Louisiana court won’t enforce DIFC-LCIA clause

A US court has refused to enforce a DIFC-LCIA arbitration agreement, ruling that it could not compel a subsidiary of Baker Hughes to submit a dispute to the Dubai International Arbitration Centre as it is “not the same forum”. 

In an order on 6 November, the Louisiana Eastern District Court rejected a motion by US contractor Dynamic Industries to compel a Saudi subsidiary of Baker Hughes to arbitrate their dispute over payments under an oil services contract.  

The court said that the DIFC-LCIA – a former joint venture between the Dubai government and the London Court of International Arbitration – was “no longer available” after the ruler of the emirate abolished it by decree in 2021.

Daigle Fisse & Kessenich in New Orleans is acting for Baker Hughes Saudi Arabia in the US litigation while Jones Walker represents Dynamic Industries. 

A Saudi subsidiary of Louisiana’s Dynamic Industries subcontracted the Baker Hughes entity in 2017 to supply materials, products and services for an oil and gas project owned by national oil company Saudi Aramco. The contract referred disputes to mediation and arbitration under DIFC-LCIA rules with the DIFC as the seat.

Baker Hughes it performed the contract fully and is owed US$1.3 million by Dynamic for services. It sued three US-entities in the Dynamic group in a Louisiana state court in March, alleging the Saudi subsidiary was merely a shell company. The lawsuit was removed to the federal court earlier this year.

Dynamic asked the court to dismiss the claim based on the doctrine of forum non conveniens as the parties had specified Dubai as the forum for their disputes. Alternatively, it said the court should compel arbitration in Dubai.

It argued that the arbitration agreement remained valid as the Dubai government’s 2021 decree had “transferred the assets, rights and obligations” of the DIFC-LCIA to DIAC and had expressly stated that existing DIFC-LCIA clauses would be deemed valid.

Dynamic also cited a deal reached by DIAC and the LCIA that meant that DIFC-LCIA arbitrations commenced from March 2022 would be registered at DIAC. 

In his order, Judge Greg Guidry held that neither the US court nor the Dubai government had the power to “rewrite” the arbitration agreement and order the proceeding to take place in another forum.

“Whatever similarity the DIAC may have with the DIFC-LCIA, it is not the same forum in which the parties agreed to arbitrate.”

He also held there was no enforceable forum selection clause requiring dismissal of the case on grounds of forum non conveniens.

Sara Koleilat-Aranjo, who recently joined Morgan Lewis & Bockius in Dubai as head of disputes in the Middle East and Africa, says the ruling is a “reflection of the anticipated extraterritorial collateral effects” of the 2021 Dubai government decree.

She adds: “As much as arbitration is, and will remain a consensual means to resolve disputes, the ruling is not unforeseen, and there may be more on the horizon, including at post-award stages in the context of set aside or enforcement of an arbitral award before foreign courts.”

Andrew Mackenzie, Middle East head of arbitration and litigation at DLA Piper, observes: “To my knowledge, this is the first foreign court to tackle the issue and rule in this manner. The judgement raises a number of questions, not least how a UAE court would tackle the issue. It will no doubt embolden parties to bring similar challenges in due course, but fundamentally underscores the importance of giving very careful thought when drafting your dispute resolution clauses.”      

Earlier this year, Baker Hughes also settled a US$330 million ad hoc arbitration against Indian multinational Vedanta over an oilfield project that was disrupted by covid-19.

In August, Russian gas venture Yamal LNG won a local court order freezing US$50 million in assets belonging to a Baker Hughes subsidiary.

In the Louisiana Eastern District Court (2:23-cv-01396-GGG-KWR)

Baker Hughes Saudi Arabia Co. Ltd. v. Dynamic Industries, Inc. et al

Bench

• Judge Greg Guidry

Counsel to Baker Hughes Saudi Arabia

• Daigle Fisse & Kessenich

Paul Trapani and Michael Fisse in New Orleans

Counsel to Dynamic Industries

• Jones Walker

Edward Wegmann, Etienne Balart, Lauren Mastio and Taylor Wimberley in New Orleans