Disputes Disrupted? The Impact of Dubai's Decree No. 34 of 2021 on the Choice of Commercial Arbitration in the UAE
The Situation: Dubai Decree No. 34 of 2021 (the "Decree") was issued on 14 September 2021 and became effective on 20 September 2021. The Decree cancelled—with immediate effect—two arbitration institutions in Dubai: (i) the Arbitration Institution of the Dubai International Financial Centre ("DIFC"), which comprised in part the DIFC-LCIA arbitration centre; and (ii) the recently established Emirates Maritime Arbitration Centre ("EMAC") (together the "Cancelled Centres"). The operations of the Cancelled Centres have been transferred to the Dubai International Arbitration Centre ("DIAC"), which has been operating in onshore Dubai since 1994.
The Result: The Decree provides that the rules of the Cancelled Centres shall continue to apply, to the extent they do not conflict with the provisions of the Decree, until DIAC issues its new rules. The Decree also makes clear that agreements entered into prior to 20 September 2021 that contain a dispute resolution clause selecting either DIFC-LCIA or EMAC Rules will remain valid, and that DIAC will replace the Cancelled Centres in the administration and supervision of such disputes, unless the parties agree otherwise. What is not clear is (i) when the new DIAC rules will be published; or (ii) what will happen to arbitrations that are still ongoing under the Cancelled Centres' rules when the new DIAC rules are published.
Looking Ahead: Parties seeking to agree to arbitration in the Middle East should no longer include DIFC-LCIA or EMAC rules to govern their agreement to arbitrate. For contracts already in place that contain DIFC-LCIA or EMAC arbitration clauses, such contracts should be reviewed and amended to reflect the parties' choice of a new arbitration centre. Parties may continue to choose the DIFC or onshore Dubai as the "seat" or legal place of their arbitration. But parties should review their contracts and agree which arbitral institution's rules they want to now govern their arbitration.
The Decree mandates that DIAC shall be restructured as a single unified arbitration centre with its headquarters in "onshore" Dubai and a branch in the "offshore" DIFC, with the ability to establish further branches inside and outside the Emirate of Dubai. The Decree also cancels with immediate effect both the existing Dubai Arbitration Institution ("DAI") of the DIFC (which comprised in part the DIFC-LCIA centre) as well as EMAC. The stated objectives for DIAC in the Decree's enabling statute ("Statute") are (among others) to "Consolidat[e] the position of the Emirate [of Dubai] as a reliable global hub for resolving disputes" and "Enhanc[e] the position of DIAC as one of the best options for the parties to the dispute to resolve their disputes efficiently and effectively . . . ."
As a result of the Decree, it is understood that DIAC will immediately replace the DIFC-LCIA and EMAC in its administration of pending matters, and that the DIFC-LCIA and EMAC will cease to exist. The Decree states that the newly restructured DIAC has six months from 20 September 2021 to regularize its reconstituted status in accordance with the provisions of the Decree. In the meantime, to minimize disruption to parties, the DIFC has stated that there exists a proposal for LCIA, on a secondment basis from DIAC, to directly administer all ongoing arbitrations, mediations, and other ADR proceedings referred to the DIFC-LCIA until such proceedings are concluded.
The Decree makes clear that the Dubai Courts and the DIFC Courts will continue to serve in their capacity as the curial jurisdiction for any matters that arise where the seat of the agreement was "onshore" Dubai or "offshore" DIFC, respectively.
Impact on Contracting Parties
The Decree affects parties differently, depending on where they are in the lifecycle of their contracts and/or disputes, as follows:
- Ongoing Arbitrations and Mediations: Existing DIFC-LCIA and EMAC clauses remain valid and DIAC will take over the administration of any cases commenced using the rules of these centres, unless the parties agree otherwise. Proceedings that have already commenced as of 20 September under the rules of the Cancelled Centres are to continue to progress uninterrupted. Delays, however, may occur, especially for proceedings where no sufficient fund advances were collected from the parties before 20 September. The Decree specifically provides that (i) the Cancelled Centres' arbitration rules will still apply to existing proceedings, and (ii) the new DIAC will replace the Cancelled Arbitration Centres in all their rights and obligations. It remains to be seen how the transition to DIAC's administration will be effectuated.
