HomepageCommercial LawPrivate LawPublic Law & Human RightsCriminal LawEU & International LawCareers

Accessibility

Have Irlen Syndrome, or need different contrast? Click the button below for options.

Background Colours

Subscribe

Enter you email address below to subscribe to free customisable article notifications.

Alternatively, click the button below for our various RSS Feeds (available journal wide, or per section).

Extending the DIFC’s Jurisdiction: a Blessing or Failure?

About The Author

Maxi Kussatz (Writer)

Maxi graduated from the University of Birmingham in 2013, where she studied Law and Business. Having trained with the German Legal Consultancy firm Meyer-Reumann and Partners in Abu Dhabi, Maxi is now returning to the UK to study for here LPC at University of Law Cambridge. Maxi's interests lie in EU Law, International Law, and Intellectual Property.

The Dubai International Financial Centre

The Dubai International Financial Centre (DIFC) is an onshore finance and business free zone, located in Dubai. It was founded in 2004, following the Federal Decrees No. 35 of 2004, No. 8 of 2004 and No. 12 of 2004.  By registering in the free zone, companies enjoy benefits such as exemption from UAE taxation and the UAE’s 51% local ownership rule, which prohibits international companies operating without a local partner. Its objective is to create an optimal environment for financial sector growth. The Centre aims to provide a platform for business and financial institutions to expand into the emerging markets of the Gulf region and to create an environment for progress and economic development in the region by providing business and legal strategies. The DIFC’s Courts’ premises were officially inaugurated in 2007 and by 2008 the Courts started hearing their first cases. 

Parties turn to the DIFC Courts for a range of reasons. Mark Beer, registrar of the DIFC Courts believes that the most appealing factor is the Courts' efficiency. Financial sector firms rely on quick dispute resolution, which is rare in UAE courts due to the lengthy procedures, which arise due to the need for translation of official documents into Arabic, burdensome administration and the UAE Courts’ general slow turnover of cases. The DIFC reports that ninety per cent of small claims are resolved in three weeks or less, and that even 95 per cent of the complex cases, heard in the main Court of First Instance are settled before trial. Settlements are promoted in order to preserve working business relationships, as well as to save time and money.

Firms are drawn to the DIFC Courts due to its operating language being English, instead of Arabic, as in UAE courts. Many international law firms prefer the DIFC Courts as their laws are based on English common law, meaning that lawyers will be more familiar and more comfortable with the system instead of having to deal with Arabic and Sharia law. 

In addition to benefits in operating procedures and other technicalities, it is important to emphasize how beneficial courts such as the DIFC are to commercial success. This article will assess how the abolishment of the limited jurisdiction clause has aided the growth of the international financial sector in Dubai.

DIFC Courts and its limited jurisdiction

The independent judicial system created by the DIFC Courts was designed to meet the highest international standards of legal procedure. The laws and regulations controlling the DIFC are developed by the DIFC Authority, which regulates non-financial activities, in conjunction with the Dubai Financial Services Authority, which regulates financial matters.

Originally, the DIFC Courts consisted of the Small Claims Tribunal, Court of First Instance and Court of Appeal and enjoyed only limited jurisdiction. The Court was only accessible for civil or commercial disputes between parties registered in the DIFC. The DIFC Courts’ restrictive jurisdiction clause was stated in Article 5 of Law No. 12 of 2004, which determined that all contracts or transactions brought forward must relate to the DIFC and does not allow parties to opt into the DIFC Court’s jurisdiction. Article 5 states:

(A) The Court of First Instance:

(1) Without prejudice to paragraph 2 of this Article, the Court of First Instance shall have the exclusive jurisdiction over:

(a) civil or commercial cases and disputes involving the Centre or any of the Centre’s Bodies or any of the Centre’s Establishments;

(b) civil or commercial cases and disputes arising from or related to a contract that has been executed or a transaction that has been concluded, in whole or in part, in the Centre or an incident that has occurred in the Centre;

(c) objections filed against decisions made by the Centre’s Bodies, which are subject to objection in accordance with the Centre’s Laws and Regulations;

(d) any application over which the Courts have jurisdiction in accordance with the Centre’s Laws and Regulations;

(2) Parties may agree to submit to the jurisdiction of any other court in respect of the matters listed under paragraphs (a), (b) and (d) of this Article.

 

The restrictive jurisdiction clause gave rise to much debate, as its limitations were unclear. One particular flaw concerned the overly broad definition of ‘contracts and transactions relating to DIFC matters’. This imperfection led to a multitude of arguments stating that contracts, which were signed on DIFC grounds, should ultimately fall under the DIFC Courts’ jurisdiction as they relate to DIFC matters as discussed in Richard Bell’s article. In 2009 the Dubai Courts and the DIFC Courts signed the ‘Jurisdiction Protocol’, which aimed to clarify the situation.

