DUBAI: DIFC Court takes expansive view of jurisdiction and seat of arbitration

The so-called “Coffee Shop Contract” is now a reality. Further since the parties executed their contract and transacted in the jurisdiction, reference in the contract to “the courts in Dubai, the UAE” was interpreted to mean the DIFC Courts and to the law of the UAE to mean DIFC Law.

In Gavin v Gaynor, the DIFC Court of First Instance held that a letter indicating that a meeting took place in the DIFC after signature of the material contract about the possibility of carrying out the agreement or a transaction related to the same contract through the DIFC (neither of which occurred) was clear evidence that the transaction between the parties took place, at least in part, within the DIFC, which meant that the parties transacted business in the geographical territory of the DIFC and therefore must be governed by DIFC Laws including being subject to the jurisdiction of the DIFC Courts pursuant to Article 5 of the Judicial Authority Law.

On 20 May 2007 Gaynor entered into an agreement to provide Stored Value Card services to Gavin (“the SVC Agreement”). Clause 13.2 stated that “[t]he validity, construction and interpretation of [the SVC Agreement] and the rights and duties of the parties hereto shall be governed by the internal laws of the UAE”. Clause 13.3 stated that the parties agreed to “submit to the jurisdiction of the courts in Dubai, the UAE”. Clause 13.5 stated that “[a]ny controversy arising out of, or relating to this [SVC] Agreement, or the breach thereof … shall be submitted to arbitration per the law of the United Arab Emirates”. [emphasis added]

Disputes arose between the parties leading to proceedings before the Federal District Court for the Central District of California. In June 2015 Gavin filed an Amended Claim Form seeking an order pursuant to DIFC Law No. 1 of 2008, Article 17(3)(b) (the “DIFC Arbitration Law”) appointing an arbitrator under the DIFC-LCIA Arbitration Centre Rules. At the same time it sought dismissal of the California proceedings. In September 2015 the District Court made an order compelling arbitration of the claims in California on the grounds that a District Court may only order arbitration within its own district. Gavin indicated an intention to appeal to the United States Court of Appeals for the Ninth Circuit.

Not only did the DIFC Court of First Instance hold that it had jurisdiction over the claim but also that, while Clause 13.5 of the SVC Agreement did not expressly nominate a Seat of Arbitration, under the DIFC Arbitration Law the Seat of Arbitration will be determined by reference to an implied choice, giving consideration to the Seat with the most connection with the Agreement, the parties, the transaction or any other relevant consideration. In the circumstances of the present case, the SVC Agreement contained an implied agreement that the Seat of Arbitration was to be Dubai (DIFC) and not the US or any other place. The references to Dubai, UAE Law as the applicable substantive and procedural law, and reference to the Dubai, UAE Courts, which the Court interpreted to be respectively references to DIFC Laws and DIFC Courts, gave ample support to an implied choice of the Seat of Arbitration in Dubai (DIFC).

Notwithstanding that the DIFC Court of First Instance found both that it had jurisdiction and that the DIFC was the Seat of Arbitration, it nevertheless stayed Gavin’s application pending the decision of the US Court of Appeals for the Ninth Circuit on whether the arbitration between the parties in California, USA should proceed, as an abuse of process given the possibility of two different forums adjudicating the claims separately leading to extensive and duplicative costs and the possibility of conflicting decisions regarding the same facts.

Gavin v Gaynor, CFI 017/2015, Judgment 3 April 2015

Gavin was represented by Jade Laktineh Esq. of Latham & Watkins LLP

Gaynor was represented by Michael Black QC of XXIV Old Buildings, instructed by Wendy J. Miles QC of Boies, Schiller & Flexner LLP, London and Nigel Hartridge of CVML, Dubai

For further information on this case, please contact Michael Black QC at mbqc@xxiv.co.uk.