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Dubai Court of Cassation overrides an arbitration agreement in the interest of justice

20 August 2021

In this article Slava Kiryushin and Joshua Coleman-Pecha review a Dubai Court of Cassation judgment that held the Dubai Courts had jurisdiction to hear a dispute despite one of the underlying contracts containg a valid arbitration agreement.

Introduction

In a recent judgment (No. 290/2021), the Dubai Court of Cassation (the most senior judicial authority in the Emirate of Dubai) ruled that a Consultant's contract (containing a valid arbitration agreement), should be heard before the Dubai Courts as the Consultant was a joint defendant in a claim brought by the Employer against the Consultant and Contractor. 

Background Facts

The underlying dispute was in relation to a construction project. A developer ("Developer") hired a consultant ("Consultant") to provide supervisory, design and engineering services in respect of work performed by a contractor ("Contractor"). The contract between the Developer and Consultant contained a binding arbitration agreement but the contract between the Developer and Contractor did not.
The Developer commenced proceedings in the Dubai Court of First Instance ("CoFI") against the Contractor and Consultant jointly. The Developer alleged that the Contractor failed to complete the work and that the Consultant mistakenly certified the work as complete.

The CoFI accepted the case against the Contractor but rejected jurisdiction in respect of the Consultant due to the arbitration agreement. 

The Developer appealed to the Dubai Court of Appeal ("CoA"). The CoA overturned the CoFI's judgment for two reasons: 

(i) due to the nature of construction works, a claim against the Contractor should be sustained before turning to the Consultant's liability. Since the Consultant's liablity would have otherwise been decided in arbitration, it could have led to contradictory findings; and
(ii) the arbitration agreement was not binding on the Contractor. Since the Contractor could not be a party to the arbitration, the Dubai Courts should accept jurisdiction over both disputes. 

The Consultant appealed to the Dubai Court of Cassation. The Consultant argued that its contract with the Developer was a separate instrument as the Consultant's obligations were fundamentally different from those of the Contractor. The Consultant argued that its dispute with the Developer should be heard in arbitration. 

Court of Cassation Judgment

The Court of Cassation rejected the Consultant's appeal on the basis that: 
 
(i) the contracts between Developer and Consultant and Developer and Contractor were so closely related that, in the interests of justice, disputes in relation to them should be determined together; and 
 
(ii) since the dispute with the Contractor could not be referred to arbitration, the Court of Cassation held that the Dubai Courts should accept jurisdiction.
 
While the Court of Cassation upheld the principle that arbitration agreements are generally enforceable, submission of disputes to arbitration is still an exception to the default position that the Dubai Courts have jurisdiction. 

Commentary

The Court of Cassation's decision is fact-specific. However, it appears there may be situations where a party, such as the Consultant, may find itself litigating before the Dubai Courts, despite having a contract with a valid arbitration agreement. Moreover, it is of interest to note that: 
 
i) other than an employer, parties to a construction project usually have no control over the terms of contracts entered into between other parties on the same project. Nevertheless, it appears that in certain circusmtances, the dispute resolution clause in one contract may override an arbitration clause in another; and
ii) the Employer and the Contractor did not choose to refer the dispute to arbitration by consent.  
 
Armed with this knowledge, it is conceivable that employers could use this decision as a 'tactic' to 'hedge' their options across a suite of construction contracts. 
 
This case demonstrates a recent trend in Dubai Court decisions where arbitration agreements have been ignored in favour of granting jurisdiction to the Dubai Courts. For example, see our earlier article, where the Dubai Court of Cassation held that a contract adopting an industry standard form (such as FIDIC) was not sufficiently specific so as to incorporate the arbitration agreement. 
 
For more information, contact Slava Kiryushin orJoshua Coleman-Pecha.

Further Reading

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