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We are excited to share the latest edition of the Law Update, beautifully and appropriately titled “Sustainable Horizons: The Saudi Arabian Vision.” Giving special honor to the Kingdom’s 2030 vision, this update focuses on a collection of both informative and inspiring articles.
For those in construction, you can learn about how the tendering environment impacts risk-pricing for contractors, the updates on the legal framework of the construction industry and how contractors can protect themselves against financial difficulties.
There is good news too from the kingdom’s banking sector, from which the practice of “Open Banking” is being pushed for! But what is open banking? We’re answering that too.
Also . . . Are there any women trail blazers in Saudi Arabia you can name? We’ll help you with that. We cover how the Middle East has been making strides in empowering women in the entrepreneurial space,most notably in STEM fields.Read the full edition
Suzanne Abdallah - Senior Associate - Litigation
Additionally, the Court of Cassation has stated that “the agreement to arbitrate is not established unless the common intent of the contracting parties is set on it.” We take a look at one of the cases where the parties had both an arbitration clause and a clause given Dubai Courts jurisdiction, and how the Court of Cassation resolved the dispute.
Facts of the case
Two Dubai trading companies (the “Claimants”) filed a commercial action with the Court of First Instance against another local company (the “Defendant”). The Claimants requested the Court to order the Defendant to pay them the amount of AED 2,765,253.82 as compensation for breaching a services contract which they had executed.
The Claimants argued that on 1 March 2008 they had concluded a services contract with the Defendant to prepare and carry out interior design works, and to develop the Claimant’s private hotels. The Claimant further submitted that the Defendant had failed to adhere to its obligations as stipulated in the contract, delivered the assigned work late and delivered a defective work product which was below the standards recognized by the hotel industry. As a consequence, the Claimants terminated the contract.
Due to the fact that the contract contained in Article 13 an arbitration clause (“the Arbitration Clause”), the Defendant requested the Court to dismiss the case for lack of jurisdiction. The Claimants argued the same contract contained in Article 14 (“the Dubai Courts Clause”) a clause which allowed either party to seek an order from the Dubai Courts for any dispute that arises out of the contract.
Court of First Instance
The Court of First Instance ruled in favor of the Defendant and dismissed the case for lack of jurisdiction. The Claimants subsequently appealed the decision.
Court of Appeal
The Court of Appeal upheld the lower’s court decision. The Claimants appealed to the Court of Cassation.
Court of Cassation
The Claimants argued that the Court of Appeal had erred in its decision to uphold the lower court’s decision in that reliance had been placed on the Arbitration Clause of Article 13 of the services contract instead of the Dubai Courts Clause of Article 14 of the same contract. The Claimants submitted that the Dubai Courts Clause gave Dubai Courts the jurisdiction to oversee any dispute arising out of that contract.
The Court of Cassation interpreted Article 203 (1) and 203 (5) of the Civil Procedure Law (CPL) to mean that if parties agreed to arbitrate a dispute it shall not be possible to initiate an action before the Court. If, notwithstanding the arbitration clause, one party did file an action in Court and the other party did not object at the first hearing, then the Court would consider the arbitration clause as void and take jurisdiction of the case. However, if the other party did raise an objection at the first hearing, the Court should dismiss the case for lack of jurisdiction.
The Court held also that arbitration is a final and binding form of dispute resolution which is conducted outside the usual forum (i.e. the local courts). The Court clarified however, that what the parties intended to be meant by “dispute” should be clearly specified in the arbitration deed.
With regards to the conflict between the two clauses the Cassation Court stated that the court looking at the essence of the dispute has the authority to ascertain the facts of the case, the agreements of the parties and the common intent of the parties. Any decision taken by such court, as long as it is supported by sound reasoning based on evidence provided, is not subject to review by the Court of Cassation. The Court then proceeded to review the factors considered by the lower courts as follows:
Given that these factors were supported by the evidence and the lower courts relied on them in their determination, the Court of Cassation upheld their judgment and the Arbitration Clause.
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