Arbitrating in the DIFC: key considerations

Practical Law UK Articles 2-620-9907 (Approx. 10 pages)

Arbitrating in the DIFC: key considerations

by Philip Punwar, Baker Botts LLP

Who can choose a DIFC seat of arbitration

The Arbitration Law places no restrictions on who can choose a DIFC seat of arbitration. Neither the parties, nor their dispute, need have any connection with the DIFC or the UAE.

Which court has supervisory jurisdiction

The Arbitration Law provides that the DIFC Court has jurisdiction over a DIFC arbitration to the extent permitted by that law. As a result, the DIFC Court and not the Dubai Court will be the "curial" court of the arbitration (curial law is the law governing the arbitration proceedings, and can be different to the substantive law). This means that the DIFC Court ratifies any final arbitration award issued and decides any challenge made to any final award.

The Arabic language Dubai Courts play no role in a DIFC seated arbitration unless and until an application is made to enforce any resulting arbitration award in non-DIFC Dubai.

How the Arbitration Law differs from the UAE Civil Procedure Law

The Arbitration Law is more detailed and less ambiguous than the arbitration provisions of the UAE Civil Procedure Law.

The Arbitration Law incorporates many provisions originally found in a draft federal arbitration law that was put out for consultation by the UAE Federal Ministry of Economy in 2008. This English and Arabic language draft was prepared for the Ministry of Economy by specialist international arbitration practitioners and based substantially on the United Nations' (UNCITRAL's) Model Arbitration Law (1985/2006), the English Arbitration Act 2006 and parts of the Japanese and German arbitration laws.

Under the Arbitration Law, arbitrators have much clearer and wider powers than they have under the UAE Civil Procedure Law, and the parties themselves have more defined rights.

The circumstances in which the courts can intervene both before, during and after an arbitration are more clearly articulated in the Arbitration Law than they are under the UAE Civil Procedure Law.

Overall, arbitrations with a DIFC seat are governed by an arbitration regime that more closely reflects international best practice.

Because the DIFC Court is the curial court for any arbitration with a DIFC seat, any arbitration applications are dealt with confidentially and by judges with significant international arbitration experience.

The role of arbitral institutions when the seat is the DIFC

The Arbitration Law does not prevent parties choosing to adopt the arbitration rules of any arbitral institution they wish. For example, it is open to the parties to agree that the seat of the arbitration will be the DIFC and that the arbitration will be conducted under the arbitration rules and auspices of the International Chamber of Commerce (ICC), the Dubai International Arbitration Centre (DIAC), the London Court of International Arbitration (LCIA) or any other arbitral institution that administers arbitrations internationally.

The DIFC's own arbitral institution

The DIFC-LCIA Arbitration Centre was established in 2007 as a joint venture between the LCIA and the DIFC. The DIFC-LCIA Arbitration Rules contain almost identical provisions to those found in the LCIA Arbitration Rules pre-2014.

The LCIA Court in London performs much the same range of functions in DIFC-LCIA arbitrations as it does in LCIA arbitrations.

Dubai Law No. 7 of 2014 amending Law No. 9 of 2004 concerning the Dubai International Financial Centre, which came into force on 21 May 2014, created the DIFC Arbitration Institute under the umbrella of the DIFC Dispute Resolution Authority. The role of the DIFC Arbitration Institute is to promote the study and practice of arbitration.

The DIFC-LCIA Arbitration Centre is expected to continue as a joint venture between the LCIA and the DIFC Arbitration Institute.

Notable features of the Arbitration Law

The most notable features of the Arbitration Law are set out below.

Arbitrability

An arbitration agreement may provide for the arbitration of contractual and non-contractual disputes arising out of a defined legal relationship (article 12(1)). Neither the agreement nor the parties need have any connection to the DIFC.

Save where the DIFC Court orders otherwise, agreements to arbitrate disputes under DIFC contracts of employment and contracts with consumers can only be enforced if either the employee or consumer gives consent in writing or submits to proceedings that have already been commenced (article 12(2)).

