United Arab Emirates: US Court rules that it cannot compel arbitration where parties agreed to arbitrate pursuant to the DIFC-LCIA Rules – Further developments

In brief

As we 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, and all respective assets, liabilities, rights, and obligations of these institutions were transferred to the newly established Dubai International Arbitration Center (DIAC) by way of Decree No. 34 of 2021 ("Decree") (view our previous alert here). As such the DIFC-LCIA Arbitration Center and its relevant rules ceased to exist and the Decree further mandated DIAC to register and administer all arbitrations, mediations, and other ADR proceedings referring to the DIFC-LCIA rules which were commenced on or after 21 March 2022 (unless the parties agree otherwise).


US court ruling on contractual choice of forum

As is the case in many commercial agreements in the Middle East, Baker Hughes Saudi Arabia Co. Ltd. ("Baker Hughes") and Dynamic Industries Saudi Arabia, Ltd., and related entities ("Dynamic") had entered into a supply agreement prior to the Decree coming into effect, referring all disputes under the agreement to arbitration under the DIFC-LCIA Arbitration Rules. 

Subsequent to the abolishment of the DIFC-LCIA Arbitration Center however, Baker Hughes filed suit against Dynamic in the United States District Court for the Eastern District of Louisiana, New Orleans1 claiming damages of USD 1.3 million for unpaid services. Dynamic, amongst other defenses, sought to compel arbitration in accordance with the agreement and the Decree.

The Court however confirmed that, in line with prevailing precedent, arbitration could not be compelled when the agreed arbitral tribunal is unavailable or no longer in existence. The Court further emphasized that the contractual choice of forum was an integral part of the agreement between the parties and that the Court could not rewrite the parties' agreement to order that arbitration be held in a forum to which the parties did not agree. 

The Court also found that despite the Decree having designated DIAC as the default arbitration center, given that DIAC was not the same forum as the parties had initially agreed, neither the Court nor the Dubai government had the authority to unilaterally change the arbitration forum that had been agreed to by the parties. 

The effect of this going forward remains to be seen. Parties are reminded to consider whether they are impacted by the abolishment of the DIFC-LCIA Arbitration Center and to update their agreements accordingly, to avoid any potential disputes on the forum in the future.

arbitrateAD replacing the ADCCAC

This is also of particular relevance given the newly launched arbitrateAD, which has replaced the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) with effect from 1 February 2024. Cases ongoing or pending before the existing rules of ADCCAC will continue to be administered by the existing team under ADCCAC. However, since 1 February 2024, any 'new' disputes have been referred to and administered by arbitrateAD under the new arbitration rules. The new arbitrateAD arbitration rules have also now been published, with an effective date of 1 February 2024. Further details will be published on this shortly. 

Whilst this is a long-awaited and welcome development in the arbitration landscape in Abu Dhabi and the UAE, parties to contracts referencing disputes to ADCCAC should also consider revisiting their dispute resolution clauses as soon as possible to avoid any potential disputes regarding the appropriate dispute resolution forum, as we have seen in the abovementioned case.

To speak to us in relation to dispute resolution, international arbitration, ADR matters, or issues more generally, please reach out to the Baker McKenzie contacts above.

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*This article was authored by Luka Kristovic-Blazevic (Partner and Head of International Arbitration, Middle East), Taisiya Vorotilova (Senior Associate, Dubai), and Marlize Dumas (Associate, Dubai).

1 Baker Hughes Saudi Arabia Co. v. Dynamic Industries, Inc., Civ. A. No. 2:23-cv-1396 (E.D. La. 6 November 2023).

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