Recent Dubai Court of Cassation judgments- Arbitration clauses in Construction contracts
Dispute Resolution / UAE
This article discusses two recent Dubai Court of Cassation judgments concerning arbitration clauses in multiple construction contracts relating to the same project.
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Dr. Hassan ArabPartner, Regional Head of Dispute Resolution
Hend Al MehairiAssociate,Private Client Services
In Dubai Court of Cassation judgment 828 of 2023, the court held that where the parties have concluded multiple contracts of the same nature and an arbitration clause is embedded in the initial contract but not in the others, the arbitration clause will, by extension, cover any disputes that may arise between the parties in the subsequent contracts as long as the contracts formed part of the contractual relationship between the parties.
In Dubai Court of Cassation Judgment 618 of 2023, however, the court held that where parties have concluded two contracts with the same subject matter or object that are objectively connected, the arbitration clause in the original contract does not extend to subsequent supplemental contracts if the subsequent contract provides for jurisdiction of the UAE courts. The court in this case held that if the subsequent contract provides that “disputes relating to that contract exclusively should be settled through the UAE Courts, then such express wish must be respected in the context of the domain of each contract so that no one contract would extend to the domain of another contract. Therefore, it follows that the clause in the subsequent contract awarding jurisdiction to the UAE Courts does not extend to the original contract containing the arbitration clause as such a stipulation in the subsequent contract is insufficient, on its own, to establish a mutual intention to supersede the arbitration clause in the original contract.”
In Dubai Court of Cassation judgment No. 828 of 2023, the Appellant was a subcontractor who provided supplies, equipment, manpower and services to the Respondent, a main contractor, for a project in Dubai. The parties entered into a contract dated 22 July 2018, which contained an arbitration clause. Subsequently, the parties issued several purchase orders for additional works related to the same project. The Appellant claimed payment for the work performed pursuant to the contract and the purchase orders, but the Respondent defaulted on payment. The Appellant commenced legal proceedings against the Respondent, seeking AED 149,094.456 plus interest.
The Court of First Instance appointed an engineering expert, who filed a report upholding the Appellant's claim. However, the court partially dismissed the Appellant's action. The court held that the dispute related to the contract was subject to the arbitration clause, while the dispute in relation to the purchase orders was not. The court ordered the Respondent to pay the Appellant AED 148,855.809 plus interest for the purchase orders. The Appellant and the Respondent both appealed the judgment before Court of Appeal, which set aside the Court of First Instance judgment and dismissed the entire action. The court found that the arbitration clause covered both the contract and the purchase orders, as they related to the same project. The Appellant then appealed to the Court of Cassation, arguing that the Court of Appeal erred in its reasoning and application of the law.
The Court of Cassation dismissed the Appellant's appeal and upheld the Court of Appeal's judgment. The court held that the arbitration clause in the contract was clear and comprehensive, and that it extended to any dispute arising from the contract or any subsequent agreement related to the same project. The court reasoned that the purchase orders were part of the contractual relationship between the parties, and that they did not constitute separate or independent contracts that would exclude the arbitration clause. The court concluded that the courts had no jurisdiction in relation to the Appellant's action because of the arbitration clause.
In Dubai Court of Cassation judgment No. 618 of 2023, the Respondent was a subcontractor who provided electrical work to the Appellant, a main contractor, for a project in Dubai. The parties entered into a letter of acceptance (the “LoA”) dated 7 March 2020, which incorporated the Respondent's offer dated 26 January 2020. The offer contained an arbitration clause.
Later, the parties signed an addendum dated 16 September 2021, which included approved variation works and a clause providing for the jurisdiction to the Dubai Courts in the event a dispute arises in relation to the addendum. The Respondent claimed payment for the works under the LoA and the addendum, but the Appellant defaulted. The Respondent obtained a payment order against the Appellant for AED 3,604,060 plus interest, and also sought the return of two security cheques for AED 856,000 and AED 428,000 issued the Appellant as security for advance payment (to be returned upon completion of the work). The Appellant failed to pay for the work and as a result, the Respondent initiated proceedings against the Appellant, requesting relief.
The Court of First Instance dismissed the Appellant's plea that the action was barred by the arbitration clause in the LoA and ordered the Appellant to return the security cheques to the Respondent. The court held that the addendum superseded the LoA, and that the clause giving jurisdiction to the Dubai Courts in the addendum amounted to a waiver of the arbitration clause in the LoA. The Appellant appealed to the Court of Appeal, which affirmed the Court of First Instance judgment, finding no error in its reasoning or application of the law. The Appellant then appealed to the Court of Cassation, arguing that the Court of Appeal erred in its interpretation and enforcement of the arbitration clause in the LoA.
The Court of Cassation upheld the appeal and reversed the judgment of the Court of Appeal. It held that It is well established that while a party may explicitly or implicitly waive its right to invoke the arbitration clause, an implicit waiver requires an act or procedure that evinces, clearly and unequivocally, an intention to waive the clause and abandon the right to arbitrate. The existence, or otherwise, of such waiver is a question for the trial court to consider in the overall exercise of its discretion to evaluate and weigh the evidence, presumptions, and documents before it. A valid exercise of judicial discretion is not reviewable by the Court of Cassation. This assumes that the trial court’s holding is based on sound and sufficient reasoning, drawn from established facts of record, that leads to the conclusions reached.
Hence, the Court concluded that, in principle, where parties have concluded two contracts with the same subject matter or object that are objectively linked in that the subsequent contract is supplemental to the original, the arbitration clause in the original contract extends across subsequent supplemental contracts which do not contain an arbitration clause, based on the implicit will of the parties and following the principle that the accessory follows the principal.
However, the Court held that, if, as it found in the present case, it is expressly specified in the subsequent supplemental contract that disputes relating to that contract exclusively should be settled through the UAE Courts, then such express wish must be respected. Hence, the dispute resolution clause of one contract could not extend its domain over the resolution of disputes arising from another contract, where the latter expressly provided for a different forum. Therefore, it followed that the clause in the subsequent contract awarding jurisdiction to the UAE Courts did not extend to the original contract containing the arbitration clause as such a stipulation in the subsequent contract is insufficient, on its own, to establish a mutual intention to supersede the arbitration clause in the original contract.
Thus, in the present case it was “plainly and unequivocally clear that the parties’ intention in the addendum was that recourse to the Dubai Courts would be limited to “a dispute that arises out of or in connection with this agreement,” i.e., a dispute between the same parties relating to the addendum for variations in the scope of the work.” The Court therefore held that “the clause in question does not extend, per se, to the previous original contract for subcontract works, and does not supersede the arbitration clause in the LoA – the original contract - or amount to a waiver of the arbitration clause or an abandonment of the right to arbitrate.” The Court of First instance and, in turn, the Court of Appeal, went against this position by dismissing the Appellant’s plea that the action was barred by an arbitration clause.
These recent Dubai Court of Cassation judgments highlight the UAE’s commitment to arbitration as a preferred method for dispute resolution, especially in the construction sector. They reinforce its position as a pro-arbitration jurisdiction, emphasizing the importance of clear, consistent, and comprehensive arbitration clauses.
The judgments also demonstrate the importance of drafting clear and consistent arbitration clauses that reflect the parties' intentions and cover all potential disputes arising from their contractual relationship. Thus, before entering into a contract, particularly a complex construction contracts, parties are encouraged to seek expert legal advice when drafting and reviewing arbitration clauses. This approach ensures that their rights and intentions are accurately represented and protected.
For further information,please contact Dr. Hassan Arab and Hend Al Mehairi.
Published in January 2024
