An Insight into DIFC-LCIA- : Recognizing Its Significance and Effect

  • 23 March
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Understanding DIFC-LCIA

The DIFC-LCIA (Dubai International Financial Centre-London Court of International Arbitration) used to be an important part of arbitration in the Middle East. The DIFC-LCIA Arbitration Centre started in 2008, the same year it partnered with the London Court of International Arbitration (LCIA) to create the DIFC-LCIA. Decree No. 34 mentioned both the DIFC-LCIA and EMAC as "Abolished Arbitration Centers".
This partnership combined international standards with local needs, making it attractive for parties wanting a fair and quick way to solve commercial disputes. The rules used by DIFC-LCIA were the main guidelines for how arbitrations were handled there.

DAI and Abolishment

DIFC Arbitration Institute, also known as DAI, was a partnership between the London Court of International Arbitration (LCIA) and the Dubai International Financial Centre (DIFC). The DIFC Arbitration Institute worked with the LCIA to handle arbitration cases in the DIFC free zone. They followed a version of the LCIA rules, adjusted for the DIFC, called the DIFC-LCIA rules. However, on September 14, 2021, Dubai's government decided to abolish the DIFC Arbitration Institute by issuing Decree no. 34 of 2021. This decree not only ended the Dubai International Financial Centre Arbitration Institution (DIFC-LCIA Arbitration Centre) but also the Emirates Maritime Arbitration Centre (EMAC).

Reaction

People were worried about how this change would affect contracts that mentioned DIFC-LCIA. Later, a US Court said that this new law can't force parties to settle disputes at DIAC if they agreed to use DIFC-LCIA. This court decision shows that there's still uncertainty about whether DIFC-LCIA agreements will be enforced. It's a reminder that if you have contracts with these agreements, you should try to change them.

Disputes over jurisdiction or the right forum for the disagreement can greatly increase the expense and duration of resolving disputes. Additionally, they allow a side that is unwilling to compromise to use guerrilla tactics to hinder prompt dispute settlement. That's why having clear and enforceable agreements about how to solve disputes is really important. But what if an agreement to use arbitration was good when it was drafted, but isn't anymore?

In a recent case on November 6, 2023, e United States District Court of the Eastern District of Louisiana (2:23-cv-01396-GGG-KWR) had to deal with this exact question. The arbitration agreement in question was deemed unenforceable by the court due to its reference to the Dubai Arbitration Institute, which now doesn’t exist.

Court Decision: The Former DIFC Arbitration Institute and the DIAC Are Not the Same Forum

The court rejected the defendants' request to dismiss the claim and force arbitration giving following reasons:

  • If the chosen arbitration tribunal isn't available anymore, the court can't make arbitration happen. Where to hold the arbitration is a crucial part of the agreement, not just a small detail.
  • Arbitration only works when both sides agree to it. The court and the Dubai government can't change the agreement about where to hold the arbitration.
  • Even though DIAS is similar to DIFC LCIA, it's not the exact place agreed upon for arbitration. The plaintiff could not be forced to arbitrate by the court since the agreed upon forum no longer exists.

The end of the DIFC Arbitration Institute and uncertainty about enforcing DIFC-LCIA agreements show how crucial it is to have clear dispute resolution methods. To handle these challenges, parties should review and possibly update their contracts for better dispute resolution.

Alqada believes in supporting clients on each step during the arbitration process. There are following list of Arbitration's articels you can know more about Arbitration law by visiting these links.

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