July 25, 2017

Positive clarification on the jurisdiction of the DIFC Courts

There has been recent success in the DIFC Court of Appeal for the dispute resolution team in Clyde & Co's Dubai office in the case of Kassab Media (FZ) LLC v Sky News Arabia FZ-LLC (CA-010-2016). In essence, the decision confirms that where parties have agreed to the explicit jurisdiction of the DIFC Courts, then it will retain jurisdiction despite certain arguments that the onshore courts have exclusive jurisdiction, particularly for cases where commercial agency and distribution relationships are alleged or exist.

Background

Clyde & Co act for Sky News Arabia, the international news channel in a dispute with one of its commercial partners, Kassab Media. Our role in this dispute has been to seek a declaration from the DIFC Courts that the contractual arrangements are terminated, and to recover the sums due pursuant to the underlying agreement (the Agreement).

The relevant governing law and jurisdiction clause states as follows:

"This Agreement…will be governed by and construed in accordance with laws of the United Arab Emirates as applicable in the Emirate of Abu Dhabi and subject to the exclusive jurisdiction of the Dubai International Financial Centre Courts."  (Clause 38)

The Court of First instance

Sky News Arabia initiated proceedings in the DIFC Courts.

Subsequently, an application challenging the jurisdiction of the DIFC Courts was made by Kassab Media who argued that, notwithstanding the explicit wording of Clause 38 granting the DIFC Court exclusive jurisdiction to determine disputes arising, only the onshore Federal Courts had jurisdiction to determine the dispute in accordance with the UAE Commercial Agency Law and the Commercial Code.

The Court of First Instance dismissed Kassab's application on jurisdiction holding that the DIFC court did have jurisdiction to determine the dispute, and applying the jurisdictional gateways under Dubai Law No. 12 of 2004, as amended (the Judicial Authority Law). The Court found that the parties had explicitly agreed to opt-in to the jurisdiction under Clause 38.

The Court went further and determined that the governing law of the Agreement was the laws of the United Arab Emirates as applicable in the DIFC (ie DIFC law). This followed the decision of the previous case of Gavin v Gaynor (CFI-017-2015) but it was precedent setting because in Sky News Arabia's case there is an explicit reference to "Abu Dhabi" in Clause 38. In the previous case, there was a reference only to UAE law, while here UAE law as applicable in Abu Dhabi was interpreted to mean DIFC law.

The Appeal

The decision was appealed by Kassab Media to the DIFC Court of Appeal with a panel of three senior judges namely the Chief Justice Michael Hwang, Justice Tun Zaki Azmi and HE Justice Ali Al Madhani hearing the appeal.

Kassab Media appealed on grounds that:

  • the DIFC Courts did not have jurisdiction to determine the dispute as the claim is subject to the jurisdiction of the Federal Courts in Abu Dhabi under the Commercial Code, the Federal Courts Law, and the UAE Constitution;
  • the DIFC Courts had only a duty to review the validity of Clause 38;
  • the applicable law of the Agreement is the law of Abu Dhabi.

In the alternative, Kassab Media argued that the claim was not capable of being litigated in the DIFC Courts as it arose out of an Agreement which was made unlawfully under the Federal Commercial Agency Law and the Civil Code for various reasons including the fact that commercial agents had to be UAE nationals under the applicable legislation and Kassab Media are not a company wholly owned by UAE nationals.

In response, we argued on behalf of Sky News Arabia that:

  • the DIFC Courts had competent jurisdiction to determine the claims as the parties expressly agreed to the exclusive jurisdiction of the DIFC Courts under Clause 38;
  • jurisdiction is determined solely by the Judicial Authority Law and therefore the Commercial Agency Law and the Commercial Code relied upon by Kassab did not apply in the DIFC Court's determination of jurisdiction;
  • the clear agreement on jurisdiction between the parties satisfied one of the jurisdictional gateways under Article 5(A)(2) of the Judicial Authority Law;
  • the applicable law of the Agreement was UAE Law as applicable within the DIFC.

Court of Appeal decision

The judgment was recently issued and once again, the Court ruled in favour of Sky New Arabia.

The Court of Appeal held that:

  • the DIFC Court's jurisdiction is determined solely by the Judicial Authority Law;
  • the Commercial Agency Law, the Commercial Code and the Civil Code are not applicable in determining the issue of jurisdiction in the DIFC;
  • Clause 38 of the Agreement expressed the parties' choice of court in specific, clear and express terms. It therefore fell under the 'opt-in' jurisdiction under Article 5(A)(2) of the Judicial Authority Law;
  • the issue of applicable law was remitted back to the Court of First Instance.

Impact of the decision

This judgment is a useful clarification particularly in cases where commercial agency and distribution relationships are alleged or exist, and the onshore Courts may have exclusive jurisdiction under UAE law, the DIFC Courts will still not decline jurisdiction.

On the question of the applicable law, the Court of Appeal has declined to affirm the decision of the Court of First Instance in determining that the governing law of the Agreement is the laws of the UAE as applicable in the DIFC. The judges determined that the question of applicable law should be dealt with by the Court of First Instance during the merits phase of the proceedings rather than during the jurisdiction phase.

While the Court of Appeal did not criticise the judgment of the Court below, it felt that there would be opportunities during the merits phase to hear expert evidence or material facts relating to the execution of the Agreement, which would likely be relevant to the question of applicable law.

In conclusion, it is positive that the DIFC Courts are consistent in their approach to retaining jurisdiction when parties clearly intended for the DIFC Courts to be the legal forum of choice.