Introduction
Since the 2021 abolition of the DIFC-LCIA as an arbitral institution (by Dubai Decree No.34), questions have been raised by respondents as to the enforceability of arbitration agreements referring to the former DIFC-LCIA and/or its rules, and any awards issued under those agreements.
While Decree 34 expressly provided that DIFC-LCIA arbitration agreements entered into before the effective date of the Decree were deemed valid, and any such arbitrations would be administered by DIAC thereafter, a number of court decisions both in the UAE and abroad have considered whether arbitration agreements and any awards flowing from are actually enforceable.
Approach of UAE courts
In the UAE context, both the onshore and offshore courts have (unsurprisingly) already been recognising and enforcing awards made in DIAC-administered arbitrations post-Decree 34. Indeed, both have specifically rejected the argument of invalidity of an award on the basis that the underlying arbitration agreement referred to DIFC-LCIA, not to DIAC.1
Foreign courts
In November 2023 the US District Court for the Eastern District of Louisiana (District Court) issued a judgment refusing the motion by Dynamic Industries (Dynamic) to compel Baker Hughes Saudi Arabia Company Limited (Baker) to arbitrate its claims instead of pursuing them in the District Court. In that case, the District Court had determined at first instance that the DIFC-LCIA had been rendered "unavailable" as a forum for dispute resolution and therefore the arbitration agreement was invalid and unenforceable.
In the 2024 decision of the Singapore High Court in DFL v DFM [2024] SGHC 71, the Court took the view that the arbitration agreement referring disputes to arbitration under the DIFC-LCIA Rules could not apply as the arbitration procedure which would (by virtue of Decree 34) take place under DIAC administration would not be in accordance with the parties' agreement. However, the Court did not make any binding determination on that point, as ultimately the Court was willing to recognise the provisional award made in that case due to the respondent having waived its jurisdictional objections within the arbitration itself.
US Appeal Court weighs in
The saga has taken a further twist. In a judgment dated 27 January 2025, the US Court of Appeals for the Fifth Circuit (Appeal Court) overturned the District Court decision in Louisiana and referred the motion back to the District Court for reconsideration.
The underlying arbitration agreement in that case provided for Dynamic (under Schedule A) to have the option to arbitrate claims in Saudi Arabia or to compel Baker to arbitrate any claims in Saudi Arabia, and failing any such election, disputes were to be "referred by either Party to and finally resolved by arbitration under the Arbitration Rules of DIFC LCIA (the "Rules") from time to time in force".
The Appeal Court determined that the parties' dominant purpose was to arbitrate generally and that the reference to the DIFC-LCIA was not integral to the agreement. In doing so, the Appeal Court applied jurisprudence of US courts to the question of whether the agreement was "null and void, inoperative or incapable of being performed" for the purposes of the New York Convention (as applied in the US by the Federal Arbitration Act).
The Appeal Court also took the view that Schedule E was not a forum selection clause but merely a selection of the applicable arbitral rules, and that DIAC effectively served as an adequate successor to the DIFC-LCIA. However, given its determination that the dominant purpose of the agreement was to arbitrate generally, it was not necessary for the Appeal Court to ultimately decide these points.
It is worth noting that the Appeal Court said: "If it were self-evident from the DIFC-LCIA rules that the DIFC-LCIA is the only forum capable of applying its rules, that would suggest that the parties intended for the DIFC-LCIA to administer any Schedule E dispute". The Court then noted that the record did not conclusively establish whether that was the case. It appears that the Appeal Court may not have been aware that the DIFC-LCIA Rules repeatedly refer to functions of the arbitration being carried out or administered by the DIFC-LCIA Arbitration Centre, not any other body.
The Appeal Court decision is also highly influenced by case authorities under US law to the effect that the US courts will not compel arbitration unless the arbitration agreement amounts to a forum-selection clause and that clause is "integral" to the arbitration agreement, as opposed to a mere agreement to arbitrate generally. This approach does not reflect any express wording of Article II (3) of the New York Convention requiring courts in Contracting States to compel arbitration, and other (non-US) jurisdictions do not necessarily adopt this approach.
Open questions
The Appeal Court decision appears to silence any doubt as to whether US courts will enforce pre-Decree 34 arbitration agreements referring to DIFC-LCIA in the context of motions to compel arbitration in lieu of litigation in US courts. The same approach would seem to follow in the context of any requests for recognition and enforcement of awards issued in that context.
However, there remains doubt as to whether other foreign (non-US) courts will take such an approach, as they are not necessarily constrained by the same authorities in the context of applying the New York Convention provisions concerning compelling arbitration and recognising awards pursuant to arbitration agreements which are arguably made pursuant to an arbitral procedure which differs from the arbitration agreement.
For the time being, the Singapore judgment which observed (in obiter) that an award made by a DIAC tribunal under an agreement referring to the former DIFC-LCIA Rules should not be enforced, now takes on less significance. That judgment expressly referred to and seemed to draw support from the
Louisiana District Court decision which has now been overturned. In addition, the Singapore judgment was merely a first instance decision and did not actually decide the point.
It cannot be ruled out that award creditors will encounter hurdles in preventing litigation in foreign courts, and/or obtaining recognition and enforcement of DIAC awards, in jurisdictions which are less arbitration-friendly and take a narrower approach to the validity of arbitration agreements where the nominated rules and arbitral institution no longer exist.
It remains the case that respondents should not expect to gain any traction before UAE courts by arguing that an arbitration agreement or any award flowing from it is unenforceable on the grounds that the parties did not agree to DIAC arbitration.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
