Abstract
The Middle East holds a critical position in the global energy market due to its vast oil and gas reserves. However, the region faces numerous challenges, such as fluctuating oil prices, geopolitical instability, regional unrest, and growing pressure to adopt sustainable energy practices. Effective dispute resolution mechanisms are essential to address conflicts arising from energy contracts’ complex and valuable nature. The Dubai International Arbitration Centre (DIAC) has traditionally played a key role in resolving such disputes, providing a reliable and cost-effective arbitration framework. Recently, the Abu Dhabi Global Market (ADGM) Arbitration Centre and Arbitrate AD in Abu Dhabi have gained prominence, introducing new dynamics to the UAE’s arbitration landscape. This essay explores the current challenges in the Middle Eastern energy sector, assesses the roles and effectiveness of DIAC in resolving energy disputes, and presents notable case studies to highlight the importance of each institution. This essay explores the current challenges in the Middle Eastern energy sector, assesses the roles and effectiveness of DIAC, ADGM, DIFC and ADCCAC in resolving energy disputes, and presents notable case studies to highlight the importance of each institution.
Introduction
Due to its vast natural gas and oil reserves, the Middle East has long been a cornerstone of global energy production. The region’s strategic importance is heightened by regulatory complexities, geopolitical conflicts, and the ever-evolving energy markets, which also pose unique challenges. With the dissolution of DIFC-LCIA, the importance of conflict resolution bodies, such as the Dubai International Arbitration Centre (DIAC), has increased in the UAE.
The Middle East faces several significant energy-related challenges. First, ongoing geopolitical conflicts present a persistent issue. The Israeli-Palestinian conflict, the civil war in Syria, and tensions between Iran and Saudi Arabia are among the many regional disputes. These conflicts can disrupt energy supplies and create uncertainty in the global energy market, affecting both international relations and regional stability.
The energy sector is highly regulated, with each country having its own set of rules and regulations. Understanding and implementing these laws can be particularly challenging for foreign companies operating in the region.
The Middle East is undergoing a significant economic transformation. Countries, particularly those in the Gulf Cooperation Council (GCC), strive to diversify their economies away from oil dependence. This requires substantial investments in renewable energy technologies such as wind and solar power and a balanced approach to managing existing and emerging energy sectors. This transition introduces new challenges and potential conflicts as the region adapts to a changing energy landscape.
Lastly, substantial financial investments are required to develop the Middle East’s energy infrastructure. These investments are fraught with risk due to fluctuating oil prices and political instability. Effective dispute-resolution mechanisms are essential to protect these investments and resolve any arising conflicts.
The Role of DIAC in Addressing Energy Disputes:
One of the top arbitration centers in the Middle East is the Dubai International Arbitration Centre (DIAC), which offers a fast, impartial platform for settling business disputes, notably those involving the energy industry. This is an evaluation of DIAC’s applicability in the present situation:
Dubai operates two parallel legal systems:
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Onshore Jurisdiction: Governed by federal laws of the United Arab Emirates and local laws of the Emirate of Dubai, this civil law system conducts proceedings in Arabic in the local courts. Arbitrations under the Rules of DIAC, which are seated in onshore Dubai and governed by UAE laws, are supervised by onshore courts, while those contracts based on a different legal system with a foreign seat of arbitration will be governed based on the law of the country stipulated in the contract,
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Offshore Jurisdiction (DIFC): The Dubai International Financial Centre (DIFC) follows English common law, with proceedings conducted in English. The DIFC has its own arbitration laws and serves as an alternative seat for DIAC arbitrations.
Following the issuance of Decree No. 34 of 2021 in September 2021, the Dubai International Arbitration Centre (DIAC) replaced the Dubai International Financial Centre-London Court of International Arbitration (DIFC-LCIA) and the Emirates Maritime Arbitration Centre (EMAC), consolidating all arbitration in Dubai under a single institution. The 2021 decree reshaped the Dubai International Arbitration Centre (DIAC) as the sole arbitral institution in Dubai, extending its operations to both onshore Dubai and the DIFC. Since this consolidation, DIAC has undergone significant transformations, including the adoption of new arbitration rules and a revamp of its administrative functions, positioning itself as the central hub for arbitration in Dubai. To enhance DIAC’s global standing, its administration now includes both foreign and Emirati practitioners, and plans are underway to establish a list of registered arbitrators. In February 2023, Dr. Michael Pryles was appointed President of the DIAC Arbitration Court.
