The DIFC Courts are two-tier English language courts within the Dubai court’s systems. They were established in the DIFC in 2005 (by Dubai Law No.12 of 2004 (as amended by Law No.16 of 2011) and Dubai Law No.10 of 2004) to determine civil and commercial disputes falling within their statutory jurisdiction.
As the DIFC Courts allow for common law legal principles and procedures to be used rather than those of civil law, they can apply any law chosen by the parties, including the laws of England and Wales. However, where the applicable law has not been chosen by the parties, the DIFC laws are applied in default.
Foreign qualified lawyers, including UK practitioners can obtain rights of audience in the courts reasonably easily so long as they are competent in the English language. This has led to the DIFC Courts becoming a global hub for international disputes, claimants, respondents and practitioners all now seeking to utilise the DIFC Courts for Middle East arbitrations.
The DIFC Courts have the jurisdiction to hear and determine civil and commercial disputes falling within their statutory jurisdiction. These typically range from sophisticated, domestic and international financial transactions to debt collection and employment disputes, where either:
- The dispute has a connection to the DIFC or involves a DIFC- established party.
- Both parties have agreed in writing to submit to the DIFC courts' jurisdiction either pre or post dispute (see article 5 of Law No. 12 of 2004, as amended).
However, since the introduction of the DIFC Courts, there has been tension between the recognition and enforcement of DIFC arbitral awards. The DIFC-LCIA Arbitration Centre was based on an operating agreement between the two tribunals. It was established to provide an efficient and reliable venue to resolve commercial disputes, with a focus on the Middle East and Africa, The idea was to leverage the reputation and expertise of the LCIA, and use the DIFC as the seat of arbitration.
However, in late 2021, the Dubai Decree No.34 oof 2021 abolished the DIFC-LCIA in an effort to concentrate institutional arbitration in the Dubai International Arbitration Centre (‘DIAC’). This created tension and confusion at the time for parties that had adopted DIFC-LCIA arbitration clauses. The centre no longer existed. Instead the DIAC became the recommended arbitral tribunal, although supposedly with the DIFC-LCIA rules in place. Essentially, qualifying DIFC-LCIA arbitration agreements defaulted to an arbitration process in the DIAC forum.
Recent case law, specifically from the US District Court for the Eastern District of Louisiana and the Singapore High Court, highlights the difficulties that Decree no.34/22021 causes to the enforceability of DIFC-LCIA arbitration clauses. Parties could only raise jurisdictional objections to the DIAC if both parties agreed to an alternative arbitration forum. Of course, it is not always easy to get opposing parties to agree on anything in a dispute, especially an entire change of a previously agreed seat.
Issues were raised as the whether the Decree No.34/2021 was in fact in violation of the New York Convention Article 11(3) which states:
“The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”
The lack of continuity, administrative processes, and case management teams render the DIAC ill-suited to being the proper successor organisation.
The Louisiana Court’s position in Baker Hughes v Dynamic Industries 2023 was that previous DIFC-LCIA arbitration agreements are enforceable as “[w]hatever similarity the DIAC may have with the DIFC LCIA, it is not the same forum in which the parties agree to arbitrate …[t]hat forum is no longer available”. The Louisiana Court held that they could not simply rewrite arbitration agreements and neither can the Dubai Government. The Singapore Court echoed this view in DFL v DFM 2024 referencing Baker Hughes and holding that parties can not be compelled to arbitration under a set of rules it did not agree to. It would be the same as writing a contractual agreement and expecting parties to comply.
All of the above history and uncertainties must be considered carefully for practitioners when advising new parties or those who have already signed agreements under the DIFC-LCIA. Arbitral tribunals must be chosen, whether before or after a dispute when parties can agree, carefully and with clear analysis of the rules and the seat to which parties are agreeing to adhere to.