The Protocol states that all Dubai Courts agree that the DIFC Courts shall have exclusive jurisdiction over civil or commercial cases and disputes involving the DIFC or any company licensed to operate within the DIFC. Furthermore, the DIFC Courts will have jurisdiction over civil or commercial cases and disputes arising from, or relating to, a contract or transaction that has been performed in whole or in part within the DIFC. Cases that fall outside of theses criteria include all criminal cases, which will automatically be dealt with by the Dubai Courts. Following this Protocol, his Excellency Justice Omar Al Muhairi, a resident judge at the DIFC Courts, stated:

The signing of the jurisdiction Protocol is yet another example of the DIFC Courts and the Dubai Courts working together to benefit the community. By clearly defining the jurisdictions governed by each court, cases should not be delayed for reasons of jurisdiction, thus ensuring the timely, cost effective resolution of disputes in the Emirate.

Although the Protocol was designed to clarify Article 5 of Law No. 12 of 2004 by identifying which of Dubai's Courts should hear and determine particular cases, it seems as though the Protocol is simply regurgitating Article 5 and does not provide any substantial guidance. For example, the Protocol does not tackle the issue concerning to what extent a contract needs to be related to the DIFC in order to fall under its jurisdiction. Moreover, the Protocol did not clarify as to whether parties can opt into the jurisdiction of the DIFC Court.

Change of jurisdiction

The aforementioned ambiguity of the jurisdiction of the DIFC Courts consequently resulted in a further change in the law in 2011. Law No. 16 of 2011, which amended Law No. 12 of 2004, was enacted on 31 October 2011 by HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai. Article 5 of the 2011 law outlines the specific situations in which the DIFC Court of First Instance is granted exclusive jurisdiction:

Article (5)

A. Court of First Instance:

1. The Court of First Instance shall have exclusive jurisdiction to hear and determine:

a. Civil or commercial claims and actions to which the DIFC or any DIFC Body, DIFC Establishment or Licensed DIFC Establishment is a party;

b. Civil or commercial claims and actions arising out of or relating to a contract or promised contract, whether partly or wholly concluded, finalised or performed within DIFC or will be performed or is supposed to be performed within DIFC pursuant to express or implied terms stipulated in the contract;

c. Civil or commercial claims and actions arising out of or relating to any incident or transaction which has been wholly or partly performed within DIFC and is related to DIFC activities.

d. Appeals against decisions or procedures made by the DIFC Bodies where DIFC Laws and DIFC Regulations permit such appeals.

e. Any claim or action over which the Courts have jurisdiction in accordance with DIFC Laws and DIFC Regulations.

2. The Court of First Instance may hear and determine any civil or commercial claims or actions where the parties agree in writing to file such claim or action with it whether before or after the dispute arises, provided that such agreement is made pursuant to specific, clear and express provisions.

3. The Court of First Instance may hear and determine any civil or commercial claims or actions falling within its jurisdiction if the parties agree in writing to submit to the jurisdiction of another court over the claim or action but such court dismisses such claim or action for lack of jurisdiction.

To summarise, the parties to a contract or a dispute can assent to submit the dispute to the DIFC Courts. The change in wording to the relevant Article 5A1(b), validates that the ‘coffee shop contract’ (i.e. those contracts signed on the DIFC’s premises, which has many coffee shops) which does not contain an express jurisdiction clause, would fall under the DIFC's jurisdiction.

Benefits of the new law

Three years after the change in law, it is unmistakable that the advantages for the Middle East and the international business community are tremendous. In general, legal advisers of international companies feel more confident with a court system with rules and procedures shaped from common law systems. This may seem peculiar, considering that not all companies come from countries operating with common law systems. Nevertheless, the DIFC’s system of law based on UK common law is much clearer and predictable, especially compared to procedures in UAE courts.

Cases are heard in English in the DIFC Court, ensuring more transparency in the judicial process for international businesses. Contrary to UAE court proceedings, documents, written agreements and correspondence will not have to be translated into Arabic, which reduces procedure time, in addition to reducing expenses and providing greater clarity in the law.

Furthermore, the DIFC provides parties with a superior choice of platform for resolving their commercial and civil disputes by allowing the selection of their preferred legal representatives. Article 12 of the DIFC Court Order No.1 of 2005, provides for the registration of law firms and individuals lawyers, which under UAE law could not represent clients in court:

Article 12:

1. The Registrar will maintain a register of those authorised to issue and conduct proceedings and to appear before the Court on behalf of others.

2. No fees will be payable in respect of entry in the register.

3. Applications for entry in the register must be made to the Registrar and be supported by proof in writing that:

(a) the applicant possesses the right to conduct litigation and/or a right of audience before the superior courts of the jurisdiction in which he practises in civil and commercial matters, and

(b) has sufficient command of the English language in order to conduct proceedings before the Court.

4. A refusal by the Registrar to register an applicant may be reviewed by the Chief Justice.

This provision is vital because in the UAE, lawyers operate at the discretion of the Ruler's court, and so firms must obtain a professional licence from the Dubai Department of Economic Development. A law firm based in the DIFC requires both the Ruler's court licence and an additional commercial licence from the DIFC. Although a foreign lawyer may practise in Dubai, only Dubai nationals are permitted to appear in Dubai Courts. In contrast, DIFC regulations permit any international lawyer qualified in his jurisdiction to appear before a DIFC court, which means that foreign law firms may stay with their original legal representative, instead of having to appoint a local lawyer. This is of great benefit due to the fact that many local lawyers are unfamiliar and inexperienced when it comes to large commercial court cases.

