Rechtsanwältin, Senior Associate
Rechtsanwalt, Legal Director
Out-Law Analysis | 10 Jan 2022 | 10:47 am | 7 min. read
The decision clarifies a number of questions relating to the DIFC Court’s jurisdiction, and develops jurisprudence in several areas. These include:
The decision confirms that it is not necessary for an application to be made to add a party for RDC 20.7 to provide a basis of jurisdiction to the court. This means if a claim is brought against several parties, one of which is connected to the proceedings, the court can find it has jurisdiction under RDC 20.7 even though the party is not an “additional party” and despite there being no other basis of jurisdiction over that party.
The case also confirms that it is possible for parties to include a term in their contract which excludes the jurisdiction of the DIFC Court (an ‘opt out’ clause) even if it would otherwise have exclusive jurisdiction – for example, because the contract was performed in the DIFC. However, the DIFC Court may still refuse to apply an opt out clause and exercise its jurisdiction over the parties.
The DIFC Court confirmed that it would not stay proceedings in favour of the JJC simply because parallel proceedings have been launched in the onshore Dubai Court. It will first consider its own jurisdiction before ordering a stay, in line with the principle of ‘Kompetenz-Kompetenz’ – that it is for the court to determine its own jurisdiction. In practical terms this might mean a stay is avoided unless and until the issue of jurisdiction is heard before the DIFC Court. Further, where a parallel claim in the onshore court does not involve all the co-defendants to the DIFC claim, the DIFC Court may choose not to stay its proceedings.
Where it is not clear whether UAE law or DIFC law is the applicable law of a contract, the case shows that the DIFC Court is willing to be flexible and apply both to ascertain the parties’ intention under a contract.
The defendants, a professional services firm ('the auditors'), were the subject of a claim for professional negligence in relation to audits carried out between 2010 and 2017, which allegedly failed to identify the deficiencies and irregularities that resulted in the collapse of one of their clients.
This most recent interlocutory judgment handed down by the DIFC Court followed a jurisdictional challenge brought by the auditors.
The DIFC Court will first consider its own jurisdiction before ordering a stay, in line with the principle of ‘Kompetenz-Kompetenz’ – that it is for the court to determine its own jurisdiction
One of the auditor companies was incorporated in the Cayman Islands ('Cayman defendant') and another in the DIFC ('DIFC defendant'). The claimant companies were part of a corporate group which, although incorporated in the Cayman Islands, conducted their Dubai operations principally from their DIFC office. Only one of the claimant companies was incorporated in the DIFC.
The DIFC Court’s judgment, which dismissed the auditors’ jurisdictional challenge, set out the elementary steps of challenging the DIFC Court’s jurisdiction. Where jurisdiction is challenged, the claimant must satisfy the DIFC Court that it has jurisdiction according to the gateways set out in Article 5 of the DIFC Judicial Authority Law (JAL). There needs to be a “good arguable case” that the requirements of at least one of the gateways to jurisdiction are satisfied.
The test of a good arguable case has three limbs: a plausible evidential basis for the application of a jurisdictional gateway; that any issues of fact can be decided from the material available if the DIFC Court can reliably do so; and, if no reliable assessment can be made, there is a good arguable case that there is a plausible evidential basis for it. Parties should bear in mind that this is an expansive approach and there is a low threshold for the DIFC Court to assume jurisdiction over a party.
The DIFC Court’s version of the "necessary and proper party" gateway in the English Civil Procedure Rules is set out in RDC 20.7. In this case, although there was no contention that the DIFC Court had exclusive jurisdiction over the DIFC defendant, the question was whether the DIFC Court could assert jurisdiction over the Cayman defendant on the basis of RDC 20.7.
The DIFC Court reaffirmed the position that its procedural rules can provide a basis of exclusive jurisdiction when viewed alongside JAL Article 5(1)(e), which states that the Court of First Instance has exclusive jurisdiction to hear and determine any claim or action over which the courts have jurisdiction in accordance with DIFC laws and DIFC regulations – including RDC 20.7.
