The DIFC Court weighs in on Dubai Decree No. 34 of 2021
BACKGROUND
The Dubai Decree No. 34 of 2021 concerning the Dubai International Arbitration Centre (“Decree 34”), issued on 21 September 2021, effectively abolished the DIFC-LCIA arbitration centre (“DIFC-LCIA”) with immediate effect and mandated the transfer of its cases and assets to the Dubai International Arbitration Centre (“DIAC”). Following this, DIAC introduced new, updated rules in March 2022 (read our alert on the DIAC Rules) and reached an agreement with LCIA that cases registered before 20 March 2022 would be handled by LCIA, while those afterwards would fall under DIAC’s administration. The handling of disputes arising from existing DIFC-LCIA clauses has since faced varied court interpretations globally.
In November 2023, a Louisiana district court (Baker Hughes Saudi Arabia Co. v. Dynamic Indus., Civil Action No. 2:23-cv-1396) rejected the validity of a DIFC-LCIA arbitration agreement applying US law, emphasising that arbitration depends on party consent, which could not be overridden by substituting DIAC for DIFC-LCIA (“Louisiana Decision”). Similarly, the Singapore High Court in March 2024 (DFL v DFM [2024] SGHC 71, HC/OA 882/2022) found that an agreement specifying DIFC-LCIA arbitration could not be replaced by DIAC arbitration, yet ultimately enforcing the DIAC provisional award due to the respondent’s participation in the proceedings. In April 2024, the Grand Court of the Cayman Islands (Al-Haidar v. Rao, FSD 328 of 2022) enforced a DIAC provisional award arising out of an erstwhile DIFC-LCIA arbitration clause for the reason that the defendant had not challenged the DIAC tribunal’s jurisdiction in making the award.
In the UAE, where Decree 34 was issued, the Abu Dhabi Court of First Instance, in Vaned Engineering GMBH v Reem Hospital (Case No. 1046-2023) (upheld by the Court of Appeal (Case No. 449/2024)) confirmed that DIFC-LCIA arbitration agreements remain enforceable and capable of administration by DIAC (“Abu Dhabi Decisions”). The latest addition in the saga has been a judgment of the DIFC Court in Narciso v Nash [2024] DIFC ARB 009 where this issue was once again considered.
BRIEF FACTS
The Claimant was a main contractor and the Defendant was a subcontractor under an agreement dated 8 April 2020 (“Subcontract”) to carry out various engineering and construction-related activities for a residential project in Sharjah, UAE. Clause 11 of the Agreement provided for DIFC-LCIA arbitration with the seat in the DIFC, with a sole arbitrator unilaterally appointed by the Claimant.
Disputes arose, leading to the termination of the subcontract on 14 July 2021. Decree 34 was enacted in September 2021 abolishing the DIFC-LCIA. After the failure of attempts to settle the dispute, in August 2023, the Defendant sought arbitration requesting the Claimant to appoint an arbitrator as per clause 11 of the Subcontract. However, the Claimant ignored the request.
On 21 September 2023, the Defendant applied to DIAC to appoint a sole arbitrator for the resolution of the dispute between the parties pursuant to the Subcontract and the DIAC Rules. The Defendant’s application met the requirements of a valid Request for Arbitration under the DIAC Rules, with the exception that the registration fees had not been paid. DIAC, however, instead of calling for payment of the registration fee, mistakenly treated the Defendant’s application as one to designate DIAC as an appointing authority by parties’ agreement in matters that are not subject to the DIAC Rules. Neither party corrected this error, and DIAC refused to act as an appointing authority on the basis that the Claimant did not consent to the same.
With DIAC refusing to appoint the arbitrator, the Defendant approached the LCIA, which declined to assist due to the abolition of the DIFC-LCIA.
Subsequently, in April 2024, the Defendant initiated proceedings in the Sharjah courts and a hearing was scheduled for 21 May 2024. On 20 May 2024, the Claimant obtained an ex parte anti-suit injunction from the DIFC Courts, halting the Sharjah proceedings. Both parties requested the Sharjah court to stay the case until the DIFC Courts ruled on the validity of the arbitration clause.
The Defendant later challenged the anti-suit injunction before the DIFC Courts arguing inter alia that the arbitration clause was invalid.
