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26 September 202111 minute read

Dubai issues decree to consolidate Dubai's main arbitral institutions into one new institution

The Ruler of Dubai has issued Decree No. 34 of 2021 concerning the Dubai International Arbitration Centre, which aims to abolish the DIFC-based Emirates Maritime Arbitration Centre and the DIFC Arbitration Institute. The Decree also directs that the assets, employees, funds and cases of these bodies be transferred to a re-launched Dubai International Arbitration Centre.

Which bodies have been abolished by the Decree?

With effect from 20 September 2021, the DIFC-based Emirates Maritime Arbitration Centre (EMAC) and the DIFC Arbitration Institute (DAI) were abolished.

The EMAC was a regional maritime arbitral centre established in 2016 with a relatively small caseload. On the other hand, the DAI was significantly more important, and was one of the arms of the DIFC's Dispute Resolution Authority (alongside the DIFC Courts). The DAI employed the DIFC-LCIA Secretariat (the case management team within the arbitral institution) and the DIFC-LCIA's bank accounts are in its name.

The DAI is not to be confused with the DIFC-LCIA, which is Dubai's largest international arbitral institution, based in the DIFC and which was established by agreement between the LCIA and the DAI. However, while the Decree does not abolish the DIFC-LCIA itself, it has abolished the party which largely managed its operations.

What has been transferred to DIAC?

Articles 5(b) and 6(a) of the Decree state that the DIAC will broadly "substitute" the EMAC and the DAI "in all their rights and obligations" and "replace" them as the institution administering arbitrations under their rules.

More specifically, article 5 provides that all assets and employees of the EMAC and the DAI, the Dubai Government's financial allocations for the EMAC and DAI, and the EMAC and DAI's lists of arbitrators and experts will be transferred to DIAC.

The Decree also provides that DIAC will undertake the supervision of all arbitrations pending before the EMAC and the DAI.

Whether the cases of the DIFC-LCIA (as opposed to the DAI, which itself has no cases) have been effectively transferred to DIAC must be a matter of some debate. The market will wait to hear what the position of the LCIA might be on this issue, but article 32.4 of the DIFC-LCIA Arbitration Rules 2021 may be of some application here. Article 32.4 provides: "The LCIA Court may decide to administer any arbitration directly, in whole or in part, if it deems this appropriate under the circumstances."

Equivalent versions of this article were triggered by the LCIA Court when the LCIA's other overseas arbitral institutions, the LCIA India and Mauritius International Arbitration Centre (MIAC), were closed. Therefore, if the LCIA Court were to decide to administer all current DIFC-LCIA arbitrations going forward, this would be a decision that the parties to each of those arbitrations had empowered the LCIA Court to make.

However, whether the parties' agreement, and the LCIA Court's powers, would overrule the content of the Decree is another matter, and may depend on several different factors, some of which will be legal and some of which may be practical. For example, all of the party funds held on account in DIFC-LCIA arbitrations are held in accounts in the name of the DAI. Those funds are to be, or have now been, transferred to DIAC. If the funds on account are with DIAC, it remains to be seen how the LCIA could administer the arbitrations. Invocation of this clause and the continuation of an arbitration under the administration of the LCIA, in a manner apparently contrary to the Decree, could conceivably present an obstacle to enforcement of an ensuing award in the UAE.

What will happen to existing DIFC-LCIA cases and arbitration clauses?

Article 7 of the Decree states that both the Dubai and DIFC Courts will continue to consider cases, requests and challenges relating to any award or order issued by arbitral tribunals in relevant arbitrations.

Article 6(b) of the Decree provides that, unless the parties agree otherwise, arbitral tribunals appointed by the DIFC-LCIA, DIAC or EMAC Rules "will continue to consider and determine all arbitration cases pending before them, without interruption, pursuant to their applicable rules and procedures", but that DIAC will undertake the supervision of those arbitrations.

Article 8(c) provides that the arbitration rules of EMAC and the DAI will remain in full force and effect until DIAC's new arbitration rules are approved.

Notwithstanding these provisions, there must be some uncertainty about how DIFC-LCIA arbitrations will be administered in the near future. It is understood that there are ongoing discussions between the DIFC-LCIA and the Government of Dubai, the purpose of which is (in part) to give parties to ongoing DIFC-LCIA arbitrations clarity as to how ongoing arbitrations will be administered going forward.

Given the policy motivations behind the Decree, and the stated intention for DIAC to establish a branch in the DIFC (see below), it seems likely that the intention is for the operations of the DIFC-LCIA effectively to become the DIAC branch in the DIFC. How this will be achieved in practice is subject to a number of uncertainties, some of which we outline below.

While the precise structure of the DIFC-LCIA is not clear from public sources, it appears to have been promulgated by the LCIA, and does not sit under the DAI. It may therefore continue to exist as an institution, notwithstanding what may have been the intended effect of the Decree.

However, while the DIFC-LCIA may technically continue to exist, as stated above, from a practical perspective, the DAI employs the DIFC-LCIA Secretariat and the DIFC-LCIA's bank accounts are in its name.

It is also unclear whether the LCIA will accept that arbitrations under the DIFC-LCIA Rules can now be administered only by DIAC (which may give rise to legal issues), nor is it clear whether the DIFC-LCIA case management team will agree to transfer to DIAC (as the Decree requires) or will wish to continue working with the LCIA.

