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Nature of claims
Common causes of action
What are the most common causes of action brought against banks and other financial services providers by their customers?
The United Arab Emirates (UAE) consists of seven emirates, including the emirates of Abu Dhabi and Dubai. Abu Dhabi and Dubai have designated certain geographical areas as ‘financial free zones’. Such free zones have separate civil and commercial laws to those that apply onshore in the UAE, although they remain subject to UAE federal criminal law and anti-money laundering and combating of financing of terrorism laws. Unlike onshore UAE, which is a civil-law jurisdiction, the Abu Dubai Global Market (which became operational in 2015) and the Dubai International Financial Centre (DIFC) (which commenced operations in 2004) are financial free zones modelled on common-law jurisdictions. As a civil-law jurisdiction, in the UAE (outside the financial free zones) statute is the primary source of law. The judgments of higher courts are not considered binding on lower courts, although they may be considered as useful guidance.
For the purposes of this chapter, we focus on:
- federal laws operating onshore in the UAE; and
- the DIFC financial free zone.
Claims concerning the misselling of financial products remains the most common type of claim. In early 2018, onshore regulators demonstrated their intention to take enforcement actions against financial services providers when a personal finance consultant was convicted by the Dubai Criminal Court for operating a financial services company without being registered with the relevant authorities. Clients incurred significant loss as a result of the financial adviser investing their monies in high-risk investments. Clients complained to the Dubai authorities and have also opened a civil case to recover their losses. Similarly, during the course of 2017, the Dubai Financial Services Authority (DFSA) demonstrated its intention to hold individuals accountable by:
- Censuring a finance officer for failing to exercise sound judgement and diligence in performing his role and failing to take reasonable care to ensure the business of the authorised firm for which he was responsible complied with legislation in the DIFC by failing to identify inaccuracies in a financial report provided to the DFSA by not verifying the balance in the firm’s current account.
- Imposing a financial penalty against an individual who was the SEO of an insurance intermediation and insurance management firm. The firm failed to classify customers, provide key information, enter into client agreements, conduct anti-money laundering customer risk assessments or undertake customer due diligence for its customers in breach of the DFSA rulebook. The DFSA found that the former SEO did not take reasonable care to ensure that the firm’s business, for which he was responsible as SEO, complied with legislation applicable in the DIFC. The DFSA has recently succeeded in obtaining a judgment from the DIFC courts’ Court of First Instance to enforce the fine imposed by the DFSA on the individual.
- Imposing a public censure against an individual for providing false, misleading or deceptive information to the DFSA, and concealing information where the concealment of such information was likely to mislead or deceive the DFSA in contravention of article 66 of the DIFC Regulatory Law.
While there still remains relatively few claims in the UAE and DIFC courts when compared to more established jurisdictions, based on our observations and feedback from banks and financial institutions, there has been:
- an increase in data subject access requests and related complaints by customers of financial services firms in the DIFC;
- an increase in claims in relation to firms or individuals undertaking unregulated financial services activities;
- an increase in claims by customers who have had banking facilities services cancelled as a result of banks complying with overseas regulatory obligations, such as the US Foreign Account Tax Compliance Act and Common Reporting Standard; and
- an increase in claims in relation to data and cyber security breaches.
In claims for the misselling of financial products, what types of non-contractual duties have been recognised by the court? In particular is there scope to plead that duties owed by financial institutions to the relevant regulator in your jurisdiction are also owed directly by a financial institution to its customers?
Non-contractual duties owed by financial services providers to customers onshore in the UAE are primarily found in legislation administered by the UAE Central Bank, the UAE Insurance Authority, the Emirates Securities Commodities Authority, general legislation relating to contracting parties such as Federal Law No. 5 of 1985 (Civil Code) and in the context of financial brokers, Federal Law No. 18 of 1993 (the Commercial Transactions Code).
Broadly, the non-contractual duties owed by financial services providers include:
- a duty not to make misrepresentations or omissions or allow a third person to make misrepresentations or omissions to customers. A failure by the financial service provider to fulfil such duties will risk cancellation of any related contracts by the UAE courts; and
- a duty of good faith.
The Civil Code imposes liability for tort-based and harmful acts. It does not require a specific duty of care. In addition, it is a crime under the Penal Code to disclose confidential information.
