Arbitration in Dubai – How Decree 34 will impact on parties to DIFC-LCIA arbitration agreements

Quick read

Last month, we summarised how the Dubai government's Decree 34 of 2021 concerning the Dubai International Arbitration Centre is reforming Dubai’s arbitration landscape.

To recap, on 20 September 2021 (the Effective Date), 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 (LCIA). In the coming months, the DIFC Arbitration Institute's former operations will merge with the existing Dubai International Arbitration Centre (DIAC) to create a unified global arbitration hub for Dubai.

Here, we focus on how Decree 34 affects those parties with agreements resorting to arbitration under the Rules of the DIFC-LCIA Arbitration Centre (DIFC-LCIA Arbitration Agreement(s)).

The position in Decree 34

Article 6(a) indicated that DIFC-LCIA Arbitration Agreements signed before the Effective Date will be valid, however, the DIAC will replace the DIFC-LCIA in considering and determining any arbitrations brought under those agreements.

Article 6(b) provided that only those DIFC-LCIA arbitrations in which a tribunal had been formed as at the Effective Date would continue uninterrupted under the DIFC-LCIA Rules. The DIAC would, however, replace the DIFC-LCIA in supervising those cases.

Article 8(c) further stated that the DIFC-LCIA Rules would remain in full force and effect to the extent that they do not contradict the Decree, until the DIAC approves new arbitration rules.

Further clarification required

At the time of the announcement, we felt that Decree 34 required clarification surrounding the interplay with the DIFC-LCIA, including what would happen in circumstances where:

a party to a DIFC-LCIA Arbitration Agreement had registered a case with the DIFC-LCIA as of the Effective Date but it was at an initial stage prior to the formation of the tribunal
a party to a DIFC-LCIA Arbitration Agreement wished to bring an arbitration after the Effective Date, or
a party had entered into a DIFC-LCIA Arbitration Agreement after the Effective Date.

The DIFC provides welcome clarification

The DIFC has now issued a helpful press release about Decree 34, which allows us to address the above issues:

There is a proposal that all ongoing arbitrations registered with the DIFC-LCIA before the Effective Date will be administered by the former DIFC-LCIA Registrar and Secretariat for and on behalf of the LCIA on a secondment basis from the DIAC until these proceedings are concluded (the DIFC Proposal).
DIFC-LCIA arbitrations registered after the Effective Date will be administered by the DIAC, however, this will be done in accordance with the DIAC Rules.
From the Effective Date, parties should not enter into DIFC-LCIA Arbitration Agreements or agree to the DIFC-LCIA administering or acting as appointing authority in ad-hoc arbitrations.

The Dubai government’s Secretary General of the Supreme Legislation Committee has apparently endorsed the press release, stating: "The arrangements agreed with LCIA… are fully within the remit of the Decree and fully supported by us."

What does this mean?

The DIFC Proposal appears to clarify (and possibly modify) Article 6(b) of Decree 34, which is likely to please parties who were in the initial stages of DIFC-LCIA proceedings as of the Effective Date. All DIFC-LCIA arbitrations registered prior to the Effective Date – not just those where a tribunal has been formed – will now be administered by DIFC-LCIA personnel in accordance with the DIFC-LCIA Rules. The LCIA will now administer those arbitrations and not the DIAC.

For those DIFC-LCIA arbitrations registered after the Effective Date, the DIAC will administer the case but, notably, this will be done under the DIAC Rules. We initially anticipated that the DIAC (through the DIFC-LCIA personnel) would administer those disputes using the DIFC-LCIA Rules, at least until new DIAC Rules were issued to take account of the differences with the DIFC-LCIA Rules, including whether legal costs are recoverable (see Art. 8(c)). However, parties to DIFC-LCIA Arbitration Agreements may now be concerned about bringing a case under the current DIAC Rules given the differing procedures.

We believe a revision to the DIAC Rules is needed urgently so that potential claimants are not deterred from pursuing a viable claim under their DIFC-LCIA Arbitration Agreements. Alternatively, where possible, now would be a good time for parties to revisit their DIFC-LCIA Arbitration Agreements and agree a different approach.

Finally, our understanding of Article 6(a) following the DIFC’s press release is that DIFC-LCIA Arbitration Agreements agreed after the Effective Date will be invalid and ineffective. Those parties must look to draft alternative jurisdiction clauses/agreements so that they do not incur significant cost and delay in the future when questioning which forum has jurisdiction to hear the dispute.

What's next?

We welcome the DIFC clarifying Decree 34’s interplay with the DIFC-LCIA. That said, we hope to see the current DIAC Arbitration Rules revised as soon as possible to strike a balance with the outgoing DIFC-LCIA Rules. In the meantime, parties to DIFC-LCIA Arbitration Agreements need to urgently consider the validity and potential effect of those agreements. To avoid future surprises, we encourage those parties to seek a review and take advice on how Decree 34 might affect them.