United Arab Emirates

In summary

Arbitration practice in the UAE has fared well during the covid-19 pandemic. Some of the changes necessitated by the pandemic are likely here to stay. The main UAE institutional arbitration rules continue to diverge with some becoming more prescriptive and others maintaining a light-touch approach. The courts seem unwilling to let go of some of the old relics from the previous arbitration regime but are generally more proarbitration than they were 10 years ago.

Discussion points

• The UAE’s recent arbitration reforms has placed it well to weather the effects of the covid-19 pandemic.
• The UAE’s main institutional rules continue to diverge.
• Quirks from the old arbitration regime survive but the courts are generally more arbitration-friendly than they were 10 years ago.
• Some of the changes necessitated by the pandemic are likely to stay and may make arbitration more transparent and accessible to the parties that use it.

Referenced in this article

• ADGM Arbitration Regulations, Regulation 33(2)
• UAE Federal Arbitration Law 2018, articles 28, 28(2), 33(3), 41(3), 41(6) and 46(1)
• DIFC Arbitration Law 2008, articles 27(2) and 38(5)(f)
• DIAC Rules, article 17
• ASCCAC Rules, article 14
• DIFC-LCIA Rules 2020, articles 4.1, 19.2, 26.2, 14.2, 22.1(viii) and 22.7
• IBA Rules on the Taking of Evidence in International Arbitration 2020, articles 2, 8 and 9
• ICC Rules 2020, article 26(1)
• ADGM Arbitration Regulations, Regulation 50(5)(f)
• Dubai Court of Cassation 990/2019
• Dubai Court of Cassation 1083/2019
• ICC Guidance on Possible Measures Aimed at Mitigating the Effects of the Covid-19 Pandemic, 9 April 2020
• AAA-IDCR Virtual Hearing Guide, ‘American Arbitration Association – International Centre for Dispute Resolution Model Order and Procedure for a Virtual Hearing via Videoconference’

Introduction

Arbitration in the UAE has weathered the covid-19 pandemic remarkably well. This is perhaps owing to two reasons: arbitration’s innate flexibility, and the UAE’s recent successful reforms of its arbitration landscape, both of which positioned the UAE to quickly adapt to the needs of 2020. The main UAE arbitration institutional rules continue to diverge as some have modernised and others are left behind.

Some relics from the old arbitration regime have passed over to the not-so-new 2018 UAE Federal Arbitration Law, but the local courts are broadly more pro-arbitration than they were 10 years ago and this trend looks set to continue.

Weathering the storm

Since acceding to the New York Convention in 2006, the UAE has continued to make fundamental structural changes to its arbitration infrastructure, including the establishment of two offshore common law jurisdictions (the Dubai International Finance Centre and Abu Dhabi Global Market), each with their own arbitration laws and regulations, and culminating with the much lauded UAE Federal Arbitration Law enacted in 2018. At the beginning of 2020, just before the covid-19 pandemic took hold, the UAE boasted three arbitration seats all with modern arbitration laws based, to varying degrees, on the UNCITRAL Model Law.

Those modern arbitration laws have been crucial in keeping the UAE arbitration world afloat. Each of them distinguish between the legal seat of the arbitration (denoting the rules that apply to the arbitration and the relevant curial courts) and physical (or virtual) meeting place. For example, Regulation 33(2) of the ADGM Arbitration Regulations provides that the arbitral tribunal may direct the appropriate meeting place: for consultation among its members; for hearing witnesses, experts of the parties; or for inspecting property or documents.^[1] The distinction is important because it enables the tribunal and parties to meet in a place other than the seat without undermining the legal seat of the arbitration.

The UAE Federal Arbitration Law goes further. Article 28(2) specifically provides that arbitration hearings, and the deliberations of the tribunal, can be made ‘by modern means of communication and electronic technology’ and article 33(3) provides that there is no requirement that the parties are physically present at any hearing.

Against this backdrop, electronic filings, virtual hearings, remote deliberations of the tribunal and the execution of awards outside the UAE, all necessary to safely proceed during the pandemic, was permissible and became the new reality. Before the enactment of the UAE Federal Arbitration Law in 2018, such flexibility was not guaranteed. For example, under the old arbitration regime, it was widely accepted that arbitrators had to be physically located in the UAE to issue an arbitration award. Fortunately, the new UAE Federal Arbitron Law expressly amended that requirement.^[2]

Not only has the modernisation of the UAE’s arbitration laws set it up to successfully deal with the pandemic, it has helped cement the UAE’s position as a recognised safe and reliable location to seat an arbitration and a real contender on the international stage.