The staying of court proceedings

The DIFC Court must stay any substantive claim that has been brought before it in breach of an arbitration agreement, regardless of whether the seat of the arbitration is within or without the DIFC (article 13(1) (as amended by the 2013 Arbitration Law Amendment Law)).

Confidentiality

Unless otherwise agreed by the parties, all information relating to the arbitral proceedings are to be kept confidential unless disclosure is required by an order of the DIFC Court (article 14).

The composition and appointment of the tribunal

In default of party agreement, the tribunal is to be comprised of a sole arbitrator.

Unless the parties agree otherwise, or where the dispute involves multiple parties that have not agreed to divide themselves into claimant and respondent groups, each party appoints one arbitrator and the two party-appointed arbitrators appoint the third arbitrator (article 17(3)).

The DIFC Court makes any default appointment on behalf of a party or the party nominated arbitrators, and the DIFC Court appoints the entire tribunal in the case of multiple parties that have been unable to agree to arrange themselves into claimant and respondent groups (article 17(3)(c)).

Challenges to arbitrators

Before and after accepting an appointment, arbitrators are under a duty to disclose to the parties any matter that is likely to give rise to justifiable doubts as to their impartiality or independence (article 18(1)).

Unless otherwise agreed by the parties, challenges based on an arbitrator's lack of impartiality, lack of independence or want of the qualifications dictated by the arbitration agreement are governed by the provisions of article 19(2) and (3).

Consequently, challenges must be made within 15 days of a party becoming aware of the facts supporting the challenge. The tribunal must decide the challenge unless the other party accepts the challenge or the arbitrator concerned withdraws from the arbitration. Where a challenge is not successful, the DIFC Court can be asked to finally decide the challenge. The tribunal may continue with the arbitration pending the decision of the court.

The tribunal itself may rule on a challenge to its jurisdiction that has been made within the time limits set down in the Arbitration Law (article 23(1)). If the tribunal has decided that it has jurisdiction, any party may, within 30 days, request the DIFC Court to finally decide the challenge (article 23(3)).

The removal, replacement and liability of arbitrators

The removal, replacement and liability of arbitrators is provided for at articles 20 to 22. Arbitrators can withdraw or be removed by the agreement of the parties or by the order of the DIFC Court.

Arbitrators are not liable for any act or omission in connection with an arbitration, unless they are shown to have caused damage by conscious and deliberate wrongdoing (article 22).

The power of the tribunal to grant interim measures of protection

Article 24(1) of the Arbitration Law gives the tribunal very clear and extensive powers to order interim measures. Article 24(1) largely reflects similar provisions found in the English Arbitration Act 1996. The tribunal has the powers set out at Article 24(1) unless the parties specifically agree otherwise.

Article 24(1)(b) provides that an interim measure may take the form of an order or an award. Interim measures are temporary measures that are made prior to the final award, with a view to maintaining or preserving the status quo, preserving assets, preserving evidence or directing/prohibiting the taking of certain action.

Article 24(1)(a) authorises the tribunal to grant an interim measure on condition that the applicant gives appropriate security for the legal or other costs of any other party.

The tribunal may, after giving notice to the parties, modify, suspend or terminate any interim measure it has granted.

If the tribunal subsequently decides that the interim measure should not have been granted, it may hold the party in whose favour the interim measure was granted liable for any costs and damages caused by the measure to any other party.

The test for the grant of interim measures

An applicant must satisfy the tribunal that (article 24(1)(c)):

Harm that will not be adequately reparable by an award of damages is likely to result if the interim measure is not ordered and that harm will substantially outweigh the harm, if any, that is likely to result to the party opposing the interim measure if the measure is ordered.
There is a reasonable possibility that the requesting party will succeed on the merits of the claim.

The power of the DIFC Court to grant interim measures in relation to arbitration

The DIFC Court can grant interim measures in relation to arbitration proceedings irrespective of whether the seat of the arbitration is the DIFC, elsewhere in the UAE or overseas. The Court can grant such interim orders in respect of arbitration proceedings as it could make in relation to proceedings in court (article 24(3)).

The commencement of the arbitration

Article 28 provides that, subject to any agreement between the parties (such as may be contained in any agreed arbitration rules), an arbitration commences on the date that a request that a dispute be referred to arbitration is received by the respondent.

