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An American in Dubai - An Overview of Dubai's Arbitration System

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By: Phil Appenzeller and Steve Harr*
Munsch Hardt Kopf and Harr PC
Dallas, Texas

I.

Introduction: An American's Exposure to Dubai

In the Summer of 2007, one of our real estate partners called and asked if we would meet with a client who had a litigation matter overseas. The client
was a developer who needed counsel to file an arbitration in Dubai. All we knew of Dubai was the constant news of massive development taking place in the
country. We quickly had to do some research on Dubai, including its location, government, judicial systems and arbitration rules and processes. We were
unfamiliar with arbitrating in the UAE. We have handled countless arbitrations in the United States and Steve Harr has been an American Arbitration
Association ("AAA") arbitrator for more than 10 years. However, neither of us had taken a case from start to finish in an international arbitration center, let
alone in the Middle East.
The dispute was over a failed real estate development. The contract that was the subject of the dispute contained an arbitration and venue provision.
The institution for the arbitration was designated as the Dubai International Arbitration Centre ("DIAC") and the contract was to be governed by UAE law.
Over the next 3 years, we spent significant time learning the rules and procedures of the DIAC and the law of the UAE. Given the time we spent in Dubai and
the contacts made there, we also had opportunity to study Dubai's other arbitration center, the Dubai International Financial Center-London Court of
International Arbitration ("DIFC-LCIA").1
The following is a summary of arbitrating in Dubai, including a list of differences between the DIAC and DIFC-LCIA. As well, this article will note
some practical considerations that litigators may find useful if called upon to arbitrate in the UAE.
II.

Arbitration Options in Dubai and their Differences

A.

History

The UAE has long recognized the rights of parties to arbitrate; however, it has only been in recent years that the UAE has seen a surge in arbitrations.
This is largely due to the development of major arbitration centers as discussed more fully below. The arbitration process called for under UAE law was
largely not favored by local practitioners for a variety of reasons.
Under UAE Civil Procedure Code ("CPC"), an arbitration agreement must be in writing (Article 203(2), which means it must be signed by both
parties. If a plaintiff files suit in the UAE Civil Courts, the defendant must raise the existence of the arbitration clause in the first hearing during a court
proceeding (Article 203(5)).
In 1994, the Dubai Government created the Centre for Commercial Conciliation and Arbitration. This institution later became known as DIAC. While
Dubai attempted to hold itself out as a place where parties could freely arbitrate, the process developed slowly. For example, in 2004, the UAE's Court of
Cassation (its highest ranking court) overturned an arbitration award in the case of Dubai Aviation Corporation vs. Bechtel, on the grounds that the witnesses
had not been properly sworn. His Royal Highness Sheikh Mohammed bin Rashid Al Maktoum realized that in order to encourage parties to continue to do
business in Dubai, the country needed consistent standards applied to arbitrations. On November 19, 2006, the UAE signed on to the 1958 Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention)2 joining many other nations agreeing in principal to recognize the
awards issued in other countries. As well, the DIAC's rules transformed over time and were amended in 2007 to bring the DIAC in line with other world-wide
arbitration centers.
Early on, arbitrations conducted in DIFC were limited to disputes only connected with DIFC. Prior to 2008, there was no arbitral institution in DIFC,
but rather arbitrations were conducted pursuant to DIFC's 2004 law. In 2008 DIFC's rules were changed to open up DIFC to parties anywhere. The DIFC
Arbitration Centre was renamed to the DIFC-LCIA Centre. DIFC changed its rules to bring it in line with London Court of International Arbitration
("LCIA"). This act brought the expertise and long history of LCIA to the Centre, giving it even more respect internationally. DIFC-LCIA is a branch of
LCIA and it follows the LCIA rules very closely.
With this very brief overview of the history of arbitration in Dubai, a practitioner needs to understand the differences in the two arbitration centers. If
you are drafting a contract on behalf of a client, it is important to know the differences and determine which center is best for your client's needs in the event a
dispute over the agreement arises. On the other hand, if you are a litigator and you inherit a dispute that will be heard in one of these centers, you must
understand the nuances if you are going to successfully navigate the arbitration process. There are many nuances that cannot be covered in this article, but we
have addressed some of the more important issues below.
If you practice in Dubai or have clients with interests in the region, you likely will end up in one of two situations. Either, you are advising a client
that is entering into an agreement involving Dubai property or entities. Or, you have a client that has a dispute involving an agreement that calls for arbitration
in either the DIFC-LCIA or the DIAC.
B.

