Hotel management agreements - Choice of law and jurisdiction

Breakfast Seminar prepared by: Henry Quinlan and Ali Al-Zarrad

Litigation & Regulatory

DLA Piper Middle East LLP

1 October 2012

Hotel managementagreements - choice of lawand jurisdiction

Overview

• Choice of law and jurisdiction

• Drafting effective arbitration clauses

• How to choose your seat

• Recognition / enforcement of awards

• New York Convention

• Recent Developments

• Case Study / Takeaway Tips

1 October 2012Hotel management agreements - choice of law and jurisdiction

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What do you choose?

• Governing Law

• Arbitration

• Where?


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Governing Law

• What is it?

Choice of Law - the law governing the rights and obligations of theparties under the contract.

However, mandatory laws may apply, eg:

transactions involving the grant of real rights over land ("lex situs"); and

Kingdom of Saudi Arabia.

• Significance

Determines the law which governs the interpretation of the parties'substantive contractual rights.

• Example:

"This Agreement shall be governed by, and construed inaccordance with, the laws of England and Wales."


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Jurisdiction

• What is it?

The forum that has authority to decide the dispute.

May follow negotiations/mediation/expert determination.

• Significance

Each jurisdiction has its own procedures and rules for determiningdisputes.

Experience of the jurisdiction in the likely type of dispute may bean important factor.


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Comparison

• Governing Law - v - Jurisdiction

Governing Law will determine the extent of the parties' substantiverights.

Jurisdiction is concerned with where.

The two do not have to interlink.


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Drafting Effective Arbitration Clauses

"Any and all disputes, controversies or claims arising out of or inconnection with this Agreement (including, without limitation, any

question regarding its existence, validity or termination) (a "Dispute")[1] shall [2] be referred to, and finally resolved by, arbitration under theRules of Arbitration of the [DIFC-LCIA] (the "Rules"), which Rules are

deemed to be incorporated by reference into this Agreement. [3]

The number of arbitrators shall be [one/three]. [4]

The seat or legal place of arbitration shall be [the DIFC]. [5]

The language of the arbitration shall be English." [6]

Basic Requirements:

[1] Scope [2] Compulsion [3] Arbitration Rules

[4] Number [5] Seat [6] Language

[7] Governing Law Clause [8] No court jurisdiction clause

[9] Most regional countries require that the signatory has authority to sign(POA).


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How to choose your seat

• Selection of Seat

Convenience

Cost

Quality of courts

Quality of arbitration law

Signatory to the New York Convention

• Typically:

Europe: London, Paris, Switzerland, Stockholm

Asia: Hong Kong, Singapore

Middle East: Dubai (onshore/DIFC), Egypt

North America: New York


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Arbitration – Rules / Institutions

• Popular Arbitral Rules / Institutions

UAE

DIFC-LCIA

Dubai International Arbitration Centre (DIAC)

International

ICC

LCIA

American Arbitration Association (ICDR)

UNCITRAL (ad hoc)


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Comparing the Rules of Arbitration /

Institutions

Topic LCIA ICC DIAC DIFC-LCIA

Confidentiality? Expressconfidentiality;materials createdfor the purpose ofarbitralproceedings andthe award.

No expressconfidentiality

Expressconfidentiality;materials createdfor the purpose ofarbitralproceedings andthe award.

Expressconfidentiality;materials createdfor the purpose ofarbitralproceedings andthe award.

Head officelocation

London (defaultplace ofarbitration)

Paris Dubai (defaultplace ofarbitration)

DIFC (defaultplace ofarbitration)

Costs Hourly basis,regardless ofamount in dispute

Dependant onamount in dispute

Dependant onamount in dispute(cheaper thanICC)

Hourly basis,regardless ofamount in dispute

Number ofArbitrators

Presumption ofsole Arbitratorunlessparties/institutiondecide otherwise.


Presumption ofsole Arbitratorunlessparties/forumdecide otherwise.


Default Timelimit of Award

N/A 6 months fromdate of lastsignature oftribunal.

6 months fromdate the tribunalreceives the file.

N/A

Other "Hands off" aftertribunal appointed

Terms ofreference; scrutinyof award by ICC(before arbitraltribunal sign anyaward)

Internationalstandard rules(though somequirks,recoverability oflegal fees).

New andunderused (2008);ease ofenforcement inDubai (in theory)


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Enforcement of Awards

•WHERE ARE THECOUNTERPARTY'S ASSETS

LOCATED?


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Enforcement of Awards

• International enforcement of awards

New York Convention

• Regional treaties/conventions

the Protocol on Enforcement of Judgments, Letters, Rogatory andJudicial Notices issued by the Courts of the Member States of theArab Gulf Co-operation Council, 1995 ("GCC Protocol");

the Riyadh Convention on Judicial Co-operation between States ofthe Arab League, 1983 ("Riyadh Convention"); and

bilateral conventions re enforcement of judgments/awards.


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Hotel management agreements - choice of law and jurisdiction

Dubai Law No. 16 of 2011

• Effect

Amends Dubai Law No. 12 of 2004.

Codifies the 2009 Protocol of Enforcement between the Dubai Courts andthe DIFC Courts.

• Significance

All Parties can give DIFC Courts jurisdiction to hear their disputes.

Compels DIFC Courts and Dubai Courts to enforce the applicablejudgment/arbitral award issued by the other.

