DIAC 2022 Arbitration Rules: Will They Propel DIAC Into a Top-Five Institution?
The Situation: The Dubai International Arbitration Centre's ("DIAC") new arbitration rules (the "DIAC 2022 Rules" or "Rules") are now effective. The Rules apply to all requests for arbitration submitted to DIAC after 21 March 2022, as well as all arbitrations registered after that date under arbitration agreements that provide for application of the rules of the DIFC-LCIA arbitration centre or the Emirates Maritime Arbitration Centre (the "Cancelled Centres")—the two centres that were effectively dissolved by the Dubai Decree No. 34 of 2021 (the "Decree").
The Result: The DIAC 2022 Rules offer efficiency, responsiveness and convenience similar to the rules of other leading arbitration institutions, as well as unique procedures for selecting arbitrators and the withdrawal of counsel. However, the Rules could restrict party autonomy, and the Rules on seat selection might contradict the Decree, adding risk to validity or enforceability of an award issued by DIAC.
Looking Ahead: The DIAC 2022 Rules are modern and innovative. Whether parties will be deterred from selecting the Rules due to concerns over party autonomy or the validity of the Rule regarding seat selection remains to be seen. Where parties do select the Rules, the arbitration community is hopeful that the reconstituted DIAC will administer cases as efficiently and effectively as other major global institutions.
The DIAC 2022 Rules represent the culmination of six months of work by DIAC to reconstitute itself consistent with the Decree (see Jones Day's Insight about the Decree, "Disputes Disrupted? The Impact of Dubai's Decree No. 34 of 2021 on the Choice of Commercial Arbitration in the UAE"). In that time, DIAC has: (i) announced a new Board; (ii) established an arbitration court; and most recently, (iii) issued the DIAC 2022 Rules. These Rules apply to all arbitrations submitted to DIAC from 21 March 2022 onward, and offer numerous modern features, many of which will be familiar to users of the International Chamber of Commerce ("ICC"), the London Court of International Arbitration ("LCIA") and the Singapore International Arbitration Centre ("SIAC").
Contemporaneous with these events, a joint press release from LCIA and DIAC (the "Press Release") answered two key questions that arose following the Decree: (i) which rules apply to agreements to resolve disputes using the (now defunct) DIFC-LCIA centre? and (ii) which institution will administer those cases? According to the Press Release, DIAC will apply its Rules and administer proceedings "commenced before 21 March 2022 but not registered by the DIFC-LCIA under a designated case number". Tribunals formed under the DIFC-LCIA rules prior to the Decree may continue to apply those rules. LCIA in London will administer all pre-existing, registered DIFC-LCIA cases.
Many of the key features of the DIAC 2022 Rules mirror the latest trends, while others are novel. Unfortunately, two provisions in the Rules might prove problematic for international parties.
Rules May Override Parties' Agreement Where Inconsistent
Article 2.4 provides that the DIAC 2022 Rules override any provision in an arbitration agreement that is inconsistent with the Rules. However, Article 2.2 states that the Rules "shall be supplementary" to arbitration agreements that call for DIAC. While reconciling these provisions is not straightforward, one possible interpretation is that the Rules are intended to supplement only the narrow agreement to submit disputes to DIAC and override any provisions that are inconsistent with that dispute resolution clause. In other words, selection of DIAC as an arbitral institution to resolve parties' disputes is, according to the DIAC 2022 Rules, a choice to use those Rules in their entirety.
Parties who wish to preserve their autonomy to agree any terms, conditions or procedures related to their arbitration agreement and depart from any provision in the DIAC 2022 Rules should select a different arbitral institution for case administration. Further, given the risk that such a denial of party autonomy may be anathema to public policy or in conflict with arbitration laws, parties who anticipate enforcing an arbitration award globally should also consider selecting a different institution.
Seat of Arbitration
Article 20 dealing with the seat of arbitration and the location of hearings is problematic in two regards.
First, and potentially most troubling, Article 20.1 states that where parties have not agreed to a seat but have agreed to a location/venue, the location/venue is deemed to be the seat. This arguably contradicts the statute accompanying the Decree (the "Statute"), which states: "Where the parties to arbitration fail to agree on the place or seat of arbitration, the DIFC will be deemed the place or seat of arbitration" (Article 4(b)). Article 20.1 of the Rules would appear to allow a tribunal to decide that the seat is non-DIFC in circumstances where the agreement is silent on seat (or place) but specifies a non-DIFC venue. Such a result is arguably unlawful under the Statute, which can be interpreted to require the seat to be the DIFC where an arbitration agreement is silent on seat (or place) but specifies a non-DIFC location/venue. The Statute carries the force of law, while the Rules do not. As a result, an award may be ripe for legal challenge if Article 20 has been applied to determine a non-DIFC seat where the agreement was silent on seat but stated a non-DIFC location/venue.
