United Arab Emirates: DIFC Court cuts through loose drafting and claims jurisdiction

Overview

In April 2016 the Dubai International Financial Centre ("DIFC") Court of First Instance (H.E. Justice Ali Al Madhani) gave a thought-provoking decision in Gavin v. Gaynor^[1] (http://difccourts.ae/11838-2/) , which confirmed the willingness of the Courts of the DIFC to make findings in support of the arbitration process, and its jurisdiction.  It was held that when the court has to determine the seat of an arbitration, 'reference [can be made] to an implied choice, giving consideration to the seat with the most connection with the agreement, the parties or any other relevant consideration.'

This judgment also provides valuable insight into the operation and application of Article 5(1) of the Judicial Authority Law^[2], which Article provides for five jurisdictional gateways by which the Courts of the DIFC have jurisdiction in respect of a matter.

The Facts

The facts, in brief, were as follows: the Claimant (Gavin) and the Defendant (Gaynor) were party to what was called a Store Value Card Processing, Service and Marketing Agreement ("SVC Agreement").  Disputes under the SVC Agreement arose and Gaynor (together with Gaynor US^[3]) brought two suits against Gavin in the United States District Court for the Central District of California ("Californian Court").

In due course, the California Court ordered that the claims were to be referred to and determined by arbitration pursuant to an arbitration clause, clause 13.5 of the SVC Agreement.

Gavin made an application pursuant to Article 17(3)(b) of DIFC Law No.1 of 2008 ("DIFC Arbitration Law") to the DIFC Courts for the appointment of the arbitral tribunal. Gaynor resisted that application, and contested the jurisdiction of the DIFC Courts.

The Arguments and the Decision

Gaynor raised three arguments in support of its claim that the DIFC Courts did not have, and should not have, jurisdiction to appoint an arbitrator, and the Court addressed these in turn.

First, Gaynor contended that in accordance with Article 7 of the DIFC Arbitration Law, it needs first to be established that the seat of arbitration is the DIFC, before the Court can be requested to appoint an arbitral tribunal under Article 17(3)(b) of the DIFC Arbitration Law.

Clause 13.5 of the SVC Agreement, contained an (ambiguous) arbitration clause which said: "[a]ny controversy ... shall be submitted to arbitration per law of the United Arab Emirates".  Article 13.3, added further to this uncertainty and provided; "[the parties shall agree to] submit to the jurisdiction of the courts in Dubai, the UAE."

The Court held that if an arbitration clause is ambiguous and uncertain, then reliance can be placed on the general rules of jurisdiction provided by Article 5(1) of the Judicial Authority Law^[4] which (in the absence of the parties express submission to the jurisdiction of the DIFC Courts) provides for five jurisdictional gateways to establish jurisdiction.

The Court considered the various gateways, and concluded (on the basis of a letter which discussed arrangements for a meeting in the DIFC), that the parties had, "transacted business within the geographical territory of the DIFC and therefore must be governed by DIFC Laws including being subject to the jurisdiction of the DIFC Courts pursuant to Article 5 of the Judicial Authority Law." Therefore, by virtue of the jurisdictional gateway provided in Article 5(a)(1)(c) of the Judicial Authority Law, the DIFC Court did have jurisdiction in respect of the SVC Agreement.

In light of that finding, the Court further held that a natural interpretation of the word 'courts' which was included in clause 13.3 of the SVC Agreement, must have been intended by the parties to mean the Courts of the DIFC, and therefore any reference to the 'law of the United Arab Emirates' must be a reference to UAE Laws applicable within the DIFC.  The Court concluded that the SVC Agreement was accordingly subject to the jurisdiction of the Courts of the DIFC and fell within the ambit of the laws of the DIFC.

Second, Gaynor challenged the validity of the arbitration agreement contained in clause 13.5 of the SVC Agreement.  The Court held that it was clear that both parties wished to arbitrate, the controversy between them in this regard was merely as to the seat (place) of the arbitration: Gaynor wishing to arbitrate in the US, and Gavin in the DIFC. The Court held that Gaynor's jurisdictional arguments, based on allegations of non-compliance with the UAE Civil Procedure Code, were unfounded as (based on the Court's findings under the first argument) UAE Federal Laws were not applicable when interpreting the SVC Agreement as the applicable laws were those of the DIFC^[5].

Further (and importantly for any arbitrating party), the Court also held that under the DIFC Arbitration Law an arbitration clause is not unenforceable due to its failure to nominate a seat of arbitration, and as such that seat of arbitration can be determined by:

This resulted in the Court reaching the conclusion that a proper interpretation of the SVC Agreement required the arbitration to take place in the DIFC, and in accordance with the DIFC rules and regulations which govern arbitration.

The final argument for the defendant – and the one which succeeded for it - was based on 'abuse of process'.  Gaynor made the point that the Californian Court had ordered arbitration to proceed on issues similar in nature to those before the DIFC Court.  Gaynor alleged that should Gavin's application to appoint the arbitral tribunal be successful, and should the parties proceed to arbitration in the DIFC, the result may be two conflicting decisions from two different arbitral tribunals.

In this regard the Court held that whilst the subject matter under the respective arbitrations was not identical, the subject matter was still strongly connected and difficult to separate, and stemmed from performance of the same agreement. Therefore, to avoid extensive arbitration procedures and duplicative costs, with the possibility of conflicting decisions based on essentially the same set of facts, the Court ordered a stay^[6] of the DIFC proceedings on the grounds of an abuse of process.

Summary

While Gavin was unsuccessful on the grounds of 'abuse of process', this judgment is important and effectively recognises the broad ambit of the powers of the DIFC courts to determine the seat of arbitration by examining the intention of the parties – that intention being evidenced in this case by a contemporaneous document, a single letter.

Parties are advised to ensure that clauses which determine the seat (place) of an arbitration are drafted with sufficient clarity to ensure that there is no ambiguity or uncertainty and are advised to seek advice before executing an arbitration agreement.