Longer arm of the law for DIFC, but the jury is out

In extending their jurisdiction, the DIFC Courts aim to convince international businesses to resolve disputes there. But getting established takes time.

The DIFC's Courts are manned by a mixture of local and Commonwealth judges. Duncan Chard for the National

In a move designed to promote Dubai as a dispute resolution forum of choice, the jurisdiction of the Dubai International Financial Centre (DIFC) Courts has been expanded to give parties the option of agreeing to refer their disputes there.

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The DIFC is a Federal Financial Free Zone in the heart of Dubai's business district, with a system of civil and commercial laws and a court system that is independent of Dubai itself and the wider UAE.

Unlike the system in the UAE, and elsewhere in the Middle East, the DIFC has adopted a Common law - as opposed to civil law - legal system, with its courts manned by a mixture of local and Commonwealth judges. DIFC Courts proceedings are conducted in English on the basis of a system of rules modelled closely on the rules of the English courts. As such, the DIFC Courts offer a judicial experience distinct from that offered by Arabic-speaking local courts, and one that is more familiar to many international businesses.

Until now, a claimant could bring a claim in the DIFC Courts only if, broadly speaking, they could show that there was a sufficient connection with the DIFC. It was never an option for parties unconnected with the DIFC to "opt in" to the jurisdiction of the DIFC Courts.

However, on October 31, the DIFC Courts announced that Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, had signed a law extending their jurisdiction. The law will significantly expand the reach of the courts by allowing parties without any connection to the DIFC to have their disputes heard there.

Dubai has joined the growing number of jurisdictions - including Qatar - offering "stateless" commercial courts. These courts, together with the expanding number of jurisdictions offering international arbitration services (also including Qatar, Bahrain and the UAE itself), are all vying to convince international businesses to adopt them as their dispute resolution forum of choice. Like any other business in a competitive marketplace, they seek to promote the benefits of their product over that of their competitors.

Given its relatively well-established presence, as well as the existing presence of many international businesses in Dubai and the emirate's location, the DIFC Courts will hope to have a head start on their regional competitors.

However, even if international businesses are won over, it is likely to be some time for the effects of the law to be felt. Firstly, parties must start including DIFC Courts jurisdiction clauses in their contracts, and disputes must then arise (it is possible for parties to agree after a dispute arises to refer it to the DIFC Courts, but this is unlikely to happen in practice).

There are other limitations, the biggest being the enforcement of DIFC Courts judgements. While some 50 judgements and orders of the DIFC Courts have been upheld in the Dubai Courts (their ability to review the merits of a final judgement or order of the DIFC Courts is heavily restricted), whether those judgments will be given the same recognition in the courts of the wider Middle East or beyond is open to question and will be a matter for the domestic law of the country in which enforcement is sought.

Again, it will take time to develop a body of case law to give businesses comfort that a DIFC Courts judgement will be enforced in the jurisdiction(s) of interest to them. Arbitration is therefore likely to remain a viable alternative, particularly given the added benefit of conducting proceedings in private.

There are also question marks over the ability of the DIFC Courts to handle an increased caseload. At present, only two of the courts' judges are resident in the UAE, and most cases are heard during one week each month. This structure would doubtless need to be addressed if the caseload increased.

The expansion of the jurisdiction of the DIFC Courts will ultimately be of benefit, both to the courts themselves and to Dubai's efforts to establish itself as the pre-eminent hub for international business in the region. However, it remains to be seen whether it will be enough to win over businesses used to referring disputes to arbitration, rather than to local courts. The DIFC Courts will have to wait and see whether the law inspires a flood or a trickle of new cases.

Graham Lovett is the regional managing partner for Clifford Chance Middle East and Paul Coates is a senior lawyer in the Clifford Chance Disputes Group

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