UAE courts uphold Decree 34 and confirm that DIFC-LCIA arbitration agreements remain valid

In three recent decisions, the UAE courts have considered the practical implications of Decree No. 34 of 2021 (the "Decree") and confirmed that DIFC-LCIA arbitration agreements are valid and binding, contrary to the position that has been reached by courts in foreign jurisdictions.

In this note, we consider the reasons given for the decisions reached in the UAE courts, and why courts in other jurisdictions may have reached a different conclusion.

The specific UAE court decisions are:

• DIFC Court of First Instance: Narciso v Nash (ARB 009/2024)
• Abu Dhabi Court of First Instance Case No. 1046/2023
• Abu Dhabi Court of Appeal Case No. 449/2024

Recent foreign consideration of Decree No. 34 include:

• United States District Court for the Eastern District of Louisiana: Baker Hughes Saudi Arabia Co. v Dynamic Indus., No. 2:23-cv-1396 (E.D. La. Nov. 6, 2023)
• United States Court of Appeals: Baker Hughes Saudi Arabia Co. v Dynamic Indus., No. 23-30827 (5th Cir. 2025)
• Singapore High Court: DFL v DFM [2024] SGHC 71

Background

Issued in September 2021, the Decree had the effect of dissolving the Dubai International Financial Centre Arbitration Institute, the DIFC entity that operated the DIFC-LCIA arbitration centre ("DIFC-LCIA") in a joint venture arrangement with the London Court of International Arbitration, and the Emirates Maritime Arbitration Centre, and transferred the assets, rights and obligations of those centres to the Dubai International Arbitration Centre ("DIAC").

Article 6 of the Decree provided that all DIFC-LCIA arbitration agreements concluded by the effective date were deemed valid, although DIAC would assume responsibility for administering disputes arising out of those agreements, unless the parties agreed otherwise.

It is the enforceability of this element of the Decree that has caused uncertainty: whether the parties' choice of DIFC-LCIA arbitration could be substituted by DIAC arbitration.

DIFC Court's Decision

Narciso v Nash involved an application for an anti-suit injunction in a case where the arbitration agreement referred to the DIFC-LCIA.  The Claimant applied to the DIFC Court for the injunction to prevent the Defendant from a continuing with an action commenced in the Sharjah Court.  An interim injunction was granted, and the Defendant then applied to challenge DIFC Court's jurisdiction and discharge the injunction.

Of relevance to the effect of the Decree, the Defendant argued in its application that:

• the DIFC Court did not have jurisdiction because the governing law of the arbitration agreement was UAE law, not DIFC law, and neither of the parties was established in the DIFC; and
• the arbitration agreement was invalid because the DIFC-LCIA no longer existed, and since arbitration is a matter of consent, a party should not be forced to arbitrate in a forum which it did not choose;

In considering the Defendant's application, Justice Michael Black KC held that:

• the DIFC Court had jurisdiction because the parties had chosen the DIFC as the seat of the arbitration, and therefore the DIFC Courts were the supervisory courts;
• while the contract between the parties was subject to UAE law, this did not change the fact that the DIFC Courts had supervisory jurisdiction;
• since the Decree includes specific provisions in relation to the DIFC, in accordance with Article 22(b) of Dubai Law No. 5 of 2021, it formed part of DIFC law and was therefore binding on the DIFC Court;
• Decree 34 does not purport to rewrite the terms of the arbitration agreement, but rather states that all agreements including DIFC-LCIA arbitration concluded by the Effective Date of the Decree were deemed valid, albeit that DIAC would replace the DIFC-LCIA;
• Decree 34 preserves the parties' bargain to arbitrate.  If the parties had not wished for their arbitration to have been administered by DIAC, it was open to the parties to have agreed that another institution was appointed in its place.

The DIFC Court therefore upheld the Decree and in doing so provided clarity on the enforceability of arbitration agreements that referred to the DIFC-LCIA.  Essentially, the parties' agreement to arbitrate will be respected, and confirms that this is achieved by providing them with an alternative to the DIFC-LCIA, unless they agree otherwise.

Abu Dhabi Court's Decision

The claimant had commenced a claim in the Abu Dhabi Court of First Instance for sums it claimed it was owed by the defendant pursuant to a contract for the supply of medical equipment.  The defendant argued that the Court of First Instance did not have jurisdiction as the contract included a DIFC-LCIA arbitration agreement.

The Court of First Instance agreed with the defendant.  The claimant appealed to the Court of Appeal arguing that as a result of the Decree, an arbitration agreement that referred to the DIFC-LCIA was no longer enforceable.  However, this argument was rejected, and the Court of Appeal upheld the Court of First Instance's judgment.  In doing so, the Court of Appeal:

• acknowledged that the Decree made DIAC the legal successor to the DIFC-LCIA;
• held that the abolishment of the DIFC-LCIA did not mean that the arbitration agreement was impossible to perform, and the Decree did not invalidate the parties' agreement to arbitrate;
• noted that arbitration rules can be amended, with the rules in force at the time of a dispute potentially not being the same as those in force at the time the parties entered into their arbitration agreement.  However, such amendments did not impact the validity or enforceability of an arbitration agreement.  The Court also noted that the DIFC-LCIA Rules had been amended since the parties entered into their agreement, but the claimant did not raise this as an issue; and
• noted that the New York Convention does not refer to the abolition of an arbitral institution as part of the criteria for determining the validity of an arbitration agreement.

