Taking on the world

 MARKET VIEW – LITIGATION 

Al Tamimi & Company’s Hassan Arab, Rita Jaballah and Robert Maxwell Marsh examine the growing role of the UAE as a dispute resolution hub and the benefits of conducting dispute resolution in the increasingly comprehensive legal system

With the recent US Open and New York Fashion Week, New York City has once again attracted the eyes of the world and cemented its place as one of the ‘big four’ of tennis and fashion, respectively. But is there a ‘big four’ for global commercial law dispute resolution? The United Arab Emirates (UAE), in its concerted efforts over the past ten years to respond to the needs of the business community and match the highest international legal standards, is well on the way to placing Dubai, alongside New York, London and Singapore, as one of the international ‘big four’ of corporate dispute resolution.

The vast influx of regional and international commercial enterprises to Dubai and the UAE over the last quarter of a century has resulted in an expanding and increasingly comprehensive legal system with a choice of jurisdictions. Part of Dubai’s advantage is its connectivity in a business world with an eastward-moving focus. In developing one of the world’s leading aviation hubs (soon to overtake Heathrow in the number of international passengers handled in a year), Dubai has made it easy for legal professionals, experts and clients to fly in from all over the world. Added to this, the UAE contains a breadth of well-respected jurisdictions suited to corporate disputes. The principal options within the UAE are the civil law-based UAE courts (the leading Arabic-speaking jurisdiction for enterprise in the Middle East), the common law-based Dubai International Financial Centre (DIFC) courts, and arbitration.

The UAE Courts

The UAE is a federation of seven emirates comprising Dubai, Abu Dhabi, Ajman, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain and was formed in 1971. The UAE federal constitution provides for an allocation of powers between the federal government and the government of each emirate. Although Dubai is subject to the federal law of the UAE, it retains the right to administer its own internal affairs and retains its own court system, which is not subject to the federal Supreme Court in Abu Dhabi. There are three main branches within the UAE court structure: civil, criminal and Sharia, or Islamic, law. The legal system of the UAE courts is founded upon civil law principles and Sharia law. In the UAE, as in other civil law jurisdictions, legislation is formulated into a number of codes that provide the general principles of law and are accompanied by a significant amount of subsidiary legislation. The court structure in Dubai is comprised of the Court of First Instance, the Court of Appeal and the Court of Cassation. The Court of First Instance includes the Civil Court, the Criminal Court and the Sharia Court. Although there is no formal system of judicial precedent in the UAE, lower courts respect the judgments of higher courts.

‘The next step in the development of arbitration in the UAE is for a new federal arbitration law to be enacted.’ Hassan Arab,
Al Tamimi

UAE court proceedings are conducted in Arabic, and there are generally limitations upon the rights of audience before Arabic courts. Only UAE nationals and a small number of senior Arab advocates with special licences can appear before the courts. Accordingly, parties wishing to be represented in the Dubai courts must appoint a qualified local advocate to represent them.

The progressive attitude of the Dubai courts is well demonstrated by the number of specialised courts that have been set up over the past few years to enhance the UAE legal system. In Dubai, a property court (under the auspices of the Court of First Instance) was set up following the success of the labour court, which has been operating since November 2007. Committees have also been established with the specific experience to take responsibility for the resolution of certain types of disputes. These include, for example, the Commercial Agencies Committee (for agency law disputes). The UAE courts have also recently been improved by modern and electronic case management systems.

The UAE is a member of numerous regional and international organisations, such as the Arab League, the Gulf Cooperation Council (GCC) and the United Nations. In 1986, the UAE joined Interpol pursuant to Federal Decree 90 of 1986. The UAE (and by extension the DIFC) is also a party to certain regional multilateral conventions on the enforcement and recognition of judgments and arbitral awards such as the Convention on the Judicial Cooperation between the States of the Arab League signed in Riyadh in 1983 (the Riyadh Convention). The UAE is party to more than 40 bilateral legal and judicial co-operation treaties with other countries.

The DIFC Courts

The DIFC is a federal financial free zone situated within Dubai and physically comprising about 110 acres. The DIFC was created in 2004 by laws enacted by His Highness Sheikh Mohammed bin Rashid Al Maktoum, vice president of the UAE and ruler of Dubai. The DIFC was established to position Dubai as a global financial centre and create a gateway to financial markets in the Middle East and an environment for growth, progress and economic development in the UAE and the wider region by providing the needed legal and business as well as physical infrastructure benchmarked against international standards. As an international centre for business, the DIFC benefits from a zero tax rate on income and profits; permitted 100% foreign ownership; no restrictions on foreign exchange or capital/profit repatriation; operational support and business continuity facilities; as well as a privately held financial exchange, Nasdaq Dubai.

