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Claim No: CA-012-2016

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE COURT OF APPEAL

BEFORE THE CHIEF JUSTICE MICHAEL HWANG, JUSTICE SIR JEREMY COOKE AND H.E. JUSTICE ALI AL MADHANI

BETWEEN

PETER MATTHEW JAMES GRAY 

                                                                  Claimant / Appellant

and

GIBSON DUNN AND CRUTCHER LLP        

Defendant / Respondent

Hearing: 14 December 2016

Counsel: Patrick Hennessey and Julian Critchlow instructed by Al Bawardi Critchlow for the Appellant

Graham Lovett and Ryan Whelan (Gibson Dunn & Crutcher LLP) for the Respondent

Judgment: 12 March 2017

JUDGMENT

Summary of Judgment

 This summary is not part of the Judgment and should not be cited as such

ORDER

UPON hearing Counsel for the Appellant and Counsel for the Respondent on 14 December 2016

AND UPON reading the submissions and evidence filed and recorded on the Court file

IT IS HEREBY ORDERED THAT:

1.The Appellant’s Appeal is dismissed.

2. The Appellant shall be invited, within 7 days of the date of this Order and by no later than 4pm on Sunday 19 March 2017, to make submissions on why he should not be ordered to pay all the costs of the Respondent both in the Court of Appeal and in the Court of First Instance.

3. In the event that no submissions are received in accordance with paragraph 2 above, the Appellant shall pay the Respondent’s costs in the Court of Appeal and the Court of First Instance on the standard basis to be assessed if not agreed.

Issued by:

Nassir Al Nasser

Judicial Officer

Date of Issue: 12 March 2017

At: 3pm

JUSTICE SIR JEREMY COOKE:

Introduction

1.This is an appeal on a short point of law relating to the terms of the DIFC Arbitration Law, DIFC Law No. 1 of 2008, as amended by Law No. 6 of 2013 (the “Arbitration Law (as amended)”). The decision at first instance by H.E. Justice Shamlan Al Sawalehi (the “Judge”) is the first decision on this point which involves the inter-relationship between Article 7 and Articles 12 and 13 of the Arbitration Law (as amended).  Critical to the argument is the location of the seat of the arbitration for which the contract of employment between the Appellant (“Mr Gray”) and the Respondent (“Gibson Dunn”) provided.

2. Mr Gray has pursued claims against Gibson Dunn for various declarations, indemnities and monetary compensation arising out of the termination of his employment by Gibson Dunn. The latter maintains that his employment was terminated with cause, for misconduct, whereas he asserts that he was wrongly dismissed.

3. There is a history in these proceedings which is the subject of some dispute but overall, the position is relatively clear. On 21 May 2015, Mr Gray commenced an action against Gibson Dunn in the DIFC Courts Small Claims Tribunal (“SCT”).  In the SCT claim form he set out the basis of his employment pursuant to a contract evidenced (partly) by a Letter Agreement dated 26 April 2012 which provided that, in the event of a dispute between the parties, they should submit to arbitration, following informal negotiations and a non-binding mediation.  The claim form went on to say that Gibson Dunn had purported to terminate his contract, that he had already commenced the alternative dispute resolution procedure provided for in the Letter Agreement in California and that: “the claimant has only commenced this action in order to enable his visa to be cancelled by the DIFC authorities, who have informed him they require either an acknowledgement that all dues have been received or a DIFC case to be initiated, and that the ADR procedure is no substitute for initiating a DIFC claim for these purposes.”  The remedy sought was “only an interim declaration that the arbitration clause is valid and that the defendant be required to arbitrate the matter in the first instance, whereupon the claimant shall seek a stay of this matter pending a determination by the tribunal.”

4. In response to the claim form, in May 2015, Gibson Dunn wrote to the Registrar of the SCT confirming that it was agreed that the dispute between the parties proceed through the alternative dispute resolution proceedings commenced by Mr Gray in California. There is no doubt that informal negotiations followed and a formal mediation, although Mr Gray disputes that this was done in accordance with the contract between the parties.

