10 Jan 2012

CHOICE OF JURISDICTION - A NEW LAYER OF CONSIDERATIONS

Authored by: Clare Raven

CHOICE OF JURISDICTION - A NEW LAYER OF CONSIDERATIONS

It is beyond doubt that the ground breaking change to the courts law at the end of 2011, by which the DIFC Courts’ jurisdiction was extended, is a significant and positive step for Dubai. However, any decision to opt into the DIFC Courts’ jurisdiction is one to be approached with care and knowledge.
 
A lot has been written about the extension to the Dubai International Financial Centre (DIFC) Courts’ jurisdiction following the introduction of Law No. 16 of 2011 (the Law). It may come as no surprise that some of the extension’s strongest supporters are those, perhaps particularly lawyers, who are familiar with the DIFC Courts’ system and have rights of audience to appear before the DIFC Courts. Similarly, some of its strongest opponents may be those who are not as familiar with the DIFC Courts. However, there is no doubt that in certain cases the DIFC Courts will be an excellent choice of dispute resolution forum for contracting or disputing parties and, conversely, there will be cases where the local courts or arbitration are better suited to hear and resolve the dispute.
 
In the circumstances, how does a contracting or disputing party know which jurisdiction is more suitable? The answer is that such party should be fully informed not only of the advantages and disadvantages of each system, but also of the full implications of their choice.
  
The law
 
The extension to the DIFC Courts jurisdiction under Law 16 means that the DIFC Courts now have exclusive jurisdiction to hear disputes involving:
 
(1) a company registered in the DIFC (or a DIFC body) (the “Original Jurisdiction”);
(2) civil or commercial cases arising from or related to a contract or a promise to contract whether made, concluded or executed in whole or in part in the Centre or which will be executed or is intended to be executed in the Centre according to explicit and implicit terms stipulated in the contract;
(3) civil or commercial cases arising from or related to an incident or transaction accomplished, in whole or in part, in the Centre and related to its activities;
(4) appeals; and
(5) applications.
 
The DIFC Courts may have jurisdiction to hear cases if:
 
(6) the parties agree in writing before or after the dispute arises (the “Consensual Jurisdiction”); or
(7) the parties agree in writing before or after the dispute arises to submit to another court and that court declines jurisdiction;
,
provided that no other court has issued a final judgment on the matter.
 
What does it mean?
 
In short, the parties to a contract or a dispute can agree to submit the dispute to the DIFC Courts for determination. This Consensual Jurisdiction has been the main focus of commentators and very little commentary has been provided on the other extensions to the DIFC Courts’ jurisdiction set out under the Law. Whilst it is not the purpose of this paper to explore all details of what the new jurisdiction encompasses, it is worth noting that the change in wording to the relevant article (article 5A1(b) of Law 16), confirms that the ‘coffee shop contract’ signed in the DIFC, which does not include an express jurisdiction clause, would fall under the DIFC jurisdiction.  
 
Considerations when choosing dispute resolution clauses
 
Before a party decides to submit any dispute to the DIFC Courts or unwittingly falls within the Courts’ jurisdiction, such party should carefully consider the dispute resolution clause taking into account a number of matters. The most common considerations are set out below but each case should be considered for any unique considerations which may give rise to an altogether different choice of dispute resolution mechanism.
 
1. The applicable law, legal restrictions and the nature of the parties
Commentators have said that one of the key advantages to using the DIFC Courts applying DIFC law instead of the local courts applying UAE law is the certainty that derives from the application of a system of precedents. Having said that, the DIFC jurisdiction is in its infancy. As the body of DIFC case law grows, so will the level of certainty of outcome in a case. Meanwhile, the judiciary has discretion to borrow from the English common law.
 
If the parties to a contract wish to apply a foreign law, the DIFC Courts will apply that law (unless there are public policy grounds for not doing so). Similarly an arbitrator should apply the parties’ chosen law. The UAE Courts may decide for technical reasons that they are unable to apply a foreign law to a contract and instead apply UAE law. 
 
Other existing laws may dictate which court has jurisdiction, for example in the case of property disputes. Likewise the nature of one of the parties involved may restrict the ability to choose a court or elect to go to arbitration, such as claims brought against government entities. 
 
2. The likely value of the claim
It is worth remembering that the DIFC Small Claims Court was set up to provide a streamlined system which will limit legal costs for disputes with a value of less than AED100,000. This can be a real advantage for a claimant who may otherwise be deterred form seeking recovery due to the disproportionately prohibitive costs involved in bringing a claim before the local courts or in arbitration. 
 
3. The location of the assets of the party most likely to be in default
If the assets are in the DIFC then enforcement and protection of those assets to satisfy a judgment will invariably be better served by the DIFC Courts which arguably has a wider range of protective powers in its armoury, for example, preservation orders, mandatory injunctions etc. If the assets against which a party will wish to enforce a favourable judgment are outside the DIFC or the UAE then enforcement is untested. In theory it should be straightforward. How long the process will take for each Emirate remains to be seen. How the DIFC Courts’ judgments will be treated under reciprocal enforcement treaties similarly remains to be seen and, until this is tried and tested, enforcement outside the DIFC or the UAE could be a deterrent to using the jurisdiction.
 
4. Any confidentiality considerations and whether the fact of a public hearing will have a bearing
If the dispute involves sensitive commercial information then referring it to arbitration which is heard in private may be the most suitable forum.
 
The transparency of a public hearing might provide a party with comfort regarding the court process and sometimes having the press sitting in the public gallery can lead parties to find an amicable resolution to their dispute.
 