Prevalence of electronic procedures

Proponents of arbitration often cite its flexibility as one of its key attributes. The pandemic has put that characteristic to the test and UAE arbitral institutions largely rose to the challenge. Apart from the very recent changes to the ICC and DIFC-LCIA Rules (see below), none of the major UAE institutional arbitration rules explicitly dealt with electronic procedures, including the electronic filing of submissions, management of evidence and virtual hearings.

However, most of the major UAE institutional rules empower the arbitration tribunal to determine appropriate procedures that gives them flexibility to implement electronic processes, including virtual hearings, during the conduct of the arbitration.^[3]

The institutions have themselves proven to be adaptable and rose to the challenge. Shortly after the pandemic took hold, many of the institutions issued guidelines and protocols to ensure the safe continuation of arbitrations. In March 2020, the Dubai International Arbitration Centre announced that it would only receive requests for arbitrations, and supporting documents, though its online portal. Similarly, ADCCAC announced that it would only receive documents via email.

There is also guidance available to parties dealing with electronic procedures. In last year’s article, we outlined the now seemingly prescient ADGM Arbitration Guidelines, which promote the use of electronic bundles at hearings to minimise the use of hard copy bundles.

More recently, and relevant to virtual hearings, the IBA Rules on Taking Evidence in International Arbitration, in force since 2010, were republished on 15 February 2021. The new IBA Rules now cover a framework and outline protocol for remote hearings^[4] and encourage tribunals to address, during early consultation with the parties, cybersecurity, data protection and confidentiality.^[5] In April 2020, the ICC issued guidance on measures aimed at mitigating the effects of the pandemic which appends a useful checklist on conducting virtual hearings. ^[6]

Such guidance and suggested protocols have been invaluable. At the beginning of 2021, we successfully held a virtual hearing in an ADCCAC arbitration consisting of a tribunal based in three different locations across different continents, witnesses and experts from around the Middle East and China and counsel in Abu Dhabi and Dubai. We used the AAA-ICDR Virtual Hearing Guide^[7] as the basis for agreeing a protocol dealing with cybersecurity, technical requirements, an express warranty not to communicate electronically with witnesses giving evidence, electronic bundles, electronic presentation of evidence and real time transcription. ‘International arbitration’ has never felt so international.

Further divergence of institutional rules

Whilst the main institutional rules all offer flexibility, there continues to be a shift in approaches, which started before the pandemic. In one camp, the DIFC-LCIA and ICC Arbitration Rules have continued to modernise. In 2016/2017 they both introduced the use of an Emergency Arbitrator for urgent applications and the ICC Rules introduced an expedited process for disputes valued under US$2 million. In the other camp, the DIAC and ADCCAC Arbitration Rules have maintained a ‘light-touch’ approach, leaving the parties and tribunal to agree appropriate procedures.

The gulf between the two camps has widened with the publication of the 2020 ICC and DIFC-LCIA Arbitration Rules, both effective from 1 January 2021. Reflecting the changes to arbitration practice necessitated by the pandemic, the new DIFC-LCIA Rules provide the following new provisions for electronic procedures and virtual hearings:

• The claimant is to submit its request, and the respondent its response, in electronic form either by email or other electronic means including via any electronic filing system approved by the DIFC-LCIA Arbitration Centre; ^[8]
• Hearings ‘may take place in person, or virtually by conference call, videoconference or using other communications technology with participants in one or more geographical places (or in a combined form)’;^[9] and
• Awards may be signed electronically. ^[10]

Similarly, the 2020 ICC Rules now make provision for virtual hearings.^[11] Confirmation of the primacy of electronic communications and procedures is comforting for those conducting proceedings where international travel is still exceptional and social-distancing the norm. Perhaps more significantly, now those procedures are codified in the new Rules there is a real sense that the pre-pandemic, paper and travel-heavy conduct of arbitrations may not return, at least not to the same degree.

