Dubai Court of Cassation Judgment – Interpretation of Arbitration Clauses

Dubai Court of Cassation case no. 2024/296 (Commercial Appeal)

SK Legal recently secured a favourable ruling for a client in relation to the inadmissibility of a lawsuit due to the existence of an arbitration clause. Although such cases are common in Dubai Courts, where some parties attempt to circumvent the arbitration process to evade arbitration-related costs, this Judgment (Judgment in Dubai Court of Cassation Case 2024/296 - Commercial Appeal) is particularly significant as it establishes several important principles. 

In our view, the most significant aspect of this Judgment is the legal principle concerning the Court's authority to determine whether the parties intend to resolve their disputes through arbitration. The translation of this legal principle is as follows:

“98 - Interpretation and Scope of Arbitration Clause Determined by the Court

The determination of the intent of the contracting parties to arbitrate, along with interpreting the arbitration clause and its scope, is within the factual discretion of the court. However, the court must base its ruling on well-founded reasoning grounded in the case’s documents.

Legal Principle: The court has the authority to interpret whether the parties intended to resolve disputes through arbitration, as well as to define the scope of the arbitration clause. However, this discretion must be exercised with well-reasoned justifications based on documented evidence, leading to a conclusion that aligns with the facts of the case.”

In our view, parties will use this legal principle in the future to persuade the courts to uphold and enforce arbitration clauses, even when they are not clearly worded.

Background

In this case, the parties entered into an agreement for the supply of construction equipment. The agreement mandated that any disputes be referred to arbitration under the rules of the London Court of International Arbitration (LCIA). However, when a dispute arose between the parties, the Claimant initiated proceedings before the Dubai Courts, and our client pleaded that the action was barred due to the arbitration clause. The arbitration clause is reproduced herein below:

...either PARTY shall initiate arbitration proceedings in accordance with London Court of International Arbitration (LCIA) rules (applicable at the time of submission of dispute to arbitration) and the PARTIES shall submit to final, binding arbitration by three (3) arbitrators appointed in accordance with such rules. The law of the arbitration shall be the Arbitration Act 1996. The conduct of the arbitration proceedings shall be in English and the venue of the arbitration shall be London, England. The arbitral award shall be final and binding on the PARTIES…”

However, this Clause shall not preclude the PARTIES from bringing an action in any court of competent jurisdiction for injunctive relief or other provisional remedy in relation to any dispute in connection with the CONTRACT.

Lower Court Judgments

Even though the Court of First Instance upheld the arbitration clause, the Court of Appeal relied on the Arabic translation of the agreement. The second paragraph of the arbitration clause was translated in the following manner:

“However, this clause does not prevent the parties from filing a lawsuit before any court with jurisdiction to obtain a judicial order or other compensation in relation to any dispute related to the agreement.”

The Translator did not fully understand the term injunctive relief, which does not have a direct equivalent in the UAE legal system, and translated it as "judicial order." The Court of Appeal held that the second paragraph of the arbitration clause makes the Dubai Courts competent to hear the dispute.

Decision of Court of Cassation

The Court of Cassation overturned the decision of the Court of Appeal and held that the Court of Appeal improperly relied on an inaccurate translation, which led the Court to erroneously conclude that the Dubai courts had jurisdiction to hear the case. The Court of Cassation ruled in our client's favour, thereby annulling the Judgment of the Court of Appeal and dismissing the original lawsuit based on the presence of the arbitration clause in the agreement. 

The Court of Cassation held that the arbitration clause permits parties to seek temporary or provisional measures in competent courts without relinquishing their right to arbitration. The Court further held that the Court of Appeal's reliance on a translated text that misrepresents the original intent of the agreement—specifically, its clear directive to resolve disputes through arbitration under LCIA rules—constitutes a misinterpretation. The Court of Cassation emphasised the importance of accurate translation and interpretation, affirming that the existence of an arbitration clause should preclude the Court from hearing the dispute.

The Court of Cassation made the following important observations:

1. The Court of Appeal's interpretation contradicts the provisions of the agreement and undermines the arbitration system. While judicial authority does extend to temporary and urgent orders, the same does not grant the Court the right to intervene in the main dispute. The parties explicitly agreed to submit to arbitration under the rules of the London Court of International Arbitration (LCIA). The second paragraph of the arbitration clause detailing the parties' rights to approach competent courts regarding urgent and temporary orders does not include a retraction from arbitration or waiver of it for the main dispute.
2. Since the agreement was drafted in English, the signatory parties' intentions were clearly expressed in that language. Any assumptions about the parties' intent based on translations into other languages are problematic, as translations may not accurately reflect the original text, potentially leading to misunderstandings. The Court relied on the translated version of the agreement; however, the original English text did not grant any party the right to file a substantive lawsuit or waive arbitration, but rather limited their rights to seek necessary interim measures from competent courts. This interpretation is consistent with UAE Arbitration Law No. 6 of 2018, which allows parties to request court intervention for interim and precautionary measures.
3. The legal field is deeply intertwined with specific cultural contexts, which shape the structure and language of legal texts. Consequently, translators must recognise that legal terms developed within a particular legal system may lack direct equivalents in the Arabic language. Therefore, it is essential for translators to select terms that fulfil the same functional role as those in the original document.
4. The Court has the discretion to determine the intent of the contracting parties regarding arbitration. This includes the ability to interpret the arbitration clause itself, as well as to define the extent and limitations of its application. Courts must base their rulings on well-founded reasoning that is firmly grounded in the case's documents. 
5. Although a judge cannot make rulings based on personal knowledge, they are permitted to rely on general knowledge. This type of knowledge does not require formal proof and encompasses widely accepted definitions of legal terms, as well as data and statistics published by official websites of international organisations, specialised agencies, foreign courts, ministries of justice, and reputable universities and scientific institutions. These sources are dedicated to providing accurate and regularly updated information regarding laws and legal terminology relevant to their respective jurisdictions. It is publicly accessible through these sources that the terms "injunctive relief" and "provisional remedies" lack direct equivalents in the UAE's legal system, as they are primarily recognised in common law jurisdictions. The closest equivalent in this context is the concept of temporary or precautionary measures.

Overall, this Judgment is another example of how Dubai Courts are becoming increasingly accustomed to resolving disputes arising from contracts drafted in different languages by parties from diverse legal systems and cultural backgrounds, thereby supporting the development of Dubai and UAE as a global hub for trade and business.