In Baker Hughes Saudi Arabia Co. v. Dynamic Industries, Inc. [1], the United States Court of Appeals for the Fifth Circuit decided what happens to an arbitration clause pursuant to which the parties chose to resolve their disputes under the arbitration rules of an institution that subsequently ceased to exist. The Fifth Circuit concluded that the wording of the arbitration agreement is key in deciding whether parties should be compelled to arbitrate their dispute in such circumstances.

Background

In 2017 Baker Hughes Saudi Arabia Co., Ltd. (“Baker Hughes”) and Dynamic Industries Saudi Arabia, Ltd. (“Dynamic”) concluded a subcontract for supply of materials, products, and services in connection with an oil-and-gas project in Saudi Arabia (“Contract”). In the Contract, the parties agreed that unless Dynamic elected to refer their dispute to arbitration in Saudi Arabia, any dispute “shall be referred to mediation in accordance with the Mediation Rules of the Dubai International Financial Center (“DIFC”) London Court of International Arbitration (“LCIA”) (the “Mediation Rules”) from time to time in force.” And if the dispute could not be resolved by mediation withing 30 days, “the dispute shall be referred by either Party to and finally resolved by arbitration under the Arbitration Rules of the DIFC LCIA (the “Rules”) from time to time in force, which Rules are deemed to be incorporated by reference herein (save for Article 5.6 which is hereby expressly excluded)” (“DIFC-LCIA arbitration clause”).

In September 2021, Decree no. 34 of 2021 [2] (“Decree”) has been passed in the United Arab Emirates, according to which the DIFC Arbitration Institute—the DIFC-LCIA Arbitration Centre’s administering body—has been abolished [3]. The Decree also mandated that all DIFC-LCIA arbitration agreements, “concluded by the effective date of” the Decree, shall be deemed valid, with the Dubai International Arbitration Centre (“DIAC”) taking on the consideration and determination of all disputes arising out of such arbitration agreements [4].

In March 2022, LCIA and DIAC executed an agreement clarifying how to handle the change. They confirmed that the LCIA would administer disputes referring to DIFC-LCIA arbitration initiated before March 20, 2022. All actions referring to the DIFC-LCIA rules commenced on or after March 21, 2022 were to be administered by the DIAC in accordance with DIAC’s rules of procedure. Substantively, DIAC Rules of procedure are similar to the DIFC-LCIA Rules.

In March 2023, a dispute under the Contract arose and Baker Hughes sued several of Dynamic’s affiliates—alleging that Dynamic is merely a “shell company and alter ego of” these affiliates— in the Louisiana state court. In its complaint, Baker Hughes alleged that it performed the Contract, but has not received the payment of USD 1.355 million for its performance.

District Court proceedings

In April 2023, the case was removed to the United States District Court Eastern District of Louisiana on the defendants’ motion. Then, in May 2023, after Dynamic was joined as defendant to the proceedings, the defendants moved to dismiss under the doctrine of forum non conveniens or, alternatively, to compel arbitration under the DIFC-LCIA arbitration clause and stay the proceedings.

On November 6, 2023, the district court denied this motion [5]. The district court reasoned that:

• The forum non conveniens doctrine allows for the enforcement of a valid forum selection clause referring a dispute to a state or foreign forum.
• In this case, the defendants were asking the court to enforce the DIFC-LCIA arbitration clause. Baker Hughes opposed, claiming that due to the abolishment of the DIFC LCIA and replacing it with DIAC, the clause was unenforceable as the chosen forum no longer existed.
• Under the Federal Arbitration Act, arbitration agreements are valid and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. Arbitration agreements are to be enforced in accordance with their terms, as arbitration is strictly a matter of consent.
• The Fifth Circuit’s precedents hold that arbitration cannot be compelled if the agreed arbitration tribunal no longer exists.
• The court could not rewrite the parties’ agreement and order arbitration in a forum which has not been chosen contractually by the parties. Similarly, the Dubai government could not rewrite the parties’ agreement by means of the Decree.
• Accordingly, the arbitration clause concluded by the parties referring disputes to DIFC-LCIA arbitration was unenforceable, and there were no grounds for dismissing the case on the ground of forum non conveniens.

The defendants appealed.

Fifth Circuit proceedings

On January 27, 2025, the Fifth Circuit reversed the district court’s order and remanded the case for further proceedings [6].