In the DIFC, the DFSA is responsible for the supervision of financial services activities and authorised firms. DIFC Law No. 1 of 2004 (Regulatory Law) imposes a general prohibition on conduct that is misleading or deceptive, fraudulent or dishonest. This has been further expanded upon in the DFSA Rulebook’s conduct of business module, which imposes the following duties on authorised firms to:
- avoid making false and misleading communications;
- ensure that the financial product or financial services recommended are suitable for the particular customer; and
- avoid conflicts of interest between itself and its customers and between one customer and another.
Other DIFC laws, including DIFC Law No. 5 of 2005 (Law of Obligations), DIFC Law No. 6 of 2004 (Contract Law) and DIFC Law No. 2 of 2009 (Companies Law) also impose the following duties including, under certain circumstances, those of a fiduciary nature, to:
- avoid making a misrepresentation;
- avoid making fraudulent and misleading statements;
- avoid negligence;
- act in good faith;
- avoid conflicts of interest;
- not use the customer’s property, information or opportunities for the purpose of making secret profits (except with the customer’s permission);
- maintain confidentiality of information; and
- exercise the care, skill and diligence that a reasonable person engaged in the same type of activity and professing to have the same knowledge and experience would have exercised in the same circumstances.
There have been no public judgments from the UAE or DIFC courts that establish scope to plead that duties owed by financial institutions to the relevant regulators are also owed directly by a financial institution to its customers.
To date, we are not aware of any matters in which either the UAE or DIFC courts have considered whether a concurrent non-contractual duty to comply with the relevant regulatory regime exists.
Statutory liability regime
In claims for untrue or misleading statements or omissions in prospectuses, listing particulars and periodic financial disclosures, is there a statutory liability regime?
In onshore UAE, financial services providers such as brokers licensed and regulated by the Emirates Securities and Commodities Authority (ESCA) and companies seeking to list must ensure that they comply with ESCA’s disclosure and transparency rules as provided for in ESCA’s rules and regulations, which provide that significant matters and information must be disclosed and be clear. The statutory liability regime operating in the UAE for providing false information, statements or data affecting the market value of securities and an investor’s decision to invest includes both imprisonment (a minimum of three months and a maximum of three years) or a maximum fine of 100,000 UAE dirhams, or both.
The statutory regime onshore in the UAE does not allow for common law claims. However, claimants who can show that they have relied on misrepresentations, untrue or misleading statements or omissions contained in a prospectus, listing particulars or periodic financial disclosures resulting in the purchasing of securities, may be able to make a claim for the contract to be cancelled under the Civil Code.
DIFC financial services providers are prohibited from making misleading and deceptive statements or material omissions when making offers of securities to the public and having securities admitted to trading on an authorised market institution (prospectus offer). In addition, the DFSA Rulebook imposes obligations to ensure:
- the accuracy of information provided; and
- that communications are fair, clear and not misleading.
In the event of a claim, a financial service provider may be able to raise a defence that it:
- believed it had made all enquiries that were reasonable in the circumstances and that after making such enquiries believed on reasonable grounds that the prospectus offer was not misleading or deceptive; and
- had placed reasonable reliance on information given to it by another person who is not an employee or agent of the financial service provider.
The DIFC Financial Markets Tribunal (FMT) has jurisdiction under the Regulatory Law and, more specifically, the Markets Law, to hear and determine any regulatory proceedings (ie, an issue of a regulatory nature) arising out of false and misleading statements relating to a prospectus offer as well as the supervision of a financial service provider where it is an authorised market institution.
In the UAE and the DIFC, the likely defendants in such claims include those persons:
- who are responsible for filing the prospectus. In the case of a body corporate this will include each director who was a director at the time when it was filed and each person who is authorised to be named, and is named, in the prospectus as a director or as having agreed to become a director either immediately on listing or at a future time;
- who are stated in the prospectus as accepting responsibility for the prospectus (or for any part of it); and
- who have authorised the contents of the prospectus or any part of it.
Generally, professional advisers of the above persons will not be responsible for the prospectus by reason of giving advice (in a professional capacity) to such persons as to the contents of the prospectus.
Duty of good faith
Is there an implied duty of good faith in contracts concluded between financial institutions and their customers? What is the effect of this duty on financial services litigation?
Yes. In onshore UAE, a duty of good faith is implied into all contracts through the provisions of the Civil Code. In fulfilling their duty of good faith, financial services providers are expected to not only perform the express obligation provided for in the contract with a customer but also what is connected to it by law, custom or the nature of the transaction.
In the DIFC, a general duty of good faith is imposed under the Contract Law. The Law of Obligations also imposes a specific duty of utmost good faith between parties to an insurance contract.
