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Paradigm Shifts in Arbitration Mechanism Due to New Dubai Decree

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00

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In a quick law-making move,the Government of Dubai has come up with a decree that abolishesthe Emirates Maritime Arbitration Centre (EMAC) and the Dubai International Financial Centre Arbitration Institute (DAI). This move by the government has transformed the Dubai Arbitration scene in a very short span of time.

With immediate effect, this decree will pave the way for a single unified arbitration institution for all the Emirates.

The Decree and Questions Surrounding the Same

The Decree No. (34) of 2021 that concerns the Dubai International Arbitration Centre was released on September 14, 2021 went into effect six days later (September 20th), bringing significant changes to Dubai's legal framework for dispute resolution.

The Decree's amendments were unexpected by the arbitration and business sectors. The Decree however, has raised questions about the DIFC-LCIA Arbitration Centre's and EMAC's existence, as well as arbitration under the DIFC-LCIA Arbitration Rules and EMAC Arbitration Rules.

The DIFC-LCIA Arbitration Centre was created by an agreement between the London Court of International Arbitration (LCIA) and the Government of Dubai, with the DAI employing the centre's secretariat in charge of locally administering arbitration cases subject to the DIFC-LCIA Arbitration Rules.

Now, this move has raised questions on how arbitrations under the above mentioned and the administrative functions borne by the DAI would be taken forward with the new system in place.

Changes Effected by the Decree

All assets owned by DIFC-LCIA and EMAC must be transferred to DIAC, according to Article 5. Employees from DIFC-LCIA and EMAC will be transferred to DIAC, subject to the Chairman of the DIAC Board of Directors' authorisation.

Existing arbitration agreements involving the DIFC-LCIA and EMAC shall remain legal and effective. The DIAC on the other hand, shall replace the DIFC-LCIA and EMAC in hearing any issues relating to these arbitration agreements, unless the parties agree otherwise.

Unless the parties agree otherwise though, arbitral tribunals formed by the DIFC-LCIA and EMAC as of the Decree's commencement (20 September 2021) shall continue with the arbitral proceedings in accordance with the rules chosen by the parties. These proceedings however, will now be supervised by DIAC.

To the extent that the applicable arbitration laws do not contradict the above-mentioned Decree and the Statute, the Dubai Courts and DIFC Courts will continue to resolve cases relating to DIAC, DIFC-LCIA, and EMAC arbitral processes and awards in line with the applicable arbitration laws.

With respect to the transition to the DIAC, until the new DIAC arbitration rules are authorised, the existing DIAC, DIFC-LCIA, and EMAC arbitration rules will apply. The DIAC must put the Decree's and Statute's provisions into effect by March 19, 2022, or within six months of the Decree's effective date.

If the parties cannot agree on a seat for arbitration, the DIFC shall remain the default seat, and the applicable procedural legislation will apply to these disputes. Although, the term “seat” may refer to the geographical location of the arbitration proceedings, it is important to note that the seat refers to the jurisdictional location of the proceedings. This is key to the arbitration since it determines what rules apply to an arbitration proceeding.

Organisational Structure of the DIAC: Chapter II of the Decree delves into the organisational structure of the DIAC. The structure is interconnected and interrelated in a way in which there is a sort of hierarchy which goes up till the Ruler of Dubai.

The DIAC's organisational structure will include a Board of Directors with no more than nine members, including its Chairman and Vice-Chairman, who will be appointed by the Ruler of the Emirate of Dubai. A Court of Arbitration with no more than 13 members, including its President and Vice-President, who will be appointed by the Board of Directors will also be included along with an Administrative Body with no more than nine members, including its President and Vice-President, who will be appointed by the Board of Directors.

A Few Important Articles and Details

It is quite pertinent to note that the first article of the Decree provides ample scope for free action for the DIAC, with financial and administrative independence from Dubai Government. The DIAC will be headquartered in Dubai and will have a branch at the DIFC.  The decree under Article 9 provides for a 6-month period for transition to the new system.

The Decree's amendments are particularly important for parties that are engaging in arbitration under the EMAC Arbitration Rules and the DIFC-LCIA Arbitration Rules. Businesses who have finalized transactions that involve an agreement to resolve disputes under the DIFC-LCIA Arbitration Rules or the EMAC Arbitration Rules should be aware of these changes.

As per estimates, DIFC-LCIA Arbitration Rules were overseeing 180 active arbitration cases, and resolutions need to function under the DIFC-LCIA Arbitration Rules as per thousands of agreements.

However, the decree seems to have taken good care about such agreements since under Article 6(A) of the Decree, all agreements which have been concluded by 20 September 2021 providing for arbitration under the rules of one of the abolished centres shall be considered as valid and effective. Article 6 deals with the validity of the agreements, and as mentioned above the proceedings on these agreements shall take place as per the rules agreed to in the contracts in question, where DIAC shall substitute the erstwhile arbitration institutions, unless agreed otherwise by the parties subsequently.

Each of the Dubai Courts and the DIFC Courts will continue to hear matters involving arbitration awards and other measures connected to arbitration under the rules of one of the defunct centres, according to Article 7 of the Decree.

The Bottom Line

The quick change would certainly raise questions on the transitional process of matters pending adjudication.  However, the decree seems to have taken care of the question of transition well under its articles.

The next six months would prove to be crucial in how the institutions adapt and form mechanisms to affect a smooth transition. Reportedly, consultation has been underway between the LCIA and the Dubai Government.

It needs to be noted that this is not the first time that a regional centre involving the LCIA ceases operation. In 2016 and 2018, the LCIA-supported arbitration centres in India and Mauritius were shut down. The LCIA continued to oversee ongoing arbitration cases in both conditions, with no retrospective application suddenly affecting the arbitration process of the ongoing agreements.

Last but not the least, we believe that business owners who had professed to use DIFC-LCIA Arbitration Rules or EMAC Arbitration Rules in their agreements, need to get specific advice surrounding implications of the new decree.

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