The contractor and the subcontractor executed an agreement as part of an oil and gas project. The agreement contained arbitration clauses that gave the subcontractor the right to elect to arbitrate in Saudi Arabia or, alternatively, under the rules of the Dubai International Financial Centre (DIFC) and the London Court of International Arbitration (LCIA) (collectively, “DIFC-LCIA”). Subsequently, Dubai passed a law that eliminated the DFIC-LCIA; however, the decree stated that preexisting agreements would still be valid, but a new entity, the Dubai International Arbitration Centre (DIAC), would govern the arbitration. The subcontractor sued the contractor’s affiliates for breach of contract, and the affiliates removed the case to federal court, where the contractor was joined as a party. The contractor moved to dismiss the case under two theories: (1) forum non conveniens or (2) to compel arbitration under the arbitration clause in the contract. The district court rejected the contractor’s arguments, holding the arbitration clause was unenforceable because Dubai had subsequently passed laws abolishing the DFIC-LCIA.
In Baker Hughes Saudi Arabia Co. v. Dynamic Indus., 126 F.4th 1073 (5th Cir. 2025), the Fifth Circuit reversed the district court’s decision and held it had erred in failing to compel arbitration. First, the court held that forum non conveniens was the incorrect vehicle for dismissal when “a party invokes the [Federal Arbitration Act (FAA)] to compel arbitration of a dispute currently in U.S. court.” Next, the court considered whether the arbitration clause mandated a particular forum or set of rules. The court conducted a thorough analysis of the arbitration clause, including which word “to” modified, comma placement, and sentence structure. Ultimately, the court determined that the clause only required the parties to use the DFIC-LCIA rules, not to use the DFIC-LCIA as a forum. Further, the court declined to adopt a “blanket rule” that selecting a particular set of rules implicitly means the parties have agreed to that specific forum, as some other circuit courts had done. Next, the court discussed the issue of “whether a designated forum remains available where a functionally identical successor forum exists.” However, the court again refused to decide this issue, holding the issue was not dispositive. Finally, the court discussed whether the parties intended to arbitrate generally or select an exclusive forum. The court noted that under the FAA “[w]hen the forum selected by the parties is unavailable, the court can appoint a substitute arbitrator, [9 U.S.C. § 5], unless the forum-selection clause sets an exclusive forum and that clause is ‘integral’ to the parties' arbitration agreement.” BP Expl. Libya Ltd. v. ExxonMobil Libya Ltd., 689 F.3d 481, 491 n.7 (5th Cir. 2012). Here, the court found that the parties did not contemplate the DIFC-LCIA as the exclusive forum, the forum-selection clause was not integral to the subcontract, and the parties’ “dominant purpose was to arbitrate generally.” For a clause to be integral, the parties to the agreement must have “unambiguously expressed their intent not to arbitrate their disputes in the event that the designated arbitral forum is unavailable." Khan v. Dell, Inc., 669 F.3d 350, 354 (3d Cir. 2012). The court found that the clause had not designated the DFIC-LCIA as the exclusive jurisdiction. Additionally, the court discussed the district court opinions that held that “where an agreement designates a forum and its rules, and that forum gets replaced by a successor, the court may compel arbitration in the successor institution.” See Lewis v. UBS Fin. Servs., 818 F. Supp. 2d 1161, 1166 (N.D. Cal. 2011). The court, when comparing DFIC-LCIA to its successor, found that “there was considerable overlap and continuity in management, resources, and rules.” Thus, the district court could have compelled arbitration and selected a successor arbitrator. In conclusion, the Fifth Circuit reversed the district court’s judgment and remanded with instructions to determine a substitute arbitrator “consistent with the parties’ objective intent.”
By Hayden Mariott [email protected]
Edited By Charlie Cole [email protected]
Edited By Kristin Meurer [email protected]