The Differences between DIFC and DIAC.

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1.

Seat vs. Institution Distinction

As an initial point, there is often confusion regarding the seat of an arbitration and the institution that would be used to administer the arbitration.
Dubai, like many areas of the world, maintains this distinction. The seat of the arbitration is the jurisdiction where the arbitration takes place. In our case, the
contract specified Dubai. However, like in our case, the Arbitrator may move, for convenience, the place of the arbitration to a different country.
If the contract specifies that the seat of the arbitration is in Dubai, then the arbitration will be governed by the UAE Civil Code. If the seat is DIFC,
then the arbitration will be governed by the DIFC Arbitration Law 2008. This is true, whether the institution involved in administering the arbitration is
DIAC, DIFC-LCIA, or other institution. It is important to note as you review these distinctions that DIFC is a separate jurisdiction to Dubai, meaning that
Dubai offers two seats for arbitration in one country.
2.

Origin of Rules

DIFC uses the DIFC-LCIA Rules (from the Dubai-based subsidiary of the London Court of International Arbitration).3
DIAC rules were initially drafted based on the UNCITRAL Rules, but the final rules are combinations and derivatives of International Chamber of
Commerce ("ICC"), World Intellectual Property Organization ("WIPO"), American Arbitration Association (AAA), Stockholm Chamber of Commerce
Arbitration Institute, and LCIA rules.
3.

Legal Governance

The DIAC is governed by UAE law, which mainly follows a civil code system.4
DIFC is not itself an arbitration center. It is home to DIFC-LCIA. This is similar, for example to Paris being home to the ICC. Thus, arbitrations
administered by the DIFC-LCIA are not necessarily subject to DIFC law, as it will depend on the seat of the arbitration. For example, if DIFC-LCIA
administered an arbitration, but the seat was London, the award enforced by Dubai courts is an English award, not a DIFC award. The DIFC has its own
laws. However, DIFC relies on English Common Law where there are gaps in the legislation.
Both institutions allow the parties in a dispute to agree upon the applicable law.5
4.

Costs

Non-refundable registration fee

DIAC- AED5,0006
The DIAC also requires a payment of AED5,000 to file a counterclaim.7
DIFC-LCIA- AED9,7508
Administrative and Overhead Costs
DIAC- Determined according to a cost and fee table that changes depending on the value of disputed claims and counterclaims.9
DIFC-LCIA- Determined by hourly rates.10
Arbitrators Fees
DIAC- Determined using a cost and fee table that changes depending on the value of disputed claims and counterclaims.11 Note that in most
situations, the arbitrator will likely charge an hourly fee that can be accepted by the parties.
DIFC-LCIA- Divided between the parties equally using hourly-rates.12
5.

Tribunal Interim Measures

DIAC Tribunals, at the request of a party, may issue any provisional orders or take other interim or conservatory measures it deems necessary,
including injunctions and measures for the conservation of goods that form part of the subject matter in dispute, such as an order for deposit with a third
person or for the sale of perishable goods.13 A Tribunal may make the granting of such measures subject to appropriate security being furnished by the
requesting party.14
DIFC-LCIA Tribunals may provide that a party post security for an amount in dispute, preserve, store, sell or otherwise dispose of any property or
things under the control of any party and relating to the subject matter of the arbitration. The Tribunal can also provide provisional relief, including the
payment of money or disposition of property between the parties.15
6.

Additional Arbitrator Powers

Article 22 of the DIFC-LCIA Rules appears to include additional powers not specifically included in the DIAC-LCIA rules. While most of Article
22's provisions exist in the DIAC-LCIA Rules, barring an agreement of the parties to the contrary, the following appear to be unique DIFC-LCIA provisions
giving the tribunal powers:

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22.1 (c) to conduct such inquiries as may appear to the Arbitral Tribunal to be necessary or expedient, including whether and to what extent, the
Arbitral Tribunal should itself take the initiative in identifying the issues and ascertaining the relevant facts and the law(s) or rules of law applicable to
the arbitration, the merits of the parties dispute and the arbitration agreement;
22.1 (g) to order the correction of any contract between the parties or the arbitration agreement, but only to the extent required to rectify any
mistake which the Arbitral Tribunal determines to be common to the parties and then only if and to the extent to which the law(s) or rules of law
applicable to the contract or arbitration agreement permit such correction; and
22.1 (h) to allow, only upon the application of a party, one or more third persons to be joined in the arbitration as a party provided any such
third person and the applicant party have consented thereto in writing, and thereafter to make a single final award, or separate awards, in respect of all
parties so implicated in the arbitration.
7.

