A US Federal District Court refused to compel arbitration in a contractual dispute concerning the supply of materials, products and services for an oil and gas project being carried out by the defendants in Saudi Arabia. The parties’ agreement provided for arbitration under the now defunct Dubai International Financial Centre London Court of International Arbitration Rules (DIFC-LCIA).
The DIFC-LCIA was an arbitration centre in Dubai that applied international arbitration rules based on those of the London Court of Arbitration. However, in 2021, the Dubai government issued a decree abolishing the DIFC-LCIA and replacing it with the Dubai International Arbitration Centre (DIAC).
The plaintiff argued that the arbitration clause in the contract was unenforceable because the chosen forum, the DIFC-LCIA, no longer existed. The crux of the defendants’ argument was that the Dubai government’s decree dissolving the DIFC-LCIA also “transferred the assets, rights and obligations” of the DIFC-LCIA to the DIAC and “expressly states that DIFC-LCIA arbitration agreements entered into before the effective date of [the decree] shall be deemed valid”.
The District Court sided with the plaintiff, holding that it could not “rewrite the parties’ agreement and order that the [arbitration] proceedings be conducted in a forum to which the parties had not contractually agreed”. The court further held that the DIAC, notwithstanding its similarity to the DIFC-LCIA, was not the same forum in which the parties had agreed to arbitrate and therefore the court could not compel the claimant to arbitrate.
The key takeaway is that, despite the liberal federal policy favouring arbitration, arbitration is ultimately a matter of contract. Therefore, if the arbitral tribunal chosen by the parties in the contract no longer exists, the courts may refuse to compel arbitration.