Arbitration is one of the preferred methods of dispute resolution in construction contracts across the Middle East. Recent amendments to the DIAC Rules of Arbitration seek to increase the confidence that commercial parties can place in Dubai as a regional arbitration hub.
We have previously summarised how the Dubai government's Decree 34 of 2021 (the Decree) for the Dubai International Arbitration Centre is reforming Dubai’s arbitration landscape. To recap, on 20 September 2021, the Dubai International Financial Centre (DIFC) Arbitration Institute was dissolved, and by extension, so was the DIFC-LCIA Arbitration Centre – a joint venture between the DIFC Arbitration Institute and the London Court of International Arbitration.
Likewise, the Dubai Maritime Arbitration Centre (DMAC) was also to be dissolved. The DIFC-LCIA and DMAC’s former operations merged with the existing Dubai International Arbitration Centre (DIAC) to create a unified global arbitration hub for Dubai under the banner of the DIAC. One of the key provisions of the Decree was that, upon consolidation of the arbitral centres, the DIAC was to issue new arbitral rules, which had been requested by the legal community for a number of years. These new rules were issued on 3 March 2022 (the New DIAC Rules) and we summarise the key provisions below.
The new DIAC Rules
- Consolidation – Article 8.1 provides for the consolidation of “multiple claims arising out of or in connection with more than one agreement to arbitration”. Rule 8.2 makes this subject to the satisfaction of certain requirements including that the arbitrations involve the same parties, the agreements to arbitrate are “compatible” and the disputes arise from the same legal relationship(s), the underlying contracts consist of a principal contract and its ancillary or the claims arise out of the same transaction or series of related transactions.
- Seat – Mirroring the Decree, the new DIAC Rules state that if parties adopt the DIAC Rules but have failed to agree/stipulate a seat, the “initial” seat shall be the DIF, and the Tribunal (once constituted) can finally determine the seat after hearing any observations made by the parties.
- Third-party funding – parties are increasingly turning to third party funding to help cover the costs of pursuing a dispute. But under UAE law, some parties questioned whether third party funding was compliant with Shariah law, and if it could therefore be used in Dubai-seated arbitrations. The new DIAC Rules now expressly provide that a party can receive third party funding subject to certain notice and timing requirements, and provided it does not create any conflict. A Tribunal may take the existence of funding into account when making a costs award, but it is unclear if any funding costs will themselves be recoverable as a cost of the proceedings.
- Expedited proceedings – Article 32 allows parties to adopt an expedited procedure where the combined value of the claims/counterclaims is AED 1,000,000 or less, the parties agree to adopt the expedited procedure, or if the case is of “exceptional urgency”. If this process is applied, an award must be issued within three months from receipt of the file by the Tribunal (unless otherwise determined by the DIAC). At present what constitutes “exceptional urgency” is unclear but will be determined by the DIAC on a case-by-case basis.
- Hearings – Article 26.1 expressly provides that hearings can be held using virtual means. Virtual hearings became commonplace during the Coronavirus pandemic, and it is anticipated that they shall remain popular moving forward as means of reducing the costs and environmental impact of hearings.
- Legal costs – one of the most welcome features of the new DIAC Rules is Rule 36 which states that Tribunals can now make costs awards that include the costs of retained counsel and other expenses incurred by parties. The absence of an express power under the previous rules left parties open to the argument that Tribunal’s had no jurisdiction to award these costs, which would greatly increase a party’s potential exposure in pursuing a claim.
- Interim measures – Appendix 2 of the New DIAC Rules contains an appendix setting out a Tribunal’s power to grant interim measures during the proceedings. Together with the New Arbitration Law, these interim measures will be enforceable in the Court, giving additional weight to a Tribunal’s powers.
Where does this leave existing arbitration agreements?
The new DIAC Rules came into effect on 21 March 2022 and will apply to all new DIAC arbitrations moving forward. The new DIAC Rules are not said to apply retrospective to any arbitration commenced before 21 March 2022.
We recently summarised the effect of the Decree on existing contracts which provide for Dubai-seated arbitration, or were to be administered under the rules of the now abolished DIFC-LCIA and DMAC. Now, if your contract refers to the rules of one of the now abolished centres, and arbitration has yet to commence, any future dispute will be administered under the New DIAC Rules.
Where does this leave us?
To establish a truly international arbitral hub, a jurisdiction needs to win the trust of the global commercial community. By introducing the New Arbitration Law in 2018 to support enforcement, consolidating the various arbitration centres in the jurisdiction under the DIAC, and now equipping the DIAC with a robust set of rules, Dubai has very much “squared the circle” to both consolidate and build upon its reputation as an arbitral hub, and a true alternative to more established hubs such as Singapore, Hong Kong, London and Geneva.
As a result of these developments, parties who provide for arbitration to resolve disputes under their contracts can have increased confidence when choosing to seat those proceedings in Dubai and to be administered by the DIAC.