Closure of Proceedings

Only the DIAC-LCIA Rules expressly provide that the Tribunal shall declare the proceedings closed when it is satisfied that the parties have had
adequate opportunity to present submissions and evidence.16 Use of the word satisfied may be sufficiently vague to lend itself to abuse. The term is
subjective, and could cause the time parties are allowed to present their case to vary. The subjective nature of the term might also permit tribunals to unfairly
prevent parties from fully presenting their case, as a Tribunals satisfaction with what it has heard might lead it to jump to conclusions. The DIFC-LCIA
Rules avoid giving Tribunals the ability to subjectively conclude case presentation by expressing that each party will receive a full opportunity to present its
case.17
8.

Enforcement

DIAC awards are not automatically binding and enforceable in the UAE.18 The victor in a proceeding therefore needs certification of its award by a
UAE court, which can lead to hearings and appeals in each of the three tiers of Dubais local court system.19
Given that DIFC is its own Free Zone, DIFC can ratify and enforce any arbitration that occurs within its jurisdiction. For enforcement outside of
DIFC, because DIFC has authority to ratify the award, those awards should be recognized outside of DIFC and be enforced by UAE civil courts.20 Under
DIFC Arbitration Law 2008, parties can challenge awards when they are brought to the DIFC Courts for enforcement, although if the award was made with
DIFC as the seat, the parties must bring the challenge within three months (See, Section 41(3)). Generally, local enforcement is much less an issue for a DIFCLCIA award.21
Since, Dubai is a party to the New York Convention, and the Riyadh Convention, international enforcement of awards from either institution should
not be an issue in the jurisdictions of other New York Convention parties and the Arab states subscribing to the Riyadh convention.22
These jurisdictional issues are not just form over substance. Virtually any contract entered into prior to 2008 will not be a DIFC based agreement.
This means that arbitrations that are outside of DIFC will be governed by UAE Civil Procedure Federal Law No (11) of 1992 ("CPL"). It is our opinion and
the opinion of most practitioners that the CPL does not adequately protect arbitration awards in that it does not restrict parties from challenging the awards
when enforcement proceedings are initiated.
III.

Practice Pointers
A.

Choosing An Arbitrator.

Both the DIAC and DIFC-LCIA have a comprehensive list of potential neutral arbitrators. Because the DIAC handles a significant amount of
construction disputes, many of their suggested arbitrators have construction related experience. Because the disputes are often between parties of different
countries, selecting a forum neutral arbitrator can often be challenging. In our situation, we went outside the arbitrators that were proposed by DIAC and
reached agreement on a very well known arbitrator from London.
We spent significant time researching the arbitrator we selected. We read his written works and spent significant time interviewing others who knew
him. Prior to our arbitration proceeding we engaged in a case study to determine how he might approach our situation. We contacted 2 barristers in London
who had arbitrated in front of our arbitrator previously. We engaged them to review the facts of our case (without party names) and to give their counsel on
what they believed would be the important points in the arbitration. We found this research useful as we were accustomed to the U.S. mindset, which differed
from that of our arbitrator who would approach the arbitration with an English Common Law mindset.
B.

Procedure of the Arbitration.

For Americans, the procedure of actually arbitrating the case in a setting such as Dubai can be strange. As is typical in most arbitrations, discovery is
atypical. Neither the DIAC Rules nor the DIFC-LCIA Rules contemplate written discovery or depositions. One's case is submitted by written statements of
the witnesses. Documents or "exhibits" are submitted in advance of the arbitration. Both parties normally make an opening statement prior to calling
witnesses. Witnesses are sworn and attest to their written statements. The process of swearing a witness should be given some serious consideration given the
Bechtel case referenced above. Also, note that the oaths given to Muslim and Non-Muslim witnesses are different.
Cross examination is fairly typical and the parties should note that most arbitrators will err on allowing evidence in and giving it weight over exclusion
of evidence. Once the arbitration is complete, the parties are entitled to give a final written statement to the arbitrator.
The DIAC contemplates that the arbitration process will take 6 months. The DIAC Rules provide that the arbitrator has authority to extend the time
for an additional 6 months. The DIFC-LCIA Rules have specified periods of time by which certain portions of the arbitration should be completed. The
DIFC-LCIA Rules give the arbitrator discretion to adjust these time periods as he/she deems necessary. It was our experience that the process is easily
delayed for any number of reasons and that the deadlines in these rules are not enforced by the governing agencies.
C.