- The Commencement of Arbitration or Mediation in the Future is Anticipated but the Applicable Rules Are Not Amended: The Decree is silent on the rules to be used for future DIFC-LCIA or EMAC proceedings if they are commenced after 20 September but before the new DIAC rules are published. This silence creates a potential gap for parties with contracts referring to DIFC-LCIA or EMAC rules. Parties now wishing to commence such proceedings should therefore seek legal advice and consult with the relevant institutions before filing a request for mediation or arbitration.
- Existing Contracts With No Arbitration Pending or Contemplated: Existing dispute resolution clauses referring to the Cancelled Centres have effectively become subject to DIAC's administration and its new rules (which are yet to be published) in the absence of a separate agreement from the parties. Parties should review their existing agreements and determine if DIAC, and its yet-to-be-published arbitration and mediation rules, are their choice for dispute resolution, and if not, to amend their agreements accordingly.
- Future Contracts: Parties to future contracts should not include references to the Cancelled Centres. Given that the new DIAC arbitration rules have not yet been published, parties should seek legal advice when selecting rules for an arbitration seated in, taking place in, or related to Dubai. Parties can continue to select either the DIFC or "onshore" Dubai as the seat of their arbitration. The Decree expressly provides that the DIFC will be the default seat for any DIAC arbitration clause that does not specify the "seat." This development is significant for arbitral parties outside the UAE because arbitration agreements that are silent on the choice of the seat will now be defaulted to the DIFC (rather than "onshore" Dubai). The DIFC as a seat for arbitration is important for international parties because it subjects the parties to supervisory courts that function in English, are based on English common law principles, and apply the DIFC Arbitration Law (which is based on the UNCITRAL model arbitration law) for supervisory and procedural issues.
Impact on Seat, Arbitrator Selection, and Costs
Five important drivers of the arbitral experience include: (i) the arbitration law at the seat of the arbitration; (ii) the effective support by the seat's courts; (iii) confidentiality; (iv) the selection of arbitrators who will decide the dispute; and (v) costs. At the time of this Commentary, none of the first three factors have been directly impacted by the Decree or Statute. However, it is important to note that (1) the DIFC will be the default seat for future DIAC arbitrations if the parties are silent on choice of seat; (2) the Statute foreshadows in Articles 4(a)(1)-4(a)(2) that the DIFC Arbitration Law might be amended; and (3) the DIAC Rules, which presently broadly provide for robust confidentiality, will be amended, though it is not certain when or how.
The Decree did directly impact the last two considerations affecting the experience of arbitral parties, namely the selection of arbitrators and the determination of arbitrators' costs. Parties currently referring future disputes to DIFC-LCIA arbitration will no longer have their arbitrators selected or confirmed by the LCIA Court, but rather by the soon-to-be-established DIAC arbitration court. Furthermore, the costs calculations of the DIFC-LCIA and DIAC are different. Arbitrators' costs in DIFC-LCIA arbitration are based on hourly rates and time spent by arbitrators, whereas the existing DIAC system calculates arbitrator's costs according to the amount in dispute. The cost system adopted in the new DIAC Rules will thus be an important factor in attracting experienced arbitrators, which in turn will inform the desirability of this new arbitral institution.
The Decree and DIAC's Statute
Below are the key features of the Decree and its DIAC Statute, which will drive parties’ choice of arbitral institution, as outlined above:
- Reinforcement of the DIFC as an Arbitral Seat: The DIAC Statute provides that parties may continue to choose between an "onshore" Dubai seat for their arbitration or an "offshore" seat in the DIFC—while stating that the DIFC will be the default seat of future DIAC arbitrations if the parties do not designate an arbitral seat in their contracts. This provision sends a clear message to international users that DIAC should be seen as an international arbitration centre using the DIFC Arbitration Law (and the DIFC Courts) as the curial jurisdiction in the absence of express choice by the parties. This change reflects the success of the DIFC Arbitration Law and of the DIFC Courts system in attracting and maintaining foreign investment in Dubai.
