Dubai is one of seven Emirates that form the United Arab Emirates, but operates its own independent court system outside the UAE Federal Court system. This article reviews the types of dispute typically being seen in Dubai, and some of the dispute resolution mechanisms available for dealing with them. 

Court Systems and Dispute Resolution Mechanisms

There are two court systems in Dubai – the local courts and those of the Dubai International Finance Centre ("DIFC"). 

The local courts have jurisdiction over any person resident in, or company doing business in, Dubai. For civil disputes they operate a codified system, which will be familiar to practitioners in France and other European countries. In addition to the courts, Dubai operates a number of tribunals, which have jurisdiction over certain types of dispute. We refer to one – the Rent Disputes Committee – below.

The DIFC is the most well-known of several free-zones established within Dubai, but the only one with its own jurisdiction and law-making capacity. Established by law in 2004, the DIFC Courts exercise civil jurisdiction in respect of matters involving DIFC entities, DIFC transactions, or contracts in which the parties agree to the jurisdiction of the DIFC courts, operating a system based on the Civil Procedure Rules of England & Wales. A Small Claims Tribunal handles claims for sums of up to AED 100,000 (or AED 500,000 by agreement). There is also an Arbitration body, the DIFC-LCIA, the rules of which follow those of the highly regarded LCIA (London Court of International Arbitration). Parties need not have any connection to the DIFC to conduct an arbitration under the auspices of the DIFC-LCIA.

The volume of claims handled by the DIFC Courts is rapidly increasing. Latest figures indicate that the value of claims commenced in the Court of First Instance between January and June 2015 totalled AED 2.27M, a 200% increase on the whole of 2014.  

A current issue in the DIFC courts is the development of "gateway jurisdiction". This entails a party holding an arbitral award, or non-Dubai judgment, against a Dubai entity, applying to the DIFC court to have it recognised and converted into a DIFC court judgment, and thereafter having that DIFC court judgment enforced outside the DIFC via the local courts. In this way, certain technical and procedural impediments that sometimes arise in the Dubai courts are avoided. The procedure has to date been accepted by the Dubai civil courts, but it remains to be seen whether they ultimately try to limit its impact.

Insurance 

Dubai has a rapidly growing insurance market and is becoming the “hub” for insurance in the region. The growth of the market inevitably brings with it an increase in insurance-related disputes.  

An area ripe for disputes is property, particularly following fires. Media headlines have focused on fires in residential buildings, such as the (ironically named) Torch, but more often fires are experienced in warehouses and industrial buildings and we have seen an increase in consequential claims and court disputes. 

The disputes broadly fall into two groups: (i) insureds’ first party damage and business interruption claims; and (ii) third party property damage claims. 

Determining liability may be complex, but much turns on forensic reports that the Dubai Police’s forensic department produces for every fire, which are binding under local law. That said, we have seen an increase in the involvement of external forensic experts, as insurers seek to make a more rapid assessment of liability and quantum issues. 

On first party claims, issues tend to arise with exclusion clauses (in respect of which Dubai insurance law is prescriptive) and the interpretation and application of Reinstatement Clauses. 

Third party claims have given rise to an issue that insurers would not expect in the UK. UAE insurance law allows claims to be made directly against an insurer by the insured and "beneficiaries" (of the policy). However "beneficiaries" is not defined, so that  it is not uncommon to see third parties claiming direct against an insurers, arguing that they are in effect the “beneficiary” of a third party liability cover. That said, the burden of showing that the policy covers third party claims falls on the party claiming.

Commonly, third party claims are made by owners against tenants. This introduces a jurisdictional issue in Dubai. 

Pursuant to Decree No. 26 of 2013, any dispute between a landlord and tenant must be brought before the “Rent Disputes Committee”, not the main civil courts. That rule is commonly breached, leading to jurisdictional challenges. Strictly, the Rent Disputes Committee can only hear cases arising out of a tenancy relationship. 

