Dubai’s legal community stunned by sweeping shake-up of arbitral institutions
Decision to merge three arbitral bodies sparks concern over future of DIFC-LCIA Arbitration Centre
Dubai’s ruler, Sheikh Mohammed bin Rashid Al Maktoum, has consolidated the Emirate’s three principal arbitral institutions into a single body in a surprise move that has raised concerns over the future of the market-leading DIFC-LCIA Arbitration Centre.
The new law – Decree No. 34 of 2021 – was issued last Friday and disbands the Dubai International Financial Centre Arbitration Institute (DAI) and the Emirates Maritime Arbitration Centre. They have been folded into the Emirate’s third arbitral body, the Dubai International Arbitration Centre (DIAC), which is being overhauled and will adopt a new governance structure.
The move, which one leading arbitration partner described as having come “completely out of the blue”, puts the spotlight on the DIFC-LCIA Arbitration Centre, which is operated jointly by the DAI and the London Court of International Arbitration (LCIA).
The centre had a record 2019 for cases numbers, which have continued to rise. It had 179 active cases on its books in the first half of 2021, according to an email by Alec Emmerson, joint chief executive of the DAI and the DIFC-LCIA centre, which has been seen by GLP.
A briefing by Clyde & Co noted: ‘Thousands of agreements provide for the resolution of disputes under the DIFC-LCIA Arbitration Rules, a practice which was trending towards becoming a staple of business transactions involving the Middle East.’
While the decree transfers the assets, property, staff, finances and operations of the DAI to a reformed DIAC, it makes no mention of the DIFC-LCIA centre, which remains open despite significant legal uncertainties for its staff – including Emmerson – arbitrators and users.
In a statement, the body’s now 'former' trustees said: “Consultation is taking place between the LCIA and the government of Dubai to seek to ensure the good management of existing and future cases where parties have agreed to arbitration and mediation under the DIFC-LCIA Rules. The casework team continues to try to deal with the day-to-day management of cases under the DIFC-LCIA Rules.”
The LCIA’s board met yesterday (23 September) to discuss the situation. Neither the board nor regional members of the LCIA Court were aware of the plans before they were announced.
Nick Braganza, a Dubai dispute resolution partner based at HFW’s Dubai office, said: “This is a huge shift and it seems that the details are not yet clear. Of course, it has implications for arbitrations currently pending before these centres and contractual agreements which contain an arbitration agreement submitting disputes to those centres.”
Arbitration practitioners have speculated that the centre may continue operating under a new agreement between the DIAC and the LCIA. But that assumes the LCIA will agree to a new deal. The closing of regional centres involving the LCIA is not unprecedented, agreements in India and Mauritius having been terminated in 2016 and 2018 respectively.
On those occasions the LCIA continued to administer ongoing arbitration cases, and GLP understands that a mechanism in the DIFC-LCIA Rules exists to enable the LCIA Court to step in and directly administer cases in certain circumstances.
Unusually, the new Decree was issued on 14 September and gazetted just six days later, coming into force before the institutions, or Dubai’s business and legal community could respond to the new reforms.
One head of arbitration at a major international law firm, who requested anonymity owing to the sensitivity of the case, said that leading domestic and international firms did not know about the proposed reforms.
While there was broad support for the concept as the next stage in developing Dubai’s dispute resolution journey, the absence of consultation and its execution has raised concerns.
“People in the institutions all learned about the decree at the same time, with a flurry of WhatsApp messages,” said one Dubai-based source.
A partner at an international law firm said: “This is something that has been drafted and prepared and issued in the shadows.”
However, HFW’s Braganza predicted the uncertainty would soon be resolved. “I anticipate that the details of the transition will be determined and there will be clarity for arbitration practitioners and the business community as to how arbitrations will be dealt with by the new and improved Dubai International Arbitration Centre.”
The UAE’s courts, including the DIFC Courts, will continue to hear lawsuits relating to arbitration proceedings conducted by the DIFC-LCIA, EMAC or DIAC.
The Decree stated that DIAC’s objectives were to establish Dubai as a leading global centre for alternative dispute resolution, promoting ADR, and to service the UAE’s business and financial communities.
It also called for a new organisational structure for DIAC, creating a board of directors, administrative centre, and a court of arbitration similar to Singapore’s internationally recognised International Arbitration Centre, SIAC, with DIAC mandated to comply with the new regulations within six months.
It provides for a 13-member court, including a new president and vice president, representing both local, regional and international expertise, appointed for non-renewable terms of four years only.
Dubai was recognised as one of the world’s top 10 international arbitration hubs according to the May 2021 global arbitration survey by White & Case and Queen Mary University, which identified London and Singapore jointly as the world's favourite centres.
While highly regarded by local and global practitioners, the DIAC in its present form is not as well known on the international stage as the DIFC-LCIA and has a smaller case load.
EMAC has gained less recognition in the competitive market for maritime arbitration, despite an assertive marketing campaign, being ranked behind London and Singapore for shipping disputes. However, it has been widely supported by international firms, including HFW.