The DIFC Courts are an attractive forum for international businesses to resolve their disputes in the Middle East. However, its jurisdiction is narrow: not all disputes may be heard by these courts. This article considers the circumstances in which the DIFC Courts have jurisdiction to hear disputes and the recent cases which have addressed this issue.
Recent case law casts light on jurisdiction for non-DIFC entities
In September 2010, we reported that an application before the DIFC Courts to strike out a claim involving a property dispute for lack of jurisdiction gave further guidance as to how the DIFC Courts will approach jurisdiction. The reasoning for this decision has now been published.
The case relates to investments in a property located in the DIFC. Taleem, National Bonds and Deyaar, the parties to the dispute, are all UAE entities established outside of the DIFC freezone. The contracts entered into between the parties were stated to be governed by Dubai law and to be subject to the jurisdiction of the "courts of Dubai". When Taleem subsequently brought an action in the DIFC Courts, National Bonds challenged jurisdiction.
The DIFC Court judge refused to strike out the claim, concluding that the wording "courts of Dubai" in the contracts meant both the DIFC Courts and the courts of the Emirate of Dubai (outside of the DIFC) as both are integral parts of the Dubai legal system. If the parties intended to agree to one of these courts rather than the other, then clearer words would have been needed to have made such a choice. Instead, the parties were found to have agreed to have submitted to whichever court in Dubai has jurisdiction to hear the claim.
On the basis of the Dubai Law No. 12 of 2004 in respect of the judicial authority in the DIFC (the Judicial Authority Law) (see below), the DIFC Courts had jurisdiction because the claim is a commercial case and dispute "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 [DIFC]…". As this includes the performance of the contract in the DIFC, the DIFC Courts had jurisdiction because the property which is the subject of the claim is within the DIFC freezone.
The decision in the National Bonds case is a different outcome to a previous DIFC Court case (Hardt v Damac) in which a series of agreements relating to different properties were stated to be subject to the exclusive jurisdiction of the "Courts of Dubai". In this case, most of the properties were outside of the DIFC, but one was within the freezone. The judge in Hardt decided that the courts of the Emirate of Dubai had jurisdiction. The judge in the National Bonds case distinguished this decision in two ways: firstly, no argument that the words "courts of Dubai" included the DIFC Courts were put to the judge in the Hardt case and, secondly, on the facts it was unlikely that the parties intended DIFC Courts to have jurisdiction as none of the agreements was entered into in the DIFC and they were entered into before the DIFC law on land in the DIFC came into effect.
These contradictory cases currently leave the position on DIFC jurisdiction unclear. Many contracts will have been entered into using the formulation of words "the courts of Dubai" to mean the Dubai courts outside of the DIFC. The need to use clearer words to specifically exclude the DIFC jurisdiction may not have been obvious to draftsmen prior to the National Bonds case. If the National Bonds decision is followed in the future, the use of those words is not in itself sufficient to ensure a case is heard outside of the DIFC, where the facts of the case otherwise allow the case to fall inside DIFC jurisdiction.
Barclays case considers the scope of jurisdiction for DIFC entities
In a very recent development, Corinth Pipeworks commenced proceedings against Barclays Bank plc for (amongst other things) deceit and negligence under the laws of tort in the DIFC. The actions of the Barclays Bank employee on which the claim was based took place outside of the DIFC, at the Jebel Ali branch. However, Corinth Pipeworks claimed that the DIFC Courts had jurisdiction because Barclays Bank plc was counted as a "Centre's Establishment".
Under the Judicial Authority Law, any dispute involving any entity or business established or carrying on activity in the DIFC falls within the jurisdiction of the DIFC Courts (see below).
In the case of Barclays Bank plc, the entity which was established in the DIFC was a branch of the London listed parent company. A branch is not a separate legal entity and, therefore, it was the London listed parent company itself which was duly licensed to operate in the DIFC, through its branch establishment. Corinth Pipeworks contended that it is the entire corporation which is the relevant establishment falling within DIFC Courts jurisdiction and, consequently, the activities of any other branch of that company may also form the basis of a dispute within DIFC Courts jurisdiction, even if those activities are wholly outside of the DIFC.
The DIFC Court upheld an application by Barclays Bank for the claim to be struck out on the basis that the DIFC Courts had no jurisdiction. In the judgment, Sir Anthony Coleman made clear that, in order for the DIFC Courts to have jurisdiction on the basis that one of the parties is established in the DIFC, the conduct or activities of the DIFC registered business must be the basis on which the cause of action arises. The fact that the licensed entity is an international corporation does not mean that all businesses and branches of that parent company are automatically included in the DIFC Courts jurisdiction.
Summary on DIFC Court jurisdiction
The position as to whether the DIFC Courts have jurisdiction is set out in a combination of Dubai Laws (in particular the Judicial Authority Law), case law (particularly the 2009 case of Shihad Khalil v Shuaa Capital) and a 2009 Protocol between the DIFC Courts and the Dubai Courts.
In summary, the DIFC Courts have jurisdiction (as opposed to the courts of the Emirate of Dubai) in the following situations:
- civil disputes involving the DIFC, its authorities and entities registered therein ("Centre's Establishments");
- civil disputes arising from or related to a contract that is to be or has been performed, in whole or in part, within the DIFC (meaning that the claimant must be a party to the contract and such contract must be an essential part of the cause of action);
- civil disputes arising from or related to a financial or associated transaction that has taken place, in whole or in part, in the DIFC ("transactions" covers a range of deals and is wider than a contract. Again the claimant must be a party to the transaction and the transaction must be an essential part of the cause of action);
- civil disputes arising from or related to an incident that has occurred in the DIFC, except criminal proceedings (which deals with non contractual rights of action where the incident provides at least one of the essential foundations for the claim).
The key to being able to bring a claim within the DIFC Courts is whether there is a connection between the cause of the action itself, or the entity in relation to its licensed activities, and the DIFC. The nationality of the parties to the dispute is not necessarily relevant. Therefore, for example, a dispute between two US investment banks could be heard in the DIFC Courts, provided that the dispute related to a transaction taking place in the freezone. Equally, a US investment bank could take proceedings in the DIFC Courts against another US investment bank in relation to a contract which was performed outside of the free zone, provided that the entity which was performing the contract was the DIFC branch of the US investment bank.
It is also irrelevant whether the parties have selected DIFC Law as the governing law of their contract. Therefore, it is possible in theory for a contractual claim to be heard by the courts of the Emirate of Dubai, but under DIFC Law. However, the position as to whether a contract which is merely signed inside the DIFC free zone (in a DIFC coffee shop for example), but which otherwise has no connection with the DIFC, can fall within the DIFC jurisdiction is yet to be conclusively determined by case law, legislation or the 2009 Protocol.
The Judicial Authority Law states that the parties may provide for another court to have jurisdiction and that therefore this may be the courts of the Emirate of Dubai, or the courts of a foreign jurisdiction.
Many international companies see the advantages of having their disputes heard in a forum which uses the English language and is based on a familiar legal structure. Whilst there still exists uncertainty in the interplay between the legislation, the 2009 Protocol and case law, opportunities present themselves to seek to fit within the DIFC jurisdiction which companies will continue to take advantage of. Therefore, more cases on DIFC jurisdiction are to be expected.