jurisdictional challenges during it.

During the arbitration, the expert performs a “translation” function that is essential whenever a civil law system is presented to a tribunal constituted in the common law tradition. This is not simply a matter of explaining the text of the relevant provisions, it is a matter of conveying the interpretive tradition within which those provisions operate, the direction in which judicial practice has moved, and the degree of certainty or uncertainty that surrounds the applicable rule.

Expert witnesses who can do this with analytical precision, who engage seriously with the opposing expert’s analysis, and who maintain the credibility that comes from a clearly reasoned and honest engagement with difficult questions are those whose testimony has the greatest influence on tribunals.

After the award, expert testimony may be required in connection with enforcement proceedings in Gulf courts, to explain the content of the foreign arbitral law, to address public policy objections raised by the respondent, or to assist the enforcement court in understanding how the award should be interpreted and applied. This post-award function is easily overlooked at the outset of a proceeding, but it is often where the practical value of the arbitration is ultimately determined.

Illustrative Hypothetical: Expert Testimony in Practice

The following scenario illustrates how the legal principles discussed above interact in a realistic arbitral context. It is not based on any specific matter.

A UAE-incorporated joint venture company operates a regional distribution network. One of the two founding shareholders, a Gulf family office holding a 40% stake, has also served as the exclusive regional commercial agent for the other shareholder, an international manufacturing group, under a long-term agency agreement governed by UAE law. The relationship broke down following a commercial dispute, and the international group terminated both the joint venture relationship and the agency agreement, citing material breach. The family office commenced ICC arbitration seated in Paris, bringing claims under the shareholders’ agreement, the agency agreement, and in unjust enrichment.

Expert testimony on UAE law was required at three distinct stages. At the preliminary phase, the expert addressed the arbitrability of the shareholder removal claims, which the respondent contended were non-arbitrable under UAE company law as matters of mandatory judicial jurisdiction.

The expert’s analysis confirmed that while certain specific corporate law remedies, judicial dissolution, in particular, are reserved to UAE courts, the claims actually advanced by the claimant were contractual claims arising from the shareholders’ agreement and fell clearly within the arbitral jurisdiction.

On the merits, the expert’s primary function was to explain the scope of the UAE Commercial Agencies Law’s mandatory compensation provisions. The respondent argued that the agency agreement’s termination-for-cause clause validly excluded any compensation entitlement. The expert explained that UAE courts have consistently treated the Commercial Agencies Law’s compensation regime as mandatory in its application to registered commercial agencies, and that the contractual exclusion was unenforceable in that respect regardless of the governing law clause.

The expert also addressed the interaction between the agency compensation claim and the shareholders’ agreement claims, specifically, whether the compensation methodology under the Agencies Law applied to the full value of the relationship or only to the agency income stream, a question on which UAE court practice provided clear guidance.

On the damages and interest claims, the expert addressed the UAE’s treatment of commercial interest, confirming that UAE courts apply the statutory rate rather than the commercially agreed rate claimed in the arbitration, and the framework for moral damages, which the claimant had claimed in connection with the manner of the termination. The expert’s evidence on both points was adopted by the tribunal, which structured its award with the UAE enforcement position explicitly in view: interest at the statutory rate, with a separate head for moral damages that fell within the range UAE courts have awarded in comparable cases.

The award was subsequently registered and enforced in the UAE without material challenge. The respondent raised a public policy objection in the enforcement proceedings, but the court’s analysis, which engaged directly with the structure of the tribunal’s reasoning, concluded that the award was consistent with UAE public policy in every material respect. The expert’s contribution to that outcome began not at the enforcement stage but at the outset of the arbitration, when the framework for the award was established.

Conclusion

Public policy and liability rules in Gulf legal systems are not arcane technical matters that arise only in exceptional cases. They are live considerations in every Gulf-related arbitration that involves significant financial claims, commercial termination, corporate governance disputes, or enforcement in the region.

The combinations of civil code liability doctrine, Sharia-influenced mandatory rules, and jurisdiction-specific statutory protections that characterise Gulf legal systems produce outcomes that differ, sometimes materially, from what tribunal reasoning from common law or from major continental civil law frameworks would reach on the same facts.

The expert witness on Gulf law serves a function in this environment that is both technically demanding and strategically important. Technically, the expert must translate a legal system that is unfamiliar to most international arbitration practitioners, explaining not only the relevant provisions but the interpretive tradition and court practice that give those provisions their actual content.

Strategically, the expert contributes to the structuring of the case and the award in ways that maximize the practical value of the arbitration: ensuring that the claims are framed in terms that Gulf law recognizes, that the remedies sought are ones that Gulf courts will give effect to, and that the award is structured to survive the public policy scrutiny that Gulf enforcement courts will apply.

The cost of getting these questions wrong, either through expert evidence that misrepresents the applicable law, or through the absence of expert evidence on issues that the tribunal needed to understand, is measured in enforcement failures, award adjustments, and proceedings that produce technically correct but practically limited results. The cost of getting them right is an award that travels through enforcement as smoothly as the underlying arbitration permitted.

Youssef + Partners has advised on Gulf law expert testimony across a wide range of international arbitral proceedings, including matters seated in London, Paris, Geneva, Dubai, and Cairo. The firm’s practitioners bring to these engagements a combination of deep familiarity with Gulf civil code doctrine, current knowledge of judicial practice in the principal Gulf enforcement jurisdictions, and the ability to present that analysis with the analytical precision and credibility that international tribunals require.