Dubai Abolishes DIFC-LCIA Arbitration Centre and Moves to Revamp DIAC Arbitration

The Emirate of Dubai has unexpectedly abolished the DIFC-LCIA Arbitration Centre's administering body, the DIFC Arbitration Institute (DAI), in an apparent effort to concentrate institutional arbitration in the Dubai International Arbitration Centre (DIAC), which is itself to undergo an overhaul as part of the same initiative. The applicable Decree of the Ruler of Dubai, Decree No. 34 of 2021, was issued on 14 September 2021 and became effective on 20 September 2021 following its publication in the Emirate’s official gazette. The Emirates Maritime Arbitration Centre was also abolished by the Decree. The property, assets and funds, lists of arbitrators and members, and selected staff of the abolished centres are supposed to be transferred to the DIAC, according to the Decree. This is a very unusual and noteworthy development with a variety of consequences.

The DIFC-LCIA Arbitration Centre has been operating in its present configuration since 2015 further to agreements between the DAI and LCIA, and is reputed to have been administering about 180 active cases as of the middle of 2021. The DIFC-LCIA Arbitration Rules are an adaptation of, and are very similar to, the LCIA Rules. As such, they have been one of the attractive options for parties interested in having an international arbitration administered in the MENA Region under the umbrella of a major arbitral institution and pursuant to an up-to-date set of institutional arbitral rules. Many parties opting for the DIFC-LCIA Rules also have chosen the “offshore” Dubai International Financial Centre (DIFC) as the seat of arbitration, the DIFC courts being a common-law jurisdiction and the DIFC having an arbitration law based on the UNCITRAL Model Law. (The “onshore” Dubai arbitration law was modernized on the basis of such Model Law more recently, with adoption of the federal UAE arbitration law in 2018.) The status of the DIFC itself, and of its courts, is not affected by the new Decree.

The DIAC was established in 2004. Its attractiveness to the broader base of international arbitration users in recent years is believed to have been hampered by its arbitration rules not having been updated since 2007 and by some uncertainties as to its administrative leadership in certain periods. A new DIAC Statute issued with Decree No. 34 provides notably for the establishment of a DIAC Court of Arbitration, and includes new provisions concerning the powers, responsibilities, and operation respectively of the DIAC’s Board and its Administrative Body. The Decree also provides for the DIAC to have a branch in the DIFC, in addition to having its onshore headquarters in Dubai. The Decree requires the DIAC to coordinate with all concerned entities and adjust its positions within six months in accordance with the Decree and Statute, which is expected to include promulgation of new DIAC arbitration rules.

There is much uncertainty in the wake of the new Decree. The Decree provides that pre-existing arbitration agreements providing for arbitration under the DIFC-LCIA Arbitration Rules shall remain valid and effective and that the DIFC-LCIA’s Rules shall remain in full force and effect to the extent they do not contradict the Decree and until new DIAC Rules are approved, but that the DIAC shall administer them unless the parties agree otherwise. The Decree also provides that arbitral tribunals already formed under the DIFC-LCIA Rules as of the effective date of the Decree will continue to handle the cases in front of them “pursuant to their applicable rules and procedures,” but that the DIAC and its Administrative Body will “undertake the supervision of such cases.” The workability in practice and potential legal implications of all the foregoing remain unclear at this point. Related questions also include whether, and to what extent, and with what implications, the LCIA Court itself assumes administration of any pending cases on the basis of Article 32.4 of the DIFC-LCIA Rules (which provides that “[t]he LCIA court may decide to administer any arbitration directly, in whole or in part, if it deems this appropriate under the circumstances”).

The former trustees of the DIFC Arbitration Institute issued a statement on 20 September stating that consultations were 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 outcome of any such consultations will obviously be carefully watched.

The Statute issued with the Decree allows parties to continue to specify either Dubai (onshore) or the DIFC as a seat of arbitration, with Dubai-seated arbitration governed by the 2018 UAE arbitration law and with DIFC-seated arbitration governed by the DIFC arbitration law. Even more noteworthy, the Statute also specifies that if the parties choose arbitration under the DIAC Rules but do not specify a seat, the DIFC shall be deemed to be the seat of arbitration. This particular change may be perceived as a positive development for international parties who would benefit from the DIFC arbitration law even in the absence of the seat being specified.

In situations where parties have agreements already in place calling for arbitration of disputes under the DIFC-LCIA Rules and no arbitration of any dispute between them has yet been initiated, the parties would be free to amend their agreements to specify, for example, a different institution’s arbitration rules (unless the parties were both content for any future arbitration to be administered by DIAC and governed by the new DIAC Rules to be adopted). Were one of the parties to decline to make any such agreement to amend, any future arbitration would according to the Decree be subject to such new DIAC Rules, but the possibility of there being issues around this cannot be excluded at this point.

For parties entering into new arbitration agreements, it would seem important to immediately refrain from specifying the DIFC-LCIA Rules. Parties who would otherwise have wanted to specify the DIFC as the seat of arbitration with arbitration under the DIFC-LCIA Rules might consider now replacing them in such a new agreement with the LCIA Rules or another prominent set of international institutional rules such as those of the International Chamber of Commerce (ICC), and would do well to take specialist advice on this especially in the immediate aftermath of the Decree’s issuance.