11 Jul 2011


Authored by: Adrian Chadwick


Adrian Chadwick briefs us on the uncertainty of the Special Tribunal’s jurisdiction over claims brought by or against Nakheel and its subsidiaries once it is carved out of Dubai World.
In Brief:

  • The Special Tribunal was granted jurisdiction in relation to disputes brought against or by Dubai world and its subsidiaries.
  • It is questionable whether the Special Tribunal will still retain jurisdiction for claims related to Nakheel, which will soon no longer be a Dubai World subsidiary.
  • In light of this predicament, there are various jurisdictional possibilities that should be considered.

Dubai Decree No. 57 of 2009 (as amended by Decree No. 11 of 2010) established a Special Tribunal to decide disputes related to the settlement of the financial position of Dubai World and its subsidiaries. By Article 3, the Special Tribunal was granted jurisdiction to “hear and decide any demand or claim submitted by or against the Corporation”; Corporation was defined as “Dubai World and/or its subsidiaries”.  Accordingly, all claims made by or against Dubai World and its subsidiaries must be brought before the Special Tribunal, with the exception of claims which are subject to a binding arbitration agreement; as decided by the first Practice Direction issued by the Special Tribunal on 30 March 2010, which had stated that it will be the policy of the Special Tribunal to respect and enforce arbitration agreements.
The Special Tribunal comprises a panel of three judges, Sir Anthony Evans, Michael Hwang and Sir John Chadwick, who are all from common law jurisdictions. The procedural rules for the Special Tribunal are currently the same procedural rules as are applied by the DIFC Courts, which in turn are based on the procedural rules used by the Commercial Court in England. Furthermore, the proceedings are conducted in English. The Special Tribunal proposes to adopt its own procedural rules shortly and has published a consultation paper in respect of the proposed rules. The proposed procedural rules are to be based on the DIFC procedural rules with some relatively minor modifications.
The party involved in the largest number of claims brought before the Special Tribunal has been Nakheel PJSC and its various subsidiaries. In March, Dubai World signed a restructuring agreement with its creditors. As part of that deal, Nakheel, which is carrying out its own restructuring, is to be carved out of Dubai World. When this happens it is unclear whether the Special Tribunal will retain jurisdiction for disputes involving Nakheel and its remaining subsidiaries. If the Special Tribunal loses jurisdiction then claims will have to brought before the Dubai Courts unless there is a binding arbitration agreement.
Although there appears to be an expectation in the market that Decree No. 57 will be amended to allow the Special Tribunal to retain jurisdiction over Nakheel and its subsidiaries, this expectation may be incorrect. Even if Decree No. 57 is amended, it is still unclear if the Special Tribunal’s jurisdiction will be extended to cover all claims by or against Nakheel and its subsidiaries, or whether it will cover only such claims where proceedings have already commenced before the Special Tribunal.
If Decree No. 57 is not amended, it is likely that the Special Tribunal itself will decide whether it retains jurisdiction. The Special Tribunal may consider that it retains jurisdiction, as Nakheel was a Dubai World subsidiary when Decree No. 57 came into force and this jurisdiction has not been removed. Alternatively, the Special Tribunal may determine that it retains jurisdiction over actions already commenced before Nakheel was carved out of Dubai World, on the grounds that Nakheel, in those proceedings, has submitted to the jurisdiction of the Special Tribunal. However, there is also a possibility that the Special Tribunal will consider that it no longer has jurisdiction over cases involving Nakheel, including those already commenced before the Special Tribunal, as it’s jurisdiction is limited by Decree No. 57 to only Dubai World and its subsidiaries, and that jurisdiction no longer exists once Nakheel is no longer a subsidiary of Dubai World.
Parties who have a potential claim against Nakheel or one of its subsidiaries, where there is no binding arbitration agreement, need to consider whether or not to issue proceedings in the Special Tribunal before Nakheel is carved out from Dubai World.  If, given the circumstances of the claim, the party would strongly prefer the claim to be determined by the Special Tribunal, then a Claim Form should be issued before Nakheel is carved out – in case it subsequently transpires that the Special Tribunal only retains jurisdiction over actions which have already been commenced. There is, however, a risk that the costs of bringing such a claim may be wasted if it turns out that the Special Tribunal loses jurisdiction over all claims involving Nakheel and its subsidiaries including those where there are existing proceedings before the Special Tribunal.
Ideally one would prefer the current uncertainty over whether the Special Tribunal will retain jurisdiction over Nakheel and its subsidiaries after Nakheel is carved out of Dubai World to be resolved as soon as possible and before the date when the carve out legally occurs. The date is still not yet known. However on 6 July 2011 Nakheel announced that it had signed agreements on its operational and financial separation from Dubai World and legal ownership will transfer to the Government of Dubai upon completion of Nakheel’s and Limitless’s financial restructuring.