A Common Law Archipelago

Introduction

Dr Michael Hwang SC, former Chief Justice of the Dubai International Financial Centre (DIFC) Courts, has described the DIFC as a “common law island in a civil law ocean”.[1] The DIFC is a special financial centre located in a defined geographical area of Dubai, with its own substantive and procedural law and (mainly foreign) judges. The DIFC is nested within the legal system of Dubai, which has its own Court of First Instance, Court of Appeal, and Court of Cassation, in turn nested within the federal structure of the United Arab Emirates (UAE).[2] As the above quote suggests, the UAE has a mixed legal system. Its civil law draws on the tradition of the French code civil and sharia governs certain subject matters.[3] Within its context, the DIFC is indeed a “common law island”.

This Note explores the connection between these “islands”, their host jurisdictions, and the common law.

Mapping the archipelago

International commercial centres like the DIFC have arisen, primarily along an ancient East-West axis from the Persian Gulf via Central Asia to South East Asia and East Asia itself. These places are carve-outs from the rules that apply to the broader jurisdiction, sharing a resemblance with special economic zones, free trade zones, extraterritorial jurisdictions, offshore jurisdictions, industrial parks, university overseas campuses, and even military bases.[4]  Jurisdictions like the DFIC or the Qatar Financial Centre (QFC) are exceptional spaces in which common law and a more liberal licensing and regulatory regime applies—overseen by courts that are different from the courts of the host state.

Traditionally, jurisdiction and sovereignty are close cousins. The legal universe is a two-dimensional map of states. States are free to do anything they like within those borders but not within the borders of another state. Modern thinking about jurisdiction is far more nuanced than this. There are supra-national organisations (e.g., the European Union and the Council of Europe), transnational networks of individuals and corporations, or the rise of Internet-based “communities”.[5] Less exotically, federal structures (e.g., in the United Kingdom or the Russian Federation) complicate the picture

International commercial centres are, of course, products of territorial sovereign states—they do not themselves challenge the notion of jurisdiction. But they do complicate the picture as well.

The DIFC is a defined geographical zone in which a different rule-set is applied by unique authorities. In contrast, firms “operating within the QFC” can actually be located anywhere in Qatar.

Global shifts: why do the archipelagos exist?

International commercial centres are a product of globalisation, but they are also a product of trends that are slowing globalisation down, or at least redirecting and seeking to harness it.  The trend is one of shifting flows of capital and the growing importance of emerging economies—particularly China. The CEO of the DIFC Courts, for example, has been cited pitching the DIFC a “safe haven for the dispute resolution needs of Chinese investors operating in the Middle East.”[6]

International commercial centres are a strategy to benefit from certain aspects of globalisation while opting out of others. J.K. Krishnan explains that, in the 1990s investors feared that Dubai’s legal system was not equipped to handle the complexities of cross-border, international commercial transactions the jurisdiction sought:

The local courts were run in Arabic and followed a civil law system that had not encountered the types of legal matters that were inevitably to come, if Dubai began the economic liberalisation process… Between 1998 and 2003 [the government] sought… to determine what the government needed to do – in terms of legal infrastructure – in order to make Dubai an attractive place for foreign investment. Ultimately, in 2004 the federal government of the United Arab Emirates authorised Dubai to pass Law No. 9, which created [the DIFC as] a global, cosmopolitan business campus… The government restated its objective but now with greater clarity: to promote Dubai’s geographic position in the Gulf as a significant strategic advantage for international investors – a gateway bridging those working in South and East Asia, the Middle East, Europe, Africa, and the Western Hemisphere.[7]

English judges, in particular, are sought for these new courts, given their reputation as being robustly independent and immune from unwanted political interference.[8] The common law (and common lawyers) are also sometimes perceived to be particularly pragmatic and commercial.[9] Insulated from their own host state, these “islands” were created to provide safe harbours for values such as the rule of law and laissez-faire to protect foreign capital from local legal and political dynamics.

Insular connections

No island is completely isolated. First, there is the bridge between the international commercial centre and its host state. Disputes often arise relating to the jurisdiction of the special court, and its interaction with the host state legal order and courts. Some of these questions, at least, will have to be resolved by the superior courts of the host state. As Andrew Bodnar and Martin Kennedy explain, the DIFC is a “common law island”, but the DIFC Courts are considered an “integral part not only of Dubai but of the federal UAE judicial system”, and since 2009 orders of the DIFC Courts are to be enforced in the onshore courts of Dubai without any consideration of the merits.[10] This can lead to complex jurisdictional questions, as the respective competence of the parallel systems are worked out.

