How Decree 34 reforms and transforms Dubai's arbitration landscape

Briefing

On 14 September, the Government of Dubai issued Decree No. 34 of 2021 Concerning the Dubai International Arbitration Centre (DIAC) with an enclosed Statute of the DIAC.

When the Decree came into force on 20 September 2021, it immediately dissolved the Dubai International Financial Centre Arbitration Institute (DAI) and the Emirates Maritime and Arbitration Centre (EMAC) (the Abolished Arbitration Centres) and, over the next six months, their former operations will merge under the DIAC’s umbrella.

The Decree has come as a surprise to many practitioners and some elements will need clarifying in the coming months. However, the underlying aim here is obvious: to streamline Dubai's various arbitration bodies to create a single world class, international arbitration centre similar to those in London, Paris, Hong Kong and Singapore.

Here, we outline the major changes Decree 34 will introduce to Dubai's arbitration landscape.

What will change under Decree 34?

Following the closure of the DAI, the new-look DIAC will establish a new branch in the DAI’s former jurisdiction, the Dubai International Financial Centre (DIFC). This branch, located offshore in Dubai’s financial free zone, will complement the existing headquarters of DIAC, which will remain in onshore Dubai.

Regarding existing arbitration agreements that refer disputes to the Abolished Arbitration Centres, unless the parties agree otherwise, the DIAC will replace those centres in determining any disputes that arise out of these agreements. Although currently unconfirmed, this could include replacing the DIFC-LCIA Arbitration Centre, which is essentially a joint venture between the DAI and the London Court of International Arbitration (LCIA).

Unless otherwise agreed by the parties, any arbitral tribunals already formed in the Abolished Arbitration Centres with cases pending before them will continue uninterrupted under their existing applicable rules and procedures. The DIAC will, however, take over supervision of those cases. In practice, we expect the personnel of the EMAC and DIFC-LCIA (if affected by the Decree) arbitration centres to move across to the DIAC to ensure the efficient administration of their existing cases.

Regarding the appropriate supervisory court(s), the Decree provides that the Dubai Courts and the DIFC Courts will continue to be the competent courts to consider matters like challenges to awards or procedures issued by tribunals within DIAC and the Abolished Arbitration Centres, in-line with their respective procedures.

As for the arbitration rules of the Abolished Arbitration Centres, the Decree provides that they will remain in full force to the extent that they do not contradict the Decree and until the DIAC issues new arbitration rules. Although it is not expressed in the Decree, we expect that if a party files a new case with the DIAC before it publishes the new DIAC Arbitration Rules, then the DIAC will determine that dispute under the parties’ chosen rules, including the EMAC or DIFC-LCIA Arbitration Rules.

The DIAC will likely need to revise its existing arbitration rules to strike a balance between the rules of the Abolished Arbitration Centres and the DIAC (as we know them today). For example, one significant difference between the existing DIFC-LCIA and DIAC Arbitration Rules is their treatment of awarding legal costs to the successful party. This is a divisive issue, and we look forward to seeing how the DIAC will resolve it.

Regarding the seat or place of a DIAC arbitration, the Statute of the DIAC provides that:

where the parties have agreed the Emirate of Dubai as the seat of arbitration, then the arbitration agreement and the procedures shall be governed by the UAE’s Federal Arbitration Law (No. 6 of 2018) and the Dubai Courts shall have jurisdiction regarding the ratification and enforcement of these awards, and
where the parties have agreed DIFC as the seat of arbitration, then the arbitration agreement and procedures will be governed by the DIFC Arbitration Law (DIFC Law No. 1 of 2008) and the DIFC Courts will have jurisdiction regarding the ratification and enforcement of these awards.

Although largely a thing of the past, this provision should finally curtail any attempt by a party to use the DIFC Courts as a "conduit" to ratify a Dubai-seated arbitration award before taking it to the Dubai Courts for execution against assets located in Dubai.

The Statute of the DIAC confirms that if the parties have not agreed a seat of arbitration, then the DIFC (and not onshore Dubai, as it is currently under the DIAC Rules) will be the default seat of arbitration. This may concern parties that have chosen arbitration agreements referring to the DIAC Rules without specifying a seat, especially if they had hoped any ratification/nullification proceedings would be overseen by the Dubai Courts and/or where a parties’ assets are solely located in onshore Dubai.

Like the LCIA and ICC (among others), the Statute of the DIAC also provides for the establishment of a Court of Arbitration within the DIAC to undertake the overall supervision of the alternative dispute resolution procedures provided by the DIAC. This will ensure that they are undertaken properly and with the required efficiency.

The Statute permits the new DIAC Court to conduct a review of any draft arbitration award before the arbitrator(s) issue it. The underlying aim of this new power is honourable: to reduce the scope for unsuccessful parties to raise spurious procedural arguments at the ratification stage. This has often been a frustration for parties who have resolved their disputes through arbitrations seated in Dubai. Yet while the aim is noble, it will need clarifying (and arguably limiting) in any subsequent DIAC Rules.

On the one hand, the Statute indicates the Court will look only at the form of the award, so it might not go as far as, for example, the ICC Court – which may draw the tribunal’s attention to points of substance in the award (Article 34 of the ICC Rules). On the other hand, the DIAC Board of Directors have the power to issue and amend the DIAC Arbitration Rules without needing a further governmental Decree, making it possible to extend the scope of this power at any time.

In any event, arbitrators and practitioners will have mixed feelings about the DIAC Court reviewing draft arbitral awards. It is not something that currently exists in the DIFC-LCIA or DIAC Rules. Further, the LCIA’s stance is that: "the proper decision maker(s) in an arbitration should always be the arbitrator(s); it is not for an institution to form its own views on a case. The LCIA instead addresses the quality and enforceability of awards through its role in the appointment process and its robust administration procedures."

What's next?

Decree 34 drastically changes the arbitration landscape in the UAE and streamlining the various centres should help raise Dubai’s profile as a global arbitration hub further. That said, we still need further clarification – especially surrounding the interplay with the DIFC-LCIA – so that parties can be confident about choosing the new-look DIAC in future.

While this plays out, we encourage contracting parties who have included arbitration agreements referring their disputes to EMAC, the DIFC-LCIA and the DIAC to seek a review of their dispute resolution agreements/clauses and take advice on how the Decree might affect them.