When drafting dispute resolution clauses, parties typically focus on the law governing the contract and, where such clauses provide for arbitration, the curial law (or procedural law of the seat). It is, however, common for parties to fail to specify the law that should be used to determine the validity of the arbitration clause itself.
If a party challenges the validity of the arbitration clause, the Tribunal is usually faced with the question of whether it should apply (i) the law governing the contract; or (ii) the procedural law of the seat, to determine whether the arbitration proceeds.
The DIFC-LCIA's likely amendment of its rules so that they are consistent with the position set out under Article 16.4 of the LCIA Rules 2014 (which provides that the law of the arbitration clause will be the law of the designated seat) is a positive step towards limiting the scope of any challenge to arbitration proceedings seated within the DIFC and subject to the DIFC-LCIA Rules.
For arbitrations seated outside of the DIFC but in the UAE, the position remains less clear. Federal Law 11 of 1992 (the Civil Procedure Code) applies to such arbitration and is silent on the law applicable to the arbitration clause. Further, institutional rules such as the DIAC Rules and ADCCAC Rules do not provide for the parties' agreement to any law applicable to the arbitration clause.
In Dubai Cassation Petition 293/1991, the governing law of the contract was applied to determine the validity of an arbitration clause. However, in the absence of any system of binding precedent and a lack of reported cases confirming that the principle is adopted consistently by the Dubai (and wider UAE Courts), any Tribunal must take great care to ensure that the dismissal of a challenge to the validity of the arbitration clause does not provide a further ground for challenge at the enforcement stage.
It is to be hoped that the much anticipated Federal Arbitration Law (which remains in draft form) resolves any ambiguity in respect of proceedings seated onshore which will have a positive effect in promoting the UAE as an "arbitration-friendly" jurisdiction.
Through its network of international offices and, specifically, its offices in the MENA region, Clyde & Co provides the advice required to ensure that any dispute resolution clause is specifically tailored, on a case by case basis, to protect the right of any international commercial party to submit disputes to arbitration and, more importantly, to enforce any arbitral award rendered in its favour.