In what circumstances will a financial institution owe fiduciary duties to its customers? What is the effect of such duties on financial services litigation?
In onshore UAE, financial services providers will remain subject to:
- non-contractual duties set out in the Civil Code (see questions 2 and 4); and
- the duty to act in the best interest of the principal where acting as an agent on behalf of the customer as provided by the Commercial Transactions Code.
Neither the Civil Code nor the Commercial Transactions Code permit a financial services provider to contract out of its duties owed under the Civil Code and, where applicable, the Commercial Transactions Code.
DIFC-based financial services providers may, under circumstances where the obligations undertaken give rise to a relationship of trust and confidence, owe fiduciary duties to their customers, as set out under the Law of Obligations (see question 2). DIFC financial services providers may not contract out of their fiduciary duties.
There is no evidence to demonstrate trends in respect of claims for breach of fiduciary duties in either the UAE or the DIFC.
How are standard form master agreements for particular financial transactions treated?
In onshore UAE and the DIFC, standard form master agreements such as the International Swaps and Derivatives Association Master Agreement are frequently used. Such agreements will contain standard clauses on jurisdiction and governing law. However, the parties to the agreement are free to choose the law to govern the contract and the jurisdiction in which any dispute relating to the contract may be resolved. In practice, it remains unusual for such contracts to choose DIFC or UAE courts as jurisdictions in standard form master agreements, although we may see more such contracts include DIFC courts or arbitration as the DIFC’s reputation as a reliable forum for financial services disputes grows.
In onshore UAE, the parties should be aware that there is a risk that the relevant courts will not accept the governing law and jurisdiction clauses of a contract (where they are in favour of a foreign court) if it considers that the contract falls into a category of disputes or the matter relates to a party or matter over which they enjoy jurisdiction. In the event that the UAE courts assume jurisdiction, they are likely to apply UAE law in place of the parties’ chosen governing law.
The DIFC courts will generally respect the parties’ choice of jurisdiction and governing law.
Can a financial institution limit or exclude its liability? What statutory protections exist to protect the interests of consumers and private parties?
In onshore UAE, under the Civil Code, a financial services provider can limit its liability where specific performance of a contract is not possible, by fixing in advance the amount of compensation due for a particular contractual liability. The judge has (at the request of one of the parties) discretion to vary a liability cap. When agreeing to a liability cap, the parties may also agree to exclude certain claims from the liability cap.
The Civil Code provides that financial service providers cannot exclude or limit liability for tort-based acts or harmful acts.
Under the DFSA Rulebook, an authorised firm may not attempt to limit or avoid any duty or liability that it owes (including under an agreement or any other form of communication) under laws administered by the DFSA.
To the extent that an authorised firm seeks to limit or exclude any other type of liability, any such contractual term will be subject to the Implied Terms in Contracts and Unfair Terms Law and the Law of Obligations. In particular, while it is not possible to exclude or restrict liability for death or personal injury arising from negligence, it is possible (subject to satisfying the requirements of reasonableness) to exclude or restrict other types of negligence or loss arising therefrom.
In order to be valid, the contract term must be fair and reasonable having regard to the circumstances that were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. This would involve an assessment of:
- the strength of the bargaining positions of the parties relative to each other;
- whether the customer received an inducement to agree to the term;
- whether the customer knew or ought reasonably to have known of the existence and extent of the term; and
- where the terms exclude or restrict any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable.
Even if a contract term is considered to meet the reasonableness test under the Implied Terms in Contracts and Unfair Terms Law, this does not prevent the DIFC courts or an arbitrator from holding that the contract term is invalid.
Similarly, where a contract term or notice purports to exclude or restrict liability for negligence and a customer agrees to or, is aware of, the exclusion or restriction, this does not necessarily mean that the customer has indicated his or her voluntary acceptance of any risk. A financial institution will therefore, in a claim, be prevented from arguing that a customer has willingly accepted the risk involved, despite an express provision in the contract stating that the customer has done so.
Freedom to contact
What other restrictions apply to the freedom of financial institutions to contract?
In both onshore UAE and the DIFC, financial services providers’ freedom to contract will be restricted by legislation, which will require that they take into account the following:
- where the parties agree that a certain state of affairs will govern the basis of their relationship, they will be prevented from stating that the facts were actually different; and
- although the parties to the contract can fix the amount of compensation that may be recoverable in certain circumstances, the court retains ultimate discretion to award such damages as it deems appropriate for any loss suffered; such damages may be reduced by the court if considered to be disproportionate to the loss actually suffered.
