Thanks to a new law, Dubai businesses now have a choice whether to resolve disputes in the DIFC or the civil courts. Afridi & Angell’s Khadija Ali reports

Dubai’s Law No (16) of 2011 is the current hot topic in the region’s legal community. By virtue of a decree issued by His Highness the Ruler of Dubai on 31 October 2011, the new law extends the jurisdiction of the common law courts of the Dubai International Financial Centre (DIFC) and places Dubai firmly on the map as a key legal centre in the region.

Since its promulgation, the law has been welcomed as one that will offer a choice to the business community over whether the DIFC courts are the more appropriate fora in which to resolve certain disputes, in particular as opposed to the civil law courts of Dubai.

The major development through the law is that the DIFC courts may now be engaged to hear civil and commercial claims, not only pursuant to its exclusive jurisdiction (as amended by the new law), but also where parties agree to opt into the DIFC courts’ jurisdiction.

The DIFC courts’ exclusive jurisdiction can be invoked where a civil or commercial dispute falls under one of the five jurisdictional gateways set out in Article 5A (1) of the law. As previously, each one of these gateways still necessitates a connection to the DIFC, whether territorial, transaction related, based on the identity of the parties or depending on the subject matter of the proceedings. Where a civil or commercial claim falls under one of the jurisdictional gateways under Article 5A (1), the DIFC courts automatically have exclusive jurisdiction over the matter to the exclusion of any other court, subject to any expressly agreed opt-out provisions.

The DIFC courts’ exclusive jurisdiction has already been the subject of at least two recent DIFC Court of Appeal judgments. One such judgment was that of Corinth Pipeworks SA v Barclays Bank PLC [CA 002/2011], in which the Court of Appeal considered the extent of the DIFC courts’ exclusive jurisdiction under Art 5A (1)(a). Corinth claimed damages for an alleged tort committed outside the DIFC by an employee of a branch of Barclays Bank located in Jebel Ali in Dubai, arguing that the DIFC courts had jurisdiction over the claim because the term ‘centre establishment’ under Article 5A (1)(a) applied to the respondent as a single legal entity, not just to its DIFC branch.

The Court of Appeal agreed, and its judgment is now authority for the proposition that where a business operates within the DIFC but is not separately incorporated in the DIFC, it is a branch office and not a separate legal entity to the larger company. Since the designation ‘centre establishment’ must relate to a legal entity, the term applies not only to the branch office, but to the company as a whole.

Therefore, unlike jurisdiction under paragraphs (b) and (c) of Article 5A (1), paragraph (a) does not require any conduct or transaction by the DIFC branch of a company. Faced with the prospect of it being said that this would be an excessive exercise of jurisdiction by the DIFC courts over any foreign company with a branch in the DIFC, the Court of Appeal also made clear in its judgment that the wide jurisdiction under this gateway will be tempered by the doctrine of forum non conveniens, which is the discretion to decline jurisdiction on grounds that there is a more appropriate forum to hear the case.

It is, however, Article 5A (2) that now gives parties, wherever located, a choice to expressly refer civil and commercial disputes to the jurisdiction of the DIFC courts, even where there is no connection to the DIFC. Parties can, at the time of contracting, expressly agree in writing to submit to the jurisdiction of the DIFC courts in the event of a dispute, and in the absence of an express jurisdiction clause to an agreement, parties also have the option of expressly agreeing, once a dispute has arisen, to submit to the jurisdiction of the DIFC courts, provided there is no final judgment issued by another court on the matter.

Considerations for local, non-DIFC companies include the fact that while both the DIFC courts and Dubai civil courts provide a recourse to justice, the procedure in each court is quite different, reflecting the differences between the civil and common law systems under which they operate. For example, in comparison to theDubaicivil courts, litigants before the DIFC courts would be able to introduce oral testimony and submissions as a right rather than exception.

Also, summary procedures are available for straightforward claims; the process of discovery is not an unusual one; there is the option to apply for injunctive relief, which is generally unavailable in the local courts; and there is the option of appointing independent experts where necessary. Importantly, a successful party to a dispute would be able to recover its reasonable legal costs from the other side.

