Overview Focus: DIFC's Jurisdiction

DIFC: A Jurisdictional Overview

The DIFC courts exist as a jurisdictional island within the Dubai panorama.

The Dubai International Financial Centre (the DIFC) Courts were established back in 2004 by His Highness, Dubai's ruler at the time, Sheikh Maktoum bin Rashid Al Maktoum. Providing an independent administration of justice in the DIFC, attempting to ensure that Dubai would offer to its players the highest international standards of justice administration, and at the same time allowing them to benefit from the certainty, flexibility, and efficiency that is usually provided by the common law.

In spite of the limitation of the resolution of civil and commercial disputes, the fact is that in an international hub such as Dubai, the DIFC Courts were and are a welcome alternative to the local jurisdiction. As DIFC Courts use English as the first language and common law rules – when the other option would be the local Courts’ continental system, which litigates in Arabic.

Thus, the importance of DIFC Courts has been growing in Dubai as a sound alternative. On the one hand, they are the exclusive jurisdiction for companies - whether individuals or multinationals - established in DIFC or for transactions finalized within its territory; further, parties to a contract may come to a written agreement to approach the DIFC Courts in the case of a dispute.

Governing Law and Jurisdiction – Where DIFC meets English Common Law

Nowadays and having in mind the Westernization of the Islamic culture, the majority of the contracts will establish two mandatory clauses that will decide the future of the contract in case of dispute – the governing law and the jurisdiction clause.

And while the governing law will be of essence to decide the legal framework that will apply to and govern the contract, the jurisdiction clause will determine the place where the case will be heard, being the parties given the option to choose between Courts and Arbitration, with exclusive or non-exclusive jurisdiction. We have already mentioned that the DIFC Courts will have exclusive jurisdiction over some matters, namely over commercial or civil disputes and cases, those that involve the Centre itself or any of its Bodies or Establishments. Those that arise from or relate to an executed contract or a concluded transaction, in whole or part in the Centre, or an incident that has taken place in the Centre. Finally, any objections that are subject to objection by the Centre's Regulations and their application based on the jurisdiction such Regulations bestows upon the Centre.

Furthermore, where the parties agree in writing, they can decide to have the DIFC Courts as jurisdiction in the case of dispute. And there we are, at the meeting point where the DIFC Courts will be able to get around the country’s civil system and apply the English Law. Before proceeding, it is important to clarify that as per the Article 8 of the DIFC Law number 3 of 2004 on the application of civil and commercial laws in the DIFC, the DIFC courts shall follow a particular order when applying the law. Accordingly, DIFC law is applicable within the Dubai Financial Centre in spite of any relevant Federal Laws, and the rights and liabilities of two parties to any matter will be determined as such.

It will always be most desirable for any disputes arising from two different agreements such as a share pledge agreement and a loan agreement to be heard and settled in the same place. The only medium that satisfies the jurisdictional requirements are the courts of Dubai. Take, for example, Ras Al Khaimah which is an Emirate within the UAE, DIFC Courts are not within the scope under the 2009 Loan Agreement, neither was it selected as an alternative for English jurisdiction by SCB under the 2010 agreement, nor was at an agreed medium under the Share Pledge Agreement. As English Law governs the 2010 Loan Agreement, it can be concluded that the DIFC Courts are better equipped to apply it than the courts in Sharjah. Further, as Sharjah courts require translation of all documents that are not in the Arabic language, all three agreements would require translation. However, this process would be both time-consuming and costly causing a rise in potential dispute. Further, the second paragraph, in agreement with the current law in force, of Article 8 continues by stating that:

‘The relevant jurisdiction is to be the one first ascertained under the following paragraphs:

(a) so far as there is a regulatory content, the DIFC Law or any (all or) other law in force in the DIFC; failing which,

(b) the law of any Jurisdiction other than that of the DIFC expressly chosen by any DIFC Law; failing which,

(c) the laws of a Jurisdiction as agreed between all the relevant persons concerned in the matter; failing which,

(d) the laws of any Jurisdiction which appear to the Court or Arbitrator to be the one most closely related to the facts of and the persons concerned in the matter; failing which,

(e) the laws of England and Wales.’