Other notable and important amendments to the 2020 DIFC-LCIA Rules include:

• The early determination of claims. Article 22.1(viii) empowers the tribunal to determine that any claim, defence, counterclaim, cross-claim, defence to counterclaim or defence to cross-claim is manifestly outside the jurisdiction of the tribunal or inadmissible or manifestly without merit. Such a provision is welcome and may, if operated effectively, streamline proceedings, dispense with unmeritorious claims and narrow the issues to be decided.
• Consolidation of multiple arbitrations. Article 22.7 permits claimants to commence more than one DIFC-LCIA arbitration in a composite request and, in turn, respondents are permitted to serve a composite response. The tribunal also has the power to consolidate, or run concurrently, multiple arbitrations provided that:
  • all the parties agree to the consolidation; and
  • the arbitrations are commenced under the same, or compatible, arbitration agreements under the DIFC-LCIA rules either between the same parties or concerning the same transactions, or series of related transactions, provided that no tribunal has been constituted or, if constituted, consist of the same arbitrators.

The new additions to the 2020 DIFC-LCIA Rules largely focus on more efficient processes and, coupled with the primacy of electronic communications and processes, bring them in line with modern (and necessary) practice.

In comparison, the DIAC and ADCCAC Rules, which have been around in their current forms since 2007 and 2013 respectively, feel somewhat outdated. The Rules do not address consolidation of related arbitrations, offer expedited procedures, the early determination of specific issues, or, in any detail, electronic communications and procedures. The DIAC announced the ‘imminent’ release of its new Rules in 2017 but none have been published. Since then, the UAE has enacted the Federal Arbitration Law and has dealt with a pandemic.

Time will tell whether users of arbitrations will favour the detail and prescription of the DIFC-LCIA Rules or the freedom and flexibility offered by the DIAC and ADCCAC Rules. In our experience, once parties are at the stage of arbitrating their dispute, agreement on anything, including procedures, is more difficult and can be costly which makes more detailed rules, such as the 2020 DIFC-LCIA ones, preferable and ultimately more cost-effective.

Relics of the old arbitration regime

The ‘new’ UAE Federal Arbitration Law is not so new. Enacted in 2018, it has now governed onshore UAE arbitrations for just over two years and judgments from the local courts continue to refine its parameters. The trend seems to be that the courts are consistently pro-arbitration, but some relics from the old regime subsist.

Before the enactment of the UAE Federal Arbitration Law, it was well established, absent any agreement to the contrary, that arbitral tribunals, operating under the DIAC Rules, did not have power to award legal or other costs. A DIAC arbitration tribunal is empowered to award ‘costs’, as defined in the DIAC Rules, limited to the administrative fees of the DIAC and the costs and expenses of the arbitration tribunal. This put DIAC arbitrations at a slight disadvantage to arbitrations governed by other institutional rules where arbitrators can award legal and other costs to the successful party. Such a power is a distinguishing feature, and seen as an advantage for arbitrations in the UAE as compared with the local courts, which will only award nominal litigation costs to the successful party.

Some hoped that the UAE Federal Arbitration Law would redress this point and bring it in line with the ADGM and DIFC arbitration laws by explicitly giving tribunals the power to award legal and other costs.^[12] However, the new law did not appear to go that far. Article 46(1) of the UAE Federal Arbitration Law, similar to that of the DIAC Rules, states that costs are ‘the fees and expenses incurred by any member of the Arbitral tribunal in the exercise of his duties and the costs for experts appointed by the Arbitral Tribunal’. Legal and other costs incurred by the parties in the conduct of the arbitration is not mentioned. It therefore seems that the pre-UAE Federal Arbitration Law position would remain the same.

This was confirmed in a 2020 Dubai Court of Cassation decision: in a DIAC arbitration, the parties must give the tribunal the power to award legal and other costs otherwise any such decision on costs will be nullified.^[13] To get around the restrictions under the DIAC Rules, parties grant DIAC arbitration tribunals power to award legal and other costs in the arbitration agreement or when agreeing the terms of reference. It is, therefore, surprising that, in this case, notwithstanding the terms of reference explicitly empowering the DIAC tribunal to award costs, the court found that the tribunal had no such power.

The court’s reasoning was that the parties’ legal representatives signing the terms of reference on behalf of the parties did not have specific authority under their respective powers of attorney to grant them the power to make such an agreement. Lawyers are therefore advised to carefully check the wording of their powers of attorney to ensure that they are drafted broadly enough to cover all necessary authorities, including the authority to bind their clients to an agreement that a DIAC tribunal has the power to award costs.

In another Dubai Court of Cassation case from last year, the court held that an arbitration award is invalid, and could be nullified, unless the decision, and reasoning for the decision, are signed by the arbitrators.^[14] The case is interesting because that was considered to be the position under the old arbitration regime, but was not believed to be the case under the new Federal Arbitration Law, which, at article 41(3), simply provides that the ‘award shall be signed by the arbitrators’ (ie, without distinguishing between parts of an award). The reasoning adopted by the court was that the wording in article 41(3) is similar to the old regime and therefore it considered that the judgments that interpreted the old regime should apply to the new one. It is likely that the requirement of arbitrators to sign the decision, and reasoning of the decision, applies to electronic signatures, which is now permitted under article 41(6) of the UAE Federal Arbitration Law.

