Did the Defendant in Lirit v Liwanu [2021] DIFC ARB 011 succeed in setting aside the DIFC-LCIA award based on a breach of pre-arbitration tiered dispute resolution?
The Defendant, Liwanu, sought to set aside an order recognizing and enforcing a DIFC-LCIA arbitral award issued on 22 December 2020. The core of the dispute involved the Defendant’s contention that the parties had failed to comply with a mandatory tiered dispute resolution process stipulated in Articles 26.1 and 26.2 of their Agreement. Liwanu argued that because the parties did not attempt to settle the dispute amicably through senior officers before commencing arbitration, the resulting award was procedurally invalid.
The Court rejected this argument, finding the challenge to be conceptually flawed. The judge emphasized that the scope of "arbitral procedure" under the relevant statute does not extend to pre-arbitration conditions precedent. As noted in the judgment:
The Defendant argued that, in breach of the Agreement’s dispute resolution provisions, the parties failed to attempt to settle their dispute according to a mandatory tiered process prior to commencing arbitration, such that the arbitral procedure was not in accordance with the agreement of the parties for the purposes of Article 44(1)(a)(iv) of the DIFC Arbitration Law.
The application to set aside the enforcement order was dismissed in its entirety. Further details regarding the court's reasoning can be found at https://www.difccourts.ae/rules-decisions/judgments-orders/arbitration/lirit-v-liwanu-2021-difc-arb-011.
Which judge presided over the Lirit v Liwanu [2021] DIFC ARB 011 enforcement challenge in the DIFC Arbitration Division?
The application was heard and determined by H.E. Justice Shamlan Al Sawalehi, sitting in the DIFC Court of First Instance, Arbitration Division. The reasons for the order, which was originally issued on 30 June 2021, were formally handed down on 8 August 2021.
What specific legal arguments did Lirit and Liwanu advance regarding the validity of the arbitral award in ARB 011/2021?
The Defendant, Liwanu, argued that the arbitration was procedurally defective under Article 44(1)(a)(iv) of the DIFC Arbitration Law. Specifically, it contended that the failure to engage in the mandatory amicable settlement process required by the Agreement meant the "arbitral procedure" was not in accordance with the parties' agreement. Additionally, Liwanu argued that the procedure did not comply with the law of the seat (onshore Dubai).
The Claimant, Lirit, countered that the law of the seat is irrelevant where the parties have an express agreement on arbitral procedure. Regarding the tiered process, Lirit argued that such pre-arbitration obligations do not fall within the definition of "arbitral procedure" under the DIFC Arbitration Law. Furthermore, Lirit asserted that even if the obligations were procedural, the Defendant had waived its right to object by participating in the arbitration without raising a timely challenge, citing Article 25 of the UAE Arbitration Law.
Does a failure to comply with pre-arbitration tiered dispute resolution clauses constitute a breach of 'arbitral procedure' under Article 44(1)(a)(iv) of the DIFC Arbitration Law?
The central legal question was whether the definition of "arbitral procedure" in Article 44(1)(a)(iv) of the DIFC Arbitration Law encompasses pre-arbitration conditions precedent, such as mandatory amicable settlement meetings. The Court had to determine if a breach of such a clause could invalidate an award on the basis that the "arbitral procedure" was not in accordance with the agreement of the parties.
How did H.E. Justice Shamlan Al Sawalehi apply the doctrine of 'arbitral procedure' to the facts of Lirit v Liwanu?
The Court distinguished between the conduct of the arbitration itself and the contractual obligations that precede the commencement of arbitration. The judge held that "arbitral procedure" is strictly limited to the manner in which the arbitration is conducted once initiated. Consequently, the failure to hold amicable settlement meetings did not taint the arbitral process.
However, as the Claimant pointed out, Article 44(1)(a)(iv) of the DIFC Arbitration Law does cover such obligations. Arbitral procedure concerns the manner in which arbitration is conducted.
The Court further reasoned that the Defendant’s attempt to rely on the law of the seat (onshore Dubai) was misplaced because the parties had already agreed upon the procedural rules governing their arbitration.
Which specific statutes and rules were applied by the Court in Lirit v Liwanu [2021] DIFC ARB 011?
The Court primarily applied Article 44(1)(a)(iv) of DIFC Law No. 1 of 2008 (the DIFC Arbitration Law), which governs the grounds for refusing recognition or enforcement of an arbitral award. Additionally, the Court referenced Article 25 of the UAE Arbitration Law regarding the waiver of the right to object to procedural irregularities. The Court also interpreted the Agreement’s dispute resolution clauses, specifically Articles 26.1, 26.2, and 26.3, to determine the scope of the parties' obligations.
How did the Court utilize the UNCITRAL Secretariat Guide in the context of Lirit v Liwanu?
The Court referenced the UNCITRAL Secretariat Guide on the New York Convention to interpret the corresponding provisions of the DIFC Arbitration Law. The judge cited the Guide to support the principle that courts consistently reject arguments that an arbitration procedure failed to comply with the law of the seat when the parties have explicitly agreed upon other procedural rules. This reinforced the Court's decision to dismiss the Defendant's reliance on onshore Dubai law.
What was the final disposition of the application to set aside the award in Lirit v Liwanu [2021] DIFC ARB 011?
The Court dismissed the Defendant's application to set aside the order recognizing and enforcing the DIFC-LCIA award. The Court found that the grounds for the challenge were conceptually flawed and that the Defendant had waived its right to object to the alleged procedural breach by participating in the arbitration without raising a timely challenge.
What are the practical implications of Lirit v Liwanu [2021] DIFC ARB 011 for practitioners drafting tiered dispute resolution clauses?
Practitioners should note that the DIFC Courts maintain a narrow interpretation of "arbitral procedure." Failures to comply with pre-arbitration conditions precedent are unlikely to be viewed as grounds for setting aside an award under Article 44(1)(a)(iv) of the DIFC Arbitration Law. Furthermore, the case serves as a warning that parties must raise objections to procedural irregularities at the earliest opportunity during the arbitration; failure to do so will likely result in a waiver of the right to challenge the award later.
Where can I read the full judgment in Lirit v Liwanu [2021] DIFC ARB 011?
The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/arbitration/lirit-v-liwanu-2021-difc-arb-011. The text is also available via CDN at https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/arbitration/DIFC_ARB-011-2021_20210808.txt.
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| N/A | N/A | The Court relied on the UNCITRAL Secretariat Guide on the New York Convention rather than specific case precedents. |
Legislation referenced:
- DIFC Law No. 1 of 2008 (DIFC Arbitration Law), Article 44(1)(a)(iv)
- UAE Arbitration Law, Article 25