Arbitration in UAE and Saudi – where are we now?
Three years can feel like a lifetime in arbitration. In September 2021, the DIFC-LCIA Arbitration Centre in the UAE was abolished, which raised some concerns in the international arbitration community. This change, however, created an opportunity to revamp the arbitration landscape in Dubai, and, together with changes in Abu Dhabi, has led to a new era of arbitration in the Emirates. Since then there have also been substantial developments in Saudi Arabia. This article gives a snapshot of these changes that have taken place in two of the most prominent jurisdictions for arbitration in the Middle East, and consider what the future may hold.
United Arab Emirates
In Dubai, there have been two major arbitration events. In September 2021, the Government of Dubai unexpectedly abolished the DIFC-LCIA Arbitration Centre, a joint venture between the DIFC and the LCIA that was based in the heart of the financial district. The lesser-known Emirates Maritime Arbitration Centre was also abolished. Dubai Decree 34 of 2021 declared that all agreements opting into DIFC-LCIA or EMAC arbitration were now to be subject to the institutional rules of the Dubai International Arbitration Centre (DIAC), who would manage all existing and future arbitrations. At the same time, Decree 34 shifted the default seat of arbitration under DIAC from onshore Dubai to the DIFC.
In March 2022, DIAC issued a revised set of rules as part of an institutional renewal that saw its former executive committee replaced by the ‘DIAC Arbitration Court’. Changes to DIAC’s 2007 Rules were long-awaited and had been heralded by the release of draft (but never effective) rules in 2016. The 2022 rules contained amendments that other arbitration institutions had come to adopt, including provisions on the consolidation of claims, the joinder of third parties, alternative means of appointing arbitrators, third-party funding, expedited procedures, interim measures, and emergency arbitration. Practitioners particularly welcomed the express recovery of legal fees, ending uncertainty present in the 2007 rules. The 2022 rules also changed the default seat to the DIFC, in line with Decree 34.
Notwithstanding the refresh of DIAC’s rules in 2022, the effects of Decree 34 are still being felt around the world, with courts pulling in different ways. In February 2024, the US District Court for the Eastern District of Louisiana in New Orleans ruled that a DIFC-LCIA arbitration clause was unenforceable because it referred to an arbitral institution that had been abolished. At the time of writing, an appeal of the decision to the US Fifth Circuit Court of Appeals is awaited. The Singapore High Court followed the US District Court with a further finding of unenforceability in DFL v DFM [2024] SGHC 71 (15 March 2024). Then, reaching a different outcome, in its ruling in case number 449 of 2024 dated 24 April 2024, the Abu Dhabi Court of Appeal upheld a first instance decision that decided a DIFC-LCIA arbitration agreement was binding and effective despite the abolition of the DIFC-LCIA.
In Abu Dhabi, the end of 2023 brought major change in the creation of the Abu Dhabi International Arbitration Centre, known as ‘arbitrateAD’. Although a free-standing organisation, from 1 February 2024 arbitrateAD has replaced the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) and all ADCCAC arbitrations filed from 1 February 2024 will be administered by the new institution. arbitrateAD is a substantial step forward for arbitration in Abu Dhabi, with a board including arbitration doyen Gary Born. arbitrateAD published its new rules in February 2024, containing similar provisions as those in the updated 2022 DIAC rules, and making the ADGM the default seat for arbitrateAD arbitrations.
The ADGM also hosts a case administration office for the ICC, and there have been some notable decisions by the “onshore” courts of UAE relating to ICC arbitrations stemming from the fact that it has an office in the ADGM. In case number 1045 of 2022, the Abu Dhabi Court of Cassation declined to annul an ICC arbitration seated in “Abu Dhabi” on the grounds that it lacked jurisdiction to consider the application, finding that the presence of the ICC within the territory of the ADGM made the financial free zone the juridical place of the arbitration and the ICC an “ADGM Establishment” for the purposes of the ADGM’s own jurisdictional rules. The ADGM Courts later accepted jurisdiction over the dispute (A6 v B6 [2023] ADGM CFI 0005 (13 March 2023)).
Moving back to Dubai, it has also had a recent notable decision relating to the ICC. On 5 February 2024, the Dubai Court of Cassation issued a judgment (case number 821 of 2023 upholding an earlier decision of the Dubai Court of Appeal) in which it found (on a very narrow reading of an article of the ICC Rules 2021) that an ICC tribunal had exceeded its jurisdiction by dealing with a matter not falling within the scope of the arbitration agreement when the tribunal awarded a party the legal fees of its representation in the dispute.
Kingdom of Saudi Arabia
Arbitration is booming in the Kingdom, in particular driven by the Saudi Centre for Commercial Arbitration. The SCCA opened a representative office in the DIFC in February 2023, its first overseas, and then issued new rules in May 2023. One of the most far-reaching changes has been the introduction of the SCCA Court, which has responsibility for making key administrative decisions in SCCA arbitrations. The 15-person-strong Court consists of arbitration experts from a dozen countries with many years’ experience.
Other significant changes in the new rules include an emphasis on using technology in filing documents and managing cases, including allowing parties to opt into the Online Dispute Resolution Procedure Rules where the aggregate amount in dispute does not exceed SAR 200,000 (roughly USD 53,000); the significant expansion of the tribunal’s discretionary powers, such as the ability to determine the most effective format for hearings (including remote hearings), to reject changes in party representation as a procedural safeguard to avoiding conflicts, and to encourage parties to resort to mediation where appropriate; new rules addressing multi-party arbitrations and multi-contract disputes; the consolidation, or otherwise coordination, of parallel arbitrations; rules on third party funding; the publication of redacted awards absent party objection; and rules addressing the need for cybersecurity, privacy, and data protection.
The SCCA has also published research on arbitration in Saudi Arabia in conjunction with the KSA Ministry of Justice demonstrating how arbitration friendly the Kingdom has become, particularly to international counterparties. In 2021, courts in Saudi Arabia enforced 204 domestic and foreign awards, representing an aggregate value of US$2.1 billion, with enforcement proceedings being resolved on average within two weeks. Since the Saudi Arbitration Act in 2012, there have been approximately 35,000 applications for enforcement with an aggregate value of enforced arbitral awards coming in at just over US$6.16 billion. In 2019 alone, more applications for enforcement were filed than in the period from 2013 to 2018 inclusive. From 2017 to 2022, of 720 arbitration-related judgments in the Saudi Courts, 31 per cent were applications to annul or enforce awards; of the former, only 8% were successful (equating to 11 applications, 7 granted in full and 4 partially). Of the 24 sharia grounds identified, only five were successful (around 21 per cent). The Saudi government also encourages its entities to use SCCA arbitration clauses with international counterparties, thereby increasing investor confidence.
The Future
Where now for the Middle East? The mainstay of regional arbitration will still be construction-related for the foreseeable future and Saudi is likely to be the largest market, driven in part by their so-called giga-projects, ranging from Neom and the Red Sea developments to King Abdulla Financial District and the New Murabba projects in Riyadh. In commercial arbitration, several sectors will see growth in arbitration as the preferred mode of dispute resolution: disputes arising from digital assets (including cryptocurrency and non-fungible tokens); private wealth and family business disputes, as the generational shift in families continues; and disputes with environmental, social and governance aspects. With the recent upgrades to their arbitration centres, the UAE and Saudi Arabia are well-placed to support the demand for arbitral services in the region.
Republished with permission from ThoughtLeaders4 Disputes Magazine. To view the online article, please click here.
