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
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
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
Furthermore, the recent amendment to the
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
For a
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
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
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
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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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