The DIFC was established with its own legal system and courts distinct from those of the wider UAE. The DIFC courts are independent, English language common law courts with jurisdiction over corporate, commercial, civil, employment, trusts and securities law matters. Proceedings before the DIFC courts are conducted in English and in accordance with the rules of the DIFC courts, which are based on the English civil procedure rules and English Commercial Court practice. The courts also recognise the ability of the parties to choose their own governing law, permit parties to apply for a full range of injunctive and interim relief not otherwise available under the UAE civil procedures law and provide for the recovery of the winners’ costs against the losing side.

The DIFC courts’ chief justice Michael Hwang has stated that the DIFC courts will always take English law as a starting point because the English Commercial Court has led the way in developing the rules of common law into internationally accepted principles of commercial law. However, he stressed that common law is no longer Anglocentric, it has been developed by other parts of the common law world and modified to suit local conditions. The DIFC courts benefit from a multinational bench of judges who can merge the confidence afforded by the application of English law with the developments of wider common law jurisdictions, and use it to meet the demands of international business and the need for adaptability to the challenges of multinational disputes.

‘The DIFC courts have also made great strides in the enforcement of foreign judgments.’
Rita Jaballah,
Al Tamimi

Originally, the jurisdiction of the DIFC courts was limited to civil or commercial cases and disputes that fell within one of the four jurisdictional gateways set out in article 5A(1) of Dubai Law No 12 of 2004 (the Judicial Authority Law). In order for the dispute to fall within the DIFC courts’ jurisdiction, there must have been a connection to the DIFC, whether with respect to the subject matter, the location of the parties or the transaction concluded. Where the DIFC court had jurisdiction, the jurisdiction of the Dubai courts was specifically excluded, except in relation to criminal and matrimonial matters. This changed on 31 October 2011 with the enactment of Dubai Law No 16 of 2011, which amended the jurisdictional limitations in the Judicial Authority Law. Now, article 5A(2) of the new law permits parties to a contract to agree clearly and expressly in writing to refer their civil and commercial dispute to the DIFC courts, even where there is no connection to the DIFC (and as long as no final judgment has been issued by another court). Moreover, if a dispute has already arisen it can still be resolved in the DIFC courts if both parties agree to have it heard it there. In other words, parties, wherever located, are now free to ‘opt in’ to the jurisdiction of the DIFC courts and elect the DIFC courts to adjudicate their dispute. However, where parties have not agreed clearly and explicitly in writing to refer their disputes to the jurisdiction of the DIFC courts, and the dispute has a connection to the DIFC, the DIFC courts still maintain exclusive jurisdiction to hear civil and commercial cases that fall within one of the five jurisdictional gateways referred to above (subject to any opt-out provisions).

Ultimately, the right to opt-in to the jurisdiction of the DIFC courts represents choice – choice for local, regional and international business to choose between the UAE’s Arabic language civil law courts or English language common law courts to resolve their disputes and the choice for international business to combine the UAE’s strategic geographical and commercial advantages with the certainty and enforceability of international common law standards.

The DIFC courts have also made great strides in the enforcement of foreign judgments. The enforcement of a recognised foreign money judgment in the DIFC against a defendant with assets located in the DIFC is relatively straightforward. This is especially so for such judgments emanating from England, because in January 2013 a non-legally binding memorandum of guidance as to enforcement was signed by the DIFC courts and the English Commercial Court to facilitate the mutual enforcement, subject to certain conditions, of money judgments issued in the two jurisdictions. It is also possible to enforce foreign judgments of a more complex nature, such as injunctions and freezing orders, in the DIFC courts, again subject to certain conditions.

Earlier this year, the court gave strong indication of its commitment to the development and prioritisation of speedy international enforcement by launching a separate DIFC courts enforcement department to ensure the simple and speedy enforcement of orders made by both the DIFC courts and other jurisdictions. This department will have two areas of responsibility, to enforce DIFC judgments both locally and internationally and to enforce the orders of other courts with regards to assets held within the DIFC. The DIFC courts’ new enforcement structure is designed to be fast, flexible and fully paperless. A person seeking to enforce a judgment, decision, or order can choose from four different methods, including charging orders, attachment of assets or earnings, execution against assets and the appointment of a receiver. Once an application is filed, it will be dealt with by an enforcement officer who will normally act, according to the request, within one to two working days.

Arbitration

Arbitration in the UAE is an increasingly popular choice for alternative dispute resolution for foreign business. The UAE signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in November 2006 and hosts three established arbitration centres: the Dubai International Arbitration Centre (DIAC), the Abu Dhabi Commercial Conciliation & Arbitration Centre (ADCCAC) and the DIFC-LCIA (effectively a branch of the London Court of International Arbitration).

