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Claim No: CFI 004/2012

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 FIRST INSTANCE

BEFORE JUSTICE DAVID WILLIAMS

BETWEEN

INTERNATIONAL ELECTROMECHANICAL SERVICE CO. LLC

Claimant

and

(1) AL FATTAN ENGINEERING LLC

(2) AL FATTAN PROPERTIES LLC

Defendants

Hearing: 29 March 2012

Supplementary Written Submissions for Defendants:19 April 2012, 10 May 2012, 12 and 30 July 2012, and 26 August 2012.

Supplementary Written Submissions for Claimant: 3 May 2012, 12 and 30 July 2012, and 26 August 2012.

Counsel: Mr Antonios Dimitracopoulos, for the Claimant

Ms Sheila Shadmand, for the Defendant

Judgment: 14 October 2012

JUDGMENT

1. INTRODUCTION — NATURE OF THE CASE

2. Al Fattan Engineering LLC ("the First Defendant") is incorporated as a limited liability company in Dubai, UAE. It carries on the business of engineering and construction of real estate development projects in Dubai and the DIFC.

3. Al Fattan Properties LLC ("the Second Defendant") is also incorporated as a limited liability company in Dubai, UAE. Its business includes real estate development and the sale of property in Dubai and the DIFC.

4. Under a contract ("the Main Contract"), the Second Defendant employed the First Defendant as as the main contractor for the erection of Al Fattan Tower (later renamed as Currency House) in the DIFC at Plot 5B-02, Dubai. The date of commencement was 30 July 2009. The Claimant Successfully tendered for the MEP works on the Currency House project. On 26 November 2008, by way of novation the Claimant entered into a Nominated Subcontract Agreement for MEP Works called "Form of Agreement" with the First Defendant ("the Nominated Subcontract").

5. The Claimant sued the Defendants to recover from one or other of them the sum of AED 14,383,114.28 said to be owing for MEP work carried out on the Currency House project.

6. Pursuant to Rule 12.1 of the Rules of the DIFC Courts ("RDC"), the Defendants sought initially an order from this Court declaring that this Court did not have competent jurisdiction to decide the Claimant's claim because of the arbitration agreement. RDC 12.1 provides as follows:

"A defendant who wishes to:

7. In their Supplementary Submission of 19 April 2012, both Defendants instead sought a declaration from the Court that it should not exercise its jurisdiction and an order dismissing or staying these proceedings. At that stage, the Defendants referred to the Court's general powers of management under RDC 4.2(6) to stay the whole or part of any proceeding [...] either generally or until a specified date or event" and to RDC 12.7 which addresses "[d]isputing the Court's jurisdiction" and provides that the Court, when making an order containing a declaration that the Court will not exercise its jurisdiction, may make further provision including setting aside the Claim Form or staying the proceedings.

8. The seat of arbitration is not the DIFC and, therefore, the mandatory stay provisions of art 13 of the DIFC Arbitration law (DIFC Law No 1 of 2008) ("the DIFC Arbitration Law") were inapplicable. The case raised complex questions as to whether this Court possessed the jurisdiction to grant the relief sought by the Defendants, especially since a recent DIFC Courts judgment, Injazat Capital Limited and Anor v Denton Wilde Sapte & Co DIFC Claim No CFI 019/2010 Judgment 6 March 2012 ("the Injazat case") had held that there was no such jurisdiction. These matters necessitated additional submissions from all parties. All of these matters have resulted in this judgment not being delivered as promptly as would ordinarily have been the case.

The Contractual Setting

9. The sequence of contractual dealings between parties may be summarised as follows. The Second Defendant issued a request for tender for MEP works to be completed on the Currency House development. The Claimant submitted its tender on 11 July 2006 for AED 88,500,000.00, and the Second Defendant subsequently awarded the MEP works to the Claimant. The Second Defendant then wrote to the project engineers, LC Consulting on 13 July 2006 (the "Direct Payment Acceptance Letter") requesting them to instruct the main contractor, Peremba Construction (Dubai Branch) / PECD LLC) ("PECD"), to enter into a sub-contract agreement with the Claimant on the basis of the Claimant's tender. The Second Defendent stated within the Direct Payment Acceptance Letter that it would make the payments for the completed MEP works directly to the Claimant. PECD and the Claimant then entered into a sub-contract on 20 November 2006, which the Claimant contends contained provisions for direct payment as referred to by the Second Defendant within the Direct Payment Acceptance Letter.¹ The Claimant maintained that the Second Defendant repeated its direct payment promise in it letter of 28 December 2006, which stated that:

10. The First Defendant replaced PECD as the main contractor for the Currency House project, effective from 4 November 2007, and entered into the Main Contract with the Second Defendant. At that time, the Second Defendant instructed that all sub-contracts executed between PECD and the relevant sub-contractors (including the Claimant) were to be novated to the First Defendant.

11. PECD consented to the novation of its sub-contract with the Claimant with the First Defendant in its correspondence of 3 November 2007, and the Second Defendant confirmed this novation in its correspondence dated 13 March 2008. To enable the novation to take effect, the Claimant resubmitted a tender on 3 April 2008. This tender took into account alterations to the scope of the work and the updated contract amount of AED 94,762,226.00. It was incorporated into a contract signed between the First Defendant and the Claimant and dated 26 November 2008 ("the Nominated Subcontract"). The contract price was UAE Dirhams Ninety Four Million Seven Hundred and Sixty Two Thousand Two Hundred and Twenty Six (Dhs 94,762,226.00).

The Arbitration Agreement

13. For the purposes of this case, there are two clauses of particular importance in the Nominated Subcontract: the arbitration clause and the back-to-back clause. These clauses are set out below.

14. Clause 20.3 of the Particular Conditions, found in Section D of the Nominated Subcontract, contains the arbitration clause. The parties advised the Court that this clause was taken directly from the Main Contract. Clause 20.3 states:

"20.3.1: If a dispute of any kind whatsoever arises between the Employer and the Contractor in connection with or arising out of, the Contract or the execution of the Works, whether during the execution of the Works or after their completion and whether before or after repudiation or other termination of the Contract, the matter in dispute shall firstly be referred in writing to the other Party. Such reference shall state that it is made pursuany to this clause and shall give notice of the Party's intention to commence arbitration, as hereinafter provided, as to the matter in dispute.

15. The "Rules" referred to in clause 20.3.3 of the Particular Conditions were defined in clause 1.1.6.11 of those same Conditions as the "Rules of the Commercial Conciliation and Arbitration (current as at the date of the Contract) promulgated by the Dubai International Arbitration Centre" ("DIAC").

16. There was no evidence adduced that the procedures in clause 20.3.1 have been initiated. Nor was there any evidence that a Notice of Arbitration had been issued or an arbitrator appointed.

17. In addition to the arbitration clause, the Nominated Subcontract contained the following "back-to-back" clause found on the first page of Section 1:

2. OUTLINE OF THE RESPECTIVE CASES

The Claimant's Case

19. The Claimant contended that the First Defendant was contractually bound under the Nominated Subcontract to ensure payment was effected from the Second Defendant to the Claimant. The Claimant further contended that there was also a contract between it and the Second Defendant, formed through the Claimant's tender and the Second Defendant's Direct Payment Acceptance Letter and Direct Payment Confirmation Letter, which bound the Second Defendant to pay the Claimant directly.

20. The Claimant submitted that the DIFC Courts had jurisdiction to decide the case under DIFC Courts Law since the Nominated Subcontract was signed in the DIFC and the subcontract works were carried out in the DIFC. It referred to art 5A(1) of DIFC Law No 16 of 2011 on Amending Certain Provisions of DIFC Law No 12 of 2004, which states as follows:

"The Court of First Instance shall have exclusive jurisdiction to hear and determine:

[...]

b) Civil or commercial claims and actions arising out of or relating to a contract or promised contract, whether partly or wholly concluded, finalized or performed within the DIFC or will be performed or is supposed to be performed within the DIFC pursuant to express or implied terms stipulated in the contract."

21. In its submission of 23 July 2012, the Claimant appeared to accept that the arbitration agreement was physically incorporated into the Nominated Subcontract as it was attached to that contract, listed within that contract as a document comprising that contract, and stamped by both parties. The Claimant stated, "[t]he parties are ad idem that there has been a physical inclusion of the Non-DIFC Dubai Arbitration Provision." However, the Claimant submitted that the arbitration agreement, while undoubtedly part of the Nominated Subcontract, did not, because of its precise wording, cover the present dispute. It contended in its Skeleton Argument that:

"Clause 20.3.1 of the Particular Conditions Amending FIDIC, states that only disputes arising from the "Contract" are to be referred to arbitration. The term "Contract" is defined as the agreement between the "Employer" and the "Contractor" (being the Second Defendant and First Defendant respectively, in accordance with the contractual provisions set out in the above Para 11 a.) Therefore, the ambit of the clause does not include the Novated Sub-Contract, to which the Claimant and the First Defendant is a party to, which is defined as the "Nominated Subcontract Agreement for MEP Works" in multiple sections including: the Novated Sub-Contract; the First Schedule; Second Schedule and Third Schedule, (Annexure 10 of the Particulars of Claim).

