DIAC is the designated replacement
On September 14, 2021, the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, issued Decree No. 34 of 2021 (the “Decree“). The decree, which entered into force on September 20, 2021 and took many commentators by surprise, abolishes the Dubai International Financial Center – London Court of International Arbitration (the “DIFC-LCIA“). In its place, the cases will now be administered by the Dubai International Arbitration Center (“DIAC“), which is now scheduled to open offices at the Dubai International Financial Center (the”DIFC“).
DIAC was established in 1994 by the Dubai Chamber of Commerce and Industry as a center for commercial conciliation and arbitration. Its head office is located in Dubai, near Dubai Creek. Over the years, DIAC has developed a pool of experienced arbitrators of different nationalities and legal backgrounds. DIAC arbitrations are conducted in accordance with the 2007 DIAC Arbitration Rules (the “DIAC rules“).
The DIFC-LCIA was a joint venture between the DIFC and the London Court of International Arbitration (the “LCIA“), started in 2008, which in fact combined an LCIA arbitration with a DIFC seat. The DIFC-LCIA arbitrations operated according to the centre’s own rules, last updated on January 1, 2021 (the”DIFC-LCIA rules“).
The importance of the seat of arbitration
In practice, the DIAC arbitrations were generally seated in onshore Dubai and the DIFC-LCIA arbitrations seated in the DIFC. The distinction was essential, as it meant that DIAC arbitrations and awards were subject to the supervision of Dubai’s onshore courts, operating in Arabic and enforcing United Arab Emirates civil law, while DIFC-LCIA arbitrations and awards were overseen by the DIFC courts, operating in English. and the application of statutory and common law of the DIFC.
In recent years, however, reforms have been made to arbitration laws and rules in the United Arab Emirates. In 2018, the United Arab Emirates enacted a new Federal Arbitration Law based on the UNCITRAL Model Law, similar to the Arbitration Law already enacted in the DIFC in 2008 (also based on the UNCITRAL Model Law). UNCITRAL). The decree is seen by many as a further modernization of Dubai’s arbitration offering. Following the new decree, arbitrations in Dubai will be conducted under DIAC, with the option of an onshore seat in Dubai or DIFC (the latter being the default seat if the parties do not designate a seat).
The most important point for parties and practitioners going forward is to stop including DIFC-LCIA arbitration in dispute resolution clauses. It may also be advisable to temporarily avoid drafting arbitration clauses within the framework of the DIAC Rules with a DIFC seat, since the Decree gives the DIAC six months to implement certain modifications to its internal structure and its rules. Until these changes are in place, it is difficult to predict how the center will operate.
The decree also provides that the existing arbitration agreements referring to the DIFC-LCIA arbitration will be deemed valid and effective, but with the DIAC automatically replacing the DIFC-LCIA as an arbitration center and the DIAC Rules automatically replacing the DIFC-LCIA Rules, unless the parties agree otherwise. With respect to the DIFC-LCIA cases already in progress, these will continue under the DIFC-LCIA rules, although now supervised by DIAC, unless the parties agree otherwise. Parties and practitioners are therefore well advised to also consider whether alternative arbitration agreements are necessary for these situations.
In the meantime, and as the transition sets in, an alternative option for those drafting dispute settlement clauses referring disputes to arbitration in the United Arab Emirates, is the Abu Dhabi General Market (the “ADGM“). This center provides a flexible platform where parties can select their arbitration institution (e.g. ICC, LCIA) and arbitration rules (e.g. ICC, LCIA, UNCITRAL), with an ADGM seat (meaning that arbitrations and awards are supervised by the English-speaking courts of ADGM, applying the ADGM Arbitration Rules modeled on the UNCITRAL Model Law). Likewise, more established international arbitration seats (eg London, Paris) remain a viable option for parts of the region. Like onshore Dubai, DIFC and ADGM, these international headquarters are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which means that cross-border enforcement of awards is widely available.