Benefits and Drawbacks of the Expansion of the Jurisdiction of the DIFC Courts

Abstract

On 31 October 2011, his highness Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Dubai expanded the jurisdiction of DIFC (Dubai International Financial Centre) Courts. This move has been received with mixed reaction some considering it essential and beneficial to Dubai while others are on the opposing side. This paper will assess both the benefits and drawbacks of the expansion of jurisdiction of DIFC Courts. The body of the essay is divided into two sections namely the benefits of expansion of the jurisdiction of DIFC Courts and the drawbacks.

The first section presents and discusses the benefits accruing to the expansion of the DIFC Courts. Four major benefits were discussed namely the high international standards of legal procedure, attraction of foreign investment, overcoming the weaknesses of UAE court system, and lastly the conducive legal and judicial environment. Through this sector, it was discussed that the DIFC Courts has accrued many benefits that essential creative conducive legal and judicial environment for international investment and trade.

The second sector of the main body discussed the disadvantages of the expansion of jurisdiction of DIFC Courts; it discussed challenges that it has brought to the judicial system and court process in Dubai. The challenges discussed include unfairness towards Dubai courts, unfair competition, unnecessary and expensive legislative reforms, conflict with local courts, and problems with enforcement. Lastly, in the final section of the paper presents conclusion of the essay.

 

 

 

Benefits of Expansion of DIFC’s Court Jurisdiction

There are several benefits of the expansion of jurisdiction of DIFC Courts. This paper discusses only four benefits namely include high international standards of legal procedure, attraction of foreign investment, overcoming the weaknesses of UAE court system, and conducive legal and judicial environment.

(a) Highest international standards of legal procedure

One of the foremost benefits of the expansion of the DIFC Court’s jurisdiction is the achievement of the highest standards of legal procedure at the international level. As illustrated by Mohtashami and Tannous (2009), under the new jurisdiction expansion, the DIFC Court is designed to ensure highest standards of legal procedure within the international context[1]. The primary goal of this is to create judicial and legal environment that is conducive to international business. As a result, the new legal and judicial procedure makes it easy to facilitate international trade, investment s well as finance. Before the expansion of DIFC Courts, there was no conducive legal environment that could support the international trade, finance, and investment; thus leading to loss of business and investment to other countries.

Apart from conducive legal environment, the expansion of DIFC Courts would certainly improve transparency and efficiency of multinational companies operating in Dubai and the rest of other Middle East countries. This is because the DIFC Courts is designed to provide a self-contained judicial system with ultimate exclusive jurisdiction to determine cases of international business and trade. In addition to the commerce, the court is empowered to determined civil cases making it a two-tiered judicial system. This would certainly enable it to improve transparency as well as efficiency of the international trade. In essence, the rest of global institutions would significantly benefit from improved efficiency and transparency that was apparently lacking in the Middle East (Mair, 2007)[2]. DIFC Court is independent and not influenced by the opinion of other external judicial systems such as Dubai Court of Cassation. In fact, the jurisdiction of Dubai Court of Cassation is limited to only non-DIFC related civil and commercial cases.

Within the United Arab Emirates, the DIFC is recognized as an independent and separate jurisdiction making it the most suitable court for handling legal cases originating from international commercial. In addition, the expansion of the jurisdiction of DIFC Courts has enabled it independent from other local legal entities such as Federal commercial as well as substitute and civil laws. Therefore, with the expansion of jurisdiction, the DIFC Courts no longer applies Federal commercial and civil laws that were derailing the proper handling of commercial and civil cases within the international legal context. As a result, the expansion enhances the jurisprudence of commercial and civil cases within the international context and creates conducive legal and judicial environment for international trade, commerce, investment, and finance.

(b) Attraction of foreign investment

There is only one primary focus of DIFC Courts; attraction of foreign investments. This is beneficial because it would subsequently lead to the realization of development and investment goals of the Middle East countries. It is essential to note that both Dubai and DIFC Courts have put their heads together towards the realization of this essential common goal. The two institutions recognize the dire need to attraction foreign investments to Dubai and the entire United Arab Emirates. The local investors alone would not significantly facilitate the investments needs of Dubai. Foreign investors would contribute to the highly needed additional cash flow to the country, which would be directly to the development of various economic sectors such as oil production and mining (Lutrell, 2008)[3].