The First Defendant's Case

23. The First Defendant alleged that as a matter of contract law, the parties' explicit agreement to refer disputes relating to the Nominated Subcontract to DIAC arbitration superseded any jurisdiction the DIFC Courts may have over the present claim pursuant to UAE Law No 12 of 2004² and DIFC Law No 16 of 2011.³ Accordingly, it submitted that this Court did not have jurisdiction to adjudicate the present dispute and initially it sought an order declaring it that it had no such jurisdiction.⁴

The Second Defendant's Case

26. The Second Defendant denied that it had agreed to directly pay the Claimant in its Direct Payment Acceptance letter and its Direct Payment Confirmation Letter. The Second Defendant also submitted that should the Court find a relationship between it and the Claimant based on the Nominated Subcontract, the Claimant should be bound by the arbitration agreement in that Subcontract.

27. Finally, as with the First Defendant, it asserted that the arbitration clause incorporated into the Nominated Subcontract required that the Claimant arbitrate its dispute, and that this ousted the Court's jurisdiction to decide the dispute.

3. ISSUES FOR DETERMINATION

31. This Court has jurisdiction to amend any defects or errors in the pleadings on its own initiative, if such is necessary for determining the real controversy between the parties. This jurisdiction is found in arts 32(f) and 44 of the DIFC Courts Law (DIFC Law No 10 of 2004). Article 32(f) states that "[t]he DIFC Courts has the power to make orders and give directions as to the conduct of any proceedings before the DIFC Courts that it considers appropriate, including [...] (f) orders made in the interests of justice." Article 44(1) states that "[n]o proceedings in the DIFC Courts are invalidated by a technical defect or irregularity, unless the DIFC Courts orders otherwise" and art 44(2) states that "[t]he DIFC Courts may, on conditions the DIFC Courts considers appropriate, make an order declaring that a proceeding is not invalid by reason of a default or irregularity." Therefore, the Defendants' application will be treated as if made under RDC 12.1(2).

32. The Defendants submitted that pursuant to the kompetenz-kompetenz principle, the Court should not investigate at all the validity or scope of the arbitration agreement, but simply order a stay and remit the decision to the arbitral tribunal which would be established in due course. This is not the correct position. As the United Kingdom Supreme Court observed in Dallah v Pakistan [2010] UKSC 46, [2010] WLR 1472 at paragraphs 25 and 83-85, the principle that an arbitral tribunal is competent to rule on its own jurisdiction does not limit the ability of other bodies to also rule on the tribunal's jurisdiction. Clearly, this Court cannot avoid examining the validity of the arbitration agreement; in issue is the precise approach it should adopt in doing so.

33. Sir David Steel at paragraph 30 of his judgment in Injazat noted that the authorities identify four approaches a Court may take when faced with a stay application such as the present⁶ They are:

34. In Joseph Jurisdiction and Arbitration Agreements and their Enforcement (2nd ed, London, 2010) at page 360 the author observes that in general, where the arbitration clause is not manifestly invalid (i.e., where the fourth approach does not apply), English courts have favoured the first two approaches over the third. That is to say, the courts have preferred to finally decide that an arbitration agreement exists, rather than deciding that prima facie the agreement is valid and remitting the decision to the tribunal for final determination. However, Joseph also notes that the courts have been more willing to make only a prima facie determination in two circumstances. The first is where an arbitration agreement clearly exists, but in issue is whether it covers the dispute at hand. The second is where the agreement is to arbitrate in a foreign seat and under a foreign law. The first circumstance occurred in El Nasharty v J Sainsbury Plc [2004] 1 Lloyd's Rep 309 and the second in A v B [2006] EWHC 2006 (Comm), [2007] 1 All ER (Comm) 591, [2007] 1 Lloyd's Rep 237.

35. Here, both of the two circumstances exist. First, the parties eventually agreed that the Nominated Subcontract contains an arbitration agreement. Their only point of difference is whether the agreement binds them to arbitrate the present dispute. Hence, the issue is as to scope. Secondly, as the Court notes below, their agreement is governed by Dubai law, a law technically foreign to this Court, so that the agreement is to arbitrate in a foreign seat under a foreign law. Therefore, this Court will not make a final finding as to the validity and scope of the arbitration agreement. Instead, this Court, if it finds it has jurisdiction, will order a stay if, on the evidence before it, it concludes that prima facie a valid arbitration agreement covers the present dispute and that a stay is appropriate. If the matter is submitted to arbitration, neither the DIAC⁷ nor the arbitral tribunal would be legally bound by this Court's finding that the agreement is prima facie valid. They would be free to rule on the arbitral tribunal's jurisdiction, no doubt paying some regard to the prima facie finding of this Court.

4. ISSUE ONE: WHETHER THERE EXISTS A VALID ARBITRATION AGREEMENT WHICH COVERS THE PRESENT DISPUTE

The Claimant's Submissions

36. The Claimant began by submitting that the Court had the requisite jurisdiction to hear its claim due to the fact that the MEP works which formed the basis of the claim were executed within the geographical area of the DIFC. As noted earlier, the Claimant correctly pointed to art 5A(1) of Law No 16 of 2011 on Amending some Provisions of Law No 12 of 2004, which provides as follows;

"...the Court of First Instance shall have exclusive jurisdiction and rule over:

37. In its Skeleton Argument of 15 March, the Claimant acknowledged that the arbitration clause had been physically incorporated into the Nominated Subcontract and signed by the parties. However, it refuted the First Defendant's claim that this clause, together with the back-to-back clause in the Nominated Subcontract, bound the Claimant to submit its claims to DIAC arbitration. This was because of the wording of the arbitration clause, which had been taken from the Main Contract. It provided for disputes between the "Employer" and "Contractor" arising out of "the Contract" to be resolved through arbitration. In the Main Contract, "the Contract" was defined as the agreement between the Employer and Contractor; "the Employer" was defined as the Second Defendant, and "the Contractor" was defined as the First Defendant. In the Nominated Subcontract, the Claimant was defined as the "Nominated Sub-Contractor" and the First Defendant as the "Contractor". Therefore, the arbitration agreement, referring as it does to disputes arising between the Second and First Defendants out of their contract, did not cover disputes arising between the Claimant and First Defendant out of their separate and distinct sub-contract.

The First Defendant's Submissions

38. The First Defendant submitted that, despite the references to "Employer" and "Contractor" in the arbitration clause, the contractual intention of the Nominated Subcontract was to submit any disputes regarding the Currency House project to arbitration. It advanced several reasons in support of this contention. First, the arbitration clause from the Main Contract, as recorded in the Particular Conditions, was attached to and formed part of the Nominated Subcontract. It was also stamped, along with all pages of the document, by both the Claimant and the First Defendant. Secondly, the First Defendant explained that it would be:

39. Finally, it would be inequitable and unjust to allow the Claimant to escape its contractual obligation to arbitrate on account of a typographical oversight in using the terms "Employer" and "Contractor", In any event, the terminology fitted as conceptually, the First Defendant performed its obligations under the Nominated Subcontract as an "Employer" and the Claimant its obligations as a "Contractor".

The Second Defendant's Submissions

The Defendants' Supplementary Submissions of 19 April 2012

The Claimant's Supplementary Reply Submissions of 3 May 2012

45. The Claimant also contested the Defendants' assertion that arbitration was a logical choice for the Claimant and Defendants. The Claimant pointed out that different dispute resolution mechanisms, such as arbitration and litigation, each carry their own logic. Conferring jurisdiction on the DIFC Courts for disputes arising from a DIFC-based project was also logical.

The Court's Memoranda of 3 July 2012 and 23 July 2012

46. On 3 July 2012, the Court issued a memorandum to the parties seeking a full copy of the Nominated Subcontract and further submissions on art 12(7) of the DIFC Arbitration Law. That article replicates art 7(6) of the 1986 UNCITRAL Model Law on International Commercial Arbitration (as amended in 2006) ("the Model Law"), and reads as follows;

47. The Parties duly supplied a true copy of the Nominated Subcontract and various cases from Model Law jurisdictions relevant to "back-to-back" clauses.

