DIFC Court provides further guidance on anti-suit injunctions in respect of "on-shore" Dubai Court Proceedings

Summary

Nearly two years after the DIFC Court granted an anti-suit injunction in Multiplex Constructions LLC v Elemec Electromechanical Contracting LLC (which we previously discussed here), it is an established principle that the DIFC Courts will grant anti-suit injunctions where the parties are bound by an arbitration agreement and the seat of the arbitration is the DIFC.

The Multiplex case followed the Brookfield Multiplex v DIFC Investments case in 2016 (which we considered here), where the Court first confirmed that it had the jurisdiction to grant such injunctions.

In the recent case Ledger v Leeor [2022] DIFC ARB-016, the DIFC Court explored a number of limits on the application of that power, providing useful guidance on the test to be applied when seeking anti-suit injunctions where the seat of the arbitration is in contention. It discussed the circumstances in which the DIFC Court might grant an anti-suit injunction, even if the DIFC is not the arbitral seat.

The case serves as yet another reminder of the dangers of unclear drafting in arbitration clauses.

Background

A developer (Ledger) and a contractor (Leeor) entered into a contract for the construction of a 123-floor residential building in Dubai worth AED 348,000,000 (the "Contract").

The Contract included the following arbitration provisions in the Conditions of Particular Application:

"Clause 67.3 Arbitration

            Any dispute in respect of which:

• the decision, if any, of the Engineer has not become final and binding pursuant to Sub-Clause 67.1, and
• amicable settlement has not been reached within the period stated in Sub-Clause 67.2 shall be finally settled, under the current Rules of Arbitration and Conciliation of the DIFC-LCIA by an Arbitral Tribunal which shall consist of three members

            …

Clause 67.5 Settlement of Disputes and Arbitration

The law governing the procedure and administration of any arbitration instituted pursuant to Sub-Clause 67.3 shall be the law of United Arab Emirates and of Dubai. The language of the arbitration shall be English and the place of the arbitration shall be Dubai." (emphasis added)

A dispute arose on the project and Leeor requested an amicable settlement meeting, then giving notice of its intention to commence arbitration (as is frequently required by construction contracts). However, Leeor did not commence arbitration. Instead, six months later, it commenced proceedings in the Dubai Court of First Instance, in breach of the above provisions.

Ledger took a number of actions in a bid to prevent the local court action going ahead:

• It directed the matter to the Joint Judicial Committee, as the body that determines jurisdictional issues between the DIFC and Dubai Courts, which did not grant a stay; and
• It raised a jurisdictional challenge with the Dubai Courts, which had not been considered at the time of the judgment.

Neither of these actions succeeded, and the Dubai Court was proceeding to consider the case on its merits. Ledger then applied to the DIFC Court for an anti-suit injunction, arguing that the seat of the arbitration was the DIFC for the following reasons:

Primary Argument

Ledger set out that that the provisions of the Contract only set out the "place" of the arbitration, as a reference to the 'venue', meaning that the Contract was silent on the seat and the supervising court.

The consequence of that silence, it argued, was that the seat defaulted to DIFC because the arbitral body was clearly the DIFC-LCIA, which was abolished in 2021, in Decree 34 of 2021 (the "Decree").

Article 4(b) of the Decree set out that where a seat is not agreed, the DIFC should be considered the correct seat. Following that logic, Ledger argued that the DIFC was the correct seat, applying the Decree to the perceived silence of the Contract.

Secondary argument

In the alternative, it argued that the reference to "Dubai" as the "place" of arbitration was inclusive of the DIFC, with reference to Goel and Others v Credit Suisse (Switzerland) Limited, which established that a "Court of Dubai" includes the DIFC Courts. On that basis, it argued, that the seat was DIFC on a contextual basis.

This argument was given short thrift by the Court, which noted that Goel and Others discussed jurisdiction, of which there can be several, but that this case hinged on the location of the arbitral seat, of which there can only be one. On that basis, that Court held that a reference to "Dubai" cannot simply extend to the DIFC in the same way.

