Decree No. 34 of 2021 – Another step forward for arbitration in Dubai

On 14 September 2021, His Highness Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Dubai, issued Decree No. 34 of 2021 concerning the Dubai International Arbitration Centre (the “Decree”). Just six days later, the Decree came into force, setting in motion potentially important changes to the arbitration landscape in Dubai.

What are the changes?

The Decree makes three principal changes.

Firstly, it seeks to consolidate all arbitration proceedings within Dubai into a singular arbitration centre, namely the Dubai International Arbitration Centre (“DIAC”).

Secondly, the Decree immediately abolishes both the Emirates Maritime Arbitration Centre (“EMAC”) – a specialised maritime arbitration institute established in 2016 – and the DIFC Arbitration Institute (“DAI”), formed by the DIFC Dispute Resolution Authority when the Dubai International Financial Centre (“DIFC”) was set up in 2004.[1]

All of EMAC and DAI’s real estate, assets, equipment, fund allocations, rights, obligations and potentially even employees are to be transferred to DIAC. Memberships of those affiliated with EMAC and DAI shall transfer to DIAC and remain in place until expiry of their membership period.

Finally, the Decree outlines the functions, objectives and organisational structure of what appears to be a new DIAC, replacing the existing DIAC as we know it. The new DIAC will consist of a Board of Directors, a newly established arbitration court comprising 13 members and an administrative unit to manage and supervise all arbitrations under DIAC’s rules.

What is the impact?

It is too soon to assess the long-term impact of the Decree. DIAC has been granted six months to comply with the Decree and replace the existing bodies of EMAC and DAI outright. We anticipate that this move will necessitate transitional arrangements that are yet to be announced.

However, there is widespread optimism that these changes will cement Dubai’s reputation within the arbitration community. In particular, the Decree should streamline and unify the arbitration landscape within Dubai and reinforce the Emirate as a leading hub for alternative dispute resolution, both regionally and worldwide.

One major question that remains is what the Decree means for the status of the DIFC-LCIA. The DIFC-LCIA, a popular arbitration centre for regional disputes, was formed in 2008 by both DAI and the London Court of International Arbitration (“LCIA”). As a result of DAI’s abolition, it is expected that the DIFC-LCIA centre will therefore itself be abolished.

Given the significant funds the DIFC-LCIA holds on account in respect of its many ongoing arbitrations, parties are keen to understand what the future holds. The LCIA has confirmed that it is currently consulting with the Dubai Government to ensure the good management of existing and future cases governed by the DIFC-LCIA’s rules.

The Decree provides that any arbitral tribunal constituted by 20 September 2021 shall remain in place and can determine any case before it under the existing DIFC-LCIA rules. The Decree further states that the reformed DIAC will have overall supervision of these cases, unless the parties agree otherwise. DIAC will be headquartered “onshore” in Dubai, but with a branch in the “offshore” DIFC district, with parties free to choose either as the seat of their arbitration.

Subject to clarification of the transitional arrangements, and any revised approach which parties may wish to agree, it is to be hoped that ongoing arbitrations will be able to continue without disruption from a procedural perspective. Moreover, the courts of both Dubai and the DIFC have well-deserved reputations for enforcing arbitral awards. If an arbitration is seated in the DIFC, the DIFC Courts should continue to have exclusive jurisdiction in the usual way.

What it means for you

If you are currently involved in an arbitration under the rules of EMAC or the DIFC-LCIA, your proceedings should continue uninterrupted for now. The primary change envisaged by the Decree will be that the new DIAC is intended to take over supervision from the EMAC or DIFC-LCIA (subject to whatever arrangements may be agreed between the Dubai Government and those institutions and announced in the coming days). However, there is also the possibility that parties to existing proceedings may decide between themselves whether to accept their arbitration being brought under DIAC’s auspices, or whether they amend their arbitration agreement to select another supervising institution.

If your existing contracts grant jurisdiction to either EMAC or the DIFC-LCIA, you may wish to seek legal advice on how to navigate the upcoming changes. In particular, question marks are likely to arise over the next few months, such as which institute will appoint the tribunal in circumstances where the parties cannot agree. Where disputes have not yet arisen, it is a good time for parties to co-operate on agreeing any amendments to their dispute resolution clauses to remove any uncertainty. 

Parties should also be aware of some significant differences in the practices of the DIAC compared with the EMAC or the DIFC-LCIA.  

For example, existing DIAC rules allow a successful party to recover the costs of the arbitration, but there is no mention of the parties’ legal costs. Onshore Dubai courts have interpreted this to mean that legal costs are therefore excluded from recovery, so that a successful party involved in DIAC proceedings will only be able to recover its legal expenses from the losing side if the parties’ arbitration agreement expressly allows this.

By contrast, the DIFC-LCIA’s rules explicitly grant tribunals the power to order a party to pay all or part of the other’s legal or other expenses. This is one of several reasons that the DIFC-LCIA has proven so popular amongst companies in the Middle East and beyond.

This may be an area that is clarified by transitional arrangements agreed in relation to the Decree over the announced six-month grace period. Alternatively, contracting parties may wish to amend their arbitration clauses to expressly allow legal costs recovery where this is a significant issue to them. Companies should also consider whether their template contracts and terms of business should be amended to account for these recent changes.

Final thoughts

The Government of Dubai has shown a sustained commitment to establish the Emirate as a leading arbitration centre. Parties are able to benefit from clear rules and procedures, extensive enforcement routes, and a stable legal framework. These developments have seen the Emirate rival other leading jurisdictions when parties are considering where their arbitration should be seated.

The announcement of the Decree may well have come as a surprise, but the changes it augurs could be yet another positive step forward in Dubai’s continued ascent in the arbitration world.     

Bird & Bird LLP is an international firm with more than 1,300 lawyers worldwide, and a global network spanning 30 offices in 20 countries. Our market-leading firm specialises in cross-border and multi-jurisdictional work managing complex projects across multiple regions with a seamless one-firm approach.

Our Middle East Dispute Resolution team is well-placed to help you navigate this change and advise you in respect of your arbitrations. Should you require any advice in this respect, please contact Lucas Pitts or Yannick Hefti.