DUBAI RESETS ITS ARBITRATION REGIME WITH A CLEAN SLATE

Dubai International Arbitration Centre is empowered to take on all tasks and more

The recently issued Decree No. 34 of 2021 by Dubai has been a trending topic. The Decree dissolves Emirates Maritime Arbitration Centre and the Dubai International Financial Centre (DIFC) Arbitration Institute and assigns their obligations to Dubai International Arbitration Centre (DIAC).

While this development may have startled some arbitration practitioners, it would not come as a surprise to those who have been following the Government’s gradual steps to enhance the UAE’ international arbitration landscape over the past decade. This includes UAE Court’s adoption of a pro-enforcement approach to the enforcement of arbitration awards, issuance of laws with the objective of promoting foreign investment, and the recent promulgation of the UAE Federal Arbitration Law No. 6 of 2018, which aligns with international arbitration standards.

According to a study published in May by the Queen Mary University of London, Dubai has been recognised as one of the Top 10 preferred arbitration destinations worldwide. Those in close interaction with the decision-makers of the Decree were not surprised by its issuance. The preparations for this step have been in progress since May. Dr. Al Mulla had proposed that in order to enhance Dubai’s position as an arbitration centre it had to do few things. The establishment of an independent centre was at the core of this.

Start afresh

The close affiliation that DIAC had with the Dubai Chamber did not support its growth and international recognition. The suggestion was to abolish all the current arbitration institutions operating in Dubai and merge into a new centre having the Dubai brand and which would be seated in the DIFC.

The above recommendation was well received. Dr. Al Mulla prepared the first draft of the law of the new arbitration centre. The recommendation was however amended from being a merger into an acquisition by Dubai International Arbitration Centre of the other two centres and notably the DIFC-LCIA. The impact of this has been softened by the fact that, as indicated in the draft 2017 DIAC Rules, the default seat and enforcement court is now the DIFC and DIFC Courts rather than Dubai Courts. The Decree has achieved two things — it has established for the first time a full autonomous status of DIAC and stipulated that the DIFC Courts shall be the default procedural and enforcement court of DIAC.

Designating the DIFC as the default seat addresses the everlasting issue on whether the DIFC can be used as a gateway for enforcement of arbitration awards in circumstances where the award debtor’s assets are not located in the DIFC.

Even if the award debtor’s assets are located in mainland Dubai, award creditors can in DIFC-seated arbitrations resort to the DIFC Courts for enforcement of their arbitration awards. And thereafter benefit from the onward enforcement of those awards in mainland Dubai where the award debtor’s assets are located.

The Decree has also clarified that the choice of the seat would be the determining factor to ascertain which court would act as the supervisory court over arbitration proceedings. The Decree states that if the arbitration agreement specified Dubai as the seat of arbitration, the applicable law shall be the UAE Federal Arbitration Law and the Dubai Courts shall be the curial courts.

On the other hand, if the parties have identified the DIFC as the seat of arbitration, then the DIFC Arbitration Law shall apply and DIFC Courts shall act as the supervisory courts. This should also alleviate the confusion that sometimes existed between Dubai Courts and DIFC Courts as to which of them should act as a supervisory courts irrespective as to where the award debtor’s assets are located.

In addition, the Decree clarifies that a reference to Dubai as the seat of arbitration does not encompass the DIFC and vice versa, which was also a controversial topic that usually came into play upon the existence of a dispute. It is yet to be seen if these clarifications would be sufficient to convince the arbitration community of the value of this major change.

Some practitioners have argued that this move away from the LCIA will damage Dubai’s reputation as an international arbitration hub. However, such a proposition neglects a compelling fact that the DIFC-LCIA never promoted Dubai. In addition, the Decree aims to provide arbitration players with a one-stop-shop for arbitration disputes through a united arbitration centre irrespective as to whether those disputes are domestic, international or maritime-related.

While the Decree may appear as an acquisition of two existing DIFC arbitration centres by an onshore centre, one cannot ignore the fact that the existing DIAC has also been replaced by a new DIAC that enjoys financial and administrative independence of the Dubai Chamber, with headquarters in both Dubai and the DIFC.

The new DIAC will also have a Court of Arbitration to supervise arbitration proceedings and scrutinise draft awards, similar to the courts within the ICC and LCIA. The DIAC Court shall also issue and implement arbitration rules without the Ruler of Dubai’s approval. This would provide flexibility for the rules to embrace and adapt any changing trends in arbitration practices.

One cannot ignore the fact that the existing DIAC has also been replaced by a new DIAC that enjoys financial and administrative independence of the Dubai Chamber.

Up to the task

In addition, the Decree provides that DIAC shall be accountable for civil liability arising from inadvertent mistakes committed by arbitral tribunals. This provides reassurance that the Centre would imminently address potential challenges raised by the parties against arbitral tribunals.

The Decree has made it clear that ongoing cases under the rules of the dissolved centres and any tribunals constituted by September 20, 2021 shall continue to hear and determine all arbitration cases before them without interruption and under the same arbitration rules which currently apply to such arbitrations.

This provision aims to maintain the integrity of existing arbitration proceedings. It is therefore evident that the aim of the Decree is not to demolish the effect of existing DIFC arbitration rules, but have those rules integrated into a unified set of rules provided through one arbitration centre in Dubai.

For now, businesses should no longer include a reference to the DIFC-LCIA in any new contracts currently being negotiated. Rather, the reference should be to DIAC or any other arbitration institution of the parties’ choice.

Designating the Abu Dhabi Global Market as an alternative dispute resolution forum may be a potential solution, but parties should not underestimate the prolonged time and cost implications that may arise at the time of enforcement in situations where the award debtor’s assets are not readily accessible in the ADGM, but in other emirates where a memorandum of understanding on enforcement of awards does not exist.