5. On 24 November 2015, the parties took part in a consultation with a Judicial Officer at the SCT where Mr Gray asked to amend his claim form in order to reflect the actual value of his claim. Gibson Dunn had no objection to this and it was suggested, albeit only faintly on the appeal, that consent was given by Gibson Dunn in such a way as to waive its rights to enforce the agreement to arbitration contained in the Letter Agreement.  Mr Gray was to file an amended claim form in the SCT, for which he later sought extensions of time after 24 March 2016.  Instead he filed an amended Claim Form in the DIFC Courts of First Instance and the SCT case was dismissed by an order of 25 April 2016.

6. Before going any further we should say that we are entirely satisfied that there is no basis on the evidence that we have seen that Gibson Dunn ever waived any rights it may have had to arbitrate the dispute with Mr Gray and the point was only mentioned in passing and pursued faintly, if at all, before us.

7. Gibson Dunn applied to the Court of First Instance for relief, relying on the arbitration agreement between the parties contained in the Letter Agreement. Gibson Dunn sought a number of different alternative remedies and in due course the Judge stayed the proceedings pending the outcome of the arbitration.  It is from that order that Mr Gray appeals.

8. Mr Gray contended at first instance and in this court that the DIFC Courts had jurisdiction over the employment dispute and that the Arbitration Agreement which he had concluded with Gibson Dunn should not be enforced by reason of the terms of Article 12(2) of the Arbitration Law (as amended) because such an agreement could only be enforced where he had given written consent to the Arbitration Agreement after the dispute had arisen or had submitted to arbitration proceedings under such Arbitration Agreement or the DIFC courts had made an order disapplying the application of the Article on the grounds set out in Article 12(2)(iii).

The Arbitration Agreement

9. Paragraph 13 of the Letter Agreement was headed “Arbitration” but in fact constituted a tiered dispute resolution provision referring to any “Controversy” which arose between the parties. It provided for a first step of informal negotiation, a second step of non-binding mediation and a third step of binding arbitration.  The terms of this part of the provision, so far as relevant, read as follows:

“In the event the mediation process set forth above does not resolve the Controversy, the Controversy shall be determined by arbitration before a single arbitrator, utilizing an arbitration provider mutually acceptable to you and the Firm; provided however, that in the event you and the Firm are unable to agree upon an arbitrator and forum within thirty (30) days of a demand by any party for arbitration, then the arbitration shall be referred to the Los Angeles, California office of JAMS for processing as a confidential, final and binding arbitration pursuant to its Comprehensive Rules and Procedures then in effect.  The party desiring to initiate arbitration must give written notice to the Controversy and the intent to arbitrate in accordance with the notice provisions set forth below, to the other party or parties before the applicable statute of limitations prescribed by law expires.  In the absence of mutual agreement concerning the location of the arbitration, the arbitration hearing shall occur in Los Angeles, California unless the arbitrator, applying principles of fairness and equity, determines that it should be held in another location.  If the parties mutually agree in writing, the JAMS Comprehensive Rules and Procedures may be modified or supplemented.  The arbitrator shall be an attorney or retired judge and shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this letter agreement, including whether any claim is arbitrable under this Section 13.  The arbitrator’s authority and jurisdiction shall be limited to determining the dispute in conformity with existing law to the same extent as if such dispute were litigated in a court without a jury or by an administrative tribunal, as the case may be.  The substantive law governing the claim in question shall apply (e.g., New York law with respect to claims arising under New York law and federal law with respect to claims arising under federal law.”

10. Paragraph 17 of the Letter Agreement provided that the governing law was to be that of the State of California, including its conflicts of laws rules.

11. It was common ground between the parties that the claims made were, in part, governed by the Employment Law (as amended), because it provided that the applicable law to a contract of employment of an employee based within, or who ordinarily worked within or from the DIFC, should be that law (Article 4(2)). Other parts of the claim were, however, governed by the law of California for which the Letter Agreement provided. Thus payments said to be due to Mr Gray such as end of service gratuity, health and insurance cover, Article 18 penalties and the like fell to be determined by reference to DIFC law whereas the claim for an indemnity in relation to the costs of an appeal in the English litigation which had led to the dismissal fell to be determined under the law of California.  None of this can affect the issue with which we are concerned.  