The 2022 DIAC Rules introduce significant updates, making DIAC arbitration more attractive, particularly for energy disputes. Key features include the option for a Dubai or DIFC seat, third-party funding, virtual hearings, and provisions for consolidation, joinder, and awarding legal costs.
For the complex nature of energy disputes, the 2022 DIAC Rules introduce provisions that allow a tribunal to hear disputes involving multiple contracts (article 8) and enable the joinder of additional parties to an arbitration (article 9). The rules also allow for the consolidation of proceedings, which is crucial for managing interconnected disputes (article 8). These provisions align DIAC with other leading arbitral institutions’ rules, making it more capable of handling intricate disputes typical in the energy sector. However, it remains to be seen if they will establish DIAC as a leading global arbitration hub.
Furthermore, energy disputes in the Middle East have led to significant arbitration cases. Traditionally, the ICC International Court of Arbitration (ICC) and the London Court of International Arbitration (LCIA) have been the preferred arbitral institutions for the energy sector. In 2020, 18 per cent of ICC arbitrations and 26 per cent of LCIA’s total caseload involved energy-related disputes, with 17 per cent of LCIA’s cases involving parties from the Middle East and North Africa. One such example is set out below:
Iraq vs. Turkey (ICC Arbitration):
Iraq initiated an International Chamber of Commerce (ICC) arbitration against Turkey and its state-owned pipeline operator, BOTAS.
The Iraq-Turkey Pipeline (ITP), in operation since the 1970s, lies at the heart of the conflict. The pipeline is essential for moving crude oil from Iraq’s Kirkuk oil reserves to Turkey’s port of Ceyhan. The oil exports from Iraq’s Kurdistan region without the approval of the country’s federal government were the cause of the war.
The crucial issues to under the case are as follows:
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Breach of Agreement: Iraq accused Turkey of breaking the 1973 ITP Agreement by enabling the Kurdistan Regional Government (KRG) to use the pipeline for autonomous oil exports.
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Unauthorised Exports: Iraq claimed that these shipments were not permitted and that Turkey’s activities had damaged its authority over its natural resources and sovereignty.
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Counterclaims by Turkey: Turkey counter claimed for unpaid transit fees and other charges that Iraq allegedly failed to pay.
Tribunal’s Findings
Award to Iraq: The tribunal found that Turkey had indeed breached the 1973 ITP Agreement by facilitating the export of oil from the Kurdistan region without Iraq’s approval. As a result, Iraq was awarded over USD 1.9 billion in damages.
Award to Turkey: On the other hand, Turkey was awarded approximately USD 500 million for Iraq’s failure to pay certain fees and charges related to the pipeline’s operation.
In the Iraq v. Turkey ICC arbitration, the tribunal meticulously assessed several key factors to determine damages. Firstly, it evaluated the unauthorised oil exports from the Kurdistan region and their financial impact on Iraq, identifying Turkey’s breach of the 1973 Iraq-Turkey Pipeline (ITP) Agreement. Secondly, it calculated Iraq’s financial losses had the oil has been exported under federal control, considering export volumes, market prices at the breach time, and revenue lost due to unauthorised exports. Thirdly, the tribunal addressed Turkey’s counterclaims for unpaid transit fees and pipeline operating costs. Interest was applied to both Iraq’s awarded damages and Turkey’s counterclaims, with rates and periods determined by case specifics and legal principles. The net payment was established by offsetting the awarded amounts, resulting in Iraq receiving approximately USD 1.9 billion for Turkey’s ITP Agreement breach and Turkey receiving nearly USD 500 million for unpaid fees and penalties. This comprehensive approach ensured that the damages accurately reflected the actual financial impact of the breaches and outstanding obligations.
Revamping DIAC: The 2022 Rules and Their Global Impact on Arbitration
With the growth in relevance of Energy Law, the importance of arbitral institutions across jurisdictions have also increased. DIAC being the only arbitral institution in Dubai certainly gains prominence in this respect.
