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Abu Dhabi court rulings strengthen UAE arbitration

Some firms have sought to get out of their arbitration clauses based on the venue change Fizkes/Shutterstock
Some firms question whether they can get out of their arbitration clauses based on the venue change
  • Abu Dhabi rulings boost DIAC
  • ‘Groundbreaking’ evolution of system
  • Global courts split on venue change

Recent court rulings in Abu Dhabi further tighten the UAE’s embrace of arbitration as the go-to mechanism to resolve commercial disputes, according to industry attorneys.

Arbitration in the emirates has gone through a “groundbreaking” evolution ever since the Dubai ruler, Sheikh Mohammed bin Rashid Al Maktoum, issued Decree number 34 in September 2021, closing the two existing tribunals and transferring their caseload to a single recently established one. 

“The Western world is known to be predominantly arbitration-friendly,” Antonia Birt, a Dubai-based partner in the global commercial disputes group at law firm Reed Smith, told AGBI.

“That wasn’t always the approach in the UAE, but the position has been changing significantly over the last 10 to 15 years.

“The UAE is now developing an ecosystem that will strengthen its aim to become a leading hub for arbitration in the Middle East and further afield,” Birt said.

The switch from the Dubai International Financial Centre-London Court of International Arbitration Arbitration Centre (DIFC-LCIA) and the Emirates Maritime Arbitration Centre (EMAC) to the stand-alone Dubai International Arbitration Centre (DIAC) has since raised the issue of how contracts that included arbitration agreements tied to the now defunct venues should be treated.

Dubai authorities intended DIAC to replace DIFC-LCIA and EMAC. But companies agree to arbitration clauses and their exact details voluntarily, leading some to question whether they could now get out of them based on the venue change.

The Abu Dhabi lower and appeals courts’ judgments in February and April of this year, the first of their kind in the UAE, involved a medical equipment dispute for which the underlying contract set arbitration in DIFC-LCIA. The claimant objected to the removal to DIAC, but the courts found the original arbitration agreement still binding. 

“This judgement is trying to bring some clarity and confidence that, when it comes to enforcing arbitration awards with the DIFC-LCIA clause, the UAE is going to respect the fact that… these awards are enforceable and valid,” said Martin Khoshdel, a senior associate in the arbitration and dispute resolution practice of the BSA law firm in Dubai.

That is especially important as foreign courts have taken a different tack. A court in Louisiana in the US decided in November 2023 it could not compel the parties to another dispute into arbitration at DIAC over a contract that named DIFC-LCIA as venue. 

A Singaporean court in March of this year split the middle. It agreed to enforce a DIAC award under a DIFC-LCIA arbitration agreement, but only because it found the complainant had not raised the venue question in a timely manner. It otherwise found that an agreement under one tribunal could not automatically apply to the other. 

Arbitration cases often transit through courts in multiple jurisdictions because of the international nature of large commercial disputes and the location of the assets against which awards are enforced.

According to industry attorneys, while the Abu Dhabi judgments suggest that UAE courts will look favourably upon older arbitration agreements’ transferability to DIAC, the diverging approaches taken by foreign peers might still lead to an interesting pipeline of cases.

Meanwhile, DIAC’s case load continues to grow, according to data from the centre as well as updates shared by Reed Smith.

In its inaugural annual report last year, DIAC said it had registered 340 arbitrations in 2022 for a total value of AED 11.2 billion, or US$3.1 billion. 

“We understand that DIAC will release its 2023 Annual Report shortly and that this will show further growth, with 355 new cases registered in 2023,” Birt and other Reed Smith attorneys wrote in an alert earlier this month.  

More than 100 of those implicated the defunct DIFC-LCIA and EMAC venues.

“In the first quarter of 2024, DIAC has continued to report sustained growth in its caseload, with 67 new cases registered, compared to 30 cases reported for the same period in 2023,” the Reed Smith attorneys added. 

Arbitration evolution

Arbitration is evolving across the Gulf.

The new Abu Dhabi International Arbitration Centre replaced the Abu Dhabi Commercial Conciliation and Arbitration Centre in February of this year. The Oman Commercial Arbitration Centre launched in 2018.

Saudi Arabia established the Saudi Center for Commercial Arbitration in 2014. With the staggering volume of investment flowing into the kingdom amid its historic development push, attorneys expect that more disputes will come to the fore there over the next few years.

The Paris-based International Chamber of Commerce, one of the world’s premier arbitration tribunals, said in its latest annual report that parties from the Middle East involved in arbitration globally jumped from 198 in 2022 to 288 last year, primarily from the UAE, Saudi Arabia, Qatar, Oman and Lebanon. The 288 together represented 12 percent of all parties’ provenance.

The UAE was the eighth most selected arbitration venue in the world, after France, the UK, Switzerland, the US, Brazil, Germany and Singapore, according to the ICC.

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