The Court's Memorandum of 21 August 2012

Discussion on Issue One: Validity and scope of the arbitration agreement

50. Both parties accepted that the validity and scope of the arbitration agreement must be determined on the basis of Dubai law. The UAE Civil Procedure Code, Federal Law No 11, 1992, Chapter 3 deals with arbitration. Article 203 provides as follows:

"Article 203

53. The general effect of the provisions of art 203 is that the arbitration agreement must be in writing and there must be a clear intention of the parties to submit any dispute to arbitration. At its core, the Dubai provisions are broadly similar to the UNCITRAL Model Law in stressing the need for writing (art 7(2), Model Law) and the requirement of a contractual intention to refer disputes to arbitration. While it may be suggested that the Model Law contains a more pronounced pro-arbitration emphasis than does the Dubai law, this Court considers that it is permissible and appropriate to examine some Model Law jurisdiction cases on incorporation of arbitration agreements by reference and the related question of whether there is an intention to arbitrate. It was for this reason that the Court invited submissions on art 12(7) of the DIFC Arbitration Law and provision of the corresponding art 7(6) of the Model Law. The Court is grateful to the parties for the references they provided to decisions from Model Law jurisdictions.

54. Among the cases referred to by the parties, the most relevant and helpful was the Hong Kong High Court decision in Astel-Peiniger Joint Venture v Argos Engineering & Heavy Industries Co. Ltd [1994] HKCFI 276. The judgment was given by Kaplan J, a noted authority on arbitration law. The defendant, Argos, sub-sub-contracted to the Plaintiff painting work envisaged in an assembly sub-contract. A dispute arose as to which party was responsible under the sub-sub-contract for the supply and construction of mobile paint sheds. The Plaintiff brought a claim in the Hong Kong High Court. The sub-sub-contract was on a "back-to-back" basis and "proportional" to the sub-contract, which contained an arbitration clause. Argos alleged that the Plaintiff was thus bound to arbitrate the dispute. The Plaintiff was given a copy of the sub-contract well before the conclusion of the sub-sub-contract and had not raised any objections. The Court referred to the travaux of the Model Law and first held that where a back-to-back clause in a contract purports to incorporate the terms of a second contract, the second contract need not be between the same parties as the first contract. Secondly, the Court held that the back-to-back clause sufficiently demonstrated the parties' intention to incorporate the arbitration clause into the sub-sub-contract. This was despite the fact that the back-to-back clause did not explicitly refer to the arbitration clause, but merely more generally to the terms of the contract in which the arbitration clause was found. The Court therefore stayed the proceedings and referred the parties to arbitration.

55. Another judgment of Kaplan J also drawn to the Court's attention was Gay Constructions Pty Ltd and Spaceframe Buildings (North Asia) Ltd v Caledonian Techmore (Building) Ltd v Hanison Construction Co Ltd [1994] HKCFI 17. Justice Kaplan commented that "[...] I am quite satisfied that it is possible to comply with the last sentence of Article 7(2) [of the Model Law] without an explicit reference to the arbitration clause. To require an explicit reference to the arbitration clause would be far too restrictive and clearly was not intended by those drafting the Model Law." The Claimant also cited the travaux of the Model Law A/CN.9/264 at paragraph 8 of page 23, which states "[a]s the text [of the Model Law] clearly states, the reference need only be to the document; thus, no explicit reference to the arbitration clause contained therein is required."

56. From the above authorities, the following four basic propositions can be deduced for determining whether, under Dubai law, the back-to-back clause in the Nominated Subcontract successfully incorporated the arbitration agreement from the Main Contract:

Finding on Issue One: A prima facie case has been established that a valid arbitration agreement exists which covers the dispute between the Claimant and the First Defendant

59. Finally, the label in the top left-hand corner of the relevant section of the Subcontract states "Al Fattan Development; DIFC: Plot GB02; M&E Works Contract; Conditions of Contract". The label clearly refers to the contract for MEP works and envisages that the page containing the arbitration clause pertains to that contract.

60. Therefore, the only real point of difference between the parties is whether this arbitration agreement so incorporated binds the Claimant to arbitrate the present dispute. This turns on whether the arbitration agreement evinced an intention on the part of both parties to be bound to arbitrate disputes of the present kind. The Claimant's primary submission was that the arbitration agreement referred only to disputes between the "Employer" and "Contractor" arising out of the "Contract", which militates against this intent. The Court finds this analysis unpersuasive for several reasons.

61. As explained above in paragraph 49, the Claimant stamped the arbitration agreement and knew that it had been physically incorporated into the Nominated Subcontract. It also knew that the agreement was labeled as pertaining to the Nominated Subcontract. It is inconceivable that, despite knowing these facts, the Claimant nevertheless believed that the arbitration agreement did not relate to arbitration of disputes arising under the Nominated Subcontract between itself and the First Defendant. It would be odd if the Claimant believed it was signing a clause that was either totally irrelevant, or was attempting to bind the First and Second Defendants to arbitration — a futile exercise when the Second Defendant was not a party to the Nominated Subcontract. Furthermore, to be consistent with its argument that the arbitration agreement does not apply to it as it refers to the "Employer" and the "Contractor", the Claimant must also have believed that all the other clauses in the Nominated Subcontract referring to "Employer" and "Contractor" did not bind it either (for example, Particular Conditions 1.1.6.10 and 4.1), If this were the case, the Claimant would then have signed a contract in the belief that many of its clauses were of no relevance. The more logical explanation is that the Claimant signed the Nominated Subcontract in the belief that its clauses applied to the Claimant and the First Defendant, despite the "Employer" and "Contractor" wording.

62. The back-to-back clause contained in Section 1 of the Nominated Subcontract supports this interpretation. It is useful to reproduce the back-to-back clause again here in full:

"Whereas the Nominated Subcontractor's obligations in the Subcontract towards the Main Contractor shall be the same as those of the Main Contractor towards the Employer and the Engineer, under the Main Contract, i.e., what is commonly known as 'back to back' in relation to the Subcontract Works and the Nominated Subcontractor shall assume and perform all obligations and liabilities of the Main Contractor under the Main Contract in relation to the Subcontract Works."

63. The clause does not speak of transposing the literal terms of the Main Contract into the sub-contract. Instead, the clause envisages that all of the obligations that the Main Contractor owed to the Head Contractor will now also be owed to the Main Contractor by the Sub-Contractor. The clause recognises that the obligations will be phrased with the terms "Employer" and "Contractor", as the obligations were initially drafted to apply to those two parties. This interpretation is consistent with the finding of Kaplan J in Astel-Peiniger that, by virtue of the back-to-back clause in the sub-sub-contract, the arbitration agreement still applied to disputes between the sub-contractor and the sub-sub-contractor, despite the arbitration agreement in the sub-contract referring to the "contractor" and "sub-contractor". Kaplan J observed that "modifications" to the arbitration clause could be made to substitute "sub-contractor" for "contractor" and "sub-sub-contractor" for "sub-contractor". At paragraph 50 the learned judge commented:

"I am quite satisfied that by the actual words used by the parties in their agreement, they did intend to incorporate Clause 31 of the assembly subcontract. I have not forgotten that applying the clause mutatis mutandis does involve some rejection and modification but that, by itself, does not displace the parties' intention [...] they [the parties] must have recognised that some modifications would have to be made."

64. The back-to-back clause in the present case is worded very widely. On its face, it captures all of the Contractor's obligations under the Main Contract. There is nothing to suggest that the Claimant and First Defendant intended to exclude the arbitration agreement from the list of obligations transferred to the Claimant. Again the remarks of Kaplan J in Astel-Peiniger at paragraph 52 are apposite:

65. In addition, the Court finds unpersuasive the Claimant's contention that the back-to-back clause addresses only the Claimant's unilateral obligations, and hence is incapable of accommodating the arbitration agreement, which is a mutual obligation owed by both the First Defendant and the Claimant, The back-to-back clause does not speak of applying to the Subcontractor obligations only owed by the Contractor and not also owed by the Employer. It simply speaks of applying the Contractor's obligations, The fact that the Employer had an obligation to arbitrate running parallel to the Contractor's obligation does not detract from the fact that the Contractor had an obligation.

66. While the Court has applied Dubai law, in interpreting the arbitration agreement it is permissible to observe that the finding that the Defendants have established a prima facie case that the validity and scope of the arbitration agreement covers its dispute with the Claimant is also consistent with an established trend in England and Model Law countries.¹⁰

67. In England, a supportive approach to the interpretation of arbitration agreements received strong impetus from the important decision of the English Court of Appeal in Fiona Trust and Holding Corp v Privalov [2007] EWCA Civ 20 and the House of Lords in the same case, Premium Nafta Products Ltd v Fili Shipping Company Limited (sub nom Fiona Trust and Holding Corp v Privalov) 2007 UKHL 40, [2007] 4 All ER 951. The House of Lords in Fiona Trust held that semantic distinctions (in that case, the distinction between "arising under" and "arising out of" in defining the scope of arbitration agreements) were of little use in interpreting the scope of an arbitration agreement. Instead, the scope of the clause turns on what the parties objectively intended to express by choosing the words used in the clause. This intention is informed by the commercial background to the agreement, and "[b]usinessmen in particular are assumed to have entered into agreements to achieve some rational commercial purpose" (paragraph 5).

