September 23, 2021

Closure of DIFC-LCIA Arbitration Centre Causes Uncertainty

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CLOSURE OF DIFC-LCIA ARBITRATION CENTRE CAUSES UNCERTAINTY

By Decree No. 34 of 2021, effective as of September 20, 2021, Dubai has abolished the DIFC-LCIA Arbitration Centre (DIFC-LCIA) and the Emirates Maritime Arbitration Centre (EMAC) and seeks to fold their assets and operations into the Dubai International Arbitration Centre (DIAC).

This move has surprised many in the UAE arbitration community. The DIFC-LCIA in particular had been an increasingly popular institution, with a 30% increase in cases between 2020 and 2021, and had just updated its Rules.

This development creates real uncertainty regarding pending DIFC-LCIA administered arbitrations, and for contracts which provide for DIFC-LCIA arbitration.

The Impact on Ongoing Cases

Decree No. 34 indicates that ongoing cases under the DIFC-LCIA or EMAC Rules will continue to be heard by the same tribunals and under the same arbitration rules, except that now the cases will be administered by DIAC. However, this will have a series of consequences on those ongoing arbitrations. There are substantive differences between the DIAC and the DIFC-LCIA frameworks in terms of case administration, and so there is a concern about what this will mean for the parties in ongoing cases.

By way of example, Article 23 of the DIAC Statute provides that:

“A member of the Board of Trustees or of any DIAC committee; the Director; or a DIAC employee may not act as arbitrator, whether as a sole arbitrator, a presiding arbitrator, or a member of an arbitral tribunal, in any dispute referred to DIAC.”

It would appear that any arbitrator currently meeting those criteria will now be required to step down from any DIFC-LCIA arbitration (or EMAC arbitration) transferred to DIAC.

This illustrates the broader concern with this development, which is that this sudden change to parties’ agreement on their preferred means of dispute resolution (which can include their preferred method of selecting arbitrators) may open the door to challenges to tribunals appointed or awards rendered under this new ‘hybrid’ regime.

Article V(1)(d) of the New York Convention on Recognition and Enforcement of Awards provides, for example, that a national court may refuse to recognise and enforce an award if “[t]he composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.” [Emphasis added]

Decree No. 34 also provides that the arbitration centres’ assets and funds will be transferred to DIAC, together with their employees and lists of arbitrators. Given that the DIFC-LCIA Rules provide for advances on arbitration costs, it is at present unclear what will happen to such funds. How arbitrators will be remunerated also is unclear, given the differing approaches the abolished centres take from DIAC.

The Impact on Agreements Referring to DIFC-LCIA or EMAC

First, it is important to note that this development does not have any impact on arbitrations not administered by the DIFC-LCIA or EMAC, even if they have their seat in the DIFC. So, for example, an arbitration under the ICC Rules with a DIFC seat will be unaffected.

Equally, dispute clauses referring to the UAE’s other ‘offshore’ seat of Abu Dhabi Global Market and using rules of other recognised institutions (such as ICC, LCIA, or SIAC) will be unaffected.

As for existing agreements that specify arbitration under the DIFC-LCIA or EMAC Rules, Article 6 of the Decree provides that agreements concluded before September 20, 2021 will continue to be effective. DIAC will now become the administering institution, though, unless otherwise agreed by the parties.

If parties do choose to amend their agreement they will need to be wary of ensuring those executing the amendment have requisite authority to do so (whether as a contract amendment under the governing law, or because of the need for specific authority to enter arbitration agreements, as is the case in the UAE).

The DIFC-LCIA Rules contain multiple references to the LCIA Court taking decisions in respect of the arbitration (such as appointment of arbitrators in the absence of agreement and deciding on arbitrator challenges). The LCIA Court remains unaffected by this development, but it is now unclear whether there will be a conflict in circumstances where DIAC would also arguably exercise those functions (and where DIAC will be paid to administer the arbitration, whereas funds may not be made available to the LCIA Court for performing its function).

What Next?

Based on their public pronouncements, those involved with the DIFC-LCIA were not consulted about the Decree. That said, there is now apparently ongoing consultation between the LCIA and the Government of Dubai as to the effect of the Decree, and so there may be yet further developments.

The Decree provides that a new DIAC will eventually emerge, with a Board of Directors, an arbitration court, and an administrative unit. The new DIAC will have its headquarters in the Emirate of Dubai and a branch in the DIFC. Article 9 provides that DIAC has up to six months from the Decree’s effective date (i.e. until 20 March 2022) to implement the Decree.

There have been similar developments in the past. In 2016 and 2018 the LCIA terminated its overseas ventures in India and Mauritius, respectively. In those instances, the end of the centre was anticipated, and the LCIA continued to administer cases arising out of the abolished institutions.

However, the current situation involving the DIFC-LCIA was not initiated by the LCIA.

In that regard, the situation may be considered akin to the ‘split’ in the China International Economic and Trade Arbitration Commission (CIETAC), when two former sub-commissions in Shenzhen and Shanghai jointly announced that they would operate as independent arbitral institutions.

In the case of CIETAC, there was much litigation in the following years by recalcitrant parties seeking to avoid or challenge awards due to the uncertainties around the administering institutions and rules. In the absence of further clarity as to how the Decree will be applied and interpreted there is unfortunately a risk that such tactics may be deployed in the case of DIFC-LCIA and EMAC arbitrations also.

A special thanks to associate Ivana Dahl for her contribution to this publication.

Autoren und Mitwirkende

Alex Bevan

Partner

International Arbitration

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+971 2 410 8121

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Abu Dhabi

David Hume

Counsel

International Arbitration

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Abu Dhabi