On 3 April 2016, the DIFC Court ordered a stay of proceedings on the basis that, in light of the existence of parallel proceedings in the Californian courts on substantially similar grounds, the Claimant's commencement of a claim before the DIFC Court constituted an abuse of DIFC Court process.

However, in reaching its conclusion, the DIFC Court gave further consideration to the application of the jurisdiction gateways provided in Article 5(A) of the DIFC Law No. 12 of 2004 (as amended) (the "Judicial Authority Law") and the Protocol of Jurisdiction between the Dubai Courts and the DIFC Courts, discussed in a different light in our previous bulletins on Bocimar v ETA and DNB Bank.  In addition, the decision in Gavin v Gaynor also sets an interesting precedent in respect of the DIFC Court's interpretation of arbitration agreements, including the possibility for the DIFC Courts to imply an agreement settling the seat of arbitration as the jurisdiction with "most connection" to the claim.

1.  Background

In May 2007, the parties entered into a Stored Value Card Processing, Service and Marketing Agreement (the  “SVC Agreement”), under which the Defendant was to process and market prepaid cash cards to customers in the UAE. Disputes in relation to alleged breaches of contract and unjust enrichment arose under the SVC Agreement and, in July 2011, the Defendant, and its US affiliate, commenced proceedings against the Claimant in the Federal District Court for the Central District of California in the USA (the "Californian Proceedings").

The protracted Californian Proceedings resulted in the Claimant issuing a counter-claim in November 2014 and the Defendant's US affiliate itself commencing a further action against the Claimant, seeking an order compelling the parties to arbitrate the dispute in California. Relevant to the DIFC Court proceedings, Clause 13.2 of the SVC Agreement stipulates that the interpretation of the SVC Agreement is to be governed "by the internal laws of the UAE". Further, Clauses 13.3 and 13.5 contain seemingly contradictory provisions - Clause 13.3 states that the parties have agreed to "submit to the jurisdiction of the courts in Dubai, the UAE", whereas Clause 13.5 provides that the any dispute emanating out of the SVC Agreement "shall be submitted to arbitration per the law of the United Arab Emirates".

Consequently, the Claimant commenced proceedings in the DIFC Court, requesting an order that the DIFC Court appoint a tribunal to determine the dispute in accordance with DIFC Law No. 1 of 2008 (the "Arbitration Law") and, immediately after, filed a motion in the Californian proceedings that those proceedings be dismissed in favour of those before the DIFC Court. In response, the Defendant contested jurisdiction at a hearing on 22 October 2015.

2.  The DIFC Court's decision in Gavin v Gaynor

Jurisdiction of the DIFC Court

The Claimant contended that the DIFC Court had jurisdiction to appoint a tribunal under Article 17(3)(b) of the Arbitration Law pursuant to the jurisdiction gateways set out in DIFC Law No. 12 of 2004 (as amended) (the "Judicial Authority Law"). The Claimant argued that the DIFC Courts are, constitutionally, a court of the Emirate of Dubai, and therefore the reference in Clause 13.3 of the SVC Agreement to "the courts in Dubai, the UAE" may be construed as referring to the DIFC Courts.

In addition, the Claimant sought to establish a connection between the conduct of the Defendant and the DIFC, as a means by which to establish the jurisdiction of the DIFC Courts under Articles 5(A)(1)(a)-(c) of the Judicial Authority Law. Under these provisions, if a party can establish sufficient connection between the DIFC and the transaction or parties, for example, the relevant contract or transaction was concluded or was due to be performed within the physical territory of the DIFC, DIFC Court jurisdiction may be conferred on any subsequent dispute.

This principle has often been referred to as the 'coffee shop' jurisdiction, because any contract concluded within the geographical territory of the DIFC, including in one of its numerous coffee shops, would provide a nexus sufficient  to allow the DIFC Courts to exercise jurisdiction. In Gavin v Gaynor, to establish such a connection, the Claimant contended that the Defendant had sought to incorporate within the DIFC and also referred to correspondence in which the address of the Defendant was stated as being in the DIFC.

The Defendant responded by arguing that there was no connection to the DIFC, sufficient or otherwise. In addition, the Defendant asserted that, even if the SVC Agreement itself were sufficiently connected to the DIFC to grant jurisdiction to the DIFC Courts, the question before the DIFC Courts concerned interpretation of the arbitration agreement contained in Clause 13.5. Therefore, it is the governing law of the separable arbitration agreement that is relevant, rather than the SVC Agreement as a whole. As performance of Clause 13.5 would instead take place   in the seat of the arbitration, and Clause 13.5 does not specify a seat, there can be no jurisdiction conferred on the DIFC Courts. Therefore, Article 7 of the Arbitration Law, which provides that Article 17 of that law only applies where the DIFC is the juridical seat of the arbitration and DIFC law is therefore the curial law, rendered the Arbitration Law irrelevant, preventing the DIFC Court from having the jurisdiction to appoint a tribunal under its provisions.