The seat of the arbitration

12. It can be seen that the Letter Agreement provided for Californian law to govern the employment contract, for the California office of JAMS to select an arbitrator if the parties could not agree one and for the venue for the arbitration hearing to be Los Angeles in California, in the absence of agreement to the location or a determination by the arbitrator to different effect.

13. No agreement has yet been reached on the identity of the arbitrator nor on the venue for the arbitration. Once the arbitration is commenced, it will inevitably have a seat, although there may sometimes be difficulty in determining its location.

14. There is no express provision in the Letter Agreement as to the seat of the arbitration. The result is that it cannot be said that the seat of the arbitration is DIFC.  It could be argued that the seat is California by implication from the terms of the arbitration clause or alternatively that the seat remains undesignated until such time as venue is agreed or, in default, California becomes the venue.  As the Judge held, however, it could not be the DIFC.

The terms of the Arbitration Law (as amended)

15. The three relevant sections provide as follows:

“7.  Scope of application of Law

(1) Subject to paragraphs (2) and (3) of this Article, this Law shall apply where the Seat of the Arbitration is the DIFC.

(2) Articles 13, 14, 15, Part 4 and the Schedule of this Law shall apply where the Seat of Arbitration is one other than the DIFC.

(3) Article 13 shall also apply where no Seat has been designated or determined.

…

CHAPTER 2 – ARBITRATION AGREEMENT

12. Definition and form of Arbitration Agreement

(1) An “Arbitration Agreement” is an agreement by the parties submit to Arbitration all or certain disputes which have arisen or which may arise between then in respect of a defined legal relationship, whether contractual or not. An Arbitration Agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(2) An Arbitration Agreement referring future disputes between the parties arising out of or in connection with:

(a) A contract of employment within the meaning of the Employment Law 2005; or

(b) A contract for the supply of goods or services, other than residential property, to a consumer made by a supplier who is a natural or legal person acting for purposes relating to his trade, business or profession, whether publicly owned or privately owned.

Cannot be enforced against the employee or consumer in respect of such dispute except:

(i) with his written consent given after the dispute in question has arisen; or

(ii) where he has submitted to arbitration proceedings commended under the Arbitration Agreement whether in respect of that dispute or any other dispute or

(iii) where the DIFC Courts has made an order disapplying this Article on the grounds that the DIFC Courts is satisfied that it is not detrimental to the interests of the employee or consumer for the dispute in question to be referred to arbitration in pursuance of the Arbitration Agreement instead of being determined by proceedings before a Court. For the purposes of this Article, “consumer” means “any natural or legal person who is acting for purposes which are outside his trade, business or profession”.

(3) An Arbitration Agreement shall be in writing, in accordance with the provisions of this Article 12.

(4) An Arbitration Agreement is in writing if its content is recorded in any form, whether or not the Arbitration Agreement or contract has been concluded by conduct or by other means.

(5) The requirement that an Arbitration Agreement be in writing is met by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference; “electronic communication” means any communication that the parties make by means of data messages; “data message” means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy.

(6) Furthermore, an Arbitration Agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is allegedly by one party and not denied by any other.

(7) That reference in a contract to any document containing an arbitration clause constitutes an Arbitration Agreement in writing, provided that the reference is such as to make that clause part of the Contract

13. Arbitration agreement and substantive claim before a Court

(1) If an action is brought before the DIFC Courts in a matter which is the subject of an Arbitration Agreement, the DIFC Courts shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, dismiss or stay such action unless it finds that the Arbitration Agreement is null and void, inoperative or incapable of being performed.

(2) Where an action referred to in paragraph (1) of this Article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the DIFC Courts.”

