CHOICES, CHOICES! COURT OR ARBITRATION?

Publish : 08 Jan 2024

You are at the cusp of closing a successful transaction or a settlement. The parties have agreed to terms and commercials and all that is left is to put pen to paper (or finger to keyboard) and draft the agreement.

Often, when an agreement is drafted, focus is given primarily to the commercial aspects of the transaction, such as the amount of consideration, payment terms, consequences of breach, to name a few. Extra effort and thought are put to nail down specifics to create the perfect clause.

Other clauses, however, do not receive similar attention. Clauses such as amendments, waivers, counterparts, governing law, and jurisdiction, are merely lifted from template agreements and added to the agreement.

While the commercial clauses are indeed important, it is equally important to pay attention to the remaining clauses, that are often dismissed as mere boilerplate clauses.

This article focuses on one such clause which is the jurisdiction clause.

A jurisdiction clause determines which forum the parties must file a case or claim, in the event a dispute arises. Two of the most common forums that are opted for are either courts or arbitration.

This begs the question, which forum would be most appropriate and why? For the purposes of this article, we shall focus on the Dubai International Financial (DIFC) Courts versus the Dubai International Arbitration Centre (DIAC) arbitration, particularly in light of recent amendments.

Before finalizing the jurisdiction clause, a party needs to ask themselves the following:

 

1. How much will it cost to file a claim? (Costs)

To initiate a claim, the party needs to pay fees to the DIFC Courts or to the DIAC. The quantum of fees and mode of payment varies between the courts and the arbitral institutions.

In the DIFC Court, the party initiating the claim (the claimant) is fully responsible to pay court fees (unless the Defendant files a counterclaim, in which case, the Defendant will pay their own Court fee). Therefore, there is the initial financial burden on a party filing a claim. However, if the claimant was successful, the court fees paid will have to be paid by the defendant as part of the costs awarded to the claimant.

Before DIAC, the initial registering fee is paid by the claimant at the time of filing the request for arbitration. However, the expenses thereafter, such as the advance on costs (essentially the tribunal’s fees and other administrative fees to cover the entire arbitration process), are borne equally by both parties. Therefore, there is a significant reduction in the burden of a claimant as the registration fees and the tribunal fees must be borne equally by the parties. Furthermore, the recent amendments to the DIAC Arbitration Rules in 2022, enables the winning party to claim the legal costs spent on the case from the unsuccessful party.

 

2. How long will a claim take to complete? (Time)

The amount of time it takes to complete a DIFC claim or an DIAC Arbitration is not a straight jacket formula and would vary depending on factors such as interim applications, number of witnesses, the type of evidence filed.

Typically for DIFC Claims, the Rules provides set timelines for filing of any pleadings, documents, or witness statements. In our experience, a claim will normally take anywhere between eight (8) months to two years to complete, from filing the claim to obtaining a judgment.

In an arbitration before DIAC, there is no set timelines provided. It is left to be decided by the Tribunal, with consultation with the parties. Therefore, there is definitely more flexibility when it comes to arbitration, in terms of deciding the timelines to file evidence and conduct the trial.

Furthermore, the recent amendment to the DIAC procedural rules provides an option to parties to conduct expedited proceedings. Under expedited proceedings, the tribunal restricts the type of evidence it would consider, and the tribunal must issue an award within three (3) months from when the file is transferred from DIAC. These proceedings will significantly reduce the costs and time taken for an arbitration. However, one should keep in mind that expedited proceedings will only be allowed under certain circumstances, one of which is if the parties agree to expedited proceedings in their agreement. Therefore, adding a provision for expedited procedures (if the parties were to choose DIAC arbitration as the jurisdiction) will definitely be a practical option for future disputes.

The DIFC Courts do not provide for such expedited procedures, unless the Defendant fails to appear, in which case a claimant can file for default judgment, where the final judgment is issued within one to two months. Another option is to file for immediate judgment. However, for immediate judgment, the threshold and burden of proof is very high and rigid. Typically, an immediate judgment takes around three months to be filed, heard, and decided.

 

3. How can a final decision be challenged? (Appeal)

A judgment of the DIFC Courts, or an award by a Tribunal can both be challenged, however on completely different grounds, and following completely different procedures.

Before the DIFC Courts, an appeal does not lie directly with the Court of Appeal. A party intending to appeal must first seek permission from the Court of First Instance. In order to succeed in the permission for appeal, the party must either establish that the judge was wrong on a matter of law or a finding of fact, or that there was a procedural injustice caused to the party. If a permission to appeal is granted, the appeal is transferred to the Court of Appeal, where it will be decided. The decision of the Court of Appeal is final and binding on the parties. Before the DIFC there is only one level of appeal, but the grounds are much wider.

