The court of the Dubai International Financial Centre (DIFC) will now be allowed to hear claims against British bank Barclays for allegedly attempting to defraud a Greek company, in a ruling that will have widespread implications for the other financial institutions with operations in the DIFC and mainland Dubai. This development demonstrates the growing strength of Dubai’s common law court system.
In a judgment issued on Sunday by the DIFC Court of Appeal, the court ruled that claims could be heard in the DIFC Courts rather than the Arabic-language Dubai courts, even if the overall financial institution is not incorporated in the free zone. Lawyers say the judgment is a potentially significant one for the legal community because it opens up the definition of what is considered a licensed centre establishment under the law.
“The impact is not just limited to banks or branches within the free zone,” said Kaashif Basit, partner at Dubai-based commercial law firm KBH Kaanuun. “The central point established by the judgment is that where a foreign company has a licensed branch within the DIFC, then it is the parent company and not just the branch that is considered to be a licensed centre establishment, which in turn opens up the DIFC court jurisdiction involving the parent.”
A number of foreign banks, including HSBC and Standard Chartered, operate branches inside the DIFC.
The case revolves around a 2011 lawsuit filed by Greek firm Corinth Pipeworks against Barclays claiming that an employee in the bank’s Dubai operations defrauded the firm of $24 million. Lawyers for Corinth argued that all branches in Dubai – including the one accused of committing the alleged fraud – fell under DIFC Courts’ jurisdiction because Barclays Bank was registered within the DIFC.
In its initial ruling last year, DIFC Court Deputy Chief Justice Sir Anthony Colman dismissed Corinth’s argument, calling it “fundamentally defective” in his judgment.
Prior to the October passage of Law 16 allowing for wider jurisdiction, DIFC Courts only had jurisdiction over entities registered within the free zone. All other cases had to be resolved within the Dubai courts – a system that many foreigners criticised as being too arbitrary in its rulings, and subject to numerous delays in judgment. Barclays, like other financial institutions in Dubai, is regulated by the UAE Central Bank, and thus falls under the jurisdiction of the Dubai civil courts.
DIFC Court Chief Justice Michael Hwang, in his appeal judgment, overturned Colman’s ruling saying that a branch office and its parent company are a single legal entity, making the designation of “centre’s establishment” applicable to the whole company. Under Dubai Law no. 12, DIFC Courts have exclusive jurisdiction over any “centre’s establishment”, defined as any entity carrying on business in the DIFC.
“Bank regulators frequently… require foreign banks to carry on mainstream banking business through a branch rather than a local subsidiary,” wrote Justice Hwang in the judgment. “It would be uncommon for an unincorporated branch of a foreign bank to be treated under local law as a legal entity separate and distinct from its head office, unless it has been separately incorporated as a subsidiary.”
A Barclays spokesman said the ruling only refers to the question of jurisdiction and not the claims raised in the law suit. "Following the recent resolution of this issue, the court will now deal with the substantive issues in the claim. Barclays intends to defend its position," he said, adding that the bank would not provider further comment on an on-going legal matter.
The move came as a surprise to some in the legal community. “I think many didn’t think that the jurisdiction of the DIFC would be so wide. But I can see the strength of the argument,” said Christopher Mills, partner and head of dispute resolution for the Middle East at Clyde & Co. “It is not extending the jurisdiction, but rather it clarifies that the extent of the jurisdiction was wider than some may have believed.”
But Justice Hwang said the ruling is designed not to open the floodgates to litigation by allowing the court to determine the validity of the argument on a case by case basis under the forum non conveniens doctrine. This allows the court to exercise its discretion on refusing jurisdiction in cases where the DIFC may not be the appropriate forum to judge a matter.
The judgment is significant in that it highlights the growing breadth of jurisdiction of the DIFC Courts. Law 16 changed the legislative landscape allowing for all regional and foreign firms to have the choice of filing disputes with the English-language DIFC Courts, and has already been used in a case that was tried under the old law.
“I think given that the government has extended the jurisdiction of the courts through Law 16, and given that the courts appear to have taken quite an open view of their own jurisdiction, you can legitimately say that the DIFC Courts are going to be used more than they have in the past,” said Mills.
In Al-Khorafi v Sarasin, a judgment issued earlier this month by the DIFC Court of Appeals, the court decided that the DIFC Courts would retain jurisdiction of a claim under an article in Law 16, even though the law suit was filed before the decree had been signed into law by Dubai’s ruler. The ruling also invoked forum non conveniens to overrule a jurisdiction clause in the contract that called for Swiss jurisdiction.
KBH Kaanuun’s Basit, who represented the Al-Khorafi family in the case alleging negligence by a Dubai unit of Switzerland-based Bank Sarasin & Co, said the ruling confirmed that the DIFC Court has discretion in some cases to retain jurisdiction even if there is a clause explicitly stating the choice of a foreign jurisdiction. ALB
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