Evolution of DIAC

New rules

DIAC issued updated arbitration rules (the DIAC Rules) that came into effect on 21 March 2022 and apply to requests for arbitration submitted after this date. In its first update since May 2007, the DIAC Rules address many of the shortcomings of the old rules in order to streamline the arbitration process.

In a major departure from the old rules, which provided for onshore Dubai as the default seat, article 20.1 of the DIAC Rules now provides that in the absence of agreement between the parties, the initial seat shall be the Dubai International Financial Centre (DIFC). This means that the supervising court with respect to these arbitrations will be the DIFC Court, which is known for its overwhelmingly arbitration-friendly approach. We understand that in 2022/2023, around 15 to 25% of arbitrations registered by DIAC were subject to agreements that did not specify a seat, meaning that the initial seat would be the DIFC (with the tribunal having the power of final seat determination).

The DIAC Rules provide prescriptive steps (including timeframes) for nominating arbitrators. Previously, the time taken to appoint the tribunal caused significant delays. The changes introduced allow for arbitrations to get underway faster – a key aim of DIAC’s new case management team.

The DIAC Rules also provide for greater flexibility with respect to multi-contract and multi-party disputes, introducing mechanisms for the consolidation of proceedings and the joining of a party or parties. In 2023, parties requested the joinder of a third party to arbitration in four cases under article 9 of the DIAC Rules; a further ten requests for consolidation were made under article 8.2 of the DIAC Rules; and 33 cases involved claims based on multiple contracts under article 8.1 of the DIAC Rules.

Various other reforms relate to technology, including that any award shall now be deemed to have been issued at the seat of the arbitration, regardless of where it was signed. While article 34.6 of the DIAC Rules states that “the Tribunal may sign the award by electronic means”, this is “subject to any mandatory provisions of the procedural law applicable to the seat of the arbitration and after consultation with the parties”. Historically, UAE courts have required a wet ink signature for an award to be considered valid. Therefore, parties should remain vigilant, and tribunals typically continue to sign awards in wet ink to limit the risk of annulment proceedings.

The DIAC Rules provide for the constitution of an emergency tribunal within one day of DIAC’s receipt of the application for emergency interim relief. Emergency arbitrations are intended to be resolved as soon as reasonably practicable, often within 15 days following the appointment of the emergency tribunal. In 2023, DIAC received two requests for the appointment of an emergency arbitrator under article 2.5 of Appendix II of the DIAC Rules. In both instances, the DIAC Court deemed the emergency proceedings reasonable and an emergency arbitrator was appointed within one day. The first request was submitted without notifying the respondent and the emergency arbitrator issued a preliminary order within two days, denying the requested relief (although we understand the request was later granted). The second request was made with notice and a preliminary order was issued after 12 days, granting the requested emergency interim relief.

The DIAC Rules also attempt to resolve a prior gap with respect to parties’ claims for counsel costs. Previously, only DIAC’s administrative fees and the fees and expenses of the tribunal were recoverable under the rules, unless the parties reached an alternative agreement. Under the DIAC Rules, tribunals now have the discretion to order a party to bear the other party’s counsel fees, among others. The Dubai Court of Appeal in Case No. 33/2023 recently supported such an interpretation of the DIAC Rules, upholding an award of counsel costs. However, UAE courts have approached questions of costs inconsistently. Recently, the Dubai Court of Appeal and Dubai Court of Cassation in Case No. 2/2023 and Case No. 821/2023, respectively, partially annulled awards regarding counsel costs in arbitrations subject to the International Court of Arbitration rules (ICC Rules) 2021, which are generally understood as granting tribunals the discretion to award counsel costs. The DIAC Rules expressly state that the costs of the arbitration include “the fees of the legal representatives and any expenses incurred by those representatives” while the ICC Rules only refer to “the reasonable legal and other costs”. It is therefore hoped that the UAE courts will enforce DIAC Rules with respect to counsel costs; however, it remains prudent for parties to expressly reconfirm the tribunal’s authority to award counsel costs.