THE DIFC COURT’S RULING ON THE EFFECT OF DECREE 34
While this decision concerns an interim anti-suit injunction, it is another decision of a UAE Court that upholds the validity of Decree 34 and finds that DIFC-LCIA arbitrations are now conducted under the DIAC Rules.
The Defendant had argued that the arbitration agreement was invalid on inter alia the following grounds:
Article II (3) of the New York Convention mandates the court of a contracting state to refer the parties to arbitration “unless it finds that the said agreement is null and void, inoperative or incapable of being performed”;
arbitration is a matter of consent and a party should not be forced to arbitrate in a forum which it did not choose;
the arbitration clause is unenforceable because the selected forum, the DIFC-LCIA no longer exists, having been abolished by Decree 34;
as held in the Lousiana Decision: “…“with all due respect to the Dubai government, it does not have the authority … to unilaterally change the arbitration forum agreed to by the parties”… this Court “cannot rewrite the agreement of the parties and order the [arbitration] proceeding to be held” in a forum to which the parties did not contractually agree … Nor can the Dubai government. Whatever similarity the DIAC may have with the DIFC LCIA, it is not the same forum in which the parties agreed to arbitrate. That forum is no longer available, and this Court thus cannot compel Plaintiff to arbitrate. Accordingly, no enforceable forum selection clause compels the dismissal of this case on the ground of forum non conveniens”;
In summary, Decree 34 is in conflict with the principle of party autonomy and ought not be enforced.
The DIFC Court observed that the validity of the arbitration agreement was inextricably tied up with Decree 34. It confirmed that Decree 34 forms part of the law of the DIFC and that the Court is bound to give effect to Decree 34, making specific reference to the decision in Likitif v Luvain [2020] DIFC ARB 028 which held that pursuant to Decree 34, DIFC-LCIA arbitrations are now conducted under the DIAC Rules.
The Court observed that even under UAE law, in light of the Abu Dhabi Decisions, Decree 34 was found to be effective and, far from overriding party autonomy, reinforced it. The DIFC Court cited the Abu Dhabi decisions in extenso “[making] no apology”, noting that “its impressive reasoning is generally persuasive and not limited to UAE law”.
The DIFC Court relied on the following findings from the Abu Dhabi courts:
The parties had unequivocally elected for the determination of their disputes by arbitration.
The abolition of the arbitral institution the parties had nominated was not of itself sufficient to render the arbitration agreement null and void, inoperative or incapable of being performed.
The provisions of the UAE Federal Arbitration Law (which, like the DIFC Arbitration Law, is based on the UNCITRAL Model Law) give effect to the parties’ bargain by supplying any absence in terms of applicable procedure.
Decree 34 preserves the parties’ bargain; if the parties did not wish to arbitrate under the DIAC Rules, they could have agreed upon another institution, such as the LCIA, whose rules were materially identical to the DIFC-LCIA Rules.
Institutional rules change from time to time. When rules change it does not enable a party to renounce the arbitration agreement.
With respect to the Louisiana Decision, the DIFC Court noted that it was a decision under US law, which did not appear to appreciate the difference between forum and the procedural rules. The Court clarified that “No party agrees “to arbitrate in” DIFC-LCIA or DIAC. Parties agree to arbitrate subject to a set of institutional rules; the forum is and always remains international arbitration.” The DIFC Court thus found the approach of the Abu Dhabi Decisions to be more closely reasoned and to uphold the principles of party autonomy and holding parties to their agreements to arbitrate in a way that resonates with the pro-arbitration policy of the DIFC Courts. Thus, the DIFC Court concluded that even if Decree 34 were not binding upon the DIFC, it would be minded to adopt the reasoning of the Abu Dhabi Decisions.
The DIFC Court was thus of the “strong (albeit necessarily provisional) view that Decree 34 has not rendered the Arbitration Agreement in the present case null and void, inoperative or incapable of being performed”.
CONCLUSION
The DIFC Court reaffirmed the validity of arbitration agreements referencing DIFC-LCIA, despite the abolition of DIFC-LCIA and the introduction of Decree 34. It upheld that such agreements are now administered under DIAC rules, supporting the principle of party autonomy and ensuring the continuity of arbitration agreements. The Court’s decision aligns with UAE and DIFC jurisprudence, reinforcing the effectiveness of arbitration agreements even amid institutional changes.
