Sunil Thacker examines the benefits provided by the recent opening of the Dubai International Finance Centre's courts to all parties outside the DIFC jurisdiction.
A question that is usually debated within legal and financial circles is what compels financial services and intermediaries to function from within an international financial centre given that technology would facilitate de-concentration and geographical dispersion. Such questions have been comprehensively answered but the dynamics of the financial system mean these geographies cannot be assumed to be static[i].
The emergence of Dubai International Financial Centre in 2004 set a strong foundation and a platform for corporate houses and financial institutions allowing companies to access regional as well as cross-border regional wealth and investment opportunities. As an international financial centre, Dubai now plays a much more dominant role in the GCC and other parts of the Middle East. The quality and range of DIFC’s independent regulation, common law framework, supportive infrastructure and its tax-friendly regime make it the perfect base to take advantage of the region’s rapidly growing demand for financial and business services.
Besides offering 100 per cent ownership, tax free income, zero exchange controls, the DIFC offers an independent common law jurisdiction. Until recently only companies operating within the DIFC were subject to the jurisdiction of DIFC courts. Companies operating outside the DIFC were subject to the jurisdiction of the traditional Dubai courts, where proceedings took place in Arabic and operated in accordance with the local UAE laws and regulations.
In a recent case (CFI 014/2010 Taaleem PJSC v (1) National Bonds Corporation PJSC and (2) Deyaar Development PJSC), the DIFC Court of Appeal was to determine whether the jurisdiction agreed by parties under the agreement allowed the DIFC courts to consider and decide the matter. In essence, the agreement provided: “Each of the Parties irrevocably agrees for the benefit of the Seller that the courts of Dubai, UAE shall have jurisdiction to hear and determine any suit, …..”. The judge concluded that the words “courts of Dubai” in the contract meant- both Dubai Courts and DIFC Courts are “courts of Dubai”.
On 31 October 2011 DIFC Court jurisdiction opened to all parties outside the DIFC jurisdiction, provided that there is an agreement between the parties to refer their disputes to the DIFC Courts. The announcement came following the signing of ‘Law No. 16 of 2011 On Amending Some Provisions of Law No. 12 of 2004 Concerning the Dubai International Finance Centre Courts’.
Why DIFC Courts can be a Preferred Choice
Prior to the passing of the law, the role of DIFC Court was that of a specialist court servicing within the DIFC, a financial free zone within the Emirate of Dubai. Pursuant to the passing of the Law, two contracting parties can mutually agree to refer a commercial dispute to the DIFC court, whether or not the entity is based in the DIFC or the matter relates to DIFC. However, such an agreement must be made in writing prior to the occurrence of a dispute (agreed in dispute resolution clause of the agreement); or after a dispute occurs (by mutually agreeing in writing to refer the dispute to DIFC Courts, this being consensual agreement).
The obvious advantages of the DIFC Courts can be summed up:
Proceedings of the DIFC Court are held in English and the Courts follow the Common Law module of law. This has a greater significance in commercial matters as the parties would be in a better position to understand the proceedings and the nature of claims. This also saves the parties from the huge costs of translations that are incurred for matters referred to the Dubai courts.
In DIFC Courts, unlike the local UAE Courts, the right to appeal by a party is subject to an approval by the DIFC Court and such an appeal is granted only if the court finds merits in the appeal. In the case of Dubai courts, a losing party is free to file an appeal upon payment of fees and no such approval is needed.
Settlement and Cost Recovery
Another notable provision incorporated in the DIFC law practice is Part 32, which means that any party may make an official application for settlement of the case. If the grounds of such settlement are reasonable, the refusing party may do so by incurring special costs. Thus lengthy trials can be mutually resolved and avoided. Also, the winning party may be able to recover nearly 60 to 70 per cent of their legal costs, unlike Dubai courts where costs are awarded at the discretion of the judge.
Judges and Recognition
Complying with the international and Common Law justice system, the DIFC Courts are presided over by judges most of whom have notable experience from the Common Law countries and specialise in deciding commercial disputes. The judgement by DIFC Court, in accordance with the protocol signed between DIFC Courts and Dubai courts, shall be considered as enforceable under the local laws.
This recent expansion of the DIFC Court has ignited many debates. Whilst it is said to have the potential to change the way the litigation system works in Dubai, the question is whether multiple courts and a parallel legal system (Sharia and English Law) can be sustainable in the long term.
In addition, it is doubtful how much weight the DIFC judgment can carry in terms of its enforcement in other Emirates of the United Arab Emirates or in other countries. In matters involving real property, jurisdiction is to the court where the property is located and DIFC courts may not have jurisdiction in certain matters.
[i] Faulconbridge (2004); Parr, J.B (1999).
Sunil Thacker, Legal Consultant, Corporate & International Tax Advisor, Dubai