Introduction
The United Arab Emirates, as per its Constitution is an Independent, Sovereign, Federal State[1] with Arabic as its official language[2] and Islamic Shariah as its main source of law[3]. Naturally, litigation in the UAE before its local courts are held in Arabic language and the source of legislation is the Islamic Shariah. However, the UAE has also created an alternative system within its jurisdiction that enable parties to get their disputes resolved by a common law court in English language which is enforceable in the UAE[4]. The purpose of this post is to take a brief look at the establishment and jurisdiction of the DIFC Courts and its viability as an alternative to the UAE Civil Courts.
Background
The UAE Constitution sets up a Union judiciary, but it makes it clear that the local judicial authorities in Each Emirate will have jurisdiction in all matters not assigned to the Union judiciary[5]. Article 120 and 121 of the UAE Constitution lists out matters in which the Union legislature has exclusive jurisdiction. The Emirates will have jurisdiction on all matters that were not explicitly within the legislative competence of the Union under Article 120 and 121[6]. A constitutional amendment in 2004[7] amended Article 121 and permitted the Union Legislature, by Federal Law, to legislate on the order and manner of establishing financial free zones and the boundaries within which they are exempted from having to apply the rules and regulations of the Union.
Pursuant to this constitutional amendment, the UAE issued Federal Law No 8 of 2004 which permitted the Union Government to establish financial free zones by issuing a Federal Decree[8]. It made it clear that the Federal civil and commercial laws will not be applicable in the financial free zones[9]. The Dubai International Financial Centre (DIFC), a financial free zone in the Emirate of Dubai was established by Federal Decree No 35 of 2004. The Emirate of Dubai is empowered[10] to issue legislation necessary for the conduct of the DIFC within the scope of its objectives.
Accordingly, the Emirate of Dubai issued the Law of the Dubai International Financial Centre[11]. Under this law, the DIFC Courts were bestowed with exclusive jurisdiction to interpret the laws and regulations of the DIFC[12].
The Judicial Authority Law and DIFC Court Law
The Judicial Authority Law[13] established the DIFC Courts to carry out their functions independently and in accordance with the Judicial Authority Law and other laws of the DIFC[14]. The two ranks of the DIFC Courts established under the Judicial Authority Law were the Court of First Instance and the Court of Appeal. The Ruler of Dubai subsequently issued the DIFC Court Law[15] to provide for the independent administration of justice in the DIFC[16] inter alia in accordance with the Judicial Authority Law. Article 13 (1)[17] and Article 60[18] of the DIFC Court Law make it clear that English is the official language of the DIFC Court and proceedings before the Court shall be conducted in the English language. The Law on the Application of Civil and Commercial Laws in the DIFC[19] was enacted in 2004 inter alia to provide certainty on the rights, liabilities and obligations of persons in relation to civil and commercial matters in the DIFC[20] and allow persons to adopt the laws of another jurisdiction in relation to civil and commercial matters in the DIFC[21]. Article 8 (2)[22] of the Law on the Application of Civil and Commercial Laws in the DIFC, subject to circumstances where application of DIFC Law or another law is mandatorily applicable under DIFC Law, gives primacy to party autonomy on choice of application of the relevant law governing their dispute.
Article 5 of the Judicial Authority Law deals with the jurisdiction of the DIFC Courts. As the jurisdiction of the DIFC Courts is derived from the article, it is extracted below in full for ready reference:
“Article 5 – Jurisdiction
- The Court of First Instance:
- The Court of First Instance shall have exclusive jurisdiction to hear and determine
- Civil or commercial claims and actions to which the DIFC or any DIFC body, DIFC Establishment or Licensed DIFC Establishment is a party;
- 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 with DIFC or will be performed or is supposed to be performed within the DIFC pursuant to express or implied terms stipulated in the contract;
- 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;
- Appeals against decisions od procedures made by the DIFC Bodies where DIFC Laws and DIFC Regulations permit such appeals;
- Any claim or action over which the Courts have jurisdiction in accordance with DIFC laws and DIFC regulations.
- 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, whether such agreement is made pursuant to specific, clear and express provisions.
- 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.
- Notwithstanding Clause (2) of Paragraph (A) of this Article, the Court of First Instance may not hear or determine any civil or commercial claim or action in respect of which a final judgment is rendered by another court. “
Article 5 (A) (1) inter alia provides that the DIFC Courts will have exclusive jurisdiction over civil or commercial claims in which DIFC bodies or entities registered in the DIFC are involved or if performance of the contract or obligation is within the DIFC. These provisions have been extensively considered by judgments of the DIFC Courts and can be examined in detail in another post. For the present, I am confining myself to providing a broad outline of the jurisdiction of the DIFC Courts.
