[co-author: Todd Carney]
In a recent judgment, the Dubai Court of Cassation in Case No. 828 of 2023 (Commercial) held that an arbitration clause in a contract extended to cover subsequent purchase orders.
This dispute arose out of a contract between an employer and contractor to carry out works on several villas on the Palm Jumeirah, Dubai. The parties entered into an original contract, followed by a series of purchase orders, by which the employer approved the supply of materials, equipment, and labor for various works forming part of the same project. The original contract contained an arbitration clause, but the subsequent purchase orders did not contain any express agreement on the forum for dispute resolution.
First Instance and Appeal Judgments
The contractor brought a case in the Dubai Courts against the employer, claiming unpaid sums due under the original contract and under subsequent purchase orders. The Court of First Instance dismissed the part of the claim relating to sums due under the original contract, on the ground that the contract contained an arbitration clause, but it awarded the contractor the sums due under the purchase orders.
On appeal, the Court of Appeal sided with the employer and rejected the contractor’s claim in its entirety based on the presence of an arbitration clause in the main contract.
Court of Cassation Decision
The contractor appealed to the Court of Cassation, making a case that the purchase orders were distinct from the original contract, with different dates, prices, and subjects. The contractor contended that the subsequent purchase orders formed new contracts, which were separate from the original contract.
The Court of Cassation rejected this argument and held that the arbitration clause governed not just the original contract but also the subsequent purchase orders. It held that, when parties enter into a series of sequential contracts of the same nature and the first contract contains an arbitration clause, the arbitration clause shall extend to all the disputes arising between the same parties to the subsequent contracts, provided that the contracts are not so different as to make it difficult to extend the arbitration clause. The Court of Cassation also referred to the principle of ‘accessory follows the principal,’ and the implicit intent of the parties. It noted that, in the present case, the various purchase orders were entered into pursuant to the cooperative relationship established in the initial contract, and specifically took into account the technical nature of the construction industry, which (in the Court’s view) “rules out the proposal that the intent of the parties was to limit arbitration to specified matters and to refer to the courts of the State in other matters which might be technically connected to the matters governed by arbitration, given the unity of the nature of the subject of those contracts.”
The decision deals with a situation in which the parties’ relationship was governed by a sequence of contractual documents, causing one party to argue that the arbitration clause originally agreed upon did not extend to the whole of their contractual relationship. In this case, it was held that the arbitration clause in a main contract covered works in the same project, which were the subject of later purchase orders. The Court of Cassation judgment did not delve in detail into the factual analysis, though in a case where the purchase orders were subordinate to, or issued pursuant to, an overarching main contract containing all of the key terms agreed between the parties, the result in this case may not be considered surprising. It remains to be seen whether and how this principle might apply more broadly where parties enter into separate, standalone contracts relating to the same project, with one or more containing an arbitration clause and others being silent on the dispute resolution forum. The case is also a reminder of the importance of ensuring clarity and certainty as to the chosen forum for the resolution of disputes, in particular in respect of large projects with multiple relevant contracts and parties.