68. One purpose for including an arbitration clause is to ensure "one-stop adjudication": the idea that ail disputes arising in connection with a particular project ought to be decided in the same forum to avoid duplication of proceedings. Such duplication is expensive, causes delay and may expose parties to double jeopardy or lead to inconsistent findings between the two forums. As Lord Hoffman in Fiona Trust opined at paragraph 13,

69. In that case, despite the arbitration clause referring to disputes arising under the contract, the clause was construed to cover disputes over the validity of the contract as well as disputes over alleged breaches of contract, so as to avoid parallel proceedings in a court and arbitral tribunal. In multi-party projects such as the present case, there is also a risk of duplication, but for a different reason. The risk is that disputes relating to the project between the employer and the head contractor will be arbitrated pursuant to an arbitration clause in the main contract, but disputes relating to the project between the head contractor and the sub-contractor will, failing an arbitration clause in the subcontract, be litigated. By mirroring the arbitration clause in the Main Contract with an arbitration clause in the Nominated Subcontract, the parties in the instant case intended to avoid exactly this problem.

70. In summary, this Court finds under Dubai law that a prima facie arbitration agreement exists to the effect that there is a binding contractual agreement between the Claimant and the First Defendant to resolve any disputes by means of arbitration rather than litigation. By this agreement the parties validly opted out of the jurisdiction of the DIFC Courts to decide the dispute.

The Position of the Second Defendant

5. ISSUE TWO: JURISDICTION TO GRANT A STAY

The decision in the Injazat case

72. During the 29 March 2012 hearing, the Court referred the parties to the then recent judgment of Justice Sir David Steel in the Injazat case. In that case, Injazat Capital brought a claim before the DIFC Courts of First Instance against Denton Wilde Sapte for alleged negligence in failing to advise the Claimant in regard to the existence of an option to sell shares that it had acquired under a Share Subscription Agreement. Denton Wilde submitted an application to stay those proceedings since its terms of business attached to an engagement letter sent to Injazat Capital included the following arbitration clause:

73. Injazat Capital asserted that the terms of business and the arbitration were not received, and in any event they were not accepted. Denton Wilde's position was that the terms were forwarded by fax and emailed to the Claimant who did not respond to it.

74. In seeking a stay of the Court proceedings, Denton Wilde pointed to art 13 of the DIFC Arbitration Law which, as noted earlier, obliges the Court to grant a stay of proceedings where the subject of those proceedings is a matter governed by a valid arbitration agreement. However, the Court noted that Denton Wilde's arbitration clause provided for arbitration seated in London, and that art 7(2) of the DIFC Arbitration Law provides that only arts 14 (Confidentiality), 15 (Interim Measures), Part 4 (Recognition and Enforcement of Awards) and the schedule (Interpretation) applied to arbitrations seated outside of the DIFC. Hence, the power to order a stay under art 13 did not apply.

75. Having determined that it had no statutory jurisdiction to grant a stay, the Court then examined whether it possessed any residual jurisdiction. At paragraph 36, Steel J referred to the decision of the English Court of Appeal in Etri Fans Ltd v NMB (UK) Ltd [1987] 1 WLR 1110 as authority for the proposition that where a court's inherent jurisdiction has been impliedly overridden by a detailed statutory regime, a court may not exercise its jurisdiction independently of that statutory power. He cited Lord Woolf in Etri Fans at 1114:

76. Justice Steel considered that the power to stay proceedings brought in breach of an agreement to arbitrate outside of the DIFC was regulated by the DIFC Arbitration Law, as art 7, Scope of Application of Law provides that the art 13 obligation to order a stay did not apply to non-DIFC seated arbitration agreements, and art 10 provides that "in matters governed by this law, no Court shall intervene except to the extent so provided in this Law". He concluded at paragraph 38 that the Court did not possess inherent jurisdiction to stay proceedings brought in apparent breach of non-DIFC arbitration agreements, and was instead confined to the powers found in the 'detailed and precise' DIFC Arbitration Law.

77. Justice Steel acknowledged that art ll(3) of the New York Convention, to which the United Arab Emirates is a signatory, compels courts of signatory states to recognise arbitration agreements regardless of where they are seated, and that holding that the DIFC Courts did not have the power to stay proceedings brought in breach of non-DIFC seated arbitrations put Dubai in breach of the New York Convention. He also acknowledged that "[t]here is indeed a presumption that legislation is drafted in a manner consistent with treaty obligations." But he concluded that there was no room for interpreting the DIFC Arbitration Law consistently with the Convention. The terms of arts 7 and 13 were clear; the DIFC Arbitration Law did not permit the Court to grant a stay.

78. It was obviously necessary for the parties to have an opportunity to address the judgment, since the arbitration agreement in the instant case related to a non-DIFC seated arbitration. A timetable was therefore established for the provision of written submissions on that judgment.¹¹

The Defendants' Submissions on the Injazat Case

79. The Defendants first asserted that as non-DIFC Dubai law was the law of the seat, it, not DIFC law, should govern the question of whether this Court has the power to stay proceedings. The Defendants then cited art 203(5) of the Dubai Civil Procedure Code to show that non-DIFC Dubai law would permit a stay:

80. However, If DIFC law were to govern the power to stay proceedings, it was somewhat unclear to the Court whether the Defendants were submitting both that art 13 of the DIFC Arbitration Law could apply to arbitrations seated outside the DIFC, and that quite apart from this statutory jurisdiction this Court had an inherent jurisdiction to stay proceedings, or simply the latter. In any event, the Defendants gave the following reasons in support of the existence of an inherent jurisdiction under DIFC law to grant a stay of proceedings covered by a foreign-seated arbitration agreement.

81. First, while art 7 did not refer to art 13 as applying to foreign arbitrations, nowhere in the Arbitration Law was there an express prohibition on granting stays in respect of foreign arbitrations.

82. Secondly, the DIFC Courts's residual jurisdiction was enshrined in the Rules of the DIFC Courts ("RDC"). RDC 4.2 grants the Court the power to, "[e]xcept where these Rules provide otherwise", "stay the whole or part of any proceedings or judgment either generally or until a specified date or event" (at RDC 4.2(6)) and "dismiss or give judgment on a claim after a decision on a preliminary issue" (at RDC 4.2(12)). RDC 4.1 states that "the list of [the DIFC Courts's] powers set out below is in addition to any powers given to the Court by any other Rule or Practice Direction or by any other enactment or any other powers it may otherwise have." RDC 4.1 therefore implied that the general power to stay proceedings outlined in RDC 4.2(6) is in addition to the statutory art 13 power to stay.

83. Thirdly, art 7 cannot have been intended to exclude the Court's ability to grant a stay in the case of non-DIFC seated arbitrations, as this would be contrary to the promotion of the DIFC and Dubai as a regional hub for arbitration. Interpreting the DIFC law as preventing a stay would also render the DIFC law more restrictive than the law that applied prior to the establishment of the DIFC (i.e., art 203(5) of the UAE Code of Civil Procedure).

84. Fourthly, even if art 7 of the DIFC Arbitration Law did purport to prohibit the DIFC Courts from ordering a stay, the Court was bound to do so anyway by art ll(3) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 ("the New York Convention"). Article ll(3) reads as follows;

85. The Defendants also cited Premium Nafta Products v Fili Shipping Co [2007] UKHL 40, [2007] 4 All ER 951 as authority for the proposition that arbitration agreements should be liberally construed, and that courts should strive to uphold them. They also cited Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43, Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318, and Pathak v Tourism Transport Ltd [2002] 3 NZLR 681 to the effect that courts' intervention in an arbitration should be to support, rather than displace, that arbitration. Granting a stay would minimize court intervention and uphold the parties' agreement to arbitrate.

86. For all these reasons, the Defendants asserted that it was likely that the legislative intention in drafting the Arbitration Law was to mandate a stay of proceedings brought in breach of arbitration agreements seated in the DIFC, and leave the Court with a discretion whether to stay proceedings brought in breach of arbitration agreements seated outside the DIFC.

Claimant's Submissions on the Injazat Case

88. In response to the Defendants' claim of an inherent jurisdiction to stay reflected in the RDC, the Claimant reasoned that RDC 4.2 provided that the Court's power to stay proceedings in RDC 4.2(6) exists "[e]xcept where these Rules provide otherwise", which RDC 4.9 did as it provides that "[e]xcept where [...] some other enactment provides otherwise, the Court may exercise its powers on an application". The enactment providing otherwise for the purpose of RDC 4.9 was the DIFC Arbitration Law. Article 7 of that Law, in specifying that all of its provisions apply to DIFC-seated arbitrations, but only "articles 14, 15, Part 4 and the Schedule" apply to non-DIFC seated arbitrations, clearly demonstrated a legislative intent to exclude the application of the art 13 mandatory stay provisions to non-DIFC seated arbitrations.

