Renewal Of DIAC Rules Include Updates On Third Party Funding And Costs Recovery – Arbitration & Dispute Resolution

On the 2^nd of March 2022, the Dubai International
Arbitration Centre (“DIAC”) published the DIAC
Arbitration Rules 2022 (“the 2022 Rules”). The Rules
follow the re-launch of DIAC by Decree No. 34 of Year 2021, which
abolished existing arbitration centres – including the
DIFC-LCIA and EMAC – and created a single consolidated
arbitration centre in the DIAC.

The 2022 Rules position serves the aim of positioning Dubai as a
leading arbitration hub, by establishing a framework of modern
arbitration procedures that introduce efficiency and flexibility to
DIAC Arbitration proceedings and strengthen DIAC’s position as
one of the leading global arbitration centres.

Third-party funding

The previous rules published fifteen years ago, did not address
the issue of third-party arbitration funding. Though Funding is not
as widely used in the UAE, as it is in other jurisdictions, its use
is on the rise in UAE. The new rules expressly allow third-party
funding, provided that the funding arrangement is concluded before
the tribunal is constituted. A party using third-party funding must
also disclose the identity of the funder, as well as whether the
funder has committed to any adverse cost liability.

Article 22 of the 2022 Rules provides that parties who enter
third-party funding arrangements must promptly disclose this fact
to all other parties and the centre and must disclose whether the
funder has committed to an adverse cost liability.

Recovery of legal fees

DIAC tribunals can now award legal fees and expenses as part of
the costs of the arbitration. Under the 2007 rules and costs
appendix, only DIAC’s administrative fees and fees and expenses
of the tribunal and experts could be awarded. This position was
previously upheld by the onshore courts, even for instance where
arbitration agreements had expressly permitted “legal
costs” to be recovered.

The prior costs rules meant that successful parties had to
stomach their own legal costs. This impacted many claimants seeking
to recover relatively low damages sums in the UAE. As there would
be little point in incurring the significant legal costs associated
with arbitration to recover relatively modest sums. The 2022 rules
update is therefore a hugely positive development, one that is
likely to allow more worthy parties to bring their claims before a
tribunal and increase access to justice in the UAE.

Other changes

• DIFC Default Seat -The 2007 Rules provided for
  onshore Dubai as the default seat of arbitration where the parties
  had not specified a seat. In line with this, the 2022 Rules
  enshrine the principle that the DIFC shall be the default seat of
  arbitration in the absence of an agreement on the seat and
  location/venue. This is an important shift for international
  parties. It means that the DIFC Arbitration Law (which is based on
  the UNCITRAL model arbitration law) will apply to the arbitration
  and the courts with supervisory powers over the arbitration will
  apply common law principles and function in the English
  language.




• New Arbitration Court Powers -The Arbitration
  Court is empowered to perform several functions under the 2022
  Rules. In addition to appointing arbitrators, the Arbitration
  Court’s powers also include determining certain applications
  made before the formation of an arbitral tribunal such as
  preliminary objections concerning the existence validity, scope or
  applicability of the agreement to arbitrate; applications for
  consolidation; and applications for joinder.




• Consolidation – Article 8 of the 2022
  Rules sets out a framework dealing with issues of multiple
  contracts and the consolidation of claims. Article 8.1 of the 2022
  Rules provides that a party may submit a “single Request in
  respect of multiple claims arising out of or in connection with
  more than one agreement to arbitrate”. Either the parties must
  agree to consolidate, or it must be demonstrated, that all claims
  in the arbitrations are made under the same agreement to arbitrate;
  or the arbitrations involve the same parties, the agreements to
  arbitrate are compatible, and:
  

  • the disputes arise out of the same legal relationship(s),
    or

  
  

  • the underlying contracts consist of a principal contract and
    its ancillary contract(s), or

  
  

  • the claims arise out of the same transaction or series of
    related transactions.




• Expedited proceedings – The new rules
  also provide for expedited proceedings in matters where the claim
  value is AED 1 million or less, the parties agree or in cases of
  exceptional urgency.




• Exceptional procedures – the ability to
  appoint an emergency arbitrator, where urgent interim relief is
  needed before a tribunal has been formally constituted.




• Videoconferencing – The 2022 Rules allow
  hearings to take place virtually by videoconference.

TheJudge affiliate and funder,
Erso Capital serves a global client base of businesses
and law firms with discretionary funds, single managed accounts,
and co-investment funds. They are active in the UAE and
finance DIAC Arbitrations. If you have an arbitration
matter you’d like to discuss funding for contact the team at
Erso at info@ersocap.com

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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