Similar dynamics play out in all the international commercial centres. Because many new courts are located in non-democratic states there will inevitably arise conflicts, or at least contradictions, in this relationship.

Secondly, there is an important relationship of competition and collaboration between international commercial court litigation and international arbitration.[11] The DIFC Courts, for example, act as a kind of “conduit” between the world of international arbitration and the domestic judicial enforcement mechanisms of the onshore Dubai courts. An arbitral award can be brought to the DIFC Court and recognised, and then deployed onshore in Dubai or any other Emirate or GCC country more easily than an arbitral award (or foreign judgment concerning it) would be.

Thirdly, there is a bridge between the financial centre and the broader common law world, in particular the courts of England and Wales. London itself is an “international commercial centre” and it has been pivotal to the creation of a common law and Anglophone space for international business. This position is, of course, currently being renegotiated in the context of Brexit. While it is unlikely that London will lose its place as a forum for international commercial litigation and arbitration, there is a more diverse and competitive landscape emerging by the day.

And there is a flow of substantive law from the UK to the new international commercial centre courts. Dahdal and Botchway have analysed the 68 decisions of the QFC Court between 2009 and 2018. In this period, only one separate judgment—also the only dissenting judgment—was issued. 166 sources of law were cited by the QFC Court in its judgments. 114 of these were Qatari, 57 from the UK (most from England and Wales), 2 from the DIFC Court, and 1 from an Australian court. Once Qatari legislation and regulation is removed, the majority of legal sources are cases from England and Wales. No American cases were cited, nor were any scholarly materials. This reveals a strong correlation with the jurisdiction of origin of the QFC Court’s judges.[12] 

As a “common law island”, however, the QFC is not immune to civilian influences. Al Tamimi v Qatar Financial Centre Authority; Al Tamimi v Employment Standards Office [2018] QIC (A) 3 was an appeal against a judgment of the First Instance Circuit and against the Regulatory Tribunal. The subject matter was an acrimonious employment dispute pursued doggedly, but not very strategically, through dual judicial and administrative tracks. This led to rather complex procedural questions in QFC law, notwithstanding an overall lack of merits in the case. The First Instance Circuit rejected the submission that the principle of res judicata applied to decisions of the Employment Standards Office (a form of Ombudsman, able to make binding decisions in employment disputes, as well as resolve disputes by mediation), because that body was not a court and was not manifestly independent of the QFC Authority. However, the First Instance Circuit declined to exercise its jurisdiction on the basis of the following principle (para [50]):

Where there are two alternative routes by which a person may seek to vindicate his right and he proceeds to take one of these routes and pursues it to a final determination, the alternative route is no longer available to him.

The Appellate Court called this the “governing principle” of the ruling below. However, the “governing principle” was not quite the English law doctrine of res judicata. That doctrine was affirmed to be part of QFC law “as a principle of general application and, in particular, one that applies both under English common law and under the domestic law of Qatar” (para [58]). But res judicata could not apply because the Employment Standards Office did not meet the tests of institutional independence or judicial function that res judicata requires (paras [59]-[65]). Rather than any of the varieties of res judicata set out in Lord Sumption’s judgment in Virgin Atlantic Airways Limited v Zodiac Seats UK Ltd [2013] UKSC 46, the “governing principle” reflected the “more general procedural rule” which Lord Sumption suggested may be regarded as the policy underlying the specific doctrines of res judicata (para [68], referring to para [26] of Virgin Atlantic). The Appellate Court seems to have accepted the view that the “governing principle” concerned prevention of abuse of process, and reflected “fundamental litigation principles and international best practice”, reflected also in civilian legal systems such as the principle of non bis in idem in Dutch law and other civilian systems (para [67]). This suggests that the procedural law of the QFC, at least, is open-textured and can incorporate legal sources beyond English common law. Indeed, paragraph 16 of Schedule 6 to the QFC Law provides for Qatari rules of civil procedure to be adopted where the QFC Law and the rules of the QFC Court “are silent on the concerned matter”.

That raises interesting questions of how conflicts are to be resolved. In this respect, it is perhaps worthy to note that religious law constitutes a source of law in many host jurisdictions; in principle, the right kind of legal gap could be filled by general principles drawn from Sharia’h as well as civilian law. Such an argument was considered by the QFC Regulatory Tribunal in its recent decision in Horizon Crescent Wealth v QFC Regulatory Authority [2020] QIC (RT) 1. The Appellant argued that the QFC Trust Rules (which created a system of trust law familiar to common law practitioners) was “ultra vires Islamic Sharia’h principles because it enables disposition of a personal estate in ways not permitted under Sharia’h principles” [70]. The Regulatory Tribunal (Laurence Li SC, Edwin Glasgow QC and Gopal Subramanium JJ) rejected the argument on the basis that the intention of the legislator was clearly to introduce “a trust law framework similar to that in common law jurisdictions” and there were provisions in the Trust Regulations to limit its application in relation to citizens of Qatar to whom Shari’a law applied (para [74]).

