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Expansion of Jurisdiction of the DIFC Court

As of a month ago, parties can choose to have their civil and commercial disputes heard by the Dubai International Financial (DIFC) Courts instead of local courts. This includes disputes that have no relationship to the DIFC, such as real estate and breach of contract.

Parties’ freedom to use the DIFC Courts is a result of the new law introduced in October 2011 by the Ruler of Dubai, broadening the jurisdiction of the DIFC Courts. In relevant parts, the new Dubai Law No. 16 of 2011 allows parties to choose the DIFC Courts to resolve their disputes. To qualify, parties must include in their agreements a clear and explicit special provision to that effect. The law applies to domestic and international parties and cases, even those without relationship to the DIFC or Dubai.

The new law is a significant departure from its original form and application. From the inception of the DIFC Courts in 2004, the general understanding was that only financial cases and cases involving DIFC parties were subject to the DIFC Courts’ jurisdiction. Over the last two years, the Courts’ jurisdiction was further extended to commercial cases with a nexus to the DIFC. This included real estate cases for properties located in the DIFC. It also covered contractual disputes, where a part of a contract took place in the DIFC. Under this line of reasoning, contracts, which otherwise had no relationship to the DIFC, but were physically signed in the DIFC, for example at one of the DIFC’s coffee shops, qualified–giving rise to what became known as the Coffee Shop Rule. In 2009, the Courts’ jurisdiction was also extended to include all Dubai World’s cases, including its subsidiaries such as Nakheel, through a Dubai decree setting up a specialized Dubai World Tribunal in the DIFC Courts.

This latest expansion of the DIFC Courts’ jurisdiction is a development welcomed by many. The general belief is that the law’s objective is to boost investor confidence in Dubai and the U.A.E., by offering a neutral and sophisticated legal forum to address complex international disputes on Dubai’s home turf. Some believe that it will have the effect of making Dubai a regional legal hub for cases from all over the region and the world, as an alternative to established legal centre such as London and New York.

While the desirability and utility of the DIFC Courts for foreign parties with no connection to the U.A.E. will require several years to be tested, the new law should have more immediate effect for parties doing business in the U.A.E. This is because, to many foreign parties, the DIFC Courts present a wide array of advantages over those of the local courts.

To begin with, the DIFC Courts are English-language courts of common law jurisdiction based on the British legal system and laws. They are represented by prominent international common law judges, experienced in resolving many of today’s disputes, which often involve novel issues beyond those of one country. The Courts are based on binding and publicly available legal precedents, resulting in greater predictability of judgments and transparency. They may also be more adaptable to novel and diverse issues compared to civil law courts. Parties have a wider choice of advocates, as foreign lawyers have the right of representation. The ability to litigate cases in English results in significant cost and time savings. The option of consolidating multiple claims and parties is equally important. As such, the DIFC Courts offer parties a forum that may be more neutral, familiar and economical.

Article brought to you courtesy of
Ludmila Yamalova

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