Article 7 of the UAE Constitution provides that shariah is a main source of legislation in the UAE. Furthermore, in the absence of clear legislation or established customary business practices, the UAE courts are permitted to take into account shariah principles. Where contracts are governed by UAE law, the contracting parties will need to take into account risk relating to the application of shariah by the UAE courts.
What remedies are available in financial services litigation?
In onshore UAE, the Civil Code will govern the remedies available to customers who make claims against onshore financial service providers. The Civil Code provides that customers may be entitled to one or more of the following:
- compensation or damages;
- restitution; and
- specific performance.
There is no concept of injunctive relief in the Civil Code, but if required customers can seek attachment of assets where appropriate.
Customers who bring claims against DIFC financial service providers under DIFC law or regulation may rely on the Regulatory Law and the Law of Damages and Remedies when seeking to recover loss suffered through a breach of contract or duty of care. The Law of Damages and Remedies provides that where a customer has suffered loss (as a result of the non-performance of the contract by the financial service provider or a breach of an obligation under the Law of Obligations) he or she may be entitled to one or more of the following remedies (depending on the circumstances):
- compensation or damages;
- specific performance;
- injunctive relief; and
- any other order that the DIFC court thinks fit.
The Law of Damages and Remedies provides the court with the discretion to award multiple damages (no greater than three times the actual damages), where it appears to the court that the defendant’s conduct was particularly egregious or offensive. In a recent misselling claim, the DIFC courts awarded multiple damages (of two times the amount of damages) on the basis that there was ‘deliberate malpractice’ undertaken ‘with intent to deceive’.
Have any particular issues arisen in financial services cases in your jurisdiction in relation to limitation defences?
Do you have a specialist court or other arrangements for the hearing of financial services disputes in your jurisdiction? Are there specialist judges for financial cases?
In onshore UAE (excluding Dubai and Ras Al Khaimah), where the parties of the contract have agreed to submit to the jurisdiction of the local UAE courts, the case will first be referred to the Reconciliation and Settlement Committee (Committee) appointed by the Ministry of Justice or the head of the local judiciary, provided that:
- the dispute does not exceed 50,000 UAE dirhams; or
- where the value of the dispute is unspecified or exceeds 50,000 UAE dirhams, the parties have agreed to refer the dispute to the Committee.
In Dubai, the following disputes must be mandatorily referred to the Centre for Amicable Settlement of Disputes:
- disputes involving a bank;
- disputes where the parties have agreed to refer the matter to the Centre;
- disputes involving debts up to a maximum of 50,000 UAE dirhams; and
- disputes relating to commonly owned property.
Where claims have not been settled, the claimant may file a claim before the commercial division of the Court of First Instance, subject to the provisions of Federal Law No. 11 of 1992 (Civil Procedure Code). Cases are generally not heard by a specialist judge; however, the parties and the judge may be assisted by a court-appointed legal banking expert as per the regulations appointing legal banking experts introduced by a memorandum of understanding between the UAE Central Bank and the UAE Banks Federation signed with the Dubai courts in 2013. Such legal experts may be asked by the judge to provide an expert report on technical aspects of the financial dispute.
The DIFC courts have their own civil procedure rules based on the equivalent rules in England. The DIFC courts are staffed with internationally recognised judges from common-law jurisdictions who have experience in civil litigation matters as well as Emirati judges.
In the DIFC, the FMT has jurisdiction to hear regulatory proceedings relating to the laws and rules administered by the DFSA. An affected person has the right to refer a decision of the DFSA’s Decision Making Committee (a committee made up of the DFSA’s officers) to the FMT for its review. The FMT is required to conduct a full merits review of the DFSA’s decision. Such proceedings will be subject to the FMT’s Rules of Procedure (FMT Code) and will be overseen by appointed members experienced in the regulatory aspects of financial services and related activities. It is only possible to appeal a decision of the FMT to the DIFC courts on points of law. The DIFC courts have their own civil procedure rules based on the equivalent rules in England.
Do any specific procedural rules apply to financial services litigation?
No. Any civil claim relating to financial services brought in onshore UAE or the DIFC will be subject to the civil procedure rules under the Civil Procedure Code or the Rules of the DIFC Courts 2007 (DIFC Civil Procedure Code) as applicable.
The only exception to the above will be regulatory matters, which fall within the jurisdiction of the FMT. Such regulatory proceedings will be subject to the FMT Code.
May parties agree to submit financial services disputes to arbitration?