89. Secondly, the Claimant contended the Defendants' suggestions that precluding a stay thwarted the aim of attracting arbitrations and was more restrictive than UAE law were irrelevant. Dubai and the DIFC were two distinct legal systems which could be expected to differ in their approaches. Moreover, if the DIFC courts had the same powers as the Dubai courts to rule that arbitration agreements were invalid and stay arbitrations, there would be a risk of inconsistent decisions. For example, if an action was brought in breach of a Dubai-seated arbitration agreement and the DIFC Courts stayed that action on the grounds that the agreement was valid, and a tribunal subsequently rendered an award, a Dubai court might then nullify that award on the grounds that the arbitration agreement was invalid. The Claimant asserted that Dubai courts had found arbitration agreements to be invalid in an "abundance" of cases to which it referred. This purportedly increased the risk of inconsistent findings.

90. The Claimant also referred to the Malaysian case of Aras Jalinan SDN BHD v Tipco Asphalt Public Company Ltd [2008] 5 CLJ 654 ("Tipco"). In that case, the Plaintiff and three Defendants entered into a settlement agreement relating to a share purchase which contained an agreement to arbitrate in Singapore. The Plaintiff sought an injunction to restrain the Defendants from preventing the Plaintiff from obtaining shares in the Third Defendant. The Malaysian Arbitration Act 2005 bestowed upon the courts the power to grant injunctive relief (the equivalent of art 9 of the Model Law), but the Act expressly applied to domestic arbitrations, and was silent as to foreign arbitrations. The Court ruled that the Act did not apply to foreign arbitrations. The Claimant submitted by analogy that art 7 of the DIFC Arbitration Law, which does not explicitly state that certain provisions do not apply to foreign arbitrations, should nevertheless be read as intending to exclude them.

91. With regard to the Defendants' submissions on the New York Convention, the Claimant supported the Court's ruling in the Injazat case, that since the provisions of the DIFC Arbitration Law clearly prevented a stay, there was no room for interpreting them in a manner consistent with the New York Convention. The Claimant also argued that a finding that the DIFC Courts could not stay proceedings where a Dubai arbitration clause existed was not inconsistent with the New York Convention. The New York Convention was concerned not with how each Member State dealt with arbitration agreements seated in that same Member State, but how it dealt with arbitration agreements seated in another Member State. It quoted art 1(1) of the New York Convention, which reads:

Defendants' Response to Claimant's Reply on the Injazat Case

Finding on Issue Two: The Court has jurisdiction to stay these proceedings

94. As noted above, this Court has jurisdiction over the present dispute as it relates to a contract being performed in the DIFC. The question is therefore whether the Court should, as requested by the Defendants, decline to exercise that jurisdiction and stay the proceedings because of the existence of an arbitration clause applicable to the dispute.

95. The usual procedure for challenging the Court's prima facie jurisdiction over a dispute because of an existing arbitration agreement is to apply for a stay under art 13(1) of the DIFC Arbitration Law. This provides as follows:

"If an action is brought before the Court on a matter which is the subject of an Arbitration Agreement, the Court shall, if the parties so request not later than when submitting his first statement on the substance of the dispute, refer the parties to Arbitration unless it finds that the Arbitration Agreement is null and void, inoperative or incapable of being performed."

However, art 7 provides as follows:

"(1) Parts 1 to 4 in the Schedule of this Law shall apply where the Seat of the Arbitration is the DIFC.

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

96. As such, the Court agrees with the finding in the Injazat case and the Claimant's contention that art 13 of the DIFC Arbitration Law does not apply to non-DIFC seated arbitrations. While art 7 does not expressly preclude the application of art 13, it does clearly state which provisions are applicable to non-DIFC seated arbitrations — art 14, art 15, Part 4 and the Schedule — and which are applicable to domestic arbitrations. Thus, there is a clear intent to exclude the application of the mandatory stay provisions of art 13. However, for the reasons which follow, the Court upholds the Defendants' submission that there is an inherent jurisdiction to grant a stay and, with great respect, declines to follow the ruling to the contrary in the Injazat case.

The relevant DIFC Laws and Rules

97. Several DIFC laws confer jurisdiction to stay proceedings. First, art 32 of the DIFC Courts Law (DIFC Law No 10 of 2004) states that "[t]he DIFC Courts has the power to make orders and give directions as to the conduct of any proceedings before the DIFC Courts that it considers appropriate", including injunctions, interim or interlocutory orders, ex parte orders, contempt orders and orders made in the interests of justice. Article 33 provides that "[t]he DIFC Courts may, if it considers it appropriate: (a) stay any [...] proceeding". The breadth of this latter phrase deserves emphasis. Since this action is a proceeding, it must follow that unless some subsequent legislation removes or qualifies the art 33 power, the Court possesses jurisdiction to grant a stay of proceedings in the present case.

98. The Rules of the DIFC Courts also grant a power to enjoin or stay court proceedings. As noted earlier, RDC 12.7(4) permits the Court to include an order "staying the proceedings" within a declaration declining to exercise its jurisdiction. RDC 4.9 provides that "[e]xcept where a Rule, Practice Direction or some other enactment provides otherwise, a Court may exercise its powers on an application or of its own initiative", and at RDC 4.2(6) the Court is granted the power "[ejxcept where these Rules provide otherwise", "to stay the whole or part of any proceedings [...] either generally or until a specified date or event". Moreover, RDC 4.1 states that "the list of [the DIFC Courts's] powers set out below is in addition to any powers given to the Court by any other Rule or Practice Direction or by any other enactment or any other powers it may otherwise have [emphasis added]." The latter phrase is doubtless a reference to the DIFC Courts Law and to the inherent jurisdiction which any superior court of record, such as the DIFC Courts, possesses.

99. While it is clear that the DIFC Courts possesses an inherent jurisdiction to stay proceedings, codified in the aforementioned provisions, neither those provisions nor any DIFC cases to date detail the scope or content of the jurisdiction. Article 8(2) of the Application of Civil and Commercial Laws (DIFC Law No 3 of 2004) states that in such a situation the applicable jurisdiction is to be ascertained in the following manner:¹²

"(a) so far as there is a regulatory content, the DIFC Law or any other law in force at the DIFC; failing which,

(b) the law of any Jurisdiction other than that of the DIFC expressly chosen by any DIFC Law; failing which,

(c) the lawaws of England and Wales."

100. In addition, DIFC Rule 2.10 provides that:

"if no provision is made or no appropriate form is provided by the Rules or any law in force in the DIFC, the following rules of practice and procedure shall be followed and adopted:

"(1) Such Rules as shall have been enacted;

(2) To the extent that no Rule or Practice Direction dealing with the matter shall have been enacted, with regard to the Court of First Instance, the Guide together with any prescribed forms with such changes as the Court considers appropriate to be applied in the circumstances;

(3) Insofar as the Guide does not deat with the matter or makes reference to the CPR together with any prescribed forms with such changes as the Court considers appropriate to be applied in the circumstances."

The Guide refers to the English Admiralty and Commercial Courts Guide as updated from time to time, and the CPR refers to the English Civil Procedure Rules as updated from time to time.

101. It is, therefore, permissible to refer to English law to determine the nature of the Court's inherent jurisdiction, and, in particular, to the following commentary on inherent jurisdiction in the 2010 White Book on English Civil Procedure, Volume 2, at page 2322:

"Inherent jurisdiction of High Court

102. The question now becomes whether the established jurisdiction to stay proceedings where the subject-matter of those proceedings is covered by an arbitration agreement has been eliminated by legislation.

103. The Court's jurisdiction to stay proceedings brought in breach of an agreement to arbitrate in the DIFC is of course regulated by legislation, namely art 13 of the DIFC Arbitration Law. But that is not in issue. What is in issue is whether art 7, which states that art 13 does not apply to foreign-seated arbitrations, impliedly regulates the court's jurisdiction to grant a stay of proceedings brought in breach of an agreement to arbitrate outside the DIFC.

104. In my respectful view it does not. First, the DIFC Arbitration Law, on a true construction of that law in the overall statutory setting in the DIFC, does not exclude the established jurisdiction to grant stays or injunctions in support of arbitration agreements. In addressing this question it is important to clarify the degree of legislative intervention required before it can be said that a court's inherent jurisdiction has been regulated to such a degree as to negate its application. Several cases are helpful in determining this. The first is the New Zealand High Court case of Carter Holt Harvey v Genesis Power Ltd (No 2) [2006] 3 NZLR 794. Carter Holt involved the New Zealand equivalent of art 10 of the DIFC Arbitration Law, namely art 5 of schedule 1 to the New Zealand Arbitration Act 1996 ("the NZ Act"). Both of those provisions replicate art 5 of the UNCITRAL Model Law which provides that "[i]n matters governed by this Law, no court shall intervene except where so provided in this Law", It should be noted that article 7(2) of the DIFC Arbitration Law mandates that art 10 of the DIFC Arbitration Law does not apply to non-DIFC arbitrations and hence does not apply in this case. However, the Carter Holt case may provide some guidance for determining the degree of regulation required before it can be said that a court's inherent jurisdiction has been impliedly removed by statute.

