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Earlier this year, we wrote about the establishment of the Abu Dhabi Global Market ("ADGM"), a new financial free zone in the United Arab Emirates1.
The ADGM was established two years ago, pursuant to Federal Decree No. 15 of 2013 and Abu Dhabi Law No. 4 of 2013 ("Law No. 4"), as a financial free zone with its own civil and commercial laws. In June 2015, the ADGM published a series of new regulations relating to, inter alia, companies2, employment3 and insolvency4, and the application of English law5.
In this article, we focus on the new Application of English Law Regulations 2015 ("English Law Regulations") and those provisions of Law No. 4 which relate to the resolution of disputes in the ADGM.
Courts of the ADGM
Law No. 4 provides for first instance courts (presided over by a single judge), courts of appeal (presided over by three judges), and for the appointment of a Chief Justice who has broad powers to propose draft regulations in relation to the administration of the Courts6.
On 5 October 2015, the ADGM appointed Lord David Hope of Craighead as its first Chief Justice. Lord Hope was previously the Deputy President of the UK Supreme Court. On his appointment, he explained that: "Our aim is to establish an independent and first class judicial system, equipped with world class judges of unrivalled experience and integrity, to serve the needs of Abu Dhabi Global Market as a business-friendly and well regulated centre for global commerce"7.
Law No. 4 also provides that the Court of First Instance shall only consider (i) civil or commercial cases involving the Global Market or any of its Authorities8 or Establishments9; (ii) disputes arising out of or relating to (a) a contract or transaction conducted in whole or in part in the Global Market or (b) an incident that occurred in the Global Market; (iii) any appeal from a decision of the Global Market's Authorities; (iv) any request which the Courts have the jurisdiction to consider under the Global Market Regulations10.
Notwithstanding this, parties may agree to contract out of the Courts' jurisdiction and subject any dispute to the jurisdiction to any other court or arbitral tribunal11.
Applicable law of contracts entered into with the Global Market's Establishments
Where contracts are entered into with any Global Market Establishment, they are deemed to have been entered into and concluded in the Global Market and shall be exclusively subject to the Global Markets Law and Regulations unless (i) the parties to the contract agree otherwise and (ii) provided that the agreement "does not contradict with the Global Market's Regulations and the Executive Decisions"12.
In practice, this means that companies registered in the ADGM are able to enter into contracts governed by another body of law. As the English Law Regulations form part of the Global Market Regulations, a literal reading of Article 22(4) means that the choice of foreign law must not "contradict" the common law including the principles and rules of equity. This cannot, however, have been the intention of the legislator as otherwise the opt-out contained within Article 22(4) would be redundant.
The English Law Regulations provide a set of detailed and innovative rules on the application of English statutes, common law and equity to the ADGM.
The starting point is that the common law of England and principles of equity shall have legal force and form part of the law of the ADGM. However, English law shall only apply (i) "so far as it is applicable to the circumstances" of the ADGM (ii) "subject to such modifications as those circumstances require" (iii) subject to any amendment of the law of the ADGM and (iv) notwithstanding any amendment to the law of England (unless that amendment has been expressly incorporated and has legal force in the ADGM)13.
Furthermore, in the event of any conflict between English law and any applicable Abu Dhabi Law (defined as the Constitution of the UAE, Federal Law No. 8 of 2004, any applicable Federal Law, Law No. 4 and any new law issued by the Ruler of Abu Dhabi applicable to the ADGM14), then the latter shall prevail15.
The English Law Regulations also confirm that more than 50 statutes in force in England shall also form part of the law of the ADGM, subject to minor amendments and any contrary applicable Abu Dhabi Law or enactment of the ADGM16. Again, where there is a conflict between these provisions, then the latter shall prevail17.
Finally, where there is conflict between the rules of the common law and equity on the same matters then the rules of equity shall prevail18.
