DUBAI'S LEGAL EVOLUTION: PIONEERING A COMMON LAW FRAMEWORK FOR FREE ZONES
09 February 2024
Dubai Statistics Center has conducted a survey seeking public input on the potential application of 'Common Law' to all free zones in Dubai.
Dubai: This move suggests the Dubai government is exploring ways to integrate DIFC laws and empower the DIFC Courts to handle civil and commercial disputes across the emirate's free zones. As of November 27, 2023, Dubai stands at the cusp of a groundbreaking legal transformation, contemplating an expansion of the Dubai International Financial Centre (DIFC) law to encompass all free zones within the Emirate. This ambitious move, driven by the Government of Dubai, aims to redefine the legal landscape and align the diverse free zones with common law principles. The proposal, currently open for public input through a government survey, reflects Dubai's commitment to enhancing its economic appeal and positioning itself as a global economic hub.
I. BACKGROUND OF THE DIFC'S LEGAL FRAMEWORK
The Dubai International Financial Centre (DIFC) operates under its own distinct legal system, with the DIFC Courts serving as its independent judicial authority. These courts currently handle disputes related to entities established in the DIFC, those connected to the DIFC itself, and cases where parties have voluntarily agreed to DIFC jurisdiction.
The DIFC Courts largely adhere to the Civil Procedure Rules followed by English courts, and they primarily apply DIFC laws unless otherwise agreed upon. These DIFC laws are essentially a codification of English common law. Additionally, the DIFC Courts can apply any law mutually agreed upon by the disputing parties, including UAE law.
II. CURRENT SCENARIO OF DUBAI COURTS FOR ON-SHORE DISPUTES
Under the existing legal framework, free zone companies must either resolve their disputes through arbitration or refer them to the on-shore Dubai Courts, unless they have opted for DIFC jurisdiction. The Dubai Courts operate under a civil law system, applying UAE laws by default. Proceedings in these courts are conducted exclusively in Arabic, while the DIFC Courts use English.
III. SURVEY FINDINGS: HYBRID SYSTEM VS. STANDALONE SYSTEM
The Dubai Statistics Center's survey suggests two potential approaches to extending DIFC jurisdiction and laws to all Dubai free zones: a hybrid system and a standalone system.
a) Hybrid System: DIFC Courts with Default UAE Laws
In this model, the DIFC Courts would oversee civil and commercial disputes within the free zones, applying UAE laws as the default legal framework. However, for matters related to litigation procedures and evidence rules, DIFC laws would take precedence. This means that while the DIFC Courts would adjudicate disputes, UAE laws would play a significant role in shaping court decisions.
b) Standalone System: Full DIFC Jurisdiction for Selected Free Zones
Under this approach, the entire legal framework of DIFC's civil and commercial laws (excluding licensing regulations) would be extended to the selected free zone. This implies that companies within these zones would operate entirely under DIFC laws and regulations, with the DIFC Courts handling all relevant disputes.
IV. IMPLICATIONS OF EXPANDED DIFC JURISDICTION
If implemented, the Hybrid System would grant the DIFC Courts jurisdiction over any entity in any Dubai free zone without requiring parties to explicitly agree to DIFC jurisdiction. However, the DIFC Courts would only apply UAE law unless there's an agreement to apply a specific different law.
Under the Standalone System, the DIFC Courts would have jurisdiction over disputes involving entities from other free zones and would apply DIFC Laws by default. This effectively means that disputes would be resolved under common law, following the common law court process (lex fori and lex loci).
V. UNCERTAINTIES REGARDING FINANCIAL SERVICES SUPERVISION
It remains unclear whether a non-DIFC free zone entity engaged in financial services would be subject to the supervision of the Dubai Financial Services Authority (DFSA) in the same manner as DIFC entities.
The Dubai government's exploration of extending DIFC jurisdiction and laws to all free zones is a significant development that could reshape the legal landscape for businesses operating within these zones. The specific approach chosen, whether it's the Hybrid System or the Standalone System, will have far-reaching implications for dispute resolution and legal frameworks within Dubai's free zones..
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