105. In Carter Holt the High Court was required to determine whether it had jurisdiction to stay an international arbitration. Carter Holt was involved in a contractual dispute under the head co-generation contract with Genesis concerning the construction and operation of a co-generation plant for Carter Holt. The plant was allegedly defective. Rolls Royce had entered into a turnkey construction contract with the predecessor of Genesis and had built the plant. The turnkey contract contained an arbitration clause but the co-generation contract did not. Carter Holt sued Genesis in the High Court for breach of the co-generation contract and Rolls Royce for negligent advice. In 2004, because of slow progress with the High Court proceedings and possible limitation problems, Genesis commenced arbitration proceedings against Rolls Royce pursuant to the arbitration clause in the turnkey contract. Rolls Royce claimed that the arbitral proceedings brought by Genesis should be stayed on the grounds of abuse of process based on the argument that the institution of arbitral proceedings by Genesis of the claim against Rolls Royce amounted to a duplication of the claim by Carter Holt against Rolls Royce in the High Court. Rolls Royce made an interlocutory application to the High Court for directions in relation to its application for an order staying the arbitration. One of the issues that the High Court had to determine on the application was whether it had jurisdiction to grant a stay.

106. Genesis argued that the Court's power to stay arbitral proceedings was a matter governed by schedule 1 of the NZ Act, as art 19(2) of schedule 1 to the Act empowered an arbitral tribunal to conduct the proceedings in a manner it considered appropriate, and, by implication, to stay arbitral proceedings. The Court rejected this argument, holding that an implication arising out of a general power to conduct proceedings in an appropriate manner was insufficient to establish that the staying of arbitral proceedings was governed by schedule 1 to the Act. Randerson J commented, "[t]o 'govern' a matter implies the existence in the First Schedule of a defined power to regulate and control a specified matter." The Court's inherent jurisdiction to stay proceedings was thus unaffected. In reaching this conclusion, the Court examined the drafting history of the Model Law. Randerson J concluded at paragraph 41 that the Model Law "does not purport to be a comprehensive code prescribing definitively the circumstances in which a court may intervene in the arbitral process [...] The prohibition against intervention by the court does not apply in relation to matters not governed by the Schedule."¹⁴ He noted that this position was consistent with the UNCITRAL Secretariat's seventh note of 25 March 1985 on the Model Law, recorded in Holtzmann and Neuhaus' A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer Law and Taxation Publishers, 1994) at 228-229.

107. A similar conclusion as to the general or inherent jurisdiction surviving after the passing of an arbitration law was reached recently by the Hong Kong High Court in Lin Ming v Chen Shu Quan [2012] HKCFI 328, HCA 1900/2011. The Court in that case was presented with parallel applications to stay the court proceedings and to order an anti-arbitration injunction. Although it granted the stay and rejected the injunction application, the Judge was "content to assume" that the Court retained its general jurisdiction to grant an anti-arbitration injunction found in s 21L of the High Court Ordinance (Cap 4). Section 21L is a general power which provides;

"(1) The Court of First Instance may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the Court of First Instance to be just or convenient to do so.

(2) Any such order may be made either unconditionally or on such terms and conditions as the Court thinks just."

108. Section 12 of the Arbitration Ordinance codified art 5 of the Model Law (that the Court could not intervene, except as provided in the law) and s 20 stated that a Court before which an action is brought in contravention of a valid arbitration agreement must refer the parties to arbitration (i.e. must stay the court proceedings), The Arbitration Ordinance did not explicitly address anti-arbitration injunctions. The Court was unconvinced that the combination of ss 12 and 20 were sufficient to oust its jurisdiction to grant injunctive relief under the Hong Kong High Court Ordinance, although it refrained from making a final ruling on the matter as it was not necessary.

109. EM Fans Ltd v NMB (UK) Ltd [1987] 1 WLR 1110, cited by Sir David Steel in Injazat, suggests a similarly high threshold must be met for it to be said that legislation has regulated a Court's inherent jurisdiction. In that case, the very detailed stay provisions (the equivalent to art 13 of the DIFC Arbitration Law) applied to all arbitrations regardless of where they were seated. The English Court of Appeal held that staying proceedings brought in breach an arbitration agreement was thus the subject of "detailed and precise Parliamentary intervention", so the Court could not exercise its inherent jurisdiction if the conditions for the exercise of the statutory power were not met. In my view that case is distinguishable because of the clear intention there to "cover the field".

110. To adopt language from the above three cases, the DIFC Arbitration Law does not contain a "defined power to regulate and control" or a "detailed and precise Parliamentary intervention" as to the staying of proceedings brought in breach of non-DIFC seated arbitration agreements. Instead, art 7 merely fails to provide that the art 13 mandatory stay provision applies, essentially leaving the Act silent on the subject of the granting of stays for non-DIFC seated arbitration agreements. Moreover, as already noted, pursuant to art 7, art 10 — which, as discussed, provides that in matters governed by the DIFC Arbitration Law, no Court may intervene except as authorised by that Law — does not apply to non-DIFC seated arbitrations. In my view, it takes more than an implication drawn from silence to demonstrate a legislative intention to remove the Court's inherent jurisdiction and statutory powers to grant a stay.

111. Indeed, the Court considers that it is equally open to conclude that silence on the matter evinces an intent not to limit the Court's inherent jurisdiction to grant stays, but to supplement that jurisdiction with the three provisions which art 7 expressly states shall apply to foreign seated arbitrations. The first of these provisions, art 15 (interim measures) is of obvious practical relevance where there is litigation in the DIFC Courts involving foreign-seated arbitrations. There have been many occasions where common law courts have issued interim measures in support of foreign-seated arbitrations.¹⁵ In other words, it would be helpful to make clear that the DIFC courts possesses specific jurisdiction to order interim measures to support the implementation of the foreign arbitration agreement.¹⁶ As to art 14 (confidentiality), which art 7 also states shall apply to foreign-seated arbitrations, its availability would ensure that the confidentiality of arbitral proceedings would not be lost when a foreign arbitration matter came before the DIFC Courts. As to Part 4 (recognition and enforcement of foreign awards) it was doubtless important to make it clear that that the Court had jurisdiction to enforce foreign arbitral awards so as to be able to comply with the New York Convention obligations of the United Arab Emirates .

112. The second reason that arts 7 and 13 do not extinguish the court's inherent jurisdiction to stay proceedings is that a finding that the DIFC Courts has jurisdiction to stay proceedings brought in breach of a non-DIFC arbitration agreement does not deprive arts 7 and 13 of effect. The purpose of arts 7 and 13 is to render it mandatory for the Court to stay proceedings where those proceedings are the subject of a valid agreement to arbitrate in the DIFC and none of the art 13 exceptions are met (i.e. the agreement is not null and void, inoperative, or incapable of being performed). The Court may no longer, as when exercising its inherent jurisdiction, refuse to grant a stay on discretionary grounds. In contrast, where proceedings which are the subject of a valid agreement to arbitrate outside of the DIFC are brought before the DIFC Courts, the Court may stay those proceedings, but need not do so.

113. The Court in Injazat acknowledged the possibility of mandatory stays for DIFC arbitrations and discretionary stays for non-DIFC arbitrations, but concluded that if this were intended to be the case, the DIFC Arbitration Law would have expressly said so. With the greatest of respect, this Court cannot adopt that reasoning. The DIFC Arbitration Laws of 2004 and 2008 were both enacted after the laws granting general powers to order stays, i.e. art 33 of the DIFC Courts Law No 10 of 2004 and the RDC (referred to above at paragraphs 97-98). If the DIFC Arbitration laws were to restrict these general powers, they would have said so explicitly. It is trite law that "[u]nless two Acts are so plainly repugnant to each other, that effect cannot be given to both at the same time, a repeal will not be implied": Kutner v Phillips [1891] 2 QB 267 at 272 per Smith J. The analysis at paragraph 112 above provides an interpretation which allows both the DIFC Arbitration Law and the earlier general stay provisions to take effect without contradicting one another.