An international party used to a court system with public court hearings may prefer the openness of the DIFC Courts. A local party used to the privacy offered by arbitration or the practice whereby hearings before the local Courts are not generally publicly attended may prefer those dispute resolution forums.
 
5. The preferred language of the dispute
The local Courts will only hear a dispute in Arabic and the DIFC Courts will only hear a dispute in English.
 
Not only is this a relevant consideration for the individuals involved and the language of the contract and related documents, having translations in any case runs the risk of matters being lost in translation and is expensive. There are not only the additional costs incurred in proving the translations themselves and also the fees of legal consultants overseeing and checking translations. In addition, having translators for witnesses can dramatically extend the length of a trial or other hearings and therefore increase the overall costs. Choosing the wrong language for dispute resolution can place a heavy cost and time burden on a case.
 
6. The complexity and nature of the likely dispute
If the most likely dispute is a straight forward admitted debt claim where both parties are domiciled in Dubai then the Dubai Courts are, in all likelihood, the most appropriate forum to hear the dispute. If the dispute is highly technical an arbitration where specialist arbitrators can be appointed may be preferable. However, an international party used to a court system that allows the parties to adduce their own expert evidence may prefer the strictness of the DIFC Courts' regime in respect of own party expert evidence in preference to an arbitration.
 
7. The importance of having a right of appeal and how quickly the parties want the case dispensed with
It is anticipated that the DIFC Courts will only allow an appeal on very limited grounds in accordance with international norms. There are only two tiers of court (Court of First Instance and Court of Appeal). By contrast, many cases before the local Courts will be heard by all three tiers of court (First Instance, Court of Appeal and Court of Cassation). Therefore in many cases it may be anticipated that the time involved in obtaining a judgment from the DIFC Courts will be shorter than the local Courts. Despite this, a litigant instructing lawyers before the local Courts may still incur less costs (depending on the nature of the case) – although, unlike a litigant before the DIFC Courts, these cannot be recovered from the losing opponent (except for a nominal amount not exceeding AED1000 and the court fees).
 
Under the federal law an arbitration award should be ratified by the relevant court in the seat of the arbitration. Applications for ratification can be met with objections followed by appeals against objections and this further set of proceedings can last in excess of a year. A DIFC-LCIA arbitration award may not be exposed to this additional process but question marks over the constitutionality of not having the award ratified by the local Courts remain. The direct enforcement without ratification of a DIFC-LCIA award is largely untested.
 
8. The legal costs involved in bringing or defending a case and the filing and other fees and expenses a party is willing to pay for bringing a claim
The DIFC procedure is highly technical and therefore can be time consuming and, by comparison with the local Courts, may be expensive. Matters such as disclosure, case management hearings and the opportunity of the parties to make applications and endeavour to take advantage of interim measures can add to the costs which would not be incurred before the local Courts. 
 
As is the case with arbitration, the DIFC judiciary has considerable discretion to award costs against a party and the usual costs order is that the losing party will pay the winning party’s costs. In a DIFC Court case the losing party could be expected to pay around 65-85% of the winning parties’ legal costs. Therefore, a party should think very carefully before bringing or defending an unmeritorious case.
 
Further, the DIFC Court process is not to be toyed with by the novice who may unwittingly walk into an adverse cost order against the party or even the lawyer for non-compliance with DIFC Court rules or a DIFC Court order.
 
Whilst many will take the view that the recovery of the winning party's legal costs arguably furthers access to justice, the DIFC cost recovery process can be expensive as costs must be assessed if not agreed and the assessment process is a whole new set of proceedings in itself.
 
If a party unilaterally discontinues a case before the DIFC Courts it will have to pay the other party’s costs. If a party before the local Courts unilaterally withdraws its claim there would be no such cost consequences (other than the nominal fees recoverable).
 
9. A few additional procedural comparisons
One significant difference between the local Courts and DIFC Courts is disclosure. The DIFC Courts process will involve the parties exchanging documents they rely upon in the case. The same applies for the local Courts and arbitration. However, the DIFC Courts process, as is often the case in arbitrations, is also likely to have a procedural step whereby the parties can request specific documents from each other. If the document is material to the case a party should be ordered to disclose it. The idea is, of course, to promote justice in the case but this is not always received well by a party who thought he had the upper hand because the other side could not prove its case based on the evidence in its possession.
 
Each of the courts has the ability to offer different interim remedies. The DIFC Courts’ powers are arguably wider ranging with the ability to order freezing and other types of injunction as noted above. The local Courts will facilitate the appointment of an expert before any case is brought to ascertain the facts “on the ground”, which is a procedure the DIFC Courts do not provide.

One difficulty often encountered in litigation is determining the quantum of the claim. Until an expert has been appointed, such as a forensic accountant, it is not always easy for a party to know the precise extent of his claim. In cases brought before the DIFC Courts an idea of quantum is required but not the precise amount. In cases before the local Courts a party must quantify his claim from the outset. 
 
Each court system deploys experts but a very different approach is adopted in each case. Similarly a very different judicial approach and type of court hearings is adopted in each set of courts. What a party is used to and expects may have a bearing on which courts system is best suited for dispute resolution.

It is beyond doubt that the DIFC Courts offer an international calibre of judiciary. However, the subject matter of some disputes may be heavily concerned with local customs and culture and a party may, therefore, be more comfortable having a local judge adjudicate on such matters.
 
A number of matters are not dealt with by the DIFC Courts, eg criminal or matrimonial matters.
 
Conclusion
 
Choosing one court over the other could save or cost a party millions of dirhams if the considerations listed above are not fully considered prior to contract drafting.
 
Hadef & Partners has a large team of advocates specialising in local Court cases, DIFC Courts cases and arbitration.