August 08, 2021 Arbitration - Orders
Claim No: ARB 011/2021
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
LIRIT
Claimant/Respondent
and
LIWANU
Defendant/Applicant
REASONS FOR ORDER OF H.E. JUSTICE SHAMLAN AL SAWALEHI DATED 30 JUNE 2021
Introduction
1. The Defendant applied to the Court (the “Application”) for it to set aside the order dated 5 May 2021 (the “Order”) which recognised and, subject to the outcome of any set aside application, would enforce the DIFC-LCIA final award (the “Award”) issued in arbitration number XXX (the “Arbitration”) on 22 December 2020.
2. For the reasons given below, the Application was dismissed.
Discussion
3. The Defendant’s position, in summary, was that the Arbitration’s procedure was not in accordance with the law of the jurisdiction where the arbitration took place, being “onshore” Dubai (“Ground 1”), nor, for a separate reason, in accordance with the agreement of the parties (“Ground 2”), such that recognition and enforcement of the Award should have been refused under Article 44(1)(a)(iv) of DIFC Law No. 1 of 2008 (the “DIFC Arbitration Law”), which provides, as material, as follows:
Recognition or enforcement of an arbitral award, irrespective of the State or jurisdiction in which it was made, may be refused by the DIFC Court only:
(a) at the request of the party against whom it is invoked, if that party furnishes to the DIFC Court proof that:
…
(iv) the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, in the absence of agreement, was not in accordance with the law of the State or jurisdiction where the arbitration took place.
Ground 1
4. The above provides a sufficient basis to dismiss Ground 1. As the Claimant has argued, the law of the state or jurisdiction where the arbitration took place can only be engaged under Article 44(1)(a)(iv) of the DIFC Arbitration Law in the absence of an agreement by the parties on arbitral procedure. The parties, however, did have such an agreement, a fact that Ground 2 is premised on. Onshore Dubai’s law could not, therefore, be engaged in the instant case and Ground 1 was required to be dismissed on that basis.
5. The UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides useful guidance on how courts have dealt with this question: see, for example, [12] and [13] of the chapter on Article V(1)(d), Article 41(2)(a)(iv) of the DIFC Arbitration Law’s corresponding provision in the New York Convention. Suffice it to cite here the following from [13]: “courts have rejected arguments that… the procedure did not comply with the law of the place of the arbitration where the parties had agreed on other procedural rules”.
Ground 2
6. The Defendant argued that, in breach of the Agreement’s dispute resolution provisions, the parties failed to attempt to settle their dispute according to a mandatory tiered process prior to commencing arbitration, such that the arbitral procedure was not in accordance with the agreement of the parties for the purposes of Article 44(1)(a)(iv) of the DIFC Arbitration Law.
7. The parties’ governing law and dispute resolution clauses are articles 25 and 26 of the Agreement:
Article 25. Law Governing Agreement
25.1 This Agreement shall be governed by and construed in accordance with the Laws of the United Arab Emirates applicable in the Emirate of Dubai…
Article 26. Disputes and Governing Law
26.1 In the event of any dispute or controversy arising out of or relating to this Agreement (the “Dispute”), both Parties shall first attempt to settle the Dispute amicably between to senior officer [sic] designated by each Party, before the commencement of arbitration. Either Party can initiate such attempt of amicable settlement by giving a written notice of impasse to the other Party, which notice shall state it is made under this Article, and the meeting for amicable settlement shall be held at a mutually agreed time and place but it shall be held no later than twenty-one (21) days after receipt of written notice of impasse.
26.2 Should a resolution of such Dispute not be reached amicably within thirty (30) calendar days after the first meeting of the senior officers, or should such meeting of senior officers not occur within twenty-one (21) days after receipt of written notice of impasse, or such longer period as may be mutually agreed, then either Party shall have the right, by written notice to the other, to resolve the Dispute exclusively in accordance with Sub-Article 26.3.
26.3 Subject to Article 28.1 and 28.2 [counsel for the Defendant has argued, and the Claimant has not objected, that it “is clear from the context (and the fact that Articles 28.1 and 28.2 deal with miscellaneous provisions about notices and language) that this was intended to be a reference to Articles 26.1 and 26.2”], any dispute or controversy between the Parties arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Arbitration Rules of the DIFC-LCIA Arbitration Centre, which Rules are deemed to be incorporated by reference into this Article. The seat, or legal place, and venue of arbitration shall be Dubai (U.A.E.)…
8. In my judgment, like Ground 1, Ground 2 was conceptually fatally flawed. In written submissions, the Defendant summarised Ground 2 in this way: “the parties did not comply with the mandatory tiered process of dispute resolution prior to commencing arbitration… such that the arbitral procedure was not in accordance with the agreement of the parties” (emphasis added). However, as the Claimant pointed out, Article 44(1)(a)(iv) of the DIFC Arbitration Law does cover such obligations. Arbitral procedure concerns the manner in which arbitration is conducted. The Defendant’s case, however, and to paraphrase was that: the arbitral procedure, that is, the procedure applied in the arbitration, commenced upon the Claimant’s request for arbitration, was not in accordance with the parties’ agreement to a dispute resolution process required to be attempted prior to either party commencing arbitration.
