Jurisdiction Update: UAE
Thomas R. Snider Partner, Head of Arbitration
Khushboo Shahdadpuri Senior Associate, Arbitration
Coming on the heels of Decree No. 34 of 2021 Concerning the Dubai International Arbitration Centre (“DIAC”) (“Decree No. 34”), DIAC recently issued the DIAC Arbitration Rules 2022 (“2022 Rules”). The 2022 Rules came into effect on 21 March 2022, replacing the previous DIAC Arbitration Rules 2007 (“2007 Rules”).
Decree No. 34 abolished (1) the DIFC Arbitration Institute (“DAI”), which is the entity that had entered into a joint venture with the London Court of International Arbitration (“LCIA”) for the DIFC-LCIA Arbitration Centre, and (2) the Emirate Maritime Arbitration Centre (“EMAC”), and effectively merged the DAI and EMAC into DIAC. Decree No. 34 further provided that:
arbitration agreements providing for arbitration at DAI and EMAC would remain valid and effective but that DIAC would substitute these centres in the administration of disputes arising out of these agreements, and
arbitral tribunals formed prior to the date of entry into force of Decree No. 34 in cases administered by DAI and EMAC would continue according to the rules and procedures adopted by them.
On 27 March 2022, it was reported that the LCIA would administer (from London) all cases commenced and registered by the DIFC-LCIA Arbitration Centre on or before 20 March 2022 going forward. However, pursuant to Decree No. 34, DIAC will administer and the 2022 Rules will govern all new requests for arbitration submitted on or after 21 March 2022 arising from arbitration agreements calling for arbitration at DIAC, the DIFC-LCIA Arbitration Centre, or EMAC. Key provisions of the 2022 Rules are examined below.
Article 20.1 of the 2022 Rules provides for the DIFC as the “initial seat” of arbitration where the parties have not agreed on a seat (or on a “location/venue”, which will be deemed to be the seat, unless the parties agree otherwise). This is a significant change from the 2007 Rules, which provided for onshore Dubai as the default seat of arbitration. Notably, Article 20.1 of the 2022 Rules also allows the tribunal to “finally determinate the seat of the arbitration” notwithstanding the “initial seat” being the DIFC. In making this final determination, the tribunal is to have “due regard to any observations from the parties and any other relevant circumstances”.
In a move that mirrors the approach of other international arbitral institutions, the Statute of DIAC, which was promulgated with Decree No. 34, established the DIAC Arbitration Court, replacing the Executive Committee of DIAC. Article 11 of the Statute of DIAC sets out the functions of the Arbitration Court in detail and includes the following duties and powers, amongst others:
supervising the DIAC Rules;
appointing tribunals and conciliation panels in accordance with the DIAC Rules;
determining requests for recusal, removal or reconsideration of appointment of arbitrators and providing reasons for such recusal, removal, or reconsideration of appointment in accordance with the DIAC Rules; and
supervising emergency arbitration before the commencement of arbitration proceedings.
Article 34.5 of the 2022 Rules also introduces a provision for the Arbitration Court to review the form of the final draft award to ensure “insofar as possible, that the formalities required by the Rules have been complied with” and to fix the final fees and expenses of the tribunal. This provision essentially allows a ‘light touch’ scrutiny of DIAC awards issued under the 2022 Rules by the Arbitration Court. Article 40.1 of the 2022 Rules also provides a catch-all general role for the Arbitration Court to decide “[a]ny matter relating to the powers and duties of the Centre not expressly referred to in the” 2022 Rules. Further, Article 40.2 provide that the decisions of the Arbitration Court are not to be communicated to the parties, “save for the reasoning of decisions upholding a challenge to an arbitrator’s continued appointment.”
Adapting to the increased reliance on technology in arbitrations as a result of the COVID-19 pandemic, the 2022 Rules reflect a number of technology related changes. For instance,
Article 26.1 expressly provides for the tribunal to decide whether hearings shall be held “in person, by telephone or through any other appropriate means of virtual communication including video conferencing”. The inclusion of video conferencing is a reflection of the recent approach to the conduct of arbitration proceedings during the COVID-19 pandemic.
Article 34.6 expressly allows tribunals to sign awards electronically. This is in line with Article 41.6 of UAE Federal Law No. 6 of 2018 on Arbitration (the “Federal Arbitration Law”), which allows awards to be signed by electronic means. This provision will be helpful in avoiding any potential challenges to the award on the basis of the award being signed electronically by the tribunal.
Article 3.1 provides that all communications are to be made by email or in accordance with an “electronic case management system implemented by the Centre”. This system is envisaged to be used by the parties in filing their Request for Arbitration (Article 4.3) and Answer to the Request (Article 5.3).
In an effort to increase transparency on the appointment of arbitrators and encouraging parties to be more involved in the selection of arbitrators, the 2022 Rules provide an innovative method of appointing sole arbitrators or tribunal chairpersons where the parties:
fail jointly to nominate a sole arbitrator or if the co-arbitrators fail jointly to nominate a chairperson within the time limit provided;
have not stipulated any mechanism of appointment; and
notify DIAC of their agreement to the alternative appointment process in this article (Article 13).
Once this provision has been activated, DIAC will communicate to the parties (or the co-arbitrators) a shortlist of at least three names of suitable candidates. Each party (or co-arbitrator) may add up to three candidates of its own to the list. The parties (or co-arbitrators) will then have seven days to arrange these names in order of preference and return the list to DIAC without copying the other party (or the other co-arbitrator).