An interesting feature of Law No. 4 is that both Global Market Authorities and Establishments are entitled to enter into contracts in Arabic and / or any other language19. As the ADGM has not yet identified the official language of the Courts, it may be that the entire proceedings will be conducted in a foreign language or the language of the contract. Alternatively, foreign documents may be translated into English, particularly when English is the working language of the Chief Justice (and possibly other justices of the Courts).
Given their similar objectives and location, it is inevitable that the establishment of a new commercial court in the region will draw comparisons with the models of dispute resolution that have been established in the Dubai International Financial Centre and the Qatar Financial Centre. The relative influence of the common law on the laws of the financial free zones is one good example of an apparent difference of approach between the centres.
At one end, the QFC Courts appear to consider that QFC law is a separate code set apart from the common law. For example, in a recent decision of the Appellate Division relating to restrictive covenants in an employment contract that:
"QFC Regulations set out detailed codes of employment law and general contract law. Some of the provisions reflect principles of common law, but in many respects conditions in Qatar differ markedly from conditions in England and other common law countries. When an issue is governed by a QFC Regulation, the correct approach is to apply that Regulation according to its natural meaning and having particular regard to conditions in Qatar. Foreign jurisprudence can sometimes be of assistance, but it should be used sparingly as a last and not a first resort." (Chedid & Qatar LLC v Ayash, Case No. 2 of 2015).
At the other end of the spectrum are the laws of the ADGM which, in view of the English Law Regulations, appear most closely tied to the common law. Indeed, the fact that no attempt has been made to codify common law principles, at least in respect of its contract law, (as is the case in the QFC and the DIFC) suggests that the ADGM seeks to apply the common law without significant local amendment.
The DIFC Laws sit somewhere in between the two in that while DIFC law is codified, its interpretation is often informed by the common law. For example, under DIFC Law No. 3 of 2004, the DIFC Court may be directed to apply the laws of England and Wales where parties have not chosen a proper law of contract20. Similarly, where there is a dearth of DIFC Courts precedent on a particular law which is based squarely on its common law counterpart, the DIFC Courts regularly consider the position in the leading common law jurisdictions.
As Oliver Wendell Holmes Jr wrote: "The life of the law has not been logic: it has been experience". So it is with the development of the new Courts of the ADGM. We will only truly begin to understand how the Courts interpret the newly enacted Regulations once they decide the disputes that come before their Justices, but it is inevitable that the experience of similarly situated commercial courts in the Gulf will inform that process.
1 "Abu Dhabi Global Market: the emergence of a new financial free zone in Abu Dhabi", Brown Rudnick Alert, February 2015, by Roger Kennell, Ravinder Thukral and Imogen Steiert
2 Companies Regulations 2015
3 Employment Regulations 2015
4 Insolvency Regulations 2015
5 Application of English Law Regulations 2015
6 Article 13 of Law No. 4
7 "Abu Dhabi Global Market Appoints Chief Justice Lord David Hope of Craighead to Head ADGM Courts", ADGM Press Release, 5 October 2015
8 defined by Article 1 of Law No. 4 as "The 'Global Market's Registration Bureau', the 'Financial Services Registration Bureau' and the 'Global Market's Courts' […] and any other administration, bureau, or unit that the Board of Directors approves to establish"
9 defined by Article 1 of Law No. 4 as "Company, Any branch, representative office, institution entity, or project registered or licensed to operate or conduct any activity within the Global market by any of the Global market Authorities according to the provisions of this law or the Global market regulations or the executive resolutions including the licensed financial Global market Establishments"
10 Article 13(6) of Law No. 4
11 Article 13(7) of Law No. 4
12 Article 22(4) of Law No. 4
13 Article 1(1) of the Application of English Law Regulations 2015
14 Article 7 of the Application of English Law Regulations 2015
15 Article 1(2) of the Application of English Law Regulations 2015
16 Article 2(1) and Schedule of the Application of English Law Regulations 2015
17 Article 2(2) of the Application of English Law Regulations 2015
18 Article 3(1) of the Application of English Law Regulations 2015
19 Article 22(2) of Law No. 4
20 Article 8 of the DIFC Law No. 3 of 2004