By Ajay Shamdasani, deputy editor
Hopes are high for dispute resolution in the Middle East. In September, the Dubai International Financial Centre (DIFC) passed new arbitration legislation – The Arbitration Law. And with disputes in the region on the rise, companies will certainly be reassured by the new code’s existence. But the DIFC is an emerging legal system, with enforcement largely untested and vulnerable. Some fear for its success.
The legislation is well drafted. It’s based on the London Court of International Arbitration’s (LCIA’s) rules, which in turn are influenced by the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration.
Parties also have more choice of law clauses. “In the same way that parties can use ICC [International Chamber of Commerce] rules, they can also use Singaporean rules or the LCIA’s rules,” says Reza Mohtashami, a lawyer with Freshfields Bruckhaus Deringer’s international arbitrati on practice, whose firm was a member of the focus group that reviewed the Law.
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 Nice in theory
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However, enforcing DIFC arbitral awards in the emirate of Dubai raises questions. The DIFC exists within the territory of Dubai and the UAE, but is not part of them jurisdictionally – for civil and commercial matters – since its creation in 2004.
“It is as though the ruler of Dubai basically carved a physical chunk of land out of Dubai and told them to make their own laws,” says Mohtashami. Since the DIFC’s jurisdiction is new and its courts, according to Mohtashami, handle about 20 contract cases annually, more practice is needed in enforcing its arbitral awards to solidify the DIFC’s body of jurisprudence.
And surprisingly, (since the law was passed in September) enforcing offshore arbitral judgment in the DIFC, remains largely untested.
Dubai-based Allen & Overy senior associate Christopher Mainwaring-Taylor expects that there will be cooperation between the DIFC, Dubai and UAE authorities to clarify unresolved issues and that DIFC awards will be enforced within the UAE. He believes more guidance regarding enforcement is necessary.
“Where applicable, the New York Convention [on the recognition and enforcement of foreign arbitral awards] will apply to enforcement beyond the UAE as the DIFC is bound by the same international treaties and conventions to which the UAE is a party,” he says.
There are concerns over the DIFC’s lack of experience. While many of the centre’s legal structures are world class, its relatively sparse track record and what that means for enforcement has been commented on by some.
However, according to the centre itself, in the past three months, four Dubai court orders have been enforced in the DIFC through its courts.
For parties enforcing outside the DIFC, awards under its arbitration legislation and ratified by its courts are enforceable automatically in Dubai. And they don’t need to be reviewed by Dubai courts. And because legislation prohibits Dubai courts from reviewing an award’s merits, they are essentially compelled to make them “Dubai judgements” for the sake of enforceability.
Although, in many respects the UAE’s seven city states are independent, a UAE law applies nationwide. This will mean that awards from other emirates must be enforced across state lines. “Again, it [enforcement of DIFC arbitral awards across the seven emirates] is [largely] untested and people assume enforcement will be automatic. If they can enforce such judgments in Abu Dhabi, Sharjah, and then the entire UAE and Bahrain, then all the GCC countries will come around,” says Mohtashami.
The DIFC’s progress
• September 2004, DIFC opened its doors for business
• September 2005, NASDAQ Dubai opened at the DIFC
• September 2008, DIFC passed the Arbitration Law, the DIFC’s new arbitration centre – the DIFC-LCIA Arbitration Centre – has access to LCIA’s database of seasoned arbitrators
• The DIFC is a 110-acre free zone focusing on six core financial areas: banking services (corporate, investment and private banking); capital markets (equity, debt, derivatives and commodities); insurance and re-insurance; fund registration and asset management; Islamic finance; and professional services
• Financial services within the DIFC are regulated by the Dubai Financial Services Authority (DFSA) which is closely modeled on its UK counterpart