United Arab Emirates: Overview: DIFC-LCIA

Last Updated: 10 June 2016
Article by Alec Emmerson

Most Popular Article in United Arab Emirates, June 2016

As published recently in The Middle East and African Arbitration Review 2016, Alec Emmerson and Mohamed ElGhatit, Director and Registrar of the DIFC-LCIA, give an overview of The DIFC-LCIA Arbitration Centre.

The DIFC-LCIA Arbitration Centre (DIFC-LCIA) was originally established in 2008 and was described at that time by the Chief Justice Sir Anthony Evans as 'essentially a joint venture between the DIFC and the London Court of International Arbitration (LCIA), one of the leading players in the arbitration world'.

In 2008–2010 issues arose as to the constitutionality and jurisdictional reach of the DIFC-LCIA and its ability to provide services to the UAE and other companies incorporated outside the DIFC's territorial jurisdiction. In 2014 these issues were addressed by the passing of legislation to amend and restructure the DIFC so that the technical objections to the DIFC-LCIA would be put to rest (see below). Having carried out the legislative steps, DIFCLCIA has been relaunched.

With the relaunch, businesses will start to hear more and learn about the DIFC-LCIA, and its advantages. The DIFC's jurisdiction is the only one in the UAE with an up-to-date arbitration law based on the UNCITRAL Model Law (DIFC Law 1 of 2008). Also the DIFC Courts, the curial courts for arbitrations seated in the DIFC (which is the preferred and default seat of DIFC-LCIA arbitrations), are arbitration friendly.

Promotion of the DIFC-LCIA will be a catalyst to Dubai's progress in becoming a regional hub for international commercial arbitration and mediation.

The relaunch

From its inception, the Dubai International Financial Centre (DIFC) was intent upon establishing a beacon for regional dispute resolution. In addition to the now well-known DIFC courts, an arbitration centre was to be created to provide alternative dispute resolution (ADR) services for local and foreign business in the region. In 2008 the DIFC negotiated an agreement with the LCIA pursuant to which arbitrations under DIFC-LCIA Rules would be managed and administered with the LCIA's assistance. The DIFC-LCIA's objectives are to promote and to administer effective, efficient and flexible arbitration and other ADR proceedings for parties doing business throughout the Gulf and MENA regions.

To deal with the alleged jurisdictional issues, Law 7 of 2014 was passed (the Amended Law) to amend Dubai Law 9 of 2004, the founding law of the DIFC. Pursuant to the Amended Law, the DIFC Dispute Resolution Authority (DRA) was created. The DRA replaces the DIFC Judicial Authority/DIFC Courts, as the third of the DIFC's 'pillars' (the other two bodies being the DIFC Authority and the Dubai Financial Services Authority). In turn, the DRA comprises the DIFC courts, the Academy of Law and the DIFC Wills and Probate Registry and the DIFC Arbitration Institute (DAI) funded by the Dubai government and with its independence secured as it is governed by an independent board of trustees comprising senior and well-known figures from the legal and arbitration sectors, namely Essam Al Tamimi (Chairman), Alec Emmerson, former partner and Consultant Clyde & Co (Chief Executive), Jacomijn van Haersolte van Hof (director general of the LCIA, J William Rowley QC (chairman of the board of the LCIA) and Reza Mohtashami (a partner at Freshfields).

In November 2015 DAI entered into agreements with LCIA for the management and administration of arbitrations and mediations in which the parties had selected the DIFC-LCIA Rules, leading to the relaunch of the DIFC-LCIA. Since then a new director and registrar, Mohamed ElGhatit, (formerly a senior associate with Hogan Lovells) has been appointed.

Case work

The cases currently administered by the DIFC-LCIA reflect the diversity in the business sectors in which parties have opted for DIFC/LCIA administered arbitration. Leisure, maritime, construction, telecommunications, finance and banking, and media represent a few examples of the different sectors. As regards the nationality of the parties to current cases, this too reflects the attractiveness of the DIFC-LCIA as a neutral ground between American and European parties on the one hand and Middle Eastern and Asian on the other as well as for disputes between parties based in different parts of MENA and the Gulf.

Default seat

Pursuant to Article 16 of the DIFC-LCIA Rules, parties may agree the seat of their arbitration. However, in the event they fail to agree a seat, the default seat of the arbitration shall be the DIFC. The most effective 'package' for DIFC-LCIA arbitrations is one that includes the DIFC as the seat. This is not the same as a Dubai seat and parties choosing DIFC/LCIA Rules should either choose no seat (so the default seat of DIFC applies) or should specifically designate the DIFC as the seat. If a Dubai seat is chosen the curial courts will be the local, Arabic-language courts that do not currently benefit from an up-to-date arbitration law.

