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Following the recent establishment of the LCIA-DIFC Centre at the Dubai International Financial Centre (DIFC), Dubai now has two international arbitration centres. This reflects the increasing acceptance of arbitration in the Middle East and the progress made in developing arbitration in Dubai.

The Dubai government recognised at an early stage that, in order to establish Dubai as a regional financial centre, the government needed to improve its legal system. It therefore set up the DIFC as a free zone with its own, common-law-based legal system and established a DIFC Court currently headed by Sir Anthony Evans. Despite this undoubted progress, more needs to be done if Dubai is to become a regional arbitration centre and attract the large and complex Middle East disputes that are regularly referred to London and Paris.

What Are the Recent Key Arbitration Developments in Dubai?

The New York Convention
The low point for arbitration in Dubai was possibly the UAE’s Court of Cassation’s decision in Dubai Aviation Corporation v. Bechtel (2004), where the UAE’s highest civil court annulled an arbitral award made two years earlier in Dubai on the grounds that the witnesses in the arbitration had not been sworn.

The UAE court’s decision dealt a serious blow to arbitration in Dubai, and to the UAE as a whole. The decision also led to significant pressure on the UAE to accede to the New York Convention, particularly following the UAE infrastructure boom where foreign contractors, undertaking multibillion dollar projects, sought greater certainty in enforcing their entitlements.

After a consultation process, the UAE finally acceded to the New York Convention in August 2006. Accession provided a huge boost to arbitration in the UAE because it meant that arbitral awards could be more readily enforced outside the UAE.

New Diac Rules
New Dubai International Arbitration Centre (DIAC) rules came into effect in May 2007. The changes in the rules represented a considerable advance on the previous rules and brought the DIAC rules in line with other major arbitration centres around the globe. To take two examples, the DIAC rules now provide that on the application of one of the parties, the tribunal has the power to order interim measures (Article 31), and that the proceedings and all awards, evidence and documents produced or disclosed in the arbitration are confidential (Article 41).

The DIAC has clearly established itself in Dubai as a leading centre, having attracted approximately 100 cases worth more than US$2 billion last year, but it is now facing stiff competition following the establishment of the new LCIA-DIFC Centre and the enactment of the new DIFC Arbitration Law.

New DIFC Arbitration Law and LCIA-DIFC Arbitration Centre
On 1 September 2008 the DIFC Arbitration Law 2008 came into force. Although the previous DIFC Arbitration Law 2004 was based on the UNCITRAL Model Arbitration Law, its application was limited to arbitrations in which one of the parties, or the dispute itself, was connected to the DIFC. Under the new law, however, parties anywhere in the UAE and beyond are able to choose the DIFC as the seat of their arbitration.

A DIFC award is a New York Convention award and is therefore enforceable in other convention states, just like all other UAE awards. Significantly, the main advantage of the new DIFC Arbitration Law is that it should make arbitral awards more readily enforceable within the UAE itself. This is because a DIFC award, once ratified by the DIFC Court, is in theory enforceable without any opportunity for challenge in the Dubai courts unlike cases with arbitral awards obtained outside the DIFC. However, because there are, as yet, no examples of enforcement of DIFC awards in the Dubai courts, only time will tell whether such awards will in fact avoid a challenge.

This law comes hot on the heels of the February 2008 establishing of the LCIA-DIFC Centre, which brought to Dubai the LCIA’s expertise in administering arbitrations and provided Dubai with a well-known arbitral institution and a modern arbitration law.

The Need for Reform
What is still required in the UAE is a new, stand-alone arbitration law to replace the UAE Civil Procedure, Federal Law No (11) of 1992 (CPL), which applies to all arbitrations where the seat is not the DIFC. This in essence covers the vast majority of contracts entered into prior to September 2008 (before parties anywhere were able to choose the DIFC as a seat) and therefore many potential disputes.

There is unanimous agreement that the CPL does not adequately provide for arbitration. In particular, the CPL does not sufficiently restrict parties from challenging awards because it leaves the door open for the opposing party to object to an application for enforcement.

The good news is that the current law is under review and a draft of a new Federal Arbitration Law was circulated last year based on the UNCITRAL Model Law. A new law is a key requirement for the progress of arbitration in Dubai, even though the new DIFC Arbitration Law has (at least on paper) provided parties with the ability to circumvent the CPL by allowing them to chose the DIFC as their seat of arbitration.