REUTERS | Gleb Garanich

DIFC-LCIA and new DIAC in light of Dubai Government Decree No 34/2021: business as usual … at least for now

Dubai Government Decree No 34 of 2021 concerning the Dubai International Arbitration Centre (DIAC) (Decree No 34/2021), which entered into immediate effect upon its publication (see the Official Gazette for the Government of Dubai No 531 of 20 September 2021), has caused a great furore both among the local and the international arbitration community.

The main objective of Decree No 34/2021 is to consolidate the institutional arbitration offering in the Emirate of Dubai under the auspices of the DIAC, without losing opportunities of judicial forum shopping between onshore Dubai and the offshore Dubai International Financial Centre (DIFC) (see article 7, Decree No 34/2021, which expressly provides for the continued competence of the onshore Dubai and offshore DIFC courts in UAE arbitration). To that end, the “new” DIAC, to be established by a Statute of the DIAC enclosed in annex to the Decree (DIAC Statute) (article 3, Decree No 34/2021), while maintaining its headquarters in onshore Dubai, “shall also have a branch in the [DIFC]” (see article 2, Decree No 34/2021, albeit that the DIAC, in any event, has had a representative office in the DIFC since 2016). Read together with article 4 of the Decree, which “abolishes” the Emirates Maritime Arbitration Centre (EMAC) and the DIFC Arbitration Institute (DAI) (see articles 4(1)-(2) and 8, Decree No 34/2021, repealing the foundational laws of the EMAC) and the transition provisions outlined below, this has created concerns or even prompted the premature conclusion that the DIFC-London Court of International Arbitration (LCIA) Arbitration Centre (DIFC-LCIA) has also been dissolved. Nothing, however, could be further from the truth. A proper contextual reading of Decree No 34/2021 will assist in unraveling its true immediate legal effects and its inevitable practical limitations, which ultimately leave – at least for now – the DIFC-LCIA and its Arbitration Rules unaffected.

The new DIAC

Turning to the new DIAC first, it is not a secret that in pursuit of its wider aspirations to make Dubai a leading global, and not only regional, arbitration hub, the Government of Dubai has, for a while, been contemplating the idea of revamping the DIAC and affording it the structure and status that it deserves to compete with its international archrivals, the ICC International Court of Arbitration headquartered in Paris and the London-based LCIA. Both the ICC and the LCIA have significantly enhanced their influence over arbitration in the MENA region, each by creating its own fully operative regional presence by establishing the DIFC-LCIA and the Abu Dhabi Global Market (ADGM)-ICC respectively.

In what must be understood as an attempt to compete more effectively with the two most successful arbitral institutions in arbitration history, the new DIAC takes after both the ICC and the LCIA by creating and operating through a “Court of Arbitration” (article 10, DIAC Statute), better labeled the “DIAC Court” (taking account of its conceptual pedigree), side by side a Board of Directors and Administrative Body. The DIAC Court will be composed of 13 members in total, including a President and a Vice-President, each member having local and international arbitration experience and appointed for a non-renewable term of four years. The DIAC Court will exercise general supervisory powers over DIAC arbitrations, including more specifically:

  • The administration of arbitration proceedings under the DIAC and other procedural rules chosen by the parties, such as the UNCITRAL Rules of Arbitration (intimating the availability of DIAC to administer ad hoc arbitration proceedings).
  • Proposing revisions of the DIAC Rules of Arbitration as well as a code of ethics in the conduct of DIAC arbitrations.
  • Overseeing the appointment and challenge procedure of arbitral tribunals under the DIAC Rules (see articles 11(1), 11(5)-(7) and 11(14), DIAC Statute).

Importantly, the “soft scrutiny” of arbitral awards, a practice that the DIAC introduced around five years ago, will form part of a codified regime (like it does under the ICC Rules) and possibly even extend to arbitral decisions (article 11(8), DIAC Statute). Equally, under the new regime, like its ICC and LCIA counterparts, the DIAC Court will have a hand in supervising emergency arbitration proceedings prior to the constitution of the arbitral tribunal (article 11(8), DIAC Statute).

In a further attempt to benefit from the existing offshore arbitration offering in the form of the DIFC Arbitration Law, the DIAC Statute provides for the DIFC as a default seat of the arbitration, which in turn will empower the DIFC courts as the curial courts of a DIAC arbitration (article 4B, DIAC Statute). In addition, the DIAC Statute clarifies that party choice of (onshore) Dubai as the seat of the arbitration will trigger the curial application of the Federal Arbitration Law (FAL) with the support of the onshore Dubai courts as the curial courts (article 4A(1), DIAC Statute) whereas choice of the DIFC will engage the DIFC Arbitration Law and the curial competence of the DIFC Courts (article 4B(2), DIAC Statute). That said, there is some lack of clarity around the true scope of the curial courts’ powers in any of these circumstances, extending in accordance with the wording of the DIAC Statute to “any case claims and appeals relating to any award or any measure ordered during the arbitral proceedings by the arbitral tribunals” (article 4A(1) and (2), DIAC Statute). As is well known and established under both the FAL and the DIFC Arbitration Law, the curial courts’ power is limited to supportive, ancillary functions over the course of the arbitration and does not extend to the enforcement of arbitral awards (let alone arbitral decisions). Despite the wide wording of article 4 of the DIAC Statute, actions for enforcement are therefore unlikely to fall within the scope of article 4 and the question of the proper enforcement forum will continue to depend on the location of an award debtor’s assets.

