DIFC-LCIA Arbitration Overview

Introduction from Alec Emmerson

I became a trustee of the Dubai International Financial Centre Arbitration Institute (DIFC Arbitration Institute) after its creation by Dubai Law No. 7 of 2014, amending Law No. 9 of 2004.

The DIFC Arbitration Institute is an independent, not-for-profit body. In November 2015, agreements between the DIFC Arbitration Institute, DIFC Dispute Resolution Authority and the London Court of International Arbitration (LCIA) were concluded for the operation of the DIFC-LCIA Arbitration Centre (DIFC-LCIA). The DIFC Arbitration Institute appoints the DIFC-LCIA Secretariat, which is responsible for the administration of mediation and arbitration proceedings under the DIFC-LCIA Rules and is managed on a day-to-day basis by the registrar, Robert Stephen. The Secretariat administers casework following LCIA practices and procedures and delivers the same hallmark high-quality administration as the LCIA in London. The DIFC-LCIA is one of just two institutions credited on the Middle East and Africa White List in the GAR’s Guide to Regional Arbitration 2019. Users value the significant regional experience of the Dubai-based Secretariat and the involvement of the LCIA Court. Under the DIFC-LCIA Rules, the LCIA Court retains the same functions as it does under the LCIA Rules, including the appointment of mediators and arbitrators, challenges to arbitrators and controlling mediation and arbitration costs. The Secretariat also administers mediations and provides registry services for the Dubai Financial Services Authority Financial Markets Tribunal.

At the time of the relaunch of the DIFC-LCIA, I was appointed as the first chief executive of the DIFC Arbitration Institute and I have had the pleasure of seeing the caseload grow for three consecutive years: by 20 per cent in 2016, 300 per cent in 2017 and approximately 17 per cent in 2018. Last year marked the tenth anniversary of the establishment of the DIFC-LCIA, and it is now credited with being one of the world’s fastest growing arbitration institutions.^[1] In January 2019, the DIFC-LCIA had its busiest January and equal busiest month ever for new case registrations.

To develop and maintain high levels of service and to meet the continued demands of the growth in the DIFC-LCIA’s caseload, the DIFC Arbitration Institute has substantially increased the size of the Secretariat. In the past 12 months, the Secretariat has grown from three to seven, and now includes two new counsel with substantial private practice experience (Matthew Harley and Katy Hacking), a casework manager, a casework administrator and an accountant in addition to the registrar and an office manager. I am confident that the DIFC-LCIA has built a strong team that can continue to deliver the LCIA’s hallmark high-quality administration for parties and arbitrators in the region. It is gratifying to learn that practitioners credit Robert Stephen with building a ‘real team’^[2] and that, as a result, several Dubai government bodies have transferred their allegiance to it, and some parties in the region are today agreeing to send ad hoc arbitrations and arbitrations under the auspices of other providers to the DIFC-LCIA because they trust the institution.

Apart from the growth in the numbers of cases, this overview includes statistics about, among other things, the diverse sector users, geographic bases of the parties and their counsel, choice of seats, improving gender diversity in appointments of arbitrators and value of cases in dispute.

Although trends in casework are difficult to predict, the DIFC-LCIA now seems to be on target to become the leading commercial arbitration institution in the Middle East and Africa. Supported by experienced staff and with its website and casework IT systems to be upgraded shortly, I look forward to the DIFC-LCIA continuing to grow its case numbers, reaching out more to users and supporters locally, regionally and beyond, and to developing opportunities for education and training with the active assistance of members of the DIFC-LCIA Users’ Council, which will become operational in the near future.

I hope that you enjoy reading this overview and on behalf of the Board of Trustees, I would like to thank Robert Stephen and the staff of the Secretariat for their dedication and hard work over the past year.

About the DIFC-LCIA Arbitration Centre

The DIFC-LCIA is one of the world’s fastest growing institutions and the leading institution for commercial dispute resolution in the Middle East and Africa. We provide efficient, flexible and impartial administration of arbitration and other alternative dispute resolution (ADR) proceedings, regardless of location and under any system of law.

We have access to the most eminent and experienced arbitrators, mediators and experts from many jurisdictions, and with the widest range of expertise. Our services are available to all contracting parties, without any membership requirements.

