Status of Dubai World arbitrations clarified

Mediation clauses in the conglomerate's contracts will stand.

A special tribunal for Dubai World creditors has pledged to respect and enforce arbitration clauses in contracts between the government-owned conglomerate and its trade partners. The announcement resolves an ambiguity about whether arbitration claims made by contractors that are owed money by Dubai World would be invalidated by the tribunal. So far, Dubai World creditors have been reluctant to lodge claims with the tribunal ahead of a final offer to settle claims against Dubai World out of court.

Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, set up the tribunal with Decree 57 last year to hear creditors' claims against the government-owned conglomerate during its bid to restructure US$24.8 billion (Dh91.08bn) of debt. "We needed some explanation on that," said Hussam al Talhuni, the director of the Dubai International Arbitration Centre. "There are some cases where one party requested arbitration and the other party started to raise this issue that there is now a [tribunal] under Decree 57, which has been established to have jurisdiction over all cases relating to Dubai World and all its subsidiaries, and therefore the arbitration should be dismissed or postponed."

A new "practice direction", issued on Tuesday and the first from the tribunal since it was formed in December, made clear that arbitration clauses will be respected by the tribunal - even if they are already being adjudicated. In arbitration, parties to a contract agree to resolve disputes in private, outside of the court system. Many contracts into which Dubai World and its subsidiaries entered included arbitration mechanisms, and scores of arbitration cases have arisen from late or non-payments by the conglomerate in the downturn, informed sources said.

While arbitrations are private, decisions from the process are often enforced by courts, a role the tribunal will take on. "It will be the policy of the tribunal to respect and enforce arbitration agreements made between [Dubai World] and its creditors," the tribunal's practice direction said. "Where disputes have already arisen, the tribunal expects the parties to continue with pending arbitration proceedings in accordance with their contractual obligations.

"Applications in relation to arbitration agreements or pending arbitration references which would otherwise have been made to a court may be made to the tribunal." Mark Blanksby, a partner at the international law firm Clyde and Co in Dubai, said Decree 57 made it clear the tribunal would have ultimate jurisdiction over claims against Dubai World and its subsidiaries, including the developer Nakheel.

But until Tuesday's ruling, it was unclear whether the tribunal or arbitration would take precedence. "The decree made clear that the court no longer had jurisdiction in relation to claims, so that left the question of whether you had an option of arbitration or the tribunal or only the tribunal," Mr Blanksby said. "And this is now saying the arbitration clause is still effective." Dubai last month announced it would inject about $9bn into Dubai World and subsidiaries in its first formal restructuring proposal.

"[The directive] is more a question of resolving ambiguities - since the decree was first issued, and it gives contractors and trade creditors a very clear steer: don't bother going to court because the court will turn away jurisdiction," Mr Blanksby said. Tribunal representatives were not available for comment. [e-mail]