x Abu Dhabi, UAEThursday 27 July 2017

Expansion of DIFC courts introduces a new set of choices

DIFC courts offer incentives to investment, but not without consequences for the local judiciary.

The UAE's judicial system will require serious legislative reforms, Dr Hadef Al Dhaheri, the Minister of Justice, said in Dubai this month, as he welcomed over 5,000 lawyers and judges from around the world to the International Bar Association conference.

Two days later the Dubai Government introduced one such major reform with a decree extending the jurisdiction of the Dubai International Financial Centre (DIFC) courts.

A 2004 law had limited the authority of those courts to cases involving companies registered in the DIFC. But now companies that are not registered will also have access to those courts, provided that both parties have agreed to this in advance and that no final judgment has been issued by another court.

Dubai's new plan will provide businesses with new choices whether to have their cases heard in Arabic or English, using civil or common law.

Plans to extend DIFC courts' jurisdiction had been discussed for several years. This overhaul of the UAE's commercial legal system will reinforce Dubai's reputation as the business hub of the region, and will help establish Dubai as a dispute-resolution centre. A broader goal is to attract business investment.

But the move radically changes the justice system. Many disputes that have arisen during the recent economic slowdown have played out in the local courts, but the DIFC courts have become busier, going from nine cases in 2008 to 36 in 2010. In addition, a Dubai World Tribunal was set up to look into disputes involving the property developer Nakheel.

DIFC jurisdiction has been the most controversial topic in Dubai's legal system for some time now. The newly announced plan is resented by some local lawyers and judges as unnecessary and unfair to the local courts. According to these critics, expansion of DIFC courts jurisdiction is a declaration of the inadequacy of the general judiciary.

The UAE's legal system is one of the most mixed in the world: the dual legal system of civil and Sharia law has been extended farther to include common law. This poses a serious challenge to practitioners and raises questions about whether the system can survive in this form.

The new law will make the DIFC courts international, open to all commercial parties. For matters not connected to the DIFC, however, the law does require explicit written agreement of the parties to accept the jurisdiction of the DIFC courts.

Considering how notoriously difficult it is to get parties in a dispute to agree to anything, the number of such cases may in practice be limited.

But many international and multinational companies that do business predominantly in English will give serious consideration to using the DIFC courts.

The DIFC courts, funded by the Dubai Government, have emerged in the past year as an increasingly important venue for commercial disputes. They are staffed with internationally recognised judges from several international common law jurisdictions as well as from the UAE, a civil law jurisdiction. The judges have considerable experience of international commercial disputes.

There is the question of enforcement. The DIFC courts have a number of tools to enforce their own judgments within the DIFC. And if assets are located in Dubai outside the DIFC, an existing enforcement protocol between the Dubai courts and the DIFC courts should lead to near-automatic enforcement in Dubai of a DIFC courts judgment, which would be "converted" into a judgment of the Dubai courts and so enforced under any treaties to which the UAE is a party.

Clearly, the Dubai courts will now be less preferred for international civil and commercial disputes. But it is not clear what effect the new wider jurisdiction for DIFC courts will have on arbitration cases in the DIFC. This may prove quite delicate.

DIFC courts filing fees will usually be significantly lower than fees and costs for arbitration. And while an appeal is possible in the DIFC courts, there is no appeal in arbitration, which may be seen as an advantage by some but the opposite by others. Also, arbitration can be slow to start, if one party is reluctant to go that route. This too could work to help the DIFC courts.

However, proceedings in the DIFC courts are transparent and therefore public, while the parties can keep arbitration private. Arbitration may therefore continue to be important.

Wider jurisdiction for the DIFC courts has already been welcomed by a significant proportion of the business community in the region. Opposition within the legal community will not change that fact.

To succeed at providing first-rate court services meeting top international standards in our mixed legal system, the DIFC courts should engage with the local courts and practitioners in building the awareness of judges, lawyers, legislators and academics about the distinct legal traditions of each system. Practitioners should also be committed to defend, and celebrate, the integrity of each of those traditions.

 

Diana Hamade is an Emirati lawyer based in Dubai and the founder of International Advocate Legal Services