The 2007 DIAC Rules being amended by the 2022 DIAC Rules has given new perspective to DIAC Rules or rather an endeavor has been made to being DIAC on the same platform as other well-known arbitral institutions across the globe.
Previously, DIAC 2007 Rules did not have the provision of legal costs unless stipulated in the agreements. The new Rules in 2022 provides provision of legal costs which is a very welcome move for the parties as legal costs are quite high for commencing or defending a claim in arbitrations relating to energy disputes.
The other important change is the seat of the arbitration, which now has the option of DIFC. This is a most welcome move for international companies that follow the common law system. Under the DIFC laws, procedural laws are more comprehensive than local UAE laws and, as such, more acceptable to foreign investors.
The Dubai International Arbitration Centre (DIAC) has been pivotal in resolving disputes within the UAE and internationally, continually updating its rules to meet the evolving needs of the arbitration community. The DIAC Rules of 2022 signify a major shift from the 2007 Rules, offering a more modern and globally competitive framework. While the 2007 Rules were predominantly focused on domestic arbitration with limited international alignment, the 2022 Rules broadened their scope to effectively cater to both domestic and international arbitration, incorporating global best practices.
The 2022 Rules notably improve procedural efficiency with the introduction of expedited proceedings and stricter timelines, which address the growing need for faster resolutions, particularly in commercial disputes. Unlike the 2007 Rules, which had limited technological integration, the 2022 Rules embrace digital advancements by allowing for virtual hearings and electronic submissions, acknowledging the trend towards the digitization of legal processes.
The process of appointing arbitrators has also been made more flexible under the 2022 Rules, offering increased options for multi-party arbitrations and greater party autonomy, bringing DIAC in line with international standards. The approach to cost management has been enhanced, with the 2022 Rules providing clearer guidelines, including the ability to cap costs and offer early estimates, which was less structured under the 2007 framework.
A significant addition to the 2022 Rules is the recognition of third-party funding, with guidelines for its disclosure and management, reflecting the growing prevalence of this practice in international arbitration. The rules for interim measures have been strengthened, giving tribunals greater authority to grant urgent relief, whereas previously, parties often had to rely on court intervention. Finally, the 2022 Rules strike a more balanced approach between transparency and confidentiality, permitting the publication of awards and public access to certain proceedings while still safeguarding sensitive information. Overall, the DIAC Rules of 2022 represent a thorough modernisation aimed at improving efficiency, integrating technology, and aligning more closely with global arbitration standards, solidifying DIAC’s position as a leading institution in the field.
Advancing Mediation and Modernizing Dispute Resolution: DIAC’s New Initiatives
On 1 October 2023, the Dubai International Arbitration Centre (DIAC) introduced new mediation rules to promote mediation as a cost-effective and amicable alternative to court or arbitration proceedings in Dubai. These rules facilitate the mediators’ preparation of legally enforceable settlement agreements. DIAC has already conducted its first mediation under these rules. Additionally, DIAC has formed strategic collaborations, such as with the Silicon Valley Arbitration and Mediation Center for tech-related disputes and launched a metaverse platform in March 2023 to enable global dispute resolution through virtual reality./p>
Abu Dhabi Global Market (ADGM)f
Established in 2015, ADGM has quickly become a hub for international arbitration due to its modern legal framework and international recognition.
The legal framework of ADGM, which operates under its arbitration regulations, is based on the UNCITRAL Model Law. This provides a vigorous and internationally recognised framework for arbitration. By using its advantageous position and proficiency in managing complex business conflicts, ADGM is concentrating more and more on energy disputes. ADGM Courts are renowned for their technical innovations, such as virtual hearings and e-courts, which are especially helpful in international energy disputes. Recently, ADGM has done tremendous work in adjudicating disputes, not just in the energy sector but also in all possible sectors. To highlight one of many cases herein below:
Union Properties P.J.S.C & Anor. v. Trinkler & Partners Ltd & Others (2024)
An intricate energy infrastructure project was the subject of this lawsuit. In the case, the ADGM Court heard arguments of carelessness and violation of fiduciary responsibility in relation to delays and cost overruns.
