The new DIAC Arbitration Rules 2022: what’s changed and what does it all mean?
By Gilbert Hakim, Senior Associate & Jake Wright, Trainee, Fenwick Elliott
March saw the long-awaited introduction of the new Dubai International Arbitration Centre (the “DIAC”) Arbitration Rules 2022 (the “New Rules”)1 replacing the prior DIAC Arbitration Rules 2007 (the “Old Rules”).2 Even before the New Rules came into force on 21 March 2022, in anticipation of the change, we recently experienced an emphasis by tribunals constituted under the Old Rules on trying to do things quicker. As of this date, all new requests for arbitration submitted to DIAC will be governed by the New Rules. Notably, the New Rules closely resemble some of the key provisions in both the London Court of International Arbitration (the “LCIA”)3 and International Chamber of Commerce (“the ICC”) Rules.4 We anticipate that the implementation of the New Rules will boost the efficiency and cost-effectiveness of arbitration and further enhance Dubai’s profile as a leading global centre for arbitration.
What are the key changes?
The Arbitration Court
Under the New Rules, the Arbitration Court has replaced the Executive Committee. The Arbitration Court is like the LCIA Court, and was established by Decree No. 34 of 2021 under Articles 10 and 11.5 The Arbitration Court’s function includes:
(a) the review of arbitral awards;
(b) deciding on the issues regarding the appointment of arbitrators;
(c) considering initial jurisdictional objections; and
(d) considering applications for joinder and consolidation.
Seat of Arbitration
In keeping with the aim of efficiency and cost-effectiveness of arbitration, if the parties have not agreed the seat or a location or venue, the New Rules provide that Dubai International Financial Centre (“DIFC”) will be considered the default or “initial” seat. This establishes DIFC Arbitration Law as the law of the arbitration, as opposed to UAE Arbitration Law. The aim of which is to resolve any conflict between onshore and offshore discrepancies. The New Rules also provide that the Tribunal will finally determine the seat taking into consideration the parties’ submissions and other relevant circumstances. This is a positive development for international parties because proceedings in the DIFC Courts are conducted in English and the enforcement and ratification process tends to be straightforward and predictable.
Appointing an alternative Tribunal
A notable and well received change is the inclusion of an alternative appointment process where the parties have not agreed upon the sole arbitrator, or the co-arbitrators have not agreed on a chairperson. The New Rules set out a new procedure whereby DIAC can nominate candidates. Under Article 13, a list is prepared by DIAC and ranked by the parties or co-arbitrators in order of preference. The candidates will be contacted in accordance with the indicated order until one accepts the appointment. By contrast, Article 12 of the ICC Rules, requires that the ICC Court makes the appointment. However, it is noted that the New Rules are silent as to the timeframe and publication of the list between the Parties. Parties will need to be aware that if they fail to complete their list then only the DIAC’s nominees will be considered.6 This simple solution of ranking will add clarity and certainty when resolving the usual issues faced at this stage of the process.
Article 7 of the Old Rules, which deals with the parties’ representation in the arbitration, has been greatly expanded upon.
Article 7.3 of the New Rules requires that the parties provide proof of authority to DIAC before the constitution of the Tribunal. Under the old regime the Tribunal would request proof of authority to act during the first procedural meeting. Proof of authority in this context usually takes the form of a Power of Attorney (“POA”). Obtaining a POA can be a time-consuming process for some entities, therefore, parties should be alive to this change in the rules as they may need to start the POA process earlier than before.
Provided the applying party informs the Tribunal, the other parties and DIAC, Article 7.5 now enables parties to change their representatives following the constitution of the Tribunal in the same fashion as Article 17 of the ICC Rules. When approving the decision to change representation, the Tribunal will take into consideration, among other things, any potential conflicts of interest and impact on time and cost-effectiveness of the proceedings. It is hoped that these changes will enable the arbitration to proceed efficiently and expeditiously and will be of great benefit to the parties because including such a provision adds clarity and certainty which should reduce the risk of delays.
Extension of Time
A further notable change is the reduced extension of time available to the Respondent to submit an Answer to the Request for Arbitration. Under Article 5.7 of the Old Rules, this was 14 days. This period has now been reduced to 10 days under Article 5.7 of the New Rules. This change looks set to continue the objective of expediting proceedings.
Consolidation and Joinder
The introduction of consolidation and joinder of proceedings are entirely new concepts to the DIAC Rules. The New Rules set out these new provisions under Article 8 and 9 and bear similarities to relevant Articles 7, 8, 9 and 10 of the ICC Rules.
The New Rules provide for the consolidation of claims which, subject to certain criteria in Article 8, allow a party to combine multiple claims into one arbitration. This provision brings the New Rules broadly in line with the Article 9 of the ICC Rules.
The application for consolidation is initially made to the Arbitration Court before the tribunal is constituted. The consolidation will be permitted where: (1) all parties agree to such consolidation; or (2) the Arbitration Court is satisfied on a prima facie basis that all claims are made under the same agreement to arbitrate.
If the claims are not made under the same arbitration agreement, the court will permit the consolidation of the claims in circumstances where:
- the disputes arise out of the same legal relationship; or
- the underlying contracts consist of a principal contract and its ancillary contract(s); or
- the claims arise out of the same series of related transactions.
Of particular use to construction disputes involving numerous parties, is the new feature adopted by the New Rules for third parties to join the proceedings both before and after the appointment of the Tribunal. Like Article 7 of the ICC Rules, Article 9.1 of the New Rules now allows third parties to be joined before the constitution of the Tribunal subject to: (a) all parties’ (including the third party) consent; or (b), that the Arbitration Court is prima facie satisfied that the third party may be a party to the agreement to arbitrate. Under Article 9.4, the third party may also be joined after the constitution of the Tribunal if all parties agree to the joinder or the Tribunal determines that the third party is a party to the arbitration agreement referred to in the Request for Arbitration. This feature is extended further by Article 9, which enables a new party to join as claimant or respondent to the arbitration upon an application.
