Update: Asymmetrical jurisdiction clauses in the onshore UAE

The decision increases the risk that asymmetrical jurisdiction clauses may not be enforced by the onshore UAE courts, giving rise to potential jurisdiction and enforcement challenges.

Opting for an exclusive disputes forum (whether arbitration or litigation), where there is a likelihood of the onshore UAE courts exercising jurisdiction or enforcement in the onshore UAE courts, mitigates that risk.

Asymmetrical jurisdiction clauses

The use of asymmetrical jurisdiction clauses, which provide one party with the option to choose the applicable disputes forum, are a common feature of cross-border transactions, particularly financing transactions. Such clauses are:

• Commonly structured as arbitration agreements, subject to one party having the right to refer disputes to litigation before one or more courts (‘arbitration agreements with a unilateral option to litigate’); and
• Less commonly structured as providing for litigation before a court, subject to one party having the right to refer disputes to arbitration (‘litigation with a unilateral option to arbitrate’), as well as other variants.

The onshore Dubai Court of Cassation’s decision

The onshore Dubai Court of Cassation held that a unilateral option to arbitrate, included within an asymmetrical jurisdiction clause, did not constitute a binding arbitration agreement under UAE law. 

This was because the unilateral option to arbitrate was insufficient to constitute mutual consent of the parties to arbitrate, to the exclusion of the onshore UAE courts. The onshore Dubai Court of Cassation appeared to take issue with both: (i) the unilateral nature of the option to arbitrate; and (ii) that it was non-exclusive.

The relevant asymmetrical jurisdiction clause provided one party alone with the option to choose between arbitration and litigation as follows:

“in the event of a dispute arising from the interpretation or performance of any of the provisions of this Agreement, such dispute shall be settled by the amicable consent of the parties, and in the event that this is not done, the dispute shall be referred to either (a) arbitration at the Dubai Chamber of Commerce or (b) the local courts of the United Arab Emirates. The method to be used will be decided by the Contractor”.

Although this type of asymmetrical jurisdiction clause is uncommon, the decision increases the risk that other types of asymmetrical jurisdiction clauses may not be enforced by the onshore UAE courts. 

In an earlier case (Commercial Appeal No. 1522 of 2023, dated September 28, 2023), the onshore Dubai Court of Cassation appeared to give effect to an asymmetrical jurisdiction clause which provided for the non-exclusive jurisdiction of the English courts, and included a unilateral option to litigate in other courts or to arbitrate. In that case, the party who was not the beneficiary of the option to arbitrate sought to challenge the jurisdiction of the onshore Dubai courts based on the option to arbitrate. However, the Court dismissed that challenge to jurisdiction on the basis that the option to arbitrate was for the benefit of the other party only, and that other party had instead chosen to litigate in the onshore Dubai courts pursuant to the asymmetrical jurisdiction clause. 

The more recent decision of the onshore Dubai Court of Cassation increases the uncertainty in how the onshore UAE courts will approach asymmetrical jurisdiction clauses, and the risk that they may not be enforced.

Risk and mitigation

The risk is that the onshore UAE courts may accept jurisdiction in contravention of an asymmetrical jurisdiction clause, or potentially refuse to enforce an arbitral award or court judgment obtained pursuant to an asymmetrical jurisdiction clause.

The best way to mitigate that risk continues to be to opt for an exclusive disputes forum (whether arbitration or litigation), where there is a likelihood of the onshore UAE courts exercising jurisdiction or enforcement in the onshore UAE courts.

Where parties decide, notwithstanding that risk, to include an asymmetrical jurisdiction clause in their contracts, we recommend providing a clear and mutual arbitration agreement as the primary and default disputes forum, subject to any option to litigate, to maximise the prospects of the onshore UAE courts giving effect to that arbitration agreement. We do not recommend the inverse, namely an asymmetrical jurisdiction clause which provides for litigation with an option to arbitrate, or other variants.  

For more information, please contact any member of the team.