The lawsuit included claims of fiduciary responsibility breaches and fraud pertaining to the administration of an energy project. The plaintiffs alleged that the defendants had breached their contractual duties and embezzled money.
The court looked at matters including carelessness, breach of contract, and how certain performance conditions should be interpreted. Applications for supplementary relief and global freezing injunctions were also filed. This case highlights the ADGM Courts’ capability to handle complex energy disputes, providing a neutral and efficient forum for resolution.
Dubai International Financial Centre (DIFC)
DIFC, established in 2004, has also made significant strides in the arbitration domain, particularly with the DIFC-LCIA Arbitration Centre. It is a cooperative initiative with the London Court of International Arbitration; the DIFC-LCIA Arbitration Centre provides a fusion of local and global experience.
The Dubai International Financial Centre (DIFC) Courts have experienced significant growth in 2024, reinforcing their position as the region’s leading forum for English language dispute resolution. In the first six months, the total number of cases filed with the Court of First Instance (CFI) increased by 10%, with a total case value of Dhs1.05 billion across all divisions. The Small Claims Tribunal (SCT) saw a 37% increase in total case value, with 265 claims filed.
The DIFC Courts handled a wide range of disputes across various sectors, including banking, real estate, and intellectual property. They also fully digitised their operations, issuing all orders and judgments electronically and conducting most hearings remotely. The courts’ wills service registered 810 new wills, a 6% increase from the previous year, and saw a 20% rise in registered digital vaults through their ‘tejouri’ service. This continued growth and innovation underscore the DIFC Courts’ expanding role in the region’s legal landscape.
Whereas DIFC is not far behind in handling complex matters with utmost sincerity and precision, to highlight the same, hereinbelow the case will give an insight into the DIFC adjudicating capacity:
Al Buhaira National Insurance Company v. Horizon Energy LLC (2021)
This case involved an insurance claim related to an energy project. The DIFC Court of First Instance examined the validity of the insurance policy and the extent of coverage for the damages claimed.
The Iranian navy took one of Horizon Energy LLC’s boats, and the company submitted a claim for compensation under a Marine Hull and Machinery Policy and a Marine Hull War Policy. After ABNIC denied their claim, Horizon filed a complaint with the Insurance Authority.
The court examined whether ABNIC was liable to Horizon Energy and whether the insurance plans were genuine. Discussions over the meaning of policy provisions and the scope of coverage for the damages sought were also part of the case.
According to the provisions of the insurance policies, ABNIC was responsible, according to the DIFC Court of First Instance’s decision in favour of Horizon Energy. According to the court’s ruling, horizon must compensate ABNIC for the vessel’s loss.
Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC)
The Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC), previously operating under the Abu Dhabi Chamber of Commerce & Industry, has undergone a significant reorganisation. On 30 November 2023, the Chamber’s Board of Directors adopted Resolution No. 75, officially renamed and restructured ADCCAC as the Abu Dhabi International Arbitration Centre, now referred to as “arbitrateAD.” This rebranding marks a new phase for the institution, signalling its enhanced focus on providing a more prominent and globally competitive arbitration service. The reorganisation includes updates to its procedural regulations, positioning arbitrateAD as a key player in the region’s arbitration landscape.
On 1 February 2024, the Abu Dhabi International Arbitration Centre (ADIAC) unveiled its updated arbitration rules, replacing those of its predecessor, the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC). These new rules position ADIAC as a significant competitor to Dubai’s International Arbitration Centre (DIAC), which had itself undergone a major rules update in 2022.
Comparison Study: DIAC, ADGM, DIFC and ADCCAC
Although DIAC has a strong reputation, ADGM and DIFC offer distinct advantages that challenge its dominance. ADGM and DIFC operate under the UNCITRAL Model Law and DIFC Law No. 1 of 2007, aligning with international standards and providing greater assurance to international parties. Additionally, ADGM and DIFC have superior access to international arbitrators and advanced facilities. Their flexible policies and willingness to adopt new methods make ADGM and DIFC particularly attractive to modern businesses seeking innovative solutions.
It is unclear whether DIAC will be well-liked by parties involved in energy conflicts since its new regulations and administrative framework have not been put to much use. In energy conflicts, the 2022 DIAC Rules are appropriate. First, parties may choose to have a seat in the DIFC or onshore Dubai in DIAC arbitrations. The DIFC shall be the default seat if the parties do not choose one (article 20.1).