Under this rule, the DIFC Court can order a person to be added as a new party if it assists the court to resolve all the matters under dispute; or if there is an issue involving the new party and an existing party, and it is desirable to add the new party so the court can resolve that issue.
The judge said that given the almost complete overlap in the claims of loss and damage from the Cayman defendant and the DIFC defendant, it was essential for the claims to be heard together in the same court. This would avoid the risk of inconsistent findings and judgments and double recovery amongst the various claimants. The close connection in the activities performed by both was also a relevant factor. The fact the DIFC Court had exclusive jurisdiction over the DIFC defendant meant that it was the only forum in which the claims could be heard together.
Although the Cayman defendant was not formally joined to the proceedings under RDC 20.7, the fact it could have been was enough to engage the jurisdictional gateway and make a finding of jurisdiction. That means a finding of jurisdiction can be made under RDC 20.7 after the fact, and despite the absence of a formal application for joinder.
The DIFC Court held that the evidence on contested matters relating to the performance of the audits was limited as proceedings were only at an interlocutory stage. That meant it only had to decide that there was a plausible evidential basis for the existence of facts that would engage a jurisdictional gateway.
The judge said there was plausible evidence for the DIFC Court having exclusive jurisdiction under Article 5 of the JAL, as it appeared the underlying contracts were partly concluded and performed – or partially performed – in the DIFC. He rejected any suggestion that the parties had to intend for performance to take place entirely in the DIFC. This shows the low threshold for the DIFC Court to assume jurisdiction over a matter.
The Cayman defendant launched counter proceedings in the onshore Dubai Court and the matter was referred to the JJC. However, the DIFC defendant was not a party to that parallel claim. The DIFC Court declined to stay its proceedings because the JJC issue did not involve the DIFC defendant and there was no onshore claim against the DIFC defendant.
Separately, the DIFC Court reaffirmed the position that because it had not yet made a determination in respect of its jurisdiction to hear the claim against the Cayman Defendant, there was no conflict in jurisdiction unless and until the DIFC Court decided to exercise its jurisdiction. This is an example of the application of the principle of ‘Kompetenz-Kompetenz’ – that it is for a court to determine its own jurisdiction – can be applied in a practical manner to prevent a stay of proceedings in favour of the JJC pending the DIFC Court actually considering its jurisdiction.
Although he had found there was a good case of exclusive jurisdiction over both defendants, the judge considered whether he should decline to exercise this jurisdiction due to an opt out clause in the contract between the parties stating all disputes would be subject to the exclusive jurisdiction of either the UAE Courts or the DIFC Courts “as appropriate”.
The judge did not need to decide whether UAE or DIFC law applied. Instead, he drew upon common principles of contractual interpretation in both, saying these required certainty over the mutual intention of both parties based on the circumstances at the time in which they entered into the contract.
Although JAL Article 5(A)(3) allows parties to opt out of the DIFC Court’s exclusive jurisdiction, this can only happen through specific, clear and express provisions.
The judge said the inclusion of the term “as appropriate” in the contract was ambiguous, vague and uncertain, and meant a determination of appropriateness could not be made. Therefore, the hurdle to apply an opt out clause was not reached.
The DIFC Court has the discretion to exercise its jurisdiction even where there is an opt out clause. The claimant companies argued that even if there were a contractual arrangement that sought to exclude the DIFC Court’s jurisdiction in respect of the Cayman defendant, the DIFC Court should refuse to enforce that agreement on the basis that the claims against the DIFC defendant and the Cayman defendant are so closely entwined.
The judge agreed. He said as far as the contract between the Cayman defendant and the claimant companies was concerned, the fact the DIFC Court had exclusive jurisdiction was relevant to the exercise of any discretion with respect to the opt out clause.
The DIFC Court ruled, therefore, that the need to avoid parallel proceedings and inconsistent judgments was itself a strong reason not to enforce an opt out clause.
Co-written by Sammy Nanneh of Pinsent Masons, the law firm behind Out-Law.
31 Jul 2019
Rechtsanwältin, Senior Associate
Rechtsanwalt, Legal Director