Abu Dhabi Court of Appeal confirms enforceability of DIFC-LCIA Arbitration Agreements

Background

The DIFC-LCIA was established in 2008 as a joint venture between the Dubai International Financial Centre ("DIFC") and London Court of International Arbitration ("LCIA").  It was restructured in 2014 and quickly became a popular choice of institution in the UAE and broader region. 

However, as a result of Royal Decree 34 of 2021 issued on 20 September 2021 (the "Decree"), the DIFC-LCIA was abolished with immediate effect.  The Decree ordered the transfer of the DIFC-LCIA’s cases, property, assets, funds, arbitrators and members to the Dubai International Arbitration Centre (“DIAC”).   

In turn, the DIAC underwent a significant overhaul.  This included the issue of new rules in 2022, which were updated to align with the rules and procedures of other leading international arbitration centres. 

Disputes under DIFC-LCIA Arbitration Agreements

In March 2022, the DIAC and LCIA announced that they had agreed that all DIFC-LCIA cases commenced and formally registered on or before 20 March 2022 would be administered by the LCIA, with all cases commenced after that date to be administered by the DIAC under its rules. 

A question remained, however, over how future disputes arising under an existing DIFC-LCIA arbitration clause would be dealt with.  This issue has now been tested in several courts across the world, with mixed results.

International approach

In November 2023, a Louisana court (civil action no. 2:23-cv-1396) rejected the argument that a DIFC-LCIA arbitration agreement remained valid.  Its decision centred on the premise that arbitration is reliant on party choice and consent.  The court held that compelling the parties to arbitrate under the auspices of the DIAC would be a significant departure from the parties’ original agreement and that it was not within the power of the court or the Dubai authorities to vary that agreement to such an extent. 

Similarly, the Singapore High Court (application no. 882 of 2022) found that due to significant differences in the rules and procedures of the DIFC-LCIA and the DIAC, a DIAC arbitration was not in accordance with an arbitration agreement requiring arbitration with the DIFC-LCIA.  However, the High Court nonetheless permitted enforcement of a DIAC award made pursuant to a DIFC-LCIA arbitration agreement on the grounds that the respondent had failed to raise jurisdictional objections and had otherwise participated in the arbitration. 

The position in the UAE

The issue has now been considered in the UAE, in a ruling of the Abu Dhabi Commercial Court of Appeal (Case No. 449/2024).  Upholding a decision of the Court of First Instance (Case No. 1046/2023), the Court of Appeal determined that arbitration agreements referring to the DIFC-LCIA are valid and enforceable, despite the DIFC-LCIA's abolition.

The dispute concerned a claim for unpaid sums due under a medical equipment supply contract.  The contract contained an arbitration agreement providing for the exclusive determination of disputes under the DIFC-LCIA rules. The claimant commenced proceedings in the Abu Dhabi court on the basis that the arbitration agreement was no longer capable of performance following the abolition of the DIFC-LCIA and was therefore invalid.  However the defendant argued that the court did not have jurisdiction as the parties had agreed to arbitrate and that agreement remained valid.

The Abu Dhabi courts agreed with the defendant, declining jurisdiction and finding that the Decree provided for the DIAC to act as successor for future claims arising out of DIFC-LCIA arbitration agreements. In reaching its decision, the Court of Appeal acknowledged the clear intention of the parties to resolve their disputes by arbitration. It also noted the effect of the severability clause in the supply contract, which meant that an entire agreement was not rendered invalid if part of a clause became inoperable. 

Key Takeaways

Whilst the three decisions resulted in different outcomes, a common theme is the courts' aim to give effect to the parties' intentions.  The Louisiana and Singapore judgments seemingly emphasise the choice to arbitrate before a specific arbitral institution as being the key consideration, whilst the Abu Dhabi court’s approach looked at the consent to arbitrate more broadly, without focussing on specific institutional rules. 

In this regard, the decision of the Abu Dhabi court might be considered a more "pro-arbitration" approach from the UAE's onshore courts than has been seen previously.  The judgment recognised that arbitration is increasingly becoming the norm for parties to resolve their differences and the court's ruling demonstrates a concerted effort to give effect to the parties' original intention to arbitrate – albeit, with a differing institution than originally envisaged.

Ultimately, the varying approaches of the Abu Dhabi, Louisiana and Singapore courts show that this issue is far from settled internationally. Parties that have contractual relationships containing DIFC-LCIA arbitration agreements should take steps now to amend their agreement and define precisely which institution should have jurisdiction in the future, in order to avoid potentially costly and time-consuming satellite litigation.

Authored by Jessica Quinlan, Randall Walker, and Patrick McPherson.