DIAC: New rules for a new world

This development represents yet another important milestone in Dubai’s changing arbitration landscape.

As outlined in our article of September 2021, Decree No. 34 of 2021 introduced sweeping changes, including consolidating arbitration in Dubai into one single centre ("DIAC"). These changes also seek to enhance DIAC’s efficiency and reliability, and the new rules provide a sophisticated framework to do so, in line with those of other leading international arbitration centres.

What are the principal changes?

1. Alternative tribunal appointment: The rules provide an alternative mechanism for appointing tribunal members in circumstances where the parties are unable to jointly nominate. In such cases, DIAC will provide the parties with a list of three candidates. Each party can add three names to this list, and number all candidates in order of preference. DIAC will then appoint these nominees in order of mutual preference, until the requisite number of arbitrators is reached. This is a simple, yet practical, solution to party disagreement, and helps to streamline the nominations process and reduce unnecessary costs being incurred.
2. Default seat of arbitration: Where an arbitration agreement is silent as to the seat or location of the arbitration (and the parties do not agree between themselves), the Dubai International Financial Centre will be considered the default or “initial” seat. Once constituted, the tribunal can then determine the seat at a later stage in the proceedings, if it becomes apparent that an alternative seat is more appropriate.
   Where the parties do not select a seat, but the arbitration agreement specifies a location/venue, that place shall be deemed the relevant seat of the proceedings.
   These provisions are efficient and cost-effective, eliminating the need to incur time and costs arguing over the seat prior to the tribunal’s constitution.[1]
3. Third-party funding: The previous rules, published fifteen years ago, did not address the issue of third-party arbitration funding (i.e., where a person, not party to the proceedings, funds a party’s costs in exchange for an agreed return).
   Funding is not widely used in the UAE, although it is popular in common law jurisdictions.
   The new rules expressly allow third-party funding, provided that the funding arrangement is concluded before the tribunal is constituted. A party using third-party funding must also disclose the identity of the funder, as well as whether the funder has committed to any adverse cost liability.
4. Recovery of legal fees: DIAC tribunals are now able to award legal representatives’ fees and expenses as part of the costs of the arbitration. Under the 2007 rules and accompanying costs appendix, only DIAC’s administrative fees, as well as fees and expenses of the tribunal and any experts appointed, could be awarded. This position was upheld by the onshore courts, even for instance where arbitration agreements had expressly permitted “legal costs” to be recovered.
   The prior costs rules meant that successful parties had to stomach their own legal costs. This therefore had a chilling effect on claimants seeking to recover relatively low damages sums: there is little point incurring the significant costs associated with arbitration only to chase a pyrrhic victory. The 2022 rules update is therefore a positive development, one that is likely to allow more worthy parties to bring their claims before a tribunal.
5. Other important changes: The new rules also provide for:
• expedited proceedings in matters where the claim value is AED 1 million or less, the parties agree or in cases of exceptional urgency;
• allowing hearings to take place virtually by videoconference; and
• the ability to appoint an emergency arbitrator, where urgent interim relief is needed before a tribunal has been formally constituted.

What this means for you

We still await to see what transition measures will be applied to any arbitrations currently governed by the rules of the abolished Emirates Maritime Arbitration Centre and DIFC-LCIA. However, it is anticipated that such disputes will be transposed to DIAC, in which case the new rules may well apply.

If you are currently in the process of negotiating new contracts and considering arbitration in Dubai as your means of dispute resolution, you should ensure that the arbitration agreement is properly drafted in light of the new rules. Clauses in existing terms and conditions should also be reviewed and, if necessary, amended.

Whilst these new rules bring forth more change, it is hoped that they will also cement DIAC’s position as a leading arbitration centre, both regionally and at a global level.

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-Rossier.

[1] Note: The seat of an arbitration is important for many reasons. For example, the seat determines which courts oversee the proceedings, the extent to which those courts can intervene in the arbitral process and what remedies a party can obtain through the supervisory courts. Many contracting parties will find the default DIFC seat provision to be favourable, given the DIFC courts’ use of the English language, application of common law, and willingness to enforce arbitral awards.