In upholding the Decree, the Abu Dhabi Courts have provided some useful guidance to parties.  First, they provided clarification as to the UAE on-shore courts' approach to the Decree, which otherwise is not technically binding on the courts outside of Dubai.  Second, it demonstrates that the UAE is an increasingly arbitration friendly jurisdiction, which will look to uphold parties' agreements to arbitrate. 

The Singapore High Court Decision

The Singapore High Court considered the Decree as part of an application to enforce a provisional award.

The parties had entered into an arbitration agreement that referred to the DIFC-LCIA.  Following the Decree, the claimant commenced DIAC arbitration proceedings, in which it made an application for interim relief.  The application was granted, and the claimant sought to enforce the provisional award against the respondent.  The respondent sought to set aside the order on the basis that the arbitration agreement referred to DIFC-LCIA arbitration, not DIAC.

The Singapore High Court dismissed the application to set aside on the basis that the respondent had participated in the arbitration and had not raised an objection relating to the Decree.  However, the court stated that DIAC arbitration proceedings were not in accordance with the arbitration agreement, which required DIFC-LCIA proceedings, and noted that there were significant differences between the DIFC-LCIA rules and the DIAC rules.

The Louisiana Decision

Baker Hughes concerned a contract under which disputes were to be referred to arbitration under the DIFC-LCIA Rules, seated in the DIFC.  However, the plaintiff commenced claims before the Louisiana Eastern District Court.  As a result, the defendants asked the court to dismiss the claims on the basis of a lack of jurisdiction, arguing that, pursuant to the Decree, the plaintiff should arbitrate under the DIAC Rules.

The court dismissed the challenge, refusing to compel the parties to arbitrate on the basis that the Dubai government and the US courts do not have the power to unilaterally change the arbitration forum, and therefore where the agreed forum is no longer available, it could not compel the plaintiff to arbitrate.

However, the decision has now been appealed, and on 27 January 2025, the US Court of Appeals overturned the Louisiana court's ruling.  In doing so, the Court of Appeals stated that:

• while the contract stipulated a set of rules, being the DIFC-LCIA rules, it did not stipulate that the DIFC-LCIA was the forum for the arbitration.  Moreover, the DIFC-LCIA was not the only forum contemplated by the contract, which also provided the defendant (Dynamic) with a unilateral right to elect to arbitrate in Saudi Arabia;
• even assuming that the parties did implicitly designate the DIFC-LCIA as a forum, it is not an integral part of the contract.  Rather, the dominant purpose of the clause was an agreement to arbitrate generally, and unless it is unambiguously stated to the contrary, the designated forum can be severed from the rest of the contract;
• even though it did not need to decide whether DIFC-LCIA forum remained available (as the clause designating the DIFC-LCIA is not integral to the contract), DIAC was "functionally identical" to the DIFC-LCIA, including that DIAC's rules mirror those of the DIFC-LCIA and DAI transferred to DIAC its lists of arbitrators.  As such, the "the new regime arguably permits arbitration consistent with the old regime".

On that basis, the Court of Appeals found that the parties' primary intent was to arbitrate generally, and it therefore sent the case back to the Louisiana Eastern District Court and asked it to consider whether the DIFC-LCIA rules can be applied by any other forum that may be available, including the LCIA, DIAC, or a forum in Saudi Arabia.  If the court considers that they can be, they are instructed to compel arbitration in that forum.  Alternatively, if that is not possible, to compel arbitration in Saudi Arabia in accordance with Dynamic's option.

Comment

The decisions of the DIFC court and Abu Dhabi courts are welcome confirmations that the courts of the UAE are taking a pro-arbitration approach and will look to give effect to parties' intention to arbitrate.  They also confirm the enforceability of the Decree, and particularly Article 6, across the UAE.  Parties with DIFC-LCIA arbitration clauses with seats in the UAE can therefore take comfort that the UAE courts will uphold those agreements, albeit with DIAC assuming responsibility for administering the arbitration.

However, the international position remains more unclear.  Indeed, while the Decree has been given effect in the UAE, it is not binding on the courts of other nations.  As such, there is no certainty that courts will uphold DIFC-LCIA arbitration agreements or DIAC arbitrations commenced pursuant to them. 

While the decision of the US Court of Appeals is welcome in that it suggests that the abolition of an arbitral institution does not invalidate the parties' intention to arbitrate, parties nevertheless should look to amend DIFC-LCIA agreements to specifically refer to DIAC or another arbitral institute in order to avoid uncertainty and potentially costly and time-consuming jurisdiction challenges.