The 2022 DIAC Arbitration Rules – A new age for Dubai Arbitration or merely a face lift?
The new Dubai International Arbitration Centre (DIAC) Arbitration Rules (2022 Rules) come into effect yesterday (21 March 2022) replacing the DIAC Arbitration Rules 2007. The 2022 Rules have been introduced upon the heels of the much-debated Decree No. 34 of 2021 which overhauled Dubai’s arbitral framework (Decree 34) and will apply to arbitrations commenced after that date.
The most notable changes concern the process for appointment of arbitrators, consolidation and joinder, legal costs, third-party funding and expedited and emergency proceedings.
The following is a summary.
DIFC as the ‘initial’ default seat of arbitration
Article 20.1 provides that where the parties have not agreed a seat but have agreed on a location/ venue for the arbitration, the initial, default seat shall be Dubai International Financial Centre (DIFC). That will also be the case if there is no agreement on either the seat or the location/venue. The Tribunal will, once constituted, have the power to finally determine the seat of the arbitration, having due regard to any observations from the parties and any other relevant circumstances.
This appears to create tension with Article 4(b) of Decree 34 which already provides that the seat of arbitration is deemed to be DIFC where the parties had not agreed on the seat. In other words, the 2022 Rules introduce the possibility of a different seat other than DIFC, where there has been no agreement. This highlights why it is preferable for new arbitrations agreements to stipulate the seat.
The implications of having DIFC as the seat of arbitration are sometimes overlooked. Having the DIFC as a seat will mean that the DIFC Courts will have supervisory jurisdiction over the arbitration proceedings. This change may have significant consequences for some parties, particularly in relation to the ability of a claimant to obtain injunctive relief from the DIFC Courts, which generally are not issued in the onshore Dubai Courts. This may be of particular relevance in construction and engineering disputes in the context of performance bonds.
An alternative process for appointment of arbitrators
Article 13 provides for an innovative, optional process. If agreed, the process requires DIAC to simultaneously provide each party with an identical list of at least three candidates. Each party may add up to three additional candidates, rank the names in order of preference and return the list to the DIAC (without copying the other party) within seven days. DIAC shall invite the candidates appearing on both parties’ lists, in turn, to serve as arbitrator until one accepts. In doing so, the DIAC shall consider the indicated order of mutual preference. If the parties fail to agree on any of the candidates or the selected candidate is unable to act, the Arbitration Court shall decide whether to repeat the process or make a direct appointment.
A similar process is also available if co-arbitrators fail to jointly nominate a chairperson.
Whilst improving party autonomy, this process has the potential to take longer than the default process.
Article 36 confirms that the costs of arbitration include the fees and expenses of the legal representatives, whereas previously there was no ability to recover legal costs without agreement.
A party who has paid the other party’s share of an advance on costs can now request the Tribunal to immediately issue an award on costs. This aligns with the position under the former DIFC-LCIA Arbitration Rules.
In recognition of the growing use of third-party funding, the 2022 Rules now expressly deal with the use of third-party funding in arbitration, and require that the funded party discloses the fact that the party has entered into such an arrangement, together with the details of the funder’s identity and whether the funder has committed to any adverse costs liability.
Article 22.2 provides that parties shall not enter into third-party funding arrangements after a Tribunal is constituted if the consequence of that arrangement will or may give rise to a conflict of interest between the funder and any member of the Tribunal.
Under Article 22.3, the Tribunal may take into account the existence of any third-party adverse costs liability when apportioning the costs of arbitration between the parties.
The 2022 Rules provide for expedited proceedings where (i) the total of claims and counterclaims is below or equals AED 1 million (unless agreed otherwise); (ii) there is otherwise agreement to apply the expedited procedure; (iii) in cases of exceptional urgency; and (iv) in all cases where the Arbitration Court considers appropriate.
DIAC shall seek to appoint a sole arbitrator within five days of the Arbitration Court’s decision. An arbitral award must be issued within three months from the date of transmission of the file to the sole arbitrator, unless extended by the Arbitration Court on exceptional grounds.
This will only apply to arbitration agreements made after 21 March 2022, unless the parties agree otherwise.
A party in need of emergency interim relief may, concurrently with or following filing a request for arbitration, apply for emergency interim relief, along with the requisite (non-refundable) filing fee. If the applying party reasonably believes that a notice to the other parties may jeopardise the efficacy of the application (and provided the procedural law permits), it can request for an ex parte determination.
Article 2 sets out clear timeframes and applicable tests for such an application. Whilst the emergency arbitrator is required to issue any preliminary order as soon as reasonably practicable, no specific timeframe is given. The emergency arbitrator may also decide to grant the relief sought on an ex tempore basis with detailed reasoning to follow.
These procedures are deemed to apply unless the parties agree otherwise.
The 2022 Rules provide some much-needed clarity to commercial parties and arbitration practitioners as the transition period under Decree 34 comes to an end. Many have commented that the 2022 Rules are in sync with Dubai’s vision to establish itself as a leading hub for international arbitration. While the 2022 Rules do go some way towards establishing DIAC as the pre-eminent arbitral institution in the region, the reality is perhaps more modest in that many of the changes were long overdue and bring DIAC into line with the position under the rules of most major arbitral institutions.
As to the existing arbitrations under the rules of the arbitration centres abolished by Decree 34, those arbitrations will be administered by DIAC. However, it remains to be seen whether DIAC will administer those arbitrations under the new DIAC Rules, as Decree 34 suggests, despite the parties not having agreed to arbitrate under those Rules.