Background
As previously reported, in September 2021, the joint venture between the Dubai International Financial Centre and the London Court of International Arbitration (DIFC-LCIA), and the Emirates Maritime Arbitration Centre were abolished. All the respective assets, liabilities, rights and obligations of these institutions were transferred to the newly established Dubai International Arbitration Centre (DIAC) by way of the Decree. The consequences of the Decree for the arbitration agreements in favor of the DIFC-LCIA have attracted attention on various occasions since then.
Specifically, in November 2023, in Baker Hughes Saudi Arabia Co. Ltd. v. Dynamic Industries Saudi Arabia, Ltd., the United States District Court for the Eastern District of Louisiana refused to compel a claimant to DIAC arbitration when the arbitration agreement provided for DIFC-LCIA arbitration. The court explained that the relevant precedent dictated that arbitration could not be compelled when the agreed arbitral institution is unavailable or no longer in existence (see here). The decision attracted a lot of attention as it crystallized the risk for parties that still have DIFC-LCIA arbitration clauses in their agreements (which was very common in the Middle East region before the Decree).
Earlier this year, the Singapore High Court also dealt with this issue ([2024] SGHC 71). Although the Singapore High Court rejected the appeal against the order granting permission to enforce a provisional award issued in an arbitration under the DIAC Rules, it did so on the basis that the respondent had demonstrated an unequivocal, clear and consistent intention to submit to the tribunal's jurisdiction with respect to the application (by not challenging the jurisdiction in respect of the application on the basis of the Decree). At the same time, it concluded that agreements on institutional rules "concern the basic architecture of the arbitration and typically have a substantial impact on the arbitral proceedings". Therefore:
"It was a stretch to say that the parties intended, at the time they signed the Settlement Agreement, to accept arbitration administered by any institute in Dubai (whether then existing or not) regardless of the rules under which the arbitration would be conducted."
On this basis, the Singapore High Court found that the DIFC-LCIA arbitration clause may not apply.
Against this context, the Decisions shed light on the UAE Courts' approach to the same matter.
The circumstances of the case
The dispute in question arose from a contract for supplying medical equipment, which provided for DIFC-LCIA arbitration with the seat in the DIFC. The claimant commenced litigation in the Abu Dhabi courts despite the arbitration agreement. The respondent disputed the Courts' jurisdiction with reference to the DIFC-LCIA arbitration clause. The claimant — among other things — argued that the arbitration clause cannot be performed because the Decree abolished the DIFC-LCIA.
The Courts agreed with the respondent and dismissed the claim.
Rationale of the Courts
In the Decisions, the Courts concluded the following:
- The abolishment of the arbitral institution by itself does not mean that the arbitration agreement cannot be performed. It relied on the "travaux préparatoires" to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in this respect.
- The absence of one of the elements of the intent to arbitrate (the abolishment of the arbitral institution) does not necessarily invalidate the parties' intent to arbitrate, as long as there is an explicit agreement to arbitrate.
In reaching these conclusions, the Courts analyzed the Baker Hughes Saudi Arabia Co. Ltd. v. Dynamic Industries Saudi Arabia, Ltd. case and cases from other jurisdictions on similar matters. The Courts decided that they preferred the approach of other courts, such as that of the Paris Court of Appeal in Case No. 10/23578. In that case, the Paris Court of Appeal analyzed a clause referring to the rules of the German Arbitration Commission (DAS), which was merged with the German Arbitration Institute (DIS) to form the current DIS in 1992. In that case, the court concluded that the arbitration clause's validity was not affected, as the DIS was the DAS' successor.
The Courts concluded that they did not compel the parties to arbitration in a specific institution, such as the DIAC, but rather enforced the "negative effect" of the arbitration agreement, i.e., that the parties cannot resort to state courts instead. They stated that the parties may agree to another arbitral institution should they wish to do so.
DIFC Court's analysis of the Decisions
The DIFC Court of First Instance ("DIFC Court") recently had to consider the same issue in ARB 009/2024 Narciso v Nash. The DIFC Court was faced with an application for an anti-suit injunction in a case where the arbitration agreement again provided for DIFC-LCIA arbitration. One of the defendant's arguments was that it could not be forced to arbitration in a forum that it did not choose, with reference to Baker Hughes Saudi Arabia Co. Ltd. v. Dynamic Industries Saudi Arabia, Ltd.
The DIFC Court analyzed the matter under DIFC law and concluded that it was bound by the Decree. Furthermore, it analyzed the Decisions and concluded that, even if it had not been bound by the Decree, the DIFC Court would have adopted the reasoning of the Decisions. In summarizing the Decisions, the DIFC Court stated:
- Decree 34 preserves the parties' bargain and if the parties had not wished their arbitration after the Effective Date of the Decree to have been administered by DIAC according to its Rules, it was open to the parties to have agreed that another institution was appointed in its place. I would add that if these parties had been genuinely concerned about the differences between the DIFC-LCIA and DIAC Rules they could have agreed to the rules of the LCIA itself which were materially identical the DIFC-LCIA Rules.
The DIFC Court's interpretation of the Decisions considered that it is not only the "negative effect" of the arbitration agreement that it preserved, but also the "positive" one — the Decree supplements the arbitration agreement, and if the parties do not want the DIAC to administer the arbitration, they should specifically agree so.
Practical effect of the Decisions
The Decisions clarify the UAE Courts' position in respect of the effect of the Decree and confirm that the UAE Courts would treat the LCIA-DIFC arbitration agreements as binding, valid and capable of being performed.
Although the Decisions do not confirm that the arbitration in these cases should be conducted under the DIAC Arbitration Rules as provided by the Decree, further conclusions of the DIFC Court suggest that the positive effect of the LCIA-DIFC arbitration agreements will be similarly respected.
However, the Decisions do not exclude the risk of different approaches in foreign courts. Foreign courts may decide otherwise when faced with claims covered by these arbitration agreements — especially when a party entertains an objection to the DIAC tribunal's jurisdiction on the basis of the Decree, thus not submitting to the DIAC tribunal's jurisdiction irrespective of the DIFC-LCIA arbitration agreement.
As such, it remains advisable to align the "old" arbitration agreements with the Decree and expressly agree to DIAC (or another) arbitration to avoid jurisdictional disputes, enforcement issues and claims submitted to state courts outside of the UAE. The risk is especially high if enforcement outside of the UAE may be contemplated.
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*This article was authored by Luka Kristovic-Blazevic (Partner and Head of International Arbitration, Middle East), and Taisiya Vorotilova (Senior Associate, Dubai).