The changes are extensive and certainly a significant step forward for DIAC. For further discussion of the DIAC Rules, please refer to reedsmith.com.

Case administration

Following Decree 34, DIAC made a number of important administrative changes that have helped bring significant experience to the institution:

• In April 2023, DIAC announced the reformation of a new arbitration court comprising 13 reputable international arbitration experts from 11 nationalities. The court is headed by Dr Michael Pryles AO PBM (as President), and Erin Miller Rankin (as Vice-President).
• DIAC made changes to its casework team, appointing Robert Stephen, the former Registrar of the DIFC-LCIA Arbitration Centre, as Registrar in June 2023, and Christoffer Coello Hedberg, previously at the SCC Arbitration Institute, as the first Deputy Registrar in April 2023. We understand that DIAC currently employs one registrar; one deputy registrar; three experienced senior counsel; five counsel; and a team of paralegals and case administrators

These appointments have been lauded as improving DIAC’s case management processes and procedures, representing a further boost to DIAC’s arbitration services.

The additional caseload brought about by the abolition of the DIFC-LCIA, as well as the reformation of DIAC, initially caused a significant backlog of cases. During the summer and autumn of 2023, the case management team prioritised clearing the backlog by developing new casework practices and procedures.

Mediation and other innovations

In line with a regional push to advance mediation, on 1 October 2023, DIAC introduced new mediation rules. The rules aim to promote mediation as a preferred dispute resolution mechanism in Dubai, offering a cost-effective and amicable alternative to court or arbitration proceedings. The rules anticipate the preparation of a legally enforceable settlement agreement by the mediator. DIAC has already held its first mediation under the new rules.

DIAC has also entered into a series of strategic collaborations with other institutions and courts. For example, a strategic collaboration with the Silicon Valley Arbitration and Mediation Center aims to offer a fresh approach to tech-related arbitrations. In a similar modernising vein, in March 2023, DIAC announced the launch of its metaverse platform, enabling parties to resolve disputes anywhere in the world through virtual reality.

DIAC's caseload trends

In June 2022, DIAC released its first Annual Report. In 2022, DIAC registered 340 arbitrations with a total disputed amount of AED 11.2 billion (approximately US$3.1 billion). These disputes involved parties from 48 countries and international disputes comprised 44% of DIAC’s caseload. The 2022 Annual Report notes that around 49% of cases were related to the construction sector, 27% to the commercial sector and 16% to the real estate sector.

We understand that DIAC will release its 2023 Annual Report shortly and that this will show further growth, with 355 new cases registered in 2023. In 2023, disputes in the construction and real estate sector continued to account for a significant share of DIAC’s cases, comprising 59% of all cases registered, with commercial and residential construction and real estate development leading the way. DIAC arbitrations in the banking and finance sector represented almost 10% of the Centre’s caseload in 2023.

In 2023 , 211 registered cases representing 65% of the caseload were brought on the basis of a DIAC or a Dubai Chamber of Commerce and Industry (DCCI) arbitration agreement (which preceded DIAC). Some 102 of the remaining arbitration agreements referred to the DIFC-LCIA (32%), one case to EMAC, and nine cases were brought on the basis of other arbitration agreements where the DIAC Court determined on a prima facie basis that it had jurisdiction to register and administer the dispute.

In 2023, the choice of seat in DIAC arbitrations was typically Dubai (50%), while DIFC was either chosen or designated the initial seat in 158 arbitrations (49%).

In the first quarter of 2024, DIAC has continued to report sustained growth in its caseload, with 67 new cases registered, compared to 30 cases reported for the same period in 2023. This brings DIAC's current active caseload to 655 cases.

With respect to diversity, DIAC’s Arbitration Court achieved near gender parity at 47% of all DIAC Arbitration Court appointments in 2023. Parties and co-arbitrators appointed 31% of women in DIAC arbitrations. In 2023, arbitrators from 29 different countries were appointed by DIAC’s Arbitration Court.

