Sunday, 20 March 2011

DIFC Court: Corinth Pipeworks SA v Barclays Bank Plc

In the introduction to my leaflet on the Dubai International Financial Centre Courts (which may be downloaded from the JD Supra website) I wrote:

"The governments of the United Arab Emirates and Dubai have established a free zone for financial services in Dubai known as the Dubai International Financial Centre ("the DIFC") in the hope that it will become a major financial centre to rank alongside London, New York, Tokyo and Singapore. According to KPMG the DIFC already ranks 7th in its list of the world's leading financial centres.

One of the reasons for the DIFC's success is a special jurisdiction in the zone with its own laws and law courts. Although Dubai and the UAE are civil law jurisdictions and their official language is Arabic the laws of the DFIC are in English and based largely on UK statutes and the English common law.

The DIFC courts conduct their business in English. Their rules and procedure are based on the English Civil Procedure Rules. Most of the judges of the DIFC courts come from England and Wales or other Commonwealth countries. Most counsel and solicitors from England and Wales can qualify to practise before the DIFC Courts quite easily.

In CFI 024/2010 Corinth Pipeworks S.A. v Barclay's Bank PLC (8 Feb 2011) a Greek company carrying on business in Athens tried to extend the jurisdiction of the DIFC court to a cover any claim against an entity with a branch within the DIFC. The cause of action arose out of an allegedly false statement by an employee of the Jebel Ali branch of Barclays Bank. Jebel Ali is, of course, in Dubai but it is outside the DIFC. However, Barclays does maintain a branch in the Centre. It was on the strength of the Bank's presence in that zone that the claimant launched its action.

The defendant Bank applied for a declaration that the DIFC Court had no jurisdiction in this action under rule 12.1 of the Rules of the DIFC Court (the equivalent of CPR 11.1). The application came on before Sir Anthony Colman, Deputy Chief Justice of the DIFC Court.

Sir Anthony summarized the claimant's case as follows at paragraph [53]:

"The argument in favour of that jurisdiction is very simple. When by the process of registration of a business and the granting of the necessary licenses a Centre Establishment is created, it is the entire corporation body to which that registration and those licenses are granted because the process involves registration and grant in the name of that corporation alone and not in the name of any other exclusively DIFC legal person. Moreover, when the corporation enters through its DIFC branch into a commercial transaction it is the corporation as a whole that does so. Therefore, a dispute arising out of a transaction entered into by a branch of the corporation located outside the DIFC is as much a dispute involving a Centre's Establishment as a dispute arising out of a transaction entered into by a branch of that same international corporation authorised to carry on business within the DIFC."

His lordship remarked that "the argument advanced on behalf of the Claimant would, if correct, have potentially far-reaching consequences." He added:

"Many members of the legal professional conversant with the DIFC and its Courts would assume that, given that the purpose of the Court was to provide a dispute resolution facility for the DIFC and with regard to transactions associated or connected with it or the commercial enterprises carrying on trade within the DIFC, an international company with a branch licensed to carry on business in the DIFC would be confined to bringing claims within the DIFC Courts in respect of disputes connected with the business of that branch in the DIFC. The suggestion that an international company incorporated and having its head office in, say, the United States or the United Kingdom, but with a branch registered and licensed to do business in the DIFC, could start proceedings in the DIFC Courts or could be sued in that Court in respect of a claim wholly unconnected with the DIFC or the business of its DIFC branch would, on the face of it seem distinctly improbable. Were that so, the scope of jurisdiction of the DIFC Courts would have an international dimension which had not hitherto been generally perceived."

Allowing the application and striking out the claim the judge had no doubt that the claimant's argument was fundamentally defective. The flaw lay in

"according to the entire business of the corporation that characteristic which only the DIFC-authorised part of the business has. The fact that all the branches of the corporation may be part of a single legal person with a single corporate name emphatically does not result in all the branches of the corporation being part of a Centre's Establishment. The international corporation is a Centre's Establishment only to the extent to which its branch is authorised to conduct business in and from the DIFC and a claim or dispute only "involves" a Centre's Establishment when that claim or dispute is connected with or arises out of the activities of the corporation conducted by its DIFC branch or division. The requirement that the corporation as a whole must be a party to the proceedings and in its corporate name is simply a procedural consequence of its branch or division having no separate legal personality by which it can sue or be sued. What matters as regards jurisdiction under Article 5(A)(1)(a) is that it is with the conduct of the DIFC-authorised business that the cause of action is connected. The function of the DIFC Courts is to provide a justice system for the DIFC itself and to adjudicate on disputes connected with the commercial and civil activities of its organs (Centre's Bodies) and its population of those who are authorised to conduct a business in the DIFC in respect of which disputes have arisen."
His lordship's analysis is probably right but it does limit considerably the attractiveness of the DIFC Court as a forum for the resolution of commercial disputes. Herbert Smith has discussed this case and others in their article "The Courts of the DIFC - Can they hear your Dispute" in the March 2011 issue of the Middle East Exchange which appears on that firm's website.