The imposition of reciprocal sanctions by different countries and increased geopolitical tensions have significantly complicated the work of businesses around the world with arbitration mechanisms. Against the backdrop of these events, the attention of businesses that continue to conduct international transactions is increasingly turning to alternative jurisdictions that offer reliable and neutral conditions for dispute resolution via arbitration.
The Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) financial free zones are among such jurisdictions, providing both a world-class legal framework and high-quality services for arbitration of disputes. The features of these financial free zones are discussed in this article.
What are the ADGM and DIFC financial free zones
ADGM and DIFC are financial free zones established under the UAE Federal Law No. 8 of 2004 on Free Economic Zones. According to this law, the UAE financial free zones are exempt from federal laws relating to civil and commercial law. This provision allows free zones to develop their own laws and offer unique business conditions to their residents.
The legal system of both ADGM and DIFC is based on the common law of England and Wales. However, unlike the DIFC, which has largely copied the main provisions and laws of English law, the ADGM applies English case law and some English statutes directly.
However, the feature that distinguishes ADGM and DIFC from other UAE financial free zones is that in addition to the legal system, these free zones also have judicial systems independent of the federal or individual emirates’ systems. The courts in ADGM and DIFC hear cases under rules similar to those of the English Civil Procedure Rules (CPR), the process is conducted and judgements are rendered and published in English. In addition to their own court systems, the ADGM and DIFC have also adopted arbitration laws based on the UNCITRAL Model Law, which allows choosing these jurisdictions as seat of arbitration.
The specific features of these zones and their arbitration laws are discussed below.
Dubai International Financial Centre
The Dubai International Financial Centre (DIFC) was established in 2004 and has quickly become the leading financial centre in the Middle East. Arbitration at DIFC is governed by the DIFC Arbitration Law 2008 (as amended in 2013).
This law is largely based on the UNCITRAL Model Law on International Commercial Arbitration (1985/2006), the English Arbitration Act 1996 and parts of Japanese and German arbitration law. The Law applies where the DIFC is chosen as the seat of arbitration, regardless of the connection of the dispute with the DIFC, the place of incorporation of the parties’ legal entities or the place of their operation.
In addition to the standard dispositive provisions on confidentiality, the appointment and challenge of the appointment of arbitrators, and the conduct of the arbitration proceedings, the law provides the following provisions:
- The parties to the arbitral proceedings may request the Arbitral Tribunal to issue an interim award for interim measures aimed at preserving evidence, securing a claim, preventing the other party from doing something or preserving the status quo between the parties. The arbitral tribunal’s interim award granting interim measures may, with the approval of the arbitral tribunal, be recognised and enforced through the DIFC court; and the DIFC court’s award may be recognised and enforced in the UAE through the Dubai courts under simplified procedure.
- In addition to the grounds for setting aside an arbitral award listed in the UNCITRAL Model Law, the DIFC law provides for setting aside an award if the DIFC Arbitration Law or other DIFC laws provide for the exclusive competence of another body to hear the dispute. The absence of this ground for setting aside shall be verified by the court on its own initiative.
- The parties to the arbitration, as well as the arbitral tribunal itself, may request assistance from the DIFC in gathering evidence. Such assistance may, for example, include orders requiring witnesses to give oral evidence in the proceedings or third parties to produce documents or other evidence that may be required in the proceedings.
All proceedings in the DIFC Court to obtain arbitration assistance or to set aside an arbitration award are conducted in English, but parties to the proceedings require a lawyer on the DIFC Court’s register. The approximate rate for such a lawyer can be as high as $800-1000 per hour.
Abu Dhabi Global Market
The Abu Dhabi Global Market (ADGM) was established later, in 2013, as an alternative and competitor to the DIFC. The Arbitration act (Arbitration Regulations), also based on the UNCITRAL Model Law and other laws of leading pro-arbitration jurisdictions, was adopted in 2015.
The ADGM Arbitration Regulations have the following features:
- The Arbitration Regulations provide for all the provisions that distinguish the DIFC Law from the UNCITRAL Model Law on International Commercial Arbitration (with the exception of the additional ground for setting aside an arbitral award – in this respect the ADGM Regulations are fully consistent with the UNCITRAL Model Law).
- The ADGM Regulations provide for provisions additional to the DIFC Law, such as on the proper behaviour of the parties and their representatives during the arbitration proceedings.
- ADGM court judgments have a broader regime of recognition in the UAE under simplified procedure than DIFC court judgments: ADGM court judgments can be recognised under simplified procedure in any federal court in the UAE, Abu Dhabi and Ras Al Khaimah courts (while DIFC court judgments are recognised only in Dubai courts under simplified procedure). This provides the parties with a more expeditious mechanism for enforcing, for example, an interim measures order against a party to arbitration proceedings.
Proceedings before ADGM courts (including those relating to the facilitation of arbitrations with the seat of arbitration in the ADGM) are also simplified in comparison to DIFC courts. In particular, this is reflected in the fact that any lawyer from any country with 5 years of continuous legal experience is entitled to appear before the ADGM courts, which allows the parties to find a representative, for example, in their own country.
How ADGM and DIFC can be useful for businesses
When entering into contracts with foreign counterparties from sanctioned countries, businesses can agree to resolve disputes in any arbitration institute (International Court of Arbitration at the International Chamber of Commerce (ICC), Arbitration Institute of the Stockholm Chamber of Commerce (SCC), Hong Kong International Arbitration Centre (HKIAC), Dubai International Arbitration Centre (DIAC), or the Russian Arbitration Centre) with the seat of arbitration in the DIFC or ADGM. This will enable, in the event of a dispute, prompt and comprehensive facilitation of proceedings by the judicial systems in the relevant jurisdictions under familiar rules based on English law.
If arbitration clauses have already been agreed, it is possible to additionally agree on a different seat of arbitration – DIFC or ADGM – when initiating the proceedings. Such a request can be made even if the parties have previously agreed on the seat of arbitration, for example in a European country. Such a move will help avoid the following risks:
- The influence of sanctions legislation of countries on procedural issues of arbitration proceedings;
- The possibility of the arbitral tribunal’s decision being set aside on the grounds of contradiction with the sanctions legislation and, consequently, with the public policy of a country imposing the sanctions.
Conclusion
ADGM and DIFC are attractive and competitive alternative jurisdictions for business to resolve disputes regardless of the sanctions regime of the counterparties.
If you have any questions regarding this article or would like to obtain expert legal advice in connection with arbitration proceedings, please contact members of our International Arbitration practice.