This is a positive improvement for local and global arbitration, in part because the DIFC has a comprehensive procedural structure based on UNCITRAL; proceedings are supervised by the DIFC court, which has broad authority to provide injunctive and interim relief and favours arbitration. Moreover, the DIFC favours the acceptance and execution of arbitral judgements.
While the ADIAC Rules share many similarities with the DIAC Rules, they also introduce distinct features that may influence parties’ choice of arbitral institution in the UAE.
One of the most notable additions in the ADIAC Rules is the “early dismissal” procedure, outlined in Article 45. This procedure allows a tribunal to quickly dismiss claims, defences, or counterclaims that are manifestly without legal merit, akin to summary judgment in common law courts. This feature, absent in the DIAC Rules, provides a mechanism to efficiently resolve disputes without the time and expense of full arbitration proceedings. The inclusion of this procedure aligns ADIAC with other leading arbitral institutions like the Singapore International Arbitration Centre (SIAC) and the London Court of International Arbitration (LCIA). The application of this procedure is further supported by the legal framework in the Abu Dhabi Global Market (ADGM), where summary disposal procedures are already recognised, potentially increasing the likelihood of enforcement by ADGM Courts.
Another key difference is the threshold for expedited arbitration procedures. Under Article 36 of the ADIAC Rules, claims valued at up to AED 9 million (approximately $2.5 million) can be processed through an expedited procedure, with the aim of issuing an award within four to six months. This threshold is significantly higher than the AED 1 million limit set by the DIAC Rules, making ADIAC an attractive option for parties involved in lower-value disputes seeking a faster resolution. The higher threshold also surpasses those of other UAE-based institutions, such as the ADGM Courts’ Small Claims Division and the DIFC Courts’ Small Claims Tribunal, positioning ADIAC as a strong contender for expedited arbitration in the region.
However, the ADIAC Rules have raised concerns regarding the clarity of provisions related to the awarding of legal fees. Article 50(1) lists the “costs of the arbitration” but omits specific mention of legal representatives’ fees. Although Article 50(6) allows the tribunal to apportion legal costs between the parties, the absence of an explicit definition of “legal costs” could lead to interpretation issues in the UAE’s onshore courts. This ambiguity contrasts with the DIAC Rules, which were updated in 2022 to explicitly empower tribunals to award legal representatives’ fees, following a landmark decision by the Dubai Court of Cassation in 2013 that nullified a DIAC costs award due to a lack of explicit authorisation.
Conclusion
Because of its complexity, the Middle Eastern oil business requires efficient dispute-resolution procedures. DIAC will play a crucial role in the arbitration process due to its well-established reputation, accessibility, and local knowledge, even though ADGM and Arbitrate AD have become formidable competitors. The particular requirements and preferences of the opposing parties and the nature of the conflicts will determine which of these arbitration centres is best.
The 2024 ADIAC Rules represent a significant modernisation of Abu Dhabi’s arbitration framework, aligning it with international standards and making it a viable alternative to DIAC. The introduction of the “early dismissal” procedure and the higher threshold for expedited arbitration are particularly noteworthy, offering parties distinct advantages depending on the nature of their disputes. However, the potential uncertainty around the awarding of legal fees could be a critical factor for parties to consider when choosing between ADIAC and DIAC.
In conclusion, while the 2022 revamp of the DIAC Rules drastically improved Dubai’s main arbitration institution, the new ADIAC Rules bring Abu Dhabi’s arbitration offering into direct competition with its UAE counterpart. As both institutions now provide robust arbitration options, the choice between ADIAC and DIAC will likely depend on the specific needs of the parties and the nature of their disputes. Future amendments and clarifications to the ADIAC Rules, particularly regarding legal costs, will further shape its role in the UAE’s arbitration landscape.
Authors:
Mridul Y Suri is an Associate Counsel at Lex Ensemble FZ LLC
Nalin Arora is a 4th Year B.B.A LLB student at Jindal Global Law School
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Managing Editor: Naman Anand
Editor in Chief: Abeer Tiwari and Harshita Tyagi
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