Ontario Court Recognizes Dubai Arbitral Award Despite Institutional Shake-Up

In InFrontier AF LP v. Rahmani, the Court of Appeal for Ontario dismissed an appeal from an order enforcing a foreign arbitral award made in Dubai. The appellant challenged recognition and enforcement on the basis that the wrong procedural rules had been applied to the arbitration and that the lower court was wrong to consider Dubai law to determine if the correct rules had been applied. The Court of Appeal upheld the lower court’s finding that the parties’ arbitration clause permitted the agreed-upon rules to be amended over time and that the court was entitled to consider Dubai law to determine if an amendment to the rules had been effected, as it was the jurisdiction with authority over the institution that enacted the rules. 

Overview

Under a 2020 loan agreement, InFrontier, a private equity firm, had loaned funds to two schools in Afghanistan. The appellant, an Ontario resident, personally guaranteed repayment of the loans. The agreement provided that disputes were to be resolved by arbitration in the Dubai International Financial Centre (DIFC), under the Rules of the DIFC-LCIA Arbitration Centre (the Former Rules), which was a partnership between DIFC Arbitration Institute and the London Court of International Arbitration. 

In 2021, however, the government of Dubai enacted a law that abolished the DIFC Arbitration Institute and transferred its rights and obligations to the Dubai International Arbitration Centre (DIAC). DIAC’s board approved its own arbitration rules (the New Rules) effective March 21, 2022, and DIAC and LCIA issued a press release providing that arbitrations commenced after March 21, 2022, under agreements that referred to the Former Rules would be administered by DIAC in accordance with the New Rules, unless otherwise agreed by the parties.

InFrontier commenced arbitration proceedings in 2023, alleging that the schools defaulted in repayment of the loan in December 2022. Over the objection of the appellant, the arbitration was conducted under the New Rules, and the arbitrator awarded InFrontier over US$2.5-million. InFrontier then successfully obtained an order from the Ontario Superior Court recognizing and enforcing the award in Ontario. Mr. Rahmani appealed the enforcement order. 

Lower Court Decision

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), adopted in Ontario under the International Commercial Arbitration Act, 2017, applies to the recognition and enforcement of foreign arbitral awards. The appellant argued that the award should not be recognized in Ontario under Articles V(1)(b) and (d) and Article (V) (2)(b) of the Convention, which provide that recognition and enforcement of an arbitral award may be refused where the party against whom the award is invoked was unable to present its case, or where the arbitral procedure was not in accordance with the agreement of the parties, or where recognition or enforcement of the award would be contrary to the public policy of Ontario. The appellant argued that the procedure used in the arbitration (the New Rules) was not in accordance with the parties’ agreement, which specified the Former Rules and that he had accordingly been unfairly prevented from presenting his case.

The application judge at the Ontario Superior Court rejected these arguments, holding that the Former Rules provided that any agreement to their application included an agreement to conduct the arbitration in accordance with “such amended version of those rules as the DIFC-LCIA Arbitration Centre may have adopted hereafter” that were in place when an arbitration commenced. The application judge found that the New Rules were an “amended version” of the Former Rules and that the parties had therefore agreed to the New Rules in their arbitration agreement. In finding that the New Rules were an amendment to the Former Rules, the application judge considered the Dubai law that abolished the DIFC and provided for the New Rules to replace the Former Rules. 

Court of Appeal Decision

On appeal, the appellant argued that under Article V of the Convention the application judge was not entitled to look at the law of the place of arbitration (Dubai), since the parties had agreed on an arbitration procedure, and that the judge was limited to comparing the procedure agreed upon with the procedure followed. The Court of Appeal rejected this, holding that the application judge correctly identified that the key issue was interpretation of the parties’ agreement to determine what procedure the parties had agreed upon, and that in undertaking this exercise, the application judge was entitled to take into account a decree passed by a jurisdiction with authority over the institution that enacted the rules to determine if an amendment to the agreed upon rules had been effected. The Court of Appeal deferred to the application judge’s finding that the parties had not agreed to a static set of rules, but rather the rules as amended over time. 

The Court of Appeal also upheld the application judge’s finding that the procedure followed was not unfair. The Court of Appeal reiterated that to refuse enforcement on public policy grounds, the award must “fundamentally offend the most basic and explicit principles of justice and fairness in Ontario, or evidence intolerable ignorance or corruption on the part of the Arbitral Tribunal.” Such circumstances were not present in this case.

Takeaways

The decision confirms that Ontario courts will enforce foreign arbitral awards even when the agreed institutional arbitration rules have changed, provided the change falls within the scope of what the parties originally agreed to.

For more information, please contact the authors or any other member of our Arbitration or Litigation & Dispute Resolution groups.