In Brief: Much has been written about the Decree No. 34 of 2021 concerning the Dubai International Arbitration Centre (“DIAC”) but there have been significant diverging opinions about its implications and much speculation. This article aims to clarify the impact of the Decree and practical steps needed, in light of the press release and statements issued on 7 October 2021 by the Dubai International Financial Centre (“DIFC”) and the London Court of International Arbitration (“LCIA”) respectively, further to the ongoing consultation between the government of Dubai, DIAC and the LCIA.
In short, the Decree abolishes the DIFC Arbitration Institute (“DAI”) and Emirates Maritime Arbitration Centre (“EMAC”) and transfers their assets, rights and obligations to DIAC, establishing a single unified arbitration centre under a new overhauled DIAC. The new DIAC will (i) have its headquarters in mainland Dubai and a branch in the DIFC; (ii) consist of a new board of directors, court of arbitration and an administrative body which will together undertake the overall supervision and management of the new DIAC; and (iii) it is anticipated that DIAC will soon issue new arbitration rules to replace the 2007 DIAC Rules, in line with its stated objectives to strengthen Dubai as a global centre for dispute resolution and apply international best practice. The Decree provides a period of 6 months for DIAC to coordinate with all concerned entities to make adjustments in consistency with the Decree (Article 9).
The DIFC press release of 7 October 2021 confirms the consolidation of the DAI and EMAC into the new DIAC and states that, pursuant to Article 9 of the Decree, it has been proposed that all ongoing arbitrations will be administered for and on behalf of the LCIA by the DIFC-LCIA casework team, on a secondment basis from DIAC, until such proceedings are concluded. However, all arbitrations arising out of agreements referencing the DIFC-LCIA and referred for resolution after the date of enactment of the Decree will be administered by DIAC in accordance with the DIAC Rules, unless the parties agree otherwise. The LCIA’s statement of 7 October 2021 makes reference to the DIFC’s press release and reiterates these points, whilst noting that there are a number of outstanding questions which need to be resolved such as the current status of the DIFC-LCIA casework team and their ability to access funds held by the DAI on behalf of the parties to existing DIFC-LCIA cases.
The overall impact of the Decree based on current information can therefore be summarized as follows:
Impact on ongoing DIFC-LCIA, EMAC and DIAC arbitrations: Arbitral tribunals already constituted before the date the Decree came into force (i.e. before 20 September 2021) will continue under the existing DIFC-LCIA, EMAC and DIAC Rules without interruption, pursuant to those same rules, unless otherwise agreed by the parties (Article 6b). The Decree provides for DIAC to undertake the supervision of such cases, however pursuant to Article 9 it has been proposed that the LCIA will administer such existing DIFC-LCIA cases through the DIFC-LCIA casework team, on a secondment basis from DIAC, not only for the 6 month transitional period but “until such proceedings are concluded”. This is based on the 7 October 2021 statements referred to above and ensures no change or interruption to ongoing arbitrations that were already referred to the DIFC-LCIA before the Decree came into force. This approach is in line with Article 9 of the Decree and permitted under Article 32.4 of the DIFC-LCIA Rules.
Impact on Agreements concluded before Decree came into force, where referred to arbitration before Decree came into force: As regards agreements already entered into before 20 September 2021, which provide for arbitration under the DIFC-LCIA or EMAC Rules, the Decree makes clear that these agreements remain valid and effective, and that DIAC will step in as a replacement institution, unless otherwise agreed by the parties (Article 6a). In practice, as regards existing arbitrations already commenced before 20 September 2021 under the DIFC-LCIA Rules, under agreements concluded before the Decree came into force, DIAC’s proposal would mean that the DIFC-LCIA casework team will continue to administer such existing DIFC-LCIA cases on behalf of the LCIA, on a secondment basis from DIAC, not only for the 6 month transitional period but “until such proceedings are concluded”. Again, this is based on the 7 October 2021 statements and ensures no interruption to ongoing and existing cases that were already referred to the DIFC-LCIA before the Decree came into force.
