DIFC’S LEGAL SYSTEM DELIVERING RESULTS
Regulator takes a ‘five-gateway’ approach to setting its reach over commercial disputes
The legal systems in different countries usually fall into two main categories — common law system or the civil law. Broadly speaking, a common law system is based on the concept of judicial precedent — i.e., court judgements are relied upon to form the basis of future decisions.
This allows the law to develop incrementally by analogy and by reference to prevailing social norms. In contrast, civil law systems are based on well-established legal codes and statutes and have no principle of binding precedent.
The UAE operates under a civil law legal system. In contrast, the DIFC has its own legal system and courts (DIFC Courts), which adopt the common law system. Proceedings are conducted in English and they only deal with commercial disputes.
Accordingly, two separate legal systems coexist within Dubai namely (1) the predominant ‘onshore’ UAE legal system, based on the civil law; and (2) the ‘offshore’ DIFC legal system, which is modelled on the common law. It for this reason that the DIFC has been described as “a common law island in a civil law ocean”.
Five ‘gateway’ jurisdiction
The DIFC Courts’ jurisdictional framework is contained in Article 5 (A) of the Judicial Authority Law (JAL) (Dubai Law No. 12 of 2004). Article 5 (A) (1) of the JAL sets out five “gateways” by which the DIFC Courts are given exclusive jurisdiction to hear and determine various kinds of disputes relating to civil or commercial claims. A party wanting to commence a claim in the DIFC Courts must be able to establish that it comes within one of the gateways.
The first gateway is concerned with the status of the parties. For example, where either party to the dispute is a DIFC incorporated entity, the DIFC Courts will enjoy exclusive jurisdiction over disputes that involve such a party.
The second and third gateways are concerned with the subject matter of the dispute. For example, the second gateway confers jurisdiction on the DIFC Courts where the dispute concerns contracts performed or concluded, or partly performed or concluded in the DIFC.
The third gateway is slightly broader and confirms jurisdiction in relation to incidents or transactions performed, or partly performed or concluded, in the DIFC. The fourth gateway relates to appeals.
The fifth gateway confers jurisdiction where other DIFC laws operate to confer jurisdiction on the DIFC Courts.
Article 5 (A) (2) of the JAL also confers jurisdiction where the parties have “opted in” to the DIFC Courts’ jurisdiction. This covers the scenario where the parties agree in writing either before or after a dispute arises to refer the dispute to the DIFC Courts. Traditionally, the DIFC Courts’ jurisdictional scope was limited and required
The necessary and proper party jurisdiction allows the DIFC Courts to order a party to be joined to proceedings where the claim against that party does not fall within any of the other gateways of Article 5 of the Judicial Authority Law.
a direct nexus to the DIFC. However, a key theme in the development of the DIFC Courts is the continual development of its jurisdictional scope. Over the years, the DIFC Courts’ jurisprudence has shown that the DIFC Courts adopt an expansive approach to the interpretation of the jurisdictional gateways in the JAL.
In particular, the fifth jurisdictional gateway of the JAL has been the source of its most expansive approach to jurisdiction. Recently, the DIFC Courts confirmed that this gateway provides the basis for its “necessary and proper party” jurisdiction.
Simply put, the necessary and proper party jurisdiction allows the DIFC Courts to order a party to be joined to proceedings where the claim against that party does not fall within any of the other gateways of Article 5 of the JAL and, it is desirable to do so.
Accordingly, where a claim is commenced against an “anchor” defendant within the jurisdiction of the DIFC, other defendants that are deemed necessary and proper to the disposal of the claim may be joined to the proceedings. This is a welcome development. The rationale underpinning this approach is to avoid the risk of conflicting judgements arising from multiple proceedings in different jurisdictions by having one set of proceedings that can fairly dispose of all the issues.
Key takeaway
Many of our clients that are involved in DIFC Court proceedings question whether they can challenge jurisdiction as a means to bring an end to the claim. However, challenging jurisdiction is difficult given the DIFC Courts expansive approach to its jurisdiction.
Accordingly, careful consideration should be given to the cost consequences of seeking to challenge jurisdiction in the context of the wider litigation strategy.