Louisiana District Court Denies Motion to Compel Arbitration Pursuant to DIFC-LCIA

A U.S. federal district court refused to compel arbitration in a contractual dispute concerning the supply of materials, products, and services for an oil and gas project being performed by defendants in Saudi Arabia. The parties’ agreement provided for arbitration under the now-defunct Dubai International Financial Center London Court of International Arbitration Rules (DIFC- LCIA).

The DIFC-LCIA was an arbitration center located in Dubai that applied international rules for arbitration based on those used in the London Court of Arbitration. However, in 2021, the government of Dubai issued a decree abolishing the DIFC-LCIA and replacing it with the Dubai International Arbitration Center (DIAC).

The plaintiff argued that the contract’s arbitration provision was unenforceable because the selected forum, the DIFC-LCIA, no longer existed. The crux of the defendants’ argument was that the Dubai government’s decree dissolving the DIFC-LCIA also “transferred the assets, rights and obligations” of the DIFC-LCIA to the DIAC and “expressly state[ed] that DIFC-LCIA arbitration agreements entered into before the effective date of [the decree] [we]re deemed valid[.]”

The district court, siding with the plaintiff, held that it “[could not] rewrite the agreement of the parties and order the [arbitration] proceeding to be held” in a forum to which the parties did not contractually agree. The court further held that whatever similarity the DIAC may have with the DIFC-LCIA, it is not the same forum in which the parties agreed to arbitrate and, therefore, the court could not compel the plaintiff to arbitrate.

The key takeaway is that despite the liberal federal policy favoring arbitration, arbitration is ultimately a matter of contract. Therefore, if the tribunal that was selected by the parties in the agreement is no longer in existence, courts may refuse to compel arbitration.