Importantly, in both cases, the Dubai Court of Cassation did not nullify the entire awards. In the first case, the court partially nullified the award, dispensing with the part dealing with costs. In the second case, the Court of Cassation remitted the award to the Dubai Court of Appeal for the arbitral tribunal to rectify the error. To those practising outside the UAE, such decisions may seem pedantic, but the court’s decision not to nullify either of the awards reflects the increasingly pro-arbitration approach of the courts; 10 years ago, the courts were more likely to have taken a hard-line approach.

Looking ahead

As the pandemic struck the UAE, arbitration practitioners scrambled to keep arbitrations already underway on track. In our view, this has been a resounding success in part due to the flexibility of arbitration and the strong foundations laid by recent reform. In many ways, the pandemic has hastened the trend to run arbitrations more efficiently, with less emphasis on paper and more on electronic procedures and communications.

Some of the advances made in 2020, and the costs savings they brought, are likely to stay. It is unlikely that the days of printing, say, 50 plus lever arch folders, in multiple sets, will return, especially when very often the key and determinative documents could be reduced to one or two folders. That’s not to say that all hearings will now be virtual – we respectfully suggest that there is still a real benefit in presenting a case to a tribunal, and cross-examining witnesses, in person; for example, to pick up on subtle body language that is not readily apparent on videoconferencing. Nevertheless, we do suggest that it may not be necessary to fly every witness or expert across the world in circumstances where their evidence could be examined just as easily over Zoom.

Regardless of whether in-person hearings return, there is arguably a benefit to having them filmed so senior individuals of the parties that might not usually attend in-person hearings can dip in and out to see, in real-time, how the hearing is progressing (rather than rely on written summaries). Such interaction makes the arbitration process more transparent and could encourage increased ownership by the parties rather than leaving it up to the lawyers. Of course, any observation of proceedings must be tightly controlled, and access limited to named individuals, to preserve the confidential nature of arbitrations.

The effect of the pandemic on parties is only just beginning. Parallels are often made with the 2008 financial crisis and the delayed effect it had on disputes, which started in the subsequent years (with some rumbling on today). It is therefore very likely that there will be a steady uptick in disputes in the coming years as the devastating effect of the pandemic comes to bear.

In the UAE, it is likely that, as has been the case over the last 15 years, construction disputes will play a large role in future arbitrations. Such disputes are document-heavy, involve multiple heads of claims (and counter-claims) and can involve multiple contracts involving the same parties. These are all issues that are seemingly addressed by the DIFC-LCIA’s 2020 Rules and the provisions for electronic communications, the early determination of unsustainable claims and consolidation of multiple arbitrations.

Let’s hope 2021 is not as disruptive as 2020, but that the good progress made to make arbitrations more efficient and cost effective is maintained.

Notes

^[1] See also article 27(2) of the DIFC Arbitration Law 2008 and article 28 of the UAE Federal Arbitration Law 2018.

^[2] Article 41(6) of the UAE Federal Arbitration Law.

^[3] Article 17 of the DIAC Rules; article 14 of the ADCCAC Rules; and article 14.2 of the 2020 DIFC-LCIA Rules.

^[4] Article 8 of the 2020 IBA Rules on the Taking of Evidence in International Arbitration.

^[5] Articles 2 and 9 of the 2020 IBA Rules on the Taking of Evidence in International Arbitration.

^[6] ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the Covid-19 Pandemic, 9 April 2020.

^[7] American Arbitration Association – International Centre for Dispute Resolution Model Order and Procedure for a Virtual Hearing via Videoconference.

^[8] Article 4.1 of the DIFC-LCIA 2021 Rules.

^[9] Article 19.2 of the DIFC-LCIA 2021 Rules.

^[10] Article 26.2 of the DIFC-LCIA 2021 Rules.

^[11] Article 26(1) of the 2020 ICC Rules.

^[12] Regulation 50(5)(f) of the ADGM Arbitration Regulations; article 38(5(f) of the DIFC Arbitration Law.

^[13] Dubai Court of Cassation No. 990 of 2019 (5 April 2020).

^[14] Dubai Court of Cassation No. 1083 of 2019 (14 June 2020).