Impact on new arbitrations commenced after Decree came into force: The position is different in respect of arbitrations commenced after the Decree came into force. Article 8c of the Decree states that the existing arbitration rules of the DIFC-LCIA, EMAC and DIAC remain in full force and effect to the extent they do not contradict the Decree and Statute, until such time as the new DIAC Rules are approved. However, in light of Article 6a and the statements from the DIFC and LCIA respectively, it has been clarified pursuant to Article 9 that all new arbitrations being commenced by parties after 20 September 2021 – whether under agreements providing for DIFC-LCIA and/or EMAC arbitration concluded before or after the Decree came into force – “will be administered by DIAC in accordance with the DIAC Rules”, unless the parties agree otherwise. This appears to mean that all new cases that are referred to the DIFC-LCIA after the Decree came into force will not be determined under the DIFC-LCIA Rules but will rather be resolved in accordance with the DIAC Rules under the administration of DIAC, unless the parties agree otherwise. The parties are of course at liberty to mutually agree to amend the dispute resolution clauses of agreements before a dispute arises and/or before commencing arbitration proceedings, should they wish to do so.
Impact on new Agreements being concluded after Decree came into force: As regards agreements being negotiated and concluded after 20 September 2021, any such agreements should avoid providing for DIFC-LCIA or EMAC arbitration due to the risk of challenges being raised to their validity, pursuant to the provisions of the Decree, and to avoid potential jurisdictional and/or enforcement problems in the future. Such agreements should instead refer disputes to DIAC or another arbitral institution and rules as agreed between the parties. However, if agreements do provide for DIFC-LCIA and/or EMAC arbitration and are referred to arbitration after the Decree came into force, based on the statements of 7 October 2021 from the DIFC and LCIA it appears that in practice such arbitrations will be administered by DIAC in accordance with the DIAC Rules.
Practical steps: In the current circumstances, the ongoing implications of the Decree need to be carefully monitored and parties should consider the following, particularly in the six month transition period:
(i) New agreements currently being negotiated should avoid providing for arbitration under the DIFC-LCIA Rules or the EMAC Rules. The existing DIAC Rules may be used but are anticipated to soon be replaced. Apart from the DIAC Rules, therefore, other options may also be considered by the parties as appropriate such as, for example, the ICC Rules, LCIA Rules, ADCCAC Rules or the new DIAC Rules (once published).
(ii) In any of these scenarios and whichever arbitration rules are chosen, the parties should also carefully consider the seat or legal place of arbitration, choosing for example either a DIFC seat, Dubai seat, Abu Dhabi Global Market (“ADGM”) seat or elsewhere depending on the case and to suit their particular needs and preference in terms of supervisory courts and applicable arbitration law, and taking into account the location of the counterparty’s assets against which an award may need to be enforced in the event of a dispute.
(iii) Importantly, if the DIAC Rules are chosen and no seat of arbitration is expressly specified in the contract, the default seat will be the DIFC (with the DIFC Courts having supervisory jurisdiction and the DIFC Arbitration Law No. 1 of 2008 being applicable), pursuant to Article 4 of the Statute to the Decree. Otherwise, if the parties choose Dubai as the seat of arbitration, Federal Arbitral Law No. 6 of 2018 will apply to the arbitration and the Dubai Courts will have supervisory jurisdiction.
(iv) Standard and model form contracts, where they refer to DIFC-LCIA and/or EMAC arbitration, should be amended in line with points (i) to (iii) above, as appropriate in the circumstances.
(v) Existing agreements concluded before the Decree came into force, which make reference to DIFC-LCIA and/or EMAC arbitration, should also be considered for amendment in line with points (i) to (iii) above, where possible and where a dispute has not already arisen, by the parties’ cooperating and agreeing a new “submission to arbitration” agreement and revising the contract, in order to avoid uncertainties and potential challenges to awards in the future.
The position needs monitoring given that, although some useful clarifications have now been provided, the consultation between the government of Dubai, DIAC and the LCIA is ongoing. There has also been no clear statement that the proposal referred to in the DIFC’s press release of 7 October 2021 has been formally agreed by all sides involved, and the LCIA’s statement of the same date refers to certain outstanding questions which need to be resolved.
Nevertheless, the clarifications provided are to be welcomed and it is hoped that the consolidation into the new DIAC and any outstanding issues will be resolved as soon as possible, given the positive benefits to Dubai of a streamlined and unified single arbitration centre, strengthening its position as a leading global centre for settlement of disputes.
Given that the position remains fluid, parties should consider seeking specialist legal advice tailored to their particular circumstances. If you need help or would like to discuss any of the above, then please contact the Engineering & Construction team.