Second, Article 20.1 of the Rules continues, identifying the DIFC as the "initial seat" of arbitration where an arbitration agreement does not identify a legal seat or location/venue, and grants a constituted tribunal the power to finally determine the seat, following the parties' input. Again, the concept of an "initial seat" is inconsistent with the Statute, which dictates that the DIFC shall be (and remain) the seat in such circumstances. The rule is probably intended to mirror Article 16 of the LCIA rules, which renders London the default seat "unless and until" the tribunal makes a determination otherwise. However, unlike the LCIA rule, the DIAC rule is not stated as a determination that may be reversible, but rather a determination held in abeyance. This is problematic because it is not clear whether "initial" should be deemed permanent if the tribunal does not make a determination.
Both issues could lead to protracted litigation about the proper seat, which is expensive and inconvenient for parties, or lead to an award that is unenforceable or vulnerable to annulment efforts. Until these issues are clarified, arbitration agreements selecting DIAC should expressly and clearly articulate both the parties' agreed seat and location/venue.
Article 13 of the DIAC 2022 Rules provides a novel procedure for the appointment of sole arbitrators and chairpersons. DIAC short-lists three candidates, and the parties/tribunal members each short-list an additional three names. Once the consolidated short list is complete, the parties/tribunal members rank the candidates, and the first available candidate with the most votes will be appointed.
Confirmation of the Doctrines of Separability and Competence-Competence
The DIAC 2022 Rules expressly confirm that: (i) a tribunal has the exclusive power to rule on its own jurisdiction and (ii) the arbitration agreement is a contract separate from the main contract, meaning the invalidity of the main contract will not impact the validity of the arbitration agreement (Article 6.1). These clarifications reduce the risk of interference by local courts and may prevent unnecessary jurisdictional challenges. They are also aligned with the rules of other major arbitral institutions such as ICC (Article 6) and LCIA (Article 23.1).
Use of Technology
DIAC has followed numerous arbitral institutions from London to Australia in adopting virtual and electronic procedures for parties. Under the DIAC 2022 Rules, electronic communications and filings of requests for arbitration and answers will be the default procedure (Articles 3.1 and 4.1). The Rules also provide for partially or fully virtual hearings (Article 26) and electronic signatures on awards (Article 34.6).
Emergency Arbitrator and Interim Relief
Under the Rules, parties can apply to DIAC for an emergency arbitrator and emergency interim relief concurrently with (or following) the filing of a request for arbitration (Appendix II, Article 2).
The Rules also allow parties to apply for—and tribunals to grant—interim measures for specific purposes, such as preserving the status quo or preventing the dissipation of assets relevant to satisfying an award (Appendix II, Article 1). This list of interim measures is largely patterned after Article 21(1) of the UAE Federal Arbitration Law.
Consolidation of Multiple Claims and Parties
Under the DIAC 2022 Rules, parties will be able to submit one request for arbitration for claims arising out of multiple arbitration agreements where all parties agree to consolidation. Claims may also be consolidated where the tribunal is satisfied that all the claims are under the same agreement, arise from the same or related series of transactions or arise under ancillary contracts (Article 8). Article 8 of the Rules is similar to Article 8 of the SIAC rules and will benefit parties in construction disputes by facilitating consolidation of claims under a prime contract and a subcontract.
Contrary to the 2007 DIAC rules, third parties may now be joined to arbitrations under the 2022 Rules upon application from the original parties or if the third party is a signatory to the underlying arbitration agreement (Article 9). If the application for joinder is made after the tribunal is constituted, the tribunal must consider any potential conflict of interest, the impact of the joinder on the arbitration and the efficiency of the process before granting or refusing the application.
The DIAC 2022 Rules require parties to disclose any third-party funding arrangements (Article 22.1). Article 22 goes further than the third-party funding rules of other arbitral centres, such as the Hong Kong International Arbitration Centre, by expressly prohibiting parties from entering into a third-party funding arrangement after the tribunal has been constituted if that arrangement would give rise to a conflict of interest. This is a helpful provision that should reduce challenges to awards based on conflicts of interest between third-party funders and arbitrators.