Generally, yes. It should, however, be noted that in the DIFC, article 12(2) of the Arbitration Law provides that an arbitration agreement or clause in a consumer contract (including an agreement between a financial services provider and its client) may only be enforced where the consumer has:
- given written consent after the dispute has arisen;
- submitted to the arbitration proceedings under the arbitration agreement; or
- the DIFC court has made an order dis-applying article 12(2) of the DIFC Arbitration Law.
Out of court settlements
Must parties initially seek to settle out of court or refer financial services disputes for alternative dispute resolution?
In the UAE, there is no mandatory requirement to use alternative dispute resolution (ADR). Although efforts have been made to encourage the use of ADR, it is still relatively uncommon in the context of financial services litigation in the UAE. See also question 10.
In the DIFC, the DIFC Civil Procedure Code encourages parties to consider the use of ADR in resolving disputes. While this is not a mandatory requirement and the parties therefore retain discretion as to whether to pursue ADR proceedings, the DIFC Civil Procedure Code does state that the court has the power to:
- adjourn court proceedings for a specified time to encourage or enable the parties to use ADR;
- make an ADR order; and
- take into account the efforts of the parties to resolve the dispute through ADR when assessing costs.
Are there any pre-action considerations specific to financial services litigation that the parties should take into account in your jurisdiction?
See question 11.
Unilateral jurisdiction clauses
Does your jurisdiction recognise unilateral jurisdiction clauses?
The enforceability of unilateral jurisdiction clauses onshore in the UAE has yet to be tested. There is a risk that the UAE courts may not enforce such clauses on public policy grounds (eg, the customer was in an unfair bargaining position at the time of the contract or the contract is inconsistent with the principle of good faith). The UAE courts may be guided by other civil law jurisdictions (such as France) that have declined to recognise unilateral jurisdiction clauses on public policy grounds.
The DIFC courts have recognised unilateral jurisdiction clauses.
What are the general disclosure obligations for litigants in your jurisdiction? Are banking secrecy, blocking statute or similar regimes applied in your jurisdiction? How does this affect financial services litigation?
Generally, under UAE law, there is no disclosure or discovery process in civil litigation that parties are required to comply with. However, Federal Law No. 10 of 1992 on Evidence in Civil and Commercial Transactions (referred to as the Law of Evidence or the Law of Proof) provides that:
- where an expert is appointed by the court to investigate a claim on behalf of the court, the expert may request copies of documents that may be in the possession of the parties. Further, both governmental (eg, regulatory bodies) and non-governmental bodies are required to grant the expert access to examine any records, registers, documents or papers that they hold;
- a party may, in certain circumstances, request the other party to provide specific documents in its possession, for example:
- where the documents contain mutual obligations of the parties;
- where the law allows or requires the party to present or submit the documents; or
- where the other party bases its claim or case on such documents, at any stage in the proceedings;
- the courts have the power to require a party to submit a document in their possession for examination where the party making the request has established its validity and the other party has confirmed that the document is in its possession;
- the UAE courts may, during the course of proceedings, make an order compelling a third party to produce documents; and
- if a party does not provide information at a hearing without legal justification, the court is free to draw its own conclusions.
In the DIFC, the DIFC Civil Procedure Code requires parties to undertake discovery or disclosure processes, which include:
- prior to the first case management conference, cooperating with each other and discussing any issues that could arise in relation to searches for and the preservation of electronic documents, which could involve the parties seeking and providing information to each other about the categories of electronic documents within their control and their document retention policies;
- providing standard disclosure of documents on which a party relies in the proceedings or that it is required to disclose under DIFC laws or DIFC Civil Procedure Code and associated practice directions; and
- making a request to another party to produce categories of documents that are reasonably believed to exist and that may be relevant and material to the outcome of the case.
If a party to proceedings in the DIFC courts fails to produce a document ordered to be produced by the court, an adverse inference may be made by the court.
For arbitration proceedings conducted in the Dubai International Arbitration Centre (DIAC) (under the DIAC Arbitration Rules 2007 (DIAC Rules); and in the DIFC-LCIA, under the DIFC-LCIA Arbitration Rules (DIFC-LCIA Rules)), there are no specific obligations on the parties to conduct a discovery or disclosure process. However, the DIAC Rules and DIFC-LCIA Rules respectively provide that:
- documentary evidence on which the parties wish to rely must be filed with the tribunal along with any statement of claim; and
- the tribunal may, at the request of a party or of its own volition, order a party to produce documents or other evidence (including any property for inspection or testing) for examination by the tribunal, expert or the other party.
