Several recent judgments in the Middle East will impact businesses investing and litigation in the region.
In this briefing, we highlight the developments that may be welcomed and the pitfalls to be aware of.
Good news for banks: The enforceability of unilateral jurisdiction clauses in the UAE
Unilateral (sometimes referred to as asymmetric or “one-sided”) jurisdiction clauses are clauses which provide that one party to a contract (usually a bank or financial institution) may unilaterally elect to bring proceedings before a local court (commonly where the counterparty has assets) or arbitral tribunal. Such unilateral jurisdiction clauses are generally considered unenforceable in most civil law countries.
However, a recent decision by the Dubai Court of Cassation (Commercial Appeal No 179 of 2023) suggests that the tide may be turning. The decision appears to have upheld unilateral jurisdiction clauses as valid, at least in so far as they represent a promise by both parties as to their options to have disputes heard in a particular forum.
In this case, the Court of Cassation held that both parties had agreed that the unilateral jurisdiction clause meant that only the plaintiff had the right to refer disputes to arbitration or Dubai courts at its discretion, and that this clause did not afford the defendant a right to oppose the plaintiff’s choice to submit a dispute to the Dubai courts.
Whilst this judgment appears good news for banks and other finance providers, who often insert unilateral election clauses into their loan documentation, the lack of binding precedent in the UAE means that, whilst persuasive, this decision should be approached with caution. Whether the decision will be followed by other onshore courts in the UAE remains to be seen. In the meantime, this is certainly a step in the right direction.
Know your limits: DIFC Court of Appeal clarifies scope of jurisdiction
In September 2023, the DIFC Court of Appeal clarified and emphasised the limited scope of the DIFC Court’s jurisdiction – namely that there must be a sufficient connection to the DIFC pursuant to the Judicial Authority Law.
In Sandra Holding v Al Saleh [2023] DIFC CA 003, a Kuwaiti shareholder’s dispute resulted in the claimant seeking a worldwide freezing order from the DIFC Court of First Instance in support of proceedings instituted in Kuwait and France.
At first instance, the DIFC Court granted the freezing order, on the basis that the Judicial Authority Law and Part 25.24 of the Rules of the DIFC Court allowed the DIFC Courts to issue injunctive relief, including freezing orders, in support of foreign proceedings, and that this power did not require the parties to have any connection with the DIFC. However, the Respondents appealed that decision on the basis that this reading of the DIFC Courts’ powers imposed an “impossibly wide” jurisdiction upon the Court.
The Court of Appeal agreed and overturned the worldwide freezing order, emphasising the limited jurisdiction of the DIFC courts, as set out in Article 5 of the Judicial Authority Law. Finding that “there is insufficient connection between the subject matter of the [worldwide freezing order] sought and the DIFC”, the Court of Appeal further emphasised the limited jurisdiction of the DIFC Courts.
The case is a reminder to litigants seeking interim relief that they should ensure that the court that they approach for such relief has sufficient jurisdiction to grant it. More particularly, it is a reminder that the DIFC Courts will not assist in cases with insufficient connection to the DIFC and where applicants cannot satisfy one of the factors set out in Article 5 of the Judicial Authority Law.
Who gets the final say? Omani Court allows review of award
In June 2023, the Omani Supreme Court allowed a lower court to re-open the merits of an arbitration award that was sought to be enforced in Oman against an Omani company. The Oman Supreme Court found that although the award was issued by an ICC tribunal under English Law seated in London for the benefit of a Qatari company, since the award was being enforced against an Omani company this was enough to invoke the Omani courts’ jurisdiction to re-open and review the merits of the award.
By way of context, the claimant in the arbitration proceedings sought to enforce the award against the respondent (a company incorporated in Oman). The respondent challenged enforcement and sought to have the Oman Court of Appeal re-consider the merits of the award.
Initially, the Court of Appeal refused jurisdiction, noting that the contract had been executed outside of Oman, was governed by English law, and that the award had been issued from London. However, on appeal, the Supreme Court held that as a matter of Omani law, Omani lower courts have jurisdiction over Omani nationals and companies that are incorporated in Oman. Accordingly, the Court of Appeal did have jurisdiction to hear the underlying merits of the dispute.
The decision highlights the need for parties to check the requirements necessary to enforce an award in the jurisdiction of their counterparty, and whether courts in that jurisdiction may have powers to re-open awards and re-examine the merits of the case, even where that jurisdiction is a signatory to the New York Convention – the final say may not really be the final say after all!
Questions raised over arbitral tribunal’s power to award legal costs
In February 2024, the Dubai Court of Cassation upheld the Dubai Court of Appeal’s partial annulment of a costs order made by an ICC tribunal, barring the tribunal from awarding legal fees unless clearly and explicitly provided for in the arbitration agreement.
At the enforcement stage, the Award debtor had sought to challenge the Award on a number of bases. Despite ultimately upholding the majority of the award, the Court of Cassation did disallow the part of the award which required that the Award debtor had to pay the Award creditor’s costs of the arbitration. In disallowing this part of the Award, the Court of Cassation determined that the Tribunal had exceeded its power in granting a costs order for legal fees.
In coming to this decision, the Court of Cassation considered that a party was only entitled to its legal costs pursuant to “a provision derived from the law…”, or if provided for in the relevant arbitration agreement by an “explicit and clear provision.” Regarding the first criteria, the Court of Cassation considered Article 46(1) of Federal Law No. 6 of 2018. The Court of Cassation considered that this provision provides an exhaustive list of costs that are awardable by tribunals: legal fees are not included.
As regards any “explicit or clear” provision within the arbitration agreement itself allowing for the award of legal costs, the Court of Cassation did not identify any provision obliging either party to pay the other’s legal expenses. This was despite the fact that the arbitration was held pursuant to the ICC Rules, all versions of these Rules that have been issued since 1998 allow for tribunals to award legal costs. The Court did not appear to consider or accept that the ICC Rules, and hence the power to award costs, may have been incorporated by reference into the arbitration agreement.
Accordingly, the DCC upheld the partial annulment of the Award, but only in so far as they related to legal expenses.
The Court of Cassation’s judgment would appear to put it at odds with the international arbitration community, which accepts that an arbitral institution’s rules are incorporated by reference into the arbitration agreement. Contracting parties would be wise to specify in their arbitration agreement that awarding costs for legal fees is within the chosen arbitral tribunal’s remit.
What does this all mean for 2024 and beyond?
The GCC is has an ever-changing dispute resolution landscape. The decisions above highlight the need for parties seeking to enforce jurisdiction clauses or awards or seeking interim relief, to carefully consider the jurisdiction of the courts that they seek to appear before and to seek advice on a case-by-case basis.
