DIFC confirms inherent jurisdiction to stay proceedings in favour of a foreign arbitration agreement

XXIV ARBITRATION AND COMMERCIAL LITIGATION GROUP

International Electromechanical Services Co LLC v Al Fattan Engineering & Anor
CFI 004/2012

The DIFC Court has handed down judgment in the important case of International Electromechanical Services Co LLC v Al Fattan Engineering and another (CFI 004/2012) in which Justice David Williams QC considered whether the Court has an inherent jurisdiction to stay proceedings in support of a non-DIFC arbitration agreement.

In his carefully reasoned judgment, Justice Williams declined to follow the previous ruling of Justice Steele in Injazat Capital Limited and Anor v Denton Wilde Sapte & Co (CFI 019/2010) where it had been held that the DIFC Court had no power to order a stay in support of a non-DIFC arbitration agreement.

Justice Williams agreed with Justice Steele’s conclusion that article 13 of the DIFC Arbitration Law did not apply to non-DIFC arbitration agreements but he went on to hold that the Court did have an inherent jurisdiction to stay proceedings in favour of a foreign arbitration agreement (including, for this purpose, a non-DIFC Dubai arbitration agreement) on the following grounds:

• The Court had a wide inherent jurisdiction to stay proceedings which had been codified in various statutory provisions as well as the provisions of the DIFC Court Rules.
• Whilst the DIFC Arbitration Law governed the position with respect to DIFC arbitration agreements, that Law did not, on its proper interpretation, have the effect of excluding the Court’s inherent jurisdiction to stay proceedings in the case of non-DIFC arbitration agreements. If the legislature had intended to achieve that result it would have done so expressly and in clear terms which it had not done.
• Moreover, the fact that the Court retained an inherent jurisdiction to stay proceedings in favour of non-DIFC arbitration agreements would not deprive the DIFC Arbitration Law of its intended effect. That Law was intended to require a mandatory stay (as opposed to a discretionary one) where there was a DIFC arbitration agreement. The continued existence of a discretion to order a stay under the Court’s inherent jurisdiction in the case of non-DIFC arbitration agreements was not inconsistent with the purpose of the DIFC Arbitration Law.
• The Malaysian authority referred to by Justice Steele in support of his conclusion, Aras Jalinan SDN BHD v Tipco Asphalt Public Company Ltd [2008] 5 CLJ 654, was distinguishable because the Malaysian High Court apparently does not possess any inherent jurisdiction.
• The Court clearly had a power to award damages for breach of an arbitration agreement (even a non-DIFC Arbitration agreement) and it would be surprising in those circumstances if the Court could award damages in such circumstances but could not order a stay of the proceedings.
• An interpretation of the DIFC arbitration Law which prohibited the DIFC Court from staying court proceedings brought in breach of a non-DIFC arbitration agreement would thwart the promotion of the DIFC as a jurisdiction supportive of arbitration as an expeditious and cost effective dispute resolution process.
• If the decision in the Injazat case was correct then the DIFC Arbitration Law would arguably be more restrictive than the original UAE Code of Civil Procedure. It could not have been the intention of the legislature when it created the DIFC as a Financial Free Zone that agreements to arbitrate outside of the jurisdiction would become more difficult to enforce.
• If the DIFC Arbitration Law were to be interpreted as having abolished the Court’s inherent jurisdiction to order a stay then this could have the effect of putting the UAE in breach of its international law obligations under the New York Convention where the seat of the arbitration was outside of the UAE. The DIFC Arbitration Law should be interpreted, in so far as it was possible to do so, in a way which was consistent with the UAE’s obligations under international law and this provided a compelling reason for holding that the Court’s inherent jurisdiction to order a stay had been preserved.

Having determined that the Court did have an inherent jurisdiction to order a stay of the proceedings in support of the non-DIFC arbitration agreement, Justice Williams then held that it was appropriate to exercise his discretion in favour of ordering a stay of the proceedings.

Justice Williams’ decision is a very positive development in the jurisprudence of the DIFC as it demonstrates an extremely welcome and wholly sensible approach to the question of how the Court will approach claims brought in breach of agreements to arbitrate. This is hugely beneficial for certainty in the administration of justice and provides peace of mind for those who carry on business in the DIFC that, as a general rule, parties will be bound by their prior agreements to resolve disputes by their chosen method of arbitration.

Daniel Warents
26 October 201