Law of the seat governs arbitration agreement, not contract's governing law: DIFC Court

The Dubai International Financial Centre (DIFC) Court has ruled that the law of the arbitral seat governs the arbitration agreement, even when the main contract is subject to a different governing law. (Oswin Vs Otila)

Justice Sir Jeremy Cooke passed the ruling while addressing a dispute over conflicting clauses in a joint venture arrangement related to a project for the operation of a hazardous waste facility.

"Whereas there was previous debate about the law which governs an arbitration agreement where the governing law of the contract differs from that of the seat of the arbitration, in my judgement it is now clear, both as a matter of common law as well as English statute, that it is the law of the seat which constitutes both the lex curiae (lex arbitri) and the law of the arbitration agreement, absent clear indicia to the contrary. Furthermore, what matters here is whether the DIFC Court does have supervisory jurisdiction and there can be no doubt that the DIFC Court is to have supervisory jurisdiction where “the seat or legal place of arbitration is specified as the DIFC”," the Court said.

The DIFC Court was dealing with a dispute between Oswin (claimant) and Otila and Ondray (defendants) who were joint venture partners in a project for the operation of a hazardous waste facility. Oswin held a 49% stake, while Ondray held 51%. The JVA contained a clause for arbitration under the DIFC-LCIA (now DIAC) Rules, with the DIFC as the seat.

The claimant sought interim relief from the DIFC Court to restrain the defendants from acting unilaterally in the management of the joint venture. On August 29, Justice Cooke granted an injunction to maintain the status quo pending arbitration.

The defendants later applied to set aside the injunction, contending that the DIFC Court lacked jurisdiction because the governing law of the agreements was UAE federal law and thus Abu Dhabi courts had exclusive jurisdiction under the contractual provisions.

Appearing for the claimant, Tariq Khan, Partner and Head of International Arbitration at M&Co. Legal, argued that the JVA was the principal agreement defining the rights and obligations of the parties.

He submitted that the arbitration clause in the JVA was a standalone agreement, and by selecting the DIFC as the seat, the parties had conferred supervisory jurisdiction on the DIFC Courts.

The defendants maintained that the O&M Agreement and other ancillary contracts, which contained Abu Dhabi jurisdiction clauses, governed the relationship and should prevail over the JVA’s arbitration clause.

The DIFC Court rejected the defendants’ jurisdictional objection, reasoning the JVA was “the overarching primary agreement upon which the others are based.”

It added that a clause containing an arbitration agreement in a contract takes effect as an independent agreement with separate existence from the contract in which it is found.

In this case, Clause 26.3 of the JVA provided that "any dispute which is not resolved within thirty (30) days after the service of a Dispute Notice, whether or not a Dispute Meeting has been held, shall be referred to and finally resolved by arbitration under the Arbitration Rules of the DIFC-LCIA Arbitration Centre."

Considering its findings on law, Justice Cooke said,

"The JVA is, self-evidently, the overarching document which gave rise to the Memorandum of Association, the O & M Agreement and the Internet Corporate Loan Agreement. Clause 26.3 of the JVA is an “entire agreement” clause and unless subsequent agreements specifically vary its terms, the JVA provides for dispute resolution in clause 21 and cannot be affected by dispute resolution clauses in the other agreements. Of course, it may very well be that a dispute which arises under one agreement may also constitute a dispute which arises under one of the other agreements for the purposes of the arbitration or jurisdiction clauses therein. However, the only civil proceedings begun thus far, leaving aside the criminal proceedings instituted by the Second Defendant, are the proceedings in the DIFC Court in support of the arbitration which the Claimant has undertaken to commence on expiry of the 30 day period following the giving of the Notice of Dispute."

Consequently, the Court ordered that injunction must continue until the appointed Tribunal can determine the matters in dispute.

The judgment can be read here