Dubai World special tribunal rules on upholding arbitration agreements

A recent decision of the special tribunal established by a Dubai government decree to hear cases relating to the restructuring of the Dubai World group has applied a Tribunal Practice Direction on the relationship between arbitration agreements and the jurisdiction of the special tribunal.

In Hedley International Emirates Contracting LLC v Nakheel PJSC, the parties had agreed a binding arbitration clause which referred disputes to arbitration in Dubai under the DIAC rules. Hedley International commenced a claim before the special tribunal on the basis that Dubai Decree No. 11 of 2010 which established the tribunal gave it power to hear "any demand or claim submitted against Dubai World" [and its subsidiaries]. Nakheel challenged the tribunal's jurisdiction as a result of a Tribunal Practice Direction which provides that the tribunal will respect and enforce arbitration agreements made between Dubai World and its creditors and that, where disputes have already arisen, the tribunal expects the parties to continue with their arbitral proceedings. Hedley, however, argued, that the Practice Direction applied only to proceedings in process and not to those which had not yet been initiated. 

The tribunal in the case held that the Tribunal Practice Direction applied to all arbitration agreements, regardless of whether proceedings had already been commenced. It also held that it applied to both international and domestic arbitrations. One observation of the tribunal was that, to rule otherwise, would put the UAE in breach of its obligations as a signatory to the New York Convention because the Convention requires the courts of signatory states to refer the parties to arbitration where the parties have entered into an arbitration agreement, unless the agreement is void, inoperative or incapable of being performed.