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22 February 20164 minute read

ADGM becomes major new offshore arbitral seat

On 17 December 2015, the Abu Dhabi Global Market (ADGM), the UAE-based international financial free zone, enacted its own arbitration regulations, thereby creating the UAE's second major offshore arbitral seat, after the Dubai International Financial Centre (DIFC).

With arbitration regulations based upon the international standard UNCITRAL Model Law, establishing ADGM as a new arbitral seat in the UAE's largest emirate will further strengthen the UAE's attractiveness to foreign investors and bolster ADGM's ambition to become a leading international financial centre. It is also likely further to accelerate the growth of arbitration in the UAE and the wider region.

Why is this relevant?

Located in the nation's capital, the ADGM is an offshore financial free zone (similar to the DIFC) which is intended to attract foreign, regional and local companies and investors to Abu Dhabi.

ADGM has already incorporated various English statutes directly into its legal framework, and has established a state-of-the art court whose procedures will be based on English procedure, and whose judiciary will be led by pre-eminent common law judges.

By adopting large sections of a well-established (and internationally recognised) legal system, and establishing the ADGM courts and judiciary, ADGM has laid the groundwork for a credible and supportive arbitration jurisdiction. The arbitration regulations themselves reinforce the likelihood that ADGM will become a successful arbitral seat.

While based on international best practices and 'pro-arbitration' standards, the ADGM arbitration regulations (which have been finalized following a consultation process in which DLA Piper played an active role) also contain some innovations which take advantage of recent developments introduced in other arbitration laws and rules.

Points of note
  • Parties can agree to waive any right to apply to set aside an award. This innovation (taken from Switzerland) would result in a final, unappealable award. 
  • Consolidation and joinder by consent or agreement is permitted, thereby facilitating multi-party or multi-agreement arbitrations. This innovation may be of particular value in the context of transactions involving multiple stakeholders or contractual chains, such as major infrastructure projects, complex financing arrangements or M&A/shareholder/joint venture documentation. 
  • Robust confidentiality provisions extend to both the arbitral proceedings and the award, though these are balanced by the parties' need to make reasonable disclosures to protect their legal rights.
Potential challenges and future directions

Whilst we view this as an exciting development and eagerly anticipate the beneficial impact that it will have on arbitration practice and procedure in the UAE, some aspects of the ADGM legal regime require further action in order to ensure that it is competitive as a forum for the resolution of disputes.

For example, it remains unclear whether, and by what process, ADGM court judgments (including those enforcing arbitral awards) will be enforced in on-shore jurisdictions, whereas the DIFC Courts now have an established process for the enforcements of judgments in onshore Dubai and more widely.

Moreover, although the ADGM arbitration regulations, and the supporting legal and judicial framework, provide an international standard regime in which to conduct arbitration, the ADGM presently lacks an arbitral institution of its own (such as the DIFC-LCIA) to administer arbitrations seated there. As a consequence, parties will presently either have to opt for ad hoc arbitration seated in ADGM or adopt international or regional arbitration rules, such as the LCIA, ICC, ADCCAC or DIAC.

Finally, since its establishment in 2008, the DIFC-LCIA has experienced a long "lead time", in generating a significant caseload of arbitrations. It will be interesting to see whether Abu Dhabi entities are required to incorporate ADGM-seated arbitration into their contracts; otherwise, ADGM arbitration is likely to experience similarly slow growth in its early years.

Given the ADGM's progressive development in the last few years from vision to formation, we eagerly await the ADGM's future developments in arbitration and dispute resolution.

We hope that this recent development heralds further pro-arbitration developments in the UAE, including the promulgation of a long-awaited federal arbitration law.

Further information

DLA Piper is experienced in advising local and foreign companies on the risks and advantages of the various dispute resolution options (including arbitration options) available in the Middle East region.

We are one of the few international legal practices with a dedicated international arbitration team permanently on the ground in the UAE and have extensive experience handling arbitrations administered under the auspices of every major international and regional arbitration centre, including (among others) the DIFC-LCIA, ADCAAC, DIAC, GCCAC, ICC and LCIA.