There were three major setbacks of Dubai judicial system before the expansion of the DIFC Courts. First, there was no provision for the reimbursement of legal costs in Dubai. This had negative effects on the Dubai judicial system because it denied many investors right to access justice because of the fear of high legal cost. As a result, many foreign investors never considered Dubai as a safe place for their investments. However, as explained by Luttrell (2008), the expansion of DIFC Courts has introduced reimbursement for legal costs for international commerce, trade, and investment, thus attracting many international investors to Dubai. The introduction of reimbursement for legal cost allows international investors to follow up on their rightful claims through the DIFC Courts.

Another serious problem in Dubai that affected the international investment was lack of binding precedence law. Before the expansion of DIFC Courts, there was limited legal security especially for the international investors, commerce, and traders. However, the expansion of DIFC Courts is beneficial because it has provided subtle legal security for international investor. This has subsequently attracted international investors to Dubai and the entire United Arab Emirates. Lastly, the Dubai courts do not follow any international legal standards and the choice of law agreed by the aggrieved parties. This problem has been eliminated by the DIFC Courts thus adding to its benefits. Specifically, the expansion of DIFC Courts has inserted foreign jurisdiction clauses and arbitration clauses allowing foreign investors and international companies to go around these problems.

(c) Foreign choice of jurisdiction

With the recent expansion, the DIFC Courts have gained significant advantage as the foreign choice of jurisdiction. Many foreign multinational firms in Dubai and their entire middle east have made the DIFC Courts their choice of jurisdiction for handling both civil and commercial cases. It is not only foreigners who prefer DIFC Courts; even other majority Dubai business communities choose it over the local Dubai Courts. The expansion has made the DIFC Courts get recognition both at the national and international level for handling civil and commercial cases.

DIFC Courts have become the foreign choice of jurisdiction because it offers so many advantages over the local courts in Dubai, which has made it recognized both nationally and internationally. For instance, unlike the UAE Courts, the jurisdiction of DIFC Courts is not guarded thus making it free and open for international participation. Majority prefer DIFC Courts for handling both civil and commercial cases involving multinational corporations in UAE simply because of this advantage. In addition, unlike the UAE Courts it does not frustrate people who are seeking for oversea judgment to settle their commercial as well as civil disputes. Instead, through DIFC Courts anybody in the Middle East can seek oversea judgment for both civil and commercial cases. At the moment, in Dubai, parties seeking oversea judgments for both civil and commercial disputes are choosing DIFC courts.

The expansion of DIFC Court has made it become the preferred choice for foreign jurisdiction because it recognizes the oversea judgments, which was lacking amongst the local Dubai courts. The recognition of oversea judgments eventually created favorable judicial and legal system in Dubai for the international community and business people in Dubai and the entire Middle East countries. As a result, the international investors feel that the DIFC courts are doing enough to protect them thus choosing Dubai as a prime investment destination. The expansion of the DIFC Court enabled it to enforce automatically overseas judgments. As explained by Krishnan and Purohit (2015), the courts now have jurisdiction to hear and preside of oversea judgments. The courts now automatically enforce oversea judgments by creating conducive legal and judicial environment for foreign as well as local investors thus making it preferred foreign choice of jurisdiction.

(d) Conducive legal and judicial environment

Another advantage of the expansion of DIFC Courts is that it has helped create conducive legal and judicial environment. It has made the judicial and court process very simple and transparent. This has offered overwhelming advantages to the international as well as Middle East business community. First, it has created conducive legal environment for the legal advisers working for the foreign companies in Dubai and the entire Middle East countries by using rules and legal procedures based on common laws. In essence, the procedures and rules applied by the DIFC Courts are modeled on the system of common laws. This has not only created conducive environment but also increased efficiency of the legal system.

The expansion of the DIFC Courts has brought several advantages to the judicial and legal system. For instance, cases are now being heard in English contrary to the condition that prevailed before the expansion. Hearing cases in English has enabled easy access of justice by all people including the international community in Dubai (Mohtashami, 2008)[4]. It has also increased transparency of the judicial process in Dubai. In addition, the DIFC Courts are highly recognized for using highly regarded international judges that have proven record of accomplishment for more than six years. With the expansion of the DIFC Courts, it is no longer required fro the documents, correspondence, and agreements to be translated into Arabic language to facilitate the court process. This has eventually eliminated the danger of losing legal meaning during translation. It has also eliminated the additional cost and time wastage.

The expansion of DIFC Courts has also created conducive legal and judicial environment by allowing the registration of international practitioners. With this provision, all international parties are allowed to register within an existing lawyer thus making them feel more comfortable. This has made many Arabic business community as well as foreigners to consider the DIFC Courts. Furthermore, DIFC Courts is steadily becoming the most preferred choice of judicial and legal forum in Dubai because it allows the winning party to reclaim reasonable amount of legal costs. This claim includes part of lawyer’s fees. However, as a matter of principle, lawyer’s fee, even in part, cannot be recovered from the UAE Courts. Lastly, DIFC Courts uses an award winning technology system that includes e-filing system all designed to enhance efficiency and create conducive environment for the court process.

