Does Dubai need more than one arbitration centre?

The answer to this question would most likely be yes if each centre was serving a purpose unique to it or if one of the centres was serving a particular industry or practice. However, in the absence of this rationale questions quite rightly arise as to the justification for having two arbitration centres in Dubai located only few kilometres from each other.

These questions are compounded in these difficult financial situations where the general trend is to consolidate and combine efforts in order to cut down unnecessary expenses and avoid duplication. Having two arbitration centres having the same purpose, attempting to achieve the same goals and addressing the same audience is definitely not in line with cutting costs, increasing efficiency and consolidating efforts!

Even if one ignores the valid question of the constitutionality of a Dubai International Financial Centre (DIFC) establishment extending its services beyond the geographical boundaries stipulated by federal laws, the recent joint venture between the DIFC and the London Court of International Arbitration (LCIA) still raises many justified questions.

The first question is with regard to the need for outsourcing Dubai's arbitration work to a foreign jurisdiction. Arbitration practice is seen to be adding value to the image of a city. How can that be then achieved by Dubai if it is seen to be referring all of its arbitration work to another city?

One also fails to understand the benefit for the parties to the transaction in dispute. If the parties to a contract wanted their dispute to be resolved under the auspices of the LCIA then they would have stipulated so in their contract. The parties certainly do not need to have the LCIA administrating their dispute through a Dubai "agent" with all the additional expenses and time that this would incur.

In addition, this joint venture defies the whole logic of establishing the DIFC. The DIFC was founded in order to attract to the region some of its financial business which is being carried out in other financial centres of the world.

The structure was built around the idea that the DIFC has the capabilities needed to carry out such transactions be it the legal framework, the regulatory structure or the dispute resolution mechanism. In doing so, the DIFC was a pioneer in augmenting its own structure with international expertise to strengthen its ability to carry out highly complicated financial transactions at the same level of sophistication as is done in world class centres. However, the DIFC never contemplated, for example, outsourcing its regulatory authority to the Financial Services Authority (FSA) in London. So is this outsourcing of the arbitration work to the LCIA an admission that the DIFC is not capable of managing its arbitration centre and that it needs to farm it out to a foreign entity?

Furthermore, this joint venture misses another important point. Having an arbitration centre is not merely a means of deriving income or merely resolving disputes. One of the advantages of having an arbitration centre in a particular city is to promote a viable arbitration culture and industry and to build local expertise and capabilities.

Building local capabilities and expertise can only be achieved by having a fully operating and functional centre within the country and not by passing work off to other jurisdictions. The International Criminal Court (ICC) and LCIA have built their international reputations by enhancing their own capabilities. It is true that this did not happen overnight, but it did happen.

The writer is managing partner of Dubai-based Habib Al Mulla & Co law firm.