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Dubai’s DIFC Court aligns arbitration laws with the New York Convention

On 15 December 2013, the Dubai International Financial Centre (DIFC) amended its arbitration law to bring it into line with the New York Convention. Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai, Vice President and Prime Minister of the UAE, signed an amendment to the DIFC’s 2008 Arbitration Law granting the DIFC Courts the power to stay proceedings in favour of arbitrations seated outside of the DIFC, bringing clarity to an area of uncertainty between DIFC law and the New York Convention.

The DIFC is an onshore financial free zone established by the Dubai government in 2004. The DIFC has its own legal system based on UK common law and its court presides over disputes involving companies registered in the DIFC or those who have expressly submitted to its jurisdiction. The DIFC Courts are distinct from the local onshore Dubai courts which operate in Arabic under local UAE civil law.

The New York Convention, ratified by the UAE in 2006, provides that courts must dismiss or stay an action in a matter which is the subject of a valid arbitration agreement on the request of one of the parties to the agreement. As formerly drafted, the DIFC Court was only able to stay proceedings in favour of an arbitration agreement if that arbitration was seated in the DIFC.

The inconsistency between DIFC law and the New York Convention was highlighted by the DIFC Court of First Instance in 2012 in two rulings on the issue. In Injazat Capital v Denton Wilde Sapte & Co, Justice Sir David Steel took a literal reading of DIFC 2008 Arbitration Law and refused to stay an action before the DIFC Court despite the contract providing for disputes to be referred to LCIA arbitration in London. However, less than six months later in IES v Al Fattan, Justice Williams QC granted a stay in support of an arbitration outside the DIFC, ruling that the DIFC arbitration law was silent on the issue of stays for arbitrations seated outside the DIFC and that the court could use its inherent discretion to issue such a stay.

While the IES decision was broadly welcomed by arbitration practitioners, bringing the interpretation of DIFC law back into line with terms proper of the New York Convention, conflicting legal authorities remained. The amendment on 15 December 2013 has now resolved the uncertainty and has underlined the DIFC’s public position as a jurisdiction supportive of arbitration.