(e) Choice of Law Clause

Another benefit of the expansion of DIFC Courts is that it allows people to choose the law clause. It gives the aggrieved parties a leeway to choose which law governs their agreement. They can choose either the UAE Courts or DIFC Courts.

This is expressed in the UAE Federal Law No. 11/1992, which allows people to choose which law governs their agreement. In essence, it allows parties to select the governing especially if some provisions are contrary to the Sharia Laws or UAE public order and morals.

This contract provision is stipulating countries or jurisdiction whose law will be applied in determination of the cases. It allows the application and interpretation of other country’s laws in determining the case thus giving the DIFC Courts great disadvantage and benefits in dealing with civil and business cases of international concern. In essence, this provision allows aggrieved parties to specify which particular law poor jurisdiction will be used to decide and determine their case before the DIFC Courts.

This provision allows the DIFC Courts to apply the principles of the other jurisdiction or law in determining civil and business cases of international origin as stipulated by the aggrieved parties. This approach has created conducive legal and judicial environment for the international business communities in Saudi Arabia and the entire Middle East countries. This is because they are allowed to choose which law governs their agreement and should be used in determining cases.

Drawbacks of Expansion of DIFC’s Court Jurisdiction

Despite all the benefits discussed above, the expansion of the jurisdiction of DIFC Courts has some drawbacks. However, it is essential to note that their effects are insignificant as compared to the benefits of DIFC Courts. The following are some major disadvantages of the expansion of the jurisdictions of DIFC Courts.

(a) Unfairness towards Dubai Courts

Since the signing of this agreement by HH Sheikh Mohammed bin Rashid Al Maktoum on 31 October 2011, some voices have raised concern that it is an unfair legal entity. In particular, there is a general opinion that it is unfair towards the Dubai Courts, a claim that is propagated mostly by the locals. This claim is not founded on any truth and its proponents are all getting it wrong with the jurisdiction of the DIFC Courts. However, there are some truths to this claim given that the DIFC Courts has set itself over the jurisprudence of Dubai Courts. Essentially, it has left the Dubai Courts with limited jurisdiction, which is a strong basis for the unfairness claim. However, the unfairness dates holds not strong waters given the benefits accrued to the expansion of DIFC Courts.

(b) Unfair competition

The introduction and expansion of the jurisdiction of DIFC Courts has sett in significant competition with the Dubai Courts. The two courts are now competition for the control of Dubai judicial and legal system. They are independently attracting forces and tactfully shopping to control the choice of Dubai court forum. The competition is not fair given that the DIFC Courts has been given more jurisdiction and control of the Dubai foreign judgments. It is not clear how the DIFC Courts will strategically come top of the competition game given their highly controlled legal system.

(c) Unnecessary and expensive legislative reforms

The successful implementation of the expanded DIFC Courts will certainly require serious legislative reforms in Dubai (Punwar, 2009)[5]. This is disadvantageous because it will require heavy financial investments. The country will have to spend a lot of many in reforming the Dubai legal and judicial system in order to accommodate the new DIFC laws. In addition, the reform will be time-consuming and involving. Furthermore, the required legislative reforms will alter the current legal and judicial system in Dubai. In essence, the reform will alter the business as normal practice at the judicial system. New judicial and legal procedures will have to be introduced to accommodate the expanded DIFC Courts.

(d) Conflict with local Courts

The expansion of DIFC Courts has certainly set conflicts with the local courts in Dubai; they see this move as a threat to their operation in the Middle East market. The conflict is rising from the deepening of the unified legal system in the Middle East countries. For instance, the local courts in Dubai are using a uniform system that puts them in control over the judicial process; the court procedures and judicial process is unified. However, the expansion of DIFC Courts has created new open and unified court procedures and judicial processes setting them in conflict with the local courts in Dubai and the entire Middle East countries. It sets new English common law, which is unfamiliar and unwelcomed by the local courts in Dubai; thus becoming the source of conflict given that it does not set standards for improving the Dubai local courts. The conflict is expected to continue as many multinational companies in the Middle East choose DIFC over Dubai local courts (Thilak, 2012)[6].

