The Fifth Circuit Held That Parties to an Arbitration Agreement Must Arbitrate Their Claims Even If the Forum They Selected No Longer Exists

At a Glance

• The Fifth Circuit compelled two companies to arbitrate an international dispute despite the abolishment of the arbitral institution identified in their arbitration agreement.
• The decision also clarifies Fifth Circuit law with respect to international commercial arbitration, including that a motion to dismiss for non conveniens is not the proper procedure for compelling arbitration, and that the designation of a forum’s arbitral rules does not necessarily imply that the parties intend to arbitrate their claims in that forum.
• The Fifth Circuit decision is a reminder that parties’ general intent to arbitrate their disputes will usually overcome mechanical deficiencies or ambiguities in the way their arbitration clause was drafted.

The U.S. Court of Appeals for the Fifth Circuit recently compelled two parties to arbitrate their claims despite the abolishment of the forum that they selected in their international commercial arbitration clause. The case is a reminder that parties to an international commercial arbitration agreement are required to arbitrate — rather than litigate — their claims, even if the arbitral institution they select is unavailable when a dispute arises.

Background

Baker Hughes Saudi Arabia Company Limited initiated a lawsuit against Dynamic Industries for breach of contract related to an oil-and-gas project in Saudi Arabia. The subcontract contained provisions requiring arbitration under the Dubai International Financial Center–London Court of International Arbitration (DIFC-LCIA) rules. Dynamic sought to dismiss the lawsuit for forum non conveniens or, alternatively, to compel arbitration under the DIFC-LCIA rules.

The district court denied Dynamic’s motion, reasoning that the arbitration forum designated in the parties’ contract, the DIFC-LCIA, had been abolished by a 2021 decree from the United Arab Emirates. The DIFC-LCIA was then replaced by the Dubai International Arbitration Centre (DIAC). The district court held that since the designated forum no longer existed, the forum-selection clause was unenforceable. Consequently, the court refused to compel arbitration or to dismiss the case on the grounds of forum non conveniens.

Dynamic appealed the district court’s decision to the U.S. Court of Appeals for the Fifth Circuit.

The Fifth Circuit’s Decision

The Fifth Circuit reversed, finding that the court erred by treating the arbitration agreement as a forum selection clause rather than a choice-of-rules clause, and by failing to consider whether the agreement evidenced the parties’ intent to arbitrate generally. See Baker Hughes Saudi Arabia Co. Ltd. v. Dynamic Indus. Inc., ___ F.4th ___, No. 23-30827, 2025 WL 304463 (5th Cir. Jan. 27, 2025)

As an initial point, the Fifth Circuit clarified that “dismissal for forum non conveniens is the wrong vehicle where a party invokes the FAA to compel arbitration of a dispute currently in U.S. court.” Id. at *5. Instead, the proper motion is to compel arbitration. Id.

Next, the court analyzed the text of the parties’ agreement, which stated that any dispute:

[S]hall 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). The Seat, or legal place, of the arbitration shall be the DIFC, Dubai, United Arab Emirates.

Id. at *3. This language, according to the district court, was a forum selection clause. But the court of appeals disagreed, finding that, on a proper construction, the parties had agreed to refer any dispute to arbitration, and not to the DIFC-LCIA. As such, having surveyed case law and explained that “words like ‘administered by’ signal a clear intent to designate a forum, whereas words like ‘in accordance with’ signal only an intent to set the rules,” the court of appeals determined that the text of the agreement in question designated “only a set of rules and not a particular arbitral forum.” Id. at *8.

Notwithstanding that, the court of appeals conceded that case law often treats the selection of a particular forum’s rules as an implicit forum selection clause. Id. at *8. However, the court declined to adopt the Second, Fourth and Eleventh Circuit’s “implied forum-selection clause approach.” Id. at *10.¹ Instead, the Fifth Circuit expressed sympathy with the Ninth Circuit’s “doubts about adopting a blanket rule that any designation of arbitral rules necessarily means selection of a forum.” Id.² The Fifth Circuit also found that the DIFC-LCIA’s successor, the DIAC, was functionally identical in many respects and could administer the arbitration according to the same rules. Id. at *10-11.

The Fifth Circuit nevertheless analyzed how the case would be resolved under the implied forum-selection clause approach. It examined whether the alleged forum-selection clause was integral to the parties’ agreement and whether the district court had the authority to appoint a substitute arbitrator. On that question, the Fifth Circuit found that the district court erred by not compelling arbitration because the parties’ primary intent was to arbitrate disputes, even though the specific forum named in the agreement was no longer available. The court noted that the DIFC-LCIA was not designated “as the exclusive forum,” for example. Id. at *12. Nor did the agreement “make pervasive references to the DIFC-LCIA, much less to its ‘exclusive jurisdiction.’” Id. at *13 (citation omitted). This was compelling evidence that the parties’ “dominant purpose was to arbitrate generally” rather than before the DIFC-LCIA specifically. Id. at *11. Therefore, even if the parties impliedly selected the DIFC-LCIA as the arbitral forum, the implied forum selection clause was not integral to the parties’ agreement and could be severed; and the court could appoint a substitute arbitrator.

Because the parties’ intent to arbitrate disputes was clear, the unavailability of the original forum did not invalidate the entire dispute-resolution process outlined in the contract. Ultimately, the Fifth Circuit reversed the district court’s decision and remanded the case for further proceedings consistent with its opinion, instructing the district court to consider whether the DIFC-LCIA rules can be applied by any other forum that may be available, including the LCIA, DIAC or other arbitral institution — consistent with the parties’ objective intent.

Implications for International Commercial Arbitration

The Fifth Circuit’s decision suggests that an agreement to arbitrate will generally be upheld even when the arbitration agreement in question refers to a defunct arbitral institution or its arbitration rules. The court’s opinion is a reminder that U.S. courts will analyze the selection of a particular arbitral institution’s rules distinctly from the selection of the institution as a forum. This is an important consideration for drafting agreements to arbitrate, with different circuits treating the selection of rules as an implied forum-selection clause and others treating it as mere evidence of the parties’ intent.

Separately the consequences of the abolition of the DIFC-LCIA in September 2021 have been considered by other nations’ courts as well, including at least the courts of Singapore and the United Arab Emirates. While the cases are context-specific, this Fifth Circuit decision is a timely reminder for parties who have incorporated arbitration agreements into their long-term contracts to consider those provisions and ensure they remain fit for purpose, thereby avoiding costly satellite disputes. When conducting such a review, it is important for parties to make sure they are familiar with the arbitral institution referred to, and that they are satisfied with the law of the seat of the arbitration (which can determine procedural matters when things go awry).