• Benefits

Judgments rendered by the DIFC Courts can be ratified in the onshoreDubai courts as Dubai court judgments.

Onward enforcement.

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Route from DIFC to wider region

1 October 2012

DUBAI COURTS

GCC PROTOCOL

RIYADH CONVENTION

ARAB JUDGMENTS CONVENTION

DIFC COURTDIFC ARBITRALAWARD

DUBAI LAW 16 OF 2011

2009 PROTOCOL

DIFC JUDGMENT RATIFIED BY ADUBAI COURT JUDGMENT

EGYPT

IRAQ

KSA

Hotel management agreements - choice of law and jurisdiction14

New York Convention (1)

• 147 of 195 UN Member States have adopted theConvention

• All countries in the region, except Iraq and Yemen

• Recognition of Decisions:

Article III - the contracting State shall recognize arbitral awards asbinding and enforce them in accordance with procedural rules ofthe State where the award is relied upon.


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New York Convention (2)

• Grounds for Rejection:

Article V: enforcement may be challenged by the party against whomenforcement is sought, only if that party provides the enforcing court, proofthat:

parties to the arbitration agreement did not have capacity to enter into it;

the party against whom the award is invoked has not been given proper notice ofthe arbitrator's appointment/arbitration proceedings/unable to present its case;

the award deals with a point outside the scope of the arbitration;

the arbitral procedure was not in accordance with the parties' agreement/the law ofthe country where the arbitration took place; or

the award has not yet become binding on the parties.

Recognition and enforcement may also be refused if the competent authorityin the country where the recognition and enforcement is sought finds that:

the subject matter is not capable of settlement by arbitration under the law of thatcountry; or

the recognition and enforcement of the award would be contrary to public policy ofthat country.


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UAE – Enforcement of Decisions – in

practice

• Fujairah Court cases – first foreign arbitral awards enforcedin UAE via NYC in late 2010. Two London MaritimeArbitration Association Awards, issued by sole arbitrator in2007

Court opined that: "The Court's supervisory role when looking torecognize and enforce a foreign arbitral award is strictly to ensure thatit does not conflict with the Federal Decree under which the UAEacceded to the NYC on the recognition and enforcement of foreignarbitral awards and satisfies the requirements of Articles IV and V ofthe Decree in terms of being duly authenticated."


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UAE – Enforcement of Decisions – in

practice

• Maxtel International FZE vs. Airmec Dubai LLC (2010)

Two arbitral awards rendered by a sole arbitrator in London underthe DIFC-LCIA Rules

Enforced by the Dubai CFI via the NYC (12/01/2011). Thedecision was appealed to the Dubai Court of Appeal

Court of Appeal rejected the appeal and upheld the enforcement

• Case 5 of 2004 – A Lebanese judgment enforced in Dubaivia the Riyadh Convention


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DIFC – in practice

• Awards

Property Concepts FZE vs. Lootah Network Real Estate andCommercial Brokerage (2010)

First DIFC-seated arbitral award recognized by the DIFC Courts and enforcedin the UAE

• Judgments

Farooq Al Alawi v (1) Lloyds TSB Bank Plc; and (2) Credit SuisseAG (2011)

A judgment issued by the Bahraini Family Courts enforced by the DIFC Courtsin accordance with the GCC Protocol and Riyadh Convention.

• At present around 40 DIFC Court Judgments have beenenforced in the UAE


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• New KSA Arbitration Law

Acknowledges right of parties to arbitrate under institutional rules

No requirement for notification through the courts prior tocommencement

No stay for criminal allegations

Restricts Board from examining facts/subject matter (merits) of thedispute

Enforcement? Board to have "due regard" to KSA's obligationsunder international agreements.

• BUT:

Theory vs. Practice


Recent Developments (1)

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Recent Developments (2)

• Cassation Appeal No. 14 (2012)

Dispute between D and P over a number of units re D's failure to registerthe units in the real estate registry

DIAC award in favour of P; P sought to enforce before Dubai CFI;

CFI approved it, as did CA; D's appeal went to Court of Cassation

CC ruled award is in relation to public policy issue – denied enforcement.

• Reasoning

Art. 3 of UAE Civil Code provides that "public order shall be deemed toinclude matters relating to personal status such as…the circulation ofwealth, rules of private ownership…"

Applied wide interpretation to "wealth" and "rules relating to privateownership" and provided that regulation of these terms included rules ofregistration of land, and as such, were matters of public policy.

It was also commented that individuals have the right to go to court evenin cases where there is an arbitration clause in the agreement.


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• Facts

Hotel in Dubai

Owned by KSA national

Operated by US company

Agreement terminated without cause

LDs in Agreement for 3 years' loss of fees

Governing Law and Jurisdiction?

• Steps to consider

Governing Law: eg English v UAE (impact upon LDs)

Where are the KSA national's assets? (Hotel, shares, etc)

If outside KSA: eg London / DIFC (dependent on location of assets)

If inside KSA: risk analysis – there is no easy answer at present

1 October 2012

Case Study


• Choose the Governing Law

• Draft an effective arbitration clause

ensure key elements are included (NB jurisdictional quirks)

• Choosing the seat:

Where are party's assets?

Consider the route to enforcement carefully

1 October 2012

Takeaway Tips


The End

ANY QUESTIONS?


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Documents

Hotel management agreements - Choice of law and jurisdiction