- Establishment of a Single Unified Arbitration Centre in Dubai: The Decree establishes a single unified arbitration centre in Dubai, the new DIAC. DIAC was established onshore in 1994 as a not-for-profit arbitration centre by the Dubai Chamber of Commerce and Industry. Under the Decree, the new DIAC will remain an autonomous arbitral body, independent from the government, with headquarters in the Emirate of Dubai and a branch in the DIFC.
- Transfer of Obligations and Assets (Including Employees and Lists of Arbitrators) to the New DIAC: All property, staff, and cases of the Cancelled Centres are transferred to the new DIAC. This includes the transfer of properties, moveable assets, devices, equipment, funds (from the parties and their financial allocation from the government of Dubai), employees, and lists of arbitrators, conciliators, and members. Most importantly to arbitrating parties, the new DIAC will replace the Cancelled Centres and all their rights and obligations.
- Continued Validity of Arbitration Agreements Referencing the Cancelled Arbitration Centres Up Until 20 September 2021: All arbitration agreements referring to the Cancelled Centres will remain valid so long as such agreements were entered into before 20 September 2021. Going forward, DIAC will administer disputes for cases initiated under the rules of the Cancelled Centres, unless the parties agree otherwise.
- Continuation of Mediations and Arbitrations Initiated under the Rules of the Cancelled Arbitration Centres: Unless parties agree otherwise, ongoing arbitrations conducted under the auspices and the rules of the Cancelled Centres will continue if the arbitral tribunals were constituted prior to 20 September 2021. Practically, it remains to be seen how these cases will be administered during the implementation of the transition to DIAC. Delays may occur in the administration of ongoing cases as a result.
- Arbitration Rules of the Cancelled Arbitration Centres Remain in Place Until the Issuance of the New DIAC Rules: Until the new DIAC arbitration rules are issued, the Decree provides that the rules of the Cancelled Centres, as well as the 2007 DIAC arbitration rules, will continue to be in force as long as they do not conflict with the Decree and the DIAC Statute. DIAC's ability to administer cases under DIFC-LCIA rules may raise intellectual property and other concerns, given the many references to the LCIA and the LCIA Court in those rules. We understand that the relevant institutions and authorities are in discussions to address these concerns, and that there exists a proposal for LCIA, on a secondment basis from DIAC, to directly administer all ongoing arbitrations, mediations, and other ADR proceedings referred to the DIFC-LCIA until such proceedings are concluded. A revised draft of the DIAC arbitration rules was circulated in 2018; however, the new DIAC Rules will need to be reviewed to conform with the Decree and the DIAC Statute, and then would need to be adopted by the newly revamped DIAC.
- Establishment of an Arbitration Court to Support the New DIAC: The new DIAC will be assisted by an arbitration court composed of no more than 13 independent members with local and international arbitration experience. The DIAC arbitration court will assist the revamped DIAC in the administration of cases, including by reviewing draft awards prepared by tribunals—similar to the scrutiny process undertaken by the ICC Arbitration Court. This reform will bolster confidence in arbitration by ensuring that proceedings are conducted in an effective, expedited, and independent manner.
Six-Month Regularization of Status Period: The Decree provides for a period of six months during which the new DIAC will coordinate with "all competent authorities in the Emirate of Dubai to regulate its status in accordance with the provision of the Decree."
Three Key Takeaways
- The parties' agreement remains the central principle of arbitration clauses impacted by the Decree: Contracting parties, with the advice of counsel, should ensure that their contracts reflect their continued agreement on specific dispute resolution rules and the institution that will administer those rules. Depending on their position in the contract's lifecycle and the potential emergence of a dispute, parties should amend or update any agreements containing dispute resolution clauses that are affected by the Decree—contracts that have DIFC-LCIA, DIAC, or EMAC rules.
- The DIFC increases in prominence: The Decree does not impact the ability of parties to select the DIFC as an arbitral seat. And the DIFC’s prominence will increase as a result of the Decree because the DIFC has now become the default seat for all future DIAC arbitrations where the arbitration clause is silent on the selection of the seat.
- Parties should not wait for a dispute to arise before amending their agreements: Experience shows that after a dispute has arisen, parties have difficulty agreeing even on the simplest terms. We encourage parties with arbitration agreements affected by this Decree to seek legal advice on these developments and amend their arbitration agreements now, before a dispute arises.