Dubai court rules it has jurisdiction to hear dispute despite existence of arbitration clause

The arbitration scene in Dubai has recently faced a small setback with a decision of the Court of Cassation (the highest court in Dubai) in case no. 290/2021.

In the judgment issued in April 2021, the court held that it had the jurisdiction to hear a dispute between an employer and consultant despite the contract between them containing a valid arbitration agreement as (a) the consultant was a joint defendant with the contractor (who did not have an arbitration clause in their contract) and (b) having the ‘closely related’ disputes heard separately would be against the interests of justice.

Court judgment and lead-up

A renowned developer had retained a consultant to provide basic engineering consultancy services and supervision of works carried out by a contractor in relation to a large construction project in Dubai. Various issues arose in relation to the performance of the works, and breaches of the contract were alleged against the contractor. Failure to supervise the works was alleged against the consultant. The contract between the developer and consultant had a valid arbitration clause, but the contract between the developer and the contractor did not.

A claim was brought by the developer in the Dubai Court of First Instance (CFI) where they requested that both the consultant and contractor be held jointly and severally liable for payment of AED 9.5 million. The CFI dismissed the claim against the consultant due to the existence of the arbitration clause.

The developer appealed the decision to the Court of Appeal (COA) who overturned the CFI’s decision and returned the case to them for decision.

The consultant then appealed to the Court of Cassation (COC), the subject of this judgment (290/2021). It argued that its own agreement with the developer was independent and separate to the agreement that the developer had with the contractor and that there was no connection between the obligations of the two. Accordingly, it contended that the disputes should be decided as two separate claims – with its own claims subject to the arbitration clause in the agreement.

The COC disagreed and upheld the COA’s decision. It found that even though the developer had contracted with the consultant and contractor separately and an arbitration clause was only contained in one of those contracts, the subject of the two contracts and the claims were ‘closely related’. Hence, the ‘proper conduct of justice’ required that the disputes should not be divided. The court stated that if it were found the contractor had done no wrong, it would follow that the consultant had indeed done no wrong, and so the proper conduct of justice required that there be no conflict in the rulings and the disputes must be considered together. As the contractor’s contract did not contain an arbitration clause, the jurisdiction to decide the entire dispute was within the jurisdiction of the court, not arbitration.

Comment

Dubai does not operate on a system of precedent like the UK does. Nonetheless, this case is particularly interesting as the situation of developers having different dispute resolution procedures in contracts with consultants, contractors and other third parties is not uncommon. So there may be circumstances where one party may find itself in court despite having an arbitration agreement in its contract – especially where a dispute is brought against numerous parties and one of the contracts is not subject to arbitration.

Employers could potentially be using this apparent choice to their advantage. Consultants/contractors with arbitration clauses in their contracts who are brought into disputes with other third parties on the project should be made aware that their arbitration clauses may not be upheld if a court finds it is in the interests of justice to hear the dispute against all parties together. It is also unclear whether a court would treat the situation similarly if an arbitration between the developer and consultant had already been commenced prior to court proceedings – so timing of disputes could also be relevant.

Read other items in Construction and Engineering Brief - October 2021