Judicial assistance

A strong desire of the parties when opting for arbitration is to minimise judicial intervention in the running of their disputes. Parties expect that arbitrators will be able to deal with all interim matters that arise during the proceedings by issuing the appropriate orders, including ones relating to interim, protective and precautionary measures. There are, however, circumstances where judicial assistance becomes necessary to ensure the compliance of a defiant party.

The courts of the seat of the arbitration will be the competent courts to assist and support, and within limited areas, to supervise and control the arbitral proceedings. For DIFC-seated arbitral proceedings, the competent courts are the DIFC courts.

The DIFC's arbitration law adopts the Model Law approach as regards expanding the powers of arbitral tribunals and limiting the intervention of courts to specific issues. For example, the DIFC Court will intervene in proceedings where an application to enforce an interim measure ordered by the tribunal is made, where a party involved is defiant.

Enforcement

For purposes of international enforcement via the New York Convention on the Recognition and Enforcement of Arbitral Awards (the New York Convention), an award issued from a DIFC-seated arbitration (a DIFC award) will be treated as an award made in a contracting state (the DIFC courts being courts of the UAE). Recognition and enforcement will be subject to Article 5 of the New York Convention. Article 5 of the New York Convention sets out an exhaustive list of grounds based on which a court can refuse the recognition and enforcement of an award, these being the following:

  • the invalidity of the arbitration agreement pursuant to the governing law;
  • the defendant not being given proper notice of the proceedings, or being otherwise unable to present his or her case;
  • the arbitral award dealing with matters beyond the scope of the arbitration;
  • the composition of the arbitral tribunal or the manner in which proceedings were conducted not being in accordance with the parties' agreement;
  • the award not being binding or having been set aside 'by a competent authority of the country in which, or under the law of which, that award was made;
  • if the subject matter of the arbitration is not capable of being settled by arbitration under the law of the jurisdiction where recognition or enforcement is sought; or
  • if the recognition or enforcement of the award would be contrary to public policy of jurisdiction where recognition or enforcement is sought.

On the other hand, and save for one or two exceptions, the enforcement of a DIFC-seated arbitration (a DIFC award) against assets located outside the DIFC, whether situated in Dubai, another emirate in the UAE, or even regionally in the GCC or Arab League member states will generally be easier than enforcing an award issued from a locally or regionally seated arbitration (a local award) or one from outside the region. For example when attempting to enforce a DIFC award against assets in Dubai, a party may simply apply to the DIFC courts seeking the recognition and enforcement of the award. The grounds that a counterparty could rely on to oppose such an application pursuant to the DIFC Arbitration Law are set out in its article 44 sub-paragraphs (a) and (b). These mirror the grounds set out in article 5 of the New York Convention mentioned about.

In addition, a decision by the DIFC courts is enforceable, even though it is subject to appeal on points of law to the DIFC Court of Appeal. Lastly, legal costs incurred in these proceedings are recoverable. If a judgment on the award, ordering its enforcement, is issued by the DIFC courts, it will be complied with by Dubai courts execution circuit, as dictated by Dubai Law No. 12 of 2004 as amended.

In contrast, when attempting to enforce a local award (eg, onshore, Dubai-seated arbitration) a party will be faced with the following difficulties.

Uncertainty

There have been numerous occasions where reported cases record inconsistent interpretation and application of law by the Dubai courts. A recent example was when a Dubai Court of First Instance refused the enforcement of an award because the applicant failed to evidence the approval of the award by the relevant arbitration centre;

Delays

A court of first instance judgment (of the local courts) is not immediately enforceable. Only if a party decides not to appeal a court of first instance judgment does it become enforceable. Rarely do parties not appeal against court of first instance judgments. An appeal is automatically granted, a party does not need to secure permission to appeal a court of first instance judgment. A further appeal can be made to the Court of Cassation. Ratification and enforcement proceedings in Dubai can take up to three years or more to be determined finally.

Costs

Legal costs incurred in the course of proceedings before the Dubai courts are not recoverable.