Must financial institutions disclose confidential client documents during court proceedings? What procedural devices can be used to protect such documents?
Yes. While generally a financial institution seeking to rely on confidential client information in UAE court proceedings to support its case will require written consent from its client, the obligation to obtain written consent is not applicable where a judicial or administrative authority requires the disclosure of such information.
Subject to the issue of a DIFC court order compelling a financial institution to disclose the confidential information, financial institutions are not otherwise obliged to disclose confidential client information in court proceedings. Financial institutions may in general rely on the DIFC Court Civil Procedure Code to exclude confidential client information from production.
Financial institutions are not required to disclose confidential client information in arbitration proceedings conducted in onshore UAE (DIAC) or in the DIFC (DIFC-LCIA). However, should they do so (because of an order by the tribunal or with permission from the client) they may rely on the fact that arbitration proceedings are usually conducted in private and kept confidential. Where a party to the arbitration proceeding attempts to use confidential information it had the benefit of seeing for a purpose outside the arbitration proceeding, the other party may seek an injunction order preventing the misuse or wider disclosure of the confidential information from the UAE courts.
Ordinarily, contractual confidentiality is not a bar to complying with a court order to disclose information. Where the legislation prohibits the disclosure of confidential information or imposes criminal (or other) liability on a disclosing party, the statutory obligation may override the obligation to produce or disclose the relevant documentation or information and may then become the subject of a specific court order to disclose (for example, in redacted form). To date, we are not aware of this issue being dealt with by either the UAE or DIFC courts.
Disclosure of personal data
May private parties request disclosure of personal data held by financial services institutions?
While there is no specific data protection legislation in the UAE, the privacy of individuals is protected in other legislation including:
- the Constitution;
- the Penal Code;
- the Cybercrime Law;
- the Telecommunications Law;
- the Credit Law; and
- the Privacy of Consumer Information Policy.
Generally, the privacy laws applicable in the UAE regulate personal data relating to an individual’s private or family life. Written consent is required for disclosure; however, this may be waived where a UAE official or public authority (including the courts) has required the transfer of the data to it or the transfer serves the public interests and national security. Private parties bringing claims before the UAE courts may (through the courts) request disclosure of personal data prior to commencing legal proceedings. If such a request is made, a financial institution will have limited grounds under UAE law for withholding such disclosure. See question 16.
In the DIFC, financial services providers are in general required to comply with the DIFC Data Protection Law relating to disclosure of personal data they hold. This includes obtaining prior consent from their clients.
To date, the right to request disclosure of personal data held by financial services providers in the context of civil litigation has not been tested before either the UAE courts or the DIFC courts, although parties do request personal data from financial services institutions.
What data governance issues are of particular importance to financial disputes in your jurisdiction? What case management techniques have evolved to deal with data issues?
The main data governance issues in any financial dispute include:
- access to data;
- processing data;
- preserving the confidentiality or security of data; and
- protecting privileged documents from disclosure.
In onshore UAE, financial services providers and their legal advisers need to comply with the requirements of the Cybercrime Law, the Credit Law and the Penal Code when handling data relating to a financial dispute. While there is no specific prohibition in the UAE against the disclosure of privileged documents, such documents may be subject to confidentiality obligations imposed by the Penal Code (see question 21).
In the DIFC, compliance with the Penal Code, the DIFC Data Protection Law and DIFC Civil Procedure Code will be of importance to financial service providers and their legal advisers. In the DIFC, withholding privileged documents from disclosure is permitted under the DIFC Civil Procedure Code.
Financial institutions and law firms in the UAE may have case management tools such as discovery or electronic disclosure platforms to assist in dealing with data issues in large-scale financial disputes. In addition, there has been an increase in recent years in the number of third-party data hosting and management firms based in the region that can provide the necessary services without the need for data to be transferred overseas. Predictive coding has not yet been the subject of any reported cases in the DIFC, but we anticipate that this will change.
Interaction with regulatory regime
What powers do regulatory authorities have to bring court proceedings in your jurisdiction? In particular, what remedies may they seek?
In onshore UAE, the Central Bank, the UAE Insurance Authority and the ESCA are the main regulators overseeing the regulation of financial services.
The Central Bank has authority under Union Law No. 10 of 1980 concerning the Central Bank, the Monetary System and Organisation of Banking (Union Law) to bring proceedings against financial institutions in court and to apply the verdict issued in the case. The Union Law also provides the Central Bank with the power to fine financial institutions for certain breaches of the Union Law. It is possible that the Central Bank may also have the power in the future to impose a wider range of fines on banks: a draft federal law is currently under consideration.
