Michael Kerr, Managing Partner, SNR Denton, on the laws of the Dubai International Financial Centre

Dubai’s rulers have always had high-reaching ambitions. One such ambition was to establish Dubai as one of the world’s international financial centres. To this end, in 2004, Dubai established the region’s first “financial free zone”, the Dubai International Financial Centre (DIFC). The DIFC is an autonomous legal jurisdiction, governed by its own civil and commercial laws, largely drawn from English law. It has an independent judicial system vested in its own courts of first instance and appeal (the DIFC Courts). The DIFC has its own modern arbitration law largely drawn on UNCITRAL’s Model Law and thus is strongly supportive of arbitration as a method of flexible dispute resolution.

The DIFC quickly, and successfully, challenged the region’s financial hub, Bahrain. The establishment of the DIFC saw many of the world’s financial institutions restructure themselves within the region to operate principally under the DIFC, and in some cases saw global financial institutions establish themselves in the Middle East for the first time. In turn, the DIFC faces its own challenger in the Qatar Financial Centre, although the DIFC retains the first-mover advantage.

The DIFC is in effect a legal “comfort zone”. The Dubai government has taken that comfort zone to a new level. In late 2011, the jurisdiction of the DIFC Courts was extended to allow parties to any agreement to submit their disputes to the DIFC Courts even where there is no connection with the DIFC. Prior to that, cases could be brought before the DIFC Courts only if there was some DIFC connection, either through one of the parties being DIFC-based or where the subject matter of the dispute had a real DIFC connection.

The litigation processes in the Dubai Courts and in the DIFC Courts are very different. Litigation in the Dubai Courts is in Arabic. This means that all documents must, if not originally in Arabic, be translated into that language. Given that most business in Dubai is conducted primarily in English, this adds significantly to the cost and more fundamentally creates greater uncertainty as documents are not being interpreted in their original language. There is limited (indeed no) involvement of witnesses. The examination of underlying facts is delegated to court-appointed experts.

By contrast, the DIFC Courts are an English-language institution. Their rules and procedures are largely modelled on the English High Court. These provide for structured case management, English-style pleadings, disclosure of documents, witness evidence (including experts), a full hearing with witness examination and, ultimately, a reasoned judgment which is published. They apply the adverse costs rules, such that the loser will usually have to pay the winner’s costs. The rules also allow for summary judgment, thus giving scope for a speedy solution where there is no sensible defence in play. DIFC judgments can be readily enforced within the UAE through a protocol between the DIFC and Dubai Courts. A DIFC judgment is a UAE judgment for the purposes of international enforcement, to the extent that UAE judgments are internationally enforceable (although this is broadly limited to the GCC and one or two other individual countries).

Historically, international businesses transacting in Dubai have pressed hard for their agreements to contain provisions for dispute resolution away from the Dubai Courts. Usually, this would be arbitration, although sometimes the choice is a foreign court.

This is particularly true in the banking industry, where the usual preferred contractual choice for resolution of disputes has been the English courts. This new ability to choose the DIFC Courts is thus an extension of existing challenges faced by the Dubai Court.

However, it remains true that the Dubai Court judges will have the advantage of direct, daily exposure to developments in Dubai (and UAE) law in a way that the DIFC Court judges cannot. Therefore, if the dispute is one that gives rise to interpretation of Dubai or UAE Law, the Dubai Courts will still have that edge.

Practitioners expect that this recent development will see a growth in DIFC Court litigation. In fact, there is clear evidence that this is already occurring.