For a DIAC award, it can be challenged directly before the relevant Court. However, the ground for challenge only relate to either the improper execution of the arbitration agreement (when it was originally entered into), the defendant not being able to present their defence (due to deficiency in service), or that the tribunal applied incorrect law or decided on matters not within the scope of the arbitral agreement. However, there is no ground on the basis that the decision of the Tribunal was incorrect in law or fact. The decision of the relevant Court is binding, however, there is an option for parties to file a further appeal before the court of cassation. Before DIAC, there are two levels of appeal, but the grounds are highly restricted.

 

4. What happens after a decision is given? (Enforcement)

Perhaps the most important step for each party comes right at the end, after the entire claim is over, which is the enforcement. No party wants a situation where they obtain a favourable decision, but are not able to execute it, i.e., a mere paper decree. So how does a party, if successful, ensure that the decision is properly enforced.

Both a DIFC Claim and an DIAC arbitration essentially culminates to the same process for enforcement. However, the process between obtaining the judgment and filing for enforcement differs between the two judicial institutions.

Taking the example of enforcing a judgment before the DIFC, a DIFC judgment can be enforced directly. This means that the party can directly file an enforcement proceeding and the execution court will pass appropriate orders against the judgment debtor (the party against whom the judgment is issued).

However, to enforce a DIAC award, it has to first be recognized and ratified before a court, such as the DIFC Court. This is one step before filing an enforcement proceeding. The recognition and ratification, while typically straightforward, can also be challenged by the opposite side.

Once the award is ratified, it will be treated akin to a court judgment, and a party can file for its enforcement.

 

5. How would a party safeguard their interests during the claim? (Interim Orders)

Both the DIFC Courts and, with the 2022 amendments to the DIAC Arbitration Rules, the Tribunals, have the power to pass interim orders during the subsistence of a claim. However, an interim order is meaningless until it is enforced.

For an interim order from the DIFC Courts, the process of enforcement is similar to enforcement of a final judgment i.e., to file an application for enforcement.

However, for an interim order from a tribunal, like a final award, it would need to first be recognized. This begs the question whether an interim award can be recognized before the DIFC Court (similar to a final award). The resounding answer is yes! The DIFC Courts have recently taken the very positive step in recognizing an interim order passed by a tribunal, irrespective of the seat of the arbitration. Previously, an interim order could be recognized by the DIFC Courts only if the seat of arbitration was DIFC.

 

6. Can a party avoid going to courts or arbitration altogether? (Alternative Dispute Resolution)

Most parties will always try and settle their disputes first before taking the route of courts or arbitration.

Both the DIFC Courts and DIAC have encouraged the use of alternative dispute resolution methods such as mediation or conciliation.

DIAC in fact have gone one step further and have implemented new rules for mediation called the DIAC Mediation Rules 2023, which have recently come into force in October 2023. These newly added rules provide a proper and robust procedure to conduct mediation in circumstances where the parties wish to first attempt mediation before filing a DIAC arbitration. The mediation process has set timelines in place so that it does not proceed indefinitely. Furthermore, the Arbitration Court appoints the mediator.

Before the DIFC, a Court will stay proceedings in circumstances where the parties wish to conduct settlement talks. However, there is no standard procedure prescribed under the DIFC Court Rules for mediation, which gives the parties the freedom to adopt their own procedures. Furthermore, the DIFC Court is not involved in the mediation, unlike the Arbitration court.

 

Conclusion

The above list of questions gives a broad-brush view on how to zero in on and ultimately decide the most appropriate forum for any future disputes. It would be very beneficial for parties to spend time and draft a robust jurisdiction clause instead of accepting a poorly drafted clause and then ultimately facing a jurisdictional challenge when a claim is filed.

A jurisdiction clause can also be tailored to each type of dispute.

For example, if you are a party recovering any outstanding debt, and the debtor is at risk of absconding, your jurisdiction clause can be tailored in such a manner to give you the option of approaching any other relevant court. This provides greater flexibility for you as a claimant to proceed before a forum that is the closest jurisdiction to the debtor or to his assets.

A jurisdiction clause need not be rigid and need not follow a specific pattern. It is only important that there are no conflicting provisions or any terms that may make the clause invalid.

We have seen numerous jurisdictional clauses that provide for both arbitration as well as courts as the jurisdiction. These types of clauses spell out only trouble if a party wishes to initiate a claim, as it raises a myriad of jurisdictional issues, which will only delay the ultimate relief.

Therefore, it is very important to pay attention to these clauses as failing to do so can lead to serious repercussions in the event of a dispute.

As the old adage goes, ‘A stitch in time, saves nine’. This could not be truer for jurisdiction clauses and choice of forum.

As always, it is advisable to engage the services of a lawyer to draft an agreement or to review an agreement before signing.

Tags :

Articles

LATEST ARTICLES

05 Feb 2024

The Role of Travel Bans in Mitigating Risks...

Read More
31 Jan 2024

Federal Decree Law No. 20-2023

Read More
11 Jan 2024

The Nature of the Arbitration Clause in an...

Read More
08 Jan 2024

CHOICES, CHOICES! COURT OR ARBITRATION?

Read More
02 Jan 2024

New provisions under the new Bankruptcy law

Read More