The Court of Appeal of the DIFC has recently confirmed that it has jurisdiction to hear a claim against an entity with a presence in the DIFC even though the dispute involved the activities of that entity which occurred outside the DIFC.
This judgment is relevant to those companies which have a branch office in the DIFC. Disputes faced by the entity as a whole may fall within the jurisdiction of the DIFC Courts, depending on the particular circumstances. If any such company does not wish to take this risk, it should consider establishing a separate legal entity (such as a subsidiary company) in the DIFC, or include a jurisdiction clause in their contracts where possible.
Corinth Pipeworks S.A. V Barclays Bank PLC
The claimant in this case, Corinth, was a Greek company which sold and delivered steel pipes to a UAE company (the “Purchaser”), whose head office was located at Jebel Ali, Dubai. The Purchaser owed Corinth US$24 million. It held an account at the Barclays branch at Jebel Ali, Dubai. Corinth sought damages from Barclays Bank for losses suffered as a result of allegedly false and misleading oral and emailed representations made by one of Barclays’ employees in the course of which Corinth was allegedly reassured that funds due from the Purchaser were safely contained in Barclays’ account and were being processed for transmission to Corinth. According to Corinth, the Purchaser later failed to make any payment to Corinth. In the meantime, funds were removed from the Purchaser’s account at the Barclays branch. One of the main claims was that the Barclays employee conspired unlawfully with the Purchaser to defraud Corinth by means of false representations. Corinth alleged the representations made by Barclays Bank prevented it from taking steps that it would otherwise have taken to secure the assets of the Purchaser.
Barclays Bank argued that Corinth could not bring itself within any of the grounds for jurisdiction of the DIFC Courts stipulated by Article 5(A) of Dubai Law No. 12 of 2004 in respect of The Judicial Authority at the Dubai International Financial Centre (“Law No. 12 of 2004”). Article 5(A) provided, amongst others, that the DIFC Court of First Instance would have exclusive jurisdiction over “civil or commercial cases and disputes involving the Centre or any of the Centre’s Bodies or any of the Centre’s Establishments.”
Corinth stated that as Barclays Bank had a branch in the DIFC, even though this branch was not responsible for the alleged misconduct, the Barclays entity “as a whole” came within the scope of Article 5(A) of Law No. 12 of 2004.
DIFC Court of First Instance
The Court found that the cause of action had to be connected with the conduct of the DIFC authorized business not with the entire business of a corporation. Accordingly, as the circumstances giving rise to the claim occurred at the Jebel Ali branch of Barclays Bank, the Court decided that it did not have jurisdiction in this case.
DIFC Court of Appeal
Corinth appealed the decision of the Court of First Instance. The Court of Appeal found that where a company operates in the DIFC through a branch, that branch is not a separate legal entity from the overall business outside the DIFC. The branch forms part of the company and is therefore a single legal entity. Accordingly, the legal definition of “Centre’s Establishment” applied to Barclays Bank as a whole and not just to its DIFC branch or its activities. The Appeal was therefore allowed.
Wider Implications of Court of Appeal Judgment
The judgment issued by the Court of Appeal has raised a number of questions. The interpretation given by the Court of Appeal to Article 5(A) of Law No. 12 of 2004 means that any entity with a branch office in the DIFC is liable to come within the jurisdiction of the DIFC Courts. This will be the case even if a dispute involving such entity has no connection with the DIFC and involves operations of the entity that are located outside the DIFC. It is arguable that the legislature had intended for Article 5(A) to be confined to disputes involving DIFC entities holding DIFC licenses or to claims and disputes connected with the DIFC because otherwise the DIFC Courts would inevitably tread on the jurisdictional territory of the Dubai Courts. The Corinth case itself highlights the possibility of such a scenario, as Corinth had also commenced proceedings before the Dubai Courts. The other risk highlighted before the Court of First Instance was the risk of opening a floodgate of claims arising before the DIFC Courts. The Court of Appeal addressed this on the grounds that the principle of forum non conveniens would generally prevent the DIFC Courts from exerting “exorbitant jurisdiction” but declined to elaborate further on the grounds for raising such an argument. The Court of Appeal expressed the view that this judgment was intended to provide a clarification rather than expansion of the jurisdiction of the DIFC Courts and was not intended to reduce the jurisdiction of the Dubai Courts, although it acknowledged that such a consequence could arise.
It remains to be seen whether the effect of the Corinth judgment goes further than the scope of jurisdiction of the DIFC Courts intended by the legislature. It also remains to be seen on what grounds the DIFC Courts will use the principle of forum non conveniens to limit their jurisdiction, given that the risk of parallel proceedings between the Dubai and DIFC Courts did not prevent the DIFC Courts from taking jurisdiction of the Corinth case. The Corinth case also places an onus on businesses who do not wish to take the risk of all of their disputes potentially falling within the jurisdiction of the DIFC Courts to establish separate legal entities in the DIFC (or to include jurisdiction clauses in their contracts, where possible).