114. The third reason for finding that this Court retains jurisdiction to stay proceedings is that the Tipco case relied upon by the Claimant is clearly distinguishable from the present facts. The Claimant gave Tipco as an example of a statute being silent as to whether its provisions applied to foreign arbitrations, and a court drawing from that an inference that the provisions did not in fact apply to foreign arbitrations. It is correct that here, as in Tipco, the fact that art 7(2) states which provisions apply to domestic arbitrations means that the provisions on which art 7(2) is silent do not apply to domestic arbitrations. The difference between Tipco and the present is that in Malaysia the High Court apparently does not possess inherent jurisdiction. Under art 121(1) of the Federal Constitution, the Malaysian High Court "shall have jurisdiction and powers as may be conferred by or under federal law." One such federal law, as the judge in Tipco pointed out, is the Arbitration Act 2005 (Malaysia). That Act did not provide the Court with the power to grant injunctive relief in respect of arbitrations seated outside Malaysia. Since the High Court could only receive its powers from statute, it could not exercise any inherent jurisdiction to grant statutory relief. Here, as explained above, the DIFC Courts does clearly have inherent and statutory powers to stay proceedings, and is free to exercise them.

115. The fourth reason supporting the retention of the jurisdiction to stay lies in the fact that this Court would undoubtedly have the power to award damages to the First Defendant for loss arising from the Claimant's breach of a valid arbitration agreement: Doleman & Sons v Ossett Corp [1912] 3 KB 257 (EWCA) at 267 — 268 and Mantovani v Carapelli SpA [1980] 1 Lloyd's Rep 375 (EWCA). Arbitration agreements are enforceable in the same way as other contracts, meaning a breach of an arbitration agreement may give rise to an award of damages. If loss cannot be proved, costs may be awarded by the court against the party who has brought proceedings in breach of the agreement. In Mantovini, one of the parties to a London arbitration took various proceedings in Italy to obtain security for the claim. The Court awarded damages of £50 000, which reflected the cost to which the claimant had been put in defending the Italian proceedings. It will be no defence to a claim for damages to assert that the infringing court proceedings were taken in the bona fide belief that the arbitration clause was, for some reason, void or inoperative. If on the true construction of the arbitration clause it is found to be valid and binding, there will be no immunity from liability for damages: See A Briggs Agreements on Jurisdiction and Choice of Law (OUP, 2008) at paragraphs 12.52-12.58. It would be surprising, to say the least, if this Court recognised the prima facie validity and scope of the arbitration agreement (as it has done above), then (on the application of the First Defendant) awarded the First Defendant damages for a breach of contract that was occasioned by the Court's own inability to stay the proceedings and prevent the breach at the outset.

116. The fifth reason is that an interpretation of the DIFC Arbitration Law which prohibited the DIFC Courts from staying court proceedings brought in breach of non-DIFC arbitration agreements would thwart the promotion of the DIFC as a jurisdiction supportive of arbitration as an expeditious and cost effective dispute resolution process. When the DIFC issued consultation papers in February 2008 concerning what became the 2008 Arbitration Law, the Chief Legal Officer of the DIFC made the following announcement:

"The Dubai International Financial Centre (DIFC) today issued consultation papers to seek comment on a new Arbitration Law, which replaces the existing arbitration law. This proposed Law, which contains a significant number of enhancements, is designed to accommodate and facilitate the set-up of the DIFC's Arbitration Centre.

117. As the Defendants point out, interpreting the DIFC Arbitration Law as removing the jurisdiction to stay would also lead to the anomalous position that the arbitration law enacted after the creation of the DIFC and its Court would be arguably more restrictive than the original UAE Code of Civil Procedure. It cannot have been the intention of the legislature to create a Financial Free Zone where agreements to arbitrate, including those with a foreign seat, would be more difficult to enforce than in greater Dubai. Nor can the legislature have intended to allow a party to an arbitration agreement, in breach of contract, to require the DIFC Courts to resolve its dispute, and have the Court be powerless to prevent this abuse of its processes.

The New York Convention

118. Finally, there is the important consideration of United Arab Emirates compliance with the New York Convention. As noted above, the Defendants argued that a finding that this Court is prevented from staying proceedings brought in breach of a non-DIFC arbitration agreement would put the United Arab Emirates in breach of the New York Convention. While a finding on this issue is not strictly necessary in the light of the Court's conclusions above, it obviously deserves some consideration.

119. The Defendants' position is correct in the case of an arbitration agreement seated outside of the United Arab Emirates (the Member State to the Convention). Justice Steel acknowledged this at paragraph 21 of the Injazat case, stating "[i]t is fair to say that this constitutes on the face of it a failure to implement the terms of the New York Convention to which the Emirates are a party." When interpreting its own jurisdiction, this Court must have regard not only to DIFC law but also to the laws establishing the DIFC. As the Defendants noted, art 5 of Federal Law No 8 of 2004, which created the DIFC, requires that "the Financial Free Zones not do anything which may lead to contravention of any international agreement to which the State ("the UAE") is or shall be a party." Interpreting art 7 of the Arbitration Law as removing the Court's inherent jurisdiction to stay proceedings brought in breach of a non-UAE arbitration agreement would mean that the DIFC, contrary to the express direction of the law establishing it, would be placing the United Arab Emirates in breach of its treaty obligations. This lends further weight to the finding that removing the DIFC Courts's inherent jurisdiction to stay proceedings cannot have been the legislative intention of art 7 of the Arbitration Law.

120. However, while the above is true in relation to arbitration agreements seated outside of the United Arab Emirates, it is noted that there would not be any breach of the New York Convention should the Court decide to refuse a stay of proceedings in this particular case, involving a Dubai-seated arbitration agreement. As noted by the Claimant, art I(1) of the New York Convention reads as follows:

121. As the Defendants observed, art I(1) refers only to arbitral awards, not arbitration agreements. However, the ICCA Guide to the Interpretation of the 1958 New York Convention (International Council for Commercial Arbitration, 2011) relevantly provides at Chapter 11.2 that "[t]he New York Convention does not define its scope of application with respect to arbitration agreements. However, it is well established that the New York Convention does not govern the recognition of domestic arbitration agreements." In other words, art I(1) applies by implication to the recognition of foreign arbitration agreements. A court of a member State must only apply art II(3) where the arbitration agreement provides for a seat in a foreign state, or where the court does not consider the arbitration agreement to be domestic, perhaps due to the nationality or domicile of the parties or foreign elements present in the transaction.

122. The Defendant submitted that the DIFC Courts would consider that an arbitration agreement providing for a seat in Dubai is no less international than an arbitration agreement providing for a seat in London. This Court cannot uphold that submission. Whilst the DIFC and Dubai are separate legal zones, they are part of the same State, namely the United Arab Emirates. Hence, the State of the seat of the arbitration agreement is the United Arab Emirates — the same as the State of the DIFC Courts in which the Defendants seek to have their agreement recognised. The New York Convention does not require a stay. Of course, in Injazat, where the State of the seat was London and thus different from the State of the DIFC Courts in which a stay was sought, refusing to grant a stay did put the United Arab Emirates in breach of the New York Convention.

6. ISSUE THREE: WHETHER THE COURT SHOULD EXERCISE ITS DISCRETION AND STAY THE PRESENT PROCEEDINGS

The Parties' Submissions

125. The First Defendant reiterated its argument thai the court ought to stay the proceedings to give effect to its agreement with the Claimant to refer disputes of the present kind to arbitration.

126. As noted above, the Second Defendant's primary submission was that it had not entered into any contract with the Claimant and therefore no claim against it existed or, alternatively, if it was bound by the Nominated Subcontract, then the arbitration clause should also bind it.

Finding on Issue Three: The Court should exercise its discretion to stay the proceedings against both Defendants

The Court's Discretion

127. The Court notes that if art 13 of the DIFC Arbitration Law had applied, its mandatory language — "shall" — would mean that the Court would have to stay the proceedings against the First Defendant unless any of the art 13 criteria were met, i.e. unless the agreement was null and void, inoperative or incapable of being performed. The Court could not refuse a stay merely because the arbitration agreement resulted in an inconvenient duplication of proceedings. However, as art 13 does not apply here, the Court has a discretion as to whether to grant a stay against none, one or both of the Defendants.

128. While duplication and inefficiency is not desirable in any legal system, these considerations must be balanced against the equally relevant objective of upholding and enforcing valid arbitration agreements.

129. In this case, the appropriate balance requires a stay. This is for two reasons. First, the Claimant and First Defendant are sophisticated commercial parties which have chosen to include a detailed mechanism for dispute resolution in their contract. The Claimant ought to be held to its bargain even if it is having second thoughts. The second reason is that assuming the Court also stays the proceedings against the Second Defendant pending the outcome of any arbitration between the Claimant and the First Defendant, there is a minimal risk of the harms occurring which the Claimant envisages. As to duplication of proceedings, if the Claimant successfully proves its claim against the First Defendant in arbitral proceedings, and the First Defendant is capable of meeting an award (of which there is no evidence to the contrary), the Claimant will not need to repeat the presentation of its case in litigation against the Second Defendant. Furthermore, there seems to be no legal reason why the parties could not agree to join the Second Defendant to any arbitration between the Claimant and the First Defendant, or commence a separate DIAC arbitration which could then be heard concurrently with the arbitration against the First Defendant. This would ensure that all claims are heard in the one forum. As to the risk of double recovery, because of the stay the Claimant will be unable to arbitrate and litigate simultaneously, and there is consequently no risk that an arbitral tribunal and a court will simultaneously find both the First and Second Defendants liable for the full amount. If the Claimant received full satisfaction of its claim in arbitration but nevertheless chose to pursue a claim in litigation, the Court would bar it from double recovery.

