Dubai International Financial Centre: Arbitration’s home in the Middle East

By Natasha Bakirci, Assistant Registrar of DIFC Courts, and Mahika Hart, Postgraduate Law Fellow, DIFC Courts.

Foreword by Mohamed ElGhatit, Director and Registrar of DIFC-LCIA Arbitration Centre  

For centuries, arbitration has been a recognised, and often preferred, means for settling commercial disputes in the Middle East and North African (MENA) region. While its popularity was diminished in the second half of the 20th century by several peculiar awards issued against different states in the region, there has been a clear revival in trust and confidence in arbitration. For proof, one only needs to look at the recent proliferation of arbitration institutions and centres across the Middle East and North Africa.

Among them is the DIFC-LCIA Arbitration and Mediation Centre (the DIFC-LCIA), located in the Dubai International Financial Centre. First established in 2008, the DIFC-LCIA’s offering is unique when compared to its regional peers. It is the only arbitration centre in the region that combines the application of an internationally renowned set of rules, based upon those of the London Court of International Arbitration (LCIA), with a true understanding of the regional business and disputes culture, giving its users unmatched confidence and comfort in the DIFC-LCIA’s service.

When parties in the DIFC-LCIA opt for the Dubai International Financial Centre (DIFC) as the seat of arbitration, or it becomes the seat by default, they have access to the supervision and support of the DIFC Courts. The DIFC Courts, Dubai’s established, English-language, common law courts, will be the curial court for purposes of any interim precautionary measures, such as temporary freezing or attachment orders aimed at preventing the dissipation of assets. Furthermore, and equally important, the DIFC Courts will be the curial court for purposes of confirming the validity of an arbitral award and ordering its enforcement against a respondent’s assets. A DIFC-LCIA award, issued in the DIFC as the chosen or default seat, then recognised and enforced by the DIFC Courts, can be enforced directly throughout the MENA region by utilising the various laws, protocols, regional treaties and conventions in place.

This article details the unique and innovative arbitration regime within the DIFC, created by combining the DIFC Arbitration Law, the appointment of experienced arbitration judges, and the application of common law by the DIFC Courts.

 

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Introduction to the DIFC Courts and arbitration

The MENA region, mostly governed by civil law regimes, has been plagued by antiquated arbitration laws for quite some time. In spite of this, Dubai is fast growing as a seat of international arbitration and has become a regional hub for arbitration in the MENA region. This is largely due to the creation and implementation of the DIFC free zone in conjunction with the DIFC Courts. The DIFC has become a new beacon for arbitration in the MENA region due to its adoption of the common law DIFC Courts as a supervisory court and due to the DIFC Arbitration Law’s basis on the UNCITRAL Model Arbitration Law. Furthermore, the DIFC Courts have appointed a number of judges with extensive background in international arbitration, giving parties immense trust in all arbitration related Court proceedings. This confluence of factors in the DIFC has contributed to a four-fold increase in arbitration-related cases filed in the DIFC Courts from 2013 to 2015. These cases deal with a plethora of arbitration related issues from appointment of arbitrators and interpretation of arbitration agreements to applications for interim measures during arbitration and enforcement of awards upon conclusion. The DIFC Courts can provide parties with support for these and many other arbitration related issues. The DIFC Courts therefore represent an exciting new prospect for parties seeking to arbitrate in the MENA region and around the world.

The DIFC Courts as supervisory court

Companies and other entities that opt for arbitration as a means to resolve their disputes may be required to utilise courts during the arbitration process, for example to appoint arbitrators or to stay proceedings in favour of an on-going arbitration. Furthermore, after an arbitration, parties often take their arbitral awards to court for enforcement. Consequently, parties need access to relevant courts that are well-versed in arbitral disputes and consistent in their treatment of arbitral awards. This is especially important in Dubai, a regional and global hub for international disputes and arbitration. The DIFC Courts fulfil this role expertly by providing qualified judges and creating consistent and enforceable judgments with regard to arbitration related cases.

Many of the judges in the DIFC Courts have extensive experience with international arbitration as judges, arbitrators and legal advocates. This expertise provides parties with greater assurance that the DIFC Courts’ proceedings will be consistent, efficient and compliant with international standards regarding arbitration. Cases before the DIFC Courts related to arbitration are typically private, further providing parties with assurance that their matter will be addressed appropriately.

