Stephen Doherty in landmark ADGM decision on governing law and jurisdiction clauses

The Abu Dhabi Global Market (“ADGM”) has issued a landmark decision in relation to the Court’s approach to governing law and jurisdiction clauses.

Background

In Mingguo v Sadeghnia [2023] ADGM CFI-021 the ADGM Court of First Instance considered its approach to the construction of governing law and jurisdiction clauses, specifying that disputes will be governed by the “Laws of the United Arab Emirates”. Whilst those questions have previously come before the DIFC Courts, there are no reported decisions in which the ADGM Court has considered its own approach to the construction of ambiguous governing law and jurisdiction clauses.

The underlying dispute concerned the Claimant’s sale of part of the shareholding in an ADGM company, which was also an ADGM Financial Services Regulatory Authority (“FSRA”) regulated business, to the Defendant. The Claimant brought a claim seeking rescission of the share sale agreement. The Defendant brought an application to strike out the claim for rescission on the basis that there were no grounds, in English Law, to support an order for such relief.

The issue before the ADGM Court was whether the substantive law governing the share sale agreement was English Law (i.e. the substantive laws applied by the ADGM), which would not support a claim for rescission, or UAE Federal Law, which might.

The relevant governing law and jurisdiction clause contained in the contract provided that:

“This Agreement shall be governed by the Laws of the United Arab Emirates.

All  disputes  arising  in  connection  with  this  Agreement,  including  its  interpretation  and performance, shall be submitted to the sole jurisdiction of the ADGM courts of Abu Dhabi.  Each Party hereby irrevocably waives any claim that any such courts lack jurisdiction over such Party and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement or the transactions contemplated hereby brought in any of the aforesaid courts, that any such court lacks jurisdiction over such Party, that any such court is not a convenient forum for any such suit, action or proceeding, and waives the objection it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement in any such courts.”

The Claimant argued that “Laws of the United Arab Emirates” meant the Federal Laws of the United Arab Emirates, as applied by the local civil Courts of the UAE. However, the Defendant, represented by Stephen Doherty and Charles Russell Speechleys, successfully argued that the proper construction of those provisions meant that the substantive law governing the share sale agreement was ADGM Law.

The Decision

The Court of First Instance, with Justice Stone SBS KC delivering judgment, held that:

1. The words used in the share sale agreement, namely “the Laws of the United Arab Emirates” were not clear terms in favour of the application of UAE civil laws, but were ambiguous and lacked specificity.

2. The context in which the defined term “Laws” appeared in the share sale agreement was relevant, but not determinative. Those terms provided that “Laws” meant the laws of any “competent Governmental Entity”, including any “court of competent jurisdiction” which, based on the jurisdictional provisions of the contract were the ADGM Courts. That issue was not determinative because the Judge observed that it is possible for the ADGM Courts to apply the substantive laws chosen by the parties, even if it is not ADGM law.

3. The most persuasive factor was that the term “Governmental Entity” was broadly defined so as to include “any state, authority or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign…of the United Arab Emirates”. The Judge accepted the Defendant’s submission that the ADGM’s constitutional position was that it was a free zone established in accordance with UAE Federal Law, and that the ADGM laws and regulations are “Laws of the United Arab Emirates”.

4. Whilst the Court did not directly apply DIFC authorities on this issue, it cited the similar conclusions reached in respect of the DIFC’s constitutional framework, and its decisions on governing law and jurisdiction, namely Investment Group Private Limited v Standard Chartered Bank [2015] DIFC CA 004, National Bonds Corporation PJSC v (1) Taaleem PJSC and (2) Deyaar Development PJSC [2011] DIFC CA 001, and Sunteck Lifestyles Limited v Al Tamimi [2017] CFI 048.

5. In construing the proper governing law of the share sale agreement, the Judge held that particular weight should be given to the fact that the contract concerned an ADGM company, that it required the parties to carry out formalities within the purview of the ADGM’s regulatory framework, under the aegis of the ADGM regulator, the FSRA, as well as the fact that the jurisdictional clause in the contract made an election that disputes be submitted to the jurisdiction of the ADGM Courts.

The ADGM Court therefore held that the law that governing the share sale agreement was the substantive law of the ADGM, and consequently the Defendant’s application to strike out the Claimant’s claim for rescission was granted.

Comment

The decision in Mingguo is plainly going to be of interest to practitioners faced with ambiguously drafted jurisdiction or governing law provisions, a phenomena which will be familiar to practitioners in the region.

The judgment confirms, first and foremost, that the ADGM Courts will view the laws and regulations of the ADGM as falling squarely within the ambit of “Laws of the United Arab Emirates”. By extrapolation, it is also highly likely that the Court would hold that governing law provisions of contracts in favour of “Abu Dhabi Law” or “the Laws of Abu Dhabi, UAE”, would be just as apt to cover ADGM Law, as they would the civil laws applied by the local courts. Similarly, given that the Judge confirmed that the ADGM’s constitutional position is that it is established under UAE Federal Law, it is not beyond argument that a contractual provision in favour of “the Federal Laws of the United Arab Emirates” could be construed as including ADGM Law, provided that other factors supported such a construction.

Second, whilst the case before the Court in Mingguo concerned the governing law of the contract, the judgment is likely to be just as relevant to the construction of jurisdiction clauses where, for example, the jurisdictional provisions of a contract are said to be in favour of the “courts of the United Arab Emirates” or “Abu Dhabi courts”. In other words, those words are likely to be apt to cover the ADGM Courts as well as the non-ADGM local courts. What the decision ultimately confirms is that the approach of the ADGM Court to those questions is likely to be similar to the DIFC Courts, in that it will “apply normal principles of construction and look at the ordinary and natural meaning of the words used by the parties when they entered the agreement as best could be ascertained from the circumstances when the agreement was entered into, its nature, and the context in which the words were used.”

Stephen Doherty was instructed by Sara Sheffield, Max Davis, and James Colautti at Charles Russell Speechlys.

Find out more

Stephen has substantial experience of commercial litigation and international arbitration, particularly in respect of disputes in the Middle East. Stephen is regularly instructed as sole counsel in high-value and complex cases, frequently against and before leading silks in the field. Stephen is ranked as a Tier 1 Junior by the Legal 500 (The English Bar: Commercial in the Middle East) and as an “Up and Coming” Junior Chambers & Partners Global 2022. To find out more, contact Sam Carter on +44 (0)203 989 6669 for a confidential discussion.

News 1 Aug, 2023