Yesterday, the United States 5th Circuit Court of Appeals published its decision in Baker Hughes Saudi Arabia Company Limited v. Dynamic Industries Incorporated et al. In that case, a subcontract to provide materials and services to an oil and gas project in Saudi Arabia. The subcontract included an arbitration clause which selected the Dubai International Financial Centre’s joint participation with the London Court of International Arbitration (the “DIFC-LCIA”) as the arbitration forum. But by the time a dispute arose, the DIFC-LCIA had been dissolved and replaced by a new arbitral institution. The trial court denied Dynamic’s motion to compel arbitration because the chosen arbitral forum no longer existed.
On appeal, the 5th Circuit reversed, and held that the district court erred in denying Dynamic’s motion to compel arbitration because the contractual choice of DIFC-LCIA was not exclusive, and because the choice was not integral to and could be severed from the subcontract to permit the parties to achieve their dominant purpose—which was to arbitrate generally—regardless of whether the DIFC-LCIA remained in existence or had been succeeded by a functionally equivalent institution. Because the parties primary intent was to arbitrate generally, the trial court was empowered to and should have compelled arbitration and appoint a substitute arbitrator.
This case is significant because it provides guidance on how to approach situations where the chosen arbitral institution ceases to exist. It clarifies that courts should prioritize enforcing arbitration agreements whenever possible, and that modifications to the chosen arbitral forum may be permissible if the core intent of the parties to arbitrate generally remains achievable.