The DIFC Courts act as the default supervisory court for  arbitrations seated in the DIFC. The DIFC Courts have recently found that where the DIFC Courts would have exclusive jurisdiction over the parties, transaction or contract, they can act as the supervisory court even where the implied choice of the parties regarding the seat of arbitration is not the DIFC. The DIFC Courts can and have exercised comity in those circumstances in order to determine whether they should act. When the seat of arbitration is the DIFC, then the primary responsibility for enforcing the arbitration agreement would lie with the DIFC Courts.

As evidenced below by cases where the DIFC Courts have provided support for parties during and after their arbitral proceedings, support from the DIFC Courts as a supervisory or supportive court is a valuable asset to parties seeking to arbitrate in the MENA region.

The DIFC Arbitration Law and established case law

The DIFC Courts have established a meaningful body of case law related to arbitration and its treatment in the DIFC. Significantly, they interpret and implement the provisions of the DIFC Arbitration Law, DIFC Law No. 1 of 2008, as amended by DIFC Laws Amendment Law No. 1 of 2013 (“the Arbitration Law”), which is based largely on the provisions of the 1986 UNCITRAL Model Law on International Commercial Arbitration (as amended in 2006) (the “Model Law”). The DIFC Courts also endeavour to comply with the New York Convention, to which the UAE is a party, in decisions and legislative interpretations.

The DIFC Courts have decided a number of arbitration-related cases since their inception in 2006, mainly dealing with their jurisdiction to recognise and enforce arbitral awards. The DIFC Courts have also generated extensive case law with regard to the scope and application of the Arbitration Law, the criteria for granting interim measures in arbitration related cases, and the requisite factors for ordering adjournments or stays in favour of arbitration-related proceedings. The DIFC Courts are taking more cases related to interpreting arbitration agreements and clauses, adding further to the body of case law.

Affirming jurisdiction

The DIFC Courts have heard a number of challenges to their jurisdiction over recent years, predominantly focused on defining the circumstances under which the DIFC Courts are empowered to recognise and enforce an arbitral award. Part 4 of the Arbitration Law, consisting of Articles 42 to 44, deals with the recognition and enforcement of arbitral awards in the DIFC and has been at the centre of a number of important arbitration-related disputes in the DIFC Courts. The provisions of Part 4 have been drafted broadly in order to assure parties that valid arbitral awards will be recognised and enforced by the DIFC Courts, upon application.

First, Article 42(1) provides that arbitral awards, irrespective of the State or jurisdiction of issuance, shall be recognised as binding by the DIFC Courts and upon application, shall be enforced in the DIFC.  Furthermore, Article 42(4) provides that awards recognised by the DIFC Courts may be enforced outside the DIFC in accordance with Article 7 of the Judicial Authority Law (Dubai Law No. 12 of 2004, as amended by Law No. 16 of 2011). Article 43 empowers the DIFC Courts to issue orders recognising arbitral awards. Finally, Article 44 provides the limited grounds for the Court to refuse to recognise or enforce an arbitral award. In (1) Egan (2) Eggert v (1) Eava (2) Efa (judgment of 28 November 2014), the DIFC Courts confirmed their power to recognise and enforce awards in the DIFC that were issued outside of the DIFC, even though the debtor was not present in the DIFC and had no assets in the DIFC. In this case, the Claimants sought orders to recognise and enforce foreign arbitral awards against the Defendants, incorporated within the Emirate of Dubai, but outside the DIFC. The Defendants argued that because they were not “present” in the DIFC, the DIFC Courts did not have jurisdiction to recognise or enforce an award against them. The Deputy Chief Justice Sir John Chadwick confirmed that there was no requirement for the defendant to be present or have any of its assets in the DIFC as a pre-condition to recognition. Jurisdiction to recognise or enforce existed pursuant to Article 42 of the Arbitration Law, in conjunction with Article 5(A)(1)(e) of the Judicial Authority Law and thus no further conditions were required.