This factor alone makes the option attractive to a party confident in the strengths of its case and would act as a deterrent to spurious claims, not to mention that it would also encourage pre-litigation attempts to settle when parties are faced with the potential legal costs of the opposing party if matters were to proceed to litigation. The public nature of proceedings in the DIFC courts will also be a matter for consideration.

Essentially, the development will provide contracting parties with the option of, in appropriate circumstances, agreeing to the jurisdiction of the DIFC courts in a manner similar to the way parties across the world are able to agree to submit disputes to the jurisdiction of certain courts, such as the English commercial court. The parties, at the time of contracting, would also be able to agree to a choice of law to be applied in the event of a dispute.

As such, it is significant to international companies doing business in the region by making dispute resolution an easier and more familiar process and providing an attractive alternative to theDubaicivil courts. In this respect, and particularly relevant to international commerce, the DIFC courts are well-acquainted with common and English law principles relevant to, for example, loan and credit facility agreements, insurance contracts, shipping, energy and construction disputes.

Therefore, such disputes may well be better suited to the jurisdiction of DIFC courts, particularly in light of the practice of theDubaicourts of applying United Arab Emirates (UAE) law to a dispute regardless of the parties choice of law within their contracts.

The proceedings being conducted in the English language is also attractive to parties conducting business in English, and the translation of agreements and documents into Arabic, which always carries a risk of inaccuracy and ambiguity, is avoided. In the past, these factors have led to an increased tendency for parties (and in particular foreign parties) to elect for institutional arbitration as a forum for dispute resolution in place of the local courts. However, the clear advantages over referring matters to arbitration include the transparency of proceedings before the DIFC courts, the independence of the judiciary and the availability of an appeal process.

Once a final judgment is issued and ratified by the DIFC courts, and where it becomes necessary to enforce such a judgment outside the DIFC, it is done so in accordance with the rules and procedure applicable in that jurisdiction. As far as the enforcement of judgments in the rest ofDubaiis concerned, the executive judge of the DIFC courts will issue a letter addressed to the chief justice of the Dubai Court of First Instance accompanied by a legal translation of the judgment to be enforced and an executive deed affixed to the judgment.

Thereafter, theDubaicourt will enforce the judgment in accordance with the UAE Civil Procedure Code. Also by virtue of federal law, judgments of the Dubai court that require enforcement in another emirate are referred by the Dubai courts to the execution court of the relevant emirate for enforcement. Therefore, it would be expected that judgments of the DIFC courts that require enforcement in another emirate will be submitted to the Dubai Court of First Instance, which will subsequently refer the matter to the relevant execution court in the other emirate for enforcement.

The development is not only big news for big businesses – smaller businesses and parties with smaller claims have also appeared keen to refer matters to the DIFC courts’ small claims tribunal (SCT) in the interests of having matters dealt with expeditiously. The SCT is able to hear and determine claims that fall within the jurisdiction of the DIFC courts where the value of the claim does not exceed DH100,000 (£17,400). Claims that exceed DH100,000 but are less than DH500,000 (£86,700) can also, by written agreement between the parties, be referred to the SCT.

Generally, the rules of procedure are more flexible in the SCT and the parties are not represented by lawyers at the hearings. In line with this, costs awards are not made in the SCT. However, the benefits of having straightforward matters dealt with by the SCT include the saving of both time and money. On average, matters are dealt with in the SCT within one month of lodging a claim.

Looking forward, contracting parties will have to draft the jurisdiction clause into their agreements, unless they otherwise agree to opt into the jurisdiction of the DIFC courts when a dispute arises. As such, it is anticipated that it may take several months before the impact of this development is fully witnessed.

Even though Law No. (16) has so far been received with open arms, there are still some questions that remain unanswered, such as: what happens when the parties agree to submit a matter to the jurisdiction of the DIFC courts that is within the exclusive jurisdiction of another forum like, for example, the rent committee for rental disputes in Dubai? The practical effect of possibly having to stay inconclusive proceedings that have been commenced in another court is also yet to be seen. Moreover, constitutional challenges may be presented owing to the fact that the UAE constitution confers the federal Government with exclusive legislative jurisdiction over certain matters.

It is not expected that there will be one answer to all scenarios. Each case will have to be assessed individually and it will only be through trial, error and judicial co-operation that a final judgment will in due course be handed down. Ultimately, it is the availability of choice that is most encouraging and, thus, the interim judgment is a favourable one.