16. In the Schedule to the Arbitration Law (as amended), to which Article 7(2) refers, at paragraph C there is a list of defined terms including the definition of the word “arbitration”. This is defined as “an arbitration for the resolution of disputes conducted pursuant to an Arbitration Agreement, as defined at Article 12 of this Law”.  Under Article 3, the Arbitration Law (as amended) applies in the jurisdiction of the DIFC.  But in Article 6 under the heading “Interpretation” reference is made to the Schedule which contains interpretive provisions which are to be applied and a list of defined terms used in the Arbitration Law (as amended).

17. It is Article 7 that provides for the scope of application of the Arbitration Law (as amended) by reference to the location of the seat of the arbitration in question. Article 7(1) provides that, subject to paragraphs (2) and (3) of the Article, the Arbitration Law (as amended) shall apply where the seat of the arbitration is in the DIFC.  By contrast, under Article 7(2), provision is made that only Articles 13, 14, 15, Part 4 and the Schedule of the Arbitration Law (as amended) shall apply where the seat of the arbitration is outside the DIFC whereas Article 7(3) states that Article 13 “shall also apply” where no seat has been designated or determined.

18. Article 13, of course provides for the mandatory stay on application by a party to an arbitration agreement. Article 14 provides for confidentiality of arbitral proceedings whilst Article 15 provides for the Court to give interim measures of protection in the context of an Arbitration Agreement. Part 4 is concerned with the recognition and enforcement of awards and sets out at Article 42 the requirements for applications to be made to the Court and at Article 44 the grounds for refusing recognition or enforcement.

19. The Schedule which is headed “Interpretation” sets out at Section A various rules of interpretation, at Section B the manner in which periods of time are to be calculated and at Section C defined terms, stating that “in this Law, unless the context indicates otherwise, the defined terms listed…shall have the corresponding meanings”. It is here that the cross-reference comes to Article 12, as set out above.

20. At Article 12(1), an Arbitration Agreement is defined as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.” The cross-references are therefore somewhat circular but it is clear that arbitration can only arise for the purposes of the Arbitration Law where there is an agreement to submit to arbitration.  Article 12(1) also continues by stating that an Arbitration Agreement can be in the form of an arbitration clause in a contract or in the form of a separate agreement whilst Article 12(3) provides that an Arbitration Agreement “shall be in writing”.  Article 12(4)-(7) then amplify what is meant by an “Arbitration Agreement in writing”, allowing for electronic communication and other means by which such agreements may be recorded in such a way as to satisfy the “in writing” requirement.

21. Part 4 of the Arbitration Law (as amended) deals with the Recognition and Enforcement of Awards and contains its own provisions relating to what has to be shown when enforcing a foreign award. One of the grounds for refusing recognition or enforcement is that the Arbitration Agreement in question is invalid under the law to which the parties have subjected it or, in the absence of any indication thereon, under the law of the state or jurisdiction where the award was made.

(a) Questions of validity or form therefore fall to be determined under the law of the seat or venue, and not in accordance with the formal requirements of Article 12(3)-(7).

(b) The court must however have regard under Article 42(1) to the terms of treaties or conventions to which the UAE is party and must comply therewith.

(c) Such conventions contain their own requirements as to validity and the form necessary for such validity (see e.g. Article 2 of the New York Convention which requires contracting states to recognise “an agreement in writing under which the parties undertake to submit to arbitration” differences between them and amplifies the meaning of the words “in writing”).

(d) Questions of public policy of the UAE also arise in relation to enforcement under Article 44(1)(b)(vii).

22. Whilst Article 12 is headed “Definition and Form of Arbitration Agreement” and Articles 12(1) and (3)-(7) deal with the definition and form of Arbitration Agreements which will qualify under the Act, Article 12(2) is of a different character. It does not in any sense define an Arbitration Agreement or state anything as to its form.  It assumes the existence of an Arbitration Agreement which is otherwise compliant with the Article but states that such an agreement referring disputes between the parties arising out of or in connection with a contract of employment is not enforceable against the employee save in the circumstances there provided.  Enforceability is, self-evidently, different from definition and form.

