The DIFC’s Affirmation of English Common Law into its Statutory Framework

The Dubai International Financial Centre Authority (DIFCA) has issued a consultation paper for proposed legislative amendments to the Law on the Application of Civil and Commercial Laws in the DIFC, amending DIFC Law No. 3 of 2004 (the “Application Law”).

Although subject to further change following public comments that were due on 1 June 2024, the proposed amendments are expected to be enacted through the DIFC Amendment Law, DIFC Law No. 6 of 2024 (the “Proposed Amendment Law”).

The Proposed Amendment Law aims to clarify the source and content of DIFC law and provide guidance on the interpretation of DIFC Statutes.

Background to the New Law

Since the DIFC’s operational origins, it was understood by practitioners that DIFC statutes were “backstopped” by English common law, meaning that absent any doctrine, cause of action, defence or remedy in DIFC law, a party could turn to English common law.

In September 2022, the DIFC Court of Appeal challenged the validity of this position in The Industrial Group Limited v Abdelazim EL Sheikh EL Fadil Hamid [2022] DIFC CA 005/006 (“Industrial Group”), finding that DIFC law is essentially statutory, and that judges and arbitrators cannot assume the existence of a common law or equitable doctrine, cause of action, defence, or remedy in DIFC law unless explicitly provided for by a DIFC Statute. Resultant of this interpretation, the claims for malicious prosecution and abuse of process failed in Industrial Group and the decision itself created confusion as practitioners had previously assumed that DIFC Statutes were “backstopped” by English common law.

The Proposed Amendment Law therefore aims to provide statutory certainty on two issues raised by the consultation paper as a result of the decision in Industrial Group, namely the “Source of Law” issue and the “Interpretation” issue.

Source of Law Issue

In arriving at its above findings, the DIFC Court of Appeal in Industrial Group held that judges are not simply “free to incorporate into DIFC law any common law development from any common law jurisdiction, simply because there has been such a development elsewhere and because the outcome might prove attractive to the Judges sitting on the individual case”.^[1]

Interpretation Issue

Furthermore, the DIFC Court of Appeal also discussed the approach to the interpretation of DIFC Statutes, finding that:

1. The source of DIFC law is not confined to the law of England and Wales, for example DIFC Contract Law is based on the UNIDROIT Principles of International Commercial Contracts and the DIFC Arbitration Law is based on the UNCITRAL Model Law; and
2. Where a DIFC Statute is based on principles derived from other jurisdictions, the Court will look to those jurisdictions to determine the content of the principles in question, and their incremental development.

Proposed Amendment Law

Acknowledging that, following Industrial Group, considerable uncertainty lingered regarding whether DIFC Statutes could be backstopped by English common law, the consultation paper accordingly provides a rationale for the Proposed Amendment Law, specifically addressing the Source of Law and Interpretation issues, in new Articles 8A and 8B.

Article 8A

In summary, the new Article 8A will apply where DIFC law is the applicable law and shall state as follows:

1. The content of DIFC law shall be determined by any applicable DIFC Statute, and any DIFC Court judgments interpreting and applying the applicable DIFC Statute in a manner consistent with the Proposed Amendment Law;
2. Where a doctrine, cause of action, defence or remedy exists under the common law of England and Wales (including the principles and rules of equity) but has not been expressly incorporated into DIFC law by a DIFC Statute, the DIFC Courts may find –  if “appropriate in the circumstances” – that the doctrine, cause of action, defence or remedy exists in DIFC law, subject to such modification or development as those circumstances require;
3. The DIFC Courts will not be entitled to rely on English common law to find doctrine, cause of action, defence or remedy exists in DIFC law where such legal principles have been expressly or impliedly excluded by a DIFC Statute; and
4. DIFC common law is subject to modification by a DIFC Statute, which prevails to the extent of any inconsistency.

The Proposed Amendment Law therefore confirms that the content of DIFC law is determined at first instance by applicable DIFC Statutes. However, the DIFC Court can rely on a doctrine, cause of action, defence or remedy that exists under the common law of England & Wales and apply it in the case before them, unless it has been expressly or impliedly excluded by a DIFC Statute.

Whether a particular common law principle is “appropriate in the circumstances” is still not entirely clear, but the DIFCA anticipates that, over time, the DIFC Court will develop jurisprudence on this issue.

Accordingly, the Proposed Amendment Law allows for English common law to act as an interpretive guide for DIFC Statutes and in supplementation to DIFC Statutes where there is a gap in the law.  The consultation paper also confirmed that Article 8(2)(e) of the Application Law shall be deleted on the basis that it is now effectively redundant.

Article 8B

The new Article 8B will apply to all DIFC Statutes and shall provide that the interpretation of DIFC statutes may be guided by the principles developed in respect of analogous laws in established common law jurisdictions. However, where a DIFC Statute is based on principles derived from outside the common law, it is also legitimate to look to those non-common law jurisdictions to determine the content of the principles in question.

Accordingly, whilst Article 8B shall grant DIFC Courts and Arbitrators the discretion to interpret DIFC Statutes using principles from common law jurisdictions, they are not mandated to do so (i.e. Article 8B will be a non-binding directive). This allows the DIFC Court to avoid interpretations of DIFC Statutes inappropriate to the circumstances of the DIFC.

Accordingly, the Proposed Amendment Law ensures that English common law will always be the first port of call when interpreting DIFC Statutes.

Conclusion

The DIFC's proactive approach to amending its statutes in light of the Industrial Group appellate judgment reflects a commitment to maintaining a dynamic and comprehensive legal system. By potentially incorporating English Common Law as a backstop for DIFC statutes, the centre is poised to enhance its legal framework and provide greater certainty to practitioners and parties involved in DIFC-related disputes.

This move signifies the DIFC’s desire to uphold the highest standards of legal practice within its jurisdiction and remain an attractive framework for dispute resolution in the Middle East. Whilst there remains uncertainty as to when it will be “appropriate in the circumstances” to adopt English common law, the Proposed Amendment Law is a progressive step towards a clarification of the inconsistencies stemming from Industrial Group, plus potentially allowing for new areas of dispute based on English common law to be raised in the DIFC Courts – for example, defamation claims. The proposed changes reaffirms the DIFC Court’s ability to consult other common law and civil law jurisdictions for interpretative guidance when appropriate, further solidifying its status as an international commercial court

^[1] The Industrial Group Limited v Abdelazim EL Sheikh EL Fadil Hamid [2022] DIFC CA 005/006, [105].