The Dubai International Financial Centre Authority ("DIFCA") has issued DIFC Consultation No.1 of 2024 ("Consultation Paper") which proposes amendments to DIFC Law No.3 of 2004 ("Application Law"). The Consultation Paper centres on the application of civil and commercial Laws in the Dubai International Financial Centre ("DIFC") and is designed to assist with providing certainty to sources and interpretation of DIFC law. Focus on the need to provide such certainty arose following the decision by the DIFC Court of Appeal in The Industrial Group Limited v Abdelazim El Sheikh El Fadil Hamid [2022] DIFC CA 005/006 ("Industrial Group"), which highlighted two issues with the historic approach taken by the DIFC Courts. The amendments will be enacted by way of DIFC Law No.6 of 2024 ("Proposed Amendment Law").
The Consultation Paper
Since the inception of the DIFC Courts, it has been understood by practitioners that DIFC statutes are supplemented, or "backstopped", by English common law. This sentiment was finally considered, in detail, in the judgment of Industrial Group which raised two issues that the Proposed Amendment Law seeks to address, the 'source of law' issue and the 'interpretation' issue.
The 'source of law' issue refers to the finding in Industrial Group that DIFC law is essentially statutory. The consequence being that Judges and Arbitrators cannot find that a common law or equitable doctrine, cause of action, defence or remedy exists in DIFC law, unless there is a DIFC statute to that effect.
The 'interpretation' issue was highlighted as a result of discussion concerning the approach to interpretation of DIFC statutes. The judgment in Industrial Group noted that the source of DIFC law is not confined to the laws of England and Wales. In fact, where a DIFC statute is based on principles which come from other sources such as contract law or arbitration law, the Court will look to those sources to determine the content of the principles in question and their development. As such, it is unclear whether the common law can be used as an interpretive aid in respect of DIFC statues that are of a non-common-law origin.
How will these issues be addressed by the Proposed Amendment Law?
The 'source of law' issue
The Proposed Amendment Law will insert a new Article 8A into the Application Law which will grant DIFC Courts discretion to apply a doctrine, cause of action, defence or remedy that exists under the common law of England and Wales (including in equity) but has not been expressly incorporated into DIFC law by a DIFC statute.
This discretion will be constrained to instances where it is appropriate and is subject to such modification as the scenario may require. Further, there are two express limitations on the exercise of this discretion. Firstly, there can be no importation of a common law concept if there has been an express or implied exclusion of the same by a DIFC statute. Secondly, DIFC common law is subject to DIFC statute law, meaning a DIFC statute can always modify or remove entirely a common law principle from DIFC law.
The rationale provided for this provision is that the laws of England and Wales are widely held to be "the premier choice of law" in international commerce due to, among other reasons, the quality and breadth of jurisprudence issued by courts within the jurisdiction. By 'backstopping' DIFC law with the common law of England and Wales, where appropriate, it ensures that DIFC law retains a strong link with the world's leading choice of law. As a result, the legislative burden on DIFC bodies will be lessened and DIFC law can remain current, familiar to international parties and predictable.
It has been acknowledged by DIFCA, that the effect of this provision is a return to the status quo as in reality, this was previously occurring before Industrial Group. However, the approach is now captured by statute and provides the desired certainty.
The 'interpretation' issue
The Proposed Amendment Law will also address the 'interpretation' issue by inserting a new Article 8B into the Application Law. This will stipulate that the interpretation of a DIFC statute may be guided by the principles in respect of analogous laws in established common law jurisdictions. Further, this approach to interpretation will apply regardless of whether the DIFC statute is based on international model law or another non-common law source. This article will give the DIFC Courts/Arbitrators discretion to interpret all DIFC statutes by reference to the approach to analogous laws in the common law world.
Of key importance is that the proposed Article 8B is a "non-binding directive". This means the DIFC Courts are permitted to take this approach, but they are not obliged to do so. The express linking of interpretation of DIFC statutes, to the principles developed in established common law jurisdictions, furthers DIFCA's aim of increasing familiarity and predictability of DIFC laws as mentioned above.
Concluding remarks
The Proposed Amendment Law is designed, by its own admission, to enable the DIFC Courts' historic approach to the application of civil and commercial law in the DIFC to continue as it has done over its 20-year history. This enables DIFC law to benefit from more mature jurisdictions because the volume of cases in those jurisdictions will invariably be higher. This means that novel legal issues, that have been dealt with elsewhere, can guide the approach of the DIFC Courts and allow DIFC to remain the leading global financial centre in the MEASA region. The implementation of overarching statutes, supported by common law as an interpretive guide and supplement where there are gaps, remains the optimal structure for creating a common law free-zone within a broader civil law system.
