Inside Arbitration: MENA and arbitration in 2022 – Change, development and uncertainty

From shake-ups in Dubai to seats vying for position, 2022 proved a frenetic year for Middle East and North African disputes

2021 saw a seismic shake-up of the arbitration landscape in Dubai. Decree No 34 of 2021 (the Decree) was issued, which abolished the leading regional arbitration institution, the DIFC-LCIA Arbitration Centre, and transferred its future caseload to the Dubai International Arbitration Centre (DIAC). Shortly afterwards, DIAC issued new rules (see our July 2022 edition of Inside Arbitration for more information), which represented a total overhaul of its proceedings.

Nearly a year has now passed since the Decree was passed. In this article, we assess how Dubai has weathered the storm and review other key developments in the Middle East and North Africa (MENA) region.

DIAC – No visibility on the future as yet

After 15 years, the DIAC Arbitration Rules were updated in 2022, bringing them in line with international standards. Further evidence of DIAC's ambition for international growth was its announcement earlier this month that it has refreshed its arbitration court, which is now comprised of 10 prominent international arbitration practitioners from around the world in addition to 3 Emirati practitioners.

DIAC is yet to release its 2022 statistics but we suspect there to be growth in the number of cases registered with the body in 2022. The statistics are unlikely to indicate what percentage of this increase has come from existing DIFC-LCIA arbitration clauses which were transferred to DIAC as a result of the Decree but we expect it to be the majority. DIAC is certainly striving to position itself as the region's leading arbitration centre but it is too soon to tell whether it will emerge as the preferred successor to the DIFC-LCIA Arbitration Centre. As discussed below, a number of other regional institutions have secured an increasing amount of arbitration work in the region over the past five years and may also have benefited from the uncertainty resulting from the release of the Decree.

Dubai Arbitration Week – Post-Covid rebirth

As part of DIAC's positioning as the leading centre for arbitration in the region, it hosted a successful Dubai Arbitration Week in November 2022. The week saw arbitration practitioners return to Dubai in person en masse in stark contrast to the subdued online events of the pandemic years. The week saw 80 events across the five days, with many events being over-subscribed. Panel discussions addressed topics such as arbitrating in the MENA region, recurring challenges in enforcing awards in the MENA region and crisis management in the Middle East.

Unexpected decisions from the Dubai Courts

The past year has also seen some surprising decisions from the Dubai courts. In October 2022, the Dubai Court of Cassation refused to enforce an award issued under the LCIA Arbitration Rules on the basis that, while the award debtor had assets within the jurisdiction (in the form of shares in two companies registered and domiciled in the UAE), the award debtor itself was not domiciled in the UAE. The Court held that, as the UAE companies were not party to the arbitration, and the award did not include a specific order against them, the award could not be enforced against the debtor. This is a surprising decision from the Dubai Courts and seems to contradict the New York Convention (to which the UAE is a party). While there is no system of binding precedent in the UAE, we wait to see any repercussions on enforcement of assets in onshore Dubai.

Clarifications from the DIFC Courts

In a recent blog post (which can be read here), we commented on the decision of the DIFC Courts in Ledger v Leeor [2022] DIFC ARB-016, which found that the power of the DIFC Courts to grant anti-suit injunctions is not a given where the seat of the arbitration is in contention. Rather, the DIFC Courts will only do so where there is a "high degree of probability" that there was an agreement that disputes would be determined by arbitration seated in the DIFC or, otherwise, it was an "exceptional case" such that the DIFC Courts could do so. The key takeaway is that clearly agreeing the seat of arbitration is the DIFC is essential, if parties want the option to apply for anti-suit injunctions before the DIFC Courts.

The English Courts comment on enforcement of English judgments in the UAE

In the recent application for a security for costs order in Invest Bank PSC and Ahmad Mohammed El-Husseini and ors [2022] EWHC 3008 (Comm), the English High Court rejected arguments that there was a real risk of substantial obstacles to enforcement of English Court judgments in the UAE. This was on the basis that:

• the UAE Ministry of Justice had issued a letter to Director General of the Dubai Court, recognising reciprocity with the English courts;
• enforcement proceedings were territorial and therefore it was inherently improbable the UAE Court would assume jurisdiction of the proceedings; and
• there was no reason to suggest the UAE Courts would decline to enforce an English Court judgment due to awarding legal costs being contrary to public policy.

Notably, the judgment follows the enforcement of a UAE Court judgment in England in Lenkor Energy Trading DMCC v Puri [2020] EWHC 1432 (QB). Parties seeking to enforce English Court judgments in the UAE should take comfort that the English Courts are increasingly acknowledging that reciprocity applies between them and the UAE Courts. For more information, see our blogpost on the judgment here.

Vying for position – The growth of MENA arbitral institutions

While the UAE has been taking steps to enhance its standing as an effective arbitration centre in the region, it is not the only country to do so. Other countries have also increasingly recognised the benefit of being seen as a stable arbitral seat with an effective arbitration institution. The release of the Decree has only led to a greater push from those other countries seeking to fill the potential gap in the region.

