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International Arbitration in 2022

Consolidating arbitration centres in the Middle East

In a development that surprised many, including the LCIA, on 14 September 2021 the DIFC-LCIA arbitration centre was effectively abolished by Dubai Decree 34 of 2021 concerning the Dubai International Arbitration Centre (the Decree).

Prior to the Decree, the DIFC-LCIA arbitration centre did not have an independent legal presence in Dubai and operated through a joint venture between the DIFC Arbitration Institute (DAI) and the LCIA. The Decree abolished the DAI and transferred ownership of its property and employees to the Dubai International Arbitration Centre (DIAC). The Decree also abolished the Emirates Maritime Arbitration Centre, which was the region’s only specialised maritime arbitration centre (although to our knowledge, unlike the DIFC-LCIA, it did not have an active caseload).

The Decree has created some uncertainty, especially in relation to pending arbitration cases and the administrative aspects of the DIFC-LCIA’s presence and operations. To ease the transition of cases to DIAC, the Decree provides for a six-month period for DIAC to ‘coordinate’ with ‘all concerned entities’ to help them to bring themselves into compliance with the Decree.

In addition to these important changes, the Decree includes the new DIAC statute (the Statute), which provides for a comprehensive restructuring, as a result of which DIAC now has a board of directors, an arbitration court and an administrative body. The Decree also provides for DIAC to have headquarters in ‘onshore’ Dubai and a branch in the DIFC. Several members of the board and the chairman of the DIAC have since been appointed.

The changes to DIAC’s corporate structure and the abolition of the other arbitration centres was seen by some as a helpful move to consolidate arbitration centres in this important regional arbitration seat. Other practitioners have expressed the view that the lack of choice in ‘local’ Dubai arbitration institutions and the sudden change in policy may harm Dubai’s reputation as a hub for disputes. Irrespective of these opposing viewpoints, it is important for Dubai’s future role as a regional arbitration hub for any uncertainty arising out of the Decree to be resolved as soon as possible.

DIFC and LCIA stances

On 7 October 2021, the DIFC issued a press release indicating that existing cases would continue to be administered by the LCIA and the DIFC-LCIA casework team on a secondment basis. The statement fell short of providing any details of the terms of the proposed secondment.

Separately, the LCIA made an official statement on the same day clarifying its position in relation to the Decree. The LCIA did not address the proposal for secondment of DIFC-LCIA employees, but noted that there were several outstanding questions, including the status of the casework team, that needed to be resolved urgently. As at the date of writing, there remains considerable uncertainty regarding the transitional arrangements, although in practice existing DIFC-LCIA arbitrations are continuing to be administered by the former DIFC-LCIA case management team, albeit now under employment by DIAC.

Transition of pending cases

With respect to cases currently being heard under the DIFC-LCIA arbitration rules, the Decree provides that the rules of the abolished centres will continue to apply to the extent they do not conflict with the provisions of the Decree until DIAC issues its new rules. There is therefore a risk that Dubai Courts may find that tribunals continuing to apply the DIFC-LCIA arbitration rules beyond this date are acting unlawfully which could, in turn, put arbitration awards seated in onshore Dubai at risk of annulment.

The Decree clarifies that arbitration clauses in existing agreements referring to the abolished centres where the tribunal is not yet constituted will remain valid, and that DIAC will replace the abolished centres in the administration and supervision of such disputes. While this would suggest that DIAC will continue to apply the abolished centres’ rules to pending arbitration proceedings, it is unclear how this will be implemented in practice and whether this is expected to change when DIAC issues its new arbitration rules.

The future of DIFC as a seat

The Statute provides that where no seat or place of arbitration is agreed upon by the parties to a DIAC arbitration, DIFC will be the default seat. This is likely to increase the volume of cases heard in the DIFC Courts which will, in turn, lead to more published judgments and greater certainty regarding the application and interpretation of the DIFC Arbitration Law.

The Decree confirms that Dubai Courts and DIFC Courts will continue to exercise their jurisdiction to consider and determine claims relating to awards issued by the abolished centres.

The way forward

The Decree does not impact the position of the DIFC as a seat of arbitration. On the contrary, the DIFC’s position as a seat of arbitration has been strengthened by the Decree providing it to be the default seat for DIAC arbitrations.

Nevertheless, parties should no longer include DIFC-LCIA or EMAC arbitration clauses in their contracts and, given the continuing uncertainty with regard to transitional arrangements, would be well advised to renegotiate existing clauses before a dispute arises. Parties wishing to arbitrate in the Middle East can still choose from any of the well-known institutional arbitration rules and may opt to seat their arbitrations in the DIFC, the ADGM (Abu Dhabi Global Market) or any other seat that is recognised as being supportive of arbitration.