The relevant provision that may be of interest to parties that do not have a nexus to the DIFC is Article A 5(2). Article A 5(2) permits parties to elect the DIFC Courts as their preferred dispute resolution forum. The DIFC Courts issued a Practice Direction[23] suggesting model clauses for invoking the jurisdiction of the DIFC Courts under Article 5 A (2) of the Judicial Authority Law. The Practice Direction made it clear that while compliance with Article 5 A (2) was ultimately a matter of interpretation by the Court, the Registry will accept claim forms which contained the model jurisdiction clauses or if the Registry considered that the agreement in question prima facie complied with the requirements of Article 5 A (2).
Execution of Judgments of the DIFC Courts
The Judicial Authority Law[24] and the Protocol of Enforcement between the Dubai Civil Courts and the DIFC Courts lay down the manner in which judgments of each court will be enforced in the jurisdiction of the other. The judgment of the DIFC Courts is directly enforceable in the Dubai Civil Courts in accordance with the procedure laid down in the Protocol of Enforcement between the Dubai Civil Courts and the DIFC Courts.
When should parties choose DIFC Courts over the UAE Civil Courts?
Now that we have established that that parties could confer jurisdiction on the DIFC Courts by agreement, let us consider the reasons to do so. In my view, parties should pay close attention in preparing the governing law and dispute resolution clause of their contracts. After all, in the event of a dispute between the parties, it is the dispute resolution clause that will determine how the dispute between the parties will be decided. If parties are based in the UAE and there is no dispute resolution clause in the contract, the UAE Civil Courts will have jurisdiction over the dispute. A dispute resolution clause becomes relevant where parties wish to oust the jurisdiction of the UAE Civil Court by choosing a different dispute resolution forum such as arbitration or DIFC Courts. Arbitration is the more appropriate forum where parties wish to maintain confidentiality and autonomy over the conduct of the proceedings. DIFC Courts are more appropriate if parties prefer settlement of their dispute by a court of law in English language as against an Arbitrator[25].
All pleadings and documents for submission in a proceeding before the UAE Civil Courts will need to be translated into Arabic, which is the official language of the UAE Civil Courts. The transactional language of a significant number of the expatriate population is not Arabic and I have come across several cases where the volume of documents that were required to be translated into Arabic for submission to court drove up the costs exponentially. DIFC Courts may be a more appealing option also where the contract documents are in English and parties anticipate that most, if not all, correspondence and other documents will be in English language.
I will deal with the rules of procedure governing DIFC Courts and manner of resolution of disputes brought before it in separate posts. Please feel free to reach out to me using the contact form for any comments or if you have any queries.
[1] Article 1 of the Constitution of the UAE
[2] Article 7 ibid
[3] Article 7
[4] There are of course exemptions to this which is a matter for specific advice based on the facts and circumstances of each case.
[5] Article 104. For matters within the exclusive jurisdiction of the Union judiciary see Article 99
[6] Article 122
[7] https://www.difc.ae/files/5714/5449/7479/Constitutional_Amendment_No_1_of_2004_English.pdf
[8] https://www.difc.ae/files/5314/5449/7480/Federal_Law_No_8_of_2004_English.pdf
[9] Article 3 (2) of Federal Law No 8 of 2004
[10] Article 7(3) of Cabinet Resolution No 28 of 2007.
[11] Dubai Law No 9 of 2004.
[12] Article 8 ibid
[13] Dubai Law No 12 of 2004
[14] Article 3(1) ibid
[15] DIFC Law No 10 of 2004
[16] Article 6 of the DIFC Court Law
[17] “13. Court Proceedings
All proceedings before the Courts shall be:
- Conducted in the English language; and
- Open to the public unless otherwise conducted by the presiding Judge in the interest of justice.”
[18] “60. Official Language
English is the official language of the DIFC Court, including the Tribunals of the Court.”
[19] DIFC Law no 3 of 2004
[20] Article 7 (a) of DIFC Law No 3 of 2004
[21] Article 7 (b) of DIFC Law No3 of 2004
[22] “8. Application
- Since by virtue of Article 3 of Federal Law No 8 of 2004, DIFC Law is able to apply in the DIFC notwithstanding any Federal Law on civil or commercial matters, the rights and liabilities between persons in any civil or commercial matter are to be determined according to the laws for the time being in force in the Jurisdiction chosen in accordance with paragraph (2).
- The relevant jurisdiction is to be the one first ascertained under the following paragraphs:
- So far as there is a regulatory content, the DIFC Law or any other law in force in the DIFC; failing which,
- The law of any Jurisdiction other than that of the DIFC expressly chosen by any DIFC Law; failing which,
- The laws of a Jurisdiction as agreed between all the relevant persons concerned in the matter; failing which,
- The laws of any Jurisdiction which appears 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,
- The laws of England and Wales. “
[23] Practice Direction No 1 of 2015
[24] Article 7 of the Judicial Authority Law
[25] Please note there are several factors to be taken into consideration whilst determining the appropriate dispute resolution forum to determine potential disputes arising under a contract. What I have listed here are only illustrative and not exhaustive. Parties should take a considered decision on the appropriate dispute resolution forum for determining their dispute after taking competent legal advice.