In order to ensure cost-effective services, our administrative charges, and the fees charged by the tribunals that the LCIA Court appoints, are not based on the sums in issue. A registration fee is payable with the request for arbitration and, thereafter, hourly rates are applied by the arbitrators and by the Secretariat.

The new UAE Federal Arbitration Law

There had been whispers of a designated federal arbitration law since the UAE acceded to the New York Convention in 2006, however, until recently the laws governing UAE seated arbitrations (outside the DIFC and Abu Dhabi Global Market (ADGM)) were contained in the UAE Civil Procedure Code (the Civil Code). As the use of arbitration in the region grew exponentially, it became clear that the provisions in the Civil Code were insufficient and they were often taken advantage of by practitioners who used the uncertainty in the Civil Code as a guerrilla tactic to delay and even prevent the enforcement of arbitral awards.

The long-awaited UAE Federal Arbitration Law (the New Law), which is largely based on the UNCITRAL Model Law, came into force in June 2018 and was the subject of much discussion during Dubai Arbitration Week in November 2018.

The New Law applies to arbitrations seated in the UAE, international arbitrations seated outside of the UAE where the parties have agreed to subject the proceedings to the New Law, and arbitrations that arise out of a dispute relating to a relationship that is governed by the laws of the UAE, unless specified otherwise. This defined scope means that the New Law would not appear to apply to the vast majority of foreign arbitral awards that are brought to the UAE for the purposes of enforcement and is therefore essentially domestic in application.

One of the key provisions of the New Law is the strict time limits for enforcement procedures, which it is hoped will simplify and expedite the process of enforcement of arbitral awards. Article 55 of the New Law requires that awards are confirmed and enforced within 60 days from the date that the request for enforcement is filed, unless grounds for annulment are satisfied. It is hoped that this will reduce spurious challenges to enforcement and increase confidence in arbitration in the region.

Alongside this change is the stipulation under article 54(2) of the New Law that a party wishing to challenge an award must do so within 30 days of the date of notification of the award. Unlike under the Civil Code, any challenge does not automatically suspend enforcement; this can only be done by application to the courts and will only be ordered if the request is for a ‘serious reason’. The lack of definition of ‘serious reason’, however, creates uncertainty as to how the courts will deal with such applications.

Another way in which the New Law addresses one of the previously major causes of challenges to enforceable awards is that it expressly removes the requirement for arbitrators to be physically in the UAE when signing awards, which can now be signed outside of the country and even electronically.

The historical lack of certainty as to what exactly constitutes an agreement in writing is somewhat resolved by the New Law in stipulating that arbitration agreements shall be deemed to be in writing if they are concluded by an exchange of emails or incorporated by reference from another document containing an arbitration agreement (such as terms and conditions), something that has historically been seen as a potential reason to invalidate arbitration agreements.

The New Law is generally a positive move for arbitration in the region, although some practitioners have voiced concerns that it does not go far enough. For example, the New Law does not remove the ambiguity surrounding whether a special board resolution is required to bind a party to an arbitration agreement, nor does it remove the requirement for witnesses to swear an oath before giving evidence.

The full impact of the New Law remains to be seen; however, a standalone federal arbitration law must be viewed as a positive step in establishing and cementing the UAE as an arbitration-friendly jurisdiction.

Repeal of article 257

In November 2016, the UAE amended article 257 of the UAE Penal Code to criminalise the alleged ‘bias’ of arbitrators and experts appointed in UAE-seated arbitrators.

Unsurprisingly, this move caused concern among arbitration practitioners. While there did not appear to be much appetite from either the police or the public prosecution to allow parties to use article 257 to intimidate arbitrators, and it was generally accepted that there was a low risk of arbitrators facing criminal sanctions, article 257 was a source of legitimate concern for the international arbitration community (including in the DIFC and ADGM).

In October 2018, the UAE amended article 257 and removed arbitrators from the scope of application of the article. This amendment has been welcomed by the international arbitration community and it will give arbitrators added confidence accepting appointments in UAE-seated arbitrations.

