On 27 January 2025, the US Court of Appeal for the Fifth Circuit (the “Appellate Court“) reversed the district court’s decision in the dispute between the companies from the Dynamic Industries group (“Dynamic“) and Baker Hughes Saudi Arabia Company Limited (“Baker“), finding that the dispute may be resolved under the DIFC-LCIA Rules, even though the Dubai government’s decree abolished the DIFC Arbitration Institute which administered DIFC-LCIA arbitrations in September 2021.

The key reasons for the Appellate Court’s findings were as follows:

• There was no clear forum-selection clause in the contract. In particular, the Appellate Court held that:
  • the relevant contractual clause designated only a set of rules (the Arbitration Rules of the DIFC LCIA), and not the forum. By reaching this conclusion the Appellate Court analysed the language of the respective clause in detail, taking a look at (i) the link between the preposition and other words in the clause; (ii) the defined term (the “Rules”) and whether it is possible to split it open; (iii) whether the meaning of the clause overall (if apply construction suggested by each party) has any sense.

Notably, the clause in question does not have any commas therein, so each party used commas in its own way to illustrate its construction of the disputed provision. Although punctuation was not the decisive factor in determining the nature of the clause, this case shows that using commas when drafting cannot be underestimated!

• Nowhere in the contract it states that the DIFC-LCIA is the only forum that is agreeable for or capable of hearing the disputes between the parties.

• Even if exists, the forum-selection clause is not an integral part of the contract. As the Appellate Court found, Dynamic was entitled to elect to arbitrate in Saudi Arabia, which means that the parties  “designated multiple possible fora for arbitration”. Furthermore:

• The contract “does not make pervasive references to the DIFC-LCIA, much less to its “exclusive jurisdiction”;
  
• The contract contains the severability clause, and therefore the Appellate Court concluded that “even assuming [contract’s] alleged forum-selection clause was inoperative, that should not render the entire dispute-resolution portion of the [contract] null and void”.

• The parties’ dominant purpose was to arbitrate in general rather than establish the exclusive jurisdiction of the DIFC-LCIA forum, which allowed the court to appoint a substitute arbitrator.

Based on the above, the Appellate Court instructed the district court […]  “to consider whether the DIFC-LCIA rules can be applied by any other forum that may be available— including the LCIA, DIAC, or a forum in Saudi Arabia […]”. If so, the Appellate Court instructed to compel arbitration in that forum, and if not –  to consider whether to otherwise compel arbitration in Saudi Arabia pursuant to the terms of the contract.

Legal Insights from the case:

• Acurate drafting of the arbitration agreement and choice of wording is of the essence. Apart from the contractual interpretation mentioned above, the Appellate Court noted that words “administered by” signal a clear intent to designate a forum, whereas words like “in accordance with” signal only an intent to set the rules. In this case, the words “under the Arbitration Rules” appear, whereas the words “administered by” do not. That supported the Appellate Court’s finding that the parties selected the rules and not the forum.

• Distinguishing between the choice of the rules, of the forum, and of the seat of arbitration. As is clear from above, the choice of rules does not necessarily equal the choice of forum, (although the Appellate Court did not decide the issue of whether the parties’ selection of a forum’s rules implies the selection of that forum). In addition, the Appellate Court agreed with Baker’s submission that “the designation of the ‘seat’ of arbitration does not identify the arbitration organization to which a dispute must be submitted” but instead refers to the “jurisdiction in which an arbitration takes place legally”. Designation of the seat does not mean designation of the forum.

• The choice of multiple possible fora for arbitration may signal that the parties’ dominant intent was to arbitrate which opens the door for appointing a substitute arbitrator by the US courts.

By Hanna Marunych