Costs of Arbitration.

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The costs for each of the arbitration centers are outlined above. The purpose of this section is a word of warning for anyone arbitrating in DIAC.
Given that we have not arbitrated in DIFC-LCIA, we are uncertain about its procedures.
During the pendency of our arbitration the DIAC changed the fee structure with no warning. While the parties were to share the costs equally, one
party did not pay its full share, the DIAC applied the paying party's fees to the total and left the parties to work out the remainder that was due at the end.
Additionally, there were problems documenting how much the arbitrator had been paid along the way, which left the parties at the end trying to determine
what he had been paid and which parties owed a balance. All that is to say, keep accurate accounting records of what your side has paid as you go through the
proceeding as there is no guarantee that the DIAC will have an accurate record. Require your arbitrator to send you statements of his fees and advice of
payment. Write careful and accurate letters to the DIAC to document the payment and expenditure of funds.
D.

Local Counsel.

We engaged local counsel for the arbitration and found it almost necessary. Certainly, if one arbitrates in the DIAC, the need for local counsel exists
as the contract will likely be controlled by UAE law and the award has to be confirmed in local courts. Beyond this, there were factual issues that arose
throughout the arbitration where we found it necessary to have local counsel available. It certainly saved on travel. Additionally, because of some
administrative issues with the DIAC, local counsel came in very handy for dealing face to face with DIAC administrators.
IV.

Conclusion

While generally our experience of arbitrating under the rules and administrative processes of the DIAC was good, we found that the accounting
oversight was lacking a bit. However, the biggest downside to the DIAC, in our opinion, is the necessity of confirming the award in local courts. Based on
our subsequent research into DIFC-LCIA, this fact gives DIFC-LCIA a distinct advantage over DIAC. That said, clearly Dubai has come a long way in
creating an arbitration process and venue that gives foreign corporations and individuals comfort that their disputes will be fairly and timely arbitrated. With
Dubai's forward thinking in this regard, it appears that its arbitration centers are both improving and becoming known as a trusted arbitration process.
Practitioners required by negotiation to call for arbitration in Dubai should take comfort in choosing these venues as they draft contracts for their clients.
Further, litigants should, after knowing the risks and costs, take comfort in arbitrating their matters in either the DIAC or DIFC-LCIA.

Due to a confidentiality provision, we are not at liberty to name the parties to the dispute.
Additionally, the UAE is party to several other conventions including the Riyadh, the GCC and the ICSID conventions.
3
Francis Ho, Disputes in the UAE: Arbitration options, BUILDING.CO.UK (Sept. 29, 2009).
4
Id.
5
DIFC Arbitration Law of 2008, Article 16.3; DIAC Arbitration Rules of 2007, Article 33.
6
DIAC Arbitration Rules of 2007 Appendix, Cost of Arbitration.
7
Id.
8
DIFC LCIA Arbitration Centre, Arbitration Costs 1.(a).
9
DIAC Arbitration Rules of 2007, Appendix, Cost of Arbitration.
10
DIFC LCIA Arbitration Centre, Arbitration Costs 4.
11
DIAC Arbitration Rules of 2007, Appendix, Cost of Arbitration.
12
DIFC LCIA Arbitration Centre, Arbitration Costs 4
13
DIAC Arbitration Rules of 2007 Article 31.1.
14
Id.
15
DIFC Arbitration Law of 2008, Article 25.
16
DIAC Arbitration Rules of 2007 Article 34.1.
17
DIFC LCIA Arbitration Centre, Arbitration Law, http://www.difcarbitration.com/arbitration/arb_law/.
18
Francis Ho, Disputes in the UAE: Arbitration options, BUILDING.CO.UK (Sept. 29, 2009).
19
Id.
20
Id.; DIFC LCIA Arbitration Centre, Arbitration Law, http://www.difcarbitration.com/arbitration/arb_law/.
21
Francis Ho, Disputes in the UAE: Arbitration options, BUILDING.CO.UK (Sept. 29, 2009).
22
DUBAI INTL ARBITRATION CENTRE, Advantages of Arbitration at DIAC, http://www.diac.ae/idias/services/diac/advantages/; DIFC LCIA Arbitration
Centre, Arbitration Law, http://www.difcarbitration.com/arbitration/arb_law/.
2

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