All of the above will have significant cost saving implications for parties wanting to have multiple claims heard and should positively impact the efficiency of DIAC arbitrations.
Virtual Meetings and Hearings
In keeping with the modern practices adopted by other rules, such as Appendix IV (f) of the ICC Rules, DIAC proceedings have also had a modern overhaul under the New Rules. Most notably the Tribunal can now decide whether to hold virtual meetings and hearings.7 This approach demonstrates DIAC’s desire to modernise and offer flexibility in light of the changes brought on by the COVID-19 pandemic.
Another new change is the introduction of expedited proceedings under the New Rules. Under Article 32 of the New Rules, the proceedings will be dealt with on an expedited basis provided that: (a) the parties did not agree otherwise in writing, and the total amount of the claims and counterclaims is below or equal to AED 1 million (exclusive of interest and legal representation costs); or (b) if, the parties agree in writing; or (c) following an application from a party, the Arbitration Court decides that the case is one of exceptional urgency that requires expedited proceedings. Clients should note that disputes that exceed the quantum limit can also be heard on an expedited basis subject to the provisions set out under Article 32. Either way, expedited proceedings will continue to be an ideal route for straightforward small claims, especially those related to real estate disputes.
The proceedings will be handled by a sole arbitrator with a final award rendered within 3 months, compared to 6 months under the ordinary proceedings. The ICC Rules contain a similar provision at Article 30. As seen under ICC expedited proceedings, this change will be of great benefit to clients with smaller value claims and should result in the reduction in time for an award being rendered. This will be crucial in allowing the supply chain of the construction industry to protect their cash flow.
It is a positive step to see the emergency arbitrator process embraced under the New Rules. Article 29 of the ICC Rules contains a similar process. Specifically, the New Rules,8 enable parties to apply for emergency interim relief “concurrently with or following the filing of a Request”. This should allow parties to obtain interim relief at the start of the proceedings before a Tribunal has been formally constituted.
Awards and Costs
One of the key changes that we have noted relates to the jurisdiction to award inter partes legal costs (e.g. legal and expert fees). Under the Old Rules the Tribunal did not have jurisdiction to award such costs in the absence of express agreement of the parties in the arbitration agreement or the Terms of Reference.
This was problematic because, without the risk of an adverse costs award, some parties felt less inclined to settle disputes that may have reached a settlement if the tribunal had authority to award costs. The position under the Old Rules also dissuaded some claimants from pursuing low value claims in arbitration.
Article 36 of the New Rules has addressed this issue and inter partes costs can now be awarded by the tribunal. This brings the New Rules in line with the ICC Rules, Article 38 (1). This change will be of particular benefit to those in the construction industry as it will encourage more parties to bring forward their valid claims before a Tribunal.
A final change worth mentioning in regards to awards under the New Rules Article 34.1 is the clarity afforded to the Tribunal issuing “preliminary, interim, partial, final additional, supplemental or other awards”. Previously there was risk in whether the Tribunal could issue other awards in addition to the Final Award. As mentioned above, many parties were further dissuaded to claim these because they risked the Final Award becoming unenforceable.
Third Party Funding
In line with Article 11(7) of the ICC Rules, Article 22 of the New Rules now permits third party funding. The Old Rules were silent on this issue which created uncertainty. Third party funding is becoming more prominent in the UAE and the New Rules provide welcome clarity on this.
Parties seeking funding must be alive to when they will be required to disclose the funding arrangement to the other parties and to DIAC. Under Article 22.1 of the New Rules, a party using third-party funding must disclose the identity of the funder, as well as whether the funder has committed to any adverse cost liability prior to the constitution of the Tribunal. Furthermore, Article 22.2 of the New Rules requires that parties are not permitted to enter such arrangements if it will or may give rise to a conflict of interest between the funder and a member of the Tribunal after the constitution of the Tribunal.
In our view, the New Rules provide greater transparency and some protection to the financial interests of the parties.
The New Rules provide parties with an amicable dispute resolution method under Article 3 of Appendix II (Exceptional Procedures). Subject to the other party agreeing, this allows any party to commence conciliation by submitting an application. Embracing the principle of efficiency, Article 3 (11) of Appendix II sets out that the procedure shall be concluded within two months, unless extended by the parties. The New Rules may, therefore, provide a benefit to construction contractors, for example in situations where there may be a continuing relationship between the parties that they wish to maintain, such as with EPC turnkey contracts. Such conciliation proceedings may allow for the swift resolution of disagreements, allowing the focus of the parties to return to the overarching objectives of the contract.
If the parties can settle, a formal settlement agreement will be executed between them, facilitated by the conciliator under Article 3 (12) of Appendix II of the New Rules. If the conciliation fails, under Article 3 (13) of Appendix II of the New Rules, the conciliation proceedings will be terminated by the conciliator without prejudice to the merits of the dispute.
Overall, the New Rules are a revitalising update to the Old Rules in bringing them into line with rules of other international arbitration institutions, such as the ICC and LCIA. We anticipate that the New Rules will encourage many in the construction industry to include, or retain, DIAC arbitration clauses in their contracts. As these rules are drawn from other international arbitration institutions, these changes will enable DIAC to retain its position as a leading global centre for arbitration both internationally and within the MENA region.
If you are currently in the process of negotiating new contracts and considering DIAC arbitration as your means of dispute resolution, you should ensure that the arbitration agreement is properly drafted in consideration of the New Rules. Clauses in existing terms and conditions may also need to be reviewed and, if necessary, amended.