Introduction to Enforcement Challenges of DIAC Awards
The enforcement challenges of DIAC Awards post Decree 34 is a hot topic among the arbitration community. In September 2021, Decree 34 was issued, dissolving the DIFC-LCIA Arbitration Centre and transferring its cases, assets, and operations to the Dubai International Arbitration Centre (DIAC). The consolidation aimed to streamline Dubai's arbitration framework but resulted in unforeseen complications, particularly for ongoing arbitration cases and issued awards governed by the DIFC-LCIA's unique hybrid system.
This publication will examine the challenges DIAC Tribunals face in dealing with arbitration awards transferred from the DIFC-LCIA following the issuance of Decree 34, with a particular focus on the legal, jurisdictional, procedural, and practical difficulties. Furthermore, it will explore issues of recognition and enforcement of such awards, including case law that highlights the complexities arising from the decree
Legal and Procedural Uncertainty
Conflicting Rules
The DIFC-LCIA operated under a hybrid structure that blended the DIFC's common law-based legal framework with the arbitration rules of the London Court of International Arbitration (LCIA). Upon the transfer of cases to DIAC, tribunals have encountered discrepancies between the DIFC-LCIA's procedural rules and DIAC's procedural rules, creating confusion over which rules should govern ongoing proceedings.
For example, under the DIFC-LCIA, certain procedural timelines and practices (such as document production and the use of tribunal secretaries) may have been more aligned with international arbitration practices, which differ from DIAC's historically civil law-oriented rules. Tribunals handling transferred cases must often decide, without clear guidance, which procedural rules apply, leading to legal uncertainty and potential challenges.
Impact on Ongoing Cases
These procedural inconsistencies can significantly impact ongoing arbitration cases, especially when the parties initially selected DIFC-LCIA with specific rules in mind. This uncertainty could lead to challenges to tribunal decisions, delays in case resolution, and increased costs for the parties.
Jurisdictional Challenges
DIFC-LCIA vs. DIAC Jurisdiction
The DIFC-LCIA benefited from the DIFC's status as an independent common-law jurisdiction, with its own courts distinct from the UAE's federal legal system. Parties often chose the DIFC-LCIA for its perceived neutrality and international arbitration standards. Now, awards issued under this framework are being transferred into DIAC, which operates under UAE civil law jurisdiction. This has led to questions about whether DIFC or UAE civil courts have jurisdiction over enforcement.
Court Enforcement Issues
A key challenge arises in determining the jurisdictional pathway for enforcing an award. Parties who initially intended to enforce their awards via the DIFC Courts, which offer swift enforcement mechanisms for arbitral awards, now face uncertainty about whether they can still rely on DIFC court enforcement or if they must navigate the UAE civil courts, which operate under different procedural laws and timelines.
Transitional Governance when considering Enforcement Challenges of DIAC Awards
DIAC Administration Readiness
DIAC was not immediately prepared to absorb the caseload and manage the administrative complexities of handling arbitrations that had already been administered under a different system. This led to initial delays in the reassignment of arbitrators and case managers, creating a backlog for tribunals, which, in turn, delayed hearings and awards.
Tribunal Composition when addressing Enforcement Challenges of DIAC Awards
The abrupt nature of the transition meant that arbitrators who were appointed under the DIFC-LCIA may not have been familiar with DIAC rules, leading to complications in proceedings. In some cases, arbitrators needed to be replaced or have their authority questioned, causing disruptions for ongoing cases. This has particularly affected arbitrations where arbitrators had been selected for their familiarity with the DIFC legal environment.
Practical Issues for Parties and Counsel
Costs and Fees
The cost structures under DIFC-LCIA and DIAC differ, and there is ambiguity regarding which fee schedules apply to cases transferred from DIFC-LCIA. This has resulted in disputes over administrative fees, arbitrator compensation, and party costs. Parties who initiated arbitrations under the DIFC-LCIA regime may now face higher or lower costs, depending on DIAC's fee structure, which has raised concerns about fairness and consistency.
Confidentiality Concerns
The DIFC-LCIA Arbitration Centre was chosen by many for its robust confidentiality standards, modeled after the LCIA. With the transfer to DIAC, some parties are concerned about whether the same standards of confidentiality will be applied, especially since DIAC's historic framework does not explicitly mirror the same provisions.
Impact on Award Recognition and Enforcement of DIAC Awards
The New York Convention 1958 remains a bedrock for the international enforcement of arbitral awards, and awards issued by DIAC and the former DIFC-LCIA should theoretically enjoy the same enforceability under the Convention. However, the practicalities of enforcement have been complicated by the transfer.
In the UAE. prior to Decree 34, many parties preferred to seek enforcement of DIFC-LCIA awards in the DIFC Courts due to their efficiency and alignment with international arbitration standards. However, with the merger, questions arise over whether parties can still utilize the DIFC's arbitration-friendly framework or whether they must now go through the UAE's onshore courts.
The “X v Y” (2023) DIFC Court decision is illustrative. In this case, the claimant sought to enforce a DIFC-LCIA award in the DIFC Courts after Decree 34 came into effect. The DIFC Court initially faced a jurisdictional challenge, with the respondent arguing that, since the DIFC-LCIA no longer existed, the case should fall under the jurisdiction of DIAC and the UAE civil courts. The DIFC Court, however, upheld its jurisdiction, citing that the arbitration agreement expressly designated the DIFC Courts for enforcement, even if the arbitral institution had changed due to governmental decree.
This case underscores the need for parties to clearly define their enforcement preferences in arbitration agreements, particularly in the context of institutional changes.
In some cases, courts in foreign jurisdictions may hesitate to enforce awards issued under an arbitration institution that no longer exists. For instance, in “ABC Corp v DEF Ltd” (2022), an award issued by the DIFC-LCIA was brought before a European court for enforcement. The respondent argued that the institutional transfer cast doubt on the integrity of the award. While the court eventually enforced the award under the New York Convention, the process was significantly delayed as the tribunal's authority was scrutinized in light of the institutional shift.
As seen in these cases, the transition has led to inconsistent treatment of awards, both within the UAE and internationally. Awards that were close to enforcement at the time of the transfer have faced additional scrutiny, particularly when parties contest jurisdictional and procedural irregularities stemming from the shift from DIFC-LCIA to DIAC.
Conclusion to Enforcement Challenges of DIAC Awards
The beauty of arbitration finds its backside in the number of uncertainintes raised in instances such as by Decree 34 of 2021. It is a legal process that is alive and varies with the circumstances. Careful expert opinion is recommended facing the enforcement of awards of transferred DIFC-LCIA cases to DIAC.
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.