An evolving landscape toward greater certainty for DIFC-LCIA Arbitration Agreements

Introduction

In September 2021, the government of Dubai issued Decree 34 of 2021 (Decree 34), which resulted in the well-publicized abolition of the DIFC-LCIA Arbitration Centre and decreed that future disputes would be resolved by the Dubai International Arbitration Centre (DIAC). This caused uncertainty as to the enforceability of legacy DIFC-LCIA arbitration agreements and how disputes arising from them should be handled. Since then, some important decisions by national courts have considered the enforceability of DIFC-LCIA arbitration agreements. 

Among the earliest of such decisions was a November 2021 decision from a US Federal District Court in Louisiana in Baker Hughes v Dynamic Industries, which held that parties to a DIFC-LCIA arbitration agreement could not be compelled to arbitrate before DIAC due to the doctrine of forum non-conveniens. In January 2025, the United States Court of Appeals for the Fifth Circuit quashed that decision, holding that parties to a DIFC-LCIA arbitration agreement could be compelled to arbitrate. 

The decision from the Fifth Circuit has been explored and commented upon by courts in Singapore, in Abu Dhabi (onshore) and in the DIFC. 

This note considers these developments and what they mean for clients faced with disputes arising from a contract with a DIFC-LCIA arbitration clause.

The US Fifth Circuit: Forum selection

We have previously considered the first instance decision of Baker Hughes v Dynamic Industries here. In short, the dispute involves a subcontract by which Baker Hughes agreed to supply materials, products and services to Dynamic in relation to a construction project in the Kingdom of Saudi Arabia. The subcontract provided for a unilateral option for Dynamic to arbitrate any dispute in Saudi Arabia (Section 20 DR Clause), and provided that if it did not exercise that option, then “the dispute shall be referred by either Party to and finally resolved by arbitration under the Arbitration Rules of the DIFC LCIA” (Schedule 3 DR Clause). 

A dispute arose between the Parties following the dissolution of the DIFC-LCIA, and Baker Hughes, instead of commencing arbitration proceedings, issued court proceedings against Dynamic in Louisiana. 

At first instance, the District Court held that Decree 34 had abolished the DIFC-LCIA, rendering the Schedule 3 DR Clause inoperative, invalid and unenforceable. The District Court characterized the Schedule 3 DR Clause as a forum selection clause, and refused to dismiss the case on the basis that it was proper to order arbitration. That decision was appealed. 

The Fifth Circuit Court of Appeals¹ disagreed with the District Court, quashed the decision and remanded it to the District Court for renewed consideration. Key to its decision was the fact that the Court of Appeals considered that the subcontract, including the references to arbitrating disputes in the Section 20 DR Clause and the Schedule 3 DR Clause evidence that the Parties’ “dominant purpose was to arbitrate generally.” 

The Court of Appeals rejected the District Court’s characterization of the Schedule 3 DR Clause as a forum selection clause, holding that the Parties had not selected the DIFC-LCIA as the exclusive forum for dispute resolution given that, among other things, the Section 20 DR Clause anticipated that disputes could be resolved before other fora (of Baker Hughes’ choosing). 

Indeed, based on the wording of Schedule 3 DR Clause, the Court of Appeals held that the Parties’ intention appeared to be that they only intended that the wording of the DIFC-LCIA Arbitration Rules should govern their dispute (not that DIFC-LCIA itself should administer all such disputes). The Court of Appeals held that if the Parties had intended the DIFC-LCIA to be the exclusive forum, then it would have been easy for the Parties to clearly specify this in the Schedule 3 DR Clause. On the Court of Appeals’ construction of the contract, the Parties had not done so. 

On the Fifth Circuit Court of Appeals’ holding, this left open the possibility for another arbitral institution (such as the LCIA or DIAC) to administer the Parties’ dispute in accordance with the provisions of the DIFC-LCIA Arbitration Rules (as they were in force when the Parties had executed the subcontract). 

The Fifth Circuit Court of Appeals considered that the District Court was entitled to compel arbitration consistent with the Parties’ intent to arbitrate. Accordingly, the Fifth Circuit remanded and instructed the District Court to consider whether the DIFC-LCIA Arbitration Rules could be applied by any other arbitral institute, such as the LCIA or DIAC, and compel arbitration before that forum. 

Accordingly, while the DIFC-LCIA may no longer exist, the Fifth Circuit held that arbitration could nonetheless be compelled. 

The Singaporean High Court: Submission to jurisdiction

In 2024, the Singaporean High Court considered an enforcement application of an interim injunction, made by way of a provisional award.² That provisional award was made by a DIAC tribunal, sitting pursuant to a DIFC-LCIA arbitration agreement following Decree 34. 

In the course of the arbitration which resulted in the provisional award, the defendant, DFM, had filed a statement of defense and in that pleading had challenged the tribunal’s jurisdiction on the basis that  the parties had agreed to DIFC-LCIA arbitration in the arbitration agreement and that forum no longer existed. However, at no stage in the course of the interim application had DFM challenged the tribunal’s jurisdiction in respect of that application. In the event, the tribunal found in the claimant’s favor on the application and made the provisional award. 

