The DIACs confidence-inspiring arbitration rules for a new era

Following in the wake of Decree 34 of 2021 issued in September 2021 to revamp the Dubai International Arbitration Centre (DIAC), the DIAC recently announced an extensive revision to its arbitration rules. Marking the end of the Decree’s six-month transition period, the new procedural rulebook is effective from 21 March 2022 (the 2022 rules). The long-awaited changes to the DIAC’s Arbitration Rules 2007 (the 2007 rules), include procedures to consolidate multiple arbitrations, join third parties, expedite proceedings, review draft awards and award parties their legal fees (finally!). 

Decree 34 and its enclosed statute revealed the outline for the new-look DIAC. This included abolishing the Dubai International Financial Centre’s (DIFC) arbitration centre, the DIFC-LCIA and the Emirates Maritime Arbitration Centre. Over the past six months, their assets and operations have merged under the DIAC’s umbrella. 

As clarified in October 2021, a major impact of Decree 34 was that parties to DIFC-LCIA arbitration agreements are to have their future cases administered in accordance with the DIAC’s arbitration rules. Consequently, the significant differences with the outgoing DIFC-LCIA rules (based on London’s LCIA rules), called for an urgent review of the DIAC’s outdated 2007 rules.

Below we examine some key changes which strike a sensible balance with outgoing rules of the DIFC-LCIA and strive to address the demands of modern international arbitration.

Consolidation 

Under the 2007 rules, multiple claims between the same parties arising from separate but related contracts or transactions, would need to be brought in separate arbitrations. This approach was expensive for the parties and risked inconsistent awards. In practice, whilst cases might be run concurrently, that was not guaranteed under the 2007 rules, and it did not address the issue of cost duplication.

As anticipated, the 2022 rules now permit the consolidation of multiple claims into a single arbitration. The qualifications are similar to the former DIFC-LCIA rules and those of its global competitors. Claims may be consolidated where the arbitrations involve the same parties, the arbitration agreements are compatible and:

• the disputes arise out of the same legal relationship
• the underlying contracts consist of a principal contract and its ancillary contracts; or
• the claims arise out of the same transaction or a series of related transactions.

Joinder of third parties

The 2022 rules allow for the joinder of third parties where all parties, including the third party, consent. Alternatively, joinder is possible if the third party is deemed a party to the arbitration agreement. 

The ability to join parties is particularly relevant in projects or transactions involving multiple entities where the respondent being sued may allege that another party is liable. Equally, a third party might have an indemnity claim or contribution claim against the respondent which it could not bring in an arbitration involving the claimant alone. Rather than the parties bringing separate arbitrations as they would under the 2007 rules, joinder may now be an option. 

Where applicable, this will allow the same tribunal to resolve all claims in one award, thereby, saving the time and cost of separate arbitrations and avoiding potentially conflicting outcomes. This change balances with the outgoing DIFC-LCIA rules and other centres such as the ICC, SIAC and HKIAC.

Default seat of arbitration

Under the DIAC's 2007 rules, if the parties had not agreed a seat (or place) of the arbitration, onshore Dubai would be chosen as the default seat of a DIAC arbitration. The position has now changed. Under the DIAC's 2022 rules, Dubai's financial freezone, the DIFC will become the default seat of a DIAC arbitration. In that case, the arbitration agreement and procedures will be governed by the DIFC Arbitration Law (DIFC Law No. 1 of 2008) and the DIFC Courts will have supervisory jurisdiction.

For parties who may have overlooked agreeing a seat for their arbitration, the safety net of an English language common law Court (especially for ratification and enforcement proceedings) is likely to be more familiar than Dubai’s onshore Arabic language courts. 

Use of modern technology

Following the helpful additions regarding modern technology in the UAE’s Federal Arbitration Law (No. 6 of 2018), the DIAC's 2022 rules formally introduce a tribunal’s power to conduct hearings or meetings by telephone, video conference or any other appropriate means of virtual communication. 

Under the 2007 rules, a tribunal would often conduct meetings and sometimes even hearings, remotely. However, mischievous parties, might still raise this as a procedural irregularity at the enforcement stage in the Court. The updated 2022 rules will hopefully remove any use of that challenge during nullification/ratification proceedings. 

