The ongoing effects of Dubai Decree No. 34 (the "Decree")
The announcement of the Decree nearly a year ago on 20 September 2021, took both Dubai and the wider arbitration community by surprise.
The Emirates Maritime Arbitration Centre and the DIFC (Dubai International Financial Centre) Arbitration Institute, commonly referred to as the DIFC-LCIA (together, the "Abolished Centres"), were abolished in favour of the newly consolidated DIAC (Dubai International Arbitration Centre).
The overriding aim of the Decree was to simplify and unify Dubai's arbitral institutions into the DIAC. Despite this, the initial announcement of the Decree created more confusion than clarity. Immediate concern followed about the validity of ongoing arbitral proceedings, dispute clauses in contracts and arbitration in Dubai in general. This confusion was in no part helped by the LCIA's press release stating the LCIA had not been consulted or given notice of the Decree. Nearly a year later, we consider the Decree and its practical implications.
Amongst other things, the Decree required:
- The transfer of certain assets, employees and arbitrators' lists, previously belonging to the Abolished Centres, to the DIAC.
- That the DIAC establish a branch in the DIFC, whilst maintaining its 'onshore' Dubai headquarters.
Since then, following approval of the DIAC Board of Directors, the new DIAC Rules came into effect on 21 March 2022. On 29 March 2022, the DIAC and LCIA then jointly announced that they had agreed terms enabling the LCIA to administer all ongoing DIFC-LCIA cases (being cases commenced and registered by the DIFC-LCIA, with a designated case number, on / before 20 March 2022) from London, giving much needed assurances to arbitrating parties.
Jurisdiction clauses
Choice of arbitration seat
One area that the Decree has provided greater clarity on is the issue of supervisory jurisdiction, as determined by the choice of seat. Although it may not seem particularly important when negotiating dispute clauses, parties must pay attention to the arbitration seat selected as it affects the procedural rules that regulate the arbitration including interim applications and the enforcement of the eventual arbitral award. The seat can have long term cost and strategic consequences, should a dispute arise. An arbitration seat in local 'onshore' Dubai (rather than the DIFC), for example, will mean enforcement of an award is subject to the local Arabic-speaking Dubai courts.
A “Dubai” seat had been the cause of much litigation over the years as there is DIFC case law suggesting that a Dubai seat in an arbitration clause can mean both:
- the courts of the English-speaking, common law DIFC courts of the Emirate of Dubai (known as Dubai's 'offshore' courts); or
- the Arabic-speaking, civil-law, local 'onshore' courts.
The Decree has clarified that for DIAC arbitration cases:
- where the case is seated in Dubai, the local 'onshore' courts shall be deemed the relevant supervisory court, as per the UAE Arbitration Law (Federal Arbitral Law No.6 of 2018); and
- the DIFC courts shall be the supervisory court where the case is seated in the DIFC, as per the DIFC Arbitration Law (Law No.1 of 2008).
This underlines the caution parties must exercise when drafting their dispute clauses and the importance of making sure that the choice of seat is accurately reflected in the contract wording and the supervisory jurisdiction is considered.
Any parties that have contracts with DIFC-LCIA jurisdiction clauses, should be evaluating the wording of those clauses to check that the clause still works and that they have correctly set out the seat. Old DIFC-LCIA clauses should be replaced, otherwise parties are likely to face easily avoidable and potentially expensive jurisdictional disputes – it is an easy excuse for a Defendant to state that the jurisdiction clause is no-longer valid and to refuse to participate in the process. Helpfully, most institutions (e.g. the LCIA and SIAC (Singapore International Arbitration Centre)) provide their own guidance and model clauses on jurisdiction clause wording. It is always worth starting with the model clause which can be tailored, as appropriate, to the parties' unique circumstances.
Right to arbitrate
Generally, it is clear the UAE has embraced and is willing to enforce valid arbitration agreements agreed between parties. Despite this trend, a number of cases1 demonstrate the UAE courts' readiness to dismiss a defendant's valid arbitration agreement where other related defendants (under the same overriding claim) have different disputes clauses.
Fundamentally, the right to arbitrate is a matter of contract, which only concerns the parties to that contract who have agreed to arbitrate and not related third parties. As a result, it should be remembered that an arbitration clause may not necessarily be upheld in a case involving multiple related defendants who possess inconsistent dispute clauses. Equally, claims against multiple defendants, with whom the claimant has agreed different dispute clauses, may result in fragmented litigation under separate regimes.
Lessons
Although the DIAC hopefully represents a step forward in streamlining the UAE's arbitration process, the transition from the DIFC-LCIA and the shape of DIAC's approach will only become clearer with time. Parties should, at least in the interim, do all they can to mitigate those uncertainties by being as explicit as possible regarding their agreed approach to dispute resolution. It will take some time before the new DIAC rules are properly tested and it may be prudent to choose the LCIA arbitral institution with a Dubai DIFC seat during this period of uncertainty.
These developments, and the case law surrounding the wording of arbitration clauses, highlights the need for expert advice when drafting and agreeing arbitration / jurisdiction clauses. We would, therefore, recommend the following:
- Think about your jurisdiction clauses now. Old DIFC-LCIA clauses in particular will inevitably lead to jurisdiction questions. It is best to get ahead of any possible contention on this issue by updating your wording appropriately including, where necessary, by consulting legal experts familiar with the nuances of the UAE's legal / arbitration system.
- What seat have you listed? If you listed "Dubai" as your arbitration seat, for example, make sure you clearly differentiate between a seat in the local 'onshore' Dubai courts and the 'offshore' DIFC courts, and understand which option suits you best.
- Is arbitration right for you? Consider, alongside your legal advisors, whether arbitration is the most appropriate form of dispute resolution for you, both strategically and commercially. This includes how the arbitral proceedings / enforcement of an arbitration clause may be affected under certain jurisdictions and any expedited proceedings which may mean a different process is applied to the proceedings2. Although for some it may feel too early / unlikely a prospect to consider a potential dispute, we recommend putting yourself in the best position possible by reviewing your dispute clauses early.
Should you have any queries regarding arbitration, dispute clauses, or litigation generally, our Commercial Litigation and Disputes group is highly experienced advising corporates and individuals on a range of issues, such as multi-jurisdictional disputes, arbitration and enforcement strategies. This includes the head of our International Arbitration Group, Clarissa Coleman, who can be contacted via email at: clcoleman@dacbeachcroft.com.
1For example, in the recent Dubai Court of Cassation No. 209/2021, the Court of Cassation upheld the Court of Appeal's refusal to split jurisdiction across the defendants. Instead, it was judged that the joint claim (against both defendants) should be in local UAE courts in the "interests of justice" and to "avoid contradictory decisions".
2By way of example, many arbitral institutions mandate a short form procedure with one arbitrator if the amount claimed is below a certain threshold. We will deal with this in a more detailed alert in the next few months.