DIAC is located in Dubai and was created in May 2003. In 2007 the centre issued revised arbitral rules modelled on international best practice. It is currently the busiest arbitration centre in the Gulf region. Although it is part of the Dubai Chamber of Commerce, DIAC is financially and administratively autonomous. ADCCAC is based in Abu Dhabi and revised its rules in 2013. It remains a popular choice for companies doing business in Abu Dhabi, and it is expected to be joined by a new Abu Dhabi-based arbitral centre once the new commercial free zone in Abu Dhabi opens.

The DIFC has its own arbitration law, DIFC Arbitration Law No 1 of 2008, based upon the UNCITRAL Model law and therefore familiar worldwide (as opposed to the UAE law on arbitration which applies in the rest of the UAE). Under the DIFC Arbitration Law there is no requirement for parties to have any connection with the DIFC in order to use the DIFC as the seat for the arbitration. A DIFC-seated arbitration will have the DIFC courts as the curial courts. These are English-language common law courts modeled on the English Commercial Court. Although relatively new, the DIFC courts have already shown a strong pro-arbitration stance, and many of its judges are noted international arbitrators (for example, the chief justice Michael Hwang). The DIFC is home to the DIFC-LCIA arbitration centre, established in February 2008. The centre is able to administer arbitrations wherever the seat of the arbitration is located. In May 2014 it was announced that a DIFC Dispute Resolution Authority will be established, to consist of the DIFC courts and a new ‘Arbitration Institute’. The institute will be responsible for promoting arbitration in the DIFC, hosting conferences and lectures, issuing guidance and co-operating with other arbitral institutions and bodies. It is assumed that the DIFC-LCIA will work closely with the new authority, and possibly form part of it.

‘Businesses now have the opportunity to select a dispute resolution forum in the UAE that suits their business needs.’ Robert Maxwell Marsh, Al Tamimi

The enforcement of arbitral awards in the DIFC and foreign awards is a straightforward process, with the DIFC courts ‘converting’ the arbitral award into a DIFC courts’ judgment, enforceable within the DIFC. The DIFC courts may only refuse to recognise or enforce an award on the same limited grounds as those contained in the New York Convention. If the award is to be enforced against assets situated in the rest of the UAE, the DIFC courts’ judgment will have to be presented to the execution department of the Dubai courts. Given the reciprocal recognition provisions of the two jurisdictions, the enforcement order should be converted into an order of the Dubai courts, without review or examination of the merits of the award by a Dubai court judge.

The next step in the development of arbitration in the UAE is for a new federal arbitration law to be enacted. The current law, contained in the Civil Procedure Code of the UAE, is outdated and in the past has hindered enforcement of arbitral awards by granting the local courts relatively wide procedural grounds for refusing ratification of the award. A clear and recognisable piece of legislation, such as an UNCITRAL-based law, is much needed. The Ministry of Economy has released various drafts of the proposed UAE Federal Arbitration Law; the latest draft being issued in 2013. The draft law demonstrates the UAE’s wish to modernise its legislation to fully comply with its enforcement obligations under the New York Convention and keep pace with the latest arbitral developments.

A very recent decision of the DIFC Court of First Instance (Banyan Tree Corporate PTE Ltd v Meydan Group LLC), has added teeth to the DIFC courts’ ratification and enforcement powers by holding that no connection with the DIFC was required to uphold its jurisdiction to ratify a Dubai (non-DIFC) arbitral award. Previously it had been thought that only DIFC awards had automatic recourse to enforcement by the DIFC courts when the dispute held no connection with the DIFC. Dubai-seated awards relating to assets in onshore Dubai had been thought only to be enforceable in the Dubai courts (and therefore subject to a longer process with more grounds for the court to refuse ratification). Instead, the judge held that the wide-reaching ratification powers of the DIFC Judicial Authority Law also apply to Dubai (non-DIFC) awards without a direct link to the DIFC in subject matter. This equally applies to foreign arbitral awards looking to be enforced in onshore Dubai but with no connection to the DIFC. This will no doubt contribute to the DIFC’s appeal as an arbitration-friendly forum.

Businesses, both domestic and international, now have the opportunity to select a dispute resolution forum in the UAE that suits their business needs and reflects the commercial reality of today’s global business and industry. The choice of forum and jurisdiction for the determination of disputes in a contract depends on a range of important factors, including the identity and domicile of the parties; the governing law of the contract; the subject matter of the contract; and the location of assets. In many cases it involves a balancing act of competing factors in order to marry the identity of the parties and the nature of their contractual relationship and business with the most suitable and accommodating dispute resolution forum. International arbitration continues to be a popular choice for dispute resolution, especially for high-value commercial contracts, partly because it affords privacy to the parties and a relative procedural flexibility, eg nomination of arbitrators. The UAE has long recognised the importance of being a hub for arbitration and continues to take big steps towards streamlining UAE arbitration with the rest of the world and simplifying international enforcement. As the caseload and case law of the burgeoning DIFC courts grow and the Dubai courts continue to evolve, the UAE will continue to prove itself as a primary dispute resolution centre for both the Middle East and global markets.