The New 2022 DIAC Rules Enter Into Force
Following Decree No. 34 of 2021 concerning the Dubai International Arbitration Centre (the “Decree”), which effectively (i) abolished the Emirates Maritime Arbitration Centre and the DIFC Arbitration Institute (under which the DIFC-LCIA was operating); and (ii) provided for the Dubai International Arbitration Centre (the “DIAC” or the “Centre”) to substitute both institutions by directing the transfer of all rights and obligations of the abolished centres to the DIAC, the DIAC has now issued its new rules.
The 2022 DIAC Rules (the “2022 Rules”) will come into effect on 21 March 2022, replacing the pre-existing DIAC Arbitration Rules 2007 (the “2007 Rules”).
All DIAC arbitrations commenced after 21 March 2022 will be conducted under the 2022 Rules unless the parties agree otherwise. For existing arbitrations, it would seem the 2007 Rules will continue to apply.
The new Rules will, thus, apply to all existing contracts providing for DIAC arbitration and those contracts which provided for arbitration under the rules of the abolished centres (i.e. DIFC-LCIA and EMAC).1
We provide an overview of the key changes below.
The Arbitration Court
The Arbitration Court, which was created pursuant to the Decree, replaces the Executive Committee.
The role of the Arbitration Court was described in Article 11 of the Decree – the 2022 Rules clarify those powers and entrust the Arbitration Court with the authority to:
- set aside any appointing mechanism which is not in accordance with the 2022 Rules;
- rule on preliminary objections to jurisdiction if so requested;
- allow consolidation or joinder; and
- review arbitral awards only so far as the form is concerned (the 2022 Rules do not provide for a mechanism akin to the ICC scrutiny of awards by the ICC Court).
Hierarchy of Rules and Party Autonomy
A central principle in international arbitration is that of party autonomy, which entails that, except for mandatory rules of procedure dictated by the procedural law, parties are free to agree on the procedure to be followed for the resolution of their dispute.
In an institutional arbitration context, this means that the parties are also free to alter the rules governing the procedure provided such alteration can be operated without affecting the administration of the dispute by the administrative body as per the institutional rules.
Article 2.4 of the 2022 Rules breaks with the aforementioned general position and provides: “Where a submission to arbitration is made in accordance with Article 2.1, the parties agree that where any provision of their agreement to arbitrate is inconsistent with the Rules, the provisions of the Rules shall take precedence…(emphasis added)”.
Thus, when it comes to DIAC procedure, the institutional rules will take precedence over any specific provision agreed upon between the parties should such provision be inconsistent with the 2002 Rules. We consider the drafting is to permit the Expedited Proceedings (which are a novel and exciting development which will make DIAC a more attractive forum). It remains to be seen whether a strict interpretation of the word “inconsistent” will apply beyond this provision.
Decision on Jurisdictional Objections (Article 6.6)
Article 6.6 of the 2022 Rules is a new article and provides that the Tribunal shall rule on any objection to its jurisdiction as a preliminary question unless, after consultation with the parties, it decides to proceed with the arbitration and rule on such jurisdictional objection in the Final Award.
This accords with the prevailing practice under the existing 2007 Rules and in international arbitration in general.
Submission of Power of Attorney (Article 7.3)
Article 7.3 of the 2022 Rules provides that the Centre may require the parties’ representatives to provide proof of authority before the constitution of the Tribunal.
Proof of authority is usually provided in the form of a Power of Attorney (“PoA”). It used to be the case that PoAs were commonly not produced until the Preliminary Meeting. Article 7.3 is a reflection of the Centre’s recent practice to request such proof of authority before the constitution of the Tribunal.
Consolidation and Joinder (Articles 8 and 9)
Similarly to the rules of other major arbitral institutions, the DIAC now has detailed rules on consolidation and joinder.
Parties can expressly exclude the application of the rules on consolidation by incorporating such an exclusion of said rules in their contract.
Consolidation (Article 8)
Consolidation is effectively the “merger” into a single arbitration of separate arbitral proceedings relating to disputes (i) under one single contract or multiple contracts which contain the same (or compatible) dispute resolution clause(s); and (ii) arising out of the same facts.