With the adoption of Decree No 34/2021, the new DIAC is also expected to adopt a revised set of DIAC Rules of Arbitration, reflecting the new role of DIAC and the operational changes outlined above (article 8C, Decree No 34/2021). Until adoption of a revised set of DIAC Rules, the existing DIAC Rules remain in full force and so will the rules of the abolished arbitration centres.

Transition provisions

In order to facilitate the consolidation of Dubai’s institutional arbitration offering under the DIAC umbrella, Decree No 34/2021 provides for the transfer to the DIAC of any ownership titles, the staff of the abolished arbitration centres and the financial budgets granted to the abolished arbitration centres by the date of the Decree by the Government of Dubai with immediate effect from 20 September 2021 (that is, the date of entry into force of the Decree) (article 5A(1)-(3), Decree No 34/2021). Rosters of arbitrators and membership registers of the abolished centres will, albeit transferred to DIAC, continue to operate on the same terms and conditions until expiry of the relevant registration or membership term (article 5A(4), Decree No 34/2021).

Further, the DIAC “shall substitute the abolished arbitration centres in the exercise of all of their rights and the performance of all of their obligations” (see article 5B, Decree No 34/2021). Hence, DIAC will be required to administer all arbitrations of the abolished centres under their respective rules until adoption of a revised set of DIAC Rules. This is supported by article 6 of Decree No 34/2021, which confirms the continuing validity of:

  • Arbitration agreements pre-dating entry into force of the Decree that provide for arbitration under the arbitration rules of the abolished arbitration centres.
  • Pending references under such rules, subject to them being transferred to administration by the DIAC unless otherwise agreed by the parties (article 6, Decree No 34/2021).

Importantly therefore, the parties retain party autonomy over the further institutional course of their arbitration.

Under Decree No 34/2021, DIAC is accorded a total of six months starting from 20 September 2021 to complete the transition to the new DIAC.

The DIFC-LCIA

Turning to the DIFC-LCIA, fears of its dissolution as a result of the adoption of Decree No 34/2021 are unwarranted. Upon closer scrutiny, it becomes apparent that the Decree does not make mention of the DIFC-LCIA, nor of the DIFC-LCIA Rules of Arbitration. This is not surprising given that the DIFC-LCIA does not have any corporate existence and is ultimately no more than a name label that adorns the office space from which the DIFC-LCIA staff, in its turn employed by the DAI, administers arbitrations under the DIFC-LCIA Rules. Short of a transfer of that staff and the DIFC-LCIA’s case management system to the DIAC to ensure the continued administration of arbitrations under the DIFC-LCIA Rules under the DIAC umbrella, the DIAC will not be able to administer DIFC-LCIA references in practice.

In any event, no such transfer has presently taken place. To the contrary, in an official statement of 20 September 2021, the Former Trustees of the DAI have confirmed, in terms echoed by the Registrar of the DIFC-LCIA in recent case-management correspondence, that consultation was taking place between the LCIA and the Government of Dubai “to seek to ensure the good management of existing and future cases where parties have agreed to arbitration […] under the DIFC-LCIA Rules” and that the DIFC-LCIA case team was continuing to deal with the day-to-day management of references under the DIFC-LCIA Rules.

It must also be cautioned that any transfer of the DIFC-LCIA case management system and the DIFC-LCIA Rules for administration by the DIAC would likely require the LCIA’s consent. By way of reminder, the DIFC-LCIA is a joint venture between the LCIA and the DIFC (described by the former Chief Justice Sir Anthony Evans as “essentially a joint venture between the DIFC and the London Court of International Arbitration (LCIA), one of the leading players in the arbitration world”) and as such relies for the administration of its own cases upon the LCIA Rules template and the LCIA case management system, which are franchised to the DIA by the LCIA for the purpose of administering references under the DIFC-LCIA Rules. Finally, the LCIA would unlikely sit idly by were existing or future DIFC-LCIA references be transferred for administration to DIAC in the absence of an express agreement between all relevant stakeholders: to the contrary, the LCIA would be likely to retain control over any references to administer under the DIFC-LCIA Rules in reliance on article 32.4 of the DIFC-LCIA Rules (both in their 2016 and 2021 versions), according to which “[the] LCIA Court may decide to administer any arbitration directly, in whole or in part, if it deems this appropriate under the circumstances”. It might even be envisaged that were push come to shove, the LCIA might operate a DIFC-specialist division, offering administrative services for DIFC-seated arbitrations under the LCIA Rules from within their London headquarters.

Conclusion

By way of conclusion, for now, it is business as usual for DIAC and DIFC-LCIA arbitrations. A dissolution of the DIFC-LCIA or dispensation with the DIFC-LCIA Rules are unlikely to have been intended (and are far from being achieved) by Decree No 34/2021. In any event, to do either of the two would, if anything, cause a flight of arbitration references from the Emirate of Dubai and play in the hands of:

  • The London-based LCIA, with pending references migrating to direct administration by the LCIA Court by virtue of article 32.4 of the DIFC-LCIA Rules, and parties that wish to arbitrate in the DIFC referring to DIFC-seated arbitration under the LCIA Rules.
  • The ADGM-ICC, which operates out of the ADGM in direct competition with the DIFC-LCIA, thus offering a viable institutional alternative for DIFC-seated arbitrations or incentivising parties to opt for ADGM-ICC arbitration in combination with an ADGM seat, offering advantages similar to those arising from a DIFC seat.

In the light of the foregoing, there can be little doubt that the Government of Dubai will think twice before demolishing the framework that enables the LCIA Court to operate from within the DIFC as the DIFC-LCIA.

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