A strong legal system protects and encourages social and economic development that in turn comes about by strong domestic and international investment. In the UAE, the rule of law is similarly a cornerstone of its fast-paced ongoing social and economic growth.
At the heart of that legal system are two court systems operating side by side. The onshore courts operate under the authority of a set of codified rules which have been applied in various forms over hundreds of years. After the Court of First Instance there is an automatic right of appeal to the Court of Appeal and a further discretionary right of appeal to the Court of Cassation. The courts have a right to order interim remedies such as attachment of assets and travel bans in appropriate cases. The system is inquisitorial by nature and the court routinely appoints experts to assist with the determination of cases. The process can be speedy and there are generally no adverse costs orders for the losing party.
Operating alongside the onshore court system are Common Law court systems in the DIFC and ADGM financial free zones in Dubai and Abu Dhabi respectively. As well as operating their own courts and having their own laws, these free zones have their own financial regulators and traditionally attract a number of international financial institutions. The court rules and the laws of the respective jurisdictions are broadly based on common law principles. The judges are a mix of Emiratis and experienced common law judges from jurisdictions such as the UK, New Zealand, Australia and Singapore.
The onshore and common law systems generally operate well alongside each other. From time to time there are issues over which system should have jurisdiction over a particular dispute, but as and when such issues arise the problems are resolved by court decisions and over time consultation and clarification of the rules.
A pro-arbitration jurisdiction
In addition to court litigation, it is often possible for the parties to choose arbitration to resolve their disputes and the UAE is seen as a progressively arbitration-friendly jurisdiction. Of course, arbitration requires the consent of all the parties and therefore agreements to arbitrate must be clear and duly signed by representatives of each party who are properly authorised to execute such agreements on behalf of each party.
The seat chosen by the parties will determine which of the onshore courts, DIFC courts, or ADGM courts, have supervisory jurisdiction over the arbitral proceedings. Each seat offers different advantages and potential disadvantages, and careful thought should be given to the seat of the arbitration as part of the agreement to arbitrate.
The DIFC and the ADGM offer alternative and pro-arbitration jurisdictions within which to seat arbitrations, and each have their own arbitration laws – the DIFC Arbitration Law 2008 and the ADGM Arbitration Regulations 2015, respectively. Onshore seated arbitrations are governed by similarly pro-arbitration laws, namely the Federal Arbitration Law of 2018.
It should be noted that certain matters cannot be arbitrated – including employment, some real estate and commercial agency matters. Further restrictions may also apply when dealing with government or quasi-government entities where, depending on the emirate of incorporation of the entity, special permission may be required to arbitrate and/or to arbitrate in a seat outside of that emirate.
A move to encourage mediation
Alongside these traditional methods of dispute resolution, mediation is not commonly used in resolving disputes compared with European jurisdictions and the US. The development of mediation has been slow, which is disappointing as there can be little doubt that in the right type of case mediation presents tremendous advantages, including providing creative non-binary settlements, large costs and time savings for both parties, maintaining relationships between parties and confidentiality.
It is therefore to be welcomed that the Dubai International Arbitration Centre (DIAC), a leading regional institution for supervising arbitration cases, has very recently released the DIAC Mediation Rules of 2023 (Rules) which should further encourage the use of mediation in the UAE and wider region. The Rules come into effect from 1 October 2023.
The Rules are comprehensive and cover the entire mediation process. Importantly the Rules contain provision for maintaining the confidentiality of all discussions and documents that take place and are filed as part of the mediation. This is very important for ensuring the effectiveness of the mediation process. While the principle of ‘without prejudice’ is not acknowledged as a matter of general law in onshore UAE it was introduced by article 14 of the federal mediation law of 2021.
What is round the corner in Dubai
In a potentially bold move highlighting Dubai’s status as a sophisticated, international business hub, the government of Dubai is considering implementing a common law framework across the Emirate’s free zone jurisdictions. This progressive move would expand the scope of the application of common law in the region beyond the DIFC.
The government has launched a public survey on its proposal to extend the DIFC common law model to selected free zones. As reflected by the survey, two legal frameworks are currently being proposed. Both options seek to widen the remit of the DIFC Courts. It is envisaged that the transition to an expanded common law model will support the vision of the Dubai Economic Agenda D331, which seeks to secure Dubai as one of the top three global economic hubs.
The extension of the DIFC Courts’ jurisdiction could have a positive impact on businesses operating in the free zones. It may also bring positive changes for dispute resolution in Dubai more generally.
The Dubai government survey proposes the introduction of either a hybrid or a standalone system:
- Under the hybrid system, the DIFC Courts would be responsible for overseeing commercial disputes within the free zones in Dubai. The UAE laws would be applicable by default to the dispute, but the DIFC laws and court rules would take precedence for matters concerning litigation procedure and evidentiary matters.
- The standalone system seeks to roll out the entire legal framework of DIFC laws to selected free zones. This more extensive shift would mean that companies in these zones would function almost entirely under DIFC laws and regulations, including company law, bankruptcy law and employment law. The DIFC Courts would handle all respective disputes.
While any changes resulting from the government’s survey are unlikely to be implemented for several years, the survey reflects Dubai’s commitment to a world class legal system by always considering developments which may improve the legal system.
About the authors
The Pinsent Masons commercial litigation and arbitration team in Dubai is a market leading team of highly experienced specialist commercial litigation lawyers. We offer the very best technical and commercial advice which is always provided in the context of an overall strategy to achieve a successful outcome to disputes in a timely and cost-effective manner. We handle disputes in the onshore courts as well as the DIFC and ADGM courts and arbitration. We are also experienced in conducting mediations. We operate across the GCC including Saudi Arabia and Doha.
- A key goal of the Dubai Economic Agenda (D33) is to double the size of Dubai’s economy over the next decade and to consolidate its position among the top three global cities.