This is an Insight article, written by a selected partner as part of GAR's co-published content. Read more on Insight
Our 2017 article in the GAR Middle Eastern and African Arbitration Review discussed the changes that had occurred at the DIFC-LCIA Arbitration Centre (DIFC-LCIA) following its relaunch in November 2015 to the end of 2016.
On 1 May 2017, Robert Stephen an arbitration specialist who had been with Herbert Smith Freehills for more than 10 years, replaced Mohamed El Ghatit as registrar of the DIFC-LCIA. Aside from that change and the addition of one person to the secretariat in December 2017, there were no changes to the structure of the DIFC-LCIA, DIFC Arbitration Institute or the Rules in 2017.
In one sense, 2017 was a year of consolidation for the DIFC-LCIA, but there were stormy waters to weather.
There was the potential impact of the amendment to article 257 of Federal Law No. 3 of 1987 (as amended) (the UAE Penal Code), which came to light in November 2016 during Dubai Arbitration Week, and a year later the false alarm that arose from Ministerial Resolution No. 972 of 2017 on the Executive Regulations of Federal Law No. 23 of 1991 (often referred to as the Advocates Law). Additionally, the publication of the first 12 decisions of the Joint Judicial Committee, established by Dubai Decree No. 19 of 2016, were published and attracted much attention.
In 2017, there was a rapid (over 300 per cent) increase in the number of disputes referred to the DIFC-LCIA, which meant that the Secretariat was extremely busy. In our 2016 article, we reported that the number of disputes referred to the DIFC-LCIA had increased from 15 in 2015 to 19 in 2016. This increased further to 58 disputes in 2017 broken down as 51 arbitrations, six mediations and one application to the Dubai Financial Services Authority (DFSA) Financial Markets Tribunal.
With the amendment of the DIFC-LCIA Arbitration Rules in October 2016 to align them with the 2014 LCIA Rules, users of the DIFC-LCIA benefitted from the LCIA’s internationally recognised rules and locally administered arbitration in 2017. Whilst arbitrations and mediations under the rules are administered in the DIFC, it is the LCIA Court that appoints arbitrators and mediators (having regard to the choice of the parties if their contract so provides) and handles challenges. Although there has been only one challenge referred to the LCIA Court under the DIFC-LCIA Rules since the relaunch, feedback from users, and in particular international users, suggests that the role of the LCIA Court in appointments and challenges is positive.
The criminalising of alleged ‘bias’ against arbitrators and experts in arbitrations seated in the UAE unsurprisingly prompted howls of protest and concern when it came to light in November 2016 during Dubai Arbitration Week.
Since then, considerable lobbying has been carried out by UAE-based lawyers, institutions and regulators (including the DIFC Arbitration Institute) to have the 2016 amendment repealed. As the Penal Code is a federal law, the repeal process is likely to take a considerable amount of time.
However, at the time of writing, it seems that the concerns of arbitrators, lawyers, experts and institutions that the amended article 257 would be used as a guerrilla tactic to intimidate tribunals have not materialised. Neither the police nor the Public Prosecution in the UAE would appear to have any appetite for being used by parties trying to gain an unmeritorious tactical advantage. If there were real concerns about bias, for instance induced by bribery, there are (and always have been) other criminal remedies available in the UAE.
We are not aware of any regionally based full-time arbitrators that have declined appointments following the amendment of article 257, and we are also unaware of any UAE or regionally based law firms that will not permit arbitration practitioners from sitting in UAE-seated arbitrations.
Again, so far as we are aware, only one international law firm with a presence in the UAE has decided that its lawyers can no longer sit in UAE seated arbitrations. We understand that one firm of experts took a similar view initially and for a period would not provide expert evidence in arbitrations taking place the UAE.
There have, of course, been some arbitrators from outside the region turning down potential appointments as result of article 257. The largest group is among London-based barristers (although many are still prepared to sit), followed by some well-known European arbitrators (although most still seem to be prepared to accept appointments).
While this may have narrowed the choice of possible arbitrators for some parties and for institutions (including the DIFC-LCIA) the voices of those declining appointments appear to have been disproportionately loud and there are well-qualified and respected arbitrators available for appointment in UAE-seated arbitrations.
Nevertheless, it is a fact that most of the cases referred to arbitration in 2017 will have originated from contracts that pre-date the amendment to article 257. It, therefore, remains a concern as to what the impact of the amendment will be if it is not repealed.
Ministerial Resolution No. 972 of 2017
Ministerial Resolution No. 972 of 2017 was not a new law, but a set of by-laws issued under the Advocates Law that obtained widespread publicity in November 2017 during Dubai Arbitration Week.
Unfortunately, an article that was written hastily misinterpreted or misunderstood the resolution as determining that only local advocates could represent parties in arbitrations in the UAE.
Subsequent articles, written by Dr Habib Al Mulla of Baker McKenzie Habib Al Mulla, in the Gulf News on 9 December 2017 under the title ‘A Clear Misrepresentation of UAE’s Arbitration Laws’ and on 12 December 2017 by Nassif BouMalhab and Justine Reeves of Clyde & Co LLP under the title ‘A (Sand) Storm in a Tea Cup – Ministerial Resolution No. 972 of 2017’ sought to set the record straight.
