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The changing landscape of Dubai arbitration

Briefing
21 October 2024
2 MIN READ
2 AUTHORS

Dubai has seen some key developments in recent years that have had a positive impact on arbitration in the region. In this article we look at the development of the Dubai International Arbitration Centre and the impact of Decree No. 34.

The Dubai International Arbitration Centre

On 14 September 2021 the Dubai Government issued Decree No. 34 of 2021 (Decree No. 34), abolishing the DIFC-LCIA Arbitration Centre and the Emirates Maritime Arbitration Centre; the former was probably the most pre-eminent arbitration centre in the region. The law took effect only a few days later, leaving the region’s burgeoning arbitration scene in turmoil. All pending cases from both centres were intended to be transferred to the Dubai International Arbitration Centre (DIAC).

It has been almost 3 years since this seismic decision, and we are pleased to report that arbitration in the UAE is thriving. Any fears that this might create a long-term negative impact on Dubai as an arbitration centre have not materialised.

Much of this has been down to the rejuvenation and sterling work of the DIAC, which has assumed a leading role with new Rules, a new Registrar, new administration and a new DIAC Court. This has enabled the DIAC to meet international standards and provide high quality alternative dispute resolution options.

DIAC has been providing dispute resolution services to parties doing business in, or through, the Middle East, Africa, and South Asia since 1994 and is the region’s largest alternative dispute resolution centre. Parties to DIAC arbitrations in 2023 originated from 49 countries, including Saudi Arabia, the United Kingdom, India, Qatar and the USA.

There has been a clear increase in cases over recent years. A total of 355 cases were registered in 2023, a 4.4% increase since 2022. Of these 355 cases, 323 cases represent administered arbitrations, an increase of 11% since 2022. Almost two thirds of all DIAC arbitrations in 2023 were brought on the basis of a DIAC arbitration agreement.1

In recent years there has been a boom in the construction and real estate industries in the UAE. The global economic slowdown in the years after Covid-19 had no significant impact on this boom. As a consequence, it is no surprise that data provided by DIAC notes that construction and real estate cases took up 60% of DIAC’s caseload in 2023 and construction contracts were the most common contract type, accounting for 40% of all underlying contracts. Interestingly, DIAC arbitrations in the banking and finance sector represented almost 10% of its caseload in 2023, suggesting that other industries are now using DIAC to resolve disputes.

On 21 March 2022 DIAC introduced new rules of arbitration (2022 DIAC Rules).

The 2022 DIAC Rules provided some much needed clarity and comfort when the transition period under Decree No. 34 came to an end. The 2022 DIAC Rules put in place a framework for parties to arbitrate, in line with global standards, and have ensured that DIAC remains an attractive proposition.

The 2022 DIAC Rules provide for expedited proceedings in certain circumstances, including in matters where the sums claimed are valued at AED 1 million or less (exclusive of interest and legal costs). Additional amendments include provisions for the recovery of legal costs, clarifying the use of third party funding, improved procedures for constituting tribunals, joinder and consolidation.

Furthermore, DIAC launched the DIAC Mediation Rules on 1 October 2023 increasing the options for businesses in the region.

DIAC is now known for internationally recognised rules and standards, and an efficient and reputable processes, which is successfully promoting business and commerce in the region and strengthening the market in Dubai.

Enforcement of arbitral awards

Developments aimed at making enforcement more straightforward via changes to the Civil Procedure Code and Federal Arbitration Law in the onshore courts have cemented the UAE’s position as an unquestionably pro-arbitration jurisdiction.

The ability to successfully enforce and recognise both domestic and foreign arbitral awards in the UAE is illustrative of the UAE’s ongoing commitment to be a hub for international arbitration. The UAE has been party to the New York Convention 1958 since 2006.

However, we have now seen how the courts both within the UAE and outside the UAE have viewed Decree No. 34 in the context of the enforcement of arbitration awards.

Questions have arisen as to whether awards, which were issued by DIAC are enforceable when the underlying arbitration agreement stipulated that the parties should arbitrate under the DIFC-LCIA Rules.

This question has been addressed by international courts in the following cases:

  • in November 2023, when the US District Court in Louisiana2 refused to enforce a DIAC award where the parties had agreed to DIFC- LCIA arbitration in the dispute resolution clause. The court held that the arbitration agreement was unenforceable because the forum was no longer available and neither the US Courts nor the Dubai government had the power to rewrite an arbitration agreement.
  • in March 2024, the Singapore Courts3 did enforce a DIAC award where the parties had agreed to DIFC-LCIA arbitration, but only because the respondent had waived its right to challenge the arbitral tribunal’s jurisdiction by participating in the proceedings without raising a jurisdiction challenge before the tribunal. Had the respondent raised jurisdiction challenges, the Singapore Court indicated that it may well have declined to enforce.

The UAE courts have taken a different approach.

In July 2024, the Abu Dhabi Court of Appeal4 concluded that a DIAC award should be enforced, notwithstanding the underlying DIFC-LCIA arbitration agreement. The Abu Dhabi courts agreed with the defendant, declining jurisdiction and finding that the Decree provided for the DIAC to act as successor for future claims arising out of DIFC-LCIA arbitration agreements.

Finally in August 2024, the Courts of the Dubai International Financial Centre (the DIFC Courts) rejected an application5 to set aside the enforcement of an arbitration award on jurisdictional grounds, where the parties had agreed to DIFC-LCIA arbitration, but where the arbitration award was issued by the London Court of International Arbitration (LCIA). The LCIA was appointed to manage the transition and administer DIFC-LCIA arbitrations in the period after Decree No. 34 was passed.

Commentary

Overall, we have seen the landscape of arbitration in the UAE go from strength to strength in recent years offering parties in the region a developed arbitration centre in the form of the DIAC, updated arbitration laws that meet global standards, and efficient enforcement and recognition mechanisms providing creditors with the opportunity to recover debts owed.

Ongoing questions regarding the enforceability of DIAC awards with underlying DIFC-LCIA arbitration agreements remain, but will likely subside over time.

Given these developments, the position of the UAE as an arbitration friendly jurisdiction can only increase.

Footnotes

  1. We are grateful to DIAC for sharing some statistics with us during the course of the preparation of this article.
  2. In the Louisiana Eastern District Court (2:23-cv-01396-GGG-KWR).
  3. Application no. 882 of 2022.
  4. Judgment was issued in Case No. 449/2024, upholding a decision of the Court of First Instance (Case No. 1046/2023).
  5. ARB 020/2022 Novak v Newland.
Main Bulletin
International Arbitration Quarterly | Edition 03/2024