The New DIAC Rules - one more positive step forward!
Ahmed Ibrahim, Partner, Fenwick Elliott
The United Arab Emirates seems to be very close to putting in the last piece of the puzzle for the region’s most genuine arbitration-friendly jurisdiction. It was recently announced, finally, that the Federal National Council has approved a draft arbitration law. This has been a long-awaited step towards a developed arbitration framework.
At the time of writing this article, there is no standalone arbitration law. Chapter 3 of the Civil Procedures Code (articles 203–218) contains the applicable procedural rules for arbitrations seated in the United Arab Emirates. These provisions can perhaps be seen as not meeting fully the requirements of arbitration practice in the country. Thus, approval of the new law, which is reportedly a modern arbitration law, is welcomed by practitioners.
With this in mind, from a procedural law point of view, the development at the arbitral institutions level is even brighter. The new Rules of the Dubai International Arbitration (DIAC) seem to be timely and complete the bigger picture!
DIAC has been playing a significant role over the past decade in developing arbitration practice and spreading awareness of arbitration in the region. Statistically speaking, DIAC is, undoubtedly, the largest arbitration institution in the Middle East. This is understandably consistent with Dubai being a regional business hub and an attractive destination for cross-border transactions and complex industries such as construction and energy.
During the Dubai Arbitration Week in November 2017, DIAC announced its new Rules which are expected to come into force in the near future upon the issuance of a decree by His Highness the Ruler of Dubai enacting the Rules. That is quite an important distinguishing feature of the DIAC Rules; they are enacted by way of a decree, which means the Rules form part of the UAE law. This is particularly important in resolving any conflict with specific non-mandatory legal provisions on the grounds that the later Rules displace the earlier ones, and the particular displaces the general.
In its new version, the DIAC Rules respond to the market needs and deal with specific concerns of arbitration practitioners. The following paragraphs outline the main areas of development.
The DIFC is the default seat
Article 20.1 of the current Rules states that absent the parties’ agreement, the seat of arbitration is Dubai. The new article 25.1 provides that the Dubai International Financial Centre (DIFC) is the default seat of arbitration. This is a major change that should also be seen in conjunction with the DIAC’s opening of an office in the DIFC last year. It can thus be said that DIAC has established a proper presence in the DIFC.
The legal implications of the DIFC being the default seat are: first, the DIFC arbitration law no. 1 of 2008 (a developed arbitration law) will apply; secondly, the DIFC Court will provide supervision and assistance during the course of the arbitration proceedings; and thirdly, the DIFC Court – which is known to be an arbitration-friendly court – will have jurisdiction to deal with the recognition and enforcement of arbitration awards rendered under the DIAC Rules.
Article 18 of the new Rules states that claims arising out of or in connection with more than one contract may be made in a single arbitration. This can either be by the parties’ consent to a single arbitration to be conducted in accordance with the Rules, or the contracts should contain arbitration agreements referring such disputes to arbitration to be conducted under DIAC Rules, the arbitration agreements are compatible, and:
i. the disputes arise out of the same legal relationship(s); or
ii. such contracts consist of a principal contract and its ancillary contract(s); or
iii. the disputes arise out of the same transaction or series of related transactions.
This new provision seems to be useful in construction disputes, particularly if the arbitration clauses in the main contract and subcontracts are compatible, and the dispute involves overlapping issues or back-to-back liabilities for delay or damages for example. It is also relevant to disputes that arise out of off-plan real estate contracts. It is not uncommon in Dubai that one investor purchases a number of properties from the same developer in the same project. If a dispute arises in relation to the project itself, rather than to a particular purchased unit, the filing of an arbitration case for each individual unit would certainly be detriment to the claimant who will have to pay an advance on cost that can be significantly reduced if the multiple contracts are to be considered in a single arbitration.
The tribunal’s power to suspend the proceedings
A helpful provision is introduced by the new article 6.2 which states:
“Upon application of a party, the Tribunal may suspend the proceedings to allow one or more requirements of the arbitration agreement to be satisfied.”
This new provision is of particular importance in construction cases where multitiered dispute resolution clauses are commonly used. It is not uncommon for a party to file a request for arbitration straightaway, disregarding any contractual pre-arbitration requirement. For example, failure to refer the matter in dispute to the Engineer if the contract is based on the general conditions of FIDIC 1987, or failure to refer the dispute to the Dispute Adjudication Board in the first place if the contract is based on the general conditions of FIDIC 1999. This action might in a certain set of circumstances trigger a jurisdictional issue. Respondents frequently raise jurisdictional objections in these cases on the grounds that the arbitration is filed prematurely.
To address this, an emerging trend is for arbitrators to order the suspension of the proceedings pending the fulfilment of any pre-arbitration steps, rather than dismissing the claim outright. This has the advantage of time and cost savings to the parties, as the tribunal would still be “in place”. However, arbitrators should consider carefully whether they have the power to do so under the applicable curial law and/or relevant institutional rules.
In the author’s view, DIAC should also consider giving this power to the tribunal on its own motion. A suggested revised draft would thus read: “upon application of a party, or on its own motion, the Tribunal may suspend …”. With this addition, arbitrators will draw comfort from ordering suspension in circumstances where the claimant fails to request the suspension of the proceedings in response to the jurisdictional objection.