The language of the arbitration

Where the parties have not agreed on the language of the arbitration proceedings, the tribunal determines the language or languages to be used (article 29).

Procedure

The form and timing of submissions is generally a matter for the parties and the tribunal to agree on. Article 30(1) does, however, stipulate that unless the parties have agreed otherwise, the claimant should "state the facts supporting his claim, the points at issue and the relief or remedy sought". Likewise, the respondent should "state his defence in respect of these particulars".

A party can amend or supplement its claim or defence at any time unless the tribunal believes it inappropriate to do so by reason of delay (article 30(2)).

Unless the parties have agreed otherwise, the tribunal will hold a hearing if any party requests that a hearing be held. Where the parties have not agreed otherwise, the tribunal is free to decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings will be conducted on the basis of documents and other materials.

Party default

Where a claimant without sufficient cause fails to file a statement of claim, the tribunal must terminate the proceedings (article 32(a)).

Where a respondent fails to file a statement of defence the tribunal must continue with the proceedings without treating the respondent's failure as an admission of the claim. This means that the claimant must proceed to prove its case.

Where any party fails to produce documents or attend a hearing, the tribunal can continue the proceedings and make an award on the basis of the evidence before it.

The rules applicable to the dispute

In all cases, the tribunal is to make determinations in accordance with the terms of the contract and the applicable law or rules of law, also taking into account the usages of the trade applicable to the transaction (article 35(4)).

Decision making

Decisions of a tribunal of three are made by majority, save that procedural questions can be made by the presiding arbitrator if so authorised by the parties or by all members of the tribunal.

The time for issuing the final award

Unlike the UAE Civil Procedure Law, the Arbitration Law does not give a time limit for the issuing of the final award. The parties are free to agree on a time limit.

Awards

Awards are to be in writing and reasons are to be given unless the parties have agreed that they can be dispensed with (article 38(1)).

The award must fix the costs of the arbitration. These are extensively identified, and include, among other things, the successful party's reasonable (claimed) legal costs and expenses, as well the fees and expenses of the tribunal and any arbitral institution or appointing authority (article 38(5)).

An award must be signed, dated and identify the seat of the arbitration (article 38(4)). Signature may be by the majority so long as reasons are given for an arbitrator's failure to sign.

An award in a DIFC-seated arbitration need not be signed in the DIFC to be validly made in the DIFC. The award will be deemed to have been made at the seat (article 38(3)).

Appeals

In line with international practice, the awards of arbitrators cannot be appealed to the DIFC Court. Awards can, however, be challenged on jurisdiction and due process grounds (article 41).

Challenges to awards

The only available recourse against an award is an application to have it set aside (article 41(1)).

Unless the parties agree otherwise, an application to set aside an award must be made within three months of the award having been received by the party applying (article 41(3)).

A party's failure to apply to the DIFC Court to set aside an award made in the DIFC bars that same party from invoking any part of article 44(1)(a) to resist an application to enforce the award pursuant to article 44 (article 44(3)).

Article 41(2)(a)(i) to (iv) of the Arbitration Law mirrors article 34(2)(a)(i) to (iv) of the UNCITRAL Model Law with respect to the setting aside of awards. Consequently, the DIFC Court can set aside an award on jurisdictional grounds or due process grounds. These grounds are well documented in the UNCITRAL Model Law literature.

Article 41(2)(b)(ii) of the Arbitration Law mirrors Article 34(2)(b)(ii) of the UNCITRAL Model Law in that it provides that an award can also be set aside if it is in conflict with the public policy of the state, specifically the UAE. It is interesting to note that the previous DIFC Arbitration Law (the 2004 Law) made reference to the public policy of the DIFC rather than the UAE.

Article 41(2)(b)(ii) also provides that an award may be set aside if the DIFC Court finds that the dispute "is expressly referred to a different body or tribunal for resolution under this Law or any mandatory provision of DIFC Law".

