In Brief:
- In the absence of an agreement on the seat of the arbitration, the DIAC Rules 2022 will presume the seat to be the DIFC. This is a significant departure from the old 2007 DIAC Rules which provided by default for onshore Dubai to be the seat.
- Following enactment of the DIAC Decree, more arbitrations than might originally have been envisaged will be conducted pursuant to the DIAC Rules 2022.
- As the supervisory courts for arbitrations seated in the DIFC, judgments of the DIFC Courts are therefore going to be of developing interest to parties to arbitrations in the UAE.
The DIAC Rules 2022 were issued on 21 March 2022. These new rules followed the enactment, on 20 September 2021, of Decree No. 34 of 2021 Concerning the Dubai International Arbitration Centre (“DIAC Decree”) which abolished both the DIFC Arbitration Institute (“DAI”) and Emirates Maritime Arbitration Centre. In the Dubai International Financial Centre (“DIFC”), the notable and previously popular ‘DIFC-LCIA Arbitration Centre’, which had existed as a joint venture between DAI and the London Court of International Arbitration (“LCIA”), was therefore abolished.
Undoubtedly, many contracts in the UAE signed prior to 20 September 2021 provided for arbitration pursuant to the rules of the DIFC-LCIA Arbitration Centre. The DIFC-LCIA Arbitration Rules in place at that time – the DIFC-LCIA Arbitration Rules in effect from 1 October 2016 – provided that in absence of any specific agreement between the parties, the default seat of the arbitration would be the DIFC.
Under Article 20 of the 2022 DIAC Rules, in the absence of an agreement on the seat of the arbitration, the seat will be presumed to be the DIFC. Whilst this mirrors the situation under the DIFC-LCIA Arbitration Rules in effect from 1 October 2016, this is a significant departure from the old 2007 DIAC Rules which provided for onshore Dubai to be the seat in absence of agreement between the parties. Where, for example, the parties choose Dubai as the seat of arbitration, the UAE Arbitration Law will apply to the arbitration and the Dubai Courts, rather than the DIFC Courts, will have supervisory jurisdiction.
The judgments of the DIFC Courts, as the supervisory Courts for DIFC seated arbitrations, are therefore going to become increasingly important for guidance on the detailed application of the new DIAC Rules 2022 and their interplay with the DIFC Arbitration Law of 2008.
This article outlines the DIFC Court’s approach in two recent judgments that consider the new DIAC Rules 2022.
1. DIFC Court of Appeal declines an opportunity to provide guidance on interpretation of the DIAC Decree
In its order with reasons of 7 October 2022 in Ledger v. Leeor [2022] DIFC ARB 016, the DIFC Courts’ ‘Arbitration Division’ refused an urgent ex parte application by the applicant for an interim injunction prohibiting the respondent from continuing court proceedings in the onshore Dubai courts.
The dispute concerned the construction of a residential tower in Dubai. The applicant was a developer, and the respondent was a main contractor. The contract between the parties provided for the settlement of disputes by arbitration seated in Dubai. The parties had agreed a modified clause from the FIDIC Red Book 1989 general conditions providing for arbitration under the “current Rules of Arbitration and Conciliation of the DIFC-LCIA”, without a specified ‘seat’ or ‘venue’. A new additional particular clause agreed between the parties provided that the “law governing the procedure and administration of any arbitration” was the law of the UAE and Dubai; and that “the place of arbitration shall be Dubai”.
The respondent had commenced a claim in the onshore courts in Dubai. The applicant before the DIFC Court commenced a claim before the DIFC courts seeking a binding declaration of the efficacy of the arbitration agreement between the parties and seeking an anti-suit injunction preventing the respondent from continuing its claims in the onshore Dubai courts.
The applicant argued that:
- following enactment of the DIAC Decree, reference to the DIFC-LCIA Arbitration Centre should be taken to be a reference to DIAC; and
- the seat of arbitration was the DIFC based on the default seat being the DIFC pursuant to Article 4(b) of the ‘Statute of the Dubai International Arbitration Centre’ included with the DIAC Decree – with the ‘venue’ (referred to as the ‘place’ of arbitration in the parties’ contract) being Dubai.
The respondent argued that the DIFC Courts did not have jurisdiction to hear the application and therefore could not grant the interim injunction sought.
The DIFC Court was not convinced that the ‘place’ of the arbitration could be simply construed as the seat, and instead found that reference to ‘place’ could equally be a reference to the ‘venue’ of the arbitration. Ultimately, the DIFC Court refused to grant the applicant its interim junction prohibiting the respondent from continuing court proceedings in the onshore Dubai courts on the basis that the arbitration was not, with “a high degree of probability” one seated in the DIFC.
In its order, the DIFC Court noted that the applicant had applied for permission to appeal the order, and that whilst it saw a limited prospect of success for the applicant’s appeal, granted the applicant leave to appeal on the basis that the DIFC Court of Appeal could provide guidance on the interpretation of the DIAC Decree, stating:
“51. Ledger has applied for permission to appeal my decision. I am minded to grant permission, not because I consider that the appeal has a realistic prospect of success – I do not – but I consider that there are other compelling reasons for the appeal to be heard, namely to enable the Court of appeal to give guidance on the interpretation of Decree 34 and on the test to be applied in granting anti-suit injunctions in arbitration matters where there is a dispute as to the identity of the seat.”
