The Abu Dhabi Global Market (hereinafter “ADGM”) is a business hub in the UAE, with multiple sectors emerging in the area. As a financial free zone, it has attracted investment and activity due to its enhanced adoption of the UNCITRAL Model Law on International Commercial Arbitration, and a modern arbitration centre with stellar facilities. The 2015 ADGM Arbitration Regulations, which applies as the procedural law to any arbitration with its seat in the ADGM Zone, confer both curial as well as enforcement powers over arbitration matters to the ADGM Courts. The Courts source judicial pronouncements from UK Courts in order to apply the common law system to disputes before it.

The ADGM Court of First Instance has published two judgements in 2019 concerning the validity of an ADGM arbitration agreement, and the recognition and enforcement of a New York Convention award in the ADGM. These are the first set of judgements in arbitration by the ADGM Courts, and as such represent a perspective in the future treatment by the Courts of such matters.

The A3 v B3 ([2019] ADGMCFI 0004) – Validity of an Arbitration Clause

The case involved a lease agreement between the parties, and involved a claim by A3 that the lease contained a valid and binding arbitration clause. The parties had agreed amongst other things, that in the event that an arbitration centre had been established by the ADGM, A3 would have the option of replacing provisions in the arbitration agreement in order to give the new centre jurisdiction. Under the Clause, B3 was required to countersign such amendments in order to give effect to the same. By late 2018, after the establishment of the ADGM arbitration centre, A3 notified B3 of its exercise of the option of amending the provisions of the clause in order to give the new centre jurisdiction. However, B3 did not provide any acknowledgment or objection to such notice. When A3 commenced arbitration, B3 did not join the proceedings, but the ICC Court decided against the continuation of the arbitration under Article 6(4) of the ICC Rules, without providing any reasons.

It is pertinent to observe that B3 had not participated in any of the proceedings initiated by A3, including this case before the ADGM Court of First Instance. The specific questions of fact that were involved in the case include A3’s unilateral right to amend the terms of arbitration, as well as whether the exercise of such right would invalidate the agreement. Justice Smith confirmed the jurisdiction of the Court, basing his decision on the fact that the case involved a civil or commercial dispute involving the ADGM.

Relying on English law precedent, the arbitration clause was found to be legally valid. Regarding the unilateral option, the Justice found that even if such option introduced a certain sense of procedural imbalance between the parties, English courts had already confirmed the enforceability of such options and arbitration clauses in the Pittalis v Sherrefettin case.

The Court also examined the reasonability requirement under the unilateral option, and found that the amendments were in compliance with such standards as they served the commercial purpose behind the clause, which was the referral of the dispute to the ADGM Arbitration Centre. It is interesting to note that the provisions were given effect despite the lack of affirmation by B3, as the Court found B3 in breach of its obligation to provide such countersignature, and could not allow it to benefit from its own breach.

Further litigation in this matter may involve questions of the validity of unilateral options in arbitral agreements, as it is not entirely certain whether the procedural imbalance emanating from such options is against the public policy of the UAE.

The A4 v B4 ([2019] ADGMCFI 0004) – Recognition and Enforcement of a New York Convention (Conduit Jurisdiction)

The case concerned the recognition and enforcement of a New York Convention award in the ADGM, which involved an award in favour of A4, entitling the same to outstanding payments by B4. B4 had initially objected to the jurisdiction of the tribunal, but failed to substantiate such objections. B4 chose not to participate in the enforcement proceedings. While there may have been grounds to question the validity of the arbitration clause, the Court found that it was not entitled to raise such questions due to the absence of the award debtor and their submissions.

While B4 prominently had onshore assets, The Court found there was no potential circumvention of the jurisdiction of UAE mainland Courts as there was no evidence that B4 did not have any assets in the ADGM, nor could it be concluded that they could not have assets in the area. This seems to imply that the Court may refuse applications which seek to enforce awards against onshore assets.

The Court also found that parallel proceedings initiated by A4 in both onshore Courts and the ADGM Court of First Instance would not be contrary to the public policy of UAE. The Court did not find any detriment caused to B4 due to the ADGM Court of First Instance being the enforcing court of such award as opposed to an onshore Court or any other UAE Court.

The decision of the ADGM Court of First Instance introduces the possibility of its role as a conduit for the recognition and enforcement of non-ADGM awards. A similar trend has been confirmed by the Courts of the Dubai International Financial Centre, which found that assets did not have to be located in the area for it to have jurisdiction over an application for recognition and enforcement of an arbitral award.

Conclusion

These set of judgements display a liberal pro-arbitration approach by the ADGM Court of First Instance in their supervisory role over arbitrations. The A3 v B3 decision reminds parties that arbitration clauses should not include too much complexity, while assuring parties that any disputes arising out of such complexity can be effectively addressed by the Court. The A4 v B4 decision similarly reassure parties that there shall be harmonious cooperation between onshore and off shore Courts in the UAE when it comes to the recognition and enforcement of arbitral awards. The success of the ADGM Courts largely seems to depend on the future interactions between the onshore and offshore Courts, which remains to be seen.