Whether an award made in the DIFC is a New York Convention Award

As the DIFC is within the UAE, an award made in the DIFC is a New York Convention Award for the purposes of its recognition and enforcement under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

How a DIFC arbitration award is enforced in the rest of the UAE

A party can ask the DIFC Court to issue an order recognising an arbitration award made in the DIFC (article 43). An order recognising an award will be issued in English and Arabic.

Article 42(4) of the Arbitration Law provides that "Awards recognized by the DIFC Court may be enforced outside the DIFC in accordance with the Judicial Authority Law (Dubai Law No. 12/2004, amended by Dubai Law No. 16/2011) and recognition under this Law includes ratification for the purposes of Article 7 of the Judicial Authority Law".

How an award made outside the DIFC can be enforced within the DIFC

The Arbitration Law governs the recognition and enforcement of arbitration awards by the DIFC Court regardless of where the award was made.

Article 44(1) of the Arbitration Law mirrors article V(1) of the New York Convention and articles 36(1) to (2) of the UNCITRAL Model Law. Consequently, the DIFC Court can only decline to recognise or enforce an award on jurisdictional or due process grounds. These grounds are well documented in the UNCITRAL Model Law and New York Convention literature.

The DIFC Court can also decline to recognise or enforce an award where it is of the view that enforcement would be contrary to the public policy of the UAE.

Where a party has failed in an application to have an award made in the DIFC set aside by the DIFC Court (or has failed to make such an application), that party is prohibited from seeking to resist the recognition or enforcement of that award under the grounds set out at article 44(1)(a) of the Arbitration Law (article 44(3), Arbitration Law).

The DIFC Court can stay an application for recognition or enforcement of an award where an application to set aside an award is pending before a competent court (article 44(2), Arbitration Law).

Contributor profiles

Philip Punwar, Partner

Baker Botts LLP

Image 1 within Arbitrating in the DIFC: key considerations

T + 971 4 436 3690
F + 971 4 436 3790
E [email protected]
W www.bakerbotts.com

Professional qualifications. 1989, England & Wales: Barrister of the Inner Temple;

2006, United Arab Emirates: Advocate of the DIFC Courts

Areas of practice. Advocacy; international arbitration; transnational litigation; English law; DIFC law; UAE law; private international law; public international law; investment law; international trade, insurance; construction; real estate development; general contracts; asset recovery.

Non-professional qualifications. 1987, B.A. (Hons) Philosophy with Medieval English Literature, University of Birmingham; 1988, Postgraduate Diploma in Law, City University, London; 2002, Diploma in International Commercial Arbitration, (CIArb); 2006, M.A. in International Studies and Diplomacy, School of Oriental and African Studies, University of London

Recent transactions

Acting for a main contractor in a US$25 million arbitration against a master developer; acting for a master developer in a US$100 million arbitration against a sub-developer; acting for a sub-developer in a US$2 billion dispute against a master developer.
Advising clients in the aviation, leisure and hospitality industries involved in commercial and investment disputes connected to Afghanistan and Lebanon.
Initiating and overseeing legal proceedings in The Netherlands and Switzerland for a Gulf based client whilst also representing the same client in several arbitrations in Dubai arising out of the provision of security services across the Middle East.
Advising an oil exploration company on aspects of state immunity.
Sitting as co-arbitrator in an ICC arbitration concerning a dispute between a master develop and sub-developer: Abu Dhabi seat, UAE substantive law applying.
Sitting as co-arbitrator in an ICC arbitration concerning a dispute between a US licensor and a UAE licensee: London seat, English substantive law applying.

Languages. English

Professional associations/memberships

Bar Council of England & Wales, Member
Honourable Society of the Inner Temple, Bencher
ICC Commission on Arbitration and ADR, Member
Chartered Institute of Arbitrators (CIArb), Chartered Arbitrator
Centre for Effective Dispute Resolution (CEDR), Accredited Mediator
Commercial Bar Association (COMBAR), Honorary Overseas Member
DIFC Academy of Law, Education Sub-Committee Chairman, Director of Advocacy Training

Publications

The Rules of the DIFC Courts with Commentary & Materials, Thomson Reuters, 2011
UAE Country Survey, Year Book of Islamic and Middle Eastern Law 2008 - 2014, Brill

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