Upon executing an agreement, one of the most important aspects to contractual parties is the clause pertaining to the governing law and jurisdiction in the event any dispute arises between them.
While the parties may believe
that by opting for a specific jurisdiction, that this jurisdiction will
automatically be competent to examine and rule on a dispute which may take
place in the future, especially if the subject of the agreement is not related
to any public order matter, this is far from reality.
Article 20 of Federal Law No.
11/1992 on the Civil Procedures Code (the “CPC”) stipulates that UAE Courts
have jurisdiction to examine claims against UAE citizens and claims against foreigners
who reside, or whose chosen domicile is the UAE.
Furthermore, Article 21 of the
CPC states that UAE Courts have jurisdiction over claims filed against a foreigner
who has no domicile or residence in the
UAE, if one of the defendants has a domicile or resides in the UAE.
In this context, UAE Courts will
consider any clause which designates another jurisdiction to examine and rule
on the dispute as null and void and will proceed with examining the case, if a foreigner
has a domicile or a residence in UAE or even if one of the defendants has a
domicile or resides in the UAE. Either party may ask the UAE Courts to apply a governing
foreign law as determined in their agreement but will have to provide the court
with a copy of the complete foreign law with the required attestation.
Therefore, the best solution for
the parties to opt out of onshore UAE Courts jurisdiction will be to include a
well drafted arbitration clause. Even if the parties include an arbitration
clause in the agreement which governs their relationship and a case was filed
before UAE Courts the defendant should state in his defense memo the existence
of an arbitration clause before submitting any other defense, otherwise the
court will consider the failure to do so as an acceptance of the court
jurisdiction to examine the matter, given that the existence of an arbitration
clause is not related to public order.
Furthermore, given that the judicial system in the UAE includes courts
which implement the civil law and others which implement common law such as the
DIFC and ADGM Courts, a conflict on jurisdiction could arise between these courts,
which could potentially complicate an already lengthy, complex and costly
In practice we have come across situations where parties will intentionally
file false claims before one jurisdiction to stay the proceedings in an ongoing
claim in another jurisdiction.
Another conflict between the abovementioned courts on jurisdiction could
result from initiating bankruptcy proceedings against the debtor(s), whether
before the onshore or Free zones’ courts. Usually, bankruptcy proceedings
should result in the stay of all ongoing claims and execution files, and all
the ongoing claims and debts should be unified in one file under the guidance
of the court supervising the bankruptcy proceedings. However, recently the DIFC Courts rejected an
application to stay proceedings following the initiation of bankruptcy
proceedings before Abu Dhabi onshore Courts. We believe that the legislator
should interfere and regulate these matters in a way to have a clear answer on
the competent courts in case bankruptcy or insolvency proceedings are initiated
to prevent the issuance of contradictory decisions on jurisdiction.
The contractual parties should seek the appropriate legal guidance prior
to entering into any agreement in order to ensure that their rights and
interests are fully protected, and they understand what a potential dispute
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