Doing business in the UAE: dispute resolution

With three court systems for businesses favouring litigation to choose from, it is essential that businesses understand the differences between each system before making provision for dispute resolution in their commercial contracts and acting on those clauses.

An overview of the UAE’s dispute resolution system 

The UAE offers disputing parties a choice of three court systems, operating under distinct jurisdictional regimes, for resolving their disputes by way of litigation. These are the onshore local courts and the offshore courts, which consist of two common law free zones.

The onshore UAE courts and the offshore free zones provide parties with different procedures and processes. The UAE onshore local courts operate under the civil law system and, until very recently, all proceedings were conducted in Arabic. English has now been added as a secondary language in certain courts, though we have yet to see this applied in practice. The onshore courts adhere to both federal and local laws, which can vary depending on the emirate.

The offshore courts provide for a common law jurisdiction and are independent from the local court system. This includes the Dubai International Financial Centre in Dubai (DIFC) and the Abu Dhabi Global Market in Abu Dhabi (ADGM), both of which have enacted their own laws in certain areas and adopt the laws of England and Wales to varying degrees.

Onshore v offshore litigation

The onshore court system consists of three main degrees within all of the seven emirates:

• courts of first instance;
• courts of appeal; and
• local courts of cassation for some emirates or the Federal Supreme Court at the federal level.

Sharjah, Fujairah, Ajman and Umm Al Quwain are part of the federal judicial system, pursuant to which the final level of appeal is to the Federal Supreme Court. Abu Dhabi, Dubai and Ras Al Khaimah have independent judicial systems, pursuant to which the final level of appeal is the courts of cassation within those emirates.

Appeals from the courts of first instance are almost routinely filed. Further appeal from the courts of appeal to the courts of cassation or the Federal Supreme Court are generally restricted to matters of law but are not uncommon. Decisions of the Federal Supreme Court and the local courts of cassation are final and binding but may be reviewed in certain circumstances. Proceedings can therefore often be lengthy due to the likelihood of losing parties filing appeals.

In some instances, the UAE onshore courts have exclusive jurisdiction that cannot be opted out of, such as in matters of commercial agency, employment, and some real estate matters. Additionally, onshore UAE courts retain jurisdiction over all criminal proceedings.

Under the DIFC court system, there are two major levels of the court:

• Court of First Instance; and
• Court of Appeal.

Apart from these courts, the DIFC system also comprises of a Small Claims Tribunal, and other specialised court divisions which cover technology and construction, arbitration, and digital economy.

The Court of Appeal decisions in the DIFC legal system are final and binding – they cannot be appealed. The DIFC courts retain exclusive jurisdiction over some matters, including civil or commercial claims to which the DIFC, its bodies, or its establishments, is a party; civil or commercial claims arising from a contract finalised or performed within the DIFC; and civil or commercial claims arising from a transaction that has been performed within the DIFC and is related to DIFC activities. It is also possible to ‘opt-in’ to the jurisdiction of the DIFC courts by agreement of the parties.

The ADGM courts similarly comprise of a Court of First Instance, and a Court of Appeal. Under the Court of First Instance, there are similar divisions to the DIFC courts, including a small claims division and a civil division. As with the DIFC courts, the ADGM courts have jurisdiction over disputes involving the ADGM, any ADGM authorities or ADGM establishments; those arising out of or relating to contracts or transactions entered into or performed, in whole or in part, in the ADGM; and those arising from incidents which occurred, in whole or in part, in the ADGM. It is also possible for parties to ‘opt-in’ to the ADGM courts’ jurisdiction by agreement.

Time bars

Prior to commencing a dispute, there are time-limit provisions under various UAE laws that must be noted and adhered to, depending on the nature of the claim. To this extent, litigious proceedings cannot usually take place once the following time-bars have been exceeded:

• non-commercial contracts: 15 years (Article 473 UAE Civil Code);
• commercial contracts: five years (Article 92 UAE Commercial Transactions Law 2022); and
• building contract for defects: 10 years (Article 880 UAE Civil Code).