The effect of the Arbitration Law (as amended)

23. Without wishing to over-simply Mr Hennessey’s submissions on behalf of Mr Gray, it appeared that his argument on the wording of the statute depended entirely upon the applicability of the Schedule to the Arbitration Law (as amended) to Article 7(2). There was nothing in Article 7(3) which stated that it had application there, a point which he ignored.

24. The reference in the Schedule to the definition of arbitration as “pursuant to an Arbitration Agreement, as defined at Article 12 of this Law”, was the key to his argument. He submitted that the effect of this was to make all of Article 12 applicable, under DIFC law, to arbitrations where the seat of arbitration was other than the DIFC or where no seat had been designated or determined.

25. Mr Lovett for Gibson Dunn submitted that Mr Hennessey’s argument did violence to the terms of Article 7 which specifically set out the scope of the application of the Arbitration Law (as amended) by reference to the seat of the arbitration. Under Article 7(1) the full provisions of the Arbitration Law (as amended) were to apply where the seat of the arbitration was in the DIFC whereas only specific provisions were to apply where the seat of the arbitration was elsewhere or was undesignated or undetermined.  Even though Article 7(2) rendered the Schedule applicable to an arbitration where the seat was outside the DIFC, the fact that an arbitration was defined as one conducted pursuant to an Arbitration Agreement as defined at Article 12 did not mean that all the other provisions of Article 12, above and beyond the definition were also incorporated.  In our judgment, this point is unanswerable.

26. When regard is had to the terms of Article 12, it can be seen that the heading refers to the “Definition and Form of Arbitration Agreement” and it is Article 12(1) which defines an arbitration agreement. Article 12(3)-(7) prescribe the form that an arbitration agreement may take for this purpose.  By contrast, Article 12(2) does not relate in any way to questions of validity of an Arbitration Agreement but provides that, where there is such a valid agreement arising out of or in connection with a contract of employment within the meaning of the Employment Law 2005, it is not to be enforced against the employee except in the circumstances set out.  There is a clear distinction between the definition of an Arbitration Agreement which appears in Article 12(1), the form it must take in order to be valid in Article 12(3)-(7) and the question of enforceability of such an Arbitration Agreement (as defined) in relation to a contract of employment, which is governed by Article 12(2).

27. A great deal of argument was addressed to us with reference to textbooks as to the distinction between “substantive validity”, “enforceability”, “non-arbitrability”, “inoperability” and “incapability of performance” of an Arbitration Agreement. We do not see how any of this advances the matter, given the plain wording of the statute.  Once it is recognised that the Schedule which applies under Article 7(2) (where the seat of the arbitration is other than in the DIFC) relates to rules of interpretation, calculation of periods of time and definitions only, it cannot avail Mr Gray that one of those definitions refers to a further definition in Article 12.  It is impossible to say that the incorporation of the definition of “Arbitration Agreement” in Article 12 in the Schedule has the effect of adding the whole of Article 12 to the scope of the Arbitration Law (as amended) to be applied to arbitrations where the seat of arbitration is outside the DIFC.  The terms of Article 7 are clear in themselves.  Only limited Articles are to apply where the seat of the arbitration is other than the DIFC (including Article 13) and Article 13 is also to apply where no seat has been designated or determined.

28. Thus:

(a) the provision of Article 7(2) that the Schedule to the Arbitration Law (as amended) is to apply to arbitrations where the seat is outside the DIFC does not result in Article 12(2) becoming applicable to such arbitrations. It is only the definition of an Arbitration Agreement in Article 12 which is applicable when considering how Articles 13, 14, 15 and Part 4 apply in the case of an arbitration where the seat is outside the DIFC.

(b) where the seat is not designated or determined at all, only Article 13 applies unless the Court, as a matter of inherent jurisdiction or public policy (perhaps relating to treaty obligations), considers it appropriate to insist on some other requirements before applying Article 13. It is however clear that Article 12(2) could not fall into this category since it is a provision against enforcement of particular types of arbitration agreement specifically only where the arbitration is seated within the DIFC itself.