Costs

The DIFC-LCIA's and arbitrator's fees for a DIFC-LCIA administered arbitration are calculated on an hourly rate system. The claim value is taken in consideration only when specifying the maximum hourly rates applicable to the Tribunal. This is different to the ad valorem system adopted by many of the other regional and global arbitration centres. A large but relatively straightforward claim may require simply analysis of uncomplicated matters. Conversely, small but complex claim might require close analysis and consideration of delicate and controversial issues of law and fact. Pursuant to the DIFC-LCIA costs rules, the first claim mentioned above will not cost the parties more for the DIFC-LCIA and the Tribunal's fees simply because the amount in dispute is greater. This is in stark contrast to other costs rules applicable in other leading arbitration centres. Pursuant to these costs rules, the parties will probably be required to pay more just because the amount in dispute is higher. Although proponents of the ad valorem system argue it gives parties some certainty, the reality is that it is not cost effective. It has also been demonstrated in the recently released LCIA publication, 'Costs and Duration Data' (the LCIA Report) that proceedings administered under the LCIA rules cost considerably less than those administered under other leading arbitration centre rules and progress more efficiently and speedily. The analysis of the data compiled shows the median and mean of both costs and duration as follows: US$99,000 and US$192,000 and 16 months and 20 months. Both the International Chamber of Commerce (ICC) and the Singapore International Arbitration Centre (SIAC) operate on an ad valorem basis. Although similar data is not available for the ICC and SIAC, the LCIA Report did explain how a comparison between the costs of administering arbitrations in the three institutions was still conducted.

This was done using the respective fees and costs calculators of the ICC and SIAC. The amount in dispute for each of the LCIA cases analysed was put in the ICC and SIAC calculators. When comparing the results, costs of the LCIA were clearly well below those of the ICC and SIAC for the cases analysed. Additionally, for very large claims the parties will not have to make massive payments early in the proceedings. A series of lesser payments is more likely to be ordered depending on the development and scope of the particular arbitration. Although 'lump sum' type fee amounts have historically been quite popular in the region, many practitioners feel that such an ad valorem system is not fair.

It is a key objective of the DIFC-LCIA to administer cost effective and timely arbitrations. The new Registrar will be carefully monitoring and administering cases to ensure they proceed as expeditiously and cost effectively as possible. This is a feature of DIFC-LCIA (and LCIA) arbitration.

Updating of the current Rules

It is expected that the DIFC-LCIA will issue a new set of rules (the New Rules) in the first half of 2016. The New Rules will substantially mirror the 2014 LCIA Rules. The New Rules will help make the arbitral process more efficient and less costly. The following are the key changes expected in the Rules.

Introduction of the emergency arbitrator

At any time before the formation of the tribunal, a party may apply for the appointment of an emergency arbitrator to determine urgent matters or order emergency or protective measures pending the formation of the tribunal. Any order by the emergency arbitrator will be subject to scrutiny by the arbitral tribunal once formed. The tribunal may confirm, vary or revoke the said order, upon its own initiative or the application of any party.

Multiparty disputes

The New Rules will include provisions that address procedural difficulties that can arise in circumstances when there are multiple parties to the same dispute or multiple contracts. The New Rules will contain new provisions that will allow for the consolidation of multiple arbitrations subject to the satisfaction of a few conditions.

Sanctioning legal representatives of parties in event of poor conduct

The Rules will include a set of general guidelines that party representatives will be obliged to comply with. If these guidelines are breached, the tribunal has the power to impose sanctions on counsel including a written reprimand or any other measure the tribunal believes is necessary for it to ensure its ability to maintain its general duties is preserved.

Ensuring no delays are caused by the arbitral tribunal

The Rules will include provisions that ensure that arbitrators who accept appointments not only confirm their impartiality and independence but also their availability and commitment to devote the requisite time for the arbitration and issuance of the award. Arbitrators' appointments can be revoked if they do not conduct proceedings with reasonable diligence and efficiency.

In addition to the key changes set out above, the New Rules will also clarify the DIFC-LCIA position in relation to certain matters including for example, confirming appointed arbitrators' ability to consult with parties when selecting the chairman of the tribunal.

Conclusion

The DIFC-LCIA combines the international best practices and reputation of the LCIA with the unique understanding of the local and regional legal and business cultures. Dubai aspires to become the regional hub for international commercial arbitration and mediation. DIFC-LCIA is well equipped to be Dubai's vehicle to help achieve this.

Co-author Mohamed ElGhatit, Director and Registrar of the DIFC-LCIA.

Overview: DIFC-LCIA

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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