The Abu Dhabi Courts have recently handed down two related judgments concerning the effect of Decree 34 of 2021, and the enforceability of DIFC-LCIA arbitration agreements.
The judgments were handed down in connection to Abu Dhabi Court of First Instance, Commercial Division, Case No. 1046/2023, and its corresponding appeal in Abu Dhabi Court of Appeal in Case No. 449/2024.
Decree 34 of 2021
For many years, the DIFC-LCIA was a major arbitration institution in Dubai. In 2021, the Dubai Government passed Decree 34 of 2021 (Decree 34) which abolished the DIFC-LCIA, and among other things, provided that the Dubai International Arbitration Centre (DIAC) would take over its case load, and would manage disputes arising from legacy DIFC-LCIA arbitration agreements.
Since Decree 34 was promulgated, there have been questions about the enforceability of DIFC-LCIA arbitration agreements, and the enforceability of awards arising from those arbitration agreements where they have been rendered by a DIAC tribunal.
The Abu Dhabi Judgment
The case heard in Abu Dhabi courts concerned a claim for payment for unpaid debts. Despite the Parties' contract containing a DIFC-LCIA arbitration clause, the claimant had commenced proceedings in Abu Dhabi courts to recover the unpaid amount. The defendant claimed that the court lacked jurisdiction to hear the claim, given the existence of the arbitration clause, however, the claimant argued that the arbitration clause was impossible to perform, as the DIFC-LCIA no longer existed.
The Court of Appeal had to consider whether it had jurisdiction. Ultimately, it found that it did not have jurisdiction, due to the existence of a valid and binding arbitration agreement. The Court of Appeal considered that the arbitration agreement was valid in spite of Decree 34.
In doing so, the Court of Appeal provided the following helpful observations:
- DIAC is the DIFC-LCIA's Legal Successor: The Court of Appeal confirmed that DIAC is the successor to the DIFC-LCIA. While this is what Decree 34 provides for, an Abu Dhabi court is not technically bound by a laws of the Dubai government. Accordingly, the Court of Appeal's finding in this regard are helpful in recognising and clarifying the effect of Decree 34 in UAE, outside of Dubai;
- Parties' Intent: A cornerstone of arbitration is party consent to arbitrate. The Court of Appeal considered that the arbitration agreement demonstrated that the Parties' intended to resolve disputes by arbitration, and that extraneous factors (such as the abolition of the DIFC-LCIA) did not necessarily invalidate that. The Court of Appeal's judgment demonstrates the increasingly “arbitration friendly” approach of onshore UAE courts;
- Flexibility: The Court of Appeal held that it would not force the parties to arbitrate before DIAC if they otherwise agreed another centre or forum. This emphasises the importance for parties to amend historic DIFC-LCIA arbitration agreements so that both parties are aware of the forum to resolve disputes in, which will avoid unnecessary procedural issues should disputes arise between them;
- Approaching the courts: The Court of Appeal also said that a party would be prohibited from approaching the courts to resolve a dispute when it was clear that the dispute should be resolved by way of arbitration; and
- Arbitration is now the “norm”: Finally, the Court of Appeal held that arbitration had become a “prevailing norm” in settling commercial disputes in the UAE. Again, this is positive step for the increasingly “arbitration friendly” approach of the onshore UAE courts.
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