Summary of the case
The dispute arose out of two construction subcontracts that contained an arbitration agreement providing that disputes shall be referred either to (a) arbitration at the Dubai Chamber of Commerce, or (b) to the local court in the United Arab Emirates, with the choice of forum to be used to be decided by the contractor.
The subcontractor submitted a claim to Dubai state courts, in spite of the arbitration agreement. The contractor (the respondent) moved to refer the dispute to arbitration on the basis of the existence of an arbitration agreement between the parties. However, the Court of First Instance and the Court of Appeal rejected the motion. The respondent submitted an appeal to the Court, arguing that the contracts included an arbitration clause that granted the respondent alone the option to determine the authority entrusted with adjudicating any dispute regarding the subject matter of the two contracts.
Conclusions of the Court
The Court disagreed with the appellant and stated that an arbitration agreement should be based on consent of the parties, comprised of two identical wills of the parties to refer disputes to arbitration and to agree that state courts should not have jurisdiction to consider claims. It emphasized that there must be an offer to refer disputes to arbitration, and a definitive acceptance by the other party.
The Court further stated that there should be a meeting of the minds to agree on arbitration as the only way to settle the disputes to the exclusion of state courts.
On this basis, the Court concluded that the clause in question could not be considered a binding agreement to arbitration that would prevent the state courts from considering the dispute, because it contained only the principle of resorting to arbitration, without making an unequivocal decision to agree on arbitration alone and to abide by its binding force.
Effect of the Ruling
The effects of the Ruling can be far-reaching, as asymmetric optional arbitration clauses are common and often used for legitimate business reasons, especially in certain industries, such as banking and finance, where the lender is often granted an option to choose between arbitration and litigation to maximize the possibility of recovery in case of the borrower's default.
In fact, this has been recognized by the DIFC Court of Appeal in the case of Lara Basem Musa Khoury v Mashreq Bank PSC [2022] DIFC CA 007 (reported here), where the DIFC Courts did not find jurisdiction to consider the claim of Ms Khoury, when the forum selection clause granted only the Bank an option to refer disputes to the DIFC Courts or the courts of any other competent jurisdiction. The court noted the asymmetric nature of the clause, but also acknowledged that: "such clauses are familiar as a matter of international banking practice and, in part at least, serve a legitimate commercial purpose; it is to be remembered that a bank's debtors may well be mobile and not tied to any particular jurisdiction."
The court quoted Cranston J in Commerzbank AG v Pauline Shipping Ltd [2017] EWHC 161 (Comm); [2017] 1 WLR 3497, at [41] in support: "Asymmetric jurisdiction agreements are a long-established and practical feature of international financial documentation…"
The Dubai Court of Cassation has taken a different approach, indicating that the Dubai courts may not uphold arbitration agreements that provide only one party with the option to choose arbitration.
Further effects of the Ruling are to be seen as, for example, a question remains on whether Dubai courts will recognize and enforce arbitral awards rendered on the basis of asymmetrical optional agreements, or they will consider such clauses to be unenforceable altogether.