Additionally, on 7 December 2017, the Dubai Legal Affairs Department issued a letter addressed to the DIFC Arbitration Institute confirming that all lawyers licensed in Dubai (including foreign lawyers registered as legal consultants visiting Dubai from elsewhere) could represent parties before an arbitral tribunal in Dubai.
In short, the resolution did not and could not limit the right to represent parties in UAE-seated arbitrations to local advocates.
How much arbitration is there in UAE?
It is a little-known fact that there are almost certainly more arbitrations filed annually with institutions based in the UAE than in Singapore or Hong Kong.
In both of those jurisdictions there has been significant government support for single arbitral institutions, the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC), both in the form of money and subsidized premises and in terms of legal infrastructure.
In the UAE, both the DIFC and the Abu Dhabi Global Market (ADGM) have excellent arbitration infrastructure and arbitration friendly courts. Even outside of those jurisdictions, arbitration flourishes in the UAE. That being said, there is no united voice and no single arbitral institution in the UAE.
In the UAE, there are 12 separate arbitral institutions (four in Dubai, four in Abu Dhabi and one in each of four of the other five Emirates). Having fallen from a high-water mark of 440 new cases in 2011 to 174 in 2014, DIAC’s caseload would appear to have stabilised in recent years at around 200 new cases filed per year. Whilst the Abu Dhabi Commercial Conciliation and Arbitration Centre does not publish statistics, it is understood that the number of new cases filed is somewhere in the region of 130 cases per year. As we noted above, the DIFC-LCIA had 51 new arbitrations, six mediations and one referral to the DFSA Financial Markets Tribunal referred to it in 2017. If we assume, conservatively, that an average of 10 new cases for each of the other nine institutions in the UAE are filed per year, we estimate there to be more than 470 new cases (excluding ad hoc and International Chamber of Commerce arbitrations) registered in the UAE every year. That compares very favourably to 452 cases filed with SIAC in 2017 (as reported) and 262 cases (excluding domain name disputes) filed with HKIAC in 2016 (as reported).
Sectors and contracts
As we noted earlier in this article, a total of 58 disputes were referred to the DIFC-LCIA in 2017, with the sums in issue exceeding US$2.5 billion.
The trending industries in DIFC-LCIA disputes in 2017 were construction and infrastructure, hospitality and leisure, retail and consumer products, and property and real estate.
The nature of the contracts underlying arbitrations commenced under the DIFC-LCIA Rules was diverse in 2017. The majority of disputes concerned contracts for services, followed by shareholders’, share purchase, joint venture agreements, and contracts for the sale of goods and intellectual property.
In 2017, the DIFC-LCIA’s caseload reflected a broader nationality profile than in 2016 with parties to arbitrations commenced under the DIFC-LCIA Rules from across North America, Europe, Africa, Asia and Australia; however, the UAE remained the most prevalent nationality of parties to arbitrations commenced under the DIFC-LCIA Rules.
In 2017, there was a preference for three-member tribunals (65 per cent) over sole arbitrators (35 per cent). The DIFC-LCIA appointed a broad pool of arbitrators in 2017, making a total of 43 appointments of 41 different arbitrators. Of the 43 appointments, 10 were non-British arbitrators selected by the LCIA Court, nine were non-British arbitrators selected by the parties, four were non-British arbitrators selected by the co-arbitrators, seven were British arbitrators selected by the parties, and 13 were British arbitrators selected by the court.
Under the DIFC-LCIA Rules, the default position is that the LCIA Court will select the members of the tribunal, unless the parties have agreed otherwise (whether by arbitration clause or by later agreement). Of the 43 appointments in 2017, 54 per cent were selected by the LCIA Court, 37 per cent were selected by the parties, and 9 per cent by the co-arbitrators.
In relation to diversity, of the 43 appointments in 2017, seven or 16.3 per cent were of female arbitrators. Of the seven female arbitrators appointed, 86 per cent were selected by the LCIA Court, and 14 per cent selected by the parties. Putting that into context, in 2017, of the 23 appointees selected by the LCIA Court, 26 per cent were female arbitrators, and of the 16 appointees selected by the parties, only 6 per cent were women.
Further, of the 43 appointments in 2017, 29 or 64.7 per cent were candidates not previously appointed by the LCIA Court in arbitrations under the DIFC-LCIA Rules. Of these 29 first-time appointees, 62 per cent were selected by the LCIA Court, 28 per cent were selected by the parties, and 10 per cent were selected by the party-nominated arbitrators.
Applicable laws and seats of arbitration
The laws of Dubai, England and Wales and the Dubai International Financial Centre were the most frequent contractual choices of law by parties in disputes submitted to arbitration under the DIFC-LCIA Rules in 2017. The Dubai International Financial Centre was the preferred seat for the majority of arbitrations filed in 2017 under the DIFC-LCIA Rules, reflecting the default position under the Rules.
For the DIFC-LCIA, 2017 was a promising year, building on the firm foundation that was set in 2016. The DIFC-LCIA continues its journey towards its goal of being the leading international arbitration institution in the region.