Discussion

Justice Michael Black's judgment made clear that where the parties are bound by an arbitration agreement and the seat is DIFC, and those elements are not in issue, the DIFC Court will grant anti-suit injunctions where required to protect the integrity of arbitral proceedings.

However, where the seat of the arbitration agreement (or indeed the binding nature of the agreement itself) is in issue, then there are a number of tests to be considered:

Justice Black applied the test used in Hayri International Llc v Hazim Telecom Private, itself reiterating the test under English common law: the applicant must show that there was a "high degree of probability" that there was agreement that disputes would be determined by arbitration seated in the DIFC.

Failing that, where it is not established that the DIFC is the arbitral seat, he acknowledged that there are "exceptional cases" where the Court will still grant an anti-suit injunction.

Justice Black also set out that a party will need to satisfy the guidelines set out in American Cyanamid relating to the provision of interim injunctions in general under English law.

Decision

In short, having dispatched Ledger's secondary argument, Justice Black determined that he did not agree that there was a "high degree of probability" that the seat of the arbitration was agreed to be the DIFC, meaning Ledger failed on the test set out in Hayri International.

Justice Black was of the view that Clause 67.5 was a bespoke provision that appeared to contain all the key information required for an arbitration agreement; namely: the law governing the procedure, the language and the seat. He did not accept the primary argument that "place" means "venue", noting that the venue of the arbitration is not a key part of an arbitration clause and, in any event, is ordinarily determined by the tribunal and parties together. As such, it was "at least as likely" that the parties had agreed the seat as "Dubai".

On that basis, Ledger failed to meet the limbs of the test and the application was refused.

Comment

This case, like many before it, is a warning to those drafting arbitration agreements that clarity is king.

It is clear that the DIFC Court will consider its jurisdiction in cases where the seat and interpretation of arbitral provisions are in contention, and may intervene with anti-suit injunctions. However, that appears to be balanced with reasonably high thresholds of probability and likelihood.

Justice Black's focus on the 'key elements' of an arbitral clause is an interesting way of breaking down interpretation and assessing the "likelihood" that the parties agreed the relevant seat of an arbitration.

Further, the case also shed some light on the circumstances where the DIFC Court might grant an anti-suit injunction despite the DIFC not being the chosen seat. Brookfield first discussed this; Justice Sir Jeremy Cooke made clear that the jurisdiction of the DIFC Courts over DIFC entities, property or transactions wholly or in part in the DIFC cannot be excluded. The exercise of that jurisdiction will, however, be balanced with respect for the court of the seat of the arbitration.

It can be assumed that such exceptional cases would require clear connections to the DIFC (both to engage the Court's jurisdiction, but also to prompt its intervention). The factors that it might consider are not clear. Justice Sir Jeremey Cooke's judgment in Brookfield referenced the prospect of an injunction being granted where the seized court does not have the ability to do so, but did not expand on the prospect.

Ledger attempted to make such an argument, effectively saying that the DIFC Court should intercede on an exceptional basis as a "life-line" where its jurisdictional arguments in the Dubai Court had not been considered. However, Justice Black determined that the DIFC Court will not intercede simply because another court has not sided with the relevant party. As Justice Black said, there is nothing exceptional about that circumstance, and the procedures of other courts are to be treated with comity and respect.

On appeal, Ledger argued that this case was exceptional due to the "brazen breach" of the arbitration agreement. This argument was not successful and the appeal was dismissed.

On a final note, Justice Black noted that he would consider an appeal on the basis that it might enable the Court to provide more guidance on the interpretation of Decree 34 and the test for anti-suit injunctions where the seat is disputed. However, the appeal was dismissed without such examination.

For more information, please contact Nick Oury, Partner, and Anna Ball, Associate, or your usual Herbert Smith Freehills contact.

The authors would like to thank Dan Kulebiakin for his assistance on this post.