Dubai decree impacts arbitration landscape

10 October 2021
Recent move has revamped the Dubai International Arbitration Centre, while bringing Dubai International Financial Centre (DIFC) into greater focus

Dubai Decree 34 of 2021, which came into effect on 20 September 2021, has brought about important changes in the arbitration space in Dubai.  The decree:

  • Abolishes the Emirates Maritime Arbitration Centre (EMAC)
  • Abolishes the Dubai International Financial Centre’s Arbitration Institute (DAI), which, in partnership with the London Court of International Arbitration (LCIA), was managing the offshore DIFC-LCIA Arbitration Centre
  • Transfers all the assets and operations of EMAC and the DAI to the Dubai International Arbitration Centre (DIAC), Dubai’s long-standing onshore arbitration centre

Some have hailed this as a positive development. The consolidation of several arbitration centres in Dubai is anticipated to allow for the streamlined development, functioning and management of arbitration within the emirate.

While the decree abolishes the offshore DIFC-LCIA Arbitration Centre, it confirms that a DIAC branch will be set up in the DIFC, and provides for DIFC as the default seat for DIAC arbitrations. 

The seat of an arbitration determines the applicable procedural law and supervising court for an arbitral dispute. The provision designating the DIFC as the default seat is likely to increase the international profile of DIAC, with DIFC’s common-law courts, internationally recognised practices and pro-arbitration approach.

On the other hand, the decree has surprised many practitioners and users of DIFC-LCIA and EMAC.

The DIFC-LCIA Arbitration Centre had gradually gained popularity with a record number of cases registered in 2019 and 2020, and 179 active cases on its books in the first half of 2021. It was often recommended as the preferred dispute resolution centre for new contracts by a number of legal practitioners for international parties.

Clients with DIFC-LCIA clauses in their commercial contracts may now feel uncertain as to how any future disputes will be determined.

In this respect, a press release from the former Trustees of DAI dated 20 September 2021 and, more recently, announcements from the DIFC and the LCIA dated 7 October 2021, have confirmed that discussions between LCIA and the government of Dubai regarding the transition period are ongoing, and seek to ensure the continuing good management of existing and future cases. These discussions could result in further developments.

Business implications

Article 6(a) of the decree provides that all agreements concluded before 20 September 2021, providing for arbitration under the DIFC-LCIA and the EMAC rules, are considered valid and effective. 

The article further states that DIAC shall substitute the abolished centres in the administration of disputes under such agreements unless the parties agree otherwise.

How this will work in practice remains to be seen. The LCIA Court is an integral part of the DIFC-LCIA centre and rules. The rules contain multiple references to the LCIA Court, including in relation to supervising the functioning of the registrar and decisions in respect of the arbitration (such as the formation of arbitral tribunals and determination of challenges to arbitrators).

While the LCIA Court remains unaffected by this development, it is unclear what functions, if any, of the LCIA Court will now be available to parties who have incorporated the DIFC-LCIA rules in their dispute resolution clauses. 

This development does not impact arbitrations that are not administered by the DIFC-LCIA or EMAC, even if they have their seat in the DIFC.

Impact on ongoing disputes

Article 6(b) of the decree says that DIFC-LCIA and EMAC arbitral tribunals constituted before 20 September 2021 will continue to hear all cases before them under the same arbitration rules. 

The article also proposes that DIAC will supervise these cases. The decree grants DIAC six months to commence its role in accordance. 

Both the DIFC and the LCIA, in recent announcements, state that “it has been proposed that LCIA will directly administer all ongoing arbitrations, mediations and other ADR proceedings referred to the DIFC-LCIA. Under this proposal, the DIFC-LCIA Registrar and Secretariat will administer all ongoing proceedings for and on behalf of the LCIA on a secondment basis from DIAC until such proceedings are concluded. There will be no change or interruption to the services provided to parties and arbitrators to proceedings referred to the DIFC-LCIA”. 

This is intended to provide clarification and comfort as to how arbitrations will be supervised during the transitionary period to ensure uninterrupted access to dispute resolution. Again, it remains to be seen how this will work in practice.

Further issues to be addressed in detail include the use of arbitration costs already paid, and payment of tribunal fees and expenses. Taking into account that the decree transfers all assets and funds to DIAC together with their employees and lists of arbitrators, the advances on arbitration costs will also likely require transferring.  

Considerations

More developments can be expected, which will interest parties who have already incorporated DIFC-LCIA and EMAC rules into their dispute resolution clauses, including following the above-referenced ongoing discussions between the Dubai government and the LCIA.

In 2016 and 2018, when the LCIA terminated its overseas ventures in India and Mauritius, respectively, the LCIA continued to administer cases arising out of the abolished institutions. It appears that similar steps will be agreed in respect of the DIFC-LCIA. 

When considering future contracts, commercial parties must continue to carefully consider:

  1. The seat of the arbitration (which will determine the procedural law of the dispute)
  2. The procedural rules that will apply to the dispute

In terms of the seat, both Dubai and the DIFC remain popular choices and continue to be fully available to commercial parties.

In terms of procedural rules, there is still a wealth of popular options that are unaffected by the decree.

For commercial parties preferring Dubai-based rules, the DIAC rules are likely to remain a popular choice (and the role of DIAC in the Dubai arbitration landscape has only been underpinned by the recent developments).

Other popular options available to parties to select include the International Chamber of Commerce rules and the LCIA rules.

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