These figures demonstrate that DIAC remains one of the busiest and most popular institutions in the MENA region among heavy competition.

Jurisdictional objections across the globe

Decree 34 provides that all arbitration agreements that refer to the DIFC-LCIA, entered into before the decree’s effective date, are deemed valid, and that DIAC will replace the DIFC-LCIA in administering such disputes unless otherwise agreed by the parties.

This provision has been challenged by some parties who argue that they did not consent to arbitrate before DIAC (which has different rules and procedures from the DIFC-LCIA).

Three recent court decisions illustrate the divergent approaches taken to this issue:

Approach in foreign courts

a) In November 2023, a U.S. court in Louisiana dismissed a motion to compel arbitration before DIAC where the parties had agreed to DIFC-LCIA arbitration. The court held that the arbitration agreement was unenforceable because the selected forum was no longer available and that neither the court nor the Dubai government had the authority to rewrite the agreement and change the forum to DIAC. The court relied on U.S. precedents that emphasised the importance of the parties' contractual choice of forum, rejecting a formalistic or pragmatic approach that would uphold the arbitration agreement by interpreting it to refer to a successor or replacement institution.

b) In March 2024, a Singapore court enforced a DIAC provisional award rendered under a DIFC-LCIA arbitration agreement, but only because the respondent had submitted to the tribunal's jurisdiction. The court agreed with the respondent that the DIAC arbitration was not in accordance with the parties' agreement to arbitrate in the DIFC-LCIA as there were significant differences between the rules and procedures of the two institutions that affected the parties' expectations and intentions. However, the court found that the respondent had waived its right to challenge the tribunal’s jurisdiction by participating in the interim relief application without raising any jurisdictional objections and that it could not rely on those objections to resist the enforcement of the provisional award. The court also noted that the provisional award was subject to the tribunal’s final decision on jurisdiction and that the respondent could seek an award for costs or damages if the tribunal ruled in its favour.

Approach in UAE courts

Most recently, in February 2024, the Abu Dhabi Court of First Instance in Case No. 1046/2023 concluded that an arbitration agreement referring to the DIFC-LCIA, seated in the DIFC, was valid. The court found that pursuant to Decree 34, DIAC was the legal successor to the DIFC-LCIA, and that where parties had agreed to arbitration, such agreement remained valid even if the institution was succeeded. Accordingly, the court upheld the parties’ agreement to arbitrate and declined jurisdiction on the basis of an arbitration clause. We have considered this judgment in detail at reedsmith.com.

Accordingly, there is still some uncertainty regarding the validity and enforceability of arbitration agreements that refer to the DIFC-LCIA. The position varies depending on the jurisdiction in which the issue is being considered. These cases also highlight the importance of drafting clear and enforceable dispute resolution agreements and of raising jurisdictional objections at the earliest opportunity.

Conclusion

DIAC has made significant strides over the last two years following Dubai’s Decree 34. Dubai’s replacement of arbitration centres was recently followed in Abu Dhabi where a newly-created centre known as ‘arbitrateAD’ has replaced the Abu Dhabi Commercial Conciliation and Arbitration Centre (known as ADCCAC). For further discussion with respect to arbitrateAD please refer to reedsmith.com.

DIAC’s recent transformation has addressed many of the shortcomings that plagued DIAC pre-2022 and has provided a much-needed overhaul of outdated practices. Moreover, important administrative changes and collaborations are helping bring DIAC's practices in line with international standards and expectations. It remains to be seen how the revamped case management team will handle the growing caseload under the new rules.

Notwithstanding the above, uncertainties remain regarding the impact of Decree 34 in relation to existing DIFC-LCIA arbitration agreements. Parties should consider their dispute resolution agreements carefully, including any existing agreements referring to the now-defunct DIFC-LCIA.

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