In Banyan Tree Corporate Pte Ltd v Meydan Group LLC, the Claimant similarly sought an order to recognise and enforce a Dubai-seated arbitral award. Both parties were registered outside of the DIFC, the Defendant did not have assets within the DIFC and the Defendant did not otherwise qualify for any of the jurisdictional gateways of Article 5(A)(1)(a) to (d) of the Judicial Authority Law. The DIFC Court of Appeal (in CA 005-2014) upheld the First Instance decision of H.E. Justice Omar Al Muhairi, which had relied on (1) Egan (2) Eggert v (1) Eava (2) Efa, in holding that the DIFC Courts had jurisdiction to hear the enforcement claim. The Court of Appeal found that the DIFC Courts had power to recognise and enforce awards made within the Emirate of Dubai but outside the DIFC. The Court further approved the decision of Deputy Chief Justice Sir John Chadwick in (1) Egan (2) Eggert v (1) Eava (2) Efa, by finding that there was no requirement for the presence of the debtor or its assets inside the DIFC as a pre-condition to recognition. These cases have since been used as support for further DIFC Courts decisions rejecting the defence of no jurisdiction to enforce arbitral awards due to the lack of the defendant’s presence or assets in the DIFC.

The Court has not generally been convinced by defendants’ objections to recognition or enforcement regarding “forum shopping” and the “public interest.” There is a purpose and benefit to having recognition of an arbitral award in the DIFC, even if there are no assets against which to enforce at the time. Thus, the resulting easier path to recognition and enforcement in the Dubai Courts after recognition is granted in the DIFC Courts is irrelevant and not an abuse of process (Banyan Tree Corporate Pte Ltd v. Meydan Group LLC and Fran v Faimida). Moreover, the DIFC Courts’ procedure can be used to assist the award creditor to locate assets even when none are immediately discernible ((1) Egan (2) Eggert v (1) Eava (2) Efa, judgment of 29 July 2015).

The DIFC Courts have made additional comment on their jurisdiction to hear other arbitration-related cases, such as those to appoint arbitrators or enforce an arbitration agreement. The DIFC Courts have recently reiterated that when a contract cites the Dubai courts or laws of Dubai as governing, including in an arbitration agreement, this wording is inclusive of the DIFC Courts and DIFC Law, depending on the circumstances and the intentions of the parties. Furthermore, when there is no seat of arbitration referred to in an arbitration agreement, the seat may be implied from the circumstances, especially having regard to the seat with the most connection to the parties and relevant transaction.

Arbitral claims supported by interim measures

The DIFC Courts additionally have the power to grant interim measures in arbitration-related cases, in order to assist parties to achieve a full remedy upon conclusion of their arbitral claim. Specifically, Article 15 of the Arbitration Law provides that “it is not incompatible with an Arbitration Agreement for a party to request, before or during arbitral proceedings, from a Court an interim measure of protection and for a Court to grant such measure.” Furthermore, the Court has the power under Article 24(2) to grant an order enforcing interim measures granted by the arbitral tribunal (with permission from the tribunal). This has proven to be an important aspect of the suite of dispute resolution services provided by the DIFC Courts. A number of parties have requested the DIFC Courts to grant interim measures in arbitration-related cases, mainly to prevent dissipation of assets before an award can be determined or enforced.

In terms of jurisdiction to grant interim measures, the DIFC Courts have determined that when the underlying arbitration is DIFC-seated, they, as the supervisory court, have the power to issue interim measures under Article 15. This is the case, even when the underlying arbitration agreement names another body of law as governing, as long as the arbitration is DIFC-seated (see Vannin Capital PCC PLC, CFI-036-2014, where the Court held that it had jurisdiction to hear and determine the Claimant’s application for interim relief relating to a substantive claim which had, by the time the application was heard, been commenced by the Claimant in DIFC-LCIA arbitration seated in the DIFC). Furthermore, even when annulment proceedings are pending, this does not null the possibility of recognition or enforcement within the DIFC and thus the DIFC Courts can still implement interim measures when the Claimant shows sufficient risk of dissipation.

The DIFC Courts have also addressed a number of applications for stays or adjournments of the proceedings before the DIFC Courts in favour of ongoing arbitration in another jurisdiction or ongoing proceedings seeking annulment or challenging the arbitral award in another jurisdiction. The DIFC Courts heard two similar cases regarding applications to stay DIFC Courts proceedings where there was a non-DIFC seated arbitration agreement between the parties. Ultimately, the outcome in these cases led to an amendment of the Arbitration Law (see DIFC Laws Amendment Law, DIFC Law No. 1 of 2013) to avoid uncertainty and to ensure the compatibility of the Arbitration Law with the New York Convention.