(c) As the legislative history and prior authorities show,[1] Article 7(2) and 7(3) were amended to make Article 13 expressly applicable to non-DIFC seated Arbitrations in order to comply with DIFC’s treaty obligations, because of doubt on that score.

(d) Article 12(2) is simply of no application to an arbitration where the seat is either outside the DIFC or has not yet been designated or determined. Article 13 must apply.

(e) By contrast, Article 13 applies in both those situations so that “if an action is brought before the DIFC courts in a matter which is the subject of an Arbitration Agreement, the DIFC courts shall, if a party so requests…dismiss or stay such action unless it finds that the Arbitration Agreement is null and void, inoperative or incapable of being performed”.

29. Here it is not contended that the Arbitration Agreement is null and void, inoperative or incapable of being performed within the meaning of the terms as construed in the DIFC or internationally where the same words are construed in the context of Article II.3 of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Conclusion

30. In these circumstances the Judge was clearly right in the conclusions to which he came when holding that it was clear to him that Article 13 applied in the circumstances because the seat of arbitration had not been designated or determined or if, in fact, the seat of arbitration was one other than the DIFC.

31. Furthermore, he also found that Mr Gray had accepted the terms of the arbitration agreement by following the first and second steps for negotiation and mediation and then stating a willingness to arbitrate when filing his initial SCT action seeking a declaration that the arbitration agreement was valid and asking Gibson Dunn to agree on a particular venue for the arbitration.

32. Gibson Dunn made no application under Article 12(2)(iii) of the Arbitration Law (as amended) to disapply Article 12 on the basis that Mr Gray had consented to arbitration after the dispute in question had arisen. To do so would have been inconsistent with its primary argument, which we have held to be correct, that Article 12 is of no application to the arbitration to which the parties have agreed in the Letter Agreement.  Nonetheless, contrary to the suggestion that Gibson Dunn waived the right to arbitrate, it is clear that Mr Gray specifically elected to arbitrate following termination of his employment and the dispute between the parties arising therefrom.

33. The Judge was therefore entirely correct to order a stay and the appeal from his substantive decision must therefore be dismissed. Whilst there were a number of other contentions raised in the skeleton arguments, these were not pursued before the Court and cannot assist Mr Gray when the primary issue concerning Articles 7, 12 and 13 has been decided against him. 

Costs

34. There remains the outstanding question of costs because there is an appeal against the Judge’s order that Mr Gray pay Gibson Dunn’s costs of the proceedings. It is submitted by Mr Gray that the Judge determined the point against him without hearing argument on the matter from either side.  The matter is dealt with in one line in the judgment immediately following his order of a stay pursuant to Article 13(1) of the Arbitration Law (as amended).

35. We consider that the likely reason for the Judge adopting this course rather than indicating a provisional view and inviting the parties to agree or make representations thereon was that he saw no possibility of any other order being made. With that conclusion, having seen the grounds put forward for the exercise of discretion on a different basis, we would be inclined to agree.  Likewise, we are of the view that costs must follow the event on this appeal and Mr Gray must pay the costs of Gibson Dunn both here and below, but lest there should be any complaint that we have not given Mr Gray the opportunity to make submissions on the order we are inclined to make, we merely express these views as provisional and invite Mr Gray to make submissions within 7 days of the handing down of this judgment as to why he should not be ordered to pay all the costs of these proceedings both here and at First Instance.  Should we require any further assistance from Gibson Dunn, once we have received any such submissions, we will so indicate.  If no submissions are forthcoming from Mr Gray within the 7 day period, our provisional view will take effect as a final view and an order will be issued accordingly.

CHIEF JUSTICE MICHAEL HWANG:

36. I agree with the judgment and have nothing further to add.

H.E. JUSTICE ALI AL MADHANI:

37. I agree with the judgment and have nothing further to add.

Issued by:

Nassir Al Nasser

Judicial Officer

Date of Issue: 12 March 2017

At: 2pm