ESCA has the power to form a panel to hear disputes arising out of dealings in shares and commodities where the parties have opted for such disputes to be referred to arbitration under the provisions of Federal Law No. 4 of 2000 concerning the Emirates Securities and Commodities Authority and Market (ESCA Law) and ESCA Resolution No. 1 of 2000 (ESCA Regulation). ESCA also has the ability to issue warnings and fines for violations of securities law under other associated regulations.
The DFSA has the power to bring regulatory proceedings or civil proceedings under article 94 of the Regulatory Law. The DFSA may seek a variety of injunctions and orders from the court. Unlike regulatory proceedings, which limit the DFSA to imposing sanctions or directions in relation to the relevant person, the benefits of bringing civil proceedings is that the DFSA may, for example, obtain orders:
- restraining third parties holding assets on behalf of the relevant person from dealing with any assets of that person;
- prohibiting the third person (and the relevant person) from taking assets out of the jurisdiction;
- appointing a receiver;
- prohibiting a natural person from leaving the jurisdiction; or
- requiring a natural person to deliver his or her passport and other documents (as the court sees fit) to the court.
Disclosure restrictions on communications
Are communications between financial institutions and regulators and other regulatory materials subject to any disclosure restrictions or claims of privilege?
Onshore in the UAE, the concepts of privilege and ‘without prejudice’ communications generally do not exist, meaning that parties will typically have the right to use any documents they choose to support their position. Furthermore, both onshore and DIFC regulators are generally subject to obligations of confidentiality as public officers that, subject to specific disclosure requirements set out by law, restrict their ability to disclose or share information received in the performance of their duties or functions.
Onshore in the UAE, the Central Bank, the UAE Insurance Authority and ESCA are subject to the UAE Penal Code provisions relating to disclosure of confidential information. The UAE Penal Code imposes more severe penalties on public officers who disclose confidential information received as part of performing their function or service. The Union Law prohibits the Central Bank’s directors and employees from disclosing confidential information received in the performance of their duties, including information on the Central Bank’s customers and the affairs of banks and other institutions that are subject to its supervision, unless disclosure is required by law.
In civil proceedings before the UAE courts, onshore regulators will be required to disclose confidential information, if compelled to do so, by an order from the UAE courts.
In the case of criminal proceedings, onshore and DIFC regulators will be required to comply with an order (including an order to disclose confidential information) from a competent authority (generally the Public Prosecution Office) responsible for administering criminal law in the UAE.
In the DIFC, like the onshore regulators, the DFSA (including its employees and agents) is subject to the UAE Penal Code provisions relating to confidential information. Dubai Law No. 9 of 2004 imposes an obligation on the DFSA to keep confidential any confidential information obtained, disclosed or collected by it, in the course of performing its functions. The confidentiality obligations set out in the Regulatory Law reflect and expand upon the obligations of confidentiality contained in Dubai Law No. 9 of 2004, and when confidential information may be disclosed.
The DFSA may use or disclose confidential information:
- to fulfil its own regulatory purpose or legal obligations; or
- to assist a domestic or foreign regulator, criminal enforcement agency or other specified authority in the performance of its specific regulatory or enforcement functions.
The DFSA may, subject to written consent from the individual, disclose an individual’s compelled testimony to a law enforcement agency for criminal proceedings against that person or, if required by law or a court order, disclose the statement.
Dubai Law No. 12 of 2004 grants the DIFC courts exclusive jurisdiction in the DIFC and over DIFC bodies including the DFSA. Where it is compelled to do so by an order from the DIFC courts, the DFSA is obliged to disclose relevant confidential information.
See above in relation to the DFSA’s obligations to comply with orders relating to UAE criminal prosecutions.
May private parties bring court proceedings against financial institutions directly for breaches of regulations?
In onshore UAE, private parties (including individuals and companies) do not have the right to bring court proceedings against financial institutions directly for breaches of regulations. Onshore regulators, including the UAE Central Bank, the UAE Insurance Authority and ESCA, will be responsible for dealing with enforcement actions arising from breaches of regulation by one of their licensed financial institutions.
Private parties may rely on the provisions of the Civil Code, the Commercial Transactions Code and other securities legislation when seeking to commence proceedings against a financial institution for compensation for loss or damages suffered as a result of the breach of regulations.
