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Out with the Old, In With the New: Comparing DIFC and ADGM Arbitration Law

March 2019

The UAE has implemented a major initiative to update its laws and procedures, by adopting best international practice to encourage foreign direct investment and trade more generally with the UAE. There was a new Companies Law in 2015, a Bankruptcy Law in 2016, tax laws in 2017, and a Federal Arbitration Law and Foreign Direct Investment Law in 2018. In addition to that, Federal law No. 18 of 2017 amended the Companies Law to allow the authorities to dis-apply the requirement for 51% local ownership of UAE companies. A clear message is being sent to the world that the UAE is open for business, there is a strong modern structure in place in a form which is familiar to the big international players and which will serve their business needs.

Of course, these changes started well before 2015. Dubai realized early on that it needed a modern system with which foreign parties would be familiar and established the Dubai International Finance Centre (“DIFC”) as a free zone within Dubai. The DIFC has its own commercial laws, in the English language,and the DIFC Courts were established in 2004 as English language courts using English common law procedure. The DIFC Arbitration Law was passed in 2008, in 2014 the DIFC Dispute Resolution Authority was created and in 2015 it entered into an agreement with the London Court of International Arbitration (“LCIA”)for management and administration of arbitrations under the DIFC-LCIA Arbitration Rules and the DIFC-LCIA Arbitration Centre was launched.

Abu Dhabi came to the party a little later, establishing the Abu Dhabi Global Market(“ADGM”) in 2015, with its own laws and English language common law courts. It must be borne in mind that the outside the DIFC and the ADGM, the UAE is a civil law jurisdiction. The ADGM’s Arbitration Regulations were passed on 2015 and the ADGM Arbitration Centre became operational in October 2018.

The purpose of this article is to compare arbitration law within the DIFC and the ADGM.

DIFC Arbitration

The DIFC Arbitration Law of 2008 is based on the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration of 1985 (the “UNCITRAL Model Law”), upon which all modern arbitration laws are based, to comply with best international practice. The DIFC Arbitration Law applies where the seat of the arbitration is the DIFC, although certain parts apply even when enforcement is sought of an award that was made elsewhere. Thus,enforcement may be sought in the DIFC Court for foreign as well as domestic arbitral awards, and there is a Memorandum of Understanding between the DIFC Courts and the mainland Dubai Courts whereby each will enforce decisions of the other. For this reason, the DIFC Court has become a conduit for such enforcement, without the need to have all the documents translated into Arabic by a certified legal translator, as would be the case in the Mainland Dubai Courts.

The DIFC Arbitration Law is in a form that is easily recognizable to arbitration practitioners. It provides for party autonomy; kompetenz-kompetenz; electronic communications; support from the DIFC Courts where necessary; no nationality restrictions on the choice of arbitrator unless the parties agree otherwise; if the parties do not agree the number of arbitrators, the default position is a sole arbitrator; if the parties do not agree on the appointment of an arbitrator, the appointment shall be made by the DIFC Court of First Instance;the seat of the arbitration will be the DIFC if the parties so agree or if the dispute is governed by DIFC law; the tribunal may order interim measures;enforcement of an arbitral award may be resisted on grounds reflected in the Model Law, the New York Convention (to which the UAE became a signatory in 2006) and the UAE Federal Arbitration law. Significantly, the costs of the arbitration may include the reasonable costs of legal representation of the successful party, which is not always the case in civil law jurisdictions.

The DIFC-LCIA Arbitration Centre administers commercial arbitrations under contracts which incorporate the DIFC-LCIA Arbitration Rules. These Rules too are in a form which is readily familiar to arbitration practitioners. The Arbitration Centre appoints the arbitrator/s; unless the parties agree the number of arbitrators, the default position is a sole arbitrator; if the parties cannot agree on the appointment of an arbitrator, or if two party-appointed panel members cannot agree the presiding arbitrator, the Arbitration Centre decides for them. As for nationality, where the parties are of different nationalities,a sole arbitrator or a presiding arbitrator may not be of the same nationality as one of the parties, unless that party agrees in writing. There are provisions for expedited and emergency arbitration, and for joinder of third parties and consolidation of arbitrations where all parties agree. The DIFC-LCIA Arbitration Centre will require payment in advance on account of the costs and fees of the Centre and of the arbitrator/s. The arbitral tribunal may order one party to pay another’s reasonable costs of legal representation, based on the“English Rule” that the award of costs should reflect the parties’ relative success and failure on the issues decided in the arbitration.

ADGM Arbitration

Arbitration at the ADGM Arbitration Centre is different, because the Centre does not administer arbitrations but merely provides a venue and facilities for holding arbitration hearings. The ADGM Arbitration Regulations 2015 are based on the UNCITRAL Model Law, with modifications to reflect best international practice. Part 3 of the Regulations are the operative provisions for arbitrations where the seat is ADGM or the arbitration agreement incorporates the Regulations; Part 4 applies to the recognition and enforcement of awards. The Regulations provide for party autonomy; kompetenz-kompetenz; supervisory functions of the ADGM Court; electronic communications; a default position of a sole arbitrator;no nationality restrictions as to who may serve as arbitrator unless the parties agree otherwise; interim measures; consolidation of arbitrations and joinder of third parties; award of legal costs if the successful party claimed them; enforcement of awards may only be resisted on the limited grounds reflected in the Model Law, the New York Convention and the UAE Federal Arbitration law.

However, the ADGM Arbitration Centre does not administer arbitrations and has no arbitration rules of its own. Instead, the ADGM Arbitration Centre has an agreement with the International Chamber of Commerce (“ICC”), which established in the ADGM the first ICC Court’s Representative Office in the Middle East to service the increasing demand for arbitration in the region. While the ADGM Arbitration Centre does not administer arbitrations, it does provide a venue for holding hearing, with state-of-the-art facilities including video-conferencing and cutting-edge software for case presentation, available to any parties who wish to resolve their disputes through arbitration at the ADGM. Thus, the ICC Representative Office can accept the registration of cases under the ICC Arbitration Rules, to be administered by the ICC Court of Arbitration,with hearings held in the ADGM.

By Article 18(3) of the Regulations, where the parties do not agree on the appointment of an arbitrator, the appointment will be made by the arbitral institution administering the arbitration, or by the ADGM Court if there is no such institution. As for the seat, by Article 33, if the parties do not agree,“the seat of the arbitration shall be determined by (a) any arbitral or other institution or person vested by the parties with powers in that regard, or (b)by the arbitral tribunal …”. These words suggest that it could be either, and neither takes precedence.

Clearly,if parties intend to use the ADGM Arbitration Centre as a venue for their arbitration, it makes good sense to adopt the ICC Arbitration Rules and have the arbitration administered by the ICC Court. If the parties choose to have an adhoc arbitration, there will be no institution to administer the proceedings,but the ADGM Court may provide welcome support.

Conclusion

The DIFCand ADGM Arbitration laws are similar and conform to modern standards. The difference lies in the fact that the DIFC-LCIA Arbitration Centre administers arbitral proceedings and has its own Arbitration Rules, whereas the ADGM Arbitration Centre has no arbitration rules and does not administer arbitral proceedings, but it has wonderful facilities and works with the ICC, who do administer arbitral proceedings and do have their own arbitration rules. Any award rendered in the DIFC or ADGM may be ratified through the DIFC or ADGM Court respectively, as may foreign awards. Either way, there are modern arbitration centres in both the major cities of the UAE, and legal structures in place to make it work.

Authored by Mojahed Al Sebae – Partner

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