Accordingly, in the case of failure of any of the previous four (4) options, the laws of England and Wales will be applied by default to the matter. And this provision is a welcome exit strategy, allowing the Courts to use one of the most developed and dynamic legal systems in the world. An example of this possibility is Dutch Equity Partners Limited v Daman Real Estate Capital Partners Limited{C}{C}{C}[i]{C}{C}{C} (Dutch Equity), where the first instance judgment decided to apply the UK Companies Act of 2004, as there was no Companies Law in DIFC till 2006. Nowadays, the principle remains the same for the majority of cases that are blessed with international parties which prefer to rely on the well-known common law. To apply the English Law to areas not covered by the DIFC law, or even use the common-law principles and jurisprudence as an authority against the reasoning and decision of any case where DIFC did not legislate yet.

Following this line of thought comes the second question: where the agreement doesn't provide for jurisdiction or mentioned the Courts of England non-exclusive jurisdiction, stating that the governing law will be the English Law, will the DIFC be a possible option, as it avowedly applies the English Law?

The DIFC had the opportunity to discuss the issue in Mr. Philippe Choque v (1) Mondial (Dubai) LLC (2) FPA Lts (3) Financial Partners Holding Limited{C}{C}{C}[ii]{C}{C}{C} that the deed will be construed and governed by and per English Law. The assignor and the company will submit to the English Courts' non-exclusive jurisdiction. The document which is from 1996 between the second/third respondents and the claimant is not relevant and does not directly involve DIFC. Neither does it create a link to the DIFC jurisdiction allowing and inference.

This decision leads us to assume that despite the English law being a recognized source and applicable by DIFC courts, the consent of the parties or the connection with DIFC (whether through the parties or the transaction) is a must to submit or refer a dispute to the DIFC Courts.  Resulting in considering themselves incompetent and refuse the case if this is not fulfilled.

A second decision has also been made on this jurisdiction matter in Standard Chartered Bank v Investment Group Private Limited{C}{C}{C}[iii] approached the DIFC Courts with two loan agreements. One was subject to the courts of the United Arab Emirates and the second was expressly subject to English Law in addition to a Share Pledge Agreement that must be regulated by the jurisdiction of the Dubai Courts. As the three agreements must be heard in one case only, a solution needed to be found. Each agreement would offer a different jurisdiction for resolution. However, DIFC Courts appeared as a natural choice that would fulfill the requirements of all three contracts. DIFC Courts being a UAE court, based in Dubai, that would be able to apply English Law. The DIFC Courts dismissed a jurisdictional objection and accepted the jurisdiction and the role of reviewing the matter for the following reasons:

1. the agreements were in English;
2. the convenience of the language;
3. the fact that DIFC Courts would be more qualified to apply English law than Sharjah courts;
4. the fact that the Sharjah Courts (that would be the forum under 2009 Loan Agreement) –would not fulfill the requirement of the 2010 Loan Agreement requesting for the application of the English Law and would also not comply with the Share Pledge Agreement; and
5.  
6. where the parties agreed that the forum would be a Dubai Court Dubai and Sharjah are adjacent.

Enforcement Techniques

Despite the necessity as mentioned above of a connection point between parties, agreement or transaction with DIFC for the Courts to accept the dispute, we will have a different scenario when it comes to the execution of the matter. Where a winning party attempts to execute a case that has already been adjudicated on by the English Courts before the DIFC, the DIFC Courts will be able to entertain it. Due to a Memorandum of Guidance as to Enforcement has been signed between the DIFC Courts, the Commercial Court, the Queen's Bench Division, and England and Wales, without binding legal effect. Which allows DIFC Courts to issue orders, even if interlocutory, regarding restitution, disgorgement, compensation, or damages; and to issue or direct the issuance of any writs if deemed necessary, when it has jurisdiction according to the English rules. This Memorandum signed in 2013, attempts to burst the cooperation between the parties and improve the debt recovery system.