Under the 2022 Rules, a party can apply to the Arbitration Court for consolidation prior to the constitution of the Tribunal. After inviting all parties to comment, the Arbitration Court has discretion to allow consolidation if (i) all parties agree to the same; or (ii) if it is satisfied prima facie that the requirements set out in Article 8.2 (a) and (b) are met, i.e., if:
- all claims in the arbitrations are made under the same arbitration agreement; or
- all claims in the arbitrations are made under arbitration agreements which are compatible; and the arbitrations involve the same parties; and any of the following conditions is met
- the disputes arise out of the same legal relationship(s); or
- the underlying contracts consist of a principal contract and its ancillary contract(s); or
- the claims arise out of the same transaction or series of related transactions.
Any decision by the Arbitration Court to allow consolidation is without prejudice to the Tribunal’s power to decide on its own jurisdiction or on a party’s right to apply for consolidation to the Tribunal once constituted.
Should the Arbitration Court decide the arbitration shall not proceed in respect of any of the multiple claims, if the Claimant wishes to proceed with any of those multiple claims for which consolidation was rejected, it will be required to resubmit its Request for Arbitration within 15 days of the notification of the Arbitration Court’s decision on consolidation. If it fails to do so, any of the claims which are not resubmitted will be considered withdrawn.
It is also possible for parties to apply for consolidation directly to the Tribunal after constitution of the same. The same requirements as those set out in Article 8.2 (a) and (b) (summarised above) apply. In addition to those requirements, when deciding on an application for consolidation, the Tribunal ought to take into consideration “…any other relevant factors, including the composition of the proposed Tribunal and the impact of the proposed consolidation on the arbitration and its efficient and expeditious progress…”.
If consolidation is granted, the arbitrations will be consolidated under the arbitration which commenced first (unless the parties agree otherwise) and the advance on costs will be adjusted having regard to the total of the sums claimed in accordance with the schedule of costs in force at the date of consolidation.
Joinder (Article 9)
Joinder relates to the situation where a party is brought to participate in the arbitration proceedings either upon request of a party already involved in the proceedings or upon that additional party’s request to intervene.
Under the 2022 Rules, a party (whether or not such party is a party to the arbitration agreement) can apply to the Arbitration Court for joinder prior to the constitution of the Tribunal. After inviting all parties to comment (including any proposed additional party), the Arbitration Court has discretion to allow for one or more additional parties to be joined in the arbitration provided the requirements set out in Article 9.1 are met, namely:
- all parties (inclusive of any party to be joined) have consented in writing to the joinder; or
- the Arbitration Court is prima facie satisfied that any such party to be joined may be a party to the arbitration agreement referred to in the Request for Arbitration.
Any decision by the Arbitration Court to allow joinder is without prejudice to the Tribunal’s power to decide on its own jurisdiction or on a party’s right to apply for joinder to the Tribunal once constituted.
Pursuant to Article 9.4 of the 2022 Rules, it is also possible for a party (whether or not such party is a party to the arbitration agreement) to apply for joinder directly to the Tribunal after constitution of the same.
After having considered “…potential conflicts of interest and the impact of the proposed joinder on the arbitration and its efficient and expeditious progress…”, the Tribunal can allow one or more additional parties to be joined if:
- all parties (inclusive of any party to be joined) have consented in writing to the joinder; and agreed to the appointment and powers of the tribunal and the application of the Rules; or
- the Tribunal is satisfied that any such party to be joined is a party to the arbitration agreement referred to in the Request for Arbitration – any party joined under the aforementioned proviso will be deemed to have waived its right (if any) to nominate an arbitrator.
Constitution of Tribunal – Appointment Process (Articles 10.2 and 13)
Number of Arbitrators (Article 10)
The default position regarding the number of arbitrators remains unchanged; if the parties do not specify the number of arbitrators, the Tribunal shall consist of one arbitrator except where the Arbitration Court determines that a Tribunal composed of three members is appropriate.
Noteworthy is the additional wording in Article 10.2 of the 2022 Rules which clarifies that such a determination to have a three members panel is at the Arbitration Court’s absolute discretion “taking into account the relevant circumstances”.
Alternative Appointment Process (Article 13)
An interesting feature of the 2022 Rules is the provision for alternative appointment mechanisms for the appointment of respectively a sole arbitrator or a chairperson for three members panels (the term “Chairman” is now a relic of the past).
The alternative appointment processes will apply if the parties (i) did not provide for an appointment mechanism in their contract; (ii) failed to jointly nominate a sole arbitrator (or if their party-nominated co-arbitrators failed to jointly nominate a chairperson for three members panels); and (iii) notified the Centre of their agreement to follow the mechanism contemplated by Article 13.
