ARTICLE
9 March 2020

ADGM Courts Issue First Arbitration-Related Judgements

DP
DLA Piper UK LLP

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2019 saw the Abu Dhabi Global Market Court (ADGM Court) publish two arbitration-related judgments, the first published since its launch in December 2018.
United Arab Emirates Litigation, Mediation & Arbitration

2019 saw the Abu Dhabi Global Market Court (ADGM Court) publish two arbitration-related judgments, the first published since its launch in December 2018. The first case related to the validity of an ADGM arbitration agreement (A3 v B3 [2019] ADGMCFI 0004) and the second related to the recognition and enforcement of a New York Convention award in the ADGM (and included an insight into the court’s approach to the “conduit jurisdiction” question) (A4 v B4 [2019] ADGMCFI 0007).

In this briefing, we have summarised these cases and provided our thoughts on the issues which they raise in these early days of the ADGM Court, as it sets out its stall as an attractive arbitration and court jurisdiction within the region.

A3 v B3

This case involved a dispute arising from a lease. The claimant sought a declaration that the lease contained a binding arbitration agreement which provided for arbitration in the ADGM Arbitration Centre under the ICC Rules.

The lease (which provided for ADCCAC arbitration seated in onshore Abu Dhabi) foreshadowed that the ADGM might establish an arbitration centre in the future, and the parties agreed that, should such a centre open, one party would be entitled to notify the other that the arbitration provisions set out in the agreement would be replaced by reasonable alternative provisions providing for jurisdiction by the newly established centre within the ADGM. A3 had served such a notice, providing for ICC arbitration seated in the ADGM, and had requested a signed acceptance (but received no response) from B3.

The court considered the following questions:

  • What constitutes an arbitration agreement

  • Andrew Smith J confirmed that an arbitration agreement can be valid without expressly identifying the disputes that it covers and a simple reference to arbitration was sufficient for an arbitration agreement to have legal effect.

  • Arbitration options

  • Smith J could see nothing objectionable in principle to the unilateral nature of the option to amend the arbitration provision in the lease, especially since the notion of a requirement for mutuality in arbitration agreements had long since been rejected by the English Court of Appeal in Pittalis v Sherefettin [1988] 2 All ER 227.

  • Is the ADGM Arbitration Centre an “arbitration centre”?
  • Smith J concluded that the ADGM Arbitration Centre, which opened on 17 October 2018, was an arbitration centre and had opened with the ICC operating a representative office there. It therefore satisfied the requirements of the lease which triggered the right to alter the arbitration clause.

Conclusion

The judgment of the ADGM Court in this case is consistent with English law principles and precedents as to what constitutes an arbitration agreement and the validity of an option to arbitrate.

The case serves as a useful reminder that arbitration clauses should not generally be overly complicated or protracted. One question which may arise in due course, if any future award must be enforced in the onshore UAE courts, is whether those courts respect the ADGM court’s decision on these points or takes issue with (a) the unilateral option itself or (b) whether the alteration of the clause constitutes a valid arbitration agreement and replaces the original agreement to arbitrate under the ADCCAC Rules.

A4 v B4

The ADGM Court considered an application for the recognition and enforcement of a foreign arbitral award issued in an LCIA arbitration seated in England. There was no evidence that the award debtor had any assets within the ADGM and both parties were incorporated in “onshore” Abu Dhabi.

The award debtor failed to take any part in the ADGM Court proceedings and the application was therefore unopposed. The court found no grounds for refusing the recognition and enforcement of the award under Section 57 of the ADGM Arbitration Regulations (“Arbitration Regulations”) and therefore made the order sought.

The following matters were considered by Andrew Smith J in this case:

Jurisdiction

An arbitral award from an arbitration seated in London is a “New York Convention Award” under Part 4 of the ADGM Arbitration Regulations. Section 56 of the Arbitration Regulations provides that a New York Convention Award must be recognised and enforced within the ADGM as if it were a judgment of the ADGM Courts. The ADGM Court could find no grounds for refusing recognition or enforcement under Section 57 of the Arbitration Regulations. However, this was largely due to the fact that the award debtor made no appearance in court to oppose the application; it appears that there may have been grounds for refusing to recognise the award on the grounds of the invalidity of the arbitration agreement but only if proof had been furnished by the award debtor. Since the award debtor made no appearance, the ADGM Court was not entitled to entertain any question concerning the validity of the arbitration agreements.

Public Policy

Section 57(1) of the Arbitration Regulations provides that the ADGM Court may refuse recognition or enforcement of an arbitral award if recognition or enforcement would be contrary to the public policy of the UAE. The ADGM Court found that there was no reason, on the facts of this case, to refuse the claim on the grounds of public policy. The burden of making good the basis for any such objection lay with the award debtor.

ADGM a “Conduit Jurisdiction”?

As part of his analysis of public policy considerations, Smith J considered the question of whether A4 was seeking a recognition and enforcement order from the Court not because it intended to enforce the award there, but in reality intended to do so elsewhere in the UAE, in order to avoid the “onshore” UAE courts examining whether the award should be recognised and enforced in their jurisdictions. However, he concluded that, while it was desirable that the different courts of the UAE work together harmoniously, here, the award debtor had not challenged the recognition and enforcement, and there was no evidence that it did not, or would not in the future, have assets in the ADGM against which to enforce the award.

Conclusion

Smith J found no grounds for refusing recognition and enforcement of the claim and the claimant was therefore entitled to have the award recognised and enforced.

The case highlights the importance of award debtors appearing in court to challenge recognition and enforcement, if there are potentially valid grounds for doing so.

More broadly, whilst undoubtedly correct, the judgment (understandably) leaves unanswered the following questions:

  1. Should the ADGM Courts always permit foreign awards and judgments which are recognised and enforced by the ADGM Courts to be onshored in Abu Dhabi and, if not, how and on what basis should such permission be denied?; and
  2. If they do permit this onshoring:
    1. How will the two courts work together to ensure that they do indeed work together harmoniously when faced with these issues?; and
    2. what will the onshore Abu Dhabi courts’ reaction to such conduit awards/judgments be?

Ultimately, the success of the ADGM Courts as an internationally recognised offshore jurisdiction in the Middle East may, at least partly, depend on whether it is able to navigate more successfully around the various onshore/offshore issues which will inevitably arise than the DIFC and Dubai Courts have done to date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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