Insights / News
Insights / News
The DIFC Court of Appeal has dealt a blow to recalcitrant parties seeking to invoke the jurisdiction of the Joint Judicial Committee (“JJC”) in an attempt to obstruct proceedings before the DIFC Courts.
In Lakhan, the Court of Appeal has revised its historical practice of automatically staying proceedings upon petitions being made to the JJC, by confirming that, in order for any stay to take effect, there must first be a positively determined “conflict of jurisdiction”, and the mere existence of two sets of proceedings before the DIFC Courts and the onshore Dubai Courts is no longer a sufficient basis on which to stay proceedings.
The judgment in Lakhan is therefore likely considerably to reduce the number of abusive proceedings raised before the DIFC Courts and the onshore Dubai Courts, where those disputes lack any relevant jurisdictional gateway and where the motivation is simply to cause delay.
The Respondent was a contractor which engaged a third party subcontractor for the supply and installation of swimming pools and landscaping works in a prominent hotel development. The subcontract contained an arbitration agreement for the resolution of disputes under DIFC-LCIA Rules, with the seat of the arbitration in the DIFC.
The Appellant entered into a novation agreement with the Respondent and third party subcontractor, in which it assumed the role of subcontractor. The novation agreement provided that the terms and conditions of the sub-contract had not been amended or varied “other than by way of this Agreement“, and it included provision for resolution of disputes “pursuant to the exclusive jurisdiction of the Dubai Courts”.
A dispute arose in respect of the subcontract works provided by the Appellant to the Respondent. As a consequence of the conflicting jurisdictional provisions in the subcontract and the novation agreement, two sets of proceedings were issued: (i) the Appellant raised proceedings before the onshore Dubai Courts, which had proceeded through the appointment of an independent expert reporting in favour of the Appellant; and (ii) subsequently the Respondent raised proceedings through the DIFC Courts, seeking to enforce the arbitration agreement. The Appellant, in turn, filed a jurisdictional challenge in accordance with Part 12 of the Rules of the DIFC Courts.
Prior to the Appellant having filed an acknowledgment of service in the DIFC Court proceedings, the Respondent also sought to file a petition before the JJC asserting a conflict of jurisdiction. The body of that petition stated that the effect of Article 5(1) of Dubai Decree No 19 of 2016 (“the Decree“) was that “the lodging of the petition results in an automatic stay of the two proceedings forming the subject matter of the conflict of jurisdiction petition” until the JJC resolves the conflict, and that the Claimant “applies for the two courts to be notified to stay their proceedings pending the determination of this petition”.
The Dubai Courts stayed proceedings pending the decision of the JJC. A hearing had been listed before the DIFC Court to consider the Appellant’s challenge under Part 12 RDC. At that hearing the Respondent notified the Court of its petition to the JJC and proceedings were stayed.
The Issue Under Appeal
The DIFC Court of First Instance’s decision to stay proceedings had been based on the practice of the Court, up to that point in time, of automatically staying proceedings upon an application to the JJC. However, in granting permission to appeal, the first instance judge noted that:
““Applications to the JJC are capable of halting proceedings for very long periods of time – I am aware of one set of proceedings in the Court of First Instance that has been stayed for around a year now – and can be made even if there is no genuine dispute as to jurisdiction or if the applicant’s position has no merit whatsoever. If this is what the law requires, so be it. But if the law does not require a stay on DIFC proceedings upon a litigant’s mere application to the JJC, then, in my view, it is time that this practice was abandoned.”
The Decree provides that:
“The referral of a dispute to the Judicial Committee pursuant to Article (4) of this Decree will result in:
The issue before the Court of Appeal was whether it was permissible for a party to seek to impose an automatic stay on proceedings that are simultaneously before the DIFC and onshore Dubai Courts, with the effect of stalling proceedings
for potentially for considerable periods of time, simply by raising a claim through the alternative court and thereafter issuing a petition to the JJC.
That practice is one which has unfortunately been abused by recalcitrant parties to proceedings before both the onshore and DIFC Courts, and has been a longstanding cause for concern in the UAE legal community.
James Counsell QC and Stephen Doherty, acting for the Appellant, argued that the practice of the Court up to that point had been based on an erroneous interpretation of the Decree. Instead, it was argued that there must be a “conflict of jurisdiction” between the Dubai Courts, with both courts having either positively maintained or declined jurisdiction over the claim, and that the mere existence of proceedings before both Courts was not, in itself, sufficient to give rise to such a conflict.
The Court of Appeal agreed with the Appellant, stating (at -):
“35. When a party commences proceedings, it asks the Court to exercise jurisdiction. The Court does not do so by the administrative act of receiving the initiating process when filed. At the least, there must be some step in the proceedings amounting to a relevant exercise of jurisdiction by the Court, or refusal of the step on jurisdictional grounds, in order that there be maintenance or declining of jurisdiction within the words in the chapeau to Article 4. All translations require a positive act on the Court’s part (“claimed or disclaimed jurisdiction”; “assert or decline jurisdiction over a claim”; “no court decides to waive hearing of the action or both courts waive the hearing thereof”). As to “no court decides to waive the hearing of the action”, which had to be the nub of the Claimant’s submission as the negative act, it must be read with the alternative of waiving the hearing, indicating a choice; there must be at least an occasion for deciding to waive or not waive, as is clear from the other translations.
36. This again makes good sense, since otherwise there would be opportunity for abuse by commencing proceedings without a jurisdictional basis and thereby, upon applying to the JJC, without more obtaining a stay. The Claimant submitted that the purpose of the Decree was that a conflict of jurisdiction should come before the JJC as early as possible, in order to avoid wasting of costs, but it is scarcely beneficial if it does so when there is no conflict of jurisdiction and before the Courts have had occasion to exercise or decline to exercise jurisdiction; and in any event the terms of the Decree must prevail.”
The Court of Appeal’s decision will come as a welcome change to the Court’s previously accepted practice in automatically staying proceedings upon a petition being made to the JJC, a practice which was unfortunately open to abuse, and frequently abused by parties by raising cases before both the DIFC Courts and onshore Dubai Courts, in the hope that a JJC petition would stall the progress of both sets of proceedings. Those referrals were often made irrespective of whether the DIFC Courts or onshore Dubai Courts could properly be said to have jurisdiction over those disputes.
Those sorts of abusive referrals should now be a thing of the past. The Court of Appeal has confirmed that, in order for proceedings to be stayed, a conflict of jurisdiction must have arisen as a consequence of some positive step by the Court amounting to the exercise or refusal of jurisdiction, although the Court of Appeal declined to be prescriptive as to what that might mean. In the context of Lakhan, the Court of Appeal has at least confirmed that an extant jurisdictional challenge before the DIFC Courts would need to be heard and decided before Article 5 of the Decree could be engaged.
In other words, that means that speculative referrals to the DIFC Courts which do not contain any plausible jurisdictional gateway, will no longer be held up by abusive petitions to the JJC.
The decision can be found at here.
(Note, James Counsell QC’s name has been erroneously omitted from the record of the decision)
Further details of their respective practices can be obtained by emailing their clerks, Graham Woods and Sam Carter or call +44 (0)20 7353 6381 where they will be happy to have a discussion in the strictest of confidence.