Article 13 is an opt-in provision.
The alternative appointment process for a sole arbitrator is described in Articles 13.2 to 13.5 of the 2022 Rules – it is as follows:
- Step 1 – The Centre communicates simultaneously to each party an identical list of at least 3 names of suitable candidates to which each party may add a maximum of 3 names. (Article 13.2)
It is not entirely clear what process each party should follow to add those additional names. The following key parameters are not covered in the provision: the timeframe in which each party ought to submit those additional names if it wishes to do so; and whether such list of additional names ought to be shared with the Centre only or copying the other party – if the former, how such list of additional names will be relayed to the other party for the purpose of ranking the names as per Step 2 below.
The wording of Article 13.5 which we cover below under Step 3 seems to suggest those additional names either party may put forward are not shared with the other party.
- Step 2 – Each party has 7 days “from the date of the above communication” from the Centre in which to rank the names by order of preference and send such ranking to the Centre without copying the other party. (Article 13.3)
If a party fails to return the list within the time specified, all candidates named on the list by the Centre will be deemed equally acceptable by that party. (Article 13.4)The process under the two aforementioned paragraphs does not seem to cater to the parties’ prerogative to submit additional names and for those additional candidates to be part of that list of names to be ranked by each party as (i) it provides a specific timeframe as of the date of the initial communication from the Centre which does not contain the compiled list of names including those additional names that might be submitted by either party; and (ii) in the event of a failure to return the list within the specified timeframe, the Article provides that only those candidates “named on the list by the Centre” will be deemed equally acceptable, again ignoring the ranking of any additional candidates which would have been put forward by either party.
- Step 3 – Article 13.5 provides “From among the candidates who have been approved (as the case may be, nominated by the parties) on both lists, and taking into the account the indicated order of mutual preference, the candidates shall be invited in such order until one accepts to serve as arbitrator.”
The wording above which refers to the names approved or nominated “on both lists” seems to suggest that each party would effectively rank the names submitted by the Centre and those additional names it submitted itself. It suggests it is only if a candidate is put forward by both parties and thus appears on both lists that its ranking will be taken into consideration to invite him/her to serve as arbitrator.
- Step 4 – The second limb of Article 13.5 provides: “If the parties fail to agree on any of the persons named or if a selected candidate is unable to act or does not fulfil the requirements of impartiality, independence and availability, the Arbitration Court shall have the power to decide whether to repeat the alternative appointment process or make a direct appointment.”
Although it would make sense for the alternative appointment process to be repeated if a candidate is unable to act or does not fulfil the requirements for appointment, it is not entirely clear why the Arbitration Court would repeat such a process if the parties fail to agree on a candidate after already going through said process.
The alternative appointment process for a chairperson is described in Articles 13.6 to 13.9 of the 2022 Rules and mirrors the first three steps we describe above except for the fact that the party-nominated arbitrators are the ones involved (rather than the parties). Provided all parties agree, each co-arbitrator can liaise with the party that nominated him/her for the sole purpose of selecting the chairperson.
Revocation of Appointment of Arbitrators (Article 16)
Article 16 deals with the revocation of appointment and replacement of arbitrators.
Article 16.1 lists those circumstances in which, upon the written agreement of all parties, the Arbitration Court will revoke an arbitrator’s appointment, namely: (i) the arbitrator’s death; (ii) the arbitrator’s illness or other personal circumstance resulting in an inability to serve; (iii) the arbitrator’s resignation; or (iv) a successful challenge of an arbitrator on the grounds of failure to act independently and/or impartially.
Article 16.2 empowers the Arbitration Court to revoke an arbitrator either at its own initiative or upon the request of a party if the Arbitration Court decides that such arbitrator:
“…(a) is prevented in law or in fact from fulfilling their functions;
(b) is acting or has acted in violation of the agreement to arbitrate and/or the Rules; or
(c) does not conduct the arbitration in accordance with the Rules, including the obligation to conduct the arbitration with diligence and avoiding unnecessary delay or expense.(emphasis added)”
Although it is important for rules to be in place to protect the integrity of an arbitration procedure, the wording of the aforementioned provision is broad and could open up opportunities for guerrilla tactics and vexatious applications designed to derail or delay proceedings.