In the case of Injazat Capital Limited and Injazat Technology Fund B.S.C. v Denton Wilde Sapte & Co (a firm),[1] (“Injazat”)  further to an application to stay proceedings pursuant to Article 13 (1) of the Arbitration Law pre-amendment, Justice Sir David Steel held that, as Article 7 of the Arbitration Law pre-amendment applied only to DIFC-seated arbitration,[2] the Court was unable to stay the proceedings before it in favour of foreign-seated arbitration as there was no mandatory stay applicable under Article 13. The Court further acknowledged that this outcome represented a failure to implement Article II (3) of the New York Convention. The Court also found that it had no inherent jurisdiction to use its discretion to stay the proceedings as the issue was clearly covered by the Arbitration Law (in its pre-amendment form).

Later that same year, in International Electromechanical Services Co. LLC v. (1) Al Fattan Engineering LLC and (2) Al Fattan Properties LLC,[3] (“Al Fattan”) Justice David Williams declined to follow the Injazat precedent and rather found that while Article 13 of the Arbitration Law pre-amendment did not impose a mandatory stay of DIFC Court proceedings in the context of foreign-related arbitrations, the Court did in fact have inherent jurisdiction and discretion to stay proceedings in favour of foreign (meaning non-DIFC) seated arbitrations. In Al Fattan the Court exercised its discretion to order a stay, which was in line with the UAE’s treaty obligations under the New York Convention. This did, however, draw attention to infelicities in the drafting of Article 7 of the pre-amendment Law and ultimately, Article 7 of the DIFC Arbitration Law was amended pursuant to DIFC Laws Amendment Law No. 1 of 2013, which came into force on 15 December 2015.  This provided the Court with jurisdiction to stay proceedings in favour of arbitration regardless of the relevant seat of arbitration, or even where no specific seat has been elected in the arbitration agreement.

Since the amendment, the DIFC Courts have additionally stayed an arbitration proceeding in the DIFC in favour of a foreign arbitration, even though the DIFC had jurisdiction to appoint an arbitrator and the DIFC was the appropriate implied seat of arbitration. This was due to the risk that an ongoing foreign arbitration would create conflicting decisions and duplicative costs unnecessary to the resolution of the case. Instead, the DIFC Courts stayed the DIFC arbitration proceeding unless and until the foreign arbitration was vacated.

Assessing adjournment requests

The DIFC Courts have heard a number of cases where the defendant seeks adjournment of the matter in favour of pending proceedings seeking annulment or challenging the arbitral award in another jurisdiction. In assessing whether to grant such an adjournment, the DIFC Courts have established a standard which applicants must meet. The Court asks if the other proceedings are a delay tactic, whether there is a realistic prospect of success in the other proceedings and gives consideration to how extensive a delay the adjournment would create (Fran v Faimida and Eava v Egan). Where the pending annulment proceedings have no prospect of success, the DIFC Courts have ordered immediate enforcement of the relevant arbitral award in the DIFC (Eava v Egan). Where the other proceedings contain a bona fide claim with a realistic prospect of success and will not cause prejudice via delay, the DIFC Courts have granted a stay in favour of the annulment proceedings in another jurisdiction.

A proven home for arbitration in the MENA region

The DIFC Courts have created a dynamic and valuable body of law for parties seeking to support their arbitral proceedings and awards with corresponding court orders. Parties are able to obtain interim remedies while their arbitration is ongoing. Significantly, the DIFC Courts provide convenient and consistent recognition and enforcement of foreign arbitral awards within the DIFC, giving parties quicker access to substantive enforcement of their arbitral awards.

With the re-launch of the DIFC-LCIA Arbitration Centre in November 2015, the DIFC is likely to become an even more popular venue for arbitrations and thus the DIFC Courts are likely to have more occasion to interpret and implement the Arbitration Law.

[1] CFI 019/2010, judgment of 7 May 2012

[2] Article 7(1) of the Arbitration Law pre-amendment provided that “Parts 1 to 4 and the Schedule of this Law shall all apply where the Seat of the Arbitration is the DIFC.” Article 13 of the Arbitration Law was to be found in Part 3 of the Arbitration Law pre-amendment, and therefore Article 7 applied.

[3] CFI 004/2012, judgment of 14 October 2012