In the Singaporean High Court, DFM contested enforcement of the provisional award on the basis that the contract had provided for DIFC-LCIA arbitration, and therefore the tribunal did not properly have jurisdiction against DFM.

The High Court cited Baker Hughes for the proposition that parties cannot be compelled to arbitrate under rules to which they did not agree. However, it considered that despite this, by not contesting the tribunal’s jurisdiction in respect of the interim application, DFM had submitted to the tribunal’s jurisdiction for the purposes of that application, and hence the resulting provisional award. 

As a result, the High Court found that the provisional award could be enforced. 

The High Court’s ruling highlights the need for parties contesting jurisdiction to ensure that such protests are raised at every point in the proceedings. It is not enough for a party to simply reserve its position on a matter. The decision does, however, signal that jurisdictional objections in respect of DIFC-LCIA arbitration being administered by DIAC may be entertained during enforcement proceedings in Singapore. 

"In the Singaporean High Court, DFM contested enforcement of the provisional award on the basis that the contract had provided for DIFC-LCIA arbitration, and therefore the tribunal did not properly have jurisdiction against DFM."

The Abu Dhabi Courts: A commitment to promote arbitration

In Vaned v Reem Hospital,³ the Abu Dhabi Court of First Instance (upheld on appeal) considered whether a DIFC-LCIA arbitration agreement could be enforced after Decree 34. After analyzing the contract and the arbitration agreement, the Court held that the parties had expressed a clear intention to resolve their disputes by way of arbitration (which was demonstrated by the presence of an arbitration agreement drafted in comprehensive terms). 

The Court considered that while the DIFC-LCIA was abolished, the institutional choice was only one element of the arbitration agreement, and the abolition of that institution was insufficient to make the arbitration agreement a nullity, especially where that abolition was out of the parties’ control. 

The Court drew an analogy to the changing of an arbitral institutional rules, which occur relatively routinely, but do not override submission to an institution, nor nullify an arbitration agreement referring to that institution. 

Accordingly, the Court held that the abolition of the DIFC-LCIA, without more, did not render the arbitration agreement null and void, inoperative, or incapable of being performed. Hence, the arbitration agreement could be enforced with another institution (other than the DIFC-LCIA) administering this. 

In coming to this holding, the Court remarked that the UAE’s Federal Arbitration Law “embodies a commitment to promote arbitration and establishes [the UAE’s] role as an arbitration center in the region.” The Court considered Baker Hughes v Dynamic, and held that it did not reflect the state of UAE law, and particularly the aspirations set out in the Federal Arbitration Law to hold parties to their bargain to arbitrate. 

The DIFC Courts: Forum selection v Institutional rules

Following the Abu Dhabi decision in Vaned v Reem Hospital, in July 2024, the DIFC Courts were faced with the question of the validity of a DIFC-LCIA arbitration agreement in a construction contract in the case of Narcisso v Nash.⁴ 

In considering whether the arbitration agreement could be enforced, the Court considered both Baker Hughes v Dynamic and Vaned v Reem Hospital. 

The DIFC Court adopted the reasoning on Vaned v Reem Hospital, and considered that the arbitration agreement was valid as a matter of either DIFC law or UAE law. The DIFC Court noted the distinction between “forums” for dispute resolution and procedural or institutional rules. Where parties agree to arbitrate, the forum is “international arbitration” subject to whatever procedural rules are agreed. If those rules are amended or the center abolished altogether, that does not necessarily abrogate the agreed forum of international arbitration. 

The DIFC Courts distinguished Baker Hughes v Dynamic, noting that it is a decision of US law, subject to its own constraints regarding precedent and procedure, and did not reflect the position in either the DIFC or the UAE more broadly. 

Conclusion

The above cases demonstrate, that despite initial uncertainties regarding the enforceability of DIFC-LCIA arbitration clauses, Courts have been generally amenable to enforce the parties’ bargain, especially where the parties demonstrate (through their contractual language) a clear intent to arbitrate disputes, or whether they have otherwise submitted to jurisdiction. 

While there is a divergence of approach between US Federal Courts (as demonstrated by the Fifth Circuit’s reasoning) and the Abu Dhabi (onshore) and DIFC Courts, we respectfully consider that the DIFC Courts’ approach is to be preferred. Parties that agree to arbitrate, choose arbitration as the forum, and institutional changes or rule changes should not abrogate that agreement. 

We anticipate that the above developments will bring welcome comfort to parties and practitioners in the Middle East region, particularly the Abu Dhabi court’s comment that the Federal Arbitration Law embodies a commitment to promote arbitration), and provide clarity regarding the status of DIFC-LCIA arbitration agreements. However, our advice to clients remains consistent: in order for greatest business certainty, clients should audit their contracts to ensure that no contracts refer to DIFC-LCIA arbitration, and if any do, clients should consider amending them to refer to another institution. 

Should you have any concerns about your business’s contracts, please contact Head of Dispute Resolution for the Middle East Nicholas Sharratt, Counsel Ben Mellett, or Senior Associate Alexander Field.