DIFC – THE DEFAULT “INITIAL” SEAT
Introduction
The ‘seat’, meaning the legal place of arbitration (which may or may not be the same as the location/venue of arbitration), is crucial as it determines the procedural laws applicable to arbitration and also the identity of the Courts with supervisory jurisdiction over the proceedings. Dubai International Financial Centre (“DIFC”) as a default “initial” seat for any arbitration under the auspices of Dubai International Arbitration Centre (“DIAC”), according to Article 20.1 of DIAC rules of arbitration 2022 (“DIAC Rules 2022/Rules”), in the absence of an agreement on “seat and location/venue,” is an important shift for international parties. It means that the curial law will be DIFC Arbitration Law No. 1 of 2008 (as amended) (“DIFC Arbitration Law”) prepared by the United Nations Commission on International Trade Law (“UNCITRAL”) based upon the best-practice model law, with common law principles, and functioning in English language; rather than the UAE Federal Law No. 6 of 2018 on Arbitration (“UAE Arbitration Law”). Predominantly, DIFC Courts, noted for their pro-arbitration approach, would have overall supervisory powers over the arbitration proceedings, rather than the Dubai onshore Courts.
Background to DIAC
DIAC, established by the Dubai Chamber of Commerce and Industry in 1994 as the Centre of Commercial Conciliation and Arbitration, is the oldest arbitration centre in Dubai and is now Dubai’s sole arbitration centre. Aiming to modernize, DIAC Rule 2022 came into effect on 21 March 2022, bringing DIAC into line with global best practices like that of the Singapore International Arbitration Centre (“SIAC”), London Court of International Arbitration (“LCIA”), and International Chamber of Commerce (“ICC”); introducing parties and practitioners to several useful procedural mechanisms for ensuring that proceedings are conducted effectively, fairly, and efficiently. Among other developments steered in by DIAC Rules 2022, DIAC now has an administering body (similar to those of ICC and LCIA) called “DIAC Arbitration Court” (replacing the previous Executive Committee), which ensures the proper regulation of proceedings and awards.
Scope of DIAC Rules 2022
In pursuance of Article 2 of the Rules, arbitrations which commence after the DIAC Rules 2022 came into force, regardless of the date on which the underlying agreement to arbitrate was entered into, unless the parties agree otherwise, the DIAC Rules 2022 shall apply. However, the expedited proceedings stipulated in Article 32 of the Rules shall only apply to agreements to arbitrate made after the date on which the DIAC Rules 2022 came into force, unless the parties agree otherwise pursuant to Article 32.1 (b) of the Rules.
Move from 2007 to 2022
DIAC rules of arbitration 2007 (“DIAC Rules 2007”) provided that where parties have failed to specify ‘seat of arbitration’ in their contracts or are otherwise unable to agree on seat, the default seat of arbitration will be onshore Dubai. As a result, those proceedings would take place following onshore legislation – primarily the UAE Arbitration Law, and UAE Civil Procedure Code (as amended); and falls under the supervision of onshore Dubai Courts.
Enactment of Dubai Decree No. 34 of 2021 (“Decree 2021”) on 20 September 2021 concerning DIAC (i) effectively abolished Emirates Maritime Arbitration Centre (“EMAC”) and DIFC Arbitration Institute (under which DIFC-LCIA was operating); (ii) consolidated EMAC and DIFC-LCIA (“Abolished Centres”) into DIAC, (iii) directed transfer of all rights and obligations of the Abolished Centres to DIAC; by giving DIAC a six-month period up to March 2022 to step up into the role and in place.
If parties agree to choose Dubai to be seat or legal place of arbitration, the arbitration agreement and procedures are governed by provisions of UAE Arbitration Law, and Dubai Courts have jurisdiction to hear any case, petition, or appeal related to any award or arbitration procedure issued by DIAC arbitral tribunals.