9. Taking the Defendant’s case at its highest, even if the parties failed to discharge a mandatory dispute resolution obligation required to be performed before the commencement of arbitration, that failure cannot be attributed to the procedure adopted in the Arbitration after the commencement of arbitration. In my judgment, if articles 26.1 and 26.2 of the Agreement had been breached, that is a matter altogether separate from whether the arbitral procedural applied in the Arbitration was in accordance with the agreement of the parties: articles 26.1 and 26.2 do not concern arbitral procedure.
10. It is worth pointing out briefly that this is not a case in which a defendant objected in vain to a tribunal’s jurisdiction on the basis that arbitration could only be commenced if amicable settlement in accordance with the parties’ agreement had been attempted and had failed and where the defendant thereafter reasonably withdrew from the proceedings, and where there would naturally be more basis for investigating whether the arbitral procedure had somehow been corrupted by such events. The facts of this case could hardly be more different. After the Claimant “improperly” commenced the Arbitration, the Defendant delivered its Response. The Defendant continued filing statements of case, witness and other evidence; attended a two-day merits hearing on 11 and 12 October 2020, at which it made written and oral submissions, tendered live witness evidence and cross examined the Claimant’s witnesses; and, subsequent to the hearing, filed written closing submissions. Indeed, there appears to have been no formal objection made against the alleged articles 26.1 and 26.2 breaches until the instant application was made. Based on the cases presented to me, in my view there is simply no way that a breach of articles 26.1 and 26.2 of the Agreement might have tainted the Arbitration’s procedure.
11. And even if the articles 26.1 and 26.2 obligations were part of the parties’ agreement on arbitral procedure, it is clear that the Defendant waived its right to challenge the Award now on that basis, as the Claimant has contended. The arbitration law applicable where the seat of arbitration is onshore Dubai is UAE Federal Law No. 6 of 2018 (the “UAE Arbitration Law”). Article 25 of this legislation provides (in the translation):
If a party proceeds with arbitration proceedings knowing that any requirement under the Arbitration Agreement or any of the provisions of the present Law from of which [sic] any agreement may be made to the contrary, has not been complied with, where he fails to submit an objection to such violation on the time limit agreed upon or within seven (7) days of the date of becoming aware upon non-agreement, he shall be considered to have waived his [right] to object.
12. Article 25 of the UAE Arbitration Law requires that a party has knowledge of the relevant non-compliance before he will be deemed, following no timely objection, to have waived his right to make an objection to it. In the witness statement of Mr Lilast, a senior contracts engineer of the Defendant, made in support of the Application and dated 31 May 2021, and apparently with Article 25 of the UAE Arbitration Law in mind, Mr Lilast stated at [15] that it “was only after the award was published did, we appreciate the requirement under 26.1 had not been complied with by the Claimant [sic]. Prior to this time our previous advisors had not alerted us to this”.
13. The Defendant has not shown why its previous advisors’ knowledge of the article 26.1 requirement should be considered distinct from its own knowledge thereof at the relevant time for the purposes of Article 25 of the UAE Arbitration Law. And the Defendant’s claim actually requires that it was not aware of the Arbitration Agreement itself, article 26.3 of the Agreement, which begins with the words “Subject to “Article 2[6].1 and 2[6].2” (let it be recalled that the Defendant has contended, convincingly in my view, that the reference “Article 28.1 and 28.2” in the Arbitration Agreement was intended to be a reference to articles 26.1 and 26.2). It follows, in my judgment, and with respect, that Mr Lilast’s statement that the co-author of the Agreement was unaware of the content of the Arbitration Agreement contained within it, and therefore of articles 26.1 and 26.2, and notwithstanding that this clause had been invoked by the Claimant in commencing the Arbitration, is frankly incredible.
Costs
14. The general rule is that the unsuccessful party pays the successful party its costs. The Defendant is the unsuccessful party and was therefore ordered to pay the Claimant its costs, on the standard basis and to be assessed if not agreed.
Issued by:
Nour Hineidi
Registrar
Date of Issue: 8 August 2021
Time: 12pm
