25 Jan 2024

A New Era for Arbitration in Abu Dhabi: The Launch of arbitrateAD and its Implications for New and Existing Contracts

Authored by: Zarghona Fazal and Michael Farchakh

In Brief:

  1. ArbitrateAD, is set to launch in Abu Dhabi on 1 February 2024 and will replace ADCCAC. This news is certainly a welcome development.
  1. The launch of the new arbitration centre gives rise to new opportunities as well as risks which clients in the region should be aware of.
  1. We recommend a review of contracts which contain an ADCCAC clause to determine whether they are still fit for purpose in order to avoid costly and time-consuming disputes around the nature of the arbitration clause in future disputes.

On 19 December 2023, the Abu Dhabi Chamber of Commerce and Industry announced that a new arbitration centre, namely the Abu Dhabi International Arbitration Centre (arbitrateAD), would operate in Abu Dhabi from 1 February 2024. ArbitrateAD will replace the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC).

This is the UAE’s second overhaul of an arbitration center in a number of years. Readers will recall the decision to abolish the DIFC-LCIA and the EMAC arbitration centres in 2021 and replace them with DIAC.

At this time, neither the legislation creating arbitrateAD nor the arbitration rules of arbitrateAD have been published. It is anticipated that the arbitration rules and legislation will be released on or before 1 February 2024. However, it has been confirmed that ADCCAC arbitrations which are currently on foot will continue to be administered by ADCCAC and that any new arbitrations commencing after 1 February 2024 in accordance with an ADCCAC arbitration clause must be registered with arbitrateAD and will be administered in accordance with the arbitrateAD arbitration rules.

The creation of the new centre and the renewed focus on arbitration in the Emirate of Abu Dhabi is certainly a welcome development. We eagerly await further details around the operation of arbitrateAD. In the meantime, clients and their lawyers should be aware of the following considerations which arise as a consequence of the creation of the new arbitration centre:

  1. The risk that foreign courts will not enforce ADDCAC arbitration clauses as binding arbitration agreements;
  2. The risk that foreign courts will not recognise and enforce arbitrateAD awards made pursuant to ADDCAC clauses;
  3. The need to ensure that arbitration clauses entered into after 1 February 2024 do not refer to ADDCAC;
  4. Issues around whether the Abu Dhabi Court or the ADGM Court will be the supervising court of arbitrateAD arbitrations.     

Each of these considerations is addressed below.

Enforcement of arbitrateAD Awards in Foreign Courts

In November 2023, a Federal Court in the United States refused to uphold a DIFC-LCIA Arbitration clause as granting jurisdiction to DIAC, ruling that “whatever similarity DIAC may have with the DIFC-LCIA, it is not the same forum in which the parties agreed to arbitrate. That forum is no longer available, and this Court thus cannot compel Plaintiff to arbitrate.[1]” The decision has been appealed.

There is a significant possibility that foreign courts could take a similar view of ADCCAC clauses in the future. In particular, where ADCCAC clauses are involved, there is a risk that foreign courts will:

  1. Determine that there is no binding arbitration agreement where one party does not subsequently consent to the arbitration being administered by arbitrateAD under its rules; and/or
  1. Not recognise an arbitration award made pursuant to arbitrateAD Rules where it can be demonstrated that one party did not consent to the arbitration being administered under arbitrateAD rules. One instance in which this may arise is where one party does not participate in the arbitration and then objects to the recognition of the award on the basis that the parties did not consent to arbitration under arbitrateAD rules.   

It is also unclear at this stage whether arbitrateAD will administer new cases under ADCCAC’s rules where a clause makes specific reference to the 2013 ADCCAC Rules or any previous version. Whichever approach arbitrateAD ultimately takes in this regard could lead to challenges to the enforceability of any awards down the line.

It is worth noting that some practitioners in the arbitration community take the position that the replacement of ADCCAC with arbitrateAD can be distinguished from the replacement of the DIFC-LCIA with DIAC because of the way in which arbitrateAD has been set up and therefore issues, such as those raised in the above-mentioned US Court judgment, may not arise in the context of arbitrateAD. We do not share this view because the central issue is the same. ArbitrateAD is a different entity to ADCCAC. Can parties be forced to arbitrate under the arbitration rules of an arbitration centre that they did consent to? 

Future ADCCAC Clauses

Some companies will have ADCCAC clauses in their standard documentation and some contract drafters may overlook the transition from ADCCAC to arbitrateAD. It is therefore inevitable that a number of contracts concluded after 1 February 2024 will still contain references to the ADCCAC Rules.

There is a considerable risk that such arbitration clauses may be deemed unenforceable even in the UAE, either by the UAE courts or by arbitrateAD itself. Whether references to the ADDCAC Rules in such circumstances can automatically be read as granting jurisdiction to arbitrateAD will depend on the exact wording of the founding instruments of arbitrateAD which are yet to be published.

We are aware of at least one case in which an arbitration centre in the UAE, the Sharjah International Commercial Arbitration Centre (TAHKEEM), refused to register an arbitration due to the arbitration clause making reference to its predecessor organization (The Arbitration Centre of the Sharjah Chamber of Commerce and Industry). The arbitration clause in question had been entered into after TAHKEEM had already replaced its predecessor.

DIAC on the other hand has administered cases making reference to its own predecessor (the now defunct Arbitration Centre of the Dubai Chamber of Commerce and Industry). This was possible because the founding legislation of DIAC contained language that expressly gave it jurisdiction over any contracts making reference to the defunct centre, even if the contracts were concluded after DIAC was established. The legitimacy of this approach was confirmed by the Dubai Court of Cassation.

Whether or not this hypothetical scenario will be addressed in arbitrateAD’s founding documents and/or arbitration rules is something to consider once they are published. In the meantime, organisations should be aware of the risk.

Seat of the Arbitration

There has been no confirmation yet regarding the default provision under the arbitrateAD’s Rules where Parties have not selected a seat: will it be onshore Abu Dhabi or will it be ADGM?

These points are of significant interest because of recent rulings by the Abu Dhabi Courts which have declined jurisdiction to hear challenges against Abu Dhabi-seated ICC Awards on the basis that the ADGM courts are the competent forum for such proceedings due to the presence of an ICC office in the ADGM.

Any linkage between arbitrateAD and the ADGM may lead the Abu Dhabi Courts to make a similar ruling, even where parties have expressly stipulated for an onshore Abu Dhabi seat.

There is also a risk, if arbitrateAD opts for a default ADGM seat, that awards arising from pre-existing ADCCAC provisions (which would have defaulted to an onshore Abu Dhabi seat) could face further enforcement challenges on the basis that the parties did not consent to ADGM as a seat.

Concluding remarks

The announcement of the launch of arbitrateAD is great news and reaffirms the increasingly prominent role of the UAE on the worldwide arbitration scene. There is still much to look out for and consider as the arbitration rules and relating legislation are published and the first cases are registered with the new centre.

In the interim, our recommendation is that clients conduct a review of ADCCAC clauses in existing contracts to ensure that they are fit for purpose in light of recent developments and will not cause unnecessary procedural complexity in the future.

For further advice and information, please reach out to a member of our International Arbitration team.

 


[1] United States District Court of the Eastern District of Louisiana (2:23-cv-01396-GGG-KWR) 

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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.