After considering these issues, although the DIFC Court agreed that the effect of the absence of a reference to a seat in the SVC's arbitration agreement resulted in the DIFC Court lacking jurisdiction under the Arbitration Law, the DIFC Court determined that it did in fact have jurisdiction over the SVC Agreement by virtue of the Article 5(A)(1)(c) of the Judicial Authority Law. Article 5(a)(1)(c) provides that the DIFC Court will have jurisdiction in respect of claims arising out of "any incident or transaction which has been wholly or partly performed within the DIFC and is related to DIFC activities".

Most significantly, the DIFC Court held that a letter of May 2009, arranging a meeting between the parties to discuss an addendum to the SVC Agreement in the DIFC on the following day represented "quite clear evidence…that the parties transacted business in the geographical territory of the DIFC", and therefore that the SVC Agreement fell within the jurisdiction gateways and "must be governed by DIFC laws". As a natural consequence, any reference to UAE law or courts within the SVC Agreement was in fact a reference to UAE laws as applicable within the DIFC.

In determining that such a letter was "sufficient to link the transaction to the jurisdiction of this Court", and thereby arrive within one of the jurisdiction gateways in the Jurisdiction Authority Law, the DIFC Court has once again developed and expanded the scope of its jurisdiction.

The arbitration agreement

The Defendant sought to challenge the claim on the basis that Clause 13.5 was defective and could not operate validly so to as to permit the DIFC Court to appoint a tribunal. On the basis of its finding in relation to jurisdiction, the DIFC Court dismissed the Defendant's argument that, under UAE federal law, the arbitration agreement would be defective. UAE federal law was irrelevant for the purposes of interpreting the SVC Agreement.

Further, and more noteworthy for arbitration practitioners in the region, the DIFC Court expressly concluded that there was "no reason why the Seat of Arbitration cannot be determined by reference to an implied choice, giving consideration to the Seat with the most connection with the Agreement, the parties, the transaction and any other relevant consideration". Accordingly, the provisions of the SVC Agreement, for example, Clauses 13.2, 13.3 and

13.5 in effect gave rise to an "implied agreement" that the seat of arbitration should be Dubai, UAE, which the DIFC Court had of course already held to refer instead to the DIFC in the context of the SVC Agreement. This reasoning therefore provided "ample support to an implied Seat of Arbitration in Dubai (DIFC)", with DIFC law supervising the procedure.

Abuse of Process

Notwithstanding the above, the DIFC Court agreed with the Defendant's third submission and elected to stay the Claimant's claim on the basis that continuing parallel proceedings, i.e. appointment of a tribunal by the DIFC Court and arbitration in California, would run the risk of producing two analogous but irreconcilable awards. The DIFC Court held that, where the subject matters in two concurrent actions are "strongly connected", "hard to separate" and "stem from performance of the same agreement", in circumstances where the DIFC claim was commenced after the overseas proceedings, the appropriate decision would be to dismiss that claim. However, as the decision on jurisdiction in the Californian Proceedings is currently awaited, the DIFC court elected to order a stay, pending appeal in the Californian Proceedings.

Conclusion

For a number of reasons, the decision is Gavin v Gaynor is particularly significant. First, the decision exhibits the DIFC Court's continued willingness to expand the scope of its own jurisdiction, further weakening the requirement for a connection to the DIFC; parties appear to be able to acquire sufficient nexus to the DIFC on what appear to  be relatively marginal grounds. Secondly, the decision reinforces the positon, first espoused in Taaleem v National Bonds,2 that the DIFC court is a Court of Dubai, and that a reference the "Dubai Courts, UAE" does not necessarily exclude the jurisdiction of the DIFC Courts. This emphasises the need for parties to take care to specify whether DIFC law and / or jurisdiction is being chosen.

Finally, where parties do not expressly agree to a nominated arbitral seat, once DIFC Court jurisdiction is established (even if arguable), the DIFC Courts are prepared to imply an agreement between the parties in relation to the seat, based on the seat with the closest connection to the agreement, taking into account in the terms of the substantive agreement, the parties, the nature of the transaction, as well as any other relevant factors.

Given the variety of issues decided on, the potential incursion into the jurisdiction of the courts of onshore Dubai and its conclusions in relation to the substantive provisions or a contract and the factual background implying a choice of seat, it remains to be seen whether the parties to the proceedings will seek to appeal the decision. Notwithstanding this, we consider that the judgment in Gavin v Gaynor demonstrates the permissive stance the DIFC Courts tend to adopt and should provide a salutary lesson for contractual parties who intend to arbitrate to provide sufficient clarity and certainty in their arbitration agreements.