Dubai seeks to introduce common law framework for free zones

The government has launched a public survey on its proposal to extend the DIFC common law model to selected free zones. Two legal frameworks are currently being proposed. Both options seek to widen the remit of the DIFC Courts, which are English-language Courts with common law jurisdiction, independent from the onshore Dubai court system. It is envisaged that the transition to an expanded common law model will resonate with the vision of the Dubai Economic Agenda D33, which seeks to secure Dubai as one of the top three global economic hubs.

Currently, there are two common law free zones in the United Arab Emirates (UAE): the DIFC in Dubai and the Abu Dhabi Global Market in Abu Dhabi (ADGM). Both free zones have their own standalone legal system, which is distinct from onshore UAE law.

Dispute resolution expert Seema Bono of Pinsent Masons said that an extension of DIFC Court jurisdiction could have a positive impact on businesses operating in the free zones. It may also bring positive changes for dispute resolution in Dubai more generally.

“An extension of the DIFC Court jurisdiction would offer more international businesses the option of litigating in a common law system, in English-speaking courts. There are a number of positive impacts this would have for international businesses, in particular, affording them familiarity with the dispute resolution process," she said.

"The adoption of the common law model could encourage financial investment in businesses operating within the free zones. This is because English common law provides legal stability and predictability, facilitated by judicial adherence to precedent decisions of the Courts", said Bono.

The Dubai government has published a survey proposing the introduction of either a hybrid system or a standalone system.

"Under the hybrid system, the DIFC Courts would be responsible for overseeing commercial disputes within the free zones in Dubai. The UAE laws would be applicable by default to the dispute. The DIFC procedural and evidentiary laws, which we anticipate will incorporate those aspects of the DIFC Court Rules, will take precedence for matters concerning litigation procedure and evidentiary rules," said Pinsent Masons disputes expert Lydia Redman. 

The standalone system seeks to roll out the entire legal framework of DIFC laws to selected free zones. This more extensive shift would mean that companies in these zones would function almost entirely under DIFC laws and regulations, including company law, bankruptcy law and employment law. The DIFC Courts would handle all respective disputes.

“International businesses, particularly those from common law jurisdictions, may be encouraged to set up or expand in Dubai’s free zones in the event the DIFC Court’s jurisdiction is rolled out to these areas. This could result in significantly increased investment in the UAE,” said Redman. “If the DIFC legal framework is rolled out extensively, it will lead to the availability of new legal concepts under common law, such as equitable remedies, which are not recognised under UAE onshore law.”

Changes resulting from the government's survey are unlikely to be implemented for several years, Disputes expert Damian Crosse of Pinsent Masons said that businesses operating in Dubai’s free zones should be mindful of the potential upcoming changes.

“Companies should take part in the government’s survey if they are likely to be impacted by an expansion of the DIFC Court’s jurisdiction,” said Crosse. “If an extended roll-out of this jurisdiction is announced, businesses in the affected free zones will need to act to ensure that their organisations are prepared for the changes. This will include ensuring that their contractual arrangements are aligned with the new jurisdiction.”