Article 4 (b) of Decree 2021, however, provides that, “If the parties to arbitration do not agree on a seat or legal place of arbitration, DIFC shall be considered the seat or legal place of arbitration, and the arbitration agreement and procedures shall be governed by the provisions of the DIFC Arbitration Law or any other legislation that replaces it, and the DIFC Courts shall have the jurisdiction to hear any case, petition or appeal related to any award or arbitration procedure issued by the arbitral tribunals of DIAC; and in accordance with the provisions of the arbitration rules adopted by DIAC.”
This is a significant departure from DIAC Rules 2007, and mirrors the DIFC-LCIA rules of arbitration (effective from 1 October 2016, until it was abolished on 20 September 2021), which provided that in the absence of any specific agreement between parties, default seat of arbitration would be DIFC. Meaning, the common law DIFC Courts will have supervisory jurisdiction over arbitration proceedings, as well as the ratification and/or annulment of awards. In line with Decree 2021, precisely, DIAC Rules 2022 enshrine the principle that DIFC shall be the default seat of arbitration in the absence of an agreement on the seat and location/venue.
Revision of DIAC Rules 2007, aligned with international best practice, particularly the change in default seat from “onshore” Dubai to “offshore” DIFC, were issued for consultation, with generally positive reception amongst practitioners in the region. This move, is to take advantage of the pro-arbitration approach adopted by DIFC Courts and DIFC’s international-standard arbitration law. It is a step ahead by DIAC to position itself as an arbitral institution of choice in the region and strengthen Dubai’s reputation as a Middle East arbitration hub.
Party Autonomy & Tribunal’s Power
A core principle in international arbitration is that of party autonomy, which necessitates that, except for mandatory rules of procedure dictated by procedural law, parties are at liberty to agree or alter the procedure to be followed to resolve their dispute. Exception of institutional mandatory rules to follow is stipulated in Article 2.4 of the Rules, which provides that “Where a submission to arbitration is made in accordance with Article 2.1, the parties agree that where any provision of their agreement to arbitrate is inconsistent with the Rules, the provisions of the Rules shall take precedence”.
Under Article 20.1 of the Rules, parties may agree in writing on the seat of arbitration. Where parties have not agreed on a seat but have agreed to a location/venue for arbitration, unless parties agree otherwise, such location/venue shall be deemed the seat of arbitration. In the absence of an agreement on seat and location/venue, where the initial seat of arbitration shall be DIFC, the Tribunal shall, upon its constitution, have power finally to determine the seat of arbitration, having due regard to any observations from parties and any other relevant circumstances. Concerning law applicable to merit, pursuant to Article 30.1 of the Rules, the Tribunal shall decide the dispute under the law(s) or rules of law chosen by parties as applicable to the merits of their dispute. If and to the extent that the Tribunal determines that parties have made no such choice, the Tribunal shall apply the law(s) or rules of law that it considers most appropriate.
Conclusion
DIAC’s initiative is a welcome development to the majority of the UAE-based practitioners and clients mainly because an award rendered in a DIFC-seated arbitration can be enforced directly onshore in Dubai (and wider UAE), with limited scope for challenge in onshore Courts. This factor affords greater security to successful parties seeking to enforce their awards. More broadly, it is an important further step in securing Dubai’s reputation as a leading regional hub for commercial arbitration.
Recommendation
For parties looking to enter into new contracts, we recommend that you specify the ‘seat of arbitration’ in your contract to avoid any challenges in the future. If any of your contracts entered into prior to DIAC Rules 2022 came into effect, provide for arbitration, whether under DIFC-LCIA rules or otherwise, and ensure to verify the arbitration clause to see if the parties have agreed on the seat of arbitration. For advice on which seat is most appropriate for your contract, we recommend contacting MR. MOHSEN MOUSTAFA, Managing Director at Al Dhaheri International Advocates & Legal Consultants, one of the best arbitration lawyers in Dubai, to identify any issues with such clauses and adopt the best strategy to avoid complications in arbitration in the future.
Disclaimer
The contents of this article do not substitute any specific legal advice on the above topic. It is solely for information purposes and to provide readers with an insightful overview of the region’s developments in law. Access to this article, which is available online in digital format on our website, does not form an attorney-client relationship.
By – Dr. Sherina M. Saji