More often than not, a party may need to seek an interim relief from state courts before pursing their substantive claims in arbitration. It may, however, be more convenient for the parties to seek such interim relief from an emergency arbitrator to avoid engaging in judicial formalities. Provisions for an emergency arbitrator are introduced for the first time in the new DIAC Rules.
A party may seek an emergency interim relief provided that the tribunal is not yet constituted. The emergency arbitrator will be appointed in three working days.
The emergency arbitrator shall, as soon as possible but in any event within two business days of appointment, establish a schedule for consideration of the application for emergency relief. Such schedule shall provide a reasonable opportunity to all parties to be heard, but may provide for proceedings by telephone or video conference or on written submissions as alternatives to a formal hearing. The emergency arbitrator shall have the powers vested in the tribunal pursuant to the Rules, including the authority to rule on her/his own jurisdiction.
The emergency arbitrator will have to be impartial and independent. Any challenge to his or her appointment must be made in one business day. The emergency arbitrator will allow the parties an opportunity to present their views, and may order an interim relief. The ordered relief will then be reconsidered by the tribunal once constituted. In any event the ordered interim relief will cease to be binding after ninety days from the date of the order whether or not a tribunal was constituted. The emergency arbitrator cannot act as arbitrator in the same dispute unless by the parties’ consent.
The new Article 18 allows a party to apply for expedited proceedings if the claim value is less than two million dirhams (approximately US$ 550,000) exclusive of interest and arbitration cost. The application must be made before the constitution of the tribunal.
The appointment of a sole arbitrator will be made in seven days after the advance on costs is fully paid. The arbitrator will have to issue the final award in three months. In addition to the request for arbitration and answer to the request for arbitration, the parties are to submit their statement of claim and statement of defence simultaneously in fifteen days, and the award is to be rendered based on the documents alone.
Expedited proceedings will be an ideal route for straightforward small claims, especially those related to real estate disputes, if the amount in dispute is less than two million dirhams.
Awarding legal cost
The new Rules also deal with the issue of awarding legal cost. Under Article 4.2 of the Appendix – Cost of arbitration of the current Rules – the tribunal is empowered to award arbitration costs. However, the definition of the arbitration costs as provided for under Article 2.1 of the same Appendix does not include the parties’ legal fees, party-appointed expert fees and expenses. This led to a decision by the Dubai court of cassation number 282 of 2012 ruling that arbitral tribunals under the DIAC Rules do not have jurisdiction to award legal representation fees.
The parties may of course agree in the terms of reference or any other agreed procedural documents to empower the arbitrators to award legal costs. However, in practice respondents who have no or little chance in succeeding in their defence tend not to agree.
Article 2 of the New Rules overcomes the issue as it reads: “The arbitration costs shall include inter alia the Centre's registration fee, the advance on costs, the fees and expenses of any Tribunal or party-appointed expert, the legal representation fees and other party costs, to the extent reasonably incurred.”
This change seems to have an impact on strategic decisions as to the timing of filing the arbitration. A claimant party may opt to wait until the new Rules come into force to ensure the applicability of the new Rules to its arbitration so as to benefit from the recoverability of legal costs.
Singing the award abroad
The requirement to sign the award in the United Arab Emirates has been creating an unsatisfactory situation for arbitrators based in foreign jurisdictions. These arbitrators are required to travel to Dubai just to sign the award.
Article 42.2 of the New Rules states: “All awards shall be deemed to have been signed and issued at the seat of arbitration, without the physical presence of the Tribunal at the seat of arbitration.”
The use of the word “deemed” is apparently a key solution to satisfying the requirement.
Power to sanction counsel conduct
In a jurisdiction such as that of Dubai, practitioners come from different legal backgrounds with a wide variety of professional conduct codes or guidelines. As such, it comes as no surprise to experience working with counsel whose main objective is to obstruct or frustrate the proceedings.
The new Article 50 sets out a helpful provision as follows:
“In order to promote the good and equal conduct of the parties and their representatives during arbitral proceedings conducted under the Rules, the Tribunal is vested with the authority to impose sanctions when there is an attempt to unfairly obstruct the arbitration or jeopardize the award; when knowingly they make any false statements, procure or assist in the preparation of, or rely upon, any false evidence; or when they conceal or assist in the concealment of any document.”
Notably, although the Article authorises arbitrators to impose sanctions, there is no guidance as to what these sanctions might be. However, it has always been recommended in international arbitration that arbitrators must consider using decisions on cost as an efficient tool to encourage parties to deal fairly and efficiently with the proceedings.
The above are the most important features of change in the new DIAC Rules. They represent a fundamental change rather than simply a revised version of the current Rules. It is worth noting that the draft new Rules has also proposed a new provision for Islamic sharia compliance as an option by mutual consent of the parties. In addition, the Rules contain a scrutiny process to review draft awards before they are rendered to ensure that no procedural issue might impact the enforceability of the award.
With these developments, one should recognise the positive step forward towards state-of-the-art arbitral procedures that address any concerns that might currently exist.