(e) Problems with Enforcement

Another significant drawback of the DIFC Courts is that there are no clear procedures for its enforcement or implementation in other Middle East countries. The court system was only expanded in Dubai. To be effective and have impact, it must be implemented in other Middle East countries. However, it is not clear whether other Middle East countries will welcome it. In additions, only Dubai has set in provision to recognize the authority of judgments from DIFC courts; in Dubai, their judgment cannot be changed by any local court of appeal. Unfortunately, other Middle East countries have not made similar legal provision recognizing the authority of judgments from DIFC courts. As a result, it is not clear whether other Middle East countries will recognize the judgments from DIFC courts as authoritative and binding; they have not put clear regulations recognizing the authority of DIFC courts thus creating problem with its implementation in the entire Middle East countries.

 

Conclusion

Since its expansion on 31 October 2011 by Sheikh Mohammed bin Rashid Al Maktoum, the DIFC Courts are becoming popular for offering in Dubai and the entire Middle East region; they are being recognized for offering considerable advantages over the local courts especially in presiding over cases touching on international trade, commerce, finance, and investment. This paper has looked at many factors, which are making DIFC Courts popular in Dubai. Some of the leading factors discussed above include high international standards of legal procedure, attraction of foreign investment, overcoming the weaknesses of UAE court system, and conducive legal and judicial environment. These factors are the primary advantages of the expansion of the jurisdiction of DIFC Courts.

On the other hand, the paper also discussed some drawbacks of the expanded DIFC Courts. Even though they are not many and have little influence, these drawbacks are limiting the full implementation of DIFC Courts in Dubai and the entire Middle East countries. The drawbacks include unfairness towards Dubai courts, unfair competition, unnecessary and expensive legislative reforms, conflict with local courts, and problems with enforcement. These factors are derailing the successful implementation of the expansion of jurisdiction of DIFC Courts in the Middle East. In conclusion, DIFC Courts has more benefits than drawbacks hence it should be fully adopted by the rest of Middle East countries. Its implementation will open the middle to international market as it creates favorable and conducive judicial environment for foreign investors

References

Krishnan, J. K., & Purohit, P. (2015)[7]. A Common Law Court in an Uncommon Environment: The DIFC Judiciary and Global Commercial Dispute Resolution. The American Review of International Arbitration.

Lutrell, S. R. (2008). Choosing Dubai: A Comparative Study of Arbitration under the UAE Federal Code of Civil Procedure and the Arbitration Law of the DIFC. Bus. L. Int’l9, 254.

Luttrell, S. R. (2008). Arbitration Law of the Dubai International Finance Centre, The. J. Int’l Com. L. & Tech.3, 170.

Mair, J. (2007). Equal Treatment of Parties in the Nomination Process of Arbitrators in Multi-Party Arbitration and Consolidated Proceedings. Austrian Review of International and European Law Online12(1), 59-82.

Mohtashami, R. (2008). Recent Arbitration–related Developments in the UAE. Journal of International Arbitration25(5), 631-639.

Mohtashami, R., & Tannous, S. (2009). Arbitration at the Dubai International Financial Centre: a Common Law Jurisdiction in the Middle East. Arbitration International25(2), 173-186.

Punwar, P. (2009). DIFC Courts: A Review of Key Decisions in 2009, The. YB Islamic & Middle EL15, 23.

Thilak, J. (2012). Extension of Jurisdiction of DIFC Courts and its Impact on Arbitration in the Middle East. Asian International Arbitration Journal8(2), 161-177.

[1] Mohtashami, R., & Tannous, S. (2009). Arbitration at the Dubai International Financial Centre: a Common Law Jurisdiction in the Middle East. Arbitration International, 25(2), 173-186.

[2] Mair, J. (2007). Equal Treatment of Parties in the Nomination Process of Arbitrators in Multi-Party Arbitration and Consolidated Proceedings. Austrian Review of International and European Law Online, 12(1), 59-82.

[3] Lutrell, S. R. (2008). Choosing Dubai: A Comparative Study of Arbitration under the UAE Federal Code of Civil Procedure and the Arbitration Law of the DIFC. Bus. L. Int’l, 9, 254.

[4] Mohtashami, R. (2008). Recent Arbitration–related Developments in the UAE. Journal of International Arbitration, 25(5), 631-639.

[5] Punwar, P. (2009). DIFC Courts: A Review of Key Decisions in 2009, The. YB Islamic & Middle EL, 15, 23.

[6] Thilak, J. (2012). Extension of Jurisdiction of DIFC Courts and its Impact on Arbitration in the Middle East. Asian International Arbitration Journal, 8(2), 161-177.

[7] Krishnan, J. K., & Purohit, P. (2015). A Common Law Court in an Uncommon Environment: The DIFC Judiciary and Global Commercial Dispute Resolution. The American Review of International Arbitration.