In the DIFC, under the Regulatory Law where a private party (whether an individual or a company) has suffered loss or damages as a result of a financial institution’s breach of the DFSA rules, he or she may seek compensation through civil proceedings.
In a claim by a private party against a financial institution, must the institution disclose complaints made against it by other private parties?
This is not known to have been tested onshore in the UAE or the DIFC. Disclosure requests may be limited where privilege and confidentiality restrictions apply. See question 21.
Where a financial institution has agreed with a regulator to conduct a business review or redress exercise, may private parties directly enforce the terms of that review or exercise?
In onshore UAE and the DIFC, it is likely that such exercises will only be directly enforceable by the parties to the business review or by redress agreement.
Changes to the landscape
Have changes to the regulatory landscape following the financial crisis impacted financial services litigation?
Following the financial crisis, the regulators in onshore UAE and the DIFC have sought to introduce new laws and regulations to ensure the proper supervision of financial services offered within their jurisdictions. For example:
- introduction of a twin peaks regulatory model in onshore UAE. Over the past few years, UAE onshore regulators have announced their intention to move to a twin peaks regulatory model that would clarify the role of the regulators responsible for the supervision of financial service providers: a prudential authority (UAE Central Bank) and a conduct of business authority (UAE Insurance Authority) for insurance companies and products, and ESCA for securities business and other financial services (non-banking) activities;
- changes to rules on client classification. The DFSA introduced changes to its client classification regime;
- changes to the UAE Central Bank’s rules and regulations relating to finance companies;
- a prospective overhaul of UAE Central Bank rules and regulations, including in relation to misselling, corporate governance, outsourcing, supervision and enforcement. A timeline for the introduction of these changes has not been made public.
- clarification on rules relating to limitation of liability in the communication of information and marketing materials used by authorised firms; and
- an increase in enforcement actions.
It is anticipated that UAE regulators will now seek to take swift action against financial service companies and individuals for activities such as misselling, with the UAE Central Bank urging banks and finance companies to resolve outstanding misselling complaints and the UAE Insurance Authority also indicating its intention to overhaul its regulations on the distribution of products to customers by financial advisory firms following a significant number of complaints.
The increasingly strict regulatory landscape means that financial service providers need to be vigilant in their dealings with their customers. If their conduct fails to meet the reasonable standards expected of a financial service provider in the circumstances, it is likely that they may be at risk of facing regulatory proceedings or civil proceedings. Such proceedings may lead to large penalties being levied by the regulator or court, as appropriate. For example, the DIFC courts in 2015 held that a firm, in a case where financial products were mis-sold, failed to meet the required standards expected of an institution under the Regulatory Law and imposed a large punitive damages award in addition to compensatory damages.
Is there an independent complaints procedure that customers can use to complain about financial services firms without bringing court claims?
Onshore in the UAE and in the DIFC each of the regulators has established its own process for dealing with complaints. The complaints procedures run by the regulators provide a venue for customers to raise complaints about financial services firms by following the procedure set out by the relevant regulator. In all three cases:
- there is no maximum or minimum size test to pursue the relevant regulator’s complaints procedure process;
- there are no specific obligations imposed on firms in relation to the complaints procedure process, although we note that information and assistance may be requested by the relevant regulator to pursue its investigations; and
- it is not necessary to pursue a complaint with the regulator prior to bringing an action in court.
ESCA established the Securities Dispute Resolution Department in 2016 to deal with complaints filed in relation to decisions regarding financial market transactions and to improve its procedures for dealing with complaints and irregularities. The SCA does not publish decisions of the SDRD.
The UAE Central Bank has established its own independent complaints process, which may be accessed online or by complaining directly to the Consumer Protection Unit of the UAE Central Bank or to any of its branches, the Central Bank recommends that customers seek to settle disputes directly with the concerned bank or financial institution before filing a complaint with the Central Bank. Where a complaint is being pursued in the UAE courts, the Central Bank will not deal with a complaint until after a court decision has been handed down.
Like the Central Bank, the DFSA recommends that customers seek to resolve their disputes by dealing directly with the relevant authorised firm. A complaint made to the DFSA must be submitted in writing and must indicate if the customer has or is taking legal action. The customer is requested to provide details of their lawyer and consent to the DFSA contacting the lawyer to obtain further information.
Recovery of assets
Is there an extrajudicial process for private individuals to recover lost assets from insolvent financial services firms? What is the limit of compensation that can be awarded without bringing court claims?
Currently, there is no extrajudicial process for private individuals to recover assets from insolvent financial services firms either in the UAE or the DIFC.