Prague Rules

The Rules on the Efficient Conduct of Proceedings in International Arbitration, more commonly known as the Prague Rules, were launched on 14 December 2018 and are now available for parties to adopt in their arbitration proceedings, alongside any institutional (or ad hoc) rules that might apply. The much-anticipated Prague Rules aim to provide more efficiency in arbitrations by adopting civil law-style procedures, as opposed to the IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules), which some practitioners (particularly those from civil law jurisdictions) consider too closely reflect a common law approach to dispute resolution.

The IBA Rules have faced criticism for promoting the common law adversarial style and for permitting an approach that leads to increased costs and delays. Those responsible for creating the Prague Rules hope that they will increase the efficiency of arbitral proceedings by encouraging tribunals to take a more active role in managing the proceedings.

Some aspects of the Prague Rules do not represent a significant departure from the guidance provided in the IBA Rules. However, there are some key areas of difference, including the following.

Proactive role of the tribunal

Article 3 of the Prague Rules encourages the tribunal to take a proactive role in establishing the facts of the case. Article 2 of the Prague Rules mandates the tribunal to clarify the parties’ respective legal positions at the first case management conference, and it further provides the tribunal with express powers to indicate, among other things, its preliminary views on the relief sought, the disputed issues and the evidence submitted by the parties.

Documentary evidence

Article 4 of the Prague Rules discourages document production. This article provides that, if a party believes that it needs certain documents from the other party, it should indicate this at the case management conference; with requests for document production at a later stage of the proceedings being only permitted in ‘exceptional circumstances’. Further, such request will only be granted if such a request could not have been made earlier. This differs from the IBA Rules, which envisage a more comprehensive document production phase in international arbitrations.

Witnesses of fact

Article 5 of the Prague Rules requires each party to identify the witnesses on whose testimony it intends to rely when filing a statement of claim or defence. Although this article does allow for this to be done ‘at any other stage of the arbitration which the tribunal considers appropriate’, it is much more in line with the ‘memorial’-style approach that is often adopted by parties in civil law jurisdictions. This differs from the IBA Rules, which do not mandate a specific time when witnesses of fact are to be identified.

Hearings

Unlike the IBA Rules, article 8 of the Prague Rules encourages tribunals and parties to resolve disputes on a documents-only basis.

Amicable settlement and mediation

Article 9 of the Prague Rules permits the tribunal to actively assist parties in reaching an amicable settlement and to act as mediator in that regard.

Summary

Whether the Prague Rules are widely adopted remains to be seen. However, the overriding principle of the Prague Rules – the reduction of costs and time – is likely to be welcomed by users of international arbitration.

Growth and development of hearing facilities in the region

On 17 October 2018, the new ADGM Arbitration Centre officially opened its doors for business to any party wishing to have its arbitration (or mediation) heard there. The ADGM Arbitration Centre offers parties hearing rooms that are equipped with state-of-the-art technology and facilities.

Although the International Chamber of Commerce has set up a representative office within the ADGM Arbitration Centre, ADGM has not established its own institution to administer arbitrations. Parties can select the ADGM as the seat of arbitration alongside an arbitral institution to administer the arbitration.

Dubai Arbitration Week

The DIFC-LCIA continued to take a leading role in the organisation of Dubai Arbitration Week in 2018, which took place in the week commencing 11 November 2018. As in previous years, the week was anchored by GAR Live: Dubai and the DIFC-LCIA organised a half-day symposium and cocktail reception in the afternoon and evening of 13 November 2018, which was heavily oversubscribed with over 300 practitioners expressing an interest and over 140 delegates registered to attend the symposium. The 10-year anniversary of the DIFC-LCIA was celebrated at the symposium, which followed the ‘Tylney Hall’ format. The DIFC-LCIA also supported various young Middle East and North Africa arbitration groups to host a half-day event in the morning of the same day. In addition, members of the DIFC-LCIA Secretariat participated in a number of events throughout the week.

Dubai Arbitration Week 2018 was extremely well received, with over 8,000 people visiting the DIFC-LCIA-managed Dubai Arbitration Week website in the first four days following the launch of the programme, attracting practitioners from the United States, Europe, the Middle East, Africa, India and Asia to attend the events.

New ISDA clause

The International Swaps and Derivatives Association (ISDA) has revised its Guide to Arbitration (Guide). The Guide aims to assist parties to derivatives transactions with the use of an arbitration clause in different forms of the ISDA Master Agreement. The Guide includes an expanded range of model clauses, including one for use with DIFC-LCIA governed arbitrations, making the DIFC-LCIA the only arbitral institute in the Middle East to feature in the Guide.

