United Arab Emirates

Changes to Dubai’s legislation on arbitration centres

Aarta Alkarimi
Member, IBA Diversity and Inclusion Council
​​​​​Dubai, UAE

Background

On 14 September 2021, the Government of Dubai issued Decree No 34 of 2021 (‘the Decree’). The Decree, which came into effect on 20 September 2021, mandates that the Dubai International Financial Centre Arbitration Institute (DIFC Arbitration Institute) which includes the DIFC-LCIA Arbitration Centre and the Emirates Maritime Arbitration Centre (MIAC) shall be merged with the Dubai International Arbitration Centre (DIAC) and their assets transferred to DIAC. As a result, DIFC-LCIA and MIAC will cease to exist. DIAC has been in operation onshore in Dubai for the past two decades with a substantial caseload.

In line with other significant legal and regulatory reforms recently implemented in Dubai, the merging of Dubai’s alternative dispute resolution centres aims to make Dubai one of the most favourable cities for ease of conducting international business and commerce and ultimately placing DIAC among the top five most user-friendly, effective and efficient global dispute resolution centres.

Impact of the Decree on DIAC

The Decree provides that DIAC will have six months, from 20 September 2021 to implement the provisions of the Decree applicable to it and restructure its operations as an independent, non-governmental ADR centre.

This includes DIAC updating its rules, an initiative that was undertaken swiftly and recently completed. The new rules will come into effect on 21 March 2022. Some major updates to the new DIAC rules include provisions on consolidation of arbitrations and joinder of additional parties, expedited and emergency arbitration, alternative processes for appointing arbitrators, third party funding and inclusion of attorney fees as arbitration cost.

DIAC will have jurisdiction to consider and determine future disputes agreed by the parties to be referred to the MIAC or the DIFC-LCIA, unless the parties agree otherwise. Regarding ongoing MIAC and DIFC-LCIA arbitrations, DIAC will take on a supervisory role and administer these cases under the rules of MIAC or DIFC-LCIA, as applicable.

The DIFC-LCIA and MIAC are currently no longer able to register new cases. DIAC is exercising its supervisory role in ongoing DIFC-LCIA and MIAC arbitrations and exercising its jurisdiction by registering new cases arising out of contracts that refer to MIAC or DIFC-LCIA as the selected dispute resolution centres. In order to minimise disruption to ongoing arbitrations, DIAC and DIFC-LCIA have explored options with respect to pending cases through regular meetings and dialogue. Potential options such as secondment of case managers from DIFC-LCIA to DIAC, to directly administer all ongoing arbitrations until such proceedings are concluded have been considered.

Impact of the Decree on the parties

In the short term, practical difficulties may arise as a result of the dissolution of the DIFC-LCIA and MIAC. Such difficulties include the potential frustration of existing arbitration agreements where parties have selected MIAC or DIFC-LCIA and now are unwilling to agree to DIAC’s jurisdiction as mandated by the Decree. There is also the potential risk of guerrilla tactics by parties to disrupt and delay the start of an arbitration. Moreover, there is a potential increase in the number of cases before the Dubai and DIFC courts on objections to the jurisdiction of the arbitral tribunal. For example, where a party initially proceeds with an arbitration but later delays and disrupts the matter by filing an application before the courts and challenging the arbitral tribunal’s jurisdiction.

In the long term, however, the consolidation is expected to create a single centre that is transparent, efficient and in line with the country’s long-standing vision of turning Dubai into a true global ADR hub.

Impact of the Decree on the seat of arbitration

The Decree expressly provides that DIFC will be the default seat for any DIAC arbitration where the parties have not agreed to the seat of the arbitration.

This is a welcome development for some members of the international business community because the DIFC courts are based on the common law principles of England and operate in the English language.

Furthermore, the DIFC courts apply the DIFC Arbitration Law No 1 of 2008 as the law of the seat rather than the onshore UAE Arbitration Law No 6 of 2018.

Moving forward

As a result of these new developments, parties selecting an arbitration forum in the Middle East should no longer include DIFC-LCIA or MIAC in their arbitration agreements.

It is imperative that parties seek legal advice and amend existing contracts that refer to DIFC-LCIA or MIAC to reflect a new centre of choice and rules prior to disputes arising, where possible.

Developments arising from the merger of these centres are evolving. As we go to press, more clarity may have come to light on the merger.