Legal update: Jurisdictional developments in the DIFC
Source: Clyde & Co , Author: Alec Emmerson
Posted: Wed April 25, 2012 1:36 pm

UAE. When the DIFC Courts were established by Law 12 of 2004 ("Law 12") their jurisdiction was defined in Article 5 to be exclusive in relation to

 a- civil or commercial cases and disputes involving the Centre or any of the Centre's Bodies or any of the Centre's Establishments.

  b- civil or commercial cases and disputes arising from or related to a contract that has been executed or a transaction that has been concluded, in whole or in part, in the Centre or an incident that has occurred in the Centre.

  c- objections filed against the decisions made by the Centre's Bodies which are subject to objection in accordance with the Centre's Laws and Regulations;

  d- any application over which the Courts have jurisdiction in accordance with the Centre's Laws and Regulations. 

Article 5 also provided that the parties could opt out of DIFC Court's jurisdiction in relation to items a, b and d above.

Centre Establishments are defined in Law 12 as "Any entity or business duly established or carrying on business in the Centre, including any Licensed Centre Establishments.  A Licensed Centre Establishment is defined as "Any entity licensed, registered or otherwise authorised to carry on financial or banking business including those activities or businesses referred to in Article 9 of the Centre Law."

Until recently Article 5 has been construed narrowly by most lawyers and commentators (including the writer).

In October 2011, when, by Law No. 16 of 2011 ("Law 16"), the jurisdiction of the DIFC Courts was extended to include cases and claims in which the parties had agreed in writing (before or after the disputes were raised) to the jurisdiction of DIFC Courts, this was widely welcomed in the Regional business community as giving access to an English language common law court system if the parties so elect in a written agreement explicitly entered into between the parties. The words used in Law 16 state "…this agreement must be according to a clear and explicit special provision."

What the Court of Appeal, comprising the Chief Justice Michael Hwang SC, Justice Sir John Chadwick and HE Justice Ali Al Madhani has now decided in Corinth is that the original jurisdiction of the court extends further than many commentators had previously thought (and than was originally determined at First Instance by the Deputy Chief Justice, Sir Anthony Colman, in this case). 

The case was determined under Law 12 which was applicable at the time of the hearing but had been amended by Law 16 by the time the judgment was rendered.  However, if Law 16 has to be applied to the same circumstances the result would be the same. 

The brief facts of the matter are that Corinth Pipeworks SA ("CP") is a Greek company doing business in Athens.  It sued Barclays Bank PLC ("Barclays"), a bank incorporated in England, but with a branch registered in DIFC, for USD 24 million in damages resulting from alleged faults and misleading representations made by an employee of Barclays who is said to have assured CP that funds due from a customer for steel pipes had been deposited with the bank and were being processed for transmission to CP. 

As a result of the alleged misrepresentations, CP refrained from taking steps to attach or secure assets of the customer so that they were not dissipated.  However, CP alleged that the bank allowed the customer or one of its directors to withdraw the money which it had been promised and this resulted in the loss claimed.

The employee of the bank who is said to have made the misrepresentations was employed by Barclays at Jebel Ali and no complaint was made against the DIFC branch of Barclays.

CP argued that the definition of "Centre Establishment" in Article 5(A)(1)(a) of Law 12 applied to Barclays and not just to its DIFC branch.  As a result CP maintained that an action could be brought against Barclays in respect of claims occurring outside the DIFC in the DIFC Courts i.e. that the DIFC Courts would have jurisdiction.

The main anchor of that position was that Barclays is just one legal entity and its DIFC branch has no separate legal identity.  Accordingly Barclays itself is a "Centre Establishment", not merely the DIFC branch.

The Court of Appeal rejected the Deputy Chief Justice's analysis at First Instance that an international corporation with a presence in DIFC is a "Centre Establishment" only to the extent to which its branch is authorised to conduct business in and from the DIFC and that a claim or dispute only "involves" a "Centre Establishment" when that claim or dispute is connected with or arises out of the activities of the corporation conducted through its DIFC branch. 

Instead the Court of Appeal favoured an interpretation of Law 12 based on the concept that the respondent as a whole (Barclays in this case) and not just its DIFC branch has been designated a "Licensed Centre Establishment" and is therefore to be regarded as a "Centre Establishment".  In essence the Chief Justice's reasoning in Corinth concludes that Barclays Dubai and Barclays DIFC are not separate legal entities but are branches of the same indivisible entity.

Such reasoning comes as no surprise, at least to lawyers with English type common law backgrounds, although until the argument was articulated by Michael Black QC on behalf of Corinth in this case and held to be good by the Chief Justice, there was probably an assumption that the DIFC Courts might wish to construe their jurisdiction narrowly - as indeed occurred at First Instance.

It has to be assumed that when Law 12 and subsequently the very recent Law 16 were enacted the potential breadth of the DIFC Courts' jurisdiction was a known and intended result.  If, in fact, H.E. The Ruler wishes to confine the jurisdiction of the DIFC Courts more narrowly (except in cases where the parties expressly agree) a further amendment to the legal provisions relating to the jurisdiction of the DIFC Courts will be needed.

In case CA No. 003/2011 (heard on 28 and 29 November 2011) involving three individuals with claims against Bank Sarasin-Alpen (ME) Limited ("Sarasin-Alpen") and Bank Sarasin & Co Limited ("Sarasin Switzerland"), the Deputy Chief Justice Sir Anthony Colman, sitting with Justice Sir David Steel and HE Justice Ali Al Madhani held that Article 5(A)(1) must be read together with the amendments introduced by Law 16, even if that Law was not in effect at the time of the original judgment.

