DIAC completes re-launch and issues new rules; LCIA to manage ongoing DIFC-LCIA arbitrations

This article is an updated version of an article originally published by Practical Law Arbitration, with the permission of the publishers. For further information visit the Practical Law website.

By the issuance of Dubai Decree No. 34/2021 in September last year, the DIFC-LCIA was effectively abolished and its caseload absorbed into a re-launched Dubai International Arbitration Centre (DIAC). While that unheralded announcement prompted mixed reactions from arbitration users in Dubai (and more widely), practitioners have since been eagerly anticipating a new and improved set of rules for DIAC, not least since it is now Dubai's only, and is intended to become the region's leading, arbitral institution.

DIAC has now released those updated rules, which came into force on 21 March 2022 (the Rules). These Rules will therefore govern all new requests for arbitration submitted to DIAC from that date onwards. The 2022 Rules are a significant improvement over the previous DIAC Rules 2007, incorporating a range of new developments and addressing some salient shortcomings of the older Rules.

However, the project of amalgamating the DIFC-LCIA (and the Emirates Maritime Arbitration Centre) and the former DIAC into one consolidated institution (and moving funds, personnel, and active cases in the process) raised a number of important practical questions and has introduced considerable uncertainty about the status of present and future arbitrations where the relevant contract has a DIFC-LCIA arbitration clause¹. In an announcement on 21 March 2022, DIAC confirmed that it had achieved the objectives set down by Decree 34, notably of establishing a branch in the DIFC and issuing new rules. On 27 March 2022, a joint press release from DIAC and the LCIA announced that existing DIFC-LCIA arbitrations (registered on or before 20 March 2022) will now be administered by the LCIA. The LCIA in turn has begun contacting parties and tribunals in these arbitrations in order to take over their case management, and a mechanism for the management of funds previously held by the DIFC-LCIA has been established. While these points clarify the position, it is likely that, in practice, there will continue to be teething issues with these arbitrations, as well as challenges to the validity or enforceability of awards issued under this new regime.

Key developments

The 2022 Rules benefit from a number of progressive changes that bring DIAC's rules more in line with procedures at other leading international arbitration centres. Among the most significant developments are the following:

• DIAC in the DIFC: The default seat of arbitration under the 2022 Rules is the DIFC, rather than onshore Dubai. Parties will therefore benefit (on a default basis) from having access to the efficient and arbitration-friendly DIFC Courts as the default supervisory courts over DIAC arbitrations. This will also assist in changing DIAC’s image from that of Dubai’s onshore arbitral institution to Dubai’s institution of choice for both onshore and DIFC-seated arbitrations.
• Legal costs: One feature of the 2007 DIAC Rules which was viewed by many international practitioners as a significant shortcoming was the lack of any provision for the award of the parties' legal costs; the old rules confined recovery to the Tribunal's and DIAC's costs and (absent express agreement) successful parties were prevented from recovering their own, often substantial, costs (such as lawyers' fees, experts' fees, and various other attendant expenses). The 2022 Rules are in step with arbitral institutions worldwide, in expressly providing that the fees of lawyers, party-appointed experts, and other parties' costs form part of the costs of the arbitration and may be determined and apportioned by the Tribunal in an award.
• Consolidation/joinder: The 2022 Rules permit the consolidation of multiple claims into a single arbitration, by a consolidated Request or pursuant to an application, either where the claims are made under the same arbitration agreement, or where the arbitrations involve the same parties, compatible arbitration agreements, and related subject matter. There is also scope for the Arbitration Court or Tribunal to allow the joinder of additional parties to proceedings, provided that either (i) all parties consent in writing or (ii) the joining party is a party to the relevant arbitration agreement. The aim of these provisions is to maximise the prospect that all disputes between parties to related contracts can be resolved in one proceeding.
• Interim measures: Appendix II to the Rules deals with Exceptional Procedures, including interim measures and emergency arbitrators. Article 1 (in contrast to the relevant section of the 2007 Rules) offers considerable detail on the extensive interim measures available to the Tribunal, which unsurprisingly mirror those provided for in Article 21 of the UAE Federal Arbitration Law.
• Emergency arbitrator: The mechanism for the appointment of an emergency arbitrator is intended to provide swift relief in urgent circumstances, providing that DIAC will seek to appoint an emergency arbitrator within one day of receiving an application, and for the emergency arbitrator to establish a timetable for determining the relief application within two days of receiving the file.
• Expedited proceedings: The 2022 Rules provide for expedited proceedings, where the Arbitration Court considers it appropriate and where (a) the total sum is dispute is no more than (a very low threshold of) one million dirhams, (b) the parties agree in writing, or (c) the case is one of exceptional urgency. Where expedited proceedings are adopted, a sole arbitrator will be appointed and will adopt a procedure (including, potentially, limited scope of evidence) to permit determination of the dispute within three months.
• Third party funding: The 2022 Rules expressly deal with (and permit) third party funding arrangements, providing that appropriate disclosure is made to all parties and to DIAC. The third party funding rules are particularly sensitive to the risk of a conflict of interest, and prohibit a third party funding arrangement from being entered into after the Tribunal is constituted if it would present a risk of a conflict between the funder and a Tribunal member.

Some unanswered questions

While the above changes to the Rules will be welcomed by practitioners, the Rules do not address some of the other issues arising from Decree No. 34 and, in particular, those arising from the effective abolition of the DIFC-LCIA.

So far as existing DIFC-LCIA arbitrations are concerned the effect of Decree 34 was that these would be transferred to DIAC, which was charged with taking over the administration of those arbitrations. Parties and practitioners have observed an effective hiatus in the management of ongoing DIFC-LCIA arbitrations while the difficult logistics of this were dealt with. Now that DIAC and the LCIA have announced that the latter will administer existing DIFC-LCIA arbitrations, it is hoped that those arbitrations will now proceed, but parties should not under-estimate the complexity of absorbing a substantial body of high value and complex arbitrations and the management of funds on account by a new case management team.

So far as future DIFC-LCIA arbitrations (and awards) are concerned, concerns remain over whether DIAC's administration of those arbitrations, and the fact that awards in those arbitrations will be issued by a body other than the LCIA Court, will be regarded as consistent with the parties' arbitration agreement. This is likely to be a real issue, particularly where awards are to be enforced outside Dubai.

Finally, arbitration users generally choose institutions with an established track record and whose procedures are a known quantity. The Arbitration Court of DIAC broadly comprises the same individuals who sat on the Executive Committee of the former DIAC, which provides some continuity. However, there is presently no clarity around issues such as:

• whether arbitrations seated in onshore Dubai will be allocated to a different case management team, or will otherwise be treated differently, from arbitrations seated in the DIFC; and
• whether different lists of arbitrators will be used, or different considerations apply, to offshore and onshore seated arbitrations.

Conclusion

Having (through Decree No. 34) taken on the current and future caseload of the DIFC-LCIA, as well as the task of persuading international companies to continue to choose a Dubai-based arbitral institution for their dispute resolution requirements, it was essential that DIAC adopted state-of-the-art international arbitration rules, which reflected the latest developments in this area. The 2022 DIAC Rules achieve this, and the new framework has been rightly welcomed by practitioners. However, there are still practical considerations for arbitrations pursuant to DIAC or DIFC-LCIA/EMAC arbitration clauses – in particular case management and other operational matters, and uncertainty – for arbitrating parties to bear in mind.