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

A dispute has arisen as the other entity has breached the agreement, a KT reader says

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.”

Additionally in this context, Article 8(2) of the UAE Arbitration Law may also be noted. It states,

“The filing of the action referred to in the preceding section shall not preclude the commencement or continuance of arbitration proceedings or the issuance of an arbitral award.”

Pursuant to the foregoing, your company may file its claim against the Defendant at the Dubai Courts. But sustenance of such claim shall depend on the position taken by the court, if the Defendant raises the plea of applying the arbitral clause. Unless the court is satisfied that such arbitral clause is void or unperformable, it may either stop or suspend further proceedings before it and direct the parties to the dispute to proceed with arbitration before the DIAC, as per the terms of the arbitral clause in the Agreement.

Therefore, at this stage, it shall be prudent for you to first approach a legal counsel in the UAE for him/her to peruse the arbitral clause in the Agreement in detail, and provide a legal opinion on whether the dispute between your company and the Defendant may be settled by arbitration, based on the arbitral clause contained in the Agreement, or your company may approach the Dubai Courts as intended.

Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: www.amalawyers.com. Readers may e-mail their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.

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