Law 16 came into effect upon its issuance on 31 October 2011 and contained no transitional provisions.

Article 5(A)(1)(a) (of Law 4) has been amended and makes it clear that the Court of First Instance shall have exclusive jurisdiction when there is a civil or a commercial case involving a Licensed Centre Establishment (i.e "one which practises financial services and any other activities according to the Centre's Laws" - a new definition found in Law 16).

In Sarasin the court held that it had jurisdiction (under Article 5(A)(1)(b) over claims for breach of contract against Sarasin Switzerland because there was an overall investment transaction of which each component was at least partly, if not wholly, "concluded" in the DIFC and that there was also jurisdiction under Article 5(A)(1)(c). 

However, Sarasin's contract with the claimant provided for Swiss law and jurisdiction (and it was held that these terms were validly incorporated into the contract with the claimant).  The Court of Appeal therefore had to determine whether there was an effective opt out provision (in relation to which the new provisions of Law 16 are significantly different to Law 12).

Although there is no explicit right to contract out of DIFC jurisdiction in Law 16 the Court of Appeal held that this is probably explained by the existence of Article 13.1 of Law 10 of 2005 which provides:

"A submission to the courts of a jurisdiction in the contract shall be effective".

The court determined that the reference to "a jurisdiction" is clearly to a jurisdiction other than that of the DIFC Court and its effectiveness clearly indicates that it can be recognised in those cases where the DIFC Court would otherwise have exclusive jurisdiction. 

That being the case there is no inconsistency between Article 13.1 and anything in Law 16 which would involve Article 13.1 being automatically repealed.  The Court held that it followed that it could recognise an opt out agreement notwithstanding that the exclusive jurisdiction provisions in Article 5(A)(1) would have conferred jurisdiction on the DIFC Court. 

However, although the Court held that there was an effective agreement to confer jurisdiction on Swiss Courts, it declined to do so on the basis that Switzerland was not a convenient forum.  It seems to have been important in reaching that conclusion that the Court was concerned that there would be a risk of inconsistent decisions on facts and law between the trials of claims against Sarasin Dubai in DIFC and the trial of claims against Sarasin Switzerland in Switzerland. 

The judgment relies upon the approach taken by Brandon J in the Eleftheria [1969] 1 Lloyds Rep 237, a judgment approved and adopted by the House of Lords in Donoghue -v- Armco [2002] 1 Lloyds Rep 425.

Although the Court felt that the natural forum for the claims against Sarasin Switzerland was "certainly" in Switzerland, it made the following determination:

"On balance… we have come to the conclusion that this is one of those exceptional cases where the Court should exercise its discretion against enforcing the jurisdiction clause and should permit the proceedings against Sarasin Switzerland to continue in this Court which we consider to be the appropriate forum in the interests of justice, convenience and fairness".

Where does all this leave us?

Certainly the expansion of the DIFC Courts jurisdiction by Law 16 to cases agreed by the parties was and is a major development.

Similarly, but on a rather lesser scale, the interpretation of Article 5(A)(1)(a) in an expansive rather than restrictive way in Barclays also heralds a potential expansion of DIFC Courts jurisdiction in cases involving companies which have branches registered there and to claims that have no connection with DIFC except that a defendant is a Centre Establishment.

There are quite a number of banks like Barclays as well as insurance companies with a branch in DIFC which would therefore make them susceptible to being sued in DIFC even in the absence of an explicit agreement. 

The Barclays judgment makes it clear that the Court does not think that its decision has opened the floodgates to claims within the DIFC because if the defendant wishes to contest jurisdiction it can do so on "forum non conveniens" grounds.

The fact that the Court of Appeal in the Sarasin case decided that it had jurisdiction, notwithstanding that the natural forum is Switzerland, should not in the writer's view be taken as any indication that the Court is seeking to expand the jurisdiction of DIFC Courts and will not rigorously police the concept of "forum non conveniens". 

I would expect the Court to continue to apply the Eleftheria theory and principles and be slow to "override" an express jurisdiction clause except where the Court regards the case as "exceptional".  Therefore, in cases where there is just one defendant and a foreign jurisdiction clause has been validly incorporated in the contract, this is likely to be given effect unless strong cause can be shown why not.

It will be interesting to see whether claimants do start to sue foreign insurers in the DIFC Courts because the standard wordings in many commercial policies are in the English language, employ English legal concepts which have been developed over many years of English jurisprudence, and often expressly incorporate English law and practice in which the judges of the DIFC Courts will be regarded as expert and likely to interpret such claims in accordance with the prevailing English jurisprudence. 

Such policies often have no express jurisdiction clause and one might therefore expect jurisdiction to be retained in the DIFC Courts.  A more interesting scenario will be one in which there are all the above features, but an express provision for the jurisdiction for, say, the Courts of another Emirate.  If the Defendant challenged the DIFC Courts' jurisdiction in such circumstances, would the Court find strong cause to ignore such a clause?  Time and the facts of each case alone will tell. 

If, on the other hand, there was agreement to the jurisdiction of the "Dubai Courts" that should, in the writer's view, be sufficient as the DIFC Courts are Dubai Courts (although not in the way defined in Law 3 of 1992).

We will all look forward to the curious sets of facts which commerce will no doubt throw up, to provide further cases which will define the jurisdiction of the DIFC Courts.

You can access related articles on the Clyde & Co website at

Disclaimer: The views set out in this article do not constitute legal advice and readers are urged to seek specific legal advice in relation to any particular issues which arise from the subject-matter of the article.

© 2012 Clyde & Co LLP. All rights reserved



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