Power to Refer Counsel’s Misconduct to Regulator (Article 17.5)
Article 17.1 provides: “…The core objective of the 2022 Rules is for all arbitrations to be conducted justly, fairly, impartially, efficiently, and proportionally… The Tribunal, the parties and the parties’ representatives undertake to conduct the arbitration in accordance with that objective…”.
The 2022 Rules provide the Arbitration Court with the authority to communicate any action of the parties’ representative(s) to the relevant supervising authority/professional body in case of unfair obstruction of the arbitration or misconduct. Article 17.5 reads:
“In applying the core objective of the Rules, the Arbitration Court may, upon a reasoned request from the Tribunal and after inviting the parties’ comments, communicate any actions of the parties’ representative(s) it considers an attempt to unfairly obstruct the arbitration or otherwise to constitute misconduct, to the relevant supervising authority/professional body and/or to the respective party who appointed such representative.”
DIFC as the Default Seat (Article 20)
Unless the Parties agree otherwise, the default “initial” seat for any arbitration under the auspices of DIAC will be the DIFC. As a result, the curial law will be DIFC Law No. 1/2008 – DIFC Arbitration Law (as amended) (the “DIFC Arbitration Law”) rather than the UAE Federal Law No. 6/2018 on Arbitration (the “UAE Arbitration Law”) and the supervisory courts will be the DIFC Courts rather than the Dubai onshore Courts.
This is a significant change as the 2007 Rules provided for onshore Dubai to be the default seat.
The 2022 Rules refer to the DIFC as being the “initial” seat by default as the Tribunal has the power to finally decide to determine the seat of the arbitration.
The implications are that the parties will now by default have access to (i) the wide range of interim relief available before the DIFC Courts under the DIFC Arbitration Law; (ii) a streamlined process for the enforcement of arbitral awards; and (iii) more predictability in respect of the risk of annulment of arbitral awards which is very limited before the DIFC Courts.
This change was announced in the Decree, which provides in its Article 4 (b) for DIFC as the default seat for DIAC arbitrations.
Third Party Funding (Article 22)
The 2022 Rules recognise the possibility for parties’ legal fees to be financed by way of Third Party Funding but provide a number of safeguards in that respect in Article 22.
Most notably and in line with the recent and increasing trends for more transparency in International Arbitration, Article 22.1 requires parties who have entered into a Third-Party Funding Arrangement to “…promptly disclose that fact to all other parties and the Centre, together with details of the identity of the funder, and whether or not the funder has committed to an adverse costs liability” – such duty to disclose remains during the arbitration proceedings.
The existence of any third-party adverse costs liability can be taken into account by the Tribunal when apportioning the costs of the arbitration between the parties.
Preliminary Meeting (Article 23)
Under the 2007 Rules, the Tribunal had 30 days from the date of transmission of the file to notify the parties of the date of the Preliminary Meeting and venue for the same.
Under the 2022 Rules, the Tribunal has now 15 days from the date of transmission of the file to contact the parties with a view of setting the Preliminary Meeting.
Submission of the Statement of Claim (Article 24.1)
Under the 2007 Rules, the Claimant had 30 days from the date of notification by the Centre of the constitution of the Tribunal to submit its Statement of Claim if it not submitted with the Request and the Respondent had 30 days from receipt of the Statement of Claim to submit the Statement of Defence.
Under the 2022 Rules, the 30-day deadline for submission of the aforementioned pleadings has fallen away. If the Claimant does not submit the Statement of Claim with the Request, it seems the Claimant would then have to wait for a direction from the Tribunal for the time limit in which to submit its Statement of Claim.
Right to a Hearing (Article 26.1)
Article 26.1 of the 2022 Rules seems to imply parties have now a right to a hearing if either party requests for the same. It provides that if a party requests for a hearing to take place, the Tribunal “…shall determine whether such hearing(s) shall be held in person, by telephone, or through any appropriate means of virtual communication…”.
Presence of Witnesses at Hearings (Article 27.5)
Article 27.5 provides:
“The Tribunal shall determine whether any witness shall be excluded from the hearing, particularly during the testimony of other witnesses.”
The position under the 2007 Rules was that factual witnesses were invariably required to be excluded from the hearing whilst other witnesses were giving evidence; so that they would not hear testimony of other witnesses. There was uncertainty as to whether that extended to experts. Thus, it was not entirely clear whether, for example, “hot-tubbing” was allowed in arbitrations seated in Dubai. To the extent the issue is still live, it will be to the Tribunal to decide on such a matter.