The Fifth Circuit reasoned that:

• Dismissal for forum non conveniens is not applicable when a party seeks to compel arbitration of a dispute pending in U.S. courts. Thus, only the motion to compel arbitration should be considered.
• The key question was whether the DIFC-LCIA arbitration clause should be construed as a forum selection clause. The answer is that it should not:
  • The parties’ intent, stemming from the plain text of this clause, was to refer their disputes to arbitration, rather than to refer them to DIFC LCIA. While the arbitration is meant to take place under the DIFC-LCIA arbitration rules, that does not mean that DIFC LCIA is the forum chosen by the Parties.
  • This conclusion is not contradicted by reading the DIFC-LCIA arbitration clause in the context of the entire Contract. The fact that in another part of the Contract there is a reference to “DIFC LCIA in Dubai” is not enough to concluded that parties agreed to arbitration only if it is administered by DIFC LCIA. At the same time, there is no evidence that only the DIFC LCIA is capable of applying the DIFC-LCIA arbitration rules. And ambiguity should be resolved in favor of arbitration.
  • The DIFC-LCIA arbitration clause did not state DIFC LCIA is an exclusive forum. Further, the Contract included not only the DIFC-LCIA arbitration clause, but also a clause allowing Dynamic to initiate arbitration in Saudi Arabia. Thus, there was no exclusive forum for the resolution of the disputes under the Contract.
  • The wording of the Contract suggests that the dominant purpose of its dispute resolution clauses was to arbitrate in general rather than in an exclusive forum, that is the DIFC LCIA. This means that the designation of the forum was not integral to the Contract.
• The Fifth Circuit’s precedents relied on by the District Court were not applicable in this case, as the wording of the arbitration clauses in those cases was different than that of the DIFC-LCIA arbitration clause. In particular, in Ranzy v. Tijerina [7], the clause required that the disputes be resolved “by and under” rules of a specified institution, and further clarified the specific office of that institution to which the claims should have been filed. This language did not exist in the DIFC-LCIA arbitration clause.
• In some Circuits, including the Second Circuit, courts held that adoption of rules of a specific arbitral institution implicitly selects such institution as the forum [8]. Others, like the Ninth Circuit, concluded that if parties to an arbitration agreement only choose rules of an institution, but do not state that the arbitration is to take place before the institution itself, there is no reason to interpret their agreement as implicitly designating the forum [9]. However, in the Ninth Circuit’s case, the court did not provide a definitive answer to the issue, and proceeded to analyze if the parties can arbitrate the dispute even assuming that the arbitration agreement was a forum selection clause. The Fifth Circuit followed this approach.
• Assuming hypothetically that the DIFC-LCIA arbitration clause was a forum selection clause, one of the issues would be whether the chosen forum remains available where a functionally identical successor forum exists. However, the Fifth Circuit decided to leave this issue unresolved, given that forum selection was not integral to the parties’ Contract.
• On remand, the district court will have to consider “whether the DIFC-LCIA rules can be applied by any other forum that may be available—including the LCIA, DIAC, or a forum in Saudi Arabia—consistent with the parties’ objective intent.” If the answer is yes, the district court is to compel arbitration in that forum. If not, the district court will have to consider whether to compel arbitration in Saudi Arabia in accordance with the Contract’s other arbitration provision.

Relevance

The Fifth Circuit’s decision in Baker Hughes v. Dynamic Industries offers valuable insights for businesses that rely on arbitration to resolve disputes. While the case arose in the context of the abolishment of an arbitral institution, its lessons apply more broadly to the drafting and enforcement of arbitration agreements. It shows how critical it is to draft arbitration clauses with clear, precise language—especially when naming specific institutions or rules.

Different courts may interpret such clauses differently. Some treat a reference to institutional rules as an implicit requirement to have the arbitration administered exclusively by the designated institution. The Fifth Circuit, however, focuses on the specific wording of the clause, and does not agree that referring to the arbitration rules of a specific institution necessarily creates a forum selection clause, in the absence of a specific designation.

Parties subject to the Fifth Circuit’s jurisdiction should pay close attention to how they word their arbitration clauses. Many model arbitration clauses do not include language designating explicitly the arbitration institution as the exclusive administrator of the proceedings. Consequently, if it is important for parties that the arbitration takes place only under the auspices of their chosen institution, it may not be enough to rely on standard model clauses proposed by such institutions. In the end, clear, explicit language of the arbitration agreement may reduce uncertainty and risk of costly legal battles over jurisdictional issues.

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[1] Baker Hughes Saudi Arabia Co. v. Dynamic Indus., Inc., No. 23-30827, slip op. (5th Cir. Jan. 27, 2025).

[2] Decree No. (34) of 2021 Concerning the Dubai International Arbitration Center (Dubai).

[3] Id. Article (4)2.

[4] Id. Article (6)a.

[5] Baker Hughes Saudi Arabia Co. v. Dynamic Indus., Civil Action 2:23-cv-1396 (E.D. La. Nov. 6, 2023).

[6] Baker Hughes Saudi Arabia Co. v. Dynamic Indus., Inc., No. 23-30827, slip op. (5th Cir. Jan. 27, 2025).

[7] Ranzy v. Tijerina, 393 F. App’x 174 (5th Cir. 2010).

[8] For example, In re Salomon Inc. S’holders’ Derivative Litig., 68 F.3d 554 (2d Cir. Oct 13, 1995).

[9] See Reddam v. KPMG LLP, 457 F.3d 1054 (9th Cir. 2006).