DIFC Courts: staking a claim

In 2011 DIFC Courts opened its doors to commercial disputes from anywhere in the world. Vision hears how a robust legal system is attracting trade

The sight of a lawyer signing a sheaf of contracts in the corner of a Dubai International Financial Centre (DIFC) coffee shop was not unusual before October 2011. Most had travelled to DIFC specifically to ink deals in its cafés on behalf of their clients, despite the contract and its parties having no link to the free zone. Law firms dubbed these signings “coffee-shop contracts”. Their aim was to forge a link between the deal and the financial centre, in the hope any future commercial disputes would be heard by DIFC Courts.

“Before it was even possible, people were trying to elect for DIFC Courts’ jurisdiction,” says Alec Emmerson, a consultant with law firm Clyde & Co in Dubai. “I would take contracts to DIFC to add the last signature. I couldn’t guarantee it would work; the fact that the final signature was put on the contract in a coffee shop in DIFC might be seen as a technicality. But for some people, it was worth the risk.”

International alignment

In late 2011, when Dubai threw open the doors of its common-law courts to cases from anywhere in the world, it found it had a ready market. The ruling meant that for the first time, consenting parties could opt to use DIFC Courts in the event of a dispute, putting it on par with English-language courts in cities such as London, New York and Singapore.

The reaction from the business community was immediate. “From the moment the law changed, we were inundated with calls,” says Mark Beer, Registrar at DIFC Courts. “Essentially, it meant a choice for businesses in how to resolve their disputes. Now, if there is a problem, it can be resolved in a way that is familiar to them, transparent, and in the same language as the contract they’ve signed.”

It was a landmark move for DIFC Courts, which previously operated with jurisdiction only over disputes tied to the financial free zone. Other litigants sought redress in the Arabic-language Dubai Courts, or in common-law courts abroad. Crucially, it bolstered Dubai’s status as a trade and financial hub, able to offer the same raft of legal remedies as other economic powerhouses around the world.

“You cannot have a commercial hub without a strong judiciary,” says Beer. “Look at the trade centres of the world: London has the world’s leading commercial court; in Asia, Singapore has one of the region’s leading commercial courts. The Middle East lacked an English-language court, and that made people nervous about doing business in the region. That gap has now been filled.”

High efficiency

In the six years since it began hearing cases, DIFC Courts has gained a reputation for rapid efficiency. It earned its stripes in the wake of the financial crisis, when it hosted a special tribunal created to hear cases related to the conglomerate Dubai World. The panel assisted in restructuring, a feat that was critical in defusing the emirate’s fiscal difficulties.

Today, some 90 per cent of small claims filed at the court are settled in three weeks or less. In the Court of First Instance (CFI), which presides over the most complex claims, 95 per cent of cases are settled before trial. This partly a reflection of the courts’ costs system: it is the only one in the region that requires the losing party to pay the legal costs of the successful litigant. The result is fewer frivolous cases, and higher rates of settlement from companies keen to keep their outlay to a minimum, and get back to business. “When you talk to lawyers, they talk about getting the right answer. When you talk to business people, they talk about getting a quick answer,” says Beer.

The CFI oversaw 43 cases in 2012, a rise of more than 40 per cent on the previous year, and 2013 is on pace to be its busiest year yet. Lawyers in Dubai say a rising number of contracts now carry clauses specifying that any future disputes should be heard at DIFC courts.

Behind this lies a growing confidence that awards from the courts are more likely to be enforced in the Arab world than judgments from other legal centres. Lawyers seeking to enforce a judgment from, say, London or New York potentially face an uphill battle. It can take years and significant capital for cases to percolate through the legal system of some Gulf states, with no promise of success.

In contrast, the UAE has treaties winding across the Arab world, meaning an award from a Dubai court is far more likely to be upheld. DIFC Courts own orders have been enforced in Kuwait and the wider UAE, and its track record is growing. It is, says Beer, a trump card.

“It’s something of a pyrrhic victory for a global multinational to get a court order in London if they can’t enforce it,” he adds. By giving confidence to banks and businesses that their awards will be enforced, “we reduce the risk of doing business here, allowing them to lend more freely and bring down the cost. This is the effect of a good judiciary.”

Since its establishment in 2004, DIFC Courts has reshaped the global legal landscape. In January this year, it signed a memorandum with the world’s leading commercial court, the Commercial Court of England and Wales. The agreement, among other things, outlined the circumstances in which monetary judgements made by either of the courts will be enforced by the other. It was the first of its kind carried out by the English court and is the surest sign yet that DIFC, a small court in a tiny emirate, has now become a critical player on the commercial stage.