The decision was appealed by the applicant, in Ledger v. Leeor [2022] DIFC CA 013 in which the DIFC Court of Appeal dismissed the appeal.
The Court of Appeal noted that the appellant/applicant’s “serious difficulty” was that it had a counterclaim against the claims commenced by the respondent before the Dubai Courts. Should it submit these to the Dubai Courts then it would be taken to have unequivocally submitted to the jurisdiction of the local Dubai Courts.
The appellant/applicant submitted that:
- reference to the DIFC-LCIA Rules in the arbitration clause was indeed determinative of the matter to “a high degree of probability”, and in its view certainty, that the seat of the arbitration is DIFC; and
- the DIAC Decree distinguished between ‘legal place’ and ‘place’, ‘legal place’ being the seat of arbitration and ‘place of arbitration’ being its venue.
Ultimately, the Court of Appeal found that it had very little to determine at appeal and that the primary judge had applied the correct test to the grant of interim interlocutory relief and applied that test rationally.
In respect of the compelling reasons for allowing the appeal in the first place, unfortunately the Court of Appeal did not provide guidance on interpretation of the DIAC Decree where the appeal (and original order) had been made on an ex parte basis. In its judgment the Court of Appeal stated:
“68. In granting permission to appeal, His Honour evidently saw an opportunity for this Court “to give guidance on the interpretation of Decree 34 and on the test to be applied in granting anti-suit injunctions in arbitration matters where there is a dispute as to the identity of a seat.”
69. With respect to His Honour however, it is not for this Court to give guidance on anything relating to the substantive law on an appeal without notice to the Respondent of an order made without notice to the Respondent in relation to an application for the grant of an interim injunction. It has only heard one side of the case and then only in aid of what could at best be another provisional view about the law.”
2. DIFC Courts confirm lack of jurisdiction to hear disputes elected to arbitration
In a wider context, the DIFC Courts have recently confirmed that the DIFC Courts themselves are not the correct forum for disputes between parties bound by a valid and effective arbitration clause.
In doing so, the DIFC Court also clarified that arbitrations previously agreed to be conducted pursuant to the DIFC-LCIA Arbitration Rules are now conducted pursuant to the DIAC Rules 2022.
In Likitif v Luvaun [2022] DIFC ARB 028, in its Order dated 25 October 2022, the DIFC Courts’ ‘Arbitration Division’ dismissed a claim by the Claimant to commence a claim before the Courts, where there existed a binding arbitration agreement between the parties. It is not clear from the order why the claimant sought a remedy before the DIFC Courts.
In its order the DIFC Court stated:
“7. The Parties have agreed that any dispute would be resolved pursuant to the DIFC-LCIA by virtue of Article 30 of the Subcontract Agreement. However, pursuant to Dubai Decree No. 34 of 2021 (the “Decree”), DIFC-LCIA arbitrations are now conducted under the DIAC Arbitration Rules 2022 (the “DIAC Rules 2022”).”
Interestingly, the Court also specifically noted that whilst the parties had agreed that disputes between them would be resolved by arbitration pursuant to the rules of the ‘DIFC-LCIA Arbitration Centre’, the fact was that since the enactment of the DIAC Decree on 20 September 2021, DIFC-LCIA arbitrations were now conducted under the DIAC Rules 2022.
The Judgment makes no mention of a jurisdictional challenge being made by the Respondent, which suggests that the Court raised this issue sua sponte. This is a significant contrast to the approach adopted by the onshore Courts in the UAE which will consider an arbitration agreement waived if the responding party does not formulate a jurisdictional objection the first time it addresses the court in any manner.
The DIFC Courts are the supervisory Courts for arbitrations seated in the DIFC, and going forward we are likely to see the DIFC Courts addressing the application of the new DIAC Rules 2022 and their interplay with the DIFC Arbitration Law of 2008.
In another interesting development involving the seat of an arbitration, which we covered in Jus Mundi’s Industry Insights: 2023 Construction Arbitration Report, the Abu Dhabi Courts have now made multiple rulings in which they have curiously decided to relinquish supervision of Abu Dhabi seated arbitrations conducted under the Rules of the International Chamber of Commerce (“ICC”) in favour of the Courts of the Abu Dhabi Global Market (“ADGM”), where the ICC representative office is located. The ADGM Courts appear in a recent judgment to have accepted taking on this role which also means that we are likely to see more arbitration-related rulings coming out of the ADGM.
Conclusion/Recommendation:
The ever-changing landscape of UAE arbitration has in our experience caused significant procedural delays to the resolution of disputes.
If any of your contracts provide for arbitration, whether under the DIFC-LCIA Rules or otherwise, we recommend contracting James Harbridge at Hadef & Partners to identify any issues with your clause and what strategy you could adopt to avoid unnecessary complications in an arbitration down the road.