United States: Renewal Of DIAC Rules Include Updates On Third Party Funding And Costs Recovery

On the 2^nd of March 2022, the Dubai International Arbitration Centre ("DIAC") published the DIAC Arbitration Rules 2022 ("the 2022 Rules"). The Rules follow the re-launch of DIAC by Decree No. 34 of Year 2021, which abolished existing arbitration centres – including the DIFC-LCIA and EMAC – and created a single consolidated arbitration centre in the DIAC.

The 2022 Rules position serves the aim of positioning Dubai as a leading arbitration hub, by establishing a framework of modern arbitration procedures that introduce efficiency and flexibility to DIAC Arbitration proceedings and strengthen DIAC's position as one of the leading global arbitration centres.

Third-party funding

The previous rules published fifteen years ago, did not address the issue of third-party arbitration funding. Though Funding is not as widely used in the UAE, as it is in other jurisdictions, its use is on the rise in UAE. The new rules expressly allow third-party funding, provided that the funding arrangement is concluded before the tribunal is constituted. A party using third-party funding must also disclose the identity of the funder, as well as whether the funder has committed to any adverse cost liability.

Article 22 of the 2022 Rules provides that parties who enter third-party funding arrangements must promptly disclose this fact to all other parties and the centre and must disclose whether the funder has committed to an adverse cost liability.

Recovery of legal fees

DIAC tribunals can now award legal fees and expenses as part of the costs of the arbitration. Under the 2007 rules and costs appendix, only DIAC's administrative fees and fees and expenses of the tribunal and experts could be awarded. This position was previously upheld by the onshore courts, even for instance where arbitration agreements had expressly permitted "legal costs" to be recovered.

The prior costs rules meant that successful parties had to stomach their own legal costs. This impacted many claimants seeking to recover relatively low damages sums in the UAE. As there would be little point in incurring the significant legal costs associated with arbitration to recover relatively modest sums. The 2022 rules update is therefore a hugely positive development, one that is likely to allow more worthy parties to bring their claims before a tribunal and increase access to justice in the UAE.

Other changes

• DIFC Default Seat -The 2007 Rules provided for onshore Dubai as the default seat of arbitration where the parties had not specified a seat. In line with this, the 2022 Rules enshrine the principle that the DIFC shall be the default seat of arbitration in the absence of an agreement on the seat and location/venue. This is an important shift for international parties. It means that the DIFC Arbitration Law (which is based on the UNCITRAL model arbitration law) will apply to the arbitration and the courts with supervisory powers over the arbitration will apply common law principles and function in the English language.
• New Arbitration Court Powers -The Arbitration Court is empowered to perform several functions under the 2022 Rules. In addition to appointing arbitrators, the Arbitration Court's powers also include determining certain applications made before the formation of an arbitral tribunal such as preliminary objections concerning the existence validity, scope or applicability of the agreement to arbitrate; applications for consolidation; and applications for joinder.
• Consolidation – Article 8 of the 2022 Rules sets out a framework dealing with issues of multiple contracts and the consolidation of claims. Article 8.1 of the 2022 Rules provides that a party may submit a "single Request in respect of multiple claims arising out of or in connection with more than one agreement to arbitrate". Either the parties must agree to consolidate, or it must be demonstrated, that all claims in the arbitrations are made under the same agreement to arbitrate; or the arbitrations involve the same parties, the agreements to arbitrate are compatible, and:
  • the disputes arise out of the same legal relationship(s), or
  • the underlying contracts consist of a principal contract and its ancillary contract(s), or
  • the claims arise out of the same transaction or series of related transactions.
• Expedited proceedings – The new rules also provide for expedited proceedings in matters where the claim value is AED 1 million or less, the parties agree or in cases of exceptional urgency.
• Exceptional procedures – the ability to appoint an emergency arbitrator, where urgent interim relief is needed before a tribunal has been formally constituted.
• Videoconferencing – The 2022 Rules allow hearings to take place virtually by videoconference.

TheJudge affiliate and funder, Erso Capital serves a global client base of businesses and law firms with discretionary funds, single managed accounts, and co-investment funds. They are active in the UAE and finance DIAC Arbitrations. If you have an arbitration matter you'd like to discuss funding for contact the team at Erso at info@ersocap.com

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.