Dubai court ruling spurs rush to tweak contracts

Dubai’s move to open up its common-law court has sparked a flurry of contract changes among foreign firms to ensure future disputes will be aired at court, the registrar has said.

DIFC Courts, located in the city’s tax-free financial zone, expects to double the amount of cases heard at its small claims tribunal this year and is doubling its staff in anticipation of the surge.

“Without exception I have received calls from every major law firm that has offices in Dubai and the majority of middle-tier international law firms because their clients want to understand how they can use the DIFC Courts,” said registrar Mark Beer.

Most companies hope to use the courts to rule on international disputes, having previously used contract clauses to insist that arbitration must be held in countries such as the UK or US.

“Is it well-known that it is nigh on impossible to enforce judgments from, say, the London courts in courts in this part of the world as there are no enforcement treaties for commercial contracts,” said Beer. “Whereas before [investors] would stick to their home jurisdiction and then struggle with enforcement now we are seeing that they are very interested in DIFC Courts.”

The Dubai government in October widened the court’s jurisdiction to allow companies based outside the tax-free business park to bring their cases before the common law court in a move aimed at attracting more international investment to the emirate.

Under the new rules, companies can opt to resolve their disputes in DIFC Courts if both parties agree to its jurisdiction. Contracts can also include a clause binding both parties to use the court in the event of a disagreement.  

“This move will reinforce Dubai’s reputation as the business hub of the region, and attract business to invest in Dubai that may otherwise have established elsewhere,” Michael Hwang, chief justice of the DIFC Courts, told Arabian Business in October. 

The small claims tribunal, which hears disputes valued at less than AED200,000, said it had settled its first dispute with two non-DIFC parties on Dec 29.

 “We would anticipate a doubling of the number of small claims cases probably ending this year…at around 200 cases,” Beer said.  “In terms of the domestic enquiries, the phone has been ringing off the hook. It’s been extraordinary, particularly amongst the SME sector.”

The DIFC Courts operate as an independent judicial system for the Dubai International Financial Centre. The free zone last year recorded a GDP of $2.92bn.