The Arbitration Clause Buried in the Appendices
A UAE contractor and a foreign supplier signed a supply agreement governed by UAE law. The main body provides that 'disputes shall be resolved amicably and, failing that, before the competent courts of Dubai.' Annex 4, incorporated by reference, contains a clause referring disputes to arbitration in London under LCIA rules. A dispute arises over defective components worth AED 2.5 million. The supplier commenced LCIA arbitration in London. The contractor filed suit in the Dubai courts, arguing the arbitration clause is invalid because it is in an annex, not the operative text, and that the seat is foreign, which it says ousts UAE jurisdiction. The supplier says the contractor is bound.
1. Which forum should hear the dispute, and why?
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The arbitration clause is likely valid and binding, despite its location.
Incorporation by reference: Annex 4 is expressly incorporated. A clause in an incorporated annex is part of the contract. The contractor's 'it's only in an annex' argument is formalistic and generally fails where incorporation is clear.
Conflict between clauses: The main body points to courts, the annex to arbitration. Where two dispute-resolution clauses conflict, the more specific and later-incorporated provision usually prevails - here, arbitration. The ambiguity favours a stay of court proceedings rather than a finding of invalidity.
Foreign seat: A foreign seat does not oust UAE jurisdiction in the sense the contractor claims. UAE courts may decline to hear a dispute covered by a valid arbitration agreement, and foreign arbitral awards are enforceable in the UAE under the New York Convention (to which the UAE is a party).
Conclusion: The contractor should be compelled to arbitrate; the Dubai court should decline jurisdiction or stay in favour of the LCIA proceedings.
2. What should the contractor do procedurally, and what is its best substantive challenge?
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Procedurally: The contractor should:
- Raise the jurisdictional objection before the arbitral tribunal at the earliest opportunity (a challenge to jurisdiction is normally decided by the tribunal in the first instance);
- Simultaneously ask the Dubai court to rule on the existence/validity of the arbitration agreement, while seeking a stay rather than a merits judgment;
- Avoid participating on the merits without reserving the jurisdictional objection, or it may be deemed to have accepted jurisdiction.
Best substantive challenge: Not the annex point, but:
- whether the parties actually agreed to the annex (signature, initialling, course of dealing);
- whether the two clauses can be reconciled in favour of courts;
- whether the dispute falls within the scope of the arbitration clause (e.g., quality/warranty claims may be carved out).
Exam point: jurisdiction challenges are won on scope and consent, not on document formatting.