The bridge between the international commercial centres and the law of England and Wales is not a one-way street. Respected common law practitioners are arguing, and respected judges are hearing, matters in new courts around the world. There now feedback to the courts in London. One example, albeit from an international commercial court within a well-established common law jurisdiction, is the decision of Simon Thorley IJ of the Singapore International Commercial Court in B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 3. As one of the first decisions of a common law court on the status of cryptoassets and smart contracts, Quoine has been widely cited, including in the landmark Legal statement on cryptoassets and smart contracts in English law published by the UK Jurisdiction Taskforce of the LawTech Delivery Panel in November 2019.   

Finally, important connections exist between the financial centres themselves. As Eerie observes, courts interact with each other through dynamics of both competition and collaboration in a decentralised system. In its decision in QFC Regulatory Authority v First Abu Dhabi Bank PJSC [2019] QIC (A) 3, for example, the Appellate Circuit of the QFC Court cited decisions of the DIFC Court with approval, noting the similarities between the QFC and DIFC legal systems. Ironically, the case concerned a dispute arising out of the blockade of Qatar by the UAE, but the relationship of respect based on shared principles between competing international courts in neighbouring jurisdictions remains. The QFC Regulatory Tribunal has also cited and relied on penalties imposed by the DFSA as a comparator (Horizon Crescent Wealth at [36]). To the extent that multiple new jurisdictions have received the common law,[13] they are creating and then sharing and applying a new body of precedent to the matters coming before them. 

Conclusion

The new body of international commercial courts is a valuable development in the common law world. They demonstrate the adaptability and strength of the common law and the continuing demand for common law adjudication of commercial disputes.

Dr Jason Grant Allen is a member of Blackstone Chambers' Academic Research Panel.

---

[1] See Michael Hwang, Selected Essays in Dispute Resolution (Academy Publishing 2018), 51.

[2] See Ahmed Aly Khedr, “Overview of the United Arab Emirates Legal System” (January 2018), https://www.nyulawglobal.org/globalex/United_Arab_Emirates1.html#basicsystem.

[3] See Nabil Saleh, “Civil Codes of Arab Countries: The Sanhuri Codes” (1993) 8(2) Arab Law Quarterly 161.

[4] Matthew Eerie, “The New Legal Hubs: The Emergent Landscape of International Commercial Dispute Resolution” (2019) 59(3) Virginia Journal of International Law (forthcoming), 6.

[5] See J.G. Allen and R.M. Lastra, “Border Problems: Mapping the Third Border” (2020) 83(3) Modern Law Review 505; see generally T.C. Halliday and Gregory Schaffer (eds.), Transnational Legal Orders (Cambridge University Press 2015) Ch 1.

[6] Cited in Matthew Eerie, “The New Legal Hubs: The Emergent Landscape of International Commercial Dispute Resolution” (2019) 59(3) Virginia Journal of International Law (forthcoming), 1.

[7] J.K. Krishnan, The Story of the Dubai International Financial Centre Courts: A Retrospective (Motivate Publishing 2018), 2.

[8] Eli Salzburger and Paul Fenn, “Judicial Independence: Some Evidence from the English Court of Appeal,” (1999) 42 Journal of Law and Economics 831.

[9] See e.g. Bernard Galonnier, “Le discours juridique en France et en Angleterre” (1997) 15(18) ASp: la revue du GERAS 1.   

[10] Andrew Bodnar and Martin Kenney, “Jurisdiction and the Dubai Courts: Self-Immolation or Order out of (Potential) Chaos?” (2018) 19(2) Business Law International 125, 127.

[11] See Marta Requejo Isidro, “International Commercial Courts in the Litigation Market” (MPILux Working Paper 2/2019); see also Michael Hwang, “Commercial Courts and International Arbitration—Competitors or Partners?” (2015) 31 Arbitration International 193.

[12] Andrew Dahdal and Francis Botchway, “A Decade of Development: The Civil and Commercial Court of the Qatar Financial Centre” (2019) 34 Arab Law Quarterly 1, 13.

[13] See Max Rheinstein, “Types of Reception” (1956) 5(6) Annales de la Faculté de Droit d’Istanbul 31.