Awards Within Six Months
The DIAC 2022 Rules provide short timeframes for issuing awards. Final awards are expected to be issued six months from the date of the transmission of the file to the tribunal (Article 35.1). This time frame is identical to Article 31(1) of the ICC rules, and just like the ICC rules, the time frame may be extended (Article 35.3) by the DIAC Arbitration Court: (i) upon receiving a reasoned request from the tribunal; (ii) on the DIAC Arbitration Court's own initiative; or (ii) if the parties agree to an extension in writing (Article 35.2).
Expedited Procedures—Awards Within Three Months
Awards under expedited procedures (a new procedure for DIAC) will be handed down within three months. Under the Rules, disputes under AED 1,000,000 (approximately USD 270,000) (including costs) will be administered under expedited procedures by default. Parties may agree to expedited procedures for disputes over AED 1,000,000 (Article 32).
Fees and Expenses
Under Article 36.1, parties can seek recovery of their legal fees and expenses. The DIAC 2022 Rules expand the types of costs tribunals may award parties to include fees and expenses for legal work, party-appointed experts, and "any other party's costs as assessed and determined by the Tribunal." This provision is in line with other leading institutions' rules. While DIAC has not elaborated on what might constitute "other" costs, DIAC tribunals may conceivably now award in-house counsel costs and the expenses of witnesses.
Costs and Tribunal Liability
To attract arbitrator talent, DIAC has removed its cap on total tribunal fees (which was previously three times the costs of one arbitrator) and provided (in Article 4.3 of Appendix I) that chairpersons will receive 40% of the tribunal's total fees by default, with each co-arbitrator receiving 30% of the total fees. Arbitrators will be remunerated based on the value of the dispute scaled for their speed, efficiency and the matter's complexity, rather than an hourly rate (as was the case under the now defunct DIFC-LCIA rules and as is currently the case under the LCIA rules) (Appendix I, Article 4.1).
Potential arbitrators should also be pleased by the introduction of an exclusion of liability clause—similar to those found in the ICC, LCIA and SIAC arbitration rules—which prevents parties from suing tribunal members or DIAC for any act or omission in connection with the arbitration (Article 41).
Replacement of Legal Representative(s)
Article 7.5 of the DIAC 2022 Rules provides that, following tribunal constitution, a party's right to change legal representative(s) is conditioned upon the tribunal's approval. In deciding whether to approve a change in legal representative(s), the tribunal must consider, among other things: (i) the right of a party to be represented by its chosen representative(s); (ii) the stage of the arbitral proceedings; and (iii) any potential time or cost impact of the proposed change.
While this Article prevents vexatious parties from delaying proceedings by changing counsel, it has significant downsides. Article 7.5 might:
- Place a party in the difficult position of either continuing with underperforming legal representatives or disclosing to the tribunal (and its adversary) its difficulties with its lawyers, which could compromise a party's position in the proceedings or settlement discussions; and/or
- Compromise a lawyer's right to withdraw from representation for legitimate reasons, including not being paid.
While Article 7.5 is novel, whether it will benefit or burden parties in practice remains to be seen.
Four Key Takeaways
- The DIAC 2022 Rules provide a modern approach to arbitration and may appeal to parties who seek short time frames for rendering awards or expect difficulties in the appointment of arbitrators. Parties can also take comfort in the new procedures allowing the consolidation of multiple claims in a single arbitration as well as the opportunity to seek expedited and emergency arbitrations, similar to the procedures in the latest rules of ICC, LCIA, SIAC and other major arbitral institutions.
- Parties wishing to enforce their arbitration agreements (and any resulting awards) in the MENA region should generally consider choosing the DIFC as the seat of their arbitration agreement. If parties choose the DIAC 2022 Rules, they should be sure to state the seat and location/venue in clear and express terms.
- Article 20 of the Rules raises concerns related to the determination of the seat and is problematic in light of the Decree. Loss of party autonomy is also a concern: Where an arbitration agreement is inconsistent with the Rules, Article 2.4 of the Rules could operate to override the parties' agreement. Finally, parties should be cognizant of the increased barriers to changing their legal counsel and ensure that they retain trusted legal counsel with depth of personnel who can step in if any issues arise with the output or availability of the lawyers initially assigned to the case.
- Following the Decree, Dubai has generally delivered on its promise to bring DIAC's arbitral rules in line with the rules of the world's major arbitral hubs. Whether the DIAC 2022 Rules will propel DIAC into the top five arbitral institutions globally will depend on whether Article 2.4 interferes with party autonomy, whether Article 20 frustrates the Decree's pronouncement of the DIFC as the default seat in the absence of a clear agreement (regardless of location/venue) and whether DIAC can administer cases with the efficiency and proficiency of other major global institutions.
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