Arbitration offers a number of attractive procedural features to parties to swaps and derivatives transactions, such as the option to use party-appointed experts and nominate arbitrators. This, along with the recent inclusion of the DIFC-LCIA model clause, should give parties in the region added comfort to resolve their swaps and derivatives disputes by arbitration.

2018 casework statistics

For the third consecutive year, the number of disputes referred to the DIFC-LCIA grew in 2018 (20 per cent in 2016, 300 per cent in 2017 and approximately 17 per cent in 2018). At the close of 2018, the DIFC-LCIA had an active caseload of more than 120 cases; up from 31 cases at the close of 2016 and 72 cases at the close of 2017, representing an increase of more than 287 per cent over three years.

Sectors and contracts

A total of 68 disputes were referred to the DIFC-LCIA in 2018, with the sums in issue exceeding US$1.9 billion.

The trending industries in DIFC-LCIA disputes in 2018 were construction and infrastructure, property and real estate, hospitality and leisure, and transport.

The nature of the contracts underlying arbitrations commenced under the DIFC-LCIA Rules was diverse. The majority of disputes concerned contracts for services, followed by shareholders’, share purchase and joint venture agreements, and agency and distribution agreements.

Parties

In 2018, the UAE remained the most prevalent nationality of parties to arbitrations commenced under the DIFC-LCIA Rules. However, the DIFC-LCIA’s caseload continued to reflect the broader nationality profile that was observed in 2017, with parties to arbitrations commenced under the DIFC-LCIA Rules from across North America, Europe, Africa, the Middle East, Africa and Asia.

Tribunals

In 2018, there was an almost equal split between three-member tribunals (49 per cent) and sole arbitrators (51 per cent).

The DIFC-LCIA appointed a broad pool of arbitrators in 2018, making a total of 117 appointments of 82 different arbitrators. Of the 117 appointments:

• 19 were non-British arbitrators selected by the LCIA Court;
• 19 were non-British arbitrators selected by the parties;
• five were non-British arbitrators selected by the co-arbitrators;
• 30 were British arbitrators selected by the parties;
• 40 were British arbitrators selected by the LCIA Court; and
• four were British arbitrators selected by the co-arbitrators.

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 117 appointments in 2018, 50 per cent were selected by the LCIA Court, 42 per cent were selected by the parties and 8 per cent were selected by the co-arbitrators.

In relation to gender diversity, of the 117 appointments in 2018, 22 (or 18.8 per cent) were of female arbitrators. Of the 22 female arbitrators appointed, 68 per cent were selected by the LCIA Court, 22.7 per cent were selected by the parties and 9 per cent were selected by the co-arbitrators. Putting that into context, in 2018, of the 59 appointees selected by the LCIA Court, 25.4 per cent were women; of the 49 appointees selected by the parties, 10.2 per cent were women; and, of the nine appointees selected by the co-arbitrators, 22.2 per cent were women.

Further, of the 117 appointments in 2018, 54 (or 46.1 per cent) were candidates not previously appointed by the LCIA Court. Of these 54 first-time appointees, 48 per cent were selected by the LCIA Court, 44 per cent were selected by the parties, and 7 per cent were selected by the co-arbitrators.

Applicable laws and seats of arbitration

The laws of Dubai and England and Wales were the most frequent contractual choices of law by parties in disputes submitted to arbitration in 2018 under the DIFC-LCIA Rules.

The DIFC was the preferred seat for most arbitrations filed in 2018 under the DIFC-LCIA Rules (almost 80 per cent), reflecting the default position under the DIFC-LCIA Rules and parties’ growing awareness of the need to designate the seat carefully.

Concluding remarks

Although trends in casework are difficult to predict, 2018 built on a foundation that was set in 2017, and with the recent expansion of the Secretariat, the DIFC-LCIA is set to continue towards its target of being the leading commercial arbitration institution in the Middle East and Africa.

Notes

^[1] Global Arbitration Review Guide to Regional Arbitration (volume 7 2019).

^[2] Global Arbitration Review Guide to Regional Arbitration (volume 7 2019).