130. There is a similarly minimal risk of inconsistent findings. The Claimant has suggested that a tribunal may find that the First Defendant is not liable because it considers that the Second Defendant is liable, and that this Court may find that the Second Defendant is not liable because it considers that the First Defendant is liable. This would obviously leave the Claimant without any recovery, despite both fora agreeing that there was a party at fault. However, it is far from certain that both fora would reach such divergent results. In the HKH case cited by the Claimants, where the Court did foresee a risk of inconsistent findings, this was because there were multiple arbitration agreements with different laws governing each arbitration agreement. Here, if a claim exists against the Second Defendant, the DIFC Courts might find that non-DIFC Dubai law governs the relationship between the Claimant and Second Defendant, just as it does the relationship between the First Defendant and Claimant. Even if it did not, the Court does not perceive the relevant DIFC law and Dubai law to be radically different. In any case, the prospect of the Claimant litigating against the Second Defendant after conducting its arbitration is far from certain.

131. A stay of the proceedings against the First Defendant is therefore appropriate.

Reasons for a stay of proceedings against the Second Defendant

132. As detailed above at paragraphs 97-101, the Court's inherent jurisdiction to stay proceedings is a general one that extends to granting stays to serve the interests of justice and to prevent abuse of the Court's processes. This jurisdiction would therefore permit a stay of the proceedings against the Second Defendant despite there being no evidence of an arbitration agreement in existence between it and the Claimant. The question of course is whether that jurisdiction should be exercised.

133. The English Court of Appeal in Reichhold Norway ASA v Goldman Sachs International [2000] 1 WLR 173 dealt with this very issue. In that case, the Claimant had contracted with a parent company to purchase a subsidiary. Pursuant to an arbitration clause in the sale and purchase agreement, the Claimant subsequently brought an arbitration against the parent company for breach of warranties as to the accuracy of the subsidiary's accounts. The Claimant also brought an action in the English courts in negligent misstatement against the financial advisers which had advised it in connection with the purchase. The financial advisers did not have an arbitration agreement with the Claimant. Nevertheless, they successfully obtained a stay of proceedings pending the outcome of the arbitration against the parent company. In the Commercial Court, Moore-Bick J gave the following reasons, which were upheld on appeal, for granting a stay:

i. It was undesirable that the Claimant pursue proceedings against both the parent company and the financial advisers concurrently in different forums (at 179).

ii. The "natural and most efficient way of pursuing a remedy" was by pursuing a claim against the parent company (at 178),

iii. The claim against the parent company was "relatively straightforward", and the arbitral tribunal could be expected to reach a conclusion "quickly and relatively cheaply" (at 178).

iv. In contrast, the claim against the financial advisers was more complex, and it was not clear why the Claimant would want to pursue this claim in preference to the arbitration (at 181).

v. If the Claimant had a good claim, it could be expected to recover in full against the parent company, and there was no reason to think that the parent company would be unable to honour an award (at 178).

vi. The Court was not preventing the Claimant from pursuing their claim against the financial advisers, but merely requiring it to first pursue its action against the parent company. The Claimant would probably only have to wait a year for the arbitration to be concluded to litigate against the financial advisers. That delay could be adequately compensated by an award of interest on any damages awarded against the financial advisers (at 181).

vii. A claimant's right to determine how and in what order proceedings should be conducted is not unfettered and must be balanced against the interests of justice and the interests of the defendants in meeting the claims against them in as fair and efficient a manner as possible. Courts were increasingly exercising their powers of case management to maintain this balance (at 179).

134. Applying these factors to the similar case at hand suggests that the Court ought to stay the proceedings against the Second Defendant. First, if the proceedings against the First Defendant are stayed but the proceedings against the Second Defendant are permitted to continue, there will be concurrent proceedings in different fora over similar claims. As the Claimant pointed out, this would result in an expensive, time-consuming duplication of proceedings, and risks inconsistent findings. Although the court has not heard evidence on this, there is a possibility that the Second Defendant would attempt to join the First Defendant to the proceedings against it, which would thwart the First Defendant's agreement to have claims against it regarding the Currency House project decided by arbitration.

135. Secondly, as in Reichhotd, the Claimant's primary consideration is surely "that it should receive such compensation as it is entitled to for whatever loss it has suffered as quickly as possible and with the minimum of inconvenience and expense." In this respect, the Claimant's claim against the First Defendant seems relatively straightforward in comparison to its claim against the Second Defendant. There is a very detailed contract between the First Defendant and Claimant setting out the work to be performed and the amount to be paid. In contrast, the Second Defendant disputes the very existence of a contract between itself and the Claimant. Although it is for the court and arbitral tribunal to decide the merits of the Claimant's claims, it is not unreasonable to assume that arbitration against the First Defendant is more likely than litigation against the Second Defendant to promptly provide a favourable result to the Claimant. It is also true that the inclusion of a detailed dispute resolution mechanism in the Nominated Subcontract suggests the Claimant envisaged any disputes arising in connection with the Currency House development being resolved through arbitration with the First Defendant, rather than through litigation with the Second Defendant.

136. Lastly, the Court is not preventing the Claimant from pursuing its claim against the Second Defendant, but simply mandating that the Claimant must first pursue its claim against the First Defendant in arbitration. No evidence has been presented to the Court regarding the likely length of any arbitration, but it would be unusual if it were to take longer than one or two years. As the Court observed in Reichhold, any such delay can be adequately compensated by adding an award of interest to any successful award of damages against the Second Defendant.

Summary

137. This Court therefore orders that the Claimant's proceedings against both the First and Second Defendant be stayed. The Court will reserve to the Claimant the right to apply to have the stay against either Defendant lifted should a change in the circumstances warrant it. The Court also reminds the Defendants that an arbitration agreement, while placing a negative obligation on the parties not to litigate, also imposes a positive obligation to co-operate with all aspects of the arbitral procedure and to comply with the resulting award: Bremer Vulkan Schiffbau and Maschinenfarik v South India Shipping Corp [1981] AC 909 (HL) at 982-983; Paul Wilson & Co AS v Partenreederei Hannah Blumenthal [1983] 1 AC 854 at 857 (HL).

7. SUMMARY OF FINDINGS AND ORDERS OF THE COURT

138. This Court accordingly finds as follows:

(1) Prima facie, the 26 November 2008 Nominated Subcontract incorporates a valid agreement between the Claimant and the First Defendant to arbitrate any dispute in connection with or arising out of that Agreement;

(2) Prima facie, the Claimant's claim in these proceedings is the subject of the aforementioned arbitration agreement;

(3) This Court in its inherent jurisdiction may stay proceedings where the subject of those proceedings is a matter covered by an arbitration agreement which defines the seat of the arbitration as being outside the DIFC; and

(4) In the circumstances of this case the Court finds it appropriate that these proceedings should be stayed against both the First and Second Defendants.

139. This Court accordingly grants the following orders:

8. COSTS

141. Neither party has made submissions as to costs in any degree of detail. Although the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, the Court may make a different order (RDC 38.7) and has a discretion as to whether costs are payable (RDC 38.6). In exercising this discretion, the Court "must have regard to all the circumstances" including "the conduct of the parties" (RDC 38.8(1)), and that conduct includes "whether it was reasonable for a party to raise, pursue or contest a particular allegations or issue" (RDC 38.9(2)).

142. The circumstances of this case are unusual. The Claimant's claim was still in its early stages when the judgment in Injazat was released on 6 March 2012 (the Claimant lodged its claim on 12 January 2012). It may therefore be argued that the Claimant was entitled to continue these proceedings and bring them to a hearing since the state of the law was that laid down in Injazat, namely that the DIFC Courts had no jurisdiction to grant a stay. It may equally be said that this was in the nature of a test case because of the Injazat ruling on jurisdiction which necessitated reconsideration of the same jurisdictional issue in the present proceedings.

143. My provisional conclusion is that in the special circumstances of this case costs should lie where they fall. However, it would be wrong to deprive the Respondents, especially the First Respondent, of the opportunity to seek costs. Therefore, if any party wishes to apply for costs it must file a detailed application within 21 days of the date of this judgment. I am not to be understood as encouraging any such application.

Justice David Williams QC

Date of Issue: 14 October 2012