But what if the case involves an insurer? Can all issues be resolved in the same proceedings? 

In general, the Dubai civil courts are likely to dismiss a landlord/tenant dispute on jurisdictional grounds. But if say a landlord issues in the Rent Disputes Committee, and tries to include the tenant’s insurer as an additional defendant, it is unclear whether the Committee has jurisdiction to hear such a claim (as the insurer is not a party to the lease). Further, as the Dubai courts do not operate on the basis of precedent, so decisions of one court are not binding on another, there is little judicial guidance; each case needs to be considered on its facts.  

Another developing area for claims and disputes is employee fidelity (or infidelity). In the absence of direct income or corporation tax, the UAE has not been compelled to develop as robust accounting and auditing programmes as one might see in other financial centres.  

As a consequence, those minded to commit opportunistic petty cash theft and/or fraud may find it easier to manipulate systems. Those caught can expect a robust response from the criminal law and courts. However, for the defrauded employer and/or its insurer, recovery may be difficult, particularly if the employee and/or proceeds have left the country (which is not uncommon given the large expatriate population). Dubai Courts do not generally make pre-trial orders freezing assets or civil search orders. 

Construction 

The global economic downturn from 2008 hit Dubai particularly hard, but recent years have seen significant recovery in the construction and energy sectors. Prestigious international events such as the 2020 Dubai World Expo have given a renewed sense of optimism and drive for growth, but the projects they generate can provide the disputes for the future. In addition, the economic upturn has also seen a resurrection of old disputes, as parties now see a commercial benefit in pursuing them.

Typical causes of construction disputes in and around Dubai have been the failure to properly administer or operate agreed contractual procedures, and the withholding of payment.

A number of specialized dispute resolution forums have been established to address construction disputes and take the pressure off the Dubai civil courts. Arbitration is a popular forum. We have mentioned the DIFC-LCIA above. Outside the DIFC, the Dubai International Arbitration Centre (DIAC) is well regarded. However, when an award needs to be enforced, there remains a perception that the Dubai Courts sometimes focus on technical issues, which do not go to fairness of the arbitral procedure or justice, and are too quick to refuse recognition and enforcement. Indeed, despite ratifying the 1958 New York Convention in 2006, the UAE has not introduced a specific law implementing it. 

In practice, that perception is increasingly misleading, as despite the statutory vacuum the UAE courts appear increasingly willing to give recognition to and enforce arbitration awards. It is, however, vital to ensure that any arbitration is conducted in accordance with the applicable contract and arbitration rules; as ever, obtaining reputable and local advice is crucial.

Employment/Labour Claims & Disputes

We have seen a rise in employment-related claims, possibly due to employees' increasing awareness of their statutory rights under the UAE's Federal Law No. 8 of 1980. 

The Ministry of Labour introduced a compulsory employment mediation system, which deals with all employment disputes not governed by free-zone regulations, which process must be undertaken before claims go to the Labour Courts. While the purpose of this process is to resolve complaints and disputes quickly, paradoxically it has increased employment claims. For example, claims relating to arbitrary dismissal, and for the employee’s statutory entitlement to an (employer funded) End of Service benefit payment, have risen over the last few years.  

Claims by past-employers for breach of restrictive covenants are also on the rise, although these are difficult to make good in court, as the Dubai courts do not issue injunctive relief, leaving the employer with only a claim in damages, which it must prove.  

Medical Fraud

Increasing medical costs and the lack of governance around monitoring medical claims management in the UAE can result in medical claims fraud.  Medical insurers and their reinsurers are becoming more aware of this issue and have tightened systems and controls. For example, insurers and claims administrators may insist on pre-authorisation both for in-patient and out-patient treatment. 

Where fraud has occurred insurers/reinsurers will pursue fraud claims against insureds and medical providers under local penal sanctions and civil law. 

Peter Ellingham is a partner with 20 years of experience advising the insurance industry. Andrew MacCuish is a partner with particular experience in the construction and engineering sectors.