It is also unclear whether the rules of one institutional arbitration (to which parties have agreed) can be replaced mid-arbitration with the institutional arbitration rules of another centre (to which parties have not agreed) as a result of a change in law made in the country in which the arbitral institutions are based.

Additionally, the position of DIAC during the transition period is unclear, since the restructuring required by the statute appended to the Decree (see The revamp of DIAC and The Statute of the Dubai International Arbitration Centre) has not yet occurred, and the three previous Decrees on which DIAC's existence was based were all annulled by article 8 of the Decree. It may be that those who currently hold positions within DIAC will retain those posts in the transitional period, but this issue is not addressed in the Decree.

As for the parties and arbitrators, it is unclear whether they will be prepared to proceed with current arbitrations when the identity of the institution that will administer the arbitrations going forward, and the whereabouts and control over the parties' funds which are held on account, is in doubt. Therefore, there may be some form of hiatus in some of the current DIFC-LCIA arbitrations, until the position becomes clearer.

In respect of arbitration clauses, article 6(a) states that all agreements entered into on or before 20 September 2021 that require disputes to be referred to the former institutions will be deemed valid and effective, but DIAC will replace those centres as the supervising body. It is unclear whether this provision will be effective in all cases.

How have the DAI and LCIA reacted to these developments?

As of this date, the LCIA has not made any public comment about the Decree or its effect.

However, the DAI itself has issued the following short press statement:

"We are aware of the issuance and gazetting of Decree No. 34 of 2021 concerning Dubai International Arbitration Centre by the Ruler of Dubai, Vice President and Prime Minister of the United Arab Emirates, His Highness Sheikh Mohammed bin Rashid Al Maktoum.

Consultation is taking place between the LCIA and the Government of Dubai to seek to ensure the good management of existing and future cases where parties have agreed to arbitration and mediation under the DIFC-LCIA Rules.

The casework team continues to try to deal with the day-to-day management of cases under the DIFC-LCIA Rules."

The revamp of DIAC and the Statute of the Dubai International Arbitration Centre

The debate around the revamp of DIAC is likely to centre around the effect of the Decree on the DIFC-LCIA as an arbitral institution and on its existing caseload. However, the Decree also appends The Statute of the Dubai International Arbitration Centre (Statute), which is a longer document setting out how DIAC will be restructured, along the lines of other international arbitral institutions such as the LCIA and ICC.

The statute provides for the establishment of:

  • A board of directors, comprised of a chairman, vice-chairman and no more than nine members. The principal roles of the board include approving DIAC's arbitration rules and fee structure, establishing rules for third-party funders and a code of conduct, and appointing the executive director, along with governance and financial management.
  • A court of arbitration, comprised of a president, vice-president and no more than 13 members. The principal roles of the court include appointing arbitral tribunals, deciding on challenges to arbitrators, supervising the audit of draft arbitral awards and supervising emergency arbitrations.
  • An administrative body, led by an executive director, whose role includes supervising the case management team and managing the funds and bank accounts of DIAC. The administrative body itself will provide administrative support to the court and to arbitral tribunals, including the maintenance of arbitration case files.

Other noteworthy provisions of the Decree and statute include that:

  • DIAC will be a non-governmental and not-for-profit organization (article 1, Decree).
  • DIAC will have its headquarters in Dubai and a branch in the DIFC (article 2, Decree).
  • Where the parties have not specified a seat of arbitration, the seat of arbitration will be the DIFC (article 4(b), Statute).
  • There is some indication that DIAC will scrutinise draft awards, though it remains to be seen whether such scrutiny is intended to be as thorough as the ICC's scrutiny of awards (article 11(8), Statute).
  • DIAC must, in effect, have all of the above structure in place no later than six months from 20 September 2021 (article 9, Decree).

The principle of simplifying Dubai's arbitration landscape by consolidating its existing arbitral institutions into one newly launched, state-of-the-art institution with capability in both onshore Dubai and the DIFC is a very good one. The reality is that, while the DIFC-LCIA has thrived in recent years (with almost 200 cases on its books), DIAC's caseload has reduced significantly from the heights of the early 2010s. It therefore makes sense that they be consolidated in order to ensure that all arbitration users in Dubai consistently receive the highest quality service from the Emirate's arbitral institutions.

Moreover, the Decree contains ambitious plans for the restructuring and re-launch of DIAC, which will effectively be a new institution. The Decree could potentially lead to the creation of a world-class arbitral institution, run by top-quality international and regional arbitration specialists appointed to its board, court and administrative body. This could be a very positive development for Dubai as it seeks to consolidate its position as an arbitration hub for the Middle East and Africa region, and the wider world.

However, the creation of such an institution will take time, and there is likely to be concern in the international and Dubai business communities that these developments have taken place so quickly and without clarity as to how the period of transition will be managed. In particular, there is likely to be a period of significant uncertainty about the status of ongoing DIFC-LCIA arbitrations, the validity and effect of DIFC-LCIA arbitration clauses in agreements and potentially about the direction of travel of arbitration in Dubai generally. Much may turn on how the various institutions (including the LCIA) now work together and communicate with the legal and business community, to ensure that the period of transition runs as smoothly as possible.

*Please note that this article was written for Practical Law Arbitration, a legal publishing company which provides legal guidance for lawyers.