Third party funding

The 2022 rules recognises another feature of modern arbitration; the use of third-party funding arrangements to finance a party's costs of the arbitration. On the heels of the new 2021 ICC Arbitration Rules, the DIAC's 2022 rules similary requires a party to disclose any third-party funding arrangement prior to the appointment of an arbitrator. The aim is to avoid any conflict of interest between the tribunal, the parties or the funder and help to ensure the enforceability of an award. 

For DIAC arbitrations seated in the DIFC, third party funders may now be confident of the award being enforced by the DIFC Courts, knowing that it already recognises these arrangements in its 2017 practice direction. Time will tell, however, whether DIAC arbitrations seated in onshore Dubai still carry too much risk for third-party funding to flourish. Funders hoping to avoid unwelcome surprises at the enforcement stage in the Dubai Courts may wish to see the DIAC’s rule change also reflected in an amendment to the Federal Arbitration Law (6 of 2018).

Expedited proceedings

Appendix II to the 2022 rules contains a process for appointing an emergency arbitrator in those cases where a party requires emergency interim relief. Whilst this is similar to the outgoing DIFC-LCIA rules, the DIAC's 2022 rules breaks new ground by introducing an expedited procedure for small claims.   

Parties claiming less than AED 1 million (US $ 272,108), (or if the parties have consented or if there is exceptional urgency) may receive their arbitral award within three months, which by comparison is half of the ICC’s six-month expedited process. 

Notably, the fast-track procedure can only used if the parties entered into their DIAC arbitration agreement after 21 March 2022. Nonetheless, in the years to come, we would expect to see this route become useful for straightforward debt recovery matters, competing with the likes of the DIFC Court's Small Claims Tribunal.

Review of awards by the DIAC Arbitration Court

As indicated in Decree 34, the 2022 rules require the DIAC's new Arbitration Court to review the tribunal’s draft arbitration award before it is issued to the parties. Some arbitrators will be relieved to see that the review will be limited to examining the form of the award to ensure that the rules have been complied with. At present, the procedure does not go as far as the ICC court which may draw an ICC tribunal’s attention to points of substance in the award. 

In view of this limitation, the review process may further enhance the DIAC’s reputation. For example, enforcement of DIAC awards in the UAE’s onshore courts have often suffered from delay whilst respondents tried to scupper awards with a range of procedural challenges. Negative commentaries about the UAE courts’ willingness to nullify awards on technical grounds, often hampered the UAE’s ambition to embrace arbitration. If a review of draft DIAC awards can lead to a reduction in procedural challenges in the UAE’s courts, this would be a significant step forward.

Legal fees and expenses

In 2013 the Dubai Court of Cassation (in Case 282 of 2012) decided that the 2007 rules did not give DIAC tribunals the power to award legal fees unless the parties had expressly granted that power to the tribunal in the arbitration agreement or during proceedings (eg in a terms of reference). 

Whilst this was in line with the local onshore UAE court’s own practice of the parties bearing their own legal fees, it became a controversial set-back for the DIAC. When the UAE’s landmark Federal Arbitration Law was introduced in June 2018, it also left this issue out of its costs’ provisions. In contrast, the rules of other international arbitration centres (including the DIFC-LCIA) continued to grant unfettered discretion to tribunals to award legal fees. 

Thankfully, the DIAC’s 2022 rules makes the long-awaited clarification that the fees of legal representatives and any expenses incurred by those representatives may be recovered from the other party. In addition, party appointed expert fees are now expressly included. 

Also, in contrast to the reasoning in Case 282/2012, the 2022 rules appears to contain a non-exhaustive list of costs items meaning that those which are not listed, could arguably be recovered. 

Where legal costs can be significant and are key to a party’s decision to bring a claim, the recoverability of legal costs is an essential feature of modern international arbitrations. Without such power, one suspects the DIAC would have fallen behind its competitors across the globe. 

Conclusion

Decree 34 drastically changed the arbitration landscape in the UAE to streamline the various Dubai institutions. The DIAC’s 2022 rules now drastically improve the procedures in the DIAC to align them with other notable arbitration centres. As a result, parties should have no doubts in choosing the new-look DIAC in their arbitration agreements. If these changes also lead to a speedy and consistent enforcement process in the UAE Courts, it will really inspire confidence in Dubai as a global arbitration hub.