Expedited Proceedings (Article 32)
Unless the parties agree otherwise, arbitrations commenced (i) pursuant to arbitration agreements concluded after the entry into force of the 2022 Rules; and (ii) for which quantum is below AED 1 million, will be heard on an expedited basis following the procedure provided for in Article 32.
Cases with a higher quantum can also be heard on an expedited basis (i) by agreement of the parties in writing; or (ii) in case of “exceptional urgency” by way of an application by either party to the Arbitration Court for the case to be administered on an expedited basis; or (iii) if a party’s application for the case to be heard on an expedited basis is unopposed (or deemed unopposed (i.e. if the other party does not oppose such application within 7 days of receipt)).
In a procedure under Article 32 (which will be heard by a Sole Arbitrator), the Tribunal has three months from the date of transmission of the file to issue its Award. This is a significant development which will likely result in an explosion of smaller value cases being arbitrated.
Termination Order (Article 33)
Article 33 contains new wording which deals with the issuance of termination orders by the Tribunal if (i) the case settles; or (ii) if it finds, after consultation with the parties, that the continuation of the arbitration becomes unnecessary or impossible.
In the event of termination of the proceedings, the 2007 Rules contemplated the possibility for the Tribunal to issue a consent award only in case of settlement if requested jointly by the parties.
Preliminary, Interim and Partial Awards (Article 34.1)
Article 34.1 is a new provision; it reads:
“The Tribunal may issue preliminary, interim, partial, final, additional, supplemental or other awards as considered appropriate.”
This is consistent with Article 39 of the UAE Arbitration Law which empowered tribunals to issue interim and partial awards. Prior to the adoption of the UAE Arbitration Law, there was uncertainty as to whether tribunals were empowered to issue other awards than the Final Award without putting that Final Award at risk of being annulled.
Costs Recovery (Article 36)
Regarding costs recovery, the 2022 Rules clarify that parties’ legal fees (i.e. counsel and expert fees) will be recoverable. Previously, there was some uncertainty as to what was covered under the term “legal fees” and whether counsel fees were covered as they were not expressly listed.
Appendix I – Costs of the Arbitration
A new updated Table of Costs is yet to be issued by the DIAC.
Appendix II – Exceptional Procedures
Appendix II to the 2022 Rules contains provisions in respect of (i) Interim Measures which tribunals are now expressly empowered to grant by way of preliminary orders; (ii) applications for emergency interim relief to be heard by an Emergency Arbitrator; (iii) Conciliation; and (iv) the referral of appointments of adjudicators, arbitrators or experts to DIAC pursuant to the Appointing Authority Procedure where the parties have so agreed.
Technology related changes
The 2022 Rules also incorporate a number of changes which reflect the increasing reliance on technology in arbitration, a trend further enhanced by the COVID-19 pandemic. Key technology-related changes include the following.
Virtual Hearings and the New Normal (Article 20.2)
The Rules specify that all meetings and hearings “…at any place, be it in person, by telephone or through any other appropriate means of virtual communication including video conference…(emphasis added)”.
This new provision reflects the exponential increase in the number of virtual arbitration hearings in the region and beyond.
Electronic Communications and Signatures (Article 3.1 and Article 20.3)
The requirement for hard copies to be physically delivered has fallen away.
Awards can now also be signed electronically and in counterparts.
Finally, the requirement for the Award to be signed in one sitting by all arbitrators has now fallen away.
The Future of Dubai as a Global Arbitration Hub
During the last decade, Dubai has developed into a major regional, if not global, arbitration hub.
The adoption of the Decree and amendment to the DIAC Rules evidence a willingness to further cement Dubai’s position as an arbitration hub with the DIAC as the central plank of this objective – something that is reflected in the preamble to the 2022 Rules.
The introduction of or clarity provided in respect of the DIFC as a Default Seat, Expedited Proceedings, Third Party Funding, and Costs Recovery should certainly assist in realising this ambition.
1 Regarding the latter, Article 6(a) of the Decree stated that arbitration clauses that refer the DIFC-LCIA or EMAC would still be considered valid and effective, but with the proviso that DIAC would administer arbitrations under such arbitration clauses instead of the abolished centres.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.