However, such time-limit provisions may be waived where the courts find that a party has a ‘lawful excuse’ in respect of non-compliance to the prescribed limitation period (Article 481 UAE Civil Code).

Conversely, the DIFC courts provide shorter limitation periods:

• Breach of contract: six years (Article 123 DIFC Contract Law 2004); and
• Employment disputes: six months (Article 10 DIFC Employment Law 2019).

Similarly, under the ADGM court system, the limitation periods are reflective of English law: this includes six years for breach of contract, and three years for personal injury.

Procedure and practice

As mentioned above, the prevailing language in the local onshore courts is Arabic, notwithstanding recent amendments in certain courts, whilst English prevails in the two offshore court systems. Parties from common law jurisdictions will already be familiar with many of the procedures and processes before the common law courts, such as proceedings being adversarial and therefore allowing the oral presentation of arguments and examination of witnesses. The civil onshore system is, conversely, inquisitorial and proceedings are largely conducted in writing.

There are other important differences for parties to consider too.

Choice of law

Whilst the UAE Civil Code allows parties to agreements to freely agree the governing law, in practice the local onshore courts are likely to apply UAE law to resolve matters before them. Conversely, the courts of the DIFC and the ADGM will respect the governing law chosen by the parties.

Privilege and ‘without prejudice’ communications

The UAE onshore legal system does not recognise ‘privilege’ as a concept, with the only exception being attorney-client privilege. Unlike under the common law offshore courts, parties cannot refuse to produce documents in proceedings due to privilege.

On the other hand, the DIFC courts not only recognise the concept of privilege, but also define it as the right to resist document disclosure to opposing parties.

Further, the UAE onshore courts do not recognise the concept of “without prejudice” communications such that any communications issued in the context of settlement discussions or other dispute resolution attempts – such as mediation – are at risk of being disclosed to the court. This is not the case in the offshore free zones, which both support the notion of “without prejudice” and “without prejudice save as to costs communications”. Parties must therefore be careful when seeking to settle disputes, and enter into formal settlement processes upon obtaining legal advice tailored to the relevant jurisdiction.

Interim remedies 

Parties must also consider the availability of interim remedies in the onshore courts.

As the UAE is a civil law jurisdiction, there are certain common law remedies that the onshore courts are generally hesitant towards. Such remedies, which have their roots in common law, are more widely available in the offshore courts.

For onshore courts, the use of injunctions to prevent or compel parties to act is limited. Relief is more typically offered by way of attachments to bank accounts or, in certain rare instances, travel bans, where there is evidence that significant monies owed have not been paid. Commonly, onshore courts will look to impose financial damages in most cases.

The common law offshore jurisdictions offer a wider range of interim relief as is usual in such jurisdictions.

Arbitration

Aside from litigation, it is often possible for parties to choose arbitration to resolve their disputes.

Arbitration requires the consent of all parties and so agreements must contain a clear agreement to arbitrate, signed by representatives from each party who are properly authorised to execute such agreements on behalf of those parties.

The UAE is seen as a progressively arbitration-friendly jurisdiction, following enactment of the Federal Arbitration Law in 2018. The DIFC and the ADGM offer alternative and similarly pro-arbitration jurisdictions within which to seat arbitrations, and each have their own arbitration laws – the DIFC Arbitration Law 2008 and the ADGM Arbitration Regulations 2015, respectively.

The seat chosen by the parties will determine which of the local UAE courts, DIFC courts or ADGM courts have supervisory jurisdiction over the arbitral proceedings. Each seat offers different advantages and potential disadvantages. Careful thought must be given to its selection.

There are, however, matters which cannot be arbitrated – including employment, some real estate and commercial agency matters. Further restrictions may also apply when dealing with government or quasi-government entities where, depending on the emirate of incorporation of the entity, special permission may be required to arbitrate and/or to arbitrate in a seat outside of that emirate.