• The Saudi Centre for Commercial Arbitration (SCCA): The SCCA has been a significant challenger in the region for some time. While its 2022 caseload statistics are not yet available, 2021 saw a 587% year-over-year increase in its number of cases. The SCCA has also recently upped the pressure with two new announcements:
  • In November 2022, the SCCA announced the opening of an office in the DIFC, its first branch outside of Saudi Arabia. The intention is for SCCA Dubai to provide a comprehensive suite of alternative dispute resolution services, including arbitration facilities. The SCCA Arbitration Rules do not specify a default seat of arbitration, so it will be possible for parties to agree that the seat of the arbitration will be the DIFC (and therefore that the DIFC Courts will have supervisory jurisdiction). Meanwhile, the SCCA Arbitration Rules will be applied and its infrastructure utilised – giving DIAC some healthy competition on its doorstep.
  • In November 2022, the SCCA announced the establishment of an independent SCCA court (akin to the courts of other arbitral bodies) to determine technical and administrative issues related to SCCA-administered cases. Fifteen internationally renowned arbitration practitioners, from 13 different countries, will sit on the SCCA Court. The role of the Court (which will replace the current SCCA Committee for Administrative Decisions) will include reviewing emergency applications, determining jurisdictional objections and deciding arbitrator challenges.
• The Oman Commercial Arbitration Centre (OAC): Having introduced new arbitration rules at the beginning of 2021, in July 2022, the OAC and the Chartered Institute of Arbitrators signed a Memorandum of Understanding to work together to enhance the Sultanate of Oman's reputation as an effective dispute resolution centre. With a focus on increasing understanding of the procedure and benefits of arbitration through the Chartered Institute of Arbitrators providing a training programme in Oman, the hope is that the alliance will benefit those doing business in Oman and the wider MENA region. Meanwhile, the OAC continued to grow its profile and caseload in 2022, having introduced new arbitration rules in 2021 and with ongoing initiatives underway to launch new codes of ethics for experts, mediators and arbitrators.
• The Bahrain Chamber of Dispute Resolution (BCDR): The BCDR recently launched the 2022 BCDR Rules of Arbitration which will apply to any arbitration commenced with BCDR on or after 1 October 2022. In addition to a number of changes aimed at enhancing the efficiency of arbitration proceedings, there are two new key provisions under the 2022 Rules. Firstly, there is a requirement for parties to disclose the existence of any third-party funding agreement entered into at any time before or during the arbitration, and the identity of the third-party funder. The intention is it will enable arbitrators to assess whether any third-party funding arrangements result in conflicts of interest, and the impact (if any) on the costs of the arbitration. Secondly, while it was understood tribunals previously had the authority to order security for costs, the 2022 Rules now grant tribunals the express power to do so.

The Organisation of Islamic Cooperation – An increasing focus for investor-state arbitration in the MENA region

What is the Organisation of Islamic Cooperation?

The Organisation of Islamic Cooperation (OIC) was established in 1969 to enhance and consolidate the links between the Islamic member states and strengthen economic co-operation, with a view to achieving economic integration and establishing an Islamic Common Market. It is currently the second largest intergovernmental organisation, after the UN, and has 56 member states.

The OIC Agreement

The Agreement for the Protection, Promotion and Guarantee of Investments among member states of the OIC was signed in Iraq in 1981 (the OIC Agreement). Twenty-seven OIC member states have ratified the Agreement, including the UAE, Saudi Arabia, Oman, Turkey and Nigeria.

Article 17-1 of the OIC Agreement provides that “until an organ for the settlement of disputes arising under the Agreement is established, disputes that may arise shall be entitled through conciliation or arbitration”. The OIC Agreement then provides detailed procedures for the settlement of claims via conciliation and arbitration.

The OIC Agreement makes clear that the decisions of the tribunal are final and binding, with the force of judicial decisions. Importantly, the contracting parties are obliged to implement the decisions of the tribunal in their territory as if they were a final and enforcement decision of its national courts, irrespective of whether it is a party to the dispute or the investor against whom the decision was passed is one of its nationals or residents.

Arbitrations brought under the OIC Agreement

To date, UNCTAD has reported 19 arbitrations under the OIC Investment Agreement. Importantly, 14 of these remain pending as of January 2023. As such, this is a developing area of investment treaty arbitration. Most recently, Primesouth International Offshore, a Lebanese power company, brought proceedings against the Republic of Iraq in relation to the Al-Doura thermal power plant project in Baghdad. Interestingly, Primesouth has initiated arbitration proceedings under the OIC Agreement, as well as a contract-based ICSID claim against Iraq.

Why is the OIC Agreement important?

Some OIC member states, such as Egypt, Libya and Iraq, continue to argue that the OIC Agreement precludes investor-state arbitration, but tribunals have consistently rejected this jurisdictional objection, finding that Article 17 of the OIC Agreement constitutes a valid offer to arbitrate investor-state disputes.