Monthly report based on practical experience of our team of advocates in the courts of the UAE. This month, Michael Dark re-visits Decree No.57 of 2009, concerning the effect of Dubai World and its subsidiaries.
As we mentioned in a recent article titled
Developments in Dubai – Legal Themes Emerge, the Ruler of the Emirate of Dubai issued Decree No. 57 of 2009 which concerns the effect of Dubai World and its subsidiaries. The catalyst for the Decree was the well publicised financial problems of Dubai World, and the statement by the Government of Dubai that it was not obliged to guarantee the obligations of Dubai World. The Decree sets up a
Tribunal of three members, with the possibility of this being increased to five.
The Decree gives the Tribunal jurisdiction to hear and decide any demand or claim submitted against (i) Dubai World (including hearing and deciding any demand to dissolve or liquidate Dubai World), and against (ii) the Chairman, the Board of Directors and employees of Dubai World in relation to the financial obligations of Dubai World.
The Decree requires the Tribunal to apply the DIFC Insolvency Law and Regulations and also the laws in force in Dubai, commercial custom, principles of justice and rules of righteousness and equity.
The Decree states that the courts in Dubai, including the courts of the DIFC, shall not hear or decide any matter which falls within the jurisdiction of the Tribunal.
Very helpfully, at the time of the issue of the Decree, the Department of Legal Affairs provided the answers to some questions relating to the Decree Question and Answer No. 12 reads as follows:
Question:
“Which Dubai World subsidiaries will be subject to the Tribunal?”
Answer:
“The Decree will be available to Dubai World and any of its subsidiaries. However, it is expected that only entities that require the assistance of the Tribunal to restructure their debts will actually file under the Decree.”
The phrases “. . . . will be available to . . . “ and “. . . will actually file . . . .” had led some lawyers to deduce that in practice the Tribunal would only consider claims if the Dubai World subsidiary in question asked the Tribunal to become involved. However, a recent case in the Dubai Commercial Court has made it clear that this thinking is not correct. The recent case involved a subsidiary of Dubai World which was sued, jointly and severally with a non-Dubai World company, for an amount claimed for the supply of materials under a contract. In other words, on the face of it, a simple debt claim. The claim was filed some six months before the Decree was issued.
In a judgment given in January 2010, the Dubai Commercial Court decided that:
- the Federal Law of Civil Procedure gives the government of any Emirate that has not given jurisdiction to the federal courts, the power to give jurisdiction to its own courts to hear any type of dispute;
- the Emirate of Dubai has not given jurisdiction to the federal courts; and
- the Ruler of the Emirate of Dubai may remove any type of dispute from the jurisdiction of the Dubai courts and transfer such dispute to any other judicial body.
On this basis, and because of the contents of the Decree, the Commercial Court found that it did not have jurisdiction to hear the claim against the Dubai World subsidiary. As a result of this decision, it now appears that it may not be necessary for a Dubai World subsidiary to take any action itself to take advantage of the Decree being “available”, or to “file” any case with the Tribunal in order to remove a claim from the jurisdiction of the Dubai courts.
The claimant in the present case will now have to file a claim before the Tribunal if it wishes to pursue the claim against the Dubai World subsidiary.
The position of the claim against the non-Dubai World company is not entirely clear. As the claim was made against the defendants “jointly and severally” this means that the claimant is holding each defendant liable for the whole debt. Logically, therefore, the claim against the non-Dubai World company should still be considered and decided by the Commercial Court. However, the judgment is not conclusive on this point.
It will be interesting for all companies with claims against Dubai World or any of its subsidiaries to watch the development of this case. In particular, what will the Tribunal decide to do with the case if the claimant files a claim under Decree No. 57? The Decree itself is very short (two and a half pages) and simply sets up the Tribunal and describes its jurisdiction. The Schedule to the Decree amounts to 20 pages but deals exclusively with what happens if Dubai World or any of its subsidiaries considers it is insolvent or needs protection from its creditors. It appears possible under the Decree that the Tribunal could refer the case back to the Commercial Court or appoint an expert to advise on the validity of the claim or decide the case itself.
Because the courts in the UAE do not always follow the decision of other courts, a particularly confusing possibility is that another court hearing a claim against a Dubai World subsidiary may decide that it does have jurisdiction unless, as suggested by the Question and Answer from the Department of Legal Affairs, the Dubai World subsidiary itself seeks the protection of the Tribunal.
Until some of the uncertainties have been resolved and based on the Commercial Court judgment, it would appear that any company with a claim against Dubai World or a subsidiary should file the claim before the Tribunal rather than before the Dubai Courts. And, although Hadef & Partners is not aware of any decision concerning
arbitration proceedings it seems likely that the same applies to any claim which the parties have agreed should be submitted to arbitration.
All recommendations are provided without consideration of any specific reader's objectives, situation or particular needs. Those acting upon such recommendations do so entirely at their own risk.