Moreover, the DIFC Courts’ acceptance of foreign arbitration awards within its boundaries encouraged local Dubai Courts to be more accommodating in regards to foreign arbitration awards. Although the UAE ratified the New York Convention (NYC) in 2006, it was not until 2011 that a UAE court enforced a foreign award under the NYC. Since the decision in 2011, other cases have confirmed the UAE’s acceptance of foreign arbitration awards, as was seen in the decision of Macsteel International v Airmech (Dubai) LLC. The Macsteel decision is exceptionally significant given the number of potential arguments that were raised and the force with which the Dubai Courts dismissed them. Macsteel is an essential landmark for Dubai as an international arbitration centre, and is an example of the positive ramifications of the DIFC and the jurisdiction of its courts.

Additionally, DIFC Courts and the Commercial Court of England and Wales entered into a Memorandum of Guidance in January 2013, which outlines circumstances in which one court will enforce judgments made in the opposing country. Although Article 24 of DIFC Law No. 10 of 2004 empowered the DIFC Courts to ratify any judgment from a foreign court, prior to the Memorandum uncertainty remained about whether the DIFC Courts would enforce judgments of the English Commercial Court. Now, however, a judgment made by either Court will be enforced by the other if it is final and conclusive, was not obtained by fraud and is not against English public policy. This unique partnership has made the DIFC a global player, as the Memorandum is the first of its sort the English courts agreed to. The establishment and progress of the DIFC Courts has increased the confidence of foreign companies and courts in Dubai’s ability to provide a competent platform for the advancement of commerce; the signing of the Memorandum has provided further proof of positive business and legal development.

The abolishment of the limited jurisdiction clause, the more frequent acceptance of foreign arbitration awards within local courts as well as the creation of the Memorandum, show a positive development of the UAE’s legal structure to accommodate international economic development. The expansion of the jurisdiction of the DIFC Courts has laid out the groundwork for the positive developments that followed.

Problems that still remain

Although the DIFC Courts has clearly provided many benefits to Dubai’s commercial law landscape, critics advise that choosing recognised and experienced jurisdictions such as the UK, Singapore or New York will be safer when tackling international contracts and complex transactions. The DIFC bears the risk of being a relatively, newly established jurisdiction and remains largely untested. This might cause difficulties for the development of the DIFC Courts as many lawyers will be reluctant to have their cases heard as test cases, and will prefer to await the outcome of similar disputes.

Despite the obvious disadvantage of being a ‘young court’, there is no need to pick at this fact. As Dr. Ahmed Bin Hazeem, Director General of the Dubai Courts says: “[t]his is a very positive development for justice”. For the international business community as well as for the UAE, the establishment of the DIFC and the amendment of the restrictive jurisdiction clause will benefit international commercial business as a whole. Having a fully operational English language court will help extend more services to the region, including non-oil-sector companies, which is vital for the UAE.

Further Reading

Law No. 10 of 2004

Law No. 12 of 2004

Law No. 16 of 2011

For the latest articles straight to your inbox, you can subscribe for free. Alternatively, follow @KeepCalmTalkLaw on Twitter or Like us on Facebook.

Tagged: Banking & Finance, Commercial Law, Company Law, International Law, United Arab Emirates

Comment / Show Comments (0)

You May Also Be Interested In...

A Permanent Investment Court: The Future of the International Investment Regime?

28th Aug 2018 by İnayet Aydeniz Baytaş

Can Foreign Investors Sue The UK For Billions Over Brexit?

3rd Jul 2018 by İnayet Aydeniz Baytaş

On Filters and Votes: Examining Snap's IPO

9th May 2017 by Claire Wallace (Guest Author)

A Glimpse at the New Draft UAE Commercial Companies Law

12th Nov 2014 by Maxi Kussatz

Is it Possible to Trademark a Colour?

11th Jul 2014 by Maxi Kussatz

UK Counts Itself Out of European Account Preservation Order

3rd Jul 2014 by Edmund Day

Section Pick May

The Caspian Sea Convention: International Law Meets International Relations

Editors' Pick Image

View More

KCTL News

Keep Calm Talk Law: Moving Forward

3rd Sep 2019

Changing of the Guard: Moving Keep Calm Talk Law Forward

12th Aug 2018

An Anniversary or Two: Four Years of Keep Calm Talk Law

11th Nov 2017

Rising from the Ashes: The Return of Keep Calm Talk Law

18th Nov 2016

Two Years On, Keep Calm Talk Law’s Legacy is Expanding

11th Nov 2015

Twitter

Javascript must be enabled for the Twitter plugin to function. Click below to visit us on Twitter.

Free Email Subscription

Subscribe to Keep Calm Talk Law for email updates, and/or weekly roundups. You can tailor your subscription on activation. Both fields are required.

Your occupation / Career stage is used to tailor your subscription and for readership monitoring.

Uncheck this box if you do not want to receive our monthly newsletter.

By clicking the Subscribe button, you agree to our privacy policy and terms of service. Please ensure you read these in full.

Free Subscription