As is the case with the rules of most leading arbitration centres, the 2022 Rules introduce procedures for expedited proceedings, which were absent under the 2007 Rules. Under Article 32 of the 2022 Rules, expedited procedures apply:
where the parties agree in writing; or
where the total sum(s) claimed and counterclaimed is/are below or equal to AED 1 million; or
in cases of exceptional urgency as determined by the DIAC Arbitration Court.
The tribunal in an expedited DIAC arbitration must issue its final award within a relatively short timeline of just three months from the date on which the file was transmitted to the tribunal (compared to, for example, six months from the case management conference in an expedited arbitration under the Arbitration Rules of the International Chamber of Commerce (“ICC”) and within six months from the constitution of the tribunal in an expedited arbitration under the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC”)). The Arbitration Court can extend this time limit “on exceptional grounds” under Article 32.5.
The threshold of AED 1 million (approximately USD 272,000) or below is certainly noteworthy and can be seen as a useful manner of ensuring that relatively small claims are dealt with expeditiously, saving time and cost. However, compared to other leading arbitral rules, the AED 1 million threshold could be considered too low (e.g., the threshold in an expedited ICC arbitration is currently USD 3 million, while the threshold in an expedited SIAC arbitration is SGD 6 million or approximately USD 4.3 million). It is also worth highlighting that this threshold can be determined by the Board of Directors “from time to time”.
The inclusion of “the fees of the legal representatives and any expenses incurred by those representatives” in the definition of “costs of the arbitration” at Article 36.1 of the 2022 Rules is another significant change. This development fills a lacuna as neither the 2007 Rules nor the Federal Arbitration Law explicitly provide for the parties’ legal costs in the definition of the “costs of the arbitration”. This absence was highlighted in a judgment of the Dubai Court of Cassation in 2013 in Case No. 282/2012, where the court ruled against the recovery of legal fees in DIAC arbitrations under the 2007 Rules. The introduction of Article 36 of the 2022 Rules has been received as a particularly welcome development by the arbitration community.
The use of third-party funding in arbitration has gained traction in the region in recent years. In recognition of this, Article 22.1 of the 2022 Rules now requires parties who have entered into third-party funding arrangements prior to the constitution of the tribunal to “promptly disclose that fact to all other parties and the Centre, together with details of the identity of the funder, and whether or not the funder has committed to an adverse costs liability”. Article 22.2 goes on to provide that the parties may not enter into third-party funding arrangements after the constitution of the tribunal where doing so “will or may give rise to a conflict of interest between the third-party funder and any member of the Tribunal.”
Article 22 is in line with provisions of leading international arbitral centres, including, for example, Article 11.7 of the ICC Rules, in terms of creating a safeguard against potential conflicts of interest as a result of third-party funding. However, Article 22.2 does go a step farther by requiring disclosure of whether “the funder has committed to an adverse costs liability.”
The 2022 Rules now set out a framework for handling multiple contracts and consolidation of claims, not previously provided for under the 2007 Rules. Article 8 of the 2022 Rules provides that a party may submit claims to DIAC arising out of or in connection with more than one arbitration agreement provided the parties agree or,
it is satisfied prima facie that all claims in the arbitrations are made under the same arbitration agreement; or
all claims are made under the same arbitration agreement; or
the arbitrations involve the same parties, the arbitration agreements are compatible, and any of the following conditions are met:
the disputes arise out of the same legal relationship(s); or
the underlying contracts consist of a principal contract and its ancillary contract(s); or
the claims arise out of the same transaction or series of related transactions.
The 2022 Rules endorse the judgment of the Dubai Court of Cassation in Case No. 19/2020, where it held that the tribunal had jurisdiction to hear a consolidated arbitration case relating to six distinct contracts between the same parties pertaining to the same project.
Similar to the consolidation provisions, there was no framework for joinder of parties under the 2007 Rules. In Article 9 of the 2022 Rules, additional parties may be joined to proceedings by way of an application to the DIAC Arbitration Court provided that:
all parties have consented in writing to the joinder; or
the Arbitration Court is prima facie satisfied that any party being joined may be a party to the arbitration agreement.
The 2022 Rules also provide for the joinder of additional parties after constitution of the tribunal, although additional requirements must be satisfied in this case, such as potential conflicts of interest and the impact “on the arbitration and its efficient and expeditious progress”.
Parties in arbitrations in the region will sometimes refuse to pay their share of the advance on costs of the arbitration, leaving it to the counterparty to pay the non-paying party’s share up front and typically wait until the issuance (or enforcement) of the final award to recoup these costs. The 2022 Rules now expressly empower a tribunal to make an award on costs at any stage of the proceedings in an effort to turn the tide against this tactic. Article 36.3 of the 2022 Rules provides in this regard that “[a]t any time during the arbitration … the Tribunal may make decisions on the costs of the arbitration. An award may be issued solely on costs.” In addition, Article 3.3 of Appendix I of the 2022 Rules states that any payment by one party of another party’s share of the advance on costs “may be recoverable by the substituting party, including immediately after transmission of the file by requesting the Tribunal to issue an award on costs in accordance with Article 36.2.” While such express provisions arguably are not necessary in order for a tribunal to render such an award, their express inclusion will provide greater legal clarity for tribunals to do so.
The 2022 Rules are a welcome upgrade from the previous 2007 Rules. With this new set of revamped arbitral rules, DIAC now has a modern procedural framework in place that can enable it to contribute to the growth of arbitrations in Dubai and lead to the DIAC featuring as a leading arbitration institution.
For further information, please contact Thomas R. Snider and Khushboo Shahdadpuri.
Published in June 2022
