18 Mar 2022

Key changes introduced by the new DIAC Arbitration Rules 2022

Authored by: Zarghona Fazal and Niamh Lucheroni

Introduction and background

The dust seems to be settling on the unexpected dissolution of the DIFC-LCIA in September 2021. As has been well documented, under Decree No. 34 of 2021, the DIFC-LCIA Arbitration Centre’s administering body, DIFC Arbitration Institute (DAI) was abolished and the DAI’s assets and operations were transferred to the Dubai International Arbitration Centre (DIAC). The new DIAC Arbitration Rules 2022 have now been published and will come into effect on 21 March. The new Rules seek to address issues which arose from the previous 2007 iteration. The 2022 Rules mark a welcome move towards a modern and effective arbitration regime in Dubai.

Below we set out some of the important changes in the new Rules. We also consider some of the outstanding issues which clients may have to address.

Key provisions in the DIAC Rules 2022

Seat

Where the parties have failed to agree a seat, the default seat will be the DIFC (as opposed to onshore Dubai under the old Rules). However, where the parties have not agreed a seat but have agreed a location/venue, the location/venue will be deemed to be the seat. In either case, the final determination as to the seat will be made by the Tribunal. Virtual hearings and communications are also encouraged under Article 20.

Legal fees / costs

One of the most prominent improvements in the new Rules is that legal fees can now be awarded under Article 36. The 2007 Rules did not deal with the parties’ legal fees. This meant that legal fees were not clearly recoverable unless the parties had expressly agreed that the arbitrator could award them. Even if the arbitrators were ready to award legal fees, parties were often reluctant to claim them due to the risk that the Dubai Courts would find that the entire award was unenforceable (due to its inclusion of legal fees). 

Expedited proceedings

Article 32 allows for expedited proceedings resulting in a Final Award within 3 months (though the timeline can be extended on an exceptional basis). Expedited proceedings can occur (1) where the value of the case is AED1,000,000 or less; or (2) the parties consent; or (3) in cases of “exceptional urgency” (though there is no guidance as to what this means in practice). A 3 month turnaround time to a decision is exceptionally fast. Clients who tend to deal with a large number of smaller value cases may wish to consider including a DIAC arbitration clause in agreements going forward. Similarly, this option may suit clients dealing in rapidly depreciating assets (e.g. fresh produce) who would presumably be able to meet the criterion of “exceptional urgency”. 

Consolidation

A single Request for Arbitration can now be submitted in respect of multiple “connected” claims (upon approval of the Arbitration Court before the Tribunal is formed) where the claims are (1) made under the same agreement to arbitrate; or (2) involve the same parties and the agreements to arbitrate are “compatible”. In addition to either (1) or (2), parties must also show either:

  1. that the claims arise out of the same legal relationship; or
  2. the underlying contracts consist of a principal and ancillary contract; or
  3. the claims are related to the same series of transactions.

This will avoid duplication of costs in circumstances where parties enter into numerous but almost identical contracts. Previously, in that scenario, each contractual dispute had to be arbitrated separately. Hearing related cases together will save time and money (on both arbitral and legal fees).

An application for consolidation can also be made directly to the Tribunal upon formation.

Joinder

A new cost-saving feature of the rules is the ability to join third parties both before and after the appointment of arbitrators. Rather than claims being heard in multiple arbitrations, it will now be possible to join third parties where: (1) all parties (including the third party) consent; or (2) the Arbitration Court or the Tribunal (as appropriate) is satisfied that the third party is a party to the agreement to arbitrate. Joinder is useful in cases involving multiple respondents e.g. in insurance claims and cases of contributory negligence.

Third party funding

The Rules now expressly allow for litigation funding. The 2007 version of the Rules was silent on the issue which led to some uncertainty. The existence of the arrangement and the identity of the funder must be disclosed prior to the constitution of the tribunal. If the funder has committed to any adverse costs liability this must be disclosed and it is a factor which may be taken into account by the tribunal when apportioning costs.

Alternative appointment of arbitrators

In circumstances where the parties cannot agree on the sole arbitrator, there is now a procedure which allows DIAC to intervene to suggest candidates. The parties then rank their preferences and a candidate will be chosen taking into account the indicated order of mutual preferences. 

The Arbitration Court

DIAC had previously been criticised for the absence of any consistent and transparent supervisory authority ensuring reliability of decision-making. This issue has happily been resolved by the establishment of the Arbitration Court (akin to the LCIA Court) by virtue of Articles 10 and 11 of Decree No. 34 of 2021. The Arbitration Court replaces the Executive Committee which had a similar function under the old Rules. It remains to be seen how effective the Arbitration Court will ultimately be.

Award

A draft of the Final Award must be submitted to the Arbitration Court to ensure (insofar as possible) that formalities have been complied with. Further, if signing in wet ink, the Tribunal must sign every page. This should help to avoid scenarios encountered in the past, where the UAE Courts refused to recognise  awards simply because the Tribunal has not signed every page. 

Outstanding issues

An announcement is expected from DIAC in the coming days which will hopefully shed light on some of the remaining questions: 

  • What is happening with arbitrations which had already commenced under the DIFC-LCIA Rules?

Existing arbitrations which had already commenced (prior to 20 September 2021) continue to be governed by the DIFC-LCIA Rules. While some have been stayed, others are being administered with the assistance of the LCIA.

  • What about arbitrations which have not yet commenced but where the underlying contract contains a DIFC-LCIA arbitration clause?

It is unclear how such arbitrations will be dealt with. It has been argued that they should now automatically be governed by the new Rules and administered by DIAC. However, parties may not be satisfied with having such disputes adjudicated by DIAC as it does not reflect what was agreed. It may also leave an award rendered by DIAC open to challenge when an attempt is made to enforce it in another jurisdiction. There is also a possibility that the LCIA may be in a position to administer disputes. Article 32.4 of the DIFC-LCIA Arbitration Rules 2021 states that The LCIA Court may decide to administer any arbitration directly, in whole or in part, if it deems this appropriate under the circumstances”. The LCIA’s update of 7 October 2021 was silent on this issue.

Given the uncertainty, clients may wish to consider agreeing on another set of arbitral rules with their counterparties and amending their contracts accordingly.

  • What about arbitrations which have not yet commenced and where the underlying contract contains an unclear DIAC arbitration clause?

Article 2.3 suggests that any DIAC arbitration commenced after 21 March 2022 will be governed by the 2022 iteration of the Rules, “unless the parties agree otherwise”. Some contracting parties will have expressly agreed to a particular edition of the DIAC Rules. Others may have made provision for the application of the DIAC Rules “as amended from time to time”. In other instances, the parties may prefer to rely on the Rules in force on the date on which they entered the agreement. It will therefore be a matter of contractual interpretation to be decided by the arbitral tribunal. Ultimately the issue may have to be litigated and settled by the Courts.

We are hopeful that the anticipated announcement will clarify some of the remaining issues outlined above. In any event, our arbitration team is on hand to guide clients through any queries and advise on risks.

 
 

This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.