By Hari Krishna FCIArb
Less than six months into the operation of the new DIFC Founding Law (Dubai Law No 5 of 2021), it has been upended by Dubai Decree No 34 of 2021, issued on 14 September 2021 and gazetted on 20 September 2021 (“Decree 34”). The perhaps unintended aspect of Decree 34 that has gained the most attention worldwide is the state of suspended animation into which the DIFC-LCIA Arbitration Centre has been placed.
Contrary to numerous “thought leadership” pieces doing the rounds, Decree 34 does not abolish the DIFC-LCIA Arbitration Centre or the DIFC-LCIA Arbitration and Mediation Rules. It specifically states that the DIFC-LCIA Rules remain in force for the time being.
Decree 34 does three things: firstly, it amends the status of Dubai International Arbitration Centre (“DIAC”) and makes it an independent, non-governmental and non-profit institution (rather than an adjunct of the Dubai Chamber of Commerce and Industry). Secondly, it establishes a DIAC “Court of Arbitration” and a DIFC branch of DIAC (going so far as to make the DIFC the default seat of arbitration unless the parties specify a different seat). Thirdly, and crucially, Decree 34 abolishes the Dubai Arbitration Institute (“DAI”) and the Emirates Maritime Arbitration Centre (“EMAC”) with immediate effect (and purports to transfer the management of their ongoing cases to DIAC).
Decree 34 appears to consider the DAI an “arbitration centre” and even defines it an “abolished arbitration centre”. However, as those familiar with the history of DAI would know, the DAI never administered any arbitration rules or references on its own. The DAI was simply the counterparty to the London Court of International Arbitration (“LCIA”) in the agreement to operate the DIFC-LCIA Arbitration Centre. In that capacity, the DAI was the employer of the staff of the DIFC-LCIA Secretariat.
The effect of the abolition of the DAI is that there is no counterparty to the LCIA for the purposes of operating the DIFC-LCIA Arbitration Centre or administering arbitrations under the DIFC-LCIA Rules. Unlike the new Founding Law, which specifically stated that the DAI will continue to exist and operate without interruption, Decree 34 abolishes DAI with immediate effect even before the formation of the new DIAC Board or Court of Arbitration. Decree 34 gives DIAC six months to “adjust its positions” to conform to its requirements.
To be fair, Decree 34 states that the “arbitration and conciliation rules of the abolished arbitration centres” and the “arbitration rules of DIAC” shall “remain in full force and effect to the extent that they do not contradict the provisions of the present Decree and the Statute attached hereto”. Only on 7 October did any clarity begin to emerge as to the conduct of existing DIFC-LCIA arbitration proceedings when the DIFC and the LCIA issued separate press releases.
Both press releases state that the LCIA will administer existing, ongoing DIFC-LCIA cases. The position with regard to the registration of new DIFC-LCIA cases remains blurred. Both press releases state that DIAC will administer any such cases under the DIAC Rules “unless the parties agree otherwise.” It is not clear whether the prior agreement to DIFC-LCIA Rules is sufficient to ensure that such cases will be administered under the DIFC-LCIA Rules, particularly as Decree 34 states that those rules remain in force: hopefully, a further announcement will clarify this point.
The DIAC Rules adopt an “ad valorem” costs structure and the DIFC-LCIA Rules adopt a “time spent” model. There is no word yet as to whether DIAC will introduce a “time spent” alternative. The difference between the “ad valorem” model and the “time spent” model is significant enough that both have vocal proponents. If DIAC adopts both alternative models on the lines of HKIAC – this could be a satisfactory result.
In a previous article in the CIArb UAE Branch newsletter (Are we on the cusp of a new era in Dubai dispute resolution?), I reviewed the new DIFC Founding Law (Dubai Law No 5 of 2021) and made the following predictions:
- The DAI will become the governing / administrative body responsible for international arbitration in Dubai.
- Dubai will continue to offer all three arbitration models (ad hoc / light touch, “ad valorem”, and “time spent”).
- Jurisdictional conflicts between the “onshore” courts and the DIFC Courts will henceforth be viewed through a “client choice” perspective, resulting in enhanced predictability of outcomes for investors.
Decree 34 immediately puts my predictions to the test, starting with the surprise abolition of the DAI and EMAC. The abolition of the DAI came out of the blue to the global arbitration community – and, by all accounts, even to the LCIA.
So what does Decree 34 do to my predictions?
- Firstly, the abolition of DAI leaves one of the new objectives of the DIFC, namely “to promote the position of the Emirate as an international centre for dispute resolution and settlement”, in limbo as it is not clear that the DIFC will have any role in the governance and operation of the future DIFC branch of DIAC.
- Secondly, the abolition of EMAC casts doubt on the future of ad-hoc maritime arbitration in the DIFC. Strictly speaking, ad-hoc maritime arbitration of the London Maritime Arbitrators Association (“LMAA”) model – a flavour of which EMAC sought to replicate – does not need the support of a decree. However, end-users would probably be justified in being concerned about the validity and enforceability of arbitration awards issued pursuant to ad-hoc agreements providing for a DIFC seat.
- Thirdly, if the DIFC-LCIA Rules are made unavailable to parties who have existing arbitration agreements incorporating those Rules, parties who had agreed to arbitration under the “time spent” model may be forced to adopt the “ad valorem” model under the DIAC Rules. The consequences of forcing such a drastic shift could be far-reaching.
- Fourthly, in terms of the client choice between the DIFC and “onshore” Dubai as a seat, Decree 34 takes a prescriptive approach that limits the jurisdiction of the DIFC Courts. Pursuant to Decree 34, reference to “Dubai” as the seat of arbitration automatically means “onshore” Dubai and grants the Dubai Courts supervisory jurisdiction. This seems to limit the ability of the DIFC Courts to interpret a reference to “Dubai” as meaning the “DIFC” in a fact-specific manner.
On a positive note, it is probably a truism that no city really needs three arbitration centres. Dubai was unique not because it had multiple arbitration centres but because it provided a common law seat (DIFC) and a civil law seat (“onshore” Dubai), along with arbitration rules that were administered on the basis of “ad valorem” costs (i.e. DIAC Rules) as well as a “time spent” model (i.e. DIFC-LCIA). The effect of Decree 34 on the seat of arbitration is as noted above. But urgent clarification is needed as to the future of the “time spent” model in Dubai arbitration.
Hari Krishna is a Fellow of the Chartered Institute of Arbitrators. He is the founder and CEO of Nimble Legal and can be contacted on hari@nimble.legal
The views expressed in this article are those of the author and do not necessarily reflect those of the Chartered Institute of Arbitrators.
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