Can a company file a case against another in Dubai Courts for breach of agreement?

Question: Our limited liability company located in Dubai mainland has an agreement with another entity. Now, a dispute has arisen as the other entity has breached the agreement. The agreement states that disputes would be resolved by arbitration by Dubai International Arbitration Centre. We prefer to refer the dispute to Dubai courts. Can our company file a case in the Dubai Court against the defendant or should we refer the dispute to arbitration?

Response: Pursuant to your queries, as the agreement (the “Agreement”) between your company and another entity (the “Defendant”) is governed by UAE arbitration laws and the centre for resolution of disputes is Dubai International Arbitration Centre (the ‘DIAC’), the provisions of Federal Law No. 6 of 2018 on Arbitration (the ‘UAE Arbitration Law’) and the provisions of Dubai International Arbitration Centre Rules 2022 (the ‘DIAC Rules’) are applicable.

An arbitration agreement/arbitral clause in an agreement must satisfy the conditions laid down in Article 4 of the UAE Arbitration Law to become valid and enforceable. The said Article 4 reads as follows:

“1. An Arbitration Agreement may only be concluded, on pain of nullity, by a natural person having the legal capacity to dispose of his rights or on behalf of a juridical person by a representative with specific authority to arbitrate.

2. Arbitration is not permitted in matters which do not permit compromise.

3. Where a provision of this Law leaves the Parties free to agree on the procedure to be followed to determine a certain issue, each party may authorize a third party to choose or determine that procedure. A third party is such case includes: any natural person or Arbitration Institution inside or outside the State.

4. Unless otherwise agreed by the Parties, the Arbitration Agreement shall not be terminated or discharged by the death of any party thereto but in such event is enforceable by or against the legal successor of the deceased.”

If your company elects to file its claim against the Defendant at the Dubai Courts, the adjudicating court may decline to entertain the action if the Defendant makes the plea, at the first hearing of the matter by the court, that the dispute is subject to the arbitral clause in the Agreement. The court may, however, not decline the action if it is satisfied that the arbitral agreement/ clause is void or incapable of being performed. This is in accordance with Article 8(1) of the UAE Arbitration Law, which states:

“The court before which a dispute is brought that is subject to an Arbitration Agreement shall decline to entertain the action if the defendant has so pleaded before submitting any request or plea on the merits, unless the court is satisfied that the Arbitration Agreement is void or incapable of being performed.”

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