On 2 March 2022, the Dubai International Arbitration Centre ("DIAC") issued new rules of arbitration (the "2022 Rules"), which came into effect on 21 March 2022.
The 2022 Rules are:
- an important and complementary part of the recently revised arbitration landscape in Dubai and the UAE;
- part of Dubai's ambitious goal to position DIAC as one of the top five arbitral institutions worldwide within the next three years; and
- aimed at modernising DIAC's procedures to bring them in line with global best practices and improving the efficiency of DIAC arbitrations.
This Legal Update provides a brief background to the 2022 Rules, highlights ten key changes introduced by the 2022 Rules and suggests important actions that parties may need to take in relation to their current and future contracts.
Background to the 2022 Rules
Over the last four years, there have been significant changes to the local arbitration landscape aimed at boosting the credentials of both Dubai and the UAE as an international arbitration hub. These changes include the issuance of Federal Law No. 6 of 2018 on Arbitration (the "UAE Arbitration Law") and, more recently, Dubai Decree No. 34 of 2021 which consolidated DIAC with the DIFC-LCIA Arbitration Centre and the Emirates Maritime Arbitration Centre. Against this backdrop, and after several years of work and circulating multiple drafts, DIAC recently released its 2022 Rules designed to fit with the revised arbitration landscape in Dubai and the UAE.
The 2022 Rules apply to all DIAC arbitrations commenced after 21 March 2022 unless the parties agree otherwise (e.g. by expressly stating that DIAC's 2007 rules shall apply). The 2022 Rules also apply to arbitral proceedings referring to the DIFC-LCIA Rules commenced on or after that date. This follows from a recent Joint Press Release by DIAC and the LCIA that, from this period, all DIFC-LCIA disputes (including arbitrations, mediations and other proceedings) will be registered and administered by DIAC under its Rules.
2022 Rules: Ten key changes
Article 20.1 of the 2022 Rules provides that, where the seat or location / venue of the arbitration has not been agreed by the parties, the default seat shall be the Dubai International Financial Centre ("DIFC"). This marks an important contrast to the 2007 rules, which provided for Dubai (onshore) as the default seat, and reflects the desire of parties (particularly those from outside the region) to have their arbitrations supervised by, and awards enforced in, the English-language common law courts of the DIFC, which are generally perceived as arbitration friendly. The arbitral tribunal nevertheless retains power under Article 20.1 of the 2022 Rules to determine the appropriate seat in the absence of party agreement "having due regard to any observations from the parties and any other relevant considerations".
Under the 2022 Rules, arbitrating parties remain free to agree upon a different seat and, in most cases, the parties will have done so in their arbitration agreements. Clearly specifying the desired seat in the arbitration agreement remains recommended best practice and given the arbitral tribunal's power to select a seat other than the DIFC, the importance of doing so should not be overlooked. If this best practice is followed then, in most cases, the default seat will not be in issue.
2. Expedited proceedings
Article 32 of the 2022 Rules introduces provisions for expedited proceedings, under which an arbitration shall be concluded, and an award issued, within three months of the file being transferred to the arbitral tribunal. The expedited proceedings regime applies to all disputes where the total of the sums claimed and counterclaimed is below AED 1 million, exclusive of interest and legal costs, unless the parties agree otherwise. However, the expedited regime applies only where the arbitration agreement itself is entered into after 21 March 2022.
Parties may also agree to opt in to this regime, which also applies in cases of exceptional urgency upon application of a party under Article 32.1. Previously, under Article 12 of the 2007 rules, expedited formation of the arbitral tribunal was only available by written request in cases of exceptional urgency.
3. Legal costs and third-party funding
The 2022 Rules clarify that arbitral tribunals are empowered to issue awards in respect of legal costs (i.e., counsels' fees), in addition to arbitration costs (i.e., institutional and tribunal fees). Previously, the Dubai courts had ruled that arbitral tribunals did not have the power under the 2007 rules to award legal costs unless the parties expressly provided their agreement, for example, through the arbitration agreement or through the terms of reference.
Similarly, the 2022 Rules also provide clarity in relation to the use of third-party funding, which is now expressly allowed. Article 22 provides that the funded party shall disclose this fact, details of the funder's identity, and whether the funder has committed to any adverse costs liability.
Given the high legal costs often associated with arbitration, and increased interest in Middle East disputes by litigation funders, these changes will be welcomed by parties and practitioners in the region as well as litigation funders with an appetite to invest in such disputes.
4. Alternative process for appointing arbitrators
Article 13 of the 2022 Rules provides that parties may agree to an alternative process for appointing an arbitral tribunal. This alternative process can be agreed where (a) agreement has not been reached on the joint nomination of a sole arbitrator or chairperson, and (b) the parties have not stipulated any contractual mechanism of appointment in such circumstances.
Under the alternative process, parties will receive an identical list of at least three names of suitable candidates and each party may add to the list up to three candidate names of its own. The parties will number the names in order of preference and return the list to DIAC without copying the other party. DIAC will then contact, in turn, the arbitrators approved by both parties until one accepts to serve as arbitrator, subject to approval from DIAC's Arbitration Court.
5. Reporting party representative misconduct
Article 17.5 of the 2022 Rules contemplates the possibility of DIAC's Arbitration Court reporting obstructive conduct or misconduct by party representatives to the relevant supervising authority/professional body and/or to the respective party who appointed such representative. It may do so upon a reasoned request from the tribunal and after inviting the parties' comments. Given the long-standing issue of regulating ethical conduct in international arbitration, we expect this to be a welcomed development which may be emulated by other arbitral institutions.
6. Consolidation and joinder
The 2022 Rules also introduce new provisions on multi-contract arbitration, the consolidation of arbitrations and the joinder of parties, issues on which the 2007 rules were silent. This constitutes a significant improvement and is important given the increased prevalence of these issues in construction arbitrations, which comprise a significant proportion of the DIAC caseload.
Article 8 allows a claimant to submit a single request for arbitration in respect of multiple claims arising out of more than one arbitration agreement, subject to certain requirements. Further, where there is more than one arbitration agreement, upon application by a party, DIAC's Arbitration Court or the arbitral tribunal (after appointment) may allow the proceedings to continue as a single consolidated arbitration where certain conditions are satisfied (such conditions are similar to those found in other mainstream arbitration rules).
Specifically, prior to the constitution of the arbitral tribunal, the DIAC Arbitration Court may, under Article 8.2, order the consolidation of multiple arbitral proceedings where all parties agree to consolidation or where the following conditions are prima facie satisfied:
(a) all claims in the arbitrations are made under the same agreement to arbitrate; or
(b) the arbitrations involve the same parties, the agreements to arbitrate are compatible, and:
(i) the disputes arise out of the same legal relationship(s); or
(ii) the underlying contracts consist of a principal contract and its ancillary contract(s); or
(iii) the claims arise out of the same transaction or series of related transactions.
Once the arbitral tribunal is constituted, it may consolidate that arbitration with one or more other arbitrations if the tribunals in those other arbitrations have not yet been constituted and if either (i) all the parties agree or (ii) the requirements set out at Article 8.2(a) or (b) are satisfied. It may take into consideration any other relevant factors, including the impact of doing so on the efficiency of the arbitration.
Finally, Article 9 permits the joinder of third parties to an arbitration, either by the DIAC Arbitration Court or the arbitral tribunal itself, subject to conditions set out in Article 9. In particular, the arbitral tribunal may allow one or more additional parties to be joined, taking into consideration factors such as conflicts of interest and efficiency, in situations where either (i) all the parties consent in writing or (ii) the tribunal is satisfied that the joining party is a party to the arbitration agreement. There is thus the possibility of joinder being ordered where one or more parties does not expressly consent to it.
7. Exceptional procedures
Appendix 2 of the 2022 Rules sets out a comprehensive framework for new "exceptional procedures", which were not a feature of the 2007 rules. Two of the most important exceptional procedures in Appendix 2 relate to the ordering of interim measures and the appointment of emergency arbitrators.
The inclusion of the emergency arbitrator exceptional procedure in the 2022 Rules is a particularly welcome development as the 2007 rules did not provide a mechanism for interim relief prior to the constitution of the arbitral tribunal. Prior to constitution, therefore, parties were left to seek such relief from the supervisory courts sometimes with unsatisfactory results or resulting in arguments from a respondent that the applicant had foregone the benefits of the arbitration agreement by doing so.
Additionally, the powers given to an arbitral tribunal in respect of interim measures have been articulated with greater clarity in the 2022 Rules and are broadly in line with those under the UAE Arbitration Law.
Appendix 2 also sets out a regime for conciliation proceedings, which can be commenced by an application for conciliation. The entire conciliation process is to be concluded within two months from the date of transmission of the file to the conciliator. If the attempt at conciliation fails, the conciliation proceedings will be terminated without prejudice to the merits of the dispute.
8. Precedence of the 2022 Rules
One unusual yet important feature of the 2022 Rules is that they shall take precedence over provisions in an arbitration agreement to the extent that they are incompatible (Article 2.4 of the 2022 Rules). The impact of Article 2.4 may be inter alia to prevent a party from relying on a pathological arbitration clause to obstruct the arbitration, or to overrule incompatible consolidation or joinder provisions in one or more arbitration agreements.
9. Exclusion of Liability
Article 41 of the 2022 Rules provides an exclusion of liability for arbitrators, conciliators, and persons appointed by them, as well as DIAC, for "any act or omission in connection with any arbitration or conciliation governed by the Rules or any matter in which …[DIAC] acts as an appointing authority". Although the wording is broader than the previous provision under the 2007 rules, the Dubai courts have, in the past, interpreted such provisions to be limited to inadvertent errors. Accordingly, the immunity provided by Article 41 may continue to exclude gross negligence and intentional errors.
10. Virtual Hearings and Electronic Filings
Last but not least, the 2022 Rules expressly allow virtual hearings under Article 26.1 and embrace electronic filings under Article 3.1, whereas the starting point in the 2007 rules was paper filings. This is particularly useful given the current use of virtual hearings and the fact that hybrid hearings (mix of in-person and virtual attendance) are likely to be a common trend in international arbitration in the years ahead.
The 2022 Rules are in effect: what next?
Parties with existing contracts referring their disputes to DIAC arbitration or to the DIFC-LCIA Arbitration Rules: you should check your arbitration clause to see if it is consistent with the 2022 Rules or warrants amendment.
For parties negotiating or contemplating future contracts: determining which rules and arbitral institution are appropriate for your contract are matters that will require careful consideration on a case-by-case basis.
For advice on any of these issues in relation to pre-existing and future contracts, please contact the authors.