Decree 34 and validity of a DIFC-LCIA arbitration agreement

DIFC-LCIA was a popular arbitration centre in the Middle East and many contracts provided for DIFC-LCIA arbitration. In 2021, the Dubai government passed a law which abolished the DIFC-LCIA and transferred its cases and all future disputes arising under DIFC-LCIA arbitration clauses to the Dubai International Arbitration Centre (“DIAC”). How this change would affect contracts that provided for DIFC-LCIA arbitration has been a point of concern for practitioners in the region.
 
A US Court has now held that Decree 34 cannot compel parties to arbitrate before DIAC where parties had contracted to arbitrate before DIFC-LCIA. The judgment demonstrates the ongoing uncertainty regarding the enforceability of DIFC-LCIA arbitration agreements and is a salient reminder that parties with such agreements should seek to amend their contracts.

1. Decree 34 of 2021 (the “Decree”) abolished the DIFC-LCIA Arbitration Centre and the Emirates Maritime Arbitration Centre (“EMAC") and transferred their cases to the DIAC. The Decree took effect on 14 September 2021 (the "Enactment Date”).
2. Article 6 of the Decree provides that all arbitration agreements referring disputes to the DIFC-LCIA or the EMAC will be “deemed valid and effective” and DIAC will replace those centres in considering and determining disputes that arise under those agreements, unless otherwise agreed by the parties.
3. Following the issuance of the Decree, the DIFC-LCIA and the LCIA announced that:
   1. all pre-existing DIFC-LCIA arbitrations would be administered directly by the LCIA under the Rules of the DIFC-LCIA Arbitration Centre;
   2. parties should no longer incorporate the DIFC-LCIA Arbitration Rules (the “DIFC-LCIA Rules”) into their arbitration agreements; and
   3. all DIFC-LCIA arbitrations that are commenced after the Enactment Date would be administered by DIAC under the DIAC Arbitration Rules (the “DIAC Rules”), unless the parties agree otherwise.
4. A recent judgment issued by a US Court has now raised uncertainty regarding the enforceability of a DIFC-LCIA arbitration agreement following the Decree.
5. In that case, the Parties’ contract referred disputes to arbitration under DIFC-LCIA Rules with the DIFC stipulated as the seat. However, when the Plaintiff sought to bypass the arbitration agreement and bring claims directly before the Louisiana Eastern District Court (the “LEDC”), the Defendants petitioned the court to dismiss the matter on the basis that the LEDC lacked jurisdiction. In doing so, the Defendants sought to compel the Plaintiffs to arbitrate before DIAC pursuant to the Decree which, as outlined above, provided that arbitrations commenced after the Enactment Date would be administered by DIAC. 
6. The LEDC dismissed the jurisdiction challenge and refused to compel the parties to arbitrate before DIAC on the basis that the Dubai government and US courts do not have the power “to unilaterally change the arbitration forum agreed [between] the parties” and that “whatever similarity the DIAC may have with the DIFC LCIA, it is not the same forum in which the parties agreed to arbitrate. The judge went on to say that such a “forum is no longer available, and [the] Court thus cannot compel the Plaintiff to arbitrate”.
7. Key to the LEDC’s reasoning was the requirement for the parties’ consent in the arbitration process and certain US authorities that stipulate that arbitration cannot be compelled where the arbitral institution is unavailable or no longer exists.
8. This decision highlights the ongoing litigation and enforcement risks that DIFC-LCIA arbitration agreements now face and how the Decree will be considered, particularly outside of Dubai and the wider UAE.
9. Accordingly, parties with contracts that still provide for DIFC-LCIA or EMAC arbitration should (if they have not done so already) seek to mutually amend contracts which still provide for disputes to be resolved by arbitration pursuant to the DIFC-LCIA Rules.
10. Should these clauses not be amended, there is a real risk that courts may refuse to recognise the